MECEP has been consistent in highlighting that PL 90’s reinsurance program effectively subsidizes the individual insurance market and helps drive down the average cost and premiums within that market. The absence of such a subsidy in the small group market has meant that businesses with older employees based in more rural parts of the state have borne the cost increases associated with expanded community rating.
LD 1670 is a step in the right direction toward securing lower insurance rates for some individuals and businesses in the small group market. This is particularly important since the small group market covers more than 100,000 individuals and their dependents compared to the approximately 35,000 people covered in the individual market.
Still, there are several critical issues that I hope you will consider in your deliberations. These include:
- Cost
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Oversight and transparency of the reinsurance program
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Alignment of incentives between insurers and consumers
- Potential fragmentation within the small group market
In terms of cost, the recent report from Gorman actuarial makes clear that in the individual market, the $4 monthly fee charged to Mainers with private insurance plans is likely insufficient to cover the cost of the individual market alone. The Gorman analysis did model the cost of a reinsurance program for the “micro-group market” (5 or fewer subscribers) and projects a shortfall of $12 million. The point is that there is no free lunch, and it is critical to have a clear understanding of potential cost and sources of funding before going any further.
The lack of oversight and transparency of the current reinsurance program is particularly troubling. I am hard pressed to identify any other endeavor where
substantive decisions about how to allocate money that comes from Maine people occurs entirely behind closed doors. While I commend officials at the Bureau of Insurance for their professionalism and acknowledge the technical minutiae involved in setting up the reinsurance program, I believe it is critical that this process is subject to greater transparency both in the public’s interest and in the interest of those involved in the decision-making process.
Insurance companies can play an important role in expanding access to health care and driving down costs. They can do so by pooling people, spreading risk, negotiating better rates with providers, and rewarding preventive efforts, improved care and better results. Unfortunately, absent greater transparency, it is difficult to discern the extent to which the reinsurance program will enhance or subvert the incentives for insurance companies to play this role. While the carrier premium ensures they have some skin in the game, the reality is that the program potentially provides significant subsidy with limited accountability to Maine consumers.
Finally, LD 1670 only covers a portion of the small group market. The small group market includes organizations with 50 or fewer individuals. LD 1670 extends the reinsurance program to organizations with 10 or fewer employees. What happens, for example, for those participants with more than 10 employees or when a group grows from fewer than 10 to greater than 10. Without extending the reinsurance program to all participants in the small group market, we will continue to see dramatic rate increases for businesses with older employees located in more rural parts of Maine. I don’t have a cost-effective answer to this conundrum, particularly at a time when revenues are scarce, but as a solution LD 1670 still comes up short and may create disincentives to growing a business beyond a certain size.
I commend the intent of LD 1670 and believe it represents a step in the right direction, one that will reduce some of the negative impacts of PL 90. That said, significant substantive questions remain. Left unaddressed, the unintended consequences could be significant and the ultimate success of the reinsurance program jeopardized. For this reason I am testifying neither for nor against.
Thank you for your time and consideration and for your service to Maine people.
Garrett Martin, Executive Director, Maine Center for Economic Policy, testifying before the Joint Standing Committee on Insurance & Financial Services, neither for nor against passage of LD 1670, An Act to Extend the Scope of the Maine Guaranteed Access Reinsurance Association.
