State House members in Maine, moving in a direction seemingly opposite to that of the federal health reform law while still complying with it, on May 12 passed a bill that would broaden the allowable rating bands used for health insurance in the state.

The bill (LD 1333), which is expected to be passed by the Senate May 16, would modify community-rating practices for individual and small-group policies, gradually expanding the rating bands from the current maximum ratio of 1.5-to-1 to 3-to-1. The latter ratio is the largest allowable differential based on age between minimum and maximum insurance rates in those markets under the federal reform law as of January 2014.

Proponents of the Maine legislation contend that the measure will encourage value-based purchasing of health care services and make insurance more affordable — in a state with some of the highest rates in the nation — by providing a structure designed to lower costs and expand choices. Critics counter that the bill — which they say was rushed through both GOP-controlled legislative chambers — would adversely affect elderly Maine residents, as well as rural residents and businesses.

It is likely that “this will be signed into law Monday [May 16],” House Speaker Robert Nutting’s spokesperson, Lance Dutson, told HRW May 13.

Alan Weil, executive director of the National Academy for State Health Policy, tells HRW that the broad consequences of manipulating rate bands are well known: Tightening bands (i.e., putting premium rates for older, sicker people on a closer par with rates for younger, healthier ones) may raise rates for the young and healthy to the point where they leave the insurance market. By contrast, widening bans may entice younger, healthier folks to re-enter the market.

Maine Action Is ‘Change in Direction’

“This is definitely a change in direction,” Weil says of the Maine legislation. “This is a state that was one of the leaders in rate compression, and now they’re looking to loosen that.”

The federal reform law requires insurers in the individual and group markets, both in and out of state-based health insurance exchanges, to develop premiums that vary within a community by no more than 3-to-1 based on age and 1.5-to-1 based on tobacco use. The statute allows states with narrower rating bands to maintain their rules. But experts have concluded that moving to the wider 3-to-1 rating standard in Maine would result in higher costs for older adults, a particularly major concern since the state has a relatively high proportion of older residents.

Maine Rep. Wesley Richardson (R), House chairman of the Joint Standing Committee on Insurance and Financial Services, says the legislation he spearheaded will allow insurers to offer a broad array of products for individuals and employer groups. He asserts that increased competition and more affordable coverage options will let young, healthy people buy policies, thus expanding the pool and lowering costs across the board.

Specifically, the bill allows carriers to vary the premium rate due to age and geographic area with certain limitations. For individual policies entered into in 2012, the highest premium rate for each rating tier cannot exceed two times the lowest rate; the band then rises to up to 2.5-to-1 the following year and to 3-to-1 in 2014.

Dutson explains that the legislation keeps the rating band within the federal reform law’s requirements. But he notes that if the federal statute is struck down, Maine’s rate banding could extend to a 5-to-1 ratio under a provision in the bill.

“Right now we’ve got the 1.5-to-1 band and Maine’s [individual policy premium] rates have gone up to the highest level — New Hampshire has a 5-to-1 banding, but 60-year-olds in both states pay roughly the same premiums.” As a result, he says, insurers in Maine cannot charge sufficiently low rates for young, healthy people on the low end of the band, “meaning a three times or four times difference for young people” in Maine versus premium rates elsewhere. “Maine’s rates are some of the highest in the nation.”

According to Dutson, the bill will reduce barriers to entry for the 133,000 uninsured residents in Maine, thus reducing rates across the board.

The legislation also:

• Establishes the Maine Guaranteed Access Reinsurance Association as a nonprofit legal entity. Under the reinsurance program — patterned on a program in Idaho, which has demographics similar to Maine’s — people who are chronically ill and individuals with pre-existing conditions would choose from the same insurance plans as everyone else. To ensure that their out-of-pocket premiums remain affordable, the state will provide subsidies from the reinsurance fund — financed by a monthly assessment of $4 on all privately insured Maine residents.

Richardson says the plan ensures protection for the elderly and chronically ill, “since through the Guaranteed Access Plan, no Mainer can be denied coverage.”

• Creates an income tax credit of $100 per employee, up to a maximum of $2,000 per employer, for tax years beginning on or after Jan. 1, 2014. The credit goes to employers with 20 or fewer employees if they maintain wellness programs, such as smoking-cessation initiatives.

• Allows individuals to purchase health insurance from companies licensed in other states. Specifically, carriers authorized to sell insurance in Connecticut, Massachusetts, New Hampshire and Rhode Island could offer their individual policies in Maine starting in 2014. Proponents of opening insurance markets across state lines note that rates in New Hampshire and elsewhere are significantly lower than are rates in Maine.

The nonpartisan Maine Center for Economic Policy (MCEP) questioned the process for bringing the measure to a vote, asserting there was scant opportunity for scrutiny of details by the public or by the state Bureau of Insurance.

In a May 7 editorial, the Bangor Daily News stated that “a bill to make whoopee pies the official [state] treat had more legislative review and debate [at 52 days] than LD 1333,” which was debated for nine days.

MCEP and other opponents of the measure note that older Maine residents with private health insurance now pay a maximum of 50% more for coverage than people who are younger and healthier — but the legislation would allow insurers to charge them three times more than the minimum rate. Critics also worry that permitting insurers from the other states to offer policies in Maine means that such policies would not be subject to Maine regulation, and thus would erode consumer protections and essentially cede control over Maine’s insurance market to out-of-state insurance companies.

“Many of our consumer protections in Maine are more rigorous than what is in the federal reform law: our rate bands, guaranteed issue, et cetera. Maine has a history of being out front on these things,” says Garrett Martin, MCEP’s associate director. “What does the legislation mean nationally? It’s attempting to make markets seems more competitive…but in truth, this puts us in line with states like Idaho….Federal reform will call on states to increase their standards, but Maine has already incurred those costs and realized the benefits.” He asserts that there has been insufficient actuarial analysis of the implications of shifting Maine’s rate bands. “It’s shocking how legislators are willing to pursue this as an act of faith,” without understanding the underlying assumptions, he says.

View the bill at www.mainelegislature.org.