Raising Taxes to Pay For "Savings"

Maine’s Democratic Governor John Baldacci created a program to provide healthcare coverage for his state’s uninsured and claimed it would save taxpayers the cost of charity care. Sound familiar? It should. Governor Jon Corzine promoted a similar program for New Jersey during last year’s election campaign.

We said at the time, Corzine’s numbers just don’t add up and now it clear it hasn’t added up to savings for Maine’s taxpayers. Instead Maine’s program has added up to a new tax on the state’s privately insured citizens.

Corzine’s plan was supposed to cover an additional 776,000 to 1.2 million people for an unbelievable up front investment of $15 million. Given the state’s multibillion dollar deficit, Governor Corzine has scaled back his plans for the coming year and proposes adding 259,000 uninsured children. Once again, this is supposed to save taxpayers money by reducing expensive charity care costs.

Here’s how well this concept worked in Maine:

Gov. Baldacci promised that his new program would insure the uninsured and save the state money. It's a bit hard to see how, when it cost $19.5 million to cover 1,600 previously uninsured people. Nevertheless, the governor says that it does--and that now Mainers must pay it all back!

The reasoning goes like this. By enrolling the uninsured, Dirigo Health [the state of Maine’s Health Care System] would reduce "cost shifting," which happens when unpaid bills are passed along to other paying patients in the form of higher costs. So when individuals have coverage, the insurer pays most of the bills, reducing the chance of unpaid bills. This reduction in bad debt would become savings--which Maine could claim for the state.

The Dirigo board is levying a Savings Offset Payment, or SOP--a remarkably innovative name for a new claims tax--to "recover" every dollar that the state says it has "saved." This SOP is similar to a sales tax; a 2.4% surcharge is added to all paid health-care claims. When applied, this new tax will cost the average individual about $70 and the average family about $200 a year--at a time when most individual insurance policyholders are already absorbing a 16% increase in their insurance premiums.

But, you may ask, if the program is saving all this money, why is a new tax necessary? The answer is that without the SOP, Dirigo Health's high costs would bankrupt the program.

The SOP, effective last month, applies only to individuals, small businesses and other businesses buying health insurance from a Maine insurer or using a third-party administrator. By raising insurance costs, this tax may end up compelling some individuals to drop their coverage. But, hey, maybe they too can get subsidized coverage under Dirigo.

It also threatens the very financial viability of the private insurance market in Maine.