On July 1, a new state board will meet to begin assembling a program to provide affordable health insurance for those who have trouble getting coverage because of medical problems.
The new program is to begin operating July 1, 2003.
"It's an extraordinary amount of work to do in a year," said Donna Imhoff, deputy state insurance commissioner who is overseeing the initial groundwork for the insurance plan.
After several years of failed efforts to reform the state's system of dealing with the difficult-to-insure, the General Assembly approved the Maryland Health Insurance Program this year. Though the new program attracted little notice in a session dominated by Carefirst BlueCross BlueShield's plan to convert to for-profit and be acquired, Del. Michael E. Busch, chairman of the House Economic Matters Committee, called it "probably the most significant piece of legislation we passed."
The new insurance plan is not designed to cover most of the uninsured in the state, a number estimated by the Census Bureau at 9.8 percent of the state's population, or about 500,000 people. Similar programs in other states cover, on average, 1.2 percent of a state's insured, according to a study last year for the Commonwealth Fund.
Maryland's current program covers more people than that, but state officials think more will sign up if premiums are more affordable.
The new program will sell policies to people who are denied conventional insurance because of their health histories. The state will collect money from a charge on hospital bills, to be used to subsidize the cost of care, because claims are certain to exceed premiums. Maryland will join nearly 30 other states that have high-risk pools for health coverage.
The high-risk pool will replace the state's current open-enrollment system - called SAAC for "substantial, available and affordable coverage" - in which insurers that offer policies regardless of medical history receive a 4 percent discount on hospital charges.
Critics have said SAAC is neither substantial nor affordable.
SAAC also has been criticized by state regulators' studies that concluded the discount greatly exceeded the cost of providing the coverage. For example, CareFirst last year benefited from $38.7 million in discounts, but paid only $3.3 million in hospital claims for open-enrollment members, according to reports filed by CareFirst with the Health Services Cost Review Commission (HSCRC).
"In practice, all the participating carriers used some of the money to subsidize open-enrollment policies, but a substantial portion was a windfall for the carriers," said Insurance Commission Steven B. Larsen. "Historically, the reason reform didn't occur earlier was because CareFirst opposed it. They were the largest beneficiary, and they had the political power to beat back the changes."
When Blue Cross plans, including Maryland's, were founded in the 1930s, there was no need for open-enrollment programs. Blue Cross offered health insurance to anyone who wanted it, and everyone paid the same rate.
As for-profit insurers entered the health market, they began following policies common in other types of insurance - charging more, or denying coverage altogether, for people who were poor risks. Blue Cross continued to function as an "insurer of last resort," offering some policies for those who had trouble qualifying medically for standard coverage.
In 1976, the HSCRC approved rules to give an incentive for companies that offered policies to anyone. Such policies, the HSCRC reasoned, could reduce unpaid hospital care. Based on the amount it expected to save on uncompensated care, it granted a 4 percent discount to SAAC insurers.
Blue Cross (now CareFirst) was the only SAAC insurer through much of the program's history, although two commercial insurers, Mid Atlantic Medical Services Inc. (MAMSI) and Aetna U.S. Healthcare, have joined.
Until recently, the state didn't have clear definitions of what constituted "substantial" coverage. Blue Cross, for example, had no prescription benefit in its SAAC policy. Beginning just last year, open enrollment policies had to offer the same standard benefit package set by state regulators for small-employer policies.
It also didn't have a clear definition of what was "affordable." Last year, CareFirst sought a 50-percent rate increase, and Larsen rejected it. CareFirst went to court and won a decision in January that Larsen hadn't applied proper criteria in making his decision. (CareFirst, however, said it wouldn't raise rates this year because reform was pending.)
Under Larsen's rate order cutting CareFirst's request, the monthly premium for the policies offering the standard benefit package ranges from $141 for a 25-year-old to $308 for a 65-year-old. Larsen said the premium cost was believed to be the reason that SAAC policies generally covered only 4,000 to 5,000 Marylanders. No one is sure how many are unable to get conventional coverage, but a state task force studying SAAC reported that in 1998 alone, CareFirst received 18,994 applications for medically underwritten coverage and issued 13,027 contracts - a rejection rate of 32 percent.
In 2000, the General Assembly seemed on the verge of passing a bill cutting the discount or eliminating it altogether. Late in the session, however, CareFirst lobbyists persuaded the lawmakers to keep the discount but to divert a portion of it to launch a program providing prescription coverage for seniors.
"That handcuffed us," said Robert Murray, executive director of the HSCRC, one of the regulators who had been looking to change the SAAC program.
But a series of events last year set the stage for this year's reform. CareFirst began shutting down its FreeState HMO. Most FreeState members moved into a new CareFirst HMO called BlueChoice, but several thousand of them couldn't meet Blue Choice's medical risk standards, and many of them sought SAAC policies.
The surge in enrollment in SAAC - MAMSI's membership jumped from 400 to 1,200 last fall - led MAMSI and Aetna to project losses in the program, and both announced they wouldn't enroll any new members.
CareFirst, the remaining SAAC carrier, said its future participation was uncertain, particularly if it couldn't get rate increases.
"The wheels were coming off the SAAC vehicle," Murray said.
With SAAC's future uncertain, Busch said, "It also blew up the senior prescription drug program, because that's where the money was coming from."
Busch said he, Larsen, CareFirst Chief Executive Officer William L. Jews and Thomas L. Bromwell, then chair of the Senate Finance Committee, huddled in Bromwell's office in the fall, and agreed SAAC reform was a priority for the 2002 legislative session.
In November, Larsen, testifying at a legislative hearing, presented the broad outlines of the program that was adopted. Rather than give private insurers a discount to offset claims losses, Larsen said, the state should pay claims itself, contracting with an insurer or administrator to operate the program.
The same day that Larsen testified, CareFirst announced its conversion plan. As the legislature convened in January, Busch said, CareFirst agreed to give up its discount to provide funds for the high-risk pool and the exemption it gets as a non-profit on the 2 percent tax on health premiums (worth about $20 million a year) to provide funds for the senior drug programs.
"They let go," Murray said. "It was consistent with their philosophy that, 'We're no longer the insurer of last resort.' " That point was a key argument for CareFirst in support of its conversion ambitions.
Once CareFirst agreed to the funding mechanism, the plan fell into place. "There was more consensus than I expected," Murray said.
Frances P. Doherty, vice president of governmental affairs for CareFirst, said, "This legislation is very similar to what we had been looking at and had drafted. Other carriers, the hospitals - we were all in a room designing the program."
The board - made up of Larsen, Murray, two other state officials and one consumer representative - will, over the next few months, hire a director, decide on benefits and premiums, and set up a process for choosing a company to administer the plan.
Imhoff, coordinating until the director is hired, said most of those things will have to be done by fall.
All parties say they are pleased with the results. "It was a way to get the money CareFirst was getting and use it for health care," Busch said.
Existing open enrollment program
....................................... CareFirst Mid Atlantic
....................................... BlueCross Medical Aetna US
....................................... BlueShield Services Inc. Healthcare
No. of members ..........5,415 ........... 1,400 .................... 162
Hospital claims paid $3.3 million $1.6 million $309,000
Hospital discount ...... $38.7 million $6.8 million $7.7 million
SOURCE: Company reports filed with Health Services Cost Review Commission for 2001