The Savings Offset Payment: Dirigo Health’s Questionable Funding Strategy

Read the full report | The most politically-charged aspect of the Dirigo Health initiative is the funding mechanism called the Savings Offset Payment (SOP) tax. The funding mechanism is initiated when the Dirigo Health Agency makes a determination of how much the Dirigo Health initiative has “saved” Maine’s healthcare system. Then, the SOP tax is levied to “recover” those savings from individuals with private health insurance.

Since the summer of 2003, Dirigo Health has been funded using one-time federal funds of $53 million.[1] Now that initial funding is running out, creating a budget hole for the Dirigo Health initiative. Effective January 1, 2006, that funding gap was filled by the SOP tax.

In October 2005, the Superintendent of Insurance certified that the Dirigo Health initiative “saved” Maine’s healthcare system $43.7 million. In November 2005, the Dirigo Health Board of Directors voted 4 to 1 to assess a 2.408 percent SOP tax. The SOP tax functions similarly to an excise tax; a 2.4% surcharge is added to all paid health-care claims.

The SOP tax exemplifies the problems inherent in the Dirigo Health Initiative:

• Consumers are not seeing the health “savings” despite the Superintendent’s ruling.

• The SOP tax reaches up to 759,000 Mainers, while funding DirigoChoice that reaches only 10,000 Mainers.

• Without the SOP tax, Dirigo Health would be forced to compete against Medicaid, education and other priorities  for scarce State General Fund dollars. In this fiscal fight, Dirigo Health will likely lose.

• If insurers pass along the SOP tax to policyholders, then Maine individuals, small businesses and large companies will face cost increases of $70 per individual or $200 per family per year to fund Dirigo Health.

• If insurers are forced to bear the burden of the SOP tax, as envisioned in LD 1935, the very financial viability of Maine’s entire private health insurance market is in doubt.

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