September 2007 Archives

Innovations are coming to the individual market. A new plan by American Community Mutual Insurance Company called Coverage on Demand is a mini-medical plan targeted at young adults that allows individuals to trade up to a comprehensive plan when they get sick or have an accident. Now available in Texas, the company plans to expand to more than 13 states in 2008. This plan was recently highlighted in WSJ article.

“Here's how it works: A consumer buys one of three limited-benefit plans -- called Tempo, Rhythm or Groove -- with annual benefit caps of $1,000, $2,500 or $5,000, respectively. Deductibles range from nothing to $500. The cost of the plan for a healthy 25-year-old man in Dallas, for example, would be $88 to $95 a month, the company says.

The twist comes when a person gets seriously ill or hurt and exceeds the modest benefit cap. Under Coverage on
Demand, policyholders can pay a lump-sum annual "activation" premium of $9,000 to $10,000 -- on top of the basic premium -- to receive a guaranteed $5 million of catastrophic coverage for that year. American Community offers to finance that amount through an outside company over three years, with interest.�

Searching on ehealthinsurance.com, I found 91 plans available to this fictional 25-year-old man in Dallas. A $5,000 deductible HSA-compatible plan cost $65 a month. Other plans were available for as little as $33 a month. A $0 deductible PPO (50% coinsurance) was available for $84 a month, with a $10,000 out of pocket max and $5 million lifetime max.

The Coverage on Demand plan is really no different than the Blue Cross $0 deductible PPO – similar premiums initially and same out of pocket maximum ($10,000 in premium under the Coverage on Demand versus $10,000 in coinsurance in the PPO) if hit with a catastrophic claim, accident or illness.

It will be interesting to see if Coverage on Demand is an attractive value to the average young immortal.

Of course, it would be nice if Maine insurance laws allowed any such affordable individual insurance plans to be available in Maine.

Moore Information of Portland, OR just released a survey 1,000 registered voters nationwide and their attitudes to toward health care related issues.

Some of the interesting findings:

• 88% of voters have health coverage
• 72% are satisfied with their current health plan (42% very satisfied)
• Only 14% report being dissatisfied
• However, 56% believe “most people in their community lack adequate health insurance coverage�
• 51% “prefer a market driven plan in which everyone can choose the coverage they want, mandates are reduced and tax incentives are given to businesses that provide health insurance to their employees�
• Compared to 40% who “prefer a universal health care plan paid for and managed by the government, that covers everyone.� (8% have no opinion.)

Free-market and private health insurance are the preference of the majority of voters. The high satisfaction that most report with their current plan points to the challenge for politicians and others who want to blow-up the current system to replace it with something new.

The finding that I found most hopeful and helpful was that “the market driven plan is favored by men age 30 and older and women of all ages, Republicans, voters in households with annual incomes of $60,000 or more, and voters with children living at home. At the same time, a universal health care plan is favored by Democrats, voters in households earning less than $60,000 annually and men age 18-29.�

Think about who supports government universal coverage and then who votes.

Months ago, San Francisco jumped into the game with its own universal health plan. Its plan focuses on an employer mandate and then access to health care services at "14 city health clinics and 8 affiliated community clinics, with an emphasis on prevention and managing chronic disease" for the 82,000 uninsured city residents (out of the total 750,000 population). In a recent NYT story on the plan, one figure jumped out at me. Three in 10 uninsured residents had never accessed a city health clinic before. One would presume that they are a healthy lot, as are the majority of the uninsured nationwide.

Interestingly, the SF plan is not about providing universal health coverage but universal access to health care.
The uninsured will have access to city clinics (and other private providers over time, if the current plan holds). Instead, "patients are asked to contribute nominal amounts through membership fees and co-payments that vary by income. Those from families with incomes below the federal poverty line pay nothing. Those who earn more pay quarterly fees that range from $60 to $675, which is the rate for those with incomes above 500 percent of the poverty level ($51,050 for a single; $103,250 for a family of four). That is where the subsidy ends. The co-payments range from $10 to $20 for a clinic visit and from $200 to $350 for an inpatient stay."

Clearly, some understand that universal access - to health care or affordable private health insurance - is the best that a free society can do. It will be interesting to see how many in SF will want access and pay the quarterly fee, given the small number of uninsured who use a significant amount of health care.

Today’s announced agreement between United Auto Workers and General Motors to resolve the ongoing dispute about retirement health benefits represents the monumental shift in defined retirement benefits. The $55 million unfunded health insurance liability symbolizes the problems associated with defined benefit retirement systems. Exponential growth in health care and retirement costs are unsustainable for even the largest companies.

The same is true for governments. Defined benefit systems are gobbling up state budgets and producing unfunded liabilities that will fall on the backs of future generations.

Consider the State of Maine. Currently, Maine has an unfunded liability for health insurance retired government workers of $4.8 billion. That figure is equal to 60 percent of the biennium General Fund Budget.

The State of Maine needs to do as General Motors did and shift away from a defined benefit system for their retirees and move to a system that provides a defined contribution. Defined contribution systems allow workers to better plan for future retirement needs while also protecting future generations from huge unfunded liabilities.

Seems folks are starting to wake up to the real threat to school choice posed by the current consolidation effort:

Raymond's abuzz with school choice, consolidation
By Elizabeth Raffaele

“It’s been a hot topic of conservation for several months now,� said Wendy Trask, Raymond school board member.

“We have heard many parents become vocal in telling the school board members or sending us e-mails directly that they are for choice no matter what school they merge with,� Trask said.

Historically, because the town of Raymond does not have a high school, parents have the ability to send their children to various schools including Windham High School, Gray/New Gloucester High School, and Poland High School.

Parents also have the ability to send their children to a private school, if the parent pays any additional costs above the town's yearly cost in tuition, which is roughly $8,300, according to the Maine Department of Education.

According to department spokesman David Connerty-Marin, parents in Raymond will continue to be able to send their kids to the various public or private schools, even if they join with another school district(s).

If a parent chooses a private or public school that costs more than the allotted $8,300, parents pay the difference, Connerty-Marin said.

If Raymond consolidates with district(s) that have lower yearly tuition costs, the town of Raymond would pay the difference for parents to send their kids to another public or private school, up to the $8,300.

In other words, he said, "Raymond pays for Raymond kids to have school choice" under consolidation.

School choice was one of the factors in Deb Cutten’s decision to move to the town in 1995.

“That sounded appealing to us at the time,� Cutten said.

“That’s my primary concern is that we will not have choice as we do now,� Cutten said.

Read the rest here.

SAD's 61, 55, and 72 made some headlines a few weeks ago for coming to the conclusion that joining together to create a 675 square mile regional school unit containing 16 towns, as the state suggested, was not in their best interest. The state, predictably, has told all three districts that they are in non-compliance with the law.

SAD 61 asks state to make its case
By David Harry

(Sep 21, 2007): If the state wants SAD 61 to go back to the drawing board regarding merging with SADs 55 and 72, the district then wants the state to help it pencil in where the cost savings may be realized.

To that end, SAD 61 Superintendent Frank Gorham, along with Sylvia Pease and Gary Mconald, his counterparts in SADs 55 and 72, have invited Commissioner Susan Gendron of the Maine Department of Education and Jim Rier, who directs finance and operations for the department, to meet with them to show what math they missed when rejecting the state's suggestion to combine as Regional Student Union 44.

Should be an interesting meeting. Read the rest here.

Employee Benefits News recently reported on the growth of Health Savings Accounts (HSAs) in the US – to 7.2 million by January 2008 from 3.2 million in January 2006. Health Reimbursement Arrangements (HRAs) are projected to grow to 5 million from 2.9 million over the same period. That’s 12.2 million people in consumer-directed health plans by the start of next year.

As I noted in a MHPC report on HSAs published last year, my family has an HSA. We now have over $16,000 in our account, far in excess of our deductible. We have become savvy consumers of health care and more focused on the cost and quality of services being used. Yet, we also are financially protected from catastrophic illness. If we had the “traditional� low-deductible HMO plan over the past four years, we would have spent the total amount in premiums alone as we have spent in premiums and HSA contributions with our HSA-eligible insurance plan. However, today we have $16,000 in the bank. Under the HMO plan, the insurance carrier would have realized that savings. We chose to live a healthy life and take care of ourselves. Now, we also reap the financial reward of our good choices.

Today a New York Times story relates how Wal-Mart is upgrading and innovating its health benefit. These changes are important to note as they show how pervasive Consumer Driven Health Plans are at very large companies.

Among some of the changes for Wal-Mart employees

* Access to 2,400 generic medications for $4 a script through its pharmacies (about 1,000 more than under its current retail program and possibly providing insight into a future expansion for all retail customers)

* Health plans with premiums as low as $5 a month (let's see how much cost is a barrier to the 10 percent of Wal-Mart employees who are uninsured)

* Deductibles up to $2,000 (consistent with standard corporate plans)

* 50 ways to customize coverage (consumer choice at its best)

* $100 health care credit (like a HSA)

* Sample plan 1: pay $79 a month, receive a $100 health care credit and have a $500 deductible ($948 a year in premiums)

* Sample plan 2: pay $8 a month, receive a $100 health care credit and have a $2,000 deductible ($96 a year in premiums)

* Full-time employees wait 6 months and part-time employees wait 12 months to be eligible for health benefits

Money quote: "We are removing any barriers of entry� to the company’s health care plan, Ms. [Linda] Dillman [Executive Vice President of Benefits] said. “When you are talking about $8 a month and a $100 health care credit, why would you not sign up?"

Time will tell the impact on Wal-Mart's 125,000 employees estimated to not have health coverage.
But this does give important insight into changes in corporate benefits.

For example, to lower the deductible by $1,500 (to $500 from $2,000), the employee pays $852 in higher premiums - essentially funding 57% of the deductible up front. Federal 2004 Medical Expenditure Panel Survey data shows that 12 percent of the privately insured used no health care, 41 percent used less than $500, and 71 percent used less than $2000 in a given year.

These plans allow employees to buy the coverage they want and, in many cases, suffer the actuarial impact - both positive and negative.

The Corporation for Enterprise Development (CFED) recently released a new report called "Assets and Opportunity Scorecard" for each of the fifty states. In this report, Maine scored an A. Given that that the report is suppose to measure "financial security" this sounds like a good development for Maine's business climate. However, the CFED report has nothing to do with boosting Maine’s business climate. With a little research into the report, it becomes apparent that CFED is a liberal think-tank pushing a pro-governmnet, pro-dependency agenda. Consider these nuggets pulled from their index.

The index touts that having a state minimum wage higher than the federal minimum wage is a good thing for business. Ask any business owner if this is good for business.

The index supports the expansion of the earned income tax credit. First, the EITC is bad tax policy—welfare should not be hidden in the tax code. Second, the EITC discourages as much as encourages work among low-income taxpayers.

The index favors Medicaid/SCHIP expansion. Again, increasing dependency on government is their goal. Our recent report on Medicaid/SCHIP expansion details why this is bad public policy.

Finally, another sign of CFED's liberal ideology, see their index on “state tax incidence studies.� These type of studies are designed to stoke the flames of class-warfare. And cited as the data source was Michael Maserov who is with the well-known liberal think-tank The Center for Budget Policy Priorities.

I could go on, but I think you get the point . . .

An AP wire story out yesterday revealed that "The Utah Education Association received small donations from teacher unions in Wyoming, Colorado, Ohio and Maine" in support of its efforts to defeat a school voucher plan passed by the Utah legislature. The plan goes before voters in November. According to the article, voucher opponents, led by the teacher's unions, have raised more than $1.8 million, a million dollars more than voucher supporters have raised for their side.

Counted among that $1.8 million is this $1000 contribution from the Maine Education Association.

Why would the MEA spend $1000 to fight school vouchers in Utah? The same reason they have fought reforms like charter schools here in Maine for years - to protect their power and influence.

How sad it is that instead of working to improve Maine's schools, the MEA is focused instead on crushing a promising and innovative school reform effort thousands of miles away, and using the dues paid by hard-working Maine teachers to do it. Our teachers deserve better.

The following piece from Seacoast Online is more revealing than it seems.

The new school district consolidation law contains a provision that exempts a school district from having to consolidate if, despite its best efforts, no neighboring district wants to merge with it. In its review of the consolidation plans submitted at the end of last month, though, the Department of Education found most of these so-called “doughnut-hole� districts to be “out of compliance.� The letters most of them received indicated that the Department planned to work further with them to find consolidation partners.

The issue for most, though, was that a merger would have cost either them or their prospective partners more money than they spend now.

The state’s proposed solution? The plan, as the following article indicates, is that the state intends to enact specific legislation for each new district, including customized cost-sharing agreements. In other words, if, under existing school funding law, a merger of school districts results in some kind of cost shift, the state intends to create, though separate legislation, a district-specific funding formula to hold merging districts harmless.

The result? Page after page of new state law, a dizzying array of school funding formulas that vary from town to town, and the need to enact state legislation, through the legislative process, in Augusta, to change the way your school district is funded and governed.

Another nail in the coffin of local control…

Kittery schools won't be left out of merger dealing, state says

AUGUSTA, Maine — The state commissioner of education this week deemed Kittery schools out of compliance with the state consolidation law, and at the same time said the abutting school districts need to go back to the drawing board and reconsider merging with their neighbor.
But in order to sweeten what could be a potentially bitter financial pill for either the York school district or School Administrative District 35, Commissioner Susan Gendron has also pledged to go to the Legislature if need be to rectify the monetary impact.

Read the rest here.

A recent study by Dr. Roger E. Brinner and Dr. Joyne Brinner, The Parthenon Group and Global Insight, Inc., sheds new light on the economic effects of various taxes. This study should be required reading for the Taxation Committee as they continue to pursue new tax reform options. In a nutshell, the study finds that sales, profit and excise taxes are the most economically destructive taxes while income taxes are only slightly so. After running an economic simulation through the Global Insight model of the U.S. economy, they state:

“The results are striking. The higher inflation created by equal-sized retail tax changes, plus the absence of a federal taxes by ‘deducters,� more than doubles the economic pain created by higher income taxes. In the second year, at the peak impact, the income tax increases cut national employment by 345,000 while same-sized sales or excise tax increases would cut jobs by an estimated 901,000. Any such combination of retail tax increases would boost inflation by a full percentage point, setting off a painful vicious cycle of weaker confidence, lower spending, and fewer jobs.�

More specifically, “. . . a 1% point increase in the sales tax rate can cut about 2.6% from state output growth over a decade. A comparable increase in the income tax rates would reduce such growth by only 0.2%. The much larger impacts of taxes on business activity as opposed to taxes on personal income certainly match theoretical expectations. As noted earlier, corporations choose their locations with a keen eye on comparative costs, and taxes are a substantial, easy-to-measure cost.�

Note the reference to the fact that sales taxes are (mostly) not deductible for federal income tax purposes while income taxes are deductible. I used this fact to show that last year’s tax reform plan would have actually caused Mainers federal tax liability to increase—see here for details.

Last week, The Maine Heritage Policy Center released the final draft of the new model legislation that, if enacted, would create a tax and expenditure limitation (TEL) for Maine. On Monday, a group of Maine citizens submitted the model legislation to the Secretary of State and began the citizen’s initiative process.

The final product reflects changes to the original working draft of the bill that incorporate suggestions and feedback provided at the two public listening sessions that were held earlier this week in Portland and Bangor. The two public listening sessions held on the draft model legislation produced a number of suggested policy changes that strengthen the TEL legislation.

It’s encouraging to see the public involvement in producing this model bill and the continued support for reasonable tax and spending limitations for Maine state and local government. An engaged citizenry is key to the development of public policy that reflects the people’s desires. The citizen’s initiative process provides the public with a powerful tool with which influence public policy development.

Resistance is growing!

SEARSPORT — SAD 56 school board members discussed joining an effort opposing the state’s school district consolidation law Tuesday, but decided to take no action until more research is done.

The issue was raised by board member Jim Cunningham, who said he had seen several articles in the Bangor Daily News recently detailing efforts by people in Washington County and in Stonington to fight the school district consolidation legislation.

Superintendent Mary Szwec shared one of those articles with board and audience members, which detailed the effort of Stonington resident Lawrence “Skip� Greenlaw, Jr. to repeal the law. According to the article, Greenlaw’s plan is to mount a petition drive asking legislators to repeal the law.

Greenlaw told the Bangor newspaper he plans to hold a press conference Friday, Sept. 15 in Bangor to kick off the petition campaign. The article said the petition would need 55,087 signatures to be sent to legislators, but Greenlaw said he hopes to get 100,000 signatures.

“It’s not that difficult to get 55,000 signatures,� said board member Veronica Magnan. “It really isn’t. I think it’s something we might look into.�

Magnan said if members of school boards across the state helped get signatures, it would not be that difficult to accomplish.

Board Chairman Bob Danks said despite the interest voiced by some people, he felt SAD 56 needed to move ahead with its plan to merge with SAD 34 in order to comply with the state law. Danks said SAD 56 should plan as if the consolidation mandate will remain law, rather than hope that it might be overturned and then not have that happen.

Danks said he would entertain a motion to form a subcommittee to look into joining the anti-consolidation effort, however, and have that group report back to the full board at its next meeting. Cunningham made the motion to do so, and it was seconded by board member Harold Grove. The vote in favor of forming the subcommittee was unanimous.

Cunningham, Grove and Magnan volunteered to serve on the committee. Szwec said Cunningham would facilitate the group.

An outstanding report was done by Don Carrigan of WCSH this past week on the likely impact that consolidation efforts will have on the town academies. Text below is from their website, but the video story, which can be seen by clicking the "Play Video" link on this page has much more.

Will "Town Academies" Survive School Consolidation?
Web Editor: Ken Christian, New Media Manager

CHINA (NEWS CENTER) -- As school boards around the state figure out how to consolidate their school districts, one group of towns wants to make sure some things don't change.
Thousands of high school students and their families get to choose what school they attend, and have the town pay the tuition. Schools like Erskine Academy in China depend on school choice.

Erskine is a private school, but serves as the primary local high school for eight towns. Many of these so-called "town academies" have been in business for more than a century.

The new law lets towns continue school choice, but Erskine Headmaster Don Poulin says the town academies still worry there could be pressure to change the choice system in the future.

School officials in some of the towns that send students to Erskine say keeping school choice is one of their primary concerns in the district consolidation effort.

The Department of Education says the new law allows town to continue to offer choice, and only individual towns can vote to take school choice away.

I recently came across this report published by the U.S. Small Business Administration. The report finds that:

"Marginal tax rates have significant effects on entrepreneurial entry and exit, suggesting that the formation and closure of small enterprises are in part determined by the handling of income from these activities in the tax code. The findings show that the level of entrepreneurial entry, exit, and duration react differently to changes in marginal rates on wage-and-salary and entrepreneurial income. Specifically, lower marginal tax rates on entrepreneurial income encourage more entrepreneurial entry and lower rates of exist, and lengthen the duration of spells of activity. Similarly, higher marginal rates on wage-and-salary income also increase entrepreneurial activity as more workers switch from wage-and-salary work to starting their own business. Importantly, however, the magnitude of the entry, exit, and duration effect is larger for marginal tax rates on entrepreneurial income than on wage-and-salary income."

This finding is especially important for Maine since our economy depends more on small businesses for growth--or in Maine's case, the lack of growth.

By Rich Hewitt
Wednesday, September 05, 2007 - Bangor Daily News

STONINGTON, Maine - With backing from 28 communities and more expected to join, a grass-roots effort to overturn the state’s school consolidation law will get under way this weekend.

Lawrence "Skip" Greenlaw Jr. of Stonington said he plans to hold an organizational meeting for those who have expressed an interest in working on a petition drive that would ask Maine legislators to repeal the law. That meeting is set for 9 a.m. Saturday at the Ramada Inn on Odlin Road in Bangor.

Greenlaw, a member of the Deer Isle-Stonington CSD school committee and a former state legislator, jump-started the repeal effort last month when he sent letters first to school committee chairs around the state, then to municipal officials, seeking their support and advice. The response was not overwhelming, Greenlaw said, but there was enough interest to move forward with the effort.

"As of Saturday, September 1, I have received communications from 36 individuals representing 28 Maine towns," he said. "As the petition drive gets under way and attracts more public attention, I expect much more participation from a far wider area."

Greenlaw said he has had indications that some school committee chairs were waiting for formal approval from their school committees before signaling willingness to support and participate in a repeal effort.

The letters of support have come from small and large communities in all areas of the state. Greenlaw said he expects support to grow rapidly as people become more aware of the issues.

Read the rest here. Go to the meeting on Saturday!!

The Bangor Daily News was kind enough to publish an op-ed today on the school reform idea that is the subject of my new Maine View report "Saving our Small Schools: Is Privatization an Option."

Best way to keep local school may be to close it

by Stephen Bowen
Saturday, September 01, 2007 - Bangor Daily News

Aug. 31 marked the first deadline in the state-mandated process for consolidating Maine’s many school districts into larger, regional ones. Districts were to submit "letters of intent" to the Department of Education by that date identifying potential partners for district consolidation. While there were reports of resistance, predominantly in rural areas, the department reported widespread compliance with the new law, despite findings by many districts that consolidation would be a big and costly mistake.

Acquiescence by local districts in a process that ultimately results in their dissolution should come as no surprise. The new consolidation law contains brutal financial penalties for districts that fail to cooperate.

Local school boards, therefore, have few options before them. They can comply with the law, and give up local decision-making, oversight, and even ownership of their local schools, or they can go to voters and ask for a property tax hike to cover the loss of state funding that comes as a consequence of defying the law.

Or they could close their school, which, as unbelievable as it sounds, may be the best option available.

About a decade ago, the passage of a divisive school funding law in Vermont led one town there, Winhall, to undertake a novel act of civil disobedience. Fighting to hold on to its local school amid pressure to consolidate, the town replaced its public school with a community-created private one located in the same building. The town arranged to have its children tuitioned to the new private school under the state’s town tuitioning law, and students returned to school that fall hardly noticing that in their summer-long absence it had been converted from public to private.

What did Winhall gain from this? Independence. Like all private schools, the new Winhall school became free to run its own educational programs without the incessant state and federal meddling that so bedevils public schools. They also preserved local control, in the form of a community board of trustees, rather than join a much larger consolidated school district as Maine communities are being forced to do today.

Can it be done here? In a new report for Maine Heritage Policy Center, I suggest that it might just be possible.

Reads the rest here