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Maine’s Progress In Improving The Affordability Of Small Business Health Insurance

Doi: 10.1377/forefront.20221018.264253
A hand holds a small business insurance form while two people blurred in the background discuss across a table.

On September 1, 2022, Maine announced that the weighted average health insurance premium for small businesses will fall by 0.8 percent from 2022 to 2023. This is the first such reduction in average small group health insurance premiums in Maine since at least 2001. Other states, as described below, are seeing substantial increases. The difference is largely the result of concerted state action coupled with July 2022 federal approval of Maine’s Section 1332 State Innovation Waiver amendment. In light of longstanding and widespread interest in ideas for improving the affordability of small group coverage, this Forefront article describes Maine’s first-of-its-kind plan.

Maine’s Small Group Market Challenges And Responses

In 2018, a Maine State Chamber of Commerce survey found that the top concern of small businesses in the state was health insurance costs. This concern was grounded in recent trends. Between 2013 and 2020, enrollment in the small group market dropped by 43 percent. Premiums increased significantly faster in the small group market than the individual market. This resulted in concerns about a “death spiral” in which rising premiums cause small businesses with relatively healthy workers to drop their insurance, which further raises premiums and creates market instability.

At Governor Janet Mills’ direction, the Maine Bureau of Insurance and Department of Health and Human Services sought expert and stakeholder input on a range of ideas to improve the affordability of state-regulated insurance. At a forum hosted by the governor on August 29, 2019, participants heard from, among others, Massachusetts officials about its 2007 merger of the small group and individual markets and from the District of Columbia about its Small Business Health Options Program (SHOP) to assist small businesses.

These discussions contributed to the development of the Made for Maine Health Coverage Act, which was passed unanimously by the Maine State Legislature and signed into law on March 18, 2020. It includes policies to accomplish three goals: to simplify and improve cost-sharing structures; to pool premiums and leverage federal funding to improve affordability for small businesses; and to tailor the health insurance Marketplace to Maine. In addition to Clear Choice Plans, described below, Maine’s state-based Marketplace, CoverME.gov, was approved and launched in 2021 and reversed recent declines in enrollment in 2022. The Bureau conducted rulemaking and sought approval for an amended Section 1332 waiver to implement the law’s blueprint for the small group insurance market.

Maine’s Section 1332 Amendment To Merge Markets And Extend Reinsurance

As background, Maine received approval in 2018 for a Section 1332 waiver to reactivate a subsidized reinsurance program beginning in 2019 and, since then, the state has reduced premiums from 7 percent to 14 percent in plan years 2019 to 2021. The Maine Guaranteed Access Reinsurance Association (MGARA) collects a quarterly per-enrollee fee from all health plans, including small group plans, to support reinsurance for the individual market. Because reinsurance funded with this fee lowers individual market health insurance premiums and thus Affordable Care Act (ACA) premium tax credits, those federal savings are returned to the state as “pass-through” payments that are invested in reinsurance, further lowering premiums. As originally designed, insurers paid a premium to cede high-risk individual market enrollees, defined as those as either having a listed condition or voluntarily ceded by insurance companies, to MGARA prospectively, called “invisible risk sharing.”

In 2022, Maine received approval for an amendment to its Section 1332 waiver. It has two major elements.

First, it waives provisions of the ACA to facilitate a merged individual and small group market starting in calendar year 2023. The purpose of the pooled market is to offer greater stability in premiums for small businesses as well as increase the leverage for individuals purchasing coverage on their own. The pooled market has a marketwide index rate for premiums and a single risk-adjustment program.

Second, the waiver amendment enables extension of reinsurance to small businesses purchasing through the pooled market. Merging the market lowers individual market premiums because the enrollees in the small group market have better health and lower costs than those in the individual market. As such, the amended waiver produces even greater federal savings or “pass through” payments for the existing reinsurance program (which also was converted to a more common retrospective model in 2022 under the Made for Maine Health Coverage Act). This both newly lowers small group premiums and continues to lower individual market premiums compared to what they would have been without the waiver.

The pooling of the markets also increases the similarities between individual and small group products. The Made for Maine Health Coverage Act directed the Bureau to create Clear Choice Plans, a set of standardized cost sharing to apply to individual market plans. Implemented in 2022, standardized cost sharing will also apply to small group plans in the pooled market in 2023. Maine’s share of small business owners or self-employed workers purchasing health insurance through its individual health insurance Marketplace, CoverME.gov, is 28 percent, among the highest in the nation. Alignment of product design improves price shopping for small businesses.

Given that this is a first-of-its-kind proposal, two different contracted actuarial analyses (Gorman and Milliman) plus a review of the difference between the two (Wakely) were conducted and presented to the federal government and Maine State Legislature. The final independent actuarial estimates submitted to the federal government in January 2022, taking into account COVID-19 pandemic trends, estimated that premiums would be on average 8 percent lower in the individual market and 6 percent lower in the small group market than they would have been without the waiver. These estimates assumed enrollment in the individual market would be 2.7 percent higher and in the small group market would be 5.3 percent higher than the baseline without the waiver.

Final 2023 Health Insurance Rates And Context

Final rates submitted in August 2022 were better for small businesses than expected: with a 0.8 percent decrease in the average annual change for small group premiums. Without the waiver amendment, this would have been a 12 percent average increase. According to the Bureau of Insurance, Maine small businesses are estimated to save an average of more than $860 per person in 2023, or more than $70 per person per month. The Maine Chamber recently released its 2022 survey, which found the cost of health insurance fell from being the top to only the fifth priority of small businesses.

For context, Maine’s decrease in average small group premiums stands in sharp contrast to the increases in other northeast states, which are projecting an increase in premiums. These include in Rhode Island an average of 9.2 percent, in Vermont an average of 11.7 percent to 18.3 percent, in Connecticut an average of 7.9 percent, in New York an average of 7.9 percent, and in Massachusetts’ pooled market weighted average increase of 6.6 percent.

The health insurance industry has criticized the waiver amendment as “increasing premiums” in the individual market relative to the original waiver. However, both the merger and Section 1332 reinsurance will undoubtedly reduce individual market premiums compared to a baseline without these policies. The average premium increase of 11.4 percent for 2023 is lower than the 14.7 percent it would have been without reinsurance. Moreover, the consumer impact will be mitigated by the extension through the Inflation Reduction Act (IRA) of the American Rescue Plan’s premium tax credit expansion that continues to be needed as the pandemic inflation and workforce impact affects health insurance prices. Estimates suggest that the extension will help 59,000 Maine residents save hundreds of dollars on health insurance premiums, including the 15,000 small business owners and self-employed people who purchase individual coverage. Additionally, the waiver amendment brings more federal pass-through payments to Maine than would have been secured under the original waiver, spreading the benefit to small businesses whose fees help pay for the reinsurance program.

The 1332 waiver amendment is not the only action taken by Maine to support small business. In 2019, the Bureau further constrained stop-loss coverage for self-funded small group coverage, limiting risk selection. And, in 2021, Governor Mills launched the Small Business Health Insurance Premium Relief Program, an initiative of the Governor’s Maine Jobs and Recovery Plan, which reduces health insurance premiums for participating small businesses by $50 per covered employee per month or up to $130 per month for family coverage. The program has saved $20 million in health insurance costs for Maine small businesses and their employees from its launch in November 2021 through August 2022. It has helped 5,764 small businesses in Maine and 46,348 Maine residents—employees and their families—as of June 2022. Funded by the state allocation from the American Rescue Plan, it is set to expire in 2023.

Here in Maine, we are optimistic that the early results of our amended Section 1332 waiver will continue and, over time, slow the growth of premiums in the pooled market. Enrollment in the pooled market should increase as a result of Maine’s plan as well as the IRA, which will likely improve the health of the risk pool in the next three years. The reinsurance pass-through will also likely be higher than estimated following passage of the IRA. Past experience also suggests that uncertainty is built into premiums in the early years of a new program. That said, progress has been made in Maine’s small group market due to policy action. The Mills’ administration will continue to act to further the affordability and accessibility of health insurance for Maine’s small businesses.

Author’s Note

Maine’s Section 1332 waiver amendment process was a team effort led by Governor Janet Mills and her health policy adviser, Bethany Beausang. Eric Cioppa, the former superintendent of insurance for Maine, and his team at the Bureau of Insurance were instrumental in developing the plan and are the lead agency in applying for and implementing Maine’s Section 1332 waiver amendment and Clear Choice plans. Additionally, Meg Garratt-Reed helped as a policy adviser on its development and, subsequently, contributed to its implementation as the director of the Office of the Health Insurance Marketplace in Maine. The team at the US Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of Consumer Information and Insurance Oversight offered clear guidance and responses as Maine navigated the process. And, we thank the Maine State Legislature for its support.

June 2024 Reimagining Public Health