NCPA - National Center for Policy Analysis


February 17, 2006

In Maine, Democratic Gov. John Baldacci's Dirigo Health, which regulates the state's health care system and includes a subsidized health insurance program, was promoted as a way to save the state money. Unfortunately, it hasn't worked out that way, say knowledgeable observers.

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 percent surcharge is added to all health care claims paid by private insurers.
  • 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 percent increase in their insurance premiums.

But 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, say Bragdon and Brackemyre.

A better alternative for uninsured individuals in Maine is Health Savings Accounts, a tax-deductible personal fund coupled with a high-deductible health insurance policy. The savings account permits a person to take federal income tax deductions for account contributions and, in most cases, state income tax deductions -- though not in Maine. The high-deductible insurance plan, like all insurance, protects the insured from financial loss. And HSAs would cost the state far less than Dirigo, explain Bragdon and Brackemyre.

Source: Tarren Bragdon and Adam Brackemyre, "A SOP to Socialized Medicine: Maine has to raise taxes to pay for all the "savings" of its health-care program,", February 16, 2006.

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