AUGUSTA, Maine — Sweeping changes to the state’s health insurance laws were notable for their partisan rancor.
But both parties were silent when it came to the law’s little-known provision that sets the stage for Maine to become the first state in the nation to change how employers can provide health insurance coverage.
The new law, PL 90, includes a section allowing employers to band together and offer health insurance through so-called captives, insurance companies that are allowed to finance and leverage risk without having to buy additional insurance to cover that risk.
Proponents say the complicated scheme will allow employers within the captive to provide low-cost insurance plans that are not offered by traditional commercial insurance providers.
Skeptics worry that the unprecedented plan could require additional bureaucracy to ensure it remains in compliance with federal mandates, such as the Employee Retirement and Income Security Act and the Affordable Care Act.
Captives have their critics, who say the industry is less regulated than traditional insurance. Additionally, they say captives can carry more debt than their policyholders are aware of and that companies that fail won’t be able to pay claims.
Skeptics in a recent New York Times story compared the growing industry to the mortgage-backed security industry that brought the U.S. economy to its knees.
Captives supporters say such concerns are exaggerated. But even they wonder how Maine’s new law will fare.
That’s because no other state has allowed captives to offer individual health insurance.
“I think it’s scary stuff,” said Sandy Bigglestone, Vermont’s director of captives. “You’re talking about providing insurance to people’s lives. It hasn’t really fit the captive model.”
Vermont leads the country in the captive industry. The state is home to more than 900 captives, representing more than $25 billion in gross written premiums.
Vermont’s captive law was adopted in 1981 and opened the door to an industry that had traditionally operated in offshore locations, such as Bermuda.
Vermont’s success in the captive industry has been emulated by at least 30 states, including Maine. All hope to land the highly compensated work force of lawyers, risk managers and consultants needed to run the captives’ sophisticated operations.
Vermont has amended its law several times to offer incentives that will maintain the state’s lead in the industry. Last year, Maine’s Democrat-controlled Legislature passed a bill that created incentives for captives by allowing them to qualify for Pine Tree Zone tax breaks.
Other states have taken a similar approach, but to this point Maine appears to be the first state to allow captives to offer health insurance.
The proposal has influential proponents, including former Gov. John Baldacci, who in a December letter expressed support for a group called the Maine Wellness Association.
The group includes Dr. David Howes, CEO of Martin’s Point. Last year, the Maine Wellness Association applied to the Bureau of Insurance to create the health insurance captive.
According to Eric Cioppa, deputy superintendent of the bureau, the application was held up because Maine’s existing captive law didn’t allow health insurance captives.
This session, several Republican lawmakers sought to change that.
Rep. Wesley Richardson, R-Warren, sponsored LD 783, which proposed several significant changes to Maine’s captive law. The bill was co-sponsored by Senate President Kevin Raye, R-Perry, and Rep. Andre Cushing, R-Hampden, the House majority whip.
Richardson, along with the Maine Wellness Association, said the organization represented more than 100 members and that up to 200 employers were interested in obtaining insurance from it.
The bill was heavily lobbied. In two months, the Wellness Association spent $11,781 advocating for the legislation.
But the bill had its critics, including Anthem, the state’s largest health care provider, which worried that the bill created an uneven playing field among insurers because captives would not be subject to the same regulations as commercial insurers.
Former Bureau of Insurance Superintendent Mila Kofman had similar concerns. While she supported the Wellness Association’s plans to offer insurance filled with wellness and prevention incentives, she worried that the bill allowed captives to maintain low reserves needed to pay claims.
“Some states are looking at ways to reinvent captives as a way of creating new players in the health insurance market,” Kofman said Wednesday. “But it can be pretty dangerous when you apply a different set of rules to these entities that could really destabilize the health insurance market.”
LD 783 was killed in committee, but much of its language was folded into LD 1333, which eventually became public law.
Cioppa said the new captive provision was reworked to remove worrisome solvency caps and to ensure that captives would operate under the same conditions as commercial insurers.
Cioppa acknowledged that risks were inherent in traditional captives. However, he said, it was up to state agencies to limit exposure to those risks.
“Ultimately, when you license an agency, you’re responsible for its oversight and solvency,” he said. “Most states take that obligation very seriously. When companies go insolvent, people get hurt and we’re very cognizant of that.”
So far, Cioppa said, there’s only been one applicant to establish a health insurance captive: the Maine Wellness Association. He said the application is still under review.
If it’s approved, other states, including Vermont, will be watching to see whether Maine’s captive law works.
Maine lawmakers will be watching, too.
“I’m hoping it works,” said Richardson, the bill’s original sponsor. “It has some excellent points.”