The tiny business district in Blue Hill has all the quaint little shops you'd expect in a small Maine town: pottery studio, art gallery, even a white clapboard "take-out" lobster shack. It looks idyllic. And if you're a tourist, it is charming. But if you work on Main Street in Blue Hill, life isn't quite so carefree. The odds are your job won't give you health insurance. Few of the small businesses--and Blue Hill is, like much of Maine, a town of mom-and-pop enterprises--offer their employees any significant coverage at all.

"I used to, but I don't anymore," says Tina Allen, who runs Fairwinds Florist with the help of three employees. "If it were more affordable, I would. It's important. But I can't even do it for myself."

It's the same story at Blue Hill Books, where Nicholas Sichterman says he can't offer coverage to his one employee because of the expense. Out of his own pocket, Sichterman buys a very limited form of coverage--catastrophic coverage--for himself, his wife and son. It costs him $6,500 a year. He'd like to have a comprehensive policy and offer it to his employee, but it's beyond his reach.

That is a situation that the administration of Governor John Baldacci is aiming to change. Last year, Baldacci and his health policy adviser, Trish Riley, persuaded the legislature to pass a multifaceted health care program, known as Dirigo (Latin for "I lead," the state motto). Dirigo has as its goal universal health care for Maine residents, and it is the most far-reaching attempt at such coverage that any state has attempted.

Dirigo is a complex plan with interdependent parts that touch on everything from hospital costs to chronic disease management and fitness education. "What Maine has said, and they are right in saying it, is that you have to address access, quality and cost simultaneously," says Alan Weil, executive director of the National Academy for State Health Policy. Weil points out that little in Dirigo is new, that most of the bits and pieces have been tried before by others. "What's unique," he adds, "is pulling them all together and making them fit."

All of which makes for an admirable piece of legislation. But will it work? Since the legislation was signed into law in June 2003, Riley, the Dirigo staff and the seven commissions and boards that form the backbone of the program have been struggling to implement some of the interlocking parts. With a program so massive and all-encompassing, it will take years to put all the pieces in place--to get hospitals to sign on to cost containment; to see what health services the people of Maine are willing to have regionalized; to educate the never-before- insured to make use of wellness programs. It will take even longer to take the measure of overall success or failure.


At the moment, one piece of the program is attracting the bulk of the attention, in Maine and in the rest of the country: securing health coverage for workers in small businesses, such as the ones in Blue Hill. "There are a lot of bells and whistles on this legislation that are important to pay attention to," says Andrew Coburn, director of the Institute for Health Policy at the University of Southern Maine, "but insurance is what everyone is focused on right now."

In fact, many health experts believe that Dirigo as a whole will fail or succeed based on its acceptance or rejection by small-business owners. That may or may not be true--controlling hospital costs is also crucial--but there's no disputing that insurance for small businesses is key to the overall program's well being. At the moment, 14 percent of the Maine population lacks basic health coverage, and four out of five of the uninsured work for small businesses, which employ 70 percent of the state workforce. In 2004, the cost of health insurance premiums paid by employers increased nationally by an average of 11.2 percent--the fourth consecutive year of double-digit growth--but premiums for some small businesses leaped by as much as two or three times that rate.

Small-business owners are reacting to inflation the only way some of them can: They dump coverage, never pick it up in the first place or muddle through and try to make ends meet in other ways. Speaking as a businessman, Christopher St. John, the executive director of the Maine Center for Economic Policy, says it is "very daunting to the enterprise's budget to sustain premium increases of 15 percent to 20 percent over the last several years. It impacts our ability to do our work--whether we hire or not hire, use consultants or part-time people." The center is a small nonprofit business that employs four people.

The coverage gap for workers in small business reverberates throughout the entire health care system. Hospitals, required to deliver services to all Maine residents regardless of ability to pay, get stuck with the bad debt and charity care bill for the uninsured. They make up that cost by raising rates on other consumers who have insurance policies. Insurance companies, in turn, pass on their increased costs by raising monthly premiums, creating a vicious cycle that leaves even more Maine families and businesses unable to afford coverage, and making the underlying problem that much worse. "Bad debt and charity care is a hidden tax," Trish Riley says.

The cost to hospitals of treating uninsured patients is about $40 billion a year across the country, according to Urban Institute health researchers Jack Hoadley and John Holahan. In Maine alone, it is $270 million a year, an amount equivalent to 20 percent of insurance premiums.

Dirigo's strategists know that if they can create a workable system for financing the coverage of small-business employees, they will have taken an important step toward solving the other pieces of the puzzle. Under the terms of the law, the state is mandated to work with insurance companies to develop an affordable product specifically for the small-business market. The businesses themselves must pick up 60 percent of the premium for individual coverage of each employee; the employee pays the rest. For those whose earnings are too low to make the 40 percent share affordable, the state offers a subsidy--not just the 40 percent individual portion but, in the case of married workers with children, subsidized premiums that cover the entire family.

In the first year, the money to pay these subsidies will come from a state appropriation. After that, they are supposed to be paid for by savings that hospitals will realize as a result of lower charity-care and bad-debt costs and by assessments on insurance premium revenues. The assessments are supposed to be levied only if the health care cost savings materialize.

It took the state a year to find an insurance company to underwrite a small-business insurance plan. Only one firm, Anthem Blue Cross Blue Shield of Maine, bid on the job. But on October 4, health coverage for small-business employees went on sale under the Dirigo Choice umbrella for the first time.


In the first week of Dirigo Choice's appearance in the market, Anthem and the Dirigo office fielded thousands of calls for information and price quotes. Whether those inquiries will turn into enrollment is anyone's guess. But Dirigo is not leaving anything to chance. The program has been holding small business forums and consumer information sessions and will continue the effort through the end of November. "We're trying to educate people and make them aware of the insurance," says former legislator Charlene Rydell, one of the program's original sponsors.

An informal survey of a dozen or so small businesses in and around Blue Hill and nearby Ellsworth, conducted just before the start of the enrollment period, found that most had heard about Dirigo but few were sold on it. Nick Sichterman of Blue Hill Books thought the premiums still sounded too high for him. Tina Allen, the florist whose family is now covered by a plan her husband pays for, said she had heard the governor talking about Dirigo and might look into it. Several business owners said they planned to check it out, but others either didn't see that the employee subsidy would help them or expressed resentment at the intrusion of the state. "The entire thing smacks too much of socialism for my taste," said one small-business owner.

The state won't have a final count on the number of policies sold until January 1, 2005, when the coverage actually takes effect. But even those numbers won't provide a definitive evaluation. It is far from clear how "success" can even be measured.

For example, there is a real possibility that many business owners who say yes to Dirigo will be ones who are already covering their employees and are simply looking for a better deal. "They will find the subsidy attractive," predicts health economist Christopher St. John, "but only in comparison to other comprehensive-benefit packages. People who want barebones coverage won't be interested." If St. John is right, then the only achievement might be a slowdown in the number of businesses that give up coverage due to escalating premiums. That would be a plus but wouldn't do much to alleviate the rising bad-debt and charity-care costs.


If the insurance plan is a key to Dirigo's overall success, containing hospital costs--which the insurance piece is supposed to help do--is at the heart of the matter. Maine's hospital costs are significantly higher than national and regional averages, and it's not just because of the bad-debt and charity-care problem. Maine also has more hospital beds per capita and higher utilization rates than the rest of New England. Although the state is 40th in the country in median household income, it is 11th in health care spending per capita. "The people of Maine," says St. John, "have Arkansas-level incomes with Massachusetts-level health care tastes."

There is, in fact, something of a "Boston factor" at work in Maine. Residents have access to Boston's internationally renowned hospitals and want to have in Portland or Kennebunkport the top-of-the-line care they've seen there.

It's hard to argue with excellence, but the result of Maine citizens' high expectations is a considerable amount of costly duplication of service. That duplication is certain to be a major target of the drive to cut overall health care costs. "We could safely slow down investment in high-end stuff and pick and choose more carefully," St. John says. "It's a matter of fierce debate."

Part of that debate is coming to a head over whether Maine's hospitals will agree to a certificate-of-need program that limits the use of scarce health resources to create additional hospital beds and treatment centers. Riley is putting a lot of effort into establishing criteria for acceptable capital investments by health care institutions--in other words, a budget for approvable projects. So far, Maine hospitals have been chafing at the idea of a strict cap on improving capital structures and keeping current with technology. "We don't want to see Maine's excellent health care system deteriorate relative to contiguous states," warns Scott Bullock, president of MaineGeneral Health, a hospital in Waterville, who also sits on Dirigo's hospital study commission.

While Dirigo and the hospitals struggle with the capital investment issue, the hospital study commission is looking at proposals to reorganize hospital care on a regional basis and recommend consolidation or elimination of services where appropriate--again, to help tamp down health care costs. During legislative debate on Dirigo, the state's business community let lawmakers know it wanted action taken to slow the rate of increase in health care costs. But whether businesses will press for regional solutions is uncertain. Some companies that have argued forcefully for lower insurance premiums tend to become less enthusiastic when the idea of restricting hospital expansion comes up. "Now that we're doing things," says Trish Riley, "we get, 'Whoa, wait a minute. We didn't mean do that.'"

But the creators of the program intend to keep trying. This winter, Dirigo will run a series of town meetings called Tough Choices. Citizens will be called together to talk about what kind of health care they want, where they need what kind of services and where the health care system should be investing money.

The Tough Choices agenda underlines how complicated an undertaking Dirigo is. "Health care is a big, messy place to work," says NASHP's Weil. "Any state faces a lot of hurdles if their goal is universal coverage with cost containment and quality improvement. It's too early to say where Dirigo will end up. But the pieces are the ones you'd want to try."