Sen. Olympia Snowe of Maine, the lone Republican who seemed willing to back the Senate Democrats’ healthcare proposal, has dropped her support, despite weeks of behind-the-scenes negotiations with Senate Finance Chairman Max Baucus. The Hill reported:

Snowe (Maine), who was one of three Republicans who backed the $787 billion economic stimulus package, was being lobbied heavily by the White House, and some centrists view her refusal to strike a deal with Baucus as troubling. But concerns about how the plan would be paid for prompted her to back away in the hours before its release.


Obama and Baucus have suggested paying for a big chunk of reform by levying new taxes on high-cost insurance plans. Specifically, Baucus has suggested a 35 percent excise tax on insurance plans that cost single individuals more than $8,000 a year and cost families more than $21,000.

Snowe’s problem with that plan is that it could impose a heavy tax burden on Maine, which has one of the highest average health insurance premiums in the country. A July study by Harvard economist David Cutler found that Maine, on average, has the fourth-most costly insurance premiums in the country, trailing only Connecticut, Delaware and New Hampshire.

Snowe said she is concerned about Baucus’s plans to tax high-cost plans.

“I am, no question, because we are a high-cost state,” said Snowe.

Mark Hemingway of National Review connects the dots to explain exactly why Snowe drifted away, quoting from this Wall Street Journal editorial about Maine’s 2003 experiment with a plan for universal coverage that resembles Obamacare in almost every detail:

[T]the state created a “public option” known as DirigoChoice. (Dirigo is the state motto, meaning “I Lead.”) This plan would compete with private plans such as Blue Cross. To entice lower income Mainers to enroll, it offered taxpayer-subsidized premiums. The plan’s original funding source was $50 million of federal stimulus money the state got in 2003. Over time, the plan was to be “paid for by savings in the health-care system.” This is precisely the promise of ObamaCare. Maine saved by squeezing payments to hospitals and physicians.

The program flew off track fast. At its peak in 2006, only about 15,000 people had enrolled in the DirigoChoice program. That number has dropped to below 10,000, according to the state’s own reporting. About two-thirds of those who enrolled already had insurance, which they dropped in favor of the public option and its subsidies. Instead of 128,000 uninsured in the program today, the actual number is just 3,400. Despite the giant expansions in Maine’s Medicaid program and the new, subsidized public choice option, the number of uninsured in the state today is only slightly lower that in 2004 when the program began.

Why did this happen? Among the biggest reasons is a severe adverse selection problem: The sickest, most expensive patients crowded into DirigoChoice, unbalancing its insurance pool and raising costs. That made it unattractive for healthier and lower-risk enrollees. And as a result, few low-income Mainers have been able to afford the premiums, even at subsidized rates.

This problem was exacerbated because since the early 1990s Maine has required insurers to adhere to community rating and guaranteed issue, which requires that insurers cover anyone who applies, regardless of their health condition and at a uniform premium. These rules—which are in the Obama plan—have relentlessly driven up insurance costs in Maine, especially for healthy people.

The Maine Heritage Policy Center, which has tracked the plan closely, points out that largely because of these insurance rules, a healthy male in Maine who is 30 and single pays a monthly premium of $762 in the individual market; next door in New Hampshire he pays $222 a month. The Granite State doesn’t have community rating and guaranteed issue.

Hemingway comments:

So to sum up, in the name of health care reform the state of Maine instituted regulations that artificially drove up the cost of insurance in the private sector and unbalanced the risk pool in the public option plan. As a result the state raised taxes to pay for the short falls, and even with tax increases there’s still a waiting list to get into the public plan. Thanks to Maine’s “reforms” people that have private insurance have seen their costs go way up and many people who can’t afford the inflated costs of private insurance in the state now can’t get into the state’s public plan. (A whopping Twenty-two percent of the state is now enrolled in Medicaid.)

Now Baucus’ national proposal wants to raise revenue by taxing the most expensive insurance plans. And Maine has an unusually high concentration of expensive plans to tax, not necessarily because of excess wealth but largely because of onerous state regulation — regulations very similar to ones currently being proposed at the national level.

“I Lead” indeed.