July 01, 2022

Baldacci signs off on Dirigo Tax increase on beer, wine, soda under fire

AUGUSTA – Democrats including Gov. John Baldacci celebrated passage of a bill to bolster Maine’s static Dirigo Health insurance program Wednesday, but Republicans – some raising the possibility of a people’s veto – blasted the tax increases contained in it.

At a Cabinet Room signing ceremony, Baldacci acknowledged that a new Dirigo funding scheme raised “issues that have caused some consternation” but said the importance of the health care measure was “expanding access to working families and small businesses.”

Republican leaders, noting new or higher levies on beer, wine and soda, were having none of it.

“Once again the Democrats have used their position in the majority to increase the tax burden of Maine citizens,” Senate Republican leader Carol Weston of Montville said in a statement.

Baldacci administration officials said late Tuesday night, when the bill won final approval, and on Wednesday afternoon, shortly before it was signed, that the measure will allow for limited new enrollment in the subsidized health insurance program, perhaps by late summer or early fall.

The director of the administration’s Office of Health Policy and Finance, Trish Riley, said program participation would probably remain in a range of about 17,000 or 18,000, including 5,000 or more MaineCare parents and 12,000 or more DirigoChoice policyholders.

But Riley also suggested that settling on a more stable and less contentious funding mechanism could allow officials to concentrate more fully on developing the program and fostering its growth.

Almost since its inception three years ago, critics have argued that the subsidies it provides distort the free market, discriminate unfairly and are financially unsustainable. Moreover, its reliance on a savings offset payment that targets insurers has sparked regulatory battles and court fights.

Baldacci on Wednesday defended Dirigo Health as a productive program for participants and the state as a whole.

“This is about a hand up, not a handout,” he said.

The enacted measure includes some so-called market reforms favored by members of both parties.

Dirigo offers full cost and subsidized insurance, and included in the measure is a reinsurance program through which Dirigo will pay for some major claims – a program to promote coverage for healthy young people and adjustments in allowable charges for high-risk and low-risk consumers.

To meet Dirigo’s roughly $50 million annual operating budget, the bill replaces an indeterminate savings offset payment targeting insurers with a 1.8 percent surcharge on paid claims.

It also imposes tax increases on beer, wine and soda at the distributor level and taps surplus funds from the Fund for a Healthy Maine, the state’s repository for tobacco settlement money.

A tax on beer currently set at 25 cents a gallon will rise to 54 cents a gallon, amounting to a total of 30 cents on a six pack. Brewers producing 100,000 barrels or less a year are exempt. A 30-cents-a-gallon tax on wine will go up to 65 cents, with vitners producing 20,000 gallons or less exempted.

At the wholesale level, soda would be taxed at 42 cents a gallon with simple syrup taxed at $4 a gallon.

According to a legislative staff analysis, the soft drink tax will increase revenue in the Dirigo Health Fund by $9.2 million in fiscal 2009, while the increase in the excise tax on beer and wine will increase revenue in the Dirigo Health Fund by $7.5 million in fiscal 2009.

The new law, effective 90 days after legislative adjournment, allocates $5 million in the Fund for a Healthy Maine for the Dirigo Health program.

House Minority Leader Josh Tardy, R-Newport, said he believed some representatives of affected businesses would be meeting in the next few days to discuss a response that could include seeking to undo provisions of the bill by referendum.

The Dirigo bill won final votes of 75-64 in the House and 18-17 in the Senate late Tuesday night.

On Wednesday, Baldacci lauded the Democratic majority leaders in the House and Senate, Rep. Hannah Pingree of North Haven and Sen. Elizabeth Mitchell of Vassalboro, for their leadership roles in pressing for passage.

“They never gave up the fight,” he said.

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