A bill that would essentially cut the so-called Dirigo tax in half – from $43.7 million to $23 million – passed the Senate along party lines Friday night and will face a closely divided House when the Legislature comes back into session later this month.

The proposal represents a compromise among Democrats and representatives from the state’s hospitals, insurance carriers and the Maine State Chamber of Commerce on how to fund the DirigoChoice subsidized health insurance plan through the end of the year. Republicans oppose the bill and were not part of negotiations.

It replaces a plan to assess private insurance carriers – the largest being Anthem – and self-insured businesses the full $43.7 million assessment or Savings Offset Payment that eventually would have been paid by consumers.

Negotiations on the compromise began under threat of a bill backed by Gov. John Baldacci that would have prevented insurance companies from passing the assessment on through rate hikes. It is unclear whether that bill ever had the needed votes to get through the Legislature, but the threat of it brought people to the table.

The House still needs to approve the compromise, which was supported by the Democratic members of the Insurance and Financial Services Committee and was touted as the best solution possible in a Democratic caucus last week. Republicans on the committee oppose the bill and the vote in the Senate was 19 to 16, right along party lines.

As part of the deal, insurance companies and self-insured businesses have agreed to notify their customers and employees that “the savings offset payment has been reduced as a result of action taken by the Legislature,” said Sen. Nancy Sullivan, D-York County, the chairman of the insurance committee.

The bill also “requires carriers to file amended rate filings with the Bureau of Insurance demonstrating the effect of the reduced savings offset payment on premium rates and attesting that the carrier has used its best efforts to ensure that rates reflect the reduced savings offset payment,” according to a handout given to legislators.

Democrats believe their ability to keep the Dirigo insurance program viable could make the difference in the November election.

Rep. Ben Dudley of Portland, the new head of the state Democratic Party, urged his fellow House members to support the bill, saying, “It is enormously important for how this session is going to be perceived.”

Joe Ditre, head of Consumers for Affordable Health Care, said his group “has been locked out of the negotiations” around the assessment. “The numbers seem to be more political than program or operational,” he said.

The DirigoChoice plan – which is basically an Anthem policy subsidized by the state – currently covers 9,734 members, according to the Dirigo Health agency.

Of the $23 million assessment, $20 million will go toward the program this year, coupled with $11 million that Anthem has agreed to forgo as part of a safety net that was to be held in escrow if claims came in higher than expected. The agency is also cutting close to $2 million in administrative costs. That all adds up to $33 million in operating funds, including money to subsidize the insurance policy for those meeting income requirements.

The $3 million of the assessment not used for operating costs will go to hospitals in the form of higher Medicaid reimbursement rates, with the plan being to draw down a 2-to-1 federal match to help pay for a Medicaid expansion approved as part of the legislation that created DirigoChoice.

By the time the Legislature finally votes on the proposal, which will be sometime during the week of May 22, the Dirigo Health agency will have met to determine how much it should be able to collect to keep the program going in 2007 under the Savings Offset Payment formula.

The Savings Offset Payment is supposed to represent savings in the health care system that have come about as a result of the Dirigo Health legislation that created the subsidized insurance program.

The funding mechanism, however, could change.

As part of the legislation, a blue ribbon commission would be established to make recommendations for alternative sources of funding. That same commission would evaluate the Medicaid expansion as well.

It also would be charged with making recommendations for reforms that could lower insurance and health care costs and finding a way to draw down more federal Medicaid dollars.

A second bill dealing with DirigoChoice has yet to be voted on by the House or Senate. It would allow the agency to set up a self-administered or so-called self-insured plan – a proposal the governor has promised will save administrative costs.

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