Care Reform in Wisconsin
How We Got Here, What We
Should and Shouldn't Do
By Leah Vukmir
care reform is an issue on the minds of most Americans. Everyone agrees
the rising cost of health care is creating access problems for many
Americans. Divergence of opinion arises when deciding how best to solve
these problems. Should government step in and completely take over the
funding and delivery of health care, or should we free the current health
care system from the shackles of government regulations and mandates in
order to create a competitive market in an industry that, to date, has not
been allowed to operate freely? If we are to be serious about
comprehensive health care reform, we must do two things: 1. Understand the
historical context and role government has played in the rising cost of
health care, and 2. Craft solutions addressing the root problems that have
created the call for reform. Above all, we must strive to protect the
quality of health care we have come to know in our state. Any health care
reform that jeopardizes quality will be detrimental not only to
Wisconsin’s citizens but to the economic viability of our state.
Good Intentions and the Law of Unintended
there is a lesson to be learned from a century of health care regulation
in the United States, it ought to be that the best intentions of lawmakers
rarely, if ever, overcome the law of
has played the most significant role in creating the problems that exist
in our health care system. This conclusion is obvious for any objective
reviewer. The regulatory history also shows that bad health care policy
has been a bipartisan enterprise for generations.
Teddy Roosevelt’s first push for national health insurance to Franklin
Roosevelt’s wage and price controls to Richard Nixon’s managed care
mandate, politicians have long-touted government intervention over market
government interventions are usually encouraged by hospitals,
practitioners, insurers, employers and the voters themselves. In a larger
sense, we are all to blame for the problems in the current system;
however, when government acts to address the concern of one group it
almost always has the effect of putting the cost onto another group.
a report published by the Wisconsin Policy Research Institute, Linda
Gorman, PhD, details how a long succession of government policies and
interventions has driven-up costs and left individuals with little control
over their own health care. Spanning the time since the Great Depression,
lawmakers expanded the use of prepaid health plans, set the stage for the
third-party-payer system and created preferential tax treatment for
employer-provided health insurance. In the pursuit of expanding
government-provided coverage to the poor and elderly, lawmakers have also
made health care the most regulated aspect of our economy.[i]
Employer-Provided Health Care
In 1942, Congress
acted to control wages and institute price controls in an effort to
control inflation and hold down the cost of wartime production. Employee
wages were frozen, however employer-provided health insurance was exempted
from taxes and became a non-wage fringe benefit. Employers seeking to meet
their wartime production quotas began offering health insurance to attract
in place, these benefits became part of the typical employee compensation
package. This change dramatically altered the way Americans obtained
health insurance and health care. In the process, insurance coverage also
evolved from basic plans that covered only major medical expenses to
comprehensive plans that covered routine office visits and drugs with
marginal out-of-pocket costs.
employees began to see health coverage as a free
benefit offered by employers rather than part of their total compensation.
Few employees recognize the substantial investment their employers make as
forgone wages and they have become isolated from prices by having a
third-party insurer pay their bills.
isolation from cost that employers, insurance companies, and government
programs have established is one of the biggest reasons for the high-cost
of health care. Dr. David Gratzer sums up this health care paradox very
well when he says, “American health care is so expensive because it's so
cheap. That is, with Americans paying just 14 cents out-of-pocket for
every health dollar, they have little incentive to economize on health
Government-Provided Health Care
the path of Theodore Roosevelt and Franklin Roosevelt, Truman proposed a
program for national health insurance. The idea was too pricey for FDR
but, by the end of the World War II as the economy was recovering and
America was nearing full employment, Truman embraced the idea. It would
take 20 years before the idea would become a partial reality. In 1965,
President Lyndon Johnson signed Medicare into law during a ceremony at the
Truman Library in Independence, Missouri. President Truman attended and
became the first person to apply for coverage under the program.[iii]
designed to work in conjunction with the thirty-year-old Social Security
program, was created to provide social
insurance to the elderly. Seniors could obtain medical care without
the fear of depleting their retirement money, or relying on their
children. As President Johnson said, “No longer will young families see
their own incomes, and their own hopes, eaten away simply because
they’re carrying out their deep moral obligations to their parents and
to their uncles, and their aunts.”[iv]
as Professor David Hyman astutely observes, “it is hard to make the case
that ex-presidents are in need of any sort of subsidy from ordinary
working Americans to pay for the cost of seeing a physician-but that is
exactly what Medicare did (and does).”[v]
For all of Medicare’s good intentions of protecting seniors and their
families against the cost of care, the burden of supporting the program
continues to fall on their children, grandchildren, and
great-grandchildren. At the same time, the program neither rewards nor
punishes providers or patients for appropriate or cost-effective
utilization of health care.
$408 billion in 2006, Medicare accounts for 3.1% of the federal budget. In
1970, the payroll taxes of 4.5 workers was sufficient to cover the needs
of one retiree and provide enough extra revenue to build a surplus to meet
future funding requirements. In 2006, the payroll taxes from 3.9 workers
paid for a single beneficiary, but were unable to maintain the surplus
funding. Without reform, the Medicare surplus will be depleted by 2019. As
the ratio or workers drops to 2.4 for each beneficiary by 2030, Medicare
will consume 37% of all federal revenue and require a 20% increase in
income taxes to fund the program.[vi]
its inception, Medicare reimbursed providers based on the cost of care.
This open-ended payment system tended to increase utilization and had an
inflationary effect on health care costs. In order to control their
budgets, the federal government turned to employing cost controls.
Medicare now sets provider rates that underpay for some procedures while
overpaying for others. The payment method itself, as one would expect,
creates incentives for providers to offer the higher paying services
rather than alternatives that may receive a lower reimbursement and
improve health outcome. In fact, health outcomes have little or no
relationship to Medicare’s payment system.
increasing cost of Medicare, combined with the first wave of baby-boomers,
will present challenges to the financial solvency of the program.
America’s first baby-boomer began collecting benefits in January of this
Predictably, Congress dealt with the increase in demand not by addressing
the Medicare funding shortfall. Instead, Congress dipped into a
stabilization fund to provide a temporary six-month 0.5% increase in
physician payments. Unless Congress deals with the funding problem, by
June 2008, an automatic 10% cut will be imposed on physician payments.[viii]
1965 Congress also created Medicaid, a state and federal program intended
to address the health care needs of the poor. Total combined federal and
state spending on Medicaid was over $300 billion in 2006.[ix]
The program provides federal matching money to the states. Each state is
given some latitude for developing their programs and the matching federal
dollars vary with each state. Wisconsin’s federal matching share will
increase to just over 59% in 2009.
like employer-provided health insurance, enrollees have very little
incentive to evaluate costs or consider alternative forms of treatment.
Compounding this problem, Medicaid penalizes recipients for working more
hours or earning higher pay. Recipients receive full coverage or a
partially subsidized plan, however once a recipient hits a set income
threshold they lose their coverage. Depending on their employers’
coverage offerings, an enrollee faced with losing coverage because of a
small increase in earnings may go from paying a few hundred dollars for
coverage to thousands. Even worse, the recipient may also be required to
reimburse the state for coverage from the prior year.
in Wisconsin relies on managed care networks to control costs. In general,
these networks are effective at controlling costs, but they limit the
options of beneficiaries to see individual doctors or specialists. Much
like Medicare, the Medicaid managed care model is focused on containing
costs with little emphasis placed on overall health outcomes.
also provides health care and long-term nursing care to poor seniors who
qualify as dual-eligible under both Medicare and Medicaid. Despite
government efforts to curb abuses, many seniors have been using Medicaid
as a way to shelter retirement savings and protect assets for a surviving
spouse and other family members.
these government programs, providers receive far lower reimbursement rates
for their services. As a result, many practitioners further limit the
options of both Medicare and Medicaid recipients by refusing to accept
enrollees or by limiting the number of enrollees they take on as patients.
lower reimbursement rates from government programs also create the problem
of cost shifting which drives up the cost of private insurance. With
government spending more than 45% of every health care dollar,[x]
reimbursement rates have a considerable impact on the cost of private
recent study conducted by Stanford University Professor Daniel P. Kessler
found that Medicare and Medicaid cost shifting in California’s health
care system is significant. Kessler concluded that hospitals could reduce
the markup they charge private payers by 10.8 percentage points if the
government programs paid the actual costs.[xi]
The Cost of State Government Regulation
many years, state legislators have been passing coverage mandates for
health insurance. Mandates are often adopted with good intentions; more
frequently the expanded coverage is pushed by groups that stand to gain
little consideration given to the cost, legislators have mandated coverage
for things like contraceptives, in vitro fertilization, acupuncture and
treatment for morbid obesity. The Council for Affordable Health Insurance
estimates these mandates add anywhere from 4% to 12% to the cost of a
Fortunately, none of these are mandated in Wisconsin—yet. Wisconsin does
have other mandates, which could add as much as 6% to the cost of
issue is not whether the intention of these mandates is good or bad. The
issue is, who chooses which coverage options and at what cost? If the
legislature’s best intentions push the cost of health insurance beyond
an individual’s ability to afford coverage, are the consequences worth
the 1990s a few states attempted to address the cost of insurance by
adjusting rate bands through a Community
Rating system. Rate bands are used to set insurance rates for various
groups of policyholders. When government gets involved in establishing or
setting rate bands, it typically involves setting identical premiums for
everyone in a geographic area, without regard to an individual or
group’s health history, age or other risk factors. Several states
combined this system with a bureaucratic rate-review process that would
act to limit premium increases that were thought to be unjustifiable.
few states also passed Guaranteed
Issue laws, which require insurers to provide coverage to every
applicant regardless of health status or previous insurance status. This
encourages people to remain uninsured until they find themselves in need
of coverage, and thus undermining the purpose and function of health
and Guaranteed Issue laws serve as examples of well-intentioned government
interventions that have had a variety of unintended, predictable and dire
consequences. Legislators in several states managed to drive out insurance
providers, raise premiums substantially and force even more people to
become uninsured. Despite the damage, only a few states have acted to
repeal the requirements. Massachusetts chose instead to use the crisis as
the basis for expanding the government’s involvement even deeper into
health care under the Massachusetts Health Plan.
a book published by The Heartland Institute, Conrad F. Meier evaluates the
impact these laws had on eight states. In New Jersey, monthly premiums for
a typical Blue Cross family plan went from $695 in 1994 to $5,239 in 2005.
A similar policy from Aetna went from $769 to $6,025 during the same
period. All of this is a result of the death
spiral that occurs when the healthy forgo coverage as prices increase
leaving the unhealthy behind to pay for coverage.[xiii]
took a slightly less aggressive approach during the 1990s; however, the
regulations still drove out insurance providers and increased costs for
individual non-group policies. A family policy in 2005 ranged from $14,268
to more than $27,000.[xiv]
Jersey lawmakers passed legislation that scaled back the rating system in
2002, however insurance still remains expensive in New Jersey and 17% are
without coverage. In Massachusetts, as coverage for the poor was expanded
under The Massachusetts Health Plan in 2006, 12% of the state’s
population remained uninsured.[xv]
and state regulations are at the heart of America’s health care crisis.
Government attempts at controlling costs have had the opposite effect. Our
Medicare system is heading towards insolvency and threatens to take an
even larger portion of worker’s paychecks with little promise of
providing the same level of benefits that current retirees enjoy. Medicaid
continues to discourage work and it locks individuals into under-funded
managed care plans that limit options for care and contribute to higher
premium costs for those with private insurance.
Solutions That Do Not Work—Government-Run
the lengthy history of failed government interventions in health care,
some continue to push for more government involvement, including an
outright takeover of the system. Socialized medicine continues to be the
preferred option for many American liberals. Despite claims made by
filmmaker Michael Moore in his docudrama Sicko,
government-run health care does not work anywhere,
particularly in Cuba.
Canadian health care system relies primarily on rationing to control
costs. The result is a system where the median wait time between a
referral from a primary care provider to the time a patient is seen by a
specialist is almost five months.[xvi]
Even with rationing, the cost increases facing the Canadian system are
unsustainable. A Fraser Institute report estimates that health care costs
will consume half of the nation’s revenue by 2020.[xvii]
In 2005, the Canadian Supreme Court ruled that the government-controlled
system violates a Canadian’s fundamental rights and that “access to a
waiting list is not access to health care.”[xviii]
policymakers in the United States continue to push for government-run
health care, almost every European nation is moving towards privatization
and market-based reforms. In Britain, people may once again utilize
private hospitals and obtain private insurance as some 7 million citizens
had done by 2005. Australia and Germany have also moved towards private
trends, Wisconsin’s Senate Democrats chose to introduce “Healthy
Wisconsin,” a government-run health care plan. Healthy Wisconsin was
unanimously adopted as an amendment to the Senate Democrat’s version of
the state budget. The plan was never brought to a vote in the Assembly
because not one Democrat was willing to bring the plan to the floor.
Legislative Democrats will be pushing another version of the plan during
the spring session.
insist their plan is not government-controlled because the health care
providers remain private. While this characteristic may distinguish
Healthy Wisconsin from the Canadian system, the plan places significant
decision-making powers and financial controls into the hands of state
government, which inarguably represents a government-controlled takeover
of the health care system in Wisconsin.
of the lead authors, Sen. Jon Erpenbach, maintains the plan is not
government-run, but is actually a “balanced public/private partnership
in which the government plays a limited role . . .[i]t is a market-driven
Unfortunately, such temerity is not sufficient to overcome the actual
language found in the legislation.[xxi]
Wisconsin represents a top-down, government-controlled takeover of the
funding and financing of health care. The legislation establishes the
Healthy Wisconsin Authority that would consist of a 16-member board
appointed by the governor. The board has the authority to set the payroll
tax-rate up to 16%, define and modify plan benefits, set co-payments and
deductibles, certify health care networks, accept bids, establish provider
payment methods, audit health care networks for compliance, and regulate
various aspects of the service providers, including
"appropriate" investments in technology and equipment.[xxii]
The board would also have the authority to determine standards of
medically appropriate care and best practices, yet, not a single voting
member of the board is a health care practitioner.[xxiii]
Department of Revenue would be responsible for collecting the taxes,[xxiv]
and the Department of Administration would be required to design “cost
The legislation even defines the Healthy Wisconsin Authority as a state
This is hardly a partnership with a limited government role. The plan puts
the power to tax and make the rules into the hands of government.
individual choosing to opt out of the plan would be assigned to a health
care network and would be required to pay the tax, either through a
payroll deduction or through a 10% surtax on their passive income.
Individual doctors or clinics that do not wish to participate in a coordinated
network will not be covered under the plan.
Healthy Wisconsin, the Authority would supplant private insurance. The use
of insurance would be limited to supplemental coverage. Individuals would
be offered two types of plans; a managed-care plan provided by the lowest
bidding network in an individuals market, or a fee-for-service plan that
would cost as much as $2400 more. This, the supporters insist, is the cost
containment mechanism in their health plan. The competition between these
two plans and between competing networks of hospitals and practitioners
would supposedly force them to “compete aggressively.”[xxvii]
managed care and fee-for-service offering is based on Professor Alain
Enthoven’s managed competition model.[xxviii]
In Enthoven’s testimony before the Wisconsin State Senate, he
praised the plan as being “exactly what this state needs to get its
health care system on the track of quality and economy. Like every market
. . . this market needs rules and management. But with that, who can be
opposed to a big dose of free market forces.”[xxix]
Yet, Professor Enthoven admits that the model is not a free market model.[xxx]
Tanner of the Cato Institute, in his testimony before the Assembly
Committee on Health and Health Care Reform, noted that the managed
competition model was the “concept behind both the 1993 Clinton health
care plan and Mitt Romney’s Massachusetts reform; it is designed to take
advantage of market competition, but within an artificial and carefully
regulated marketplace.” Tanner also noted that Healthy Wisconsin
“combin[es] managed competition with key features of a single-payer plan
such as global budgeting, thereby borrowing the worst of both worlds.”[xxxi]
proponents of Healthy Wisconsin claim the plan will contain costs, but
Enthoven indicated in an interview with the Milwaukee
Journal Sentinel that supporters are “naïve” because under a plan
like Healthy Wisconsin, “politicians will decide what doctors and
hospitals get paid, and special interests will lobby for higher payments.
‘The government often gets it wrong in setting prices,’ Enthoven
proponents argue that having the state replace insurance companies
eliminates their overhead. This presumes the state can manage the entire
health care system for less money, which almost certainly is not possible.
The state of Wisconsin cannot even manage to implement a Medicaid software
system on time or on budget.[xxxiii]
to the Lewin Group report provided to AARP, Healthy Wisconsin will reduce
what it spends on coverage for non-elderly residents from $18.2 billion a
year to $17.7 billion. The numbers include $15.2 billion from the new
payroll tax, and a variety of other savings including $407 million from
reductions in administrative costs, $560 million dollars in savings from
“primary care emphasis”—which means reducing the number of referrals
to medical specialists, and another reduction of $178 million from the
centralized purchasing of prescription drugs.[xxxiv]
The plan would also move 166,000 individuals who currently have insurance
if the financial projections were borne out, the question would remain;
will this slow medical inflation? The answer is no. Healthy Wisconsin, in
theory, could reduce the costs one-time by completely restructuring the
management of health care in the state, but it does not reduce the
year-after-year cost increases in any significant way. The Lewin Group
presentation illustrates this by showing a nearly parallel ten-year trend
line between continuing with our private insurance (costing $35 billion by
2017) as opposed to adopting Healthy Wisconsin (costing $33.1 billion by
Wisconsin reforms almost none of the flaws in the current system. Much
like Medicare, the plan calls for a global payment system. While the
legislation spells out the need for maintaining quality, the payment
system is not designed to reward innovation and quality. Patients have no
incentive to moderate their health care consumption because the plan uses
very small deductibles and co-pays, leaving in place the elements that
have made individual health care consumers insensitive to cost. In the
same way that Medicaid punishes work, Healthy Wisconsin places a larger
burden on those with higher incomes. A working person and an unemployed
person would have the identical coverage, yet one is paying far more than
they would under private insurance, while the other pays nothing. As
people begin to see the plan as an entitlement—with no rewards for
proper utilization—the cost of the program will skyrocket.
only way Healthy Wisconsin addresses rising costs is by utilizing
containment strategies, just as Medicare, Medicaid and socialized programs
in countries like Canada. Rationing and reducing reimbursements are
government’s brute force methods of controlling costs. Cutting
reimbursements drives out higher-quality practitioners and forces
hospitals to compromise on innovative technologies. Rationing reduces
access and affects health outcomes.
would be the constant battle played out in the state capitol. Providers
will demand higher payments, patients will demand reforms that provide
them with more services for less money, and everyone will want to control
taxes. Government is ill-suited to balance these demands.
the negative impact the tax would have on Wisconsin’s economy and the
attack on personal liberty the plan represents, Healthy Wisconsin poses a
substantial threat to the quality of health care in Wisconsin.
people in Wisconsin appear to understand the inherent problems of Healthy
Wisconsin. In a poll conducted by Wisconsin Manufacturers and Commerce,
respondents who had heard details of the plan overwhelmingly opposed the
idea with 62% indicating their disapproval.
proponents of Healthy Wisconsin believe their plan is a
“magic-bullet,” a one-size-fits-all panacea for health care. That way
of thinking is precisely how we got to this point in American health care.
cannot possibly manage a system as complex as health care. Much like any
other government solution, the best approach is usually found at the most
local level possible. In health care, the most local level is between the
patient and the doctor. Many reform proposals and the current system tend
to focus on reforming the system of care, rather than the incident or
episode of care.
Solutions That Work—Building a Free Market Where One Does Not Exist
of government-run health care often claim that free-markets have created
the problems facing health care and that consumer-driven health care will
not work or that it is an unproven idea. For the most part, there is no
such thing as a free-market in health care today. At the same time, we
know free-markets work. The evidence is all around us. Every other
purchase and investment we make occurs in a free-market. The solutions for
health care will be found when we pursue consumerism and market forces as
the tools of reform.
lessons can be learned from the field of dentistry where consumers exist
in large part because they spend their own money, or are covered by
insurance with higher out-of-pocket costs. The price for most procedures
has remained stable because people regularly check with different
providers regarding price and they inquire about alternative treatments.
Conversely, dentistry also provides an example of what happens when
government is involved in providing people with coverage. The Medicaid
reimbursement rate for dental care is among the lowest of any health
practice. As a result, few dentists take Medicaid patients and those that
do restrict the number they will see.
overarching goal of free market health reforms is to create an army of
consumers with information and tools with which to make decisions about
their health care. This can be achieved through policy changes that
promote individual ownership of health insurance, allow individuals and
groups a greater array of choices when purchasing insurance, promote the
disclosure of pricing information and create incentives for the uninsured
to participate in the private insurance market.
Promoting ownership and choices
of the biggest reforms needs to take place at the federal level. We need
to change the tax code to eliminate the preferential tax treatment given
to employer-provided health insurance. At the state level, in Wisconsin,
the issue received bi-partisan support. Governor Doyle signed this
provision into law as part of our current state budget. Congress must do
Nelson with the Center of the American Experiment issued a report
detailing the distortions that employer-based coverage has on the health
insurance markets. His analysis found:
also refers to The Mayo Clinic Health Policy Center’s recently released
health care reform recommendations. At the top of the list of 19 policy
recommendations was “mov[ing] from employer-based insurance to portable,
Employment-based coverage restricts consumer choice.
Lack of choice limits competition in the health insurance
Lack of choice undermines health insurers' ability to evaluate
Employment-based insurance restrains the development of benefit
designs and contracts focused on long-term health.
Employers do not closely monitor the cost and quality of health
Employees fail to monitor the cost and quality of care.
Benefits are frequently more generous and the costs are higher in
employment-based health plans.
Less cost-sharing in employment-based plans leads people to overuse
medical services, which can be costly.
Generous health plans force many workers to take a higher
proportion of their total compensation in health benefits than they would
Generous health plans lead some lower-income workers to turn down
coverage and remain uninsured.
occurs when we allow individuals to choose health plans that meet their
needs, rather than having employers or government make choices on their
behalf. With or without changes in the tax laws, employers must put
pressure on insurers to diversify their health plans in ways that allow
individual employees to choose coverage options that meet their needs.
Group health insurance can and should be designed to address individual
away from employer-based insurance, or at the very least restructuring the
relationship between the employee and the insurer, would be a significant
step towards reform. Employers and individuals must demand that insurers
provide value beyond merely negotiating with providers and paying bills on
our behalf. The additional administrative costs incurred by insurers would
be more than offset by the cost savings generated by working more closely
with individual enrollees.
the exception of wellness programs,
individualized incentives and tailored insurance plans are foreign to
today’s health insurance industry, primarily because they focus on
marketing their products to employers rather than individual consumers.
Imagine if an insurer sent an enrollee a cash reward or offered a premium
reduction for using health care wisely. Perhaps an enrollee who identified
a medical billing error could be sent a check for a percentage of the
savings. These types of incentive programs are common with homeowner and
should also allow those seeking to purchase individual policies the option
of choosing the type of coverage they want. An insurer could provide a
menu of coverage mandates along with the cost. Individuals could then
choose the desired benefits for themselves rather than having the state
make these decisions for them.
way to accomplish this and to increase competition among insurance
providers is to open Wisconsin’s insurance markets to out-of-state
providers. Almost all large employers self-insure and are exempt from
state regulations and coverage mandates. This leaves small employers and
individuals as the only targeted group picking up the tab for legislative
good intentions. Individuals and businesses should be able to select from
a wider range of insurers with less government interference. Robust
competition in the insurance market would help stimulate innovative plans
and would make premiums more competitive.
of consumer-driven health care also support the adoption of High
Deductible Health Plans coupled with tax-free[xxxviii]
Health Savings Accounts (HSA). These Consumer Driven Health Plans provide
a tangible and meaningful way for individuals to hold down costs. They
also help return health insurance to its original purpose—protecting
individuals against major medical costs.
Driven Health Plans are designed to move away from the notion of prepaid
care covered under an insurance policy and towards building health
savings. While a traditional health plan may cost $12,000; a popular High
Deductible plan would cost $6995, a net savings of $4005, which could be
put into an HSA and would cover most of the plan’s maximum deductible of
Under a traditional insurance plan, a family that has very little health
care use gets nothing back. With a consumer-driven plan, the unused
balance remains in the HSA. In the long-term, HSAs should be allowed to
build up a balance during the years when most people have fewer medical
expenses so that they can cover future expenses.
of the incentive that a health insurance plan offers, whether it is found
in an HSA, or in traditional first-dollar coverage plans that offer
discounted premiums, consumers of health care must obtain some sort of
financial benefit from choosing the most effective care at the right
price. This is the only way to control the costs of health care. The law
of unintended consequences, particularly in a complex system like health
care, is too pervasive to justify additional government attempts to
artificially regulate costs.
Health care transparency
part of consumer-driven health care is transparency, the rather simple
notion that someone who wishes to obtain a service should have at least
some idea of the cost and the relative quality of the service offered by a
provider. Without an awareness of costs, consumers would be unable to
evaluate their options and the savings or additional cost associated with
health care, transparency is a radical idea. Mentioning the word around
providers, hospitals, and insurers induces fear and concern. To
consumers—who demand this type of information in all other aspects of
their lives—this type of disclosure is expected. Wisconsin is a pioneer
in price transparency. Today, the Wisconsin Hospital Association provides
pricing data on services provided by hospitals at its PricePoint website.[xl]
More can be done. Insurers are also beginning to offer price and quality
data. Health care consumers need to know the total cost of an episode of
care and their actual out-of-pocket costs. Insurers, particularly those
who put a priority on adding value to their services, are in a better
position to offer that information to their customers than providers are.
practitioners are often just as isolated from cost as the patients.
Transparency will help individual providers identify alternatives to
expensive tests or treatments as patients become informed health care
will also put pressure on hospitals to address their overhead costs.
Hospital costs have increased dramatically over the years, fueled partly
by technological advancements, however observers also point to significant
levels of waste and inefficiency. Quantifying these inefficiencies is
difficult and much of the waste comes from the bureaucratic requirements
of insurers and government.
virtually every other industry, health care—particularly hospitals, have
had little incentive to adopt practices aimed at eliminating operational
inefficiencies from their systems. Employers have been pressuring health
insurers to control costs for years with little success, until recently.
In the Milwaukee Journal Sentinel,
Guy Boulton reported “[c]ost-cutting measures by hospitals in the
Milwaukee area are beginning to pay off.”[xli]
Hospitals are beginning to implement “techniques long used in
techniques have evolved since the 1980s and were driven by foreign
competition. American industries had to relearn everything they thought
they knew about quality and efficiency in order to compete. The automobile
industry worked out these problems twenty-years ago by developing
standards for interoperability of electronic data. Health care in America
is just beginning to adopt a set of standards that allow for the exchange
of medical records and medical billing data.
will also need to restructure the way they provide care. As consumers
consider cost and health outcomes more carefully, hospitals must focus on
better ways to manage chronic illnesses – a major cost-driver in health
care. Caring for patients with chronic diseases will change if insurers
and consumers put pressure on providers to adopt more tightly integrated
approaches to care. Marshfield Clinic has been doing this under a Medicare
demonstration project with great success.[xlii]
Harvard Professor Regina Herzlinger proposes integrated care teams focused
around treating patients with chronic disease. Her approach, much like
Marshfield, uses a team of coordinated specialists working together to
control the illness and treat the various symptoms. She calls this
approach a “Focused Factory”[xliii]
These innovative approaches can improve outcomes and lower costs.
possessing a financial incentive to shop for services, health care
providers do not need to compete for their services, nor do they have any
significant pressure to reduce waste and inefficiency. Transparency that
allows individuals to evaluate quality and price will provide that
Incentives for the uninsured
consumer-driven health care offers the promise of controlling costs, the
question of providing coverage to the uninsured remains. The supporters of
government-run health care believe their approach is the only way to
accomplish this. Overhauling the entire health care system is not the
order to address the problem of the uninsured, we have to identify who
they are. In Wisconsin, the percentage of uninsured is at about 8% and
about half were insured for part of the year.[xliv]
Unlike many other states, Wisconsin ranks among the lowest in uninsured.
Most of the uninsured are in households below 200% of the federal poverty
level and therefore eligible for BadgerCare or premium assistance.
we want to look at reforms that would make a difference, then we need to
examine the flaws of BadgerCare. Because of federal regulations,
participants are often pushed out of the program due to changes in
employment status or an increase in earnings—even if the increase is
short-term. BadgerCare should not crowd-out private insurance offered by
employers, nor should it discourage work.
of the uninsured lack access to employer-provided health insurance.
Another group of uninsured is the “young
invincibles.” They are typically 25 to 34 years old and in good
Many choose to take higher wages rather than benefits from their
employers. These workers would benefit if individual insurance had the
same tax-treatment as employer-provided coverage. Allowing these
individuals to choose from less expensive policies with fewer mandates
would also have an impact.
solution that may help many employees is the creation of a Health Premium
Account. Using an existing federal tax exemption, workers could direct
their employers to deduct pre-tax dollars from their wages and deposit
them into an account set up to pay their payments. The availability of
this type of account would be particularly attractive to part-time and
seasonal workers with multiple employers. These individuals are typically
not offered insurance because of the limited hours they work at each job,
yet many are working more than 40 hours a week. Employers who are
competing for these part-time workers could voluntarily contribute to the
account as a way to attract new workers. Employees can contribute to the
account as well. This could be a powerful incentive to ownership of
insurance and will allow individuals to carry policies regardless of
employment or health status. To reduce the burden on small businesses, the
deposit process would work in the same manner as child-support payments.
Insurers would draw the premium payments from the account at determined
Premium Accounts could also be used in conjunction with the state’s
premium assistance program. Individuals, who are eligible for BadgerCare,
but wish to obtain private insurance, could use the Health Premium Account
to receive the state subsidy and combine it with their own wages or an
Health consumers will control costs
health care is a significant paradigm shift and it is a change that can
make a significant difference in controlling the cost of care. Rather than
allowing bureaucrats to take over our entire health care system, we need
to put it back into the hands of the patient and their doctor.
of the reforms needed for this new direction already exist. Government’s
primary role in consumer-driven health care is to identify the obstacles
it has placed in the way of the market and remove them. Elected officials
must always be careful to avoid the law of unintended consequences and
they must resist the temptation to create mandates and harmful
regulations. To be effective, any reform proposal must address cost,
quality, and access and each must be given their proportionate
consideration in every proposal. Ideally, the best reform allows the
individual to set those proportions according to their own needs.
all else, we must protect the quality of our health care system. In 2007,
the Agency for Healthcare Research and Quality issued their National
Health Care Quality Report ranking Wisconsin number one for quality.[xlvi]
We cannot jeopardize that quality and we should not turn the management of
that system over to government.
Vukmir (R), a registered nurse, represents the 14th Assembly District in
Wisconsin and is Chair of the Assembly Committee on Health and Health Care
[v] David A. Hyman. 2006. Medicare
Meets Mephistopheles. Washington, DC: Cato Institute. pp. 12.
[ix] Urban Institute and Kaiser
Commission on Medicaid and the Uninsured estimates based on data from
Centers for Medicare and Medicaid Services-64 reports, July 2007.
Accessed at statehealthfacts.org. (The source states the amount at
$305 billion, while the Congressional Budget Office estimated that
combined expenditures in 2005 at $311 billion—see footnote 7).
[xiv] Ibid. Pp 60.
Massachusetts – Figure 1.
[xix] John C. Goodman. January
27, 2005. “Health Care in a Free Society Rebutting the Myths of
National Health Insurance.” Cato
Policy Analysis, #532. Washington, DC: Cato Institute.
[xxiv] Ibid., pp. 268, line 8.
[xxv] Ibid., pp. 11, line 3.
[xxvi] Ibid., pp 270, line 16.
[xxx] See endnote 28, pp. 44.
[xxxv] AARP/Lewin Group. June
19, 2007. Healthy Wisconsin –
Your Choice – Your Plan: Cost and Coverage Impacts.
[xxxviii] Note: Health Savings
Accounts are not tax-free under Wisconsin’s tax code.
[xliii] Regina Herzlinger.
2007. Who Killed Health Care?
New York; McGraw-Hill. Pp. 168-172