Thursday, June 29, 2006

High Cost of US Health Care is Even Higher in Milwaukee

For those who want to see hard cold evidence that points to why health care costs so much, the Greater Milwaukee Business Foundation on Health has released a report that details a number of factors -- highlighted most prominently, though, is the lack of payer purchasing power in the current market.

For those who like their evidence more distilled and anecdotal, there's this line spoken by a rep for the biggest provider in Wisconsin, Aurora Health Care, to a rep for one of the biggest payers in the state, WPS: "You need us more than we need you."

Traditional market theory tells us that as long as there's a choice of providers in an area, costs will be controlled for consumers because they will naturally choose the providers who are most cost effective for their needs.

It isn't quite so simple, however, for the health care market. People usually aren't able or willing to "shop around" for care, partly because of the geographic disbursement of providers and partly because those lucky enough to be in insurance plans are often locked into specific provider systems.

Plus, the health care system works on a highly uneven cost scale. People who have insurance are granted discounted rates of care (usually around 23% for private insurance) because they have the means to negotiate collectively while those without coverage get "regular" rates that are often through the roof in terms of cost.

And as an individual faced with a need for care, what is someone supposed to do when told by a health care provider that this is the cost of care -- say, "Ah, I hear the hospital down the street is having a sale. Are you willing to honor a competitor's coupon? If not, you can take that IV out now because I'm not staying."

The key to controlling costs in the health care market is to pool people into plans, and the more people in a particular insurance plan, the more negotiating power they possess. Just look at the success the state health insurance plan had in negotiating discounted prescription drug rates with pharmaceutical companies because of the massive purchasing power it brought to the table. The state health insurance plan is now being touted as a model for the rest of the country because of its ability to lower costs.

The report by the Greater Milwaukee Business Foundation on Health asserts that this is a complex problem that doesn't afford a simple solution. Agreed. But it seems a great place to start is by consolidating the number of payers in the system.

Such a move would have two big benefits.

One, it would increase the purchasing power of those participating in the payer's system by increasing the number of people who are a part of it. Right now in the Milwaukee market the providers hold all the cards because there are a few of them and lots of payers. If the payers don't bend to the provider's demands in discount negotiations, they've got nothing. Consolidating the number of available payers would effectively even the playing field by not making it so easy for providers to dismiss payer requests.

Two, reducing the number of payers in the system would decrease the administrative overhead associated with handling paperwork for the hundreds of plans that currently saturate the market. I've written before about a doctor who runs a private practice in Illinois (and also writes for the Wall Street Journal) who needs to employ four administrative assistants just to deal with the over 300 insurance plans patients bring to the table. That's cost that is being transferred directly into the price of care. In fact, estimates put administrative costs in the US at nearly 1/3 of the total cost for health care in the US. Under a consolidated payer system, those costs could be turned into savings.

Something needs to be done about the cost of health care in Milwaukee, Wisconsin, and the US as a whole. Costs are a burden for private business and government alike.

Without question, the rising cost of care is a significant contributing factor to the fiscal crisis facing Milwaukee County. It also helps explain why the number of uninsured in Wisconsin is increasing to the tune of 50,000 people each year as employers can no longer afford coverage for their employees, and many more people are forced to go underinsured in light of the increasing costs.

There are options for reform. I've discussed before the three proposals currently before the state legislature (see here, here, and here for more info on them). But there isn't a need to wait for the entire state to take action. The Milwaukee area can start to initiate changes in the area's health care system by itself, following the lead of San Francisco, which is moving toward universal access to care for all residents within the city limits.

And the public wants it, too. A recent Pew Research Center survey showed that health care reform is personally important to 95% of the country (79% responded that it's "very" important and 16% listed it as "somewhat" important).

The need is there, the desire is there, and the ability is there. So what's the hold up?


Anonymous Anonymous said...

Are you also on the anti-HSA band-wagon?

June 30, 2006  
Blogger Seth Zlotocha said...

As a stand-alone health care reform measure, yes, I do oppose HSAs.

HSAs essentially shift cost from employers to employees without actually doing anything to reduce or control the actual cost of care.

It works like this: employers typically pay a large portion of premiums while employees cover deductibles and other out-of-pocket costs like co-pays. HSAs allow employees to pay out-of-pocket costs tax free. Sounds good enough, but what HSAs prompt employers to do is offer low-premium, high-deductible health care plans to employees with the promise that out-of-pocket costs are tax free. But the actual cost of care is still the same, all that's being done is that the bulk of the costs are being transferred from employer-paid premiums to employee-paid deductibles.

In the end, employees aren't in any better of a position to handle the rising cost of health care than employers -- in fact, their position is arguably worse. Simply making the costs a tax write-off is hardly enough to make them affordable.

Another major issue I have with HSAs is that they encourage people to act like consumers when it comes to health care, which is poor route to go in an era when preventative care in the US is already at horribly low levels. People shouldn't need to choose between health care and purchasing some other product, which is what would likely happen if people are given a finite amount of funds to pay for health care costs that are exorbitantly high. I discuss why "shopping around" for care is a bad idea in this post, so I won't go into that point any more here.

Any health care reform measure needs to control the actual cost of care. When that is done, HSAs could be a useful part of the puzzle. For instance, the health care reform plan proposed to the state legislature by Sen. Russ Decker (D-Schofield) and Rep. Terry Musser (R-Black River Falls) includes a $300 deductible for individuals and a $600 deductible for families. I think HSAs would be a great way to allow people and families to bank their deductible payments tax-free.

Since the cost of the deductible is controlled and reasonable in this instance, HSAs would be useful -- but they need to come as part of a comprehensive health care reform, not a as a stand-alone measure.

I write more about HSAs here, here, and here.

June 30, 2006  

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