Parsing the WPRI Study of the Wisconsin Health Plan
I took some time to read the new report by the right-wing Wisconsin Policy Research Institute (WPRI) on the Wisconsin Health Plan (WHP) proposal.
For those interested in reading it, allow me to offer some suggestions.
First, you can skip the first 8 pages. All those do is lay out a theoretical groundwork for why we shouldn't have health insurance (and for why the authors wouldn't support the WHP, no matter how sound it could be); according to the authors, consumers need to learn how to go it alone for their health care.
Second, you can either read pages 9-15, or you can just read the Legislative Fiscal Bureau report on the WHP that was written last summer. The info is the same (although the spin is heavier in the WPRI report). The big critique in this section -- first made in the LFB study -- is that the WHP cost estimates are about $4.3 billion less than what health care costs totaled in Wisconsin in 2005.
As I've noted before, comparing estimated WHP costs to actual health care expenditures is risky business because it assumes total costs will not change at all under a new structure of health care. Part of the promise of fundamental health care reform – such as what’s outlined in WHP – is that it streamlines and simplifies the system in a way that increases purchasing power of payers in the system and reduces administrative costs. Hence, to assume the WHP would cost as much as the existing system is like assuming your new Prius should cost you as much in gas as your old Hummer (a bit of an overstated analogy, perhaps, but you get the idea).
For instance, the state employee health plan recently switched to a tiered health plan structure similar to the one proposed in the WHP, and that move saved the state over $14.5 million in negotiations in the first year alone, according to the plan administrator for the Department of Employee Trust Funds. And the state's drug plan -- which moved all the way to single payer -- has realized savings in the tens of millions of dollars in the first couple of years since the switch.
The other significant point offered in this section -- again, lifted directly from the LFB study -- is that negotiation discounts rates assumed in the actuarial studies for the WHP appear high. That is, while commercial insurers only get about a 23 percent discount in today's health care market in Wisconsin, the WHP actuaries estimated discounts of 40-45 percent, which is in line with government run health plans like Medicare and Medicaid. Since WHP is made up of commercial insurers, the 40-45 percent estimate appears to be wishful thinking. As I've written before, more study of this point needs to be done.
Third, you can read pages 15-17 at your own risk. This section deals with current employer/employee health care costs in comparison to what they'd pay under the WHP.
When comparing employer costs, the WPRI study uses the figure of 12 percent of payroll for employers under the WHP. This is just flat-out wrong. The WHP assessment on payroll caps out at 12 percent, it doesn't start and stop there. In fact, it starts at 3 percent of payroll, and, depending on the size of the payroll, it gradually increases to 12 percent.
The WPRI study, however, pits that 12 percent figure against what small and mid-sized businesses currently pay, which leads it to falsely claim that for "most private-sector firms, the new payroll tax required to fund the plan would almost certainly exceed what they currently spend on health insurance." In actuality, those small and mid-sized employers would be paying signficantly less than 12 percent in payroll.
On the point of employee costs, during its study last summer, the LFB shied away from estimating what employees currently pay for health care in order to make comparisons to what they would be charged under the WHP because those payments can very greatly and getting accurate data is nearly impossible.
The WPRI study, however, decided to toss caution to the wind, although it did admit that its comparison figures for private sector employees were based on a "limited, and somewhat anecdotal, study."
In addition to the use of a "limited, and somewhat anecdotal, study," a big and glaring problem with the WPRI comparison is that it pits deductible costs under the WHP against current deductible costs paid by public and private sector employees. This comparison is largely meaningless because the WHP is made up of HDHPs for which most of the cost is shifted from premiums into deductibles, while most employees currently have coverage that is premium-heavy and deductible-light (although many are seeing their deductibles quickly catch up to their premiums in recent years).
The WPRI study conveniently ignores the question of how much employees currently pay in premiums versus what they'd pay under the WHP, and instead it focuses solely on deductibles.
Fourth, page 17 until the end of the report posits conclusions based on the previous pages, so, unless you buy what the study's selling up until that point, it may or may not be worth it to read on.
All-in-all, the WPRI makes some good points -- such as the one about negotiation discount rates -- but all of those good points are the same ones made in the LFB study last summer. And, rather stop at those good, objective points, the WPRI study clouds them with questionable free market theory and misleading comparisons.
So, in the end, if you want to learn more about the WHP, your best bet is to just read the LFB report on it and save yourself from the ideological fluff.
For those interested in reading it, allow me to offer some suggestions.
First, you can skip the first 8 pages. All those do is lay out a theoretical groundwork for why we shouldn't have health insurance (and for why the authors wouldn't support the WHP, no matter how sound it could be); according to the authors, consumers need to learn how to go it alone for their health care.
Second, you can either read pages 9-15, or you can just read the Legislative Fiscal Bureau report on the WHP that was written last summer. The info is the same (although the spin is heavier in the WPRI report). The big critique in this section -- first made in the LFB study -- is that the WHP cost estimates are about $4.3 billion less than what health care costs totaled in Wisconsin in 2005.
As I've noted before, comparing estimated WHP costs to actual health care expenditures is risky business because it assumes total costs will not change at all under a new structure of health care. Part of the promise of fundamental health care reform – such as what’s outlined in WHP – is that it streamlines and simplifies the system in a way that increases purchasing power of payers in the system and reduces administrative costs. Hence, to assume the WHP would cost as much as the existing system is like assuming your new Prius should cost you as much in gas as your old Hummer (a bit of an overstated analogy, perhaps, but you get the idea).
For instance, the state employee health plan recently switched to a tiered health plan structure similar to the one proposed in the WHP, and that move saved the state over $14.5 million in negotiations in the first year alone, according to the plan administrator for the Department of Employee Trust Funds. And the state's drug plan -- which moved all the way to single payer -- has realized savings in the tens of millions of dollars in the first couple of years since the switch.
The other significant point offered in this section -- again, lifted directly from the LFB study -- is that negotiation discounts rates assumed in the actuarial studies for the WHP appear high. That is, while commercial insurers only get about a 23 percent discount in today's health care market in Wisconsin, the WHP actuaries estimated discounts of 40-45 percent, which is in line with government run health plans like Medicare and Medicaid. Since WHP is made up of commercial insurers, the 40-45 percent estimate appears to be wishful thinking. As I've written before, more study of this point needs to be done.
Third, you can read pages 15-17 at your own risk. This section deals with current employer/employee health care costs in comparison to what they'd pay under the WHP.
When comparing employer costs, the WPRI study uses the figure of 12 percent of payroll for employers under the WHP. This is just flat-out wrong. The WHP assessment on payroll caps out at 12 percent, it doesn't start and stop there. In fact, it starts at 3 percent of payroll, and, depending on the size of the payroll, it gradually increases to 12 percent.
The WPRI study, however, pits that 12 percent figure against what small and mid-sized businesses currently pay, which leads it to falsely claim that for "most private-sector firms, the new payroll tax required to fund the plan would almost certainly exceed what they currently spend on health insurance." In actuality, those small and mid-sized employers would be paying signficantly less than 12 percent in payroll.
On the point of employee costs, during its study last summer, the LFB shied away from estimating what employees currently pay for health care in order to make comparisons to what they would be charged under the WHP because those payments can very greatly and getting accurate data is nearly impossible.
The WPRI study, however, decided to toss caution to the wind, although it did admit that its comparison figures for private sector employees were based on a "limited, and somewhat anecdotal, study."
In addition to the use of a "limited, and somewhat anecdotal, study," a big and glaring problem with the WPRI comparison is that it pits deductible costs under the WHP against current deductible costs paid by public and private sector employees. This comparison is largely meaningless because the WHP is made up of HDHPs for which most of the cost is shifted from premiums into deductibles, while most employees currently have coverage that is premium-heavy and deductible-light (although many are seeing their deductibles quickly catch up to their premiums in recent years).
The WPRI study conveniently ignores the question of how much employees currently pay in premiums versus what they'd pay under the WHP, and instead it focuses solely on deductibles.
Fourth, page 17 until the end of the report posits conclusions based on the previous pages, so, unless you buy what the study's selling up until that point, it may or may not be worth it to read on.
All-in-all, the WPRI makes some good points -- such as the one about negotiation discount rates -- but all of those good points are the same ones made in the LFB study last summer. And, rather stop at those good, objective points, the WPRI study clouds them with questionable free market theory and misleading comparisons.
So, in the end, if you want to learn more about the WHP, your best bet is to just read the LFB report on it and save yourself from the ideological fluff.
posted by Seth Zlotocha at Wednesday, January 10, 2007
5 Comments:
Assumptions. Assumptions. Why are others insistent to claim that medical costs are normally distributed by income? Certainly marginal items like plastic surgery would show a normal distribution by income. I have yet to see any study claim that cancer, heart disease, and other costs that make up the largest chunk of healthcare expenditures are normally distributed by income. In fact the inverse is often observed, namely that the poorer man is more likely to have this occurence. If demand is not normally distributed by income, then we know market forces are not the predominant forces in determining expense. So, on what basis would we anticipate market forces to lessen this expense? We know by now that market forces have the primary effect in healthcare on reducing the receipt of preventive care. Of course, no one is wheeled in ambulance and forced to undergo treatment for preventive care. Folks are however sent in ambulances to be treated for heart attacks.
This is even known in the insurance industry. Premiums are not calculated based on income. They are calculated based on age, sex, height/weight ratio, tobacco use, and medical history. Of these, only the height/weight ratio and tobacco use can feasibly be influenced by market factors, i.e. someone may be induced to lose weight to lower their premium.
Sit down before you go on.
I agree with your critique of the WPRI critique, with a niggling exception: you rhetorically minimize the "12%" threshold.
In fact, the 12% number kicks in when a business has a payroll of $500K, which is not that hard to achieve. It would be 17 "average-wage" workers--but then, a lawfirm w/3 attorneys and a good paralegal would also (very likely) have a $500K payroll.
WPRI's concern (which you share) is that the discount figures are overly optimistic. I agree. In fact, anecdotally, I can show you that they are WILDLY optimistic, at least for some--e.g., oncology.
Another item which was surprising was the Plan's "reserve" of only $23 million. That's very skinny for a $12BN anticipated expense...
Finally, WPRI does not concede that health-care is a right--or more clearly, that a well-ordered society seeks to render health-care to all its citizens as a right (assuming availability and no-frills affordability.)
That, of course, brings to mind the "what's actually covered" question. Is chiropracty covered? Cosmetic surgery? Sex-stimulants? Abortion?
Perhaps the calculation for determining the employer assessment should be altered to include some combination of payroll totals and the number of employees an employer has; that way it takes into consideration those firms who just have a high payroll but a relatively low number of employees.
But, due to the way the WPRI study was set up, it never stood a chance of presenting a rational and constructive critique of the WHP such as that. From the outset, it was ideological all the way.
The WHP, like the WCHPP and any major policy reform measure, is very much a work in progress. But the WPRI study made clear in its first 8 pages that it isn’t interested in participating in that progress.
Don’t get me wrong, I don't have a problem with a policy group applying ideology to a report, but the first 8 pages of a 24 page study? That's just ridiculous. The WHP never stood a shot with these authors, and how exactly is that contributing to the debate on an issue that both sides of the aisle acknowledge is the greatest public policy problem facing the state?
The WPRI study is a hack job, cover to cover. And, in the end, it presents no new substantive information from what the LFB study outlined months ago.
On this issue of what's covered that seems to be bothering you, I think it's a question that needs to be answered by what's considered medically necessary by the medical profession -- specifically a nonpartisan state commission set up to establish and maintain the definition of "medically necessary" as it applies to the state health plan.
I know you have a concern that the definition of "medically necessary" will continually be ramped up by the likes of the chiropractic and sex-change lobbies (although that hasn't happened with the existing state health plan for state employees). And, the fact is, there isn't any way to guarantee that those attempts won't be made (lobbyists will always be free to lobby), although guarantees can be made that they won't be successful without public knowledge and input.
And, for me, when weighed against the consequences of not doing anything to provide health coverage to the hundreds of thousands of Wisconsinites who currently lack it, not to mention those who currently don't have enough of it, the obscure possibility that the public won’t be able to stop irresponsible increases in what’s deemed “medically necessary” is a chance I'm willing to take.
We'll see.
On principle, I'm with WPRI (albeit I would not be quite so inflammatory.)
You keep quietly pushing the COST under the carpet--and the report was about the COST problem.
So--you wanna address that, or continue to yap about the irrelevant language?
I don't push cost under the carpet. I dealt with it directly in the post. Here's what I wrote:
"As I've noted before, comparing estimated WHP costs to actual health care expenditures is risky business because it assumes total costs will not change at all under a new structure of health care. Part of the promise of fundamental health care reform – such as what’s outlined in WHP – is that it streamlines and simplifies the system in a way that increases purchasing power of payers in the system and reduces administrative costs. Hence, to assume the WHP would cost as much as the existing system is like assuming your new Prius should cost you as much in gas as your old Hummer (a bit of an overstated analogy, perhaps, but you get the idea).
"For instance, the state employee health plan recently switched to a tiered health plan structure similar to the one proposed in the WHP, and that move saved the state over $14.5 million in negotiations in the first year alone, according to the plan administrator for the Department of Employee Trust Funds. And the state's drug plan -- which moved all the way to single payer -- has realized savings in the tens of millions of dollars in the first couple of years since the switch."
The state could save even more administratively and in negotiations if it went all the way to single payer like the WCHPP, but that doesn't seem politically tenable, at least at this point.
Of course more studies need to take place on any plan that ultimately gets passed. I don't think any of the current legislation before the state is going to be what eventually becomes law -- they're largely just starting points.
The problem with the right is that it has no comprehensive plan (making HSAs state tax free is hardly comprehensive reform) to offer (although the WHP and the WCHPP have some Republican support, the majority of the push is coming from the Dems), so many in the GOP are largely left with just criticizing the process of formulating reform instead of constructively participating in it.
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