Wednesday, June 27, 2007

Health Care Reform: Making It Fairer

One of the more compelling arguments against any universal health care plan, not just Healthy Wisconsin, is that it's unfair to require employers -- particularly those who don't already offer their employees health insurance -- to contribute to a program; rather, the labor market should dictate their participation.

As with most of the other arguments against universal health care, this line assumes that the system that we have now is fair or another type of system could be fairer.

For starters, just because you don't have health insurance doesn't mean you're not going to need health care. And when the uninsured -- or underinsured -- go in for care that they can't pay for themselves, which is happening on an increasing basis each year, the costs get shifted onto paying patients and, in all likelihood, their employers through increased premiums, deductibles, co-payments, co-insurance, etc.

The same is essentially true for employed people who are forced into Medicaid because their employer does not offer them affordable health insurance. Not only do individuals and businesses pay for these people to get onto BadgerCare, those individuals and businesses that pay for health insurance pay more for that insurance because of low Medicaid reimbursement rates.

So if a set of employers chooses not to offer its employees health insurance because the labor market doesn't demand it, that decision is actually costing other employers and employees more.

What, then, are the options? Really, there are a few:
  • Do nothing. The result of this will be a cycle in which cost shifting increases as more and more employers skimp on health insurance or remove it from their employment benefits altogether, which, in turn, places more pressure on those who are still in the system who, as a result, leave the system and so on.
  • Refuse care to those who don't have health insurance -- or enough health insurance -- and cannot afford the care out-of-pocket. This reduces cost shifting and would likely put more pressure on the labor market, at least the middle and upper class portion of it, to have health insurance be a part of employment. However, the moral implications are obvious.
  • Mandate that everyone carry an adequate level of health insurance, just as we do with car insurance, to reduce or eliminate cost shifting.
For most people, options 1 and 2 are out because of the economic and moral issues that arise with each.

That leaves option 3, which, if done centrally, has the added bonus of holding down costs through increased administrative efficiency and purchasing power. But the big issue for that option is how it's going to be funded. Do we place the onus on employers, individuals, or some of both? There's going to be winners and losers -- in terms of both cost and coverage -- any way to slice it.

The Healthy Wisconsin initiative involves both, but the weight is on the employer. Germany, which also offers its citizens universal coverage through an array private payers and providers just like Healthy Wisconsin proposes, also involves both, but the funding split is equal with employees putting in about 6.5 percent of wages and employers matching that amount.

You could opt to place the entire -- or even the vast majority -- of the onus on individuals, but would the resulting decrease in after-tax wages be any more desirable than requiring employers to foot the bulk of the bill?

As some critics have pointed out, some minimum wage employees -- mostly in the retail and service sectors -- would lose their jobs if all employers were required to pay into a health care system like Healthy Wisconsin, while other jobs -- the ones that currently don't get health insurance through their employer -- would see a decrease in wages to compensate for the increased labor costs associated with the employer assessment (of course, they'd now also have adequate health coverage).

But if the onus was placed on the individual, similar results would likely happen, except minimum wage workers would be quitting rather than getting fired since their after-tax income would decrease beyond the levels that would make it livable (it's pretty much beyond that point already for most who rely on minimum wage for their livelihoods).

Even if you split the difference like Germany, there will still be a drop in employment -- probably through a combination of firings and quittings -- as a result. There's simply no magic way around it.

And that's the reality -- there's no easy way out of the health care situation. Tinkering just won't cut it.

The quicker we start facing that reality in substantive discussions rather than politically-charged rants, the quicker we can move to a system that isn't without losers, but also doesn't have the amount or level of losing that we currently have or what other alternatives would bring.

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25 Comments:

Anonymous Anonymous said...

The fundamental flaw in your argument for the WHP is that a cost shift from business expense to tax is not simply a financial one.

When you look at a compaines financial report you will see two of many line items. For now we will look at taxes and health insurance premiums (HIP). The HIP line certainly has a monetary value, but it also has other values: flexibility, optionality and reduction. These are all qualitites that the tax line does not have.

The owner can choose to increase the benefits, reduce them, add them, eliminate them, shop out for comparison or reconfigure them. The tax line is simple - pay what the government demands or go to jail.

WHile that might sound harsh - it is accurate. One other item - the tax line will never go down, ever. It will never be eliminated. it will only change if an un-elected board of 16 people appointed by Doyle say so.

While the plan is sold as a cost savings for the "greater good" and you try and spin it that government is not in control - any time you pull $30 billion (at least) every budget cycle from the private sector and run it through Madison - government has control.

And there lies the fundamental difference betwen us. You have no fear of government whereas this type of control scares the shit out of me.

June 27, 2007  
Blogger Seth Zlotocha said...

What scares the shit out of me is the prospect of businesses (and/or insurance companies) having the ability to yank adequate and affordable health care out from under employees in any given year, or -- worse -- blocking them from accessing it at all. You act like all this is about is who controls the expense report for businesses. Yeah, the government would be controlling the health care expense portion of it under any universal health care plan, but it's not for the sake of control -- it's to ensure virtually everyone in the state of Wisconsin is able to get affordable and adqequate health care, just like individuals and businesses are forced to pay other taxes to provide everyone in the state with access to affordable education, protective services, etc.

And centralizing the health system happens to have the added bonus of harnassing administrative efficiencies and negotiating power on the payer end, the latter of which is becoming increasingly important as providers continue to consolidate.

I'd say the difference between you and me is that you view things through an ideological spectrum that defines business decisions as the essence of freedom and government programs as the essence of control, while I view ensuring that citizens have access to basic services such as education, protection, and health care as the basis for freedom and leaving those issues (not all issues) to the whims of the free market as the basis for inequity.

June 27, 2007  
Anonymous M.Z. Forrest said...

Say a typical family premium on a decent plan - like what one would pay under COBRA - is right around $12,000. I don't think the number is too outlandish, and it may even be a bit on the low side. If we stipulate no one should pay over 10% of their income for healthcare, we arrive at an optimal household income of $120K. Requiring health insurance at such a level is simply untenable for 80% of Wisconsin families. Even if we take it to 15% of household income, we are at an optimal income of $80K. Going the reverse route, say the median family makes $40K per year. A corresponding health expense would be $4K per year $335/month. $335 won't buy you much in the private market. The system is broke. One could compare it to auto insurance except auto insurance costs less than a tenth of health insurance.

June 27, 2007  
Blogger Seth Zlotocha said...

The figure on the table isn't 10 percent of income, it's 14.5 percent of social security wages (a figure that was vetted by a Lewin Group study). My post is saying that figure can be divided between the employer and employee however people want, similar economic consequences are going to result. And if nothing is done at all, or you simply tinker, different -- and arguably more severe -- economic consequences are going to result as the cost shifting spiral continues. That's the issue at hand, and my post argues that's where people need to be focusing their attention rather than on hyperbolic soundbites like "big government," "largest tax increase in state history," "socialized medicine," etc.

June 27, 2007  
Anonymous Anonymous said...

Don't forget however, that the numbers touted by the Senate Dems are not verified by anyone. The Lewin Group study was not done on the plan passed by the Senate. The little power point presentation that AARP paid for is not an actuarial study.

The Legislative Fiscal Bureau has not had an opportunity to do any analysis on this plan. And don't think for a second that that wasn't done on purpose.

June 27, 2007  
Blogger Seth Zlotocha said...

The AARP PowerPoint is clearly based on the Lewin Group review; in fact, it has the Lewin Group name/logo on each page and the charts include citations to Lewin's Health Benefits Simulation Model. Do you think Lewin would allow that if it never reviewed the plan?

If the concern is over Senate Dems not releasing the entire Lewin report, I can understand that. But the Lewin report on the WHP has been released in full, with virtually the same conclusions as what's been released for Healthy Wisconsin, and do you suppose the GOP reaction to the WHP in the budget would be any different?

June 27, 2007  
Anonymous Anonymous said...

Different - yes. Everything in the Caiptol relating to money is taken from Fiscal Bureau documents. They are the one entity that people reliably use. That is not to say that there is never a problem with their analysis, but they are certainly the first place any legislator goes when they have questions regarding a budget item.

But seriously, if a plan of this size (actually it is the biggest state government program in history) is worthy it should not be rushed with little or no data with it.

June 27, 2007  
Blogger Seth Zlotocha said...

You think the WHP would've been received differently by the GOP Assembly? I haven't seen a single substantive objection to the Healthy Wisconsin plan that would make me think the WHP would've been given any more of a legitimate look if it was in the budget. To be sure, the only substantial difference between the HW and the WHP is the inclusion of a partially state-funded HSA to accompany the higher WHP deductible. That's essentially it; the rest is pretty much the same.

To be honest, I actually wish it was the WHP in the budget. I don't like that HW was installed in the budget so quickly. But it's not enough to make me toss aside a strong substantive proposal, which the HW is, and that move doesn't bother me nearly as much as the fact that Assembly Republicans would shoot down ANY fundamental health care reform proposal that involves the government -- and all fundamental health care proposals do -- regardless of how many public hearings were held on it or how many pages of LFB info backed it up. The HW plan isn't going to pass the budget this session, and the Dems know it; and they also know that regardless of how they set it up, it wasn't going to fail on its merits.

June 27, 2007  
Blogger Russ said...

Healthy Wisconsin is classic "socialized medicine". It will suffer from the same problem the systems in Canada, UK, and Sweden have. They all routinely run out of money. They solve the problem by rationing. Of course no one is telling the citizens of Wisconsin about rationing. Here's how it works. A 60 year old close friend of mine in London has been told the left artery to his heart is totally blocked. The Doctor is medicating him. When he asked why no bypass syrgery he was told he is not incapacitated enough. That's code for we're going to let you die. Last I heard he's going to India, at his expense, to get his operation. The citizens of Wisconsin are going to love that. The Massachusetts system seems to be starting to work. A single resident can buy basic health care from a private insurance co. for $175 per month. Before their reform plan kicked in the cost was $350 a month. The reason for the reduction in cost is obvious, thousands of young healthy people are now contributing to the money pool. They are required to buy health insuarnce. The private insurance companies are not allowed to ration, however some may go bankrupt and that problem has probably not been sorted out yet.

June 27, 2007  
Blogger Seth Zlotocha said...

It's pretty clear, Russ, that you haven't actually taken the time to understand the HW proposal. It's not single payer like Canada or the UK (although I would argue their rationing isn't any worse, and is in some ways better, than the rationing in our current system -- your friend wouldn't have any better luck getting his surgery here if he was among the millions of uninsured Americans). The HW plan uses private payers and providers along with community rating just like the Massachusetts plan you speak so highly about.

You can read more about the HW proposal here, here, here, or here.

June 27, 2007  
Blogger Russ said...

The plan clearly states the costs
4% of SS wages for employees
10.5% for employers
10% for sole proprietors

Doesn't sound like choice to me.

June 27, 2007  
Blogger Seth Zlotocha said...

The choice is in health plans and providers. Did you expect it to be free?

You seem to (wisely) believe in the need for community rating, Russ. Tell me, how do you plan to achieve community rating without mandating participation?

June 27, 2007  
Blogger Russ said...

Seth
Do you have a list of the
"Health plan choices"
Since the cost is fixed, office call co-pays are fixed, and annual deductables are fixed, I'm curious to know what the choices are.

June 27, 2007  
Blogger Seth Zlotocha said...

The plan choices are based on the bids made by private insurers through the public-private trust. The lowest bid plans get put in the "low cost network" category. If a participant opts for one of those plans, the premium costs are paid for entirely by the payroll assessments. If a participant opts for one of the other plans -- those in the "high cost network" category -- that particpant is required to fund, on a monthly basis, the difference between the low cost network rate and the chosen high cost network rate. Cost sharing -- deductibles, co-pays, and co-insurance -- would be the same between the low cost network and the high cost network, the difference would come in breadth of coverage and available providers.

All of this is outlined in the plan descriptions I link to above.

June 27, 2007  
Anonymous M.Z. Forrest said...

Even at 15%, it just moves the optimal income to $80K or the optimal premium $6000($500/month) for the median household. Such is not something that could be compelled as you suggest in option 3. I'm not writing to oppose health care reform. I think we do have to be realistic about our options though and expecting the bottom 40% of households to fund their own healthcare is unrealistic.

June 27, 2007  
Blogger Seth Zlotocha said...

The Lewin Group already crunched the numbers using far more complex formulas than payroll assessment multipled by a hypothetical salary. The numbers check out. You can see a summary of the report in the "AARP PowerPoint" link above.

And the bottom 40% wouldn't be funding their own health care -- they'd be subsidized by the upper income earners.

And it's important to remember a big difference between the current structure and the HW structure is dual income families; now both earners (and employers) would be paying for health care, whereas before it was probably just one.

June 28, 2007  
Blogger Russ said...

Seth
The Massachusetts Commonwealth Connector makes more sense. The site provides all the private insurance plans available and the the individual or family buys the plan direct from the insurance company.

June 28, 2007  
Blogger Seth Zlotocha said...

There would be a site under the HW legislation that would inform consumers of all of their private plan choices, too. Are you going to not support the HW proposal because consumers wouldn't be paying the insurance company directly for access to the low cost networks (they would pay the plan directly for a portion of any high cost network)?

June 28, 2007  
Blogger Russ said...

Seth
In a nutshell YES. There is no reason to send premium Dollars to government to have them redistribute it to a private insurance company. Tell me why do you want the state government involved. Obvoiusly that new state bureacracy would become another parasite sucking money from the health care pot. That 30% adminstrative cost you talk about would go up.
Furthermore we just watched our governor rob funds from the medical malpractice fund. That's what happens when money is sent to Madison, dishonest politicians steel it to pay off special interests or campaign contributors.

June 28, 2007  
Blogger Seth Zlotocha said...

The reason you need to go through the state is to equalize costs based upon the individual's and employer's ability to pay and the insurer's risk.

The state would disburse monthly payments to the health networks based upon membership under the HW, which includes both the number of members and the risk factors associated with them. If certain insurers are taking on a heavier risk load, for whatever reason, their payments from the state would be higher than a health network with the same membership number but lower risk.

The only way to equalize these payments for individuals and employers is to make the payments centralized; otherwise, your premiums will be going up based upon your -- or one of your employees -- risk factors, most notably age. This is how it works in the MA plan. Go through the MA Connector website as a 30 year old and then go through again as a 55 year old (use 02101 for a Boston zip code). Your premiums will double in cost. That's not how it works in the HW plan; everyone just pays the same portion of social security wages (although cost sharing, of course, would vary under the HW plan depending on how much health care you consume in a given year).

June 28, 2007  
Blogger Russ said...

Seth
Company group health insurance plans are not age rated now. A group does not have to be a company, a group could be residents of Milwaukee County or residents of all the 530-- zip codes.
It is not necessary for government to be involved with the funds. I'm sure Massachusetts figured that out early on, to bad we can't here in Wisconin.

June 28, 2007  
Anonymous M.Z. Forrest said...

Company health plans are either individually rated(Generally under 100 employees) or experience rated. If the former case, then they are explicitedly age rated. In the latter case, they are implicitly age rated.

June 28, 2007  
Blogger Seth Zlotocha said...

Russ, the MA plan does age rate. Go look on their website.

And, to piggy-back on what M.Z. wrote, if everyone from a particular zip code or county paid the same amount for a selection of health plans, how would insurers be assured they were not taking on a disproportionate number of high risk enrollees? Who would do the risk leveling that the state would be doing under the HW? If an insurer, even by chance, gets stuck with a significantly higher percentage of high risk enrollees than a competitor, you can't just tell them "tough luck," unless, that is, you want them to simply remove their network from the area.

Beyond all that, there's the issue of the individual's and employer's ability to pay. Even if you can manage to equalize insurance cost while protecting each insurer from adverse selection, if you have individuals purchase their own health care directly, there's no way to distribute the funds in a way that makes the plans affordable for lower income workers or lower revenue employers. What makes the HW plan work is that it not only pools risk, it also pools wealth.

And, by the way, administrative costs would be far less under the HW than they are now -- to the tune of about $1 billion in the first year alone, according to the Lewin Group (see "AARP PowerPoint" link above, page 10). In fact, Lewin puts administrative costs at about 5.3% of total program costs under the HW (page 12).

June 28, 2007  
Blogger Russ said...

Seth
The only way forward is to watch Massachusetts. Their plan takes effect July 1st. If it works as is, without the state collecting a new health care tax and redistributing a portion of the taxes collected to private insurance companies, then we can take advantage of their experience.
Why don't I want the state to collect the funds? Our state has the largest per capita deficit of all 50 states. Sadly our governor and legislature are unable to manage the state's finances. They just can't produce a balanced budget. Furthermore they can't do it when income and sales tax revenues are increasing due to the strong economy. What in the hell are they going to do when the economy slows down??? And you want to let that bunch manage health care? That's going to be a hard sell.

June 29, 2007  
Blogger Seth Zlotocha said...

Seems to me you're spinning your wheels, Russ. You came in here with some tangible objections that got shot down, so now you're turning to non-substantive objections like watching MA (as if deciding what "works" is an objective process) and claims (much of it false) that the state, as a general rule, doesn't know how to manage money.

And what you ignore in your critique of state government is that it's health care costs that are the expense that's crippling the state financially (just as it's doing to most private employers, if, that is, they offer health insurance to employees). The HW is an actually attempt to address that, and it would result in a roughly $1 billion drop in property taxes as a result of putting everyone in the same boat, which means -- among other things -- making public employees pay more and, just as importantly, getting their spouses (and the employers of their spouses) to contribute to a share of the costs rather than relying on the fact that they are (or their employee is) married to a public employee.

And how the hell do you think the private sector in our current system would handle health care any differently than the state in an economic slowdown? Either way there's less money going around, which results in rate increases, cost sharing increases, utilization decreases, or some combination of those responses. An economic slowdown is a problem, but that's true regardless of who's running the show.

June 29, 2007  

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