The WHP: A Level Playing Field with Choice & Personal Responsibility

If nothing else, the new Lewin Group report on the Wisconsin Health Plan makes the WHP the most well-vetted of any of the three fundamental reform proposals being considered by legislators.

All fundamental health care plans level the playing field for consumers, and the WHP is no different on this front. Leveling the playing field for health coverage is most beneficial to the less healthy, which tends to be the older population.

This chart from the Lewin report demonstrates how average health care costs increase with age:

Putting everyone in the same boat regardless of health status is the idea of community rating. The more healthy essentially subsidize the less healthy and in return they get the security of knowing that if (or, more likely, when) they or one of their dependants move into the category of less healthy, they will retain a solid set of benefits at an affordable price.

Community rating is going to be an aspect of any fundamental health plan, but there are a couple of aspects that distinguish the WHP from the rest of the field: choice and personal responsibility.

While the other two fundamental health care plans are essentially single payer, the WHP retains the multiple payer system. There are some downsides to this on the administrative side -- costs are typically higher under a multiple payer system -- the advantage is that it retains some level of consumer choice.

This choice is heightened under the WHP by the tiering that's involved; consumers can choose between plans in the first tier, which would be funded entirely through the WHP, or they can opt for broader coverage in one of the higher tier plans by paying the difference in the premium between that plan and the first tier plans.

In addition to choice, the WHP also retains a strong level of personal responsibility through its implementation of cost-sharing, specifically in the form of a high deductible. This cost-sharing ensures that while there is a social safety net for the less healthy that will be largely subsidized by the more healthy, there is still a place for personal responsibility in terms of both health care costs and a focus on wellness.

I've been critical of High Deductible Health Plans (HDHPs) before on this blog, but I've also noted that when structured with proper patient and consumer protections -- such as a reasonably low deductible, at least partial annual funding of the HSA, and no cost sharing on preventive care (all of which the WHP includes) -- they can be a good tool for keeping health care costs in check. More specifically, studies have shown that HDHPs can lower some of the unnecessary health care utilization costs that have contributed to our expensive system.

But the same leveling that makes the WHP -- and all fundamental reform -- so attractive is also what makes it a politically challenging issue. In any fundamental reform there are going to be winners and losers.

That's not to say there isn't plenty of winning and losing in our current system, and it's hardly questionable that the winning and losing would be less drastic after fundamental reform. Nevertheless, under fundamental reform, some people are going to see their coverage go up, while others will see their coverage go down. And that fact alone is going to cause political problems, even if it puts us in a better position than we are in today.

And the troubles don't end with just coverage. While those who are seeing their coverage decrease are also seeing their costs decrease -- although in the WHP they could always increase their coverage by moving to one of the higher tier plans or putting more money into the HSA -- those who are seeing their coverage increase are also seeing their costs increase. And it's this latter point that will probably prove the most politically difficult to overcome in the upcoming health care reform debate.

As the Lewin study makes clear, employers who do not currently offer health care benefits to their employees are going to get hit harder under the WHP than those who do. This isn't really a surprise. The Lewin Group predicts that most employers will be able to withstand the cost increases for health care benefits by reducing some other form of compensation, most likely wages.

Lewin estimates the average employer who doesn't offer health benefits now will reduce wages by about $2,800 per worker, while the average employer who does offer health benefits now will reduce wages by about $173 per worker (mostly because the WHP payroll tax will include wages for part time and seasonal employees who typically don't get health coverage today). But since employer costs would be tied to payroll level, Lewin estimates that the bulk of the wage cuts would be focused on the higher income levels, as this chart demonstrates:

This isn't to say, however, that the most paychecks would necessarily drop under the WHP. This is particularly true when tax cuts are taken into consideration. Not only would personal property taxes for busineses be eliminated entirely, businesses would also see their general property taxes drop by $213 million while households would see their property taxes decrease by $550 million in the first year. After these tax cuts are taken into consideration, it's likely many employers wouldn't find any wage cuts necessary.

It's also important to note that, in relation to the wage question, the savings associated with the WHP -- which the Lewin report placed at $8.9 billion over the first decade -- aren't really realized for the first couple of years after the plan is in place (see chart below). So while some wages may be impacted initially, the long term effect should be to strengthen wages in the state.

And it's also necessary to remember that these wage effects do not take into consideration the increase in worker assets that would come from the funding of HSAs by the state, which starts off at $500 annually and accumulates from year to year.

But, nonetheless, is it fair to expect that wages might decrease for some workers as a result of the WHP, even if only initially? If you consider health benefits to be a part of compensation, which most economists do, then the answer is "yes." In fact, many unions have opted for wage freezes, or sometimes cuts, in order to avoid greater cost sharing for health care benefits -- it's the same idea here.

But is it fair to those who really don't want health coverage and would prefer to just get the money in wages? There the answer -- at least on the surface -- is probably "no," but that can't be the only consideration when it comes to health care coverage. After all, just because someone chooses not to get health insurance doesn't mean that person isn't going to need health care at some point.

And when the uninsured person eventually does need health care -- and all of us do, at some point -- it's not like the costs of that care just go away. Instead, those costs get shifted to those of us who do have health insurance. How fair is that? It's the same basic idea as requiring everyone in the state to have car insurance if they own a car.

In the end, there are many complex and important points to debate and consider when it comes to health care reform. Fundamental reform will unquestionably have great overall benefits in the future -- over 99 percent coverage and $8.9 billion in health savings in the next decade highlight that fact -- but, as with any change, there will be some costs, especially up front, and those costs will effect certain segments of the population more than others.

It will be interesting to see what aspects of the WHP get included in the "unity plan" that's expected to be announced by Senate Dems in the next month. It's sure to level the playing field in a similar way as the WHP, but how much choice and personal responsibility it includes will be important aspects to focus on.