Friday, July 27, 2007

It Depends How You Define "All In"

Jo Egelhoff over at FoxPolitics has been following up on the questions I raised about the numbers John Torinus used in his recent columns critiquing the Healthy Wisconsin plan.

Torinus claims that "per employee" costs are "less than $6,000" for KI in Green Bay, where he is on the board of directors, and around $7,400 for Serigraph, which is the company he runs.

My response focused on the fact that high deductible health plans (HDHPs) have lower premiums -- the bulk of which are typically paid by the employer -- and, true to their name, higher deductibles, the bulk of which are typically paid by the employee. As a result, comparing premium costs for a HDHP to premium costs for a traditional comprehensive plan is comparing apples to oranges.

Another issue is using "per employee" costs. The trouble with that is it doesn't account for those employees who opt out of the company plan, and it also doesn't allow for any distinguishing between those employees who opt for a less expensive single plan and those who opt for a more expensive family plan.

Egelhoff acknowledges the "per employee" issue, though not by explaining it for her readers; rather, she just tells them there are "good additional questions" that have been raised about the figures cited by Torinus.

But I think Egelhoff mistakenly believes that the other issue about comparing HDHPs to traditional plans was addressed when she received this response from Torinus about what exactly "all in" costs mean:
[It] includes every drop of health cost, employee and employer, dental, mental, drugs, HRA, prevention, wellness, disease management, on-site nurses, administration -- everything.
Notice the key word missing from that list is "deductible." Sure, the deductible is alluded to in the reference to an HRA -- or Health Reimbursement Account -- but that really only covers the employer-funded portion of the deductible since employees can't contribute to HRAs.

According to a report in the medical journal Pediatrics, the average employer HRA contribution is $1,556, while the average deductible amount is $3,686. That leaves a $2,100 doughnut hole for the employee to fill in each year.

Who knows, perhaps KI and Serigraph are very generous with their HRA contributions and put in well over the average while still keeping costs down to $6,000-$7,400 "per employee." Or maybe the two managed to convince the health plan to keep the deductible lower than the average while simultaneously decreasing the premium well below $8,530, which is the average for a family HDHP with a HRA.

But, in the end, I'm struggling to see how an army of cost-conscious consumers is going to lower premium and deductible rates that are privately negotiated with health care providers in advance of care.

I can see how that army could avoid overutilization (the key would be simultaneously avoiding underutilization, which can result in an increase in costs) and potentially shop around for the best price on certain non-immediate treatments (although studies suggest that even with pricing data, consumers really aren't in a good position to shop around for care, nor do they really want to shop around for it).

But how does that affect pre-set premium and deductible levels? Seems to me it's just about stretching your deductible dollar further. In terms of contracting with the lowest cost provider in the area, health plans already typically try to do that, hopefully while considering some quality measures at the same time. And in that game, what really makes a difference is the size of the health plan. The bigger the pool, the more negotiating power it has.

The key to lowering overall costs -- rather than just focusing on non-immediate procedures that tend to be relatively inexpensive, anyway -- is by addressing administrative inefficiencies on both the payer and provider sides (streamlining billing procedures, utilizing electronic medical records, etc.), along with reducing or ending the cost-shifting that takes place between uninsured and insured patients.

In any event, I've put in an email to Torinus to find out for sure what his numbers actually represent, and I'll update if I hear back.

And if it turns out KI and Serigraph are providing employees with adequate family coverage that runs $6,000-$7,400 per plan when you include the total premium and deductible costs for the employer and the employee, then I'll gladly lobby to include whatever steps they implemented within a universal structure. As I've explained before, I'm certainly not adverse to the use of HDHPs, as long as certain protections are in place.

Ultimately, I'm just after an honest and open debate about fundamental health care reform in the state, and that includes critiquing the Healthy Wisconsin plan with an apples to apples comparison. I know Jo Egelhoff is after the same.

On the topic of contacting Torinus, I want to mention an online forum that's being sponsored by the Journal Sentinel next Wednesday, August 1 from noon until 1:30pm. Torinus and David Reimer will be engaging in a moderated debate using questions sent in by viewers. It should be interesting, so check it out and submit a question if you get a chance.

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Blogger krshorewood said...

John will claim the out of pocket for his employees is the same as when they had traditional insurance -- and I am sure it is.

But you know businesses. Torinus may do an excellent job with HSA's at Serigraph, but by a magnitude of hundreds other employers will see this as an opportunity to cost-shift, unless they are in a highly competitive situation with their work force.

And no matter how beneficent the employer, you are still dealing with insurance companies that my find ways to wiggle out of coverage based on technicalities.

July 27, 2007  
Blogger John Foust said...

KI's web site says they have 3,000 employees. Torinus says there's only 1,429 in the plan. Yes, they're spread among several factory locations. Several plans and circumstances at different sites, with different financial pictures? Only 47% were offered the plan, or only 47% took it, or only 47% in the plan he wants to talk about? That's what "well-regarded" means? I welcome clarification.

I don't like the smoke-and-mirrors that could be happening in so many of these comparisons that say "but my private company's health care costs $1,000 less than your company's, and $4,000 less than the state's Cadillac plan." It's like they're suggesting that the market is so inefficient or opaque, that the price of corporate packages is so hard to research and discover, that company A can't get the same health care package as company B. Or that if company A has 10 employees and company B has 10,000, that health care won't cost less in bulk. Or that if one package costs less than another, that there isn't a *reason* it is different - like that it offers less services or some deductibles are higher. If you are suggesting they're the "same", and the price is different, then the services probably aren't the "same". It's as if they're suggesting that their company discovered the magic beans of low-priced health care, but they can't tell anyone else the name of the company they bought it from.

If I told you I could buy a fleet of new cars every year with each costing $4,000 cheaper than you could ever find, you'd be suspicious. You'd think, they mustn't be new, he must be bragging, there's got to be a trick or an angle, like that they arrive painted purple, or they're without tires or air conditioning.

July 27, 2007  
Blogger Seth Zlotocha said...

Thanks for mentioning the KI employee numbers, John. The only reason I left it out is b/c it's impossible to verify exactly how many work at the local plants, which it appeared Torinus was referring to in his column (but that, too, is unclear). I still think it's a good point, nonetheless, and it clearly highlights the problem with using "per employee" costs.

July 27, 2007  
Anonymous Anonymous said...

I am going off topic a bit, but I have not heard any opposition or endoresments from the medical community and or the Wisconsin Medical Society or WEAC, any reasons why? I would think that the one of the groups we would like to hear from who would be effected greatly would be the medical community, especially doctors. I am waiting to form an opinion on this plan until I hear an official word from the medical community. If they say, that doctors would leave Wisconsin because of this plan, I would have reservations about it. Having lived in Illinois, I know what happens when doctors flee the state. I saw it first hands over OB/GYN's, albiet over a differnet issue.

Where is discussion on the capacity of primary care docs to care for the projected increase in patients? According to WHA their are physician shortages now in some parts of the state and that thier is a national physician shortage looming.

Sorry for going off topic

July 27, 2007  
Blogger Seth Zlotocha said...

That's a good question, Anon. I'm a little surprised we haven't at least heard from the Wisconsin Hospital Association -- they're usually quite active on legislative issues.

In the end, I would suspect most docs would support the plan (the WHA could be different). The AMA has come out in favor of universal plans in recent years, which is a drastic change from its position throughout the 20th century. As long as docs don't perceive a drop in reimbursements -- and the Healthy WI would increase provider reimbursements by an estimated $66 million, mostly do to the elimination of uncompensated care -- I can't imagine there would be any significant problems with it.

July 27, 2007  
Blogger Russ said...

In the 80s and 90s I had the thankless job of negotiating and contracting for group health insurance. When I left the group had approx. 100 insured.
I switched the plan from traditional insurance with the usual small deductables. We went to company self funding up to $10,000 per insured. We used a third party administrator to pay claims. Our reinsurer covered everything at 100% above the 10K. Nothing changed for the employee. Their out of pocket remained exactly the same.
We saved one third. That's just one example of the savings that are available simply by taking on some risk.
I'm sure John Torinus and company have adopted savings techniques far beyond what I did.
The bottom line is realy very simple.
Companies, particularly those in highly competitive industries, MUST have every vehicle and tool available to them to constantly "shop" for affordable health care year after year.
Most Companies are doing the obvious, they're asking their employees to become "smart shoppers".
Torinus mentioned they have an MRI provider that much less expensive than the typical hospital. A couple weeks ago I heard PET / CT scan are available for $1,700 from a specialty provider vs $7,000 in many area hospitals.
Companies in this state must be in a position to take advantage of every method possible to save on health care. Any government run health plan that takes away the tools will take us backwards.

July 28, 2007  
Blogger Seth Zlotocha said...


There's absolutely nothing under Healthy WI that says one-stop shops that provide MRIs, PET/CT scans, or any other routine procedure can't contract with health plans, just as they can now. Since health plans would be competing with each other under Healthy WI to be the lowest cost network, there are high incentives for them to seek out those types of contracts. And Healthy WI also provides incentives -- through a $300-$600 deductible -- for people to be wise consumers when it comes to their health care dollars, and visiting those one-stop shops when they need that type of care certainly falls into that category.

But the fact is focusing on routine care is a non sequitur. That's simply not the care that's bankrupting families and forcing businesses to drop coverage (or preventing them from offering it in the first place). It's chronic care and other major ailments that cost money, and those are the type that can't be treated at one-stop shops. Ask a doctor to put a price tag on cancer treatment -- it simply can't be done because it's far too variable. Even a baby delivery can have a vastly different price tag depending on complications, such as whether a c-section is needed.

The bottom line is that Healthy WI would reduce health care costs by nearly $2 billion in the first year alone, and a plan like the WHP would do the same. Torinus has said that Serigraph is currently paying 14-15% of payroll towards health care (see his July 1 column). Well, Healthy WI would cost his company between 9-12% of social security wages, which is even less than total payroll (assuming they have workers pulling in over $97K...I'm sure at least Torinus himself is in that boat). How exactly is that making us go backwards?

July 28, 2007  
Blogger Russ said...


Healthy Wisconsin in effect creates a statewide single non negotiable health care premium cost fixed by the state. 10.5% of SS wages company paid and 4% employee paid. Serigraph's control of their health costs is taken away from them and given to a state board.

Obviously if HW becomes law Serigraph will have no control over it's health care costs. That job is turned over to an appointed board. A board with appointments made by a governor that has already stolen funds from the medical malpractice fund.

The findamental flaw of HW is the socializing of health care premiums into one single rate and then collecting it as a tax.

Above all, concentrating the power to determine the future of health care costs, in the hands of an unelected board is a very bad idea.

The Healthy Americans Act, on the other hand, does not "socialize" health care costs. Individuals are able to choose a plan them works best for them or their family AND pay the premium for that plan.

HAA puts market forces to work whereas HW does the opposite.

July 29, 2007  
Anonymous Jo Egelhoff said...

Seth, great to hear details about the on-line forum. Great place to get answers to our questions. Thanks Russ, for clarifying for folks what individuals taking responsibility for their health care can do for costs. Seth, you used one example - $300 - $600 deductibles impacting a patient's decision about a $1,700 test vs. a $7,000 test. Why would consumers care what the cost was after they paid their $300? They won't, and they haven't been, and that lack of responsibility/accountability is a major contributor to rapidly escalating costs.
You're right to mention the importance of any plan doing all it can to encourage prevention; most high-deductible plans do that. Right too, to mention the high cost of chronic illness; Torinus et al. are very proactive in treatment and prevention of high blood pressure, diabetes, heart disease, etc.

July 29, 2007  
Blogger Seth Zlotocha said...


There is not a single rate plan under Healthy WI. The plan rates -- as in more than one -- are set in negotiations in the private market between private health plans and private providers. Health plans have incentives to become the lowest cost network in the area -- just as they would under the HAA -- to attract more participants. The uniform funding mechanism under Healthy WI is used to put money in a trust fund to pay those health plans based upon the bids they submit.


Taking your $1700 vs. $7000 test example, the only way to make the consumer act in a cost conscious manner is to have the deductible level significantly over $1700. Otherwise they would be paying $1700 or less either way, so there would be no incentive to opt for the cheaper test. And what that's going to do for many families is dissuade them from having the test in the first place, or it's going to put them in debt trying to pay for it. And once that first test is done, then they're in the same boat as before where they can get any procedure done without consideration of cost b/c benefits would've kicked in.

But I'm all for increasing the deductible level under Healthy WI. I'd prefer the $1200 rate of the WHP with a $500 state-funded HSA.

And I'm sure most companies that offer HDHPs like Serigraph are doing a lot to push preventive care. So do employers that offer comprehensive coverage. The point is that citing costs of routine procedures at one-stop shops and claiming that demonstrates "the promise of the marketplace" is a red herring since it doesn't address the type of costs that actually make our health system really expensive.

In the end, I think you're putting way too much emphasis on overutilization, particularly when it comes to routine procedures. It's an issue, but I haven't seen a single independent study that points to it as the major driver of health care costs in the US. Have you?

Also, I heard back from Torinus. His "per employee" numbers include only covered employees, but they do mix single and family plan participants. He wasn't sure what a family plan costs when you include the total premiums and total deductibles, so he's having the benefits specialist at Serigraph get back to me. I'll post an update when I hear something.

July 30, 2007  
Anonymous M.Z. Forrest said...


When I enterred the TPA environment (~2001), the $15,000 deductible had already pretty much gone bye, bye. $25,000 was pretty common for the specific deductible. You should have have an aggregregate deductible as well. You assumed a significant amount of risk not doing that. At $25,000 spec, I could count on 2-3 people per hundred reaching spec. Assuming the other 98 had an average of $500, the bill ex-premiums would be $98K. So indeed if you had a good year you could save money. However, if you had 10 of those 100 hit spec (I've seen it happen), you would have a bill for $298,000. Having done the work for two decades, you should know not to compare good years to full insured. Not having the aggregate deductible is probably where a significant amount of your 'savings' came. If you would have had a bad year, it would have cost your company dearly.

August 01, 2007  

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