Monday, July 02, 2007

Critiques of Healthy WI Keep Coming Up Short

As expected (by me, at least), Serigraph CEO and WMC board member John Torinus took a shot at the Healthy Wisconsin plan in his weekly JS column yesterday.

At the start of the column, Torinus makes a curious claim. He writes that the HW plan is solely about coverage and not costs. This is curious because the Lewin Group actually found that HW would reduce health care spending by over $750 million in the first year alone.

The thing is, Torinus has a monolithic view of health care costs. It's like every other market to Torinus in which consumers purchase a service for a price that's entirely driven by the cost and value of that service from the perspective of the seller.

There is certainly some of that in the health care market, but the reality is much more complex. Since health care typically works with third-party payers -- which is necessary if you want to distribute risk -- there is the added cost of paying for those third-parties. Also, since health care is unlike most other markets in that its services are often required to sustain life, people's ability to pay does not always dictate whether they receive the service. And when they can't pay, others pay more to compensate.

In short, when consumers pay for their health care -- or, more accurately, their third party payers pay for it -- they're not just paying for the health care they received. To be sure, in its recent review of the Wisconsin Health Plan (WHP), the Lewin Group estimated (page 13) that health care services actually cost private payers 70 percent more, on average, than the true cost of those services.

So when we talk about reducing health care costs, there's much more that needs to factor in the equation than simply the literal cost of that care.

But, actually, the literal cost of care is something that the HW plan addresses, Torinus just doesn't acknowledge it. He laments that the HW doesn't include a higher deductible with a HSA like the Wisconsin Health Plan does. On that we're in agreement.

But Torinus ignores the fact that there is a significant deductible -- $300 for individuals and $600 for families -- included in the HW for non-preventive adult care. So there is some incentive to shop around for care under the HW plan; and, if it's raised as a substantive issue, perhaps Dems would be willing to include a HSA option in the mix.

However, the majority of cost savings under the HW plan comes from increased administrative efficiencies and reduced cost shifting. And this is really the most appropriate place to target cost savings. As studies have shown, even with pricing data, consumers really aren't in a good position to "shop around" for health care, nor do they really want to shop around for it. And with the increasing geographic disbursement of different hospital and clinic systems -- a byproduct of provider consolidation -- the options for shopping around are decreasing by the year.

The rest of Torinus' column relies on a numbers game in an attempt to demonstrate how businesses are already handling health care costs in a much better way than the HW would. He writes:
The Democratic rhetoric is that every citizen of Wisconsin should have the same coverage as do state employees. The problem is that many private companies are offering essentially the same level of benefits as does the ETF plan, but at about half the cost. Last I checked, the ETF plan was more that $11,000 per employee.

Best practice private sector plans are at about $6,000 per employee for all-in costs. (My company is at $7,400.)

This is disingenuous on a couple of levels.

For starters, when Dems say every citizen of Wisconsin should have the same coverage as state employees, they truly mean coverage, not cost. Under the HW plan, health care costs would increase for state employees (although they would decrease significantly for their employer). The 4 percent payroll assessment would be a lot more than virtually any state employee currently pays in premiums, and while co-payments would be about the same, the deductible would be something new for state employees that would significantly increase their cost sharing.

So that $11,000 figure Torinus cites is little more than a red herring since that number, from the ETF perspective, would decrease under the HW plan even though coverage would remain the same.

What's more, the "best practice private sector plans" that Torinus refers to are high deductible health plans (HDHPs) that may or may not include a HSA. The thing about HDHPs is that they're low on premiums and -- true to their name -- high on deductibles.

According to a report in the March 2007 issue of Pediatrics, the average traditional comprehensive health plan -- which is what the HW plan would involve -- had an average family premium of $11,090 per year and an average family deductible of $646 per year. The average family HDHP, on the other hand, had an average premium of $7,909 and an average family deductible of $4,070.

So when Torinus puts these "best practice private sector plans" up against the ETF plan -- which, again, isn't the same in terms of employer cost as the HW plan -- he's really comparing apples to oranges since the figures are weighted toward premiums (which is always going to be higher in a traditional comprehensive plan) rather than deductibles (which is always going to be higher in a HDHP).

There's more. Torinus writes:
My company, where management and co-workers aggressively and collaboratively manage health costs, spends about 14% to 15% of payroll on overall health costs. The Riemer plan calls for an initial payroll tax of 14.5% - 10 1/2 % from the employer and 4% from the employee.

The Senate bill allows, however, for 16% - 12% from the employer and 4% from the employee. You just know that the 16% - or more - will become the assessment once the government is in charge of the system.

For the life of me, I can't find where Torinus is getting that "16%-12% from the employer" figure. Here is what the HW bill literally says about the employer assessment (page 48): "Subject to sub. (4), the board shall calculate an assessment, based on its anticipated revenue needs, that is a percent of aggregate social security wages that is at least 9 percent and not more than 12 percent."

That's 9-12 percent of social security wages, not even payroll, so any portion of an individual employee's pay that exceeded $97,500 (in 2007) wouldn't be subject to the assessment. When you add in what employees would pay, the percentage goes to somewhere between 11 percent and 16 percent, but that's not what Torinus wrote. He wrote that employers alone would pay 12 to 16 percent, with employees contributing 4 percent more, which just isn't the case.

So Torinus' company right now has health care costs at 14 to 15 percent of total payroll, and he fears a universal health care plan that would run his company 9 to 12 percent of social security wages?

In the end, a couple of things about the Torinus column did make me happy, though. One, he speaks pretty highly of the WHP, which is certainly still an option that's on the table (actually, the HW isn't all that much different than the WHP to start). And, two, his inability to make solid points against the HW is, to me, little more than a demonstration of the plan's overall strength.

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Anonymous Anonymous said...

Well, a business section columnist who can't quote numbers correctly has lost credibility with me.

Thanks for this critique (and actually, for this ongoing series of critiques). You're the only making sense, and with accuracy, and in clear English. It's a concept that the JS could emulate.

And pigs might fly.

July 03, 2007  
Blogger Seth Zlotocha said...

Thanks for your comment, Anon. Typically I'm arguing with naysayers in these comment sections; it's nice to see some of my readers agree with me!

July 03, 2007  
Blogger Jack Lohman said...

I sure wish we could get away from this HDHP nonsense. The HSA was designed for one purpose, as an investment tool, and by an insurance company with dollar signs in its eyes. While it serves that function, it is a terrible method for proper delivery of care and it will go down in flames in the next five years.

Credible researchers (RAND and Kaiser Family Foundation) have demonstrated that many mothers will opt to put food on the table rather than pay the co-pay for their blood pressure medicine, and then they'll suffer a debilitating and costly stroke -- or worse, they die. HSA proponents had best get their head out of the sand and recognize that putting the financial responsibility on patients is very definitely going to cost some lives.

The high cost of medicine is in the wasted administrative costs of the insurance bureaucracy and the free-for-all overutilization of very profitable testing by physicians who have invested in technology. Tests should be run in hospitals without such conflicts.

July 05, 2007  
Blogger Dad29 said...

HSA proponents had best get their head out of the sand and recognize that putting the financial responsibility on patients is very definitely going to cost some lives

Jack, what planet are you living on?

Even the Dems' PROPOSAL has deductibles--which are a form of co-pays.

July 05, 2007  
Blogger Jack Lohman said...

I recognize that, and that's one part of the proposal I disagree with. The facts are clear: co-pays are not worth their cost, in either administrating them or the damage they create by keeping people away from the doctor when they shouldn't.

Can you imagine someone staying away because they have a bad cold and expect that it will go away, and instead they come down with pneumonia? It happens every day and people die as a result. We can do better, and for the same cost we are paying today.

July 05, 2007  
Blogger Jack Lohman said...

But that said, there ARE ways to curb overuse. But 80% of the overuse is by physicians who order tests because they own the equipment and the tests are profitable. The other 20% are by people who are seriously concerned with their health, and they don't want to die.

I owned an independent lab in the healthcare business for 25 years, and we indeed have what we called "frequent flyers." Yes, a co-pay would have reduced those but also legitimate care as well.

A better way is to provide, say, 12 doctor visits per year with no co-pay, and after that require a qualified "patient facilitator," perhaps an independent nurse, to step in and decide whether one or the other is abusing the system and give the nurse the option to implement appropriate co-pays (but with an adequate appeal process).

But then again, you have to make sure that these administrative costs are worth the time and money.

July 05, 2007  
Blogger Seth Zlotocha said...

Thanks for your comments, Jack. It's important to note that not all cost sharing set-ups are created equal. The key is to exclude from cost sharing those procedures that are proven to reduce costs long term by detecting conditions as early as possible. Both the HW plan and the WHP -- which has more cost sharing than HW and uses HSAs -- do this. It's those other procedures that are the issue, and placing cost sharing on them in the form of co-pays and a deductible has been shown to reduce costly over-utilization without sacrificing quality of care.

Similarly, not all HDHPs are created equal. In my view, the $1200 deductible in the WHP is actually preferable to the $300-600 deductible in the HW plan because the WHP offers what's essentially first-dollar coverage since the state would provide each HSA with $500 annually. Those who need it will use it and be left with $700 -- pre-tax, assuming they go through their HSA -- to fund care before the insurance kicks in. But considering most preventive procedures aren't applied to the deductible under the WHP, most would have some of their HSA funds left over at the end of the year, which they could roll over into the next year to accumulate funds for when they do actually need it.

Under the HW plan, coversely, first-dollar coverage is not available for non-preventive adult care. I don't think this is a terrible flaw that compromises the plan as a whole, but I do think it's not as desirable as the WHP set-up.

In the end, you're right that administration is definitely where the most significant cost savings is going to be realized; but addressing over-utilization -- on the provider end and the patient end -- is important, too. To be sure, in addition to showing that significant cost sharing negatively impacts lower income populations, that RAND study you mention also found that those in more generous health plans received 40 percent more care than those in less generous plans, yet the health outcomes of each group were the same.

This Brookings Institute paper discusses how cost sharing can be implemented in a progressive way -- namely by tying the sharing amounts to income -- which would result in desired cost savings without sacrificing quality of care and health outcomes. The HW and the WHP both include measures that take into consideration income, in addition to including measures that offer everyone essentially free preventive care; perhaps both plans could both more to assist those with lower incomes, but the fundamental point is that -- if done right -- cost sharing can be an important and, indeed, critical facet of fundamental reform.

July 05, 2007  
Blogger Jack Lohman said...

Seth, I would not let my beliefs that co-pays are counterproductive stand in the way of getting decent health care reform passed. Some day we will get smart and eliminate or modify them.

It never ceases to amaze me, the amount of energy that can
go into a project just to avoid doing the right thing. The best,
simplest, least costly, most effective thing we could do is
expand what has been working so well for years, Medicare.
You get sick, you get care, and the caregiver gets paid.
Nothing could be simpler. I've been on it for four years and it works beautifully.

But that's probably its problem. Politicians don't like "simple" when it affects a major source of campaign cash. Which should tell us that we are getting screwed over in many ways by our corrupt political system.

July 06, 2007  
Blogger Seth Zlotocha said...

If we were starting from scratch, I agree that single payer would be the way to go. But we can't just wipe out an entire industry, even if much of that industry is inefficient.

That said, there's no reason that reform couldn't set us on a path toward possible single payer. The Edwards plan, for instance, would do that by placing a public plan in competition with private plans; in time, should more and more people opt for the public plan -- which they would if it was, in fact, less expensive -- then you'd have de facto single payer, and from that point it would be easier to adopt de jure single payer. Another way to go about it would be to establish single payer for basic coverage and a private payer system for supplemental coverage, which is how the French do it.

But, however you slice it, there needs to be room -- regulated room, that is -- for the private insurance industry, at least to start.

July 06, 2007  
Blogger Jack Lohman said...

They said that when we went from manually operated to automated elevators, but there is absolutely zero reason to keep this make-work inefficiency alive just to keep people working. Let's retrain them in the much-needed nursing or medical technician fields.

Besides, this is a small component of the insurance industry and electronic billing has already wiped out much of the billing work that was provided. Now it's just bureaucracy that needs to be eliminated.

We did it when converting the sending documents via Express Mail, then to a faster FedEx, and now to Fax and email. And the industries survived and moved on to other markets.

What you have described as a step toward reform, Seth, is exactly what the Healthy Wisconsin plan provides. It allows a combination public-private system that should be supported by all business leaders. It's not the single-payer I want to see, but it is a reasonable beginning.

July 06, 2007  
Blogger Jack Lohman said...

Incidentally, you can see a brief description at

July 06, 2007  
Blogger Seth Zlotocha said...

Thanks, Jack. I'm familiar with the public-private set-up in the HW plan. But since the public option is fee-for-service, which is almost always more expensive than managed care, the public plan isn't going to be able to adequately compete with the private plans on cost. The public FFS option was established to provide citizens with choice, not the lowest cost plan.

July 06, 2007  
Blogger Dad29 said...

One hopes that allegations of MD abuse of tests takes into account the potential of lawyer abuse of the courts.

IOW, Jack, if you think there's too much testing going on out there, immunize MD's for guessing rather than testing.

July 06, 2007  
Blogger Jack Lohman said...

Seth, you really need to study the current public-private system: Medicare and Medicare Advantage (AKA Medicare HMOs). The privatized option (Advantage/HMOs) is already 20% more costly than traditional Medicare (thanks to the additional costs of marketing, underwriting, and broker commissions, none of which are required by Medicare). So much for private industry being less costly than the public system.

And Dad29, the issue I'm addressing is the overuse for the sake of driving up profits. A recent McKinsey report showed that physicians who have an ownership in the testing equipment are up to eight times more likely to order tests than are physicians that have not invested in the equipment. Once they invest in it they must ensure volume, and with tests being very profitable that is not hard to do.

If they do not have ownership and are instead ordering to determine patient condition, they should not be held responsible for "over ordering." They never really know the test was not needed until they get negative results back.

My beef is with the concept of physician ownership of expensive technology. It should be outlawed, and they should send their patients to the hospital for such tests.

We also need to convert to specialized medical courts (see, I can even piss off the trial attorneys). But physicians should be tried in front of their peers -- other physicians -- rather than by 12 uninformed jurors.

July 06, 2007  
Blogger Seth Zlotocha said...

I'm familiar with the Medicare Advantage costs; I wrote about them here.

But not all Medicare Advantage plans are the same, Jack. The private FFS plan and PPO plan are both more costly than the public FFS plan; however, the private HMO plan costs 3 percent less than the public FFS plan. This makes sense because the HMO has a limited provider network, which is my point -- FFS can't compete with managed care on cost because it's inherently less controlled. If the public was offering an HMO option, that would be different since it, too, could limit providers and then realize additional savings through the lack of marketing and profit. But that's not the case under the HW plan; all that's public is the FFS option.

July 06, 2007  
Blogger Jack Lohman said...

The piece you wrote on Medicare Advantage was excellent, Seth, though many of the seniors didn't "want" Medicare Advantage, they had salesmen show up at their doors with some cockamamie story that -- if they wanted Medicare -- they had to sign up then and there.

Let's not forget that when you have a private HMO plan, they may be (and often are) cheaper because they are paid a fixed (capitated) fee per patient, and to increase profits (or surpluses) they need only to reduce care. In some cases reduced care is appropriate, even advantageous, but in other cases it is detrimental.

But all that said, the HW plan will offer both and we'll see where the chips fall. I'm not happy with some portions of it, but sometimes failure is required in order to get the right attention on the subject.

To paraphrase a famous quote, "America will always do the right thing, but only after failing at everything else."

July 06, 2007  
Blogger Seth Zlotocha said...

I agree, Jack, we will just need to wait and see. But, first, something needs to get passed.

July 06, 2007  

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