Unbiased Analysis of Today's Healthcare Issues

Universal Health Insurance in Wisconsin

Written By: Jason Shafrin - Jan• 15•07

Over the past week, I have discussed California’s proposal to extend health insurance to all individuals. Today, I will examine—in my mind—a superior plan developed by former Republican Rep. Curt Gielow. According to a concept paper from the Wisconsin Health Plan website, the reforms will have the following impact:

“All eligible Wisconsin residents receive a “Premium Credit,â€? which the participant uses to purchase health insurance from competing, qualifying health insurance plans. In addition, all adults (age 18-64) also receive a Health Savings Account (HSA), funded at $500 each year.”

Eligible residents include all individuals living in Wisconsin for six or more months except for those eligible for Medicaid (BadgerCare), government employees and those incarcerated. In comparison to the California proposal, this “The Wisconsin Health Plan” is truly a universal entitlement in that there is no means testing.

Having some form of health insurance is seen by many as an important goal for an equitable society. On the other hand, giving away free health care—which in essence defines full insurance—will lead to spiraling costs and overuse of medical services. I applaud the Wisconsin plan for attempting to use some market-based mechanisms to contain costs. The Tier 1 plans set a $1200 annual deductible, a 10%-20% coinsurance rate with an out-of-pocket maximum of $2000 per person or $3000 per family. The child benefit package is more generous with the same coinsurance rates but an annual deductible of $100 and a maximum out of pocket expense of $500. Tier 1 insurance is free to residents but those who wish to have more comprehensive insurance (which is subdivided into Tier 2 and Tier 3 coverage) can purchase this type of insurance at an increased premium level. It is wise to give consumers some choice in their insurance type; having the default coverage include higher deductibles and coinsurance rates will create more efficient medical care allocation.

The Milwaukee Journal Sentinel also reports (“Big, Bold Plan?“) regarding another of the plan’s purported cost saving innovations:

“The Wisconsin plan would wisely make use of market-based incentives to control rising health care costs and save money. This would be accomplished by putting everyone in a state health insurance purchasing pool, patterned after the successful pool that already exists for state employees…Due to the sheer number of people in the plan, the pool would seemingly have the purchasing clout to convince health care providers and insurers to bid to provide high-quality care at competitive prices.”

‘Wisely’ is not the word I would use. The single payer system will reduce prices in the short run, but without competition between plans, hospitals and doctors will face a monopsony. This will likely decrease prices in the short-run but reduce the quantity and/or quality of services provided in the long run. The true value of a service will be unknown in a single buyer system and thus over-purchasing of inessential services and under-purchasing of more valuable—especially newer, more innovative—medical services will occur.

Critics assail the plan’s high cost and the increased payroll taxes as major obstacles to the plan. A study by M. Scott Niederjohn and Mark C. Schug claim that “payroll taxes assessed on Wisconsin businesses and employees would need to be more than 17% instead of the proposed nearly 13%.” Also, the plan states that “Any insurer (for example, HMOs, PPOs, or indemnity carriers) licensed to sell health insurance in Wisconsin — and that meets specified financial, coverage area, and disclosure standards — is qualified to compete to provide insurance coverage.” If the state, and not the insurers, is the entity negotiating prices and services with providers, then insurer competition will become very minimal.

I applaud the Wisconsin Plan, especially for allowing some consumer choice, for forcing consumers to face some of the cost of their medical services through coinsurance and deductible payments, and by making the program universal. The regulatory tiers should not be necessary; a simple minimal level of coverage would suffice with households paying extra for any type of insurance they required. I do not believe that the single-payer system proposed by the state will be cost-saving in the long-run. While the Wisconsin Plan is not optimal, it is a major step forward towards providing health care for all residents in a (relatively) affordable and efficient manner.

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  1. On the other hand, giving away free health care—which in essence defines full insurance—will lead to spiraling costs and overuse of medical services.

    What exactly is the basis for this extremely strong statement? The US, which `gives away’ free health care to only a small part of the population, spends far more per capita, PPP adjusted or not, or as a fraction of GDP, than any other developed nation. What is the data on which you base your argument that the other countries in the world vastly overuse their medical services, compared to the status quo in the US?

    I see this argument often — making healthcare more affordable will result in over-use — and while it would undoubtedly be true for furniture, it just isn’t true that insured people make lots of unnecessary trips to the hospital just because they can. What person with great insurance decides on a whim to go to the doctors office just because it’s free? On the contrary, those with insurance when they do need care can go to the doctors office when a condition becomes apparent, or for preventative care, rather than waiting for the condition to become acute and going to the emergency room, which is a vastly more expensive way to treat illness.

    While you do get people going to doctors offices for colds or for minor illnesses, the nature of medicine is that the non-expert can’t know ahead of time what is minor and what is not; so seeking professional advice routinely is a cost-saving measure.

  2. […] Wisconsin has a universal health insurance proposal that Jason Shafrin of the Healthcare Economist applauds for its truly universal coverage with no means testing and some measure of consumer choice. […]

  3. Mike says:

    The single payer system will reduce prices in the short run, but without competition between plans, hospitals and doctors will face a monopsony.

    You don’t seem to take into account in what dimensions these insurance systems will be “competing” nor the resources aviliable as selection criteria for the “customers”.

    These insurance companies will compete on premiums but that is only the most visible part of a much larger picture. At the same time the insurgence industry continuously adds complexity to their coverage contracts and exclusion lists. While spending billions in propaganda, advertising campaigns and marketing diffusing the capacity of an individual to make a rational choice among the insurances offered by the market.

    Furthermore enabling the industry to exclude customers simply offsets the expensive clients to the government, heavily subsidizing the industry. As uncovered patients are denied preventive care we pay the costs many times over as they let conditions worsen. Or worst we lose our humanity as we watch thousands of our fellow humans die each year because of lack of health coverage.

    We already have a monopsony in health coverage our freedoms are already regulated by corporate bureaucrat. My freedom to enforce my selection criteria on the health provider is extraordinarily regulated by the industry and government. I want to pay only 2-3% to management and the rest to health care and that is not possible with the corporate autocracy taking 15-30% off the top of every dollar I pay in. When I pay in I want guarantees that I get coverage in times of prosper and in times of low, something the for profit industry can never give me.

    I don’t want to be denied coverage if I have some rare condition again regulated by the industry the free market is not so free when you are denied the right to participate. My point is simply don’t assume that “less” regulations of a given sector means more freedom or even “less regulations” its simply offset choices and restrictions of freedom to a different population.

    To maximize freedom we must have meaningful control over the power structures that mediate our lives. In consumer industries we hold a good deal of power through the free market, in health industries the power we have over the institutions we engage with is more complex and the free market principals of market driven innovation do not linearly apply. This is because everyone whether they can pay or needs preventive care to maximize efficiency and health. Maximizing profits demands that preventive care be payed for directly so cost analysis enters the individual decision making process and ends up costing everyone more.