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 âPremium 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.