Sunday, January 14, 2007

WPRI has something to say

Some commentators are on the left have been cavalierly dismissive of the Wisconsin Policy Research Institute's analysis of the Wisconsin Health Plan, shooing it away because its authors raise what are some fairly commonplace economic concerns about government-provided healthcare and the anomalies that arise when those who decide on whether to use something are not those who pay for it.

Seth Zlochota suggests that we need not even read the WPRI study, in part, because the guys who wrote it aren't all in on government health care.("All [they]do is lay out a theoretical groundwork for why we shouldn't have health insurance.") My Backstory colleague Jim Rowen who might have carefully analyzed the study chooses to tell us that we don't need to because the WPRI represents something called Corporate Libertarianism as if economic facts can be dismissed as "mean" and "selfish."

The WPRI, like the Legislative Fiscal Bureau before it, makes what seems to be an unassailable case that the Wisconsin Health Plan could not be funded by payroll taxes ranging to 12%. The WPRI estimates that an average (not maximum) payroll tax of 17.1% (according to the current allocation, 15.1% on the employer and 2% on the employee) would be required.

WPRI critics like Seth dismiss by arguing that the state as the doorkeeper for qualifying health plans could negotiate big provider discounts but, if WPRI were right, the simple expedient of having the state pay for health insurance would result in a 25% reduction in costs. It is hard to believe that could happen, unless it occurs in the same way that the Canadian government has reduced costs, i.e., by making more expensive care (e.g., surgeries) less available.

WHP proponents say that the payroll tax will simply replace all (or, as WPRI corrects) most of what employers pay for health care now and there is a great deal of truth in that. Maybe an increase in employer costs is a fair tradeoff for increased coverage and decoupling coverage from one's current job (which itself causes economic inefficiencies).

But there are reasons to pause. A 15% tax on adding new payroll (both new jobs and salary increases) may have serious economic consequences, depressing labor intensive businesses, supressing wage increases and putting certain Wisconsin businesses at a competitive disadvantage.

Providing a free policy with state mandated benefits effectively politicizes health care. What will and will not be provided and how quickly it will be provided and at what quality becomes - increasingly - a political question (although the WHP as initially conceived does retain some elements of competition and consumer choice.) This not obviously better than the current system. It will solve some problems, but it will create new ones.

My own sense is that there is a case to be made for mandating that everyone over the age of 21 buy and maintain a high deductible policy with some type of subsidy (health insurance stamps?) for low income persons combined with health care saving account (again perhaps with subsidy for poor persons like the WHP). The mandatory aspect may be required because of the "free rider" problem inherent in health care. We are not going to (and should not) turn seriously injured or ill persons away from emergency rooms because they did not - or could not - buy insurance.


Dad29 said...


You nailed it--"plan design" will be the salvation of the State's plan if they wish to maintain a 12% tax.

There's a lot that a plan does NOT have to cover: birth control, abortion, cosmetic, chiropracty, sex-enhancement.

Another problem with the "social medicine" folks is that they really like preventive care (and for good reason.) Only problem--they cannot force people to accept preventive care---yet.

Seth Zlotocha said...

In addition to savings through negotiation, centralizing (or, better yet, reducing) payers in the system would save tremendously on administrative costs. In the US about 30 percent of our health care spending goes toward administration -- it's half that much in most other industrialized nations who offer universal coverage because they have fewer or only one payer.

I explain in more detail how administrative costs impact the system here and here.

And while conservatives frequently like to bring up Canada when talking about a single payer system, they often opt to ignore other single payer nations like France (which actually has a public-private hybrid system that I think would be the best for the US), Germany, Japan, Switzerland, Holland, etc., who experience virtually no rationing and still pay much less than the US for health care while covering all citizens. And if you think the US system doesn't currently ration health care, guess again.

Lastly, on the question of what's covered, I think it's a question that needs to be answered by what's considered medically necessary by the medical profession -- specifically a nonpartisan state commission set up to establish and maintain the definition of "medically necessary" as it applies to the state health plan.

I know some have a concern that the definition of "medically necessary" will continually be ramped up by the likes of the chiropractic and sex-change lobbies (although that hasn't happened with the existing state health plan for state employees). And, the fact is, there isn't any way to guarantee that those attempts won't be made (lobbyists will always be free to lobby), although guarantees can be made that they won't be successful without public knowledge and input.

And, for me, when weighed against the consequences of not doing anything to provide health coverage to the hundreds of thousands of Wisconsinites who currently lack it, not to mention those who currently don't have enough of it, the obscure possibility that the public won’t be able to stop irresponsible increases in what’s deemed “medically necessary” is a chance I'm willing to take.