Friday, June 29, 2007

Yet another question on the Healthy Wisconsin Plan

I note that the Healthy Wisconsin plan apparently tries to control what qualified heath care networks can do with their money. It says that 92% of the revenues that a qualifying network receives under the plan must be spent on providing health care or on things that the network reasonably believes will improve care or reduce cost.

I assume that the idea is to control profits and expenditures on things like advertising. What's wrong with that?

One thing is that, like making payment for health care a cost of employment, it distorts the market. In this case, the impact may be to divert capital from health care in Wisconsin by limiting the return that can be earned. The response that 8% is enough is just an ipse dixit
Is an 8% margin (actually probably something less than that) enough to compensate for the risk involved? Is it enough to attract the capital away from other more profitable uses? I don't know and neither do the Senate Democrats.


Seth Zlotocha said...

Health networks would be compensated for risk under the HW. Payments to the networks would depend, in part, on an actuarial adjustment based upon the age, sex, and other risk factors associated with the network's membership.

And the 92% requirement does exclude "investments the health care network has reasonably determined will improve the overall quality or lower the overall cost of patient care." So networks can use money to increase profits as long as it comes by increasing efficiency rather than just costs.

I'm sure this isn't enough to sooth your concerns over the plan, but it's worth noting.

Seth Zlotocha said...

After re-reading the post, I see that you were already aware of the 92% exclusion. What, then, did you mean by "other more profitable uses"?

Rick Esenberg said...


This does effectively say that you can't take home more than 8 cents of every dollar. While you can spend on stuff that will make you more efficient, you still can't take home more than 8 cents. It may have occurred to you by now that this removes some (although not all) of the incentive to make you more efficient.

Seth and Rick may think that's "enough" but people who are deciding where to put their money, e..g., whether to enter or exit the Wisconsin market, may prefer to place it somewhere more profitable.

Seth Zlotocha said...

I can see what you mean, Rick. But allowing for an 8 percent margin isn't skimpy; margins in the health insurance industry have typically hovered between 3-6 percent over the past few years. And when you toss in risk adjustments, quality care investments, and the incentive to get a greater portion of the market by offering lower cost networks (even if the margin remains the same), I don't think Wisconsin would be hurting for enough quality insurers under the HW plan.