Health Care Reform or Insurance Reform - The Political Reality

A guest Blog posted on behalf of Terry Murphy:



Democrats in the Senate just recently announced their health care reform plan known as Healthy Wisconsin. In fact, just one day after providing the details of the plan, they put their idea into their version of the State Budget and passed the plan out of the Senate. Their reform plan is theoretically one step away from being sent to the Governor’s desk to be signed into law. This is the most sweeping and expensive legislation in our state’s history and the vast majority of Wisconsin citizens have no idea the plan even exists, let alone what the plan will do to them. How could this possibly happen? Well, that’s a discussion for another day. Instead, the question we ask today is why are all of the government reform plans reforming insurance rather than reforming health care?

Both the Centers for Medicaid and Medicare Services (CMS) and a study found in the New England Journal of Medicine show that just 12 cents out of every insurance dollar goes to the cost of insurance administration, leaving the vast majority of the insurance dollar (88 cents) going to the cost of health care. While we recognize health care costs include some administrative costs of their own, the fact remains that the vast majority of insurance premiums collected are spent on health care, not the cost of financing such care through insurance. Knowing this fact, why would anyone devote all of their time and effort in trying to reform how we finance our health care (through insurance), rather than trying to reform actual health care costs? Healthy Wisconsin, like nearly all of the other reform plans introduced in the last year, focuses on how we finance health care by replacing our current insurance system with a government run taxing system. Even if their taxing approach actually reduced some of the insurance administrative costs (the 12 cents), because their plan doesn’t address the cost of health care (the 88 cents), health care will still be unaffordable, making either the insurance or the taxes to pay for such care unaffordable.

Senate Democrats estimate an initial payroll tax of 16% in order to pay for their program. First, this estimate makes a bold assumption that all health care providers (doctors, hospitals, nursing homes, etc) will voluntarily reduce their costs by about 40%. Does anybody in Wisconsin believe this assumption is realistic? Therefore, like the Massachusetts reform plan, the 16% payroll tax estimate will likely be much higher. Secondly, since 2000, health care inflation averaged 12% per year, compared to increases in US Household Income at 3.7%. A provision of Healthy Wisconsin states that health care increases in Wisconsin should not exceed the national average. This means that if health care inflation remains at 12%, payroll taxes for Healthy Wisconsin are guaranteed to increase each year, far outpacing what Wisconsin residents can afford. By the second year of their plan, payroll taxes would have to increase to nearly 18%, and by the third year, the payroll tax would balloon to over 20%. Exactly how is this plan supposed to help Wisconsin citizens?

The problem with Healthy Wisconsin and all of the other government based reform plans is that none of them set out to reform health care costs. Why? Perhaps the answer is that reforming health care costs is not “politically” attainable. To reform, or control health care costs, government has but two options. The first option would require the government to get control of health care providers by either dictating what they can charge or using the more radical approach and taking over the health care providers like the Canadian system. Regardless of what public opinion says about wanting “universal” health care, politicians know that Wisconsin citizens do not want government involved in their health care. Therefore, this option is not one likely to be found in a health care reform plan. However, if any of the government based reform plans like Healthy Wisconsin ever became law, as health care costs continued to increase, thereby increasing taxes, this would be the only option left for government to control health care costs. A scary thought indeed.

The second option would be for Government to let the market work to control health care costs, through transparency and competition. Unfortunately, for many politicians, this option takes far too long to work, and mistakenly gives the appearance of not doing anything in the eyes of voters. Politicians believe voters are looking for a silver bullet and the fact is there are no silver bullets in health care reform. The other problem with this second option is that it cannot be put into a 30 second sound bite that politicians could campaign on. It is truly sad that we have politicized health care reform, and that the only option that will work is not even being considered by many politicians because it isn’t politically acceptable. This is wrong for Wisconsin and wrong for Wisconsin consumers.

A recent report showed that Wisconsin enjoys some of the highest quality health care in the nation. Most surveys find that the majority of citizens like the health insurance plan they have purchased. Wisconsin citizens are smarter than some politicians give them credit for. The government can play a large role in this second option, by working to help the private market work better in controlling health care costs. The Coalition for Sensible Health Care Solutions has provided a blueprint for health care reform in Wisconsin. It works to address health care costs, and yet still works to improve the efficiency of our insurance industry. It is this second option that should be considered by any legislator who doesn’t care about politics, but instead cares about making health care affordable for his or her constituents.

We have to stop wasting our time, effort and resources with attempts to exclusively reform insurance only because it is politically acceptable. Instead, we have to start trying to reform health care costs and work to improve the efficiency of insurance because it is the right thing to do. Each year, Wisconsin consumers face another double digit increase in health care costs because we have avoided the second option. We cannot afford to wait any longer.

Terry Murphy is the owner of East Towne Insurance Services, Inc. (an employee benefits brokerage firm in Milwaukee). Mr. Murphy is also the Legislative Committee Chairman of the Wisconsin Association of Health Underwriters (WAHU). WAHU is an association of insurance professionals who work directly with consumers in the financing of their health care. WAHU is a chapter of the National Association of Health Underwriters covering the insurance needs of over 100 Million Americans.