Testimony

Reforming Health Care in Wisconsin

Committee on Health and Health Care Reform
Wisconsin Assembly

Madame Chairman, Distinguished Members of the Committee:

My name is Michael Tanner and I appreciate the invitation to appear today and the opportunity to share my perspective on the vital issue of reforming health care and what Wisconsin should and should not do to help resolve this issue.

For the past 14 years, I have been director of health & welfare studies for the Cato Institute in Washington, DC. Before that I served as legislative director for the Georgia Public Policy Foundation and as legislative director for health & welfare with the American Legislative Exchange Council. In all, I have spent more than 20 years studying the American health care system and am the author of five books on health care reform, most recently Healthy Competition: What’s Holding Back American Health Care and How to Free It.

During my time studying this issue, I have concluded that, in developing health policy it is vital to keep in mind one pertinent fact: for all its problems, the United States offers the highest quality health care in the world. Most of the world’s top doctors, hospitals, and research facilities are located in the United States. Eighteen of the last 25 winners of the Nobel Prize in Medicine either are U.S. citizens or work in this country.1 U.S. companies have developed half of all the major new medicines introduced worldwide over the past 20 years.2 In fact, Americans played a key role in 80 percent of the most important medical advances of the past 30 years.3 Nearly every type of advanced medical technology or procedure is more available in the United States than in any other country.4 By almost any measure, if you are diagnosed with a serious illness, the United States is the place you want to be. That is why tens of thousands of patients from around the world come to this country every year for treatment.

Of course, I’m aware that, as critics of American health care often point out, other countries have higher life expectancies and lower infant mortality rates, but those two indicators are not a good way to measure the quality of a nation’s health care system. In the United States, very low-birth-weight infants have a much greater chance of being brought to term with the latest medical technologies. Some of those low-birth-weight babies die soon after birth, which boosts our infant mortality rate, but in many other Western countries, those high-risk, low-birth-weight infants are not included when infant mortality is calculated.

And life expectancy is a poor measure of a health care system. Life expectancies are affected by exogenous factors such as violent crime, poverty, obesity, tobacco and drug use, and other issues unrelated to health care. As the OECD explains, “It is difficult to estimate the relative contribution of the numerous non-medical and medical factors that might affect variations in life expectancy across countries and over time.”5 Consider the nearly three year disparity in life expectancy between Utah (78.7 years) and Nevada (75.9 years), despite the fact that the have essentially the same health care systems.6 In fact, these exogenous factors are so distorting that if you correct for homicides and accidents, the U.S. rises to the top of the list for life expectancy.7

On the other hand, when you compare the outcome for specific diseases like cancer or heart disease, the United States clearly outperforms the rest of the world. Take prostate cancer, for example. Even though American men are more likely to be diagnosed with prostate cancer than their counterparts in other countries, we are less likely to die from the disease. Less than one out of five American men with prostate cancer will die from it, but 57 percent of British men and nearly half of French and German men will. Even in Canada, a quarter of men diagnosed with prostate cancer, die from the disease.

Similar results can be found for other forms of cancer. For instance, just 30 percent of U.S. citizens diagnosed with colon cancer die from it, compared to fully 74 percent in Britain, 62 percent in New Zealand, 58 percent in France, 57 percent in Germany, 53 percent in Australia, and 36 percent in Canada. Similarly, less than 25 percent of U.S. women die from breast cancer, but 46 percent of British women, 35 percent of French women, 31 percent of German women, 28 percent of Canadian women, 28 percent of Australian women, and 46 percent of women from New Zealand die from it.8

Wisconsin, in fact, is the home of several top flight medical centers, including the University of Wisconsin Hospital and clinics.9

Clearly, there are problems with the U.S. health care system. Costs are rising and distributed in a way that makes it difficult for some people to afford the care they want or need. Moreover, while the number of uninsured Americans is often exaggerated, there are far too many Americans without health insurance, including as many as 481,000 Wisconsin residents at any point in time, roughly 8.8 percent of the population. And while the U.S. provides the world’s highest quality health care, that quality is uneven and too often Americans don’t receive the standard of care that they should.

It is important, therefore, that any reform of the health care system, either nationally or here in Wisconsin, not destroy those things that make our health care system so effective-individual choice and free markets. In particular, you should avoid the temptation to increase government regulation and control over the state’s health care system. I am concerned, therefore, that Healthy Wisconsin is headed down the wrong road to reform.

Government-Run Insurance


Under Healthy Wisconsin, every state resident except government workers and those currently enrolled in Medicare or Medicaid/SCHIP/BadgerCare would be required to join a tax-financed “healthy care network.”10 Healthy Wisconsin also extends its reach across the state’s borders, requiring some 158,000 workers who live in other states but work in Wisconsin to enroll.11

These networks would be composed of a wide range of health care providers, including physicians (both primary care and specialists), physicians’ assistants, nurses, clinics, one or more hospitals, and facilities for the treatment of mental illness, drug abuse, and alcoholism.

Each network would submit a bid detailing the per-person cost for providing health care to all persons signing up for that network. On the basis of these bids, the state will divide networks into two categories-low cost and high cost. Those who enroll in the low cost network will have their costs fully covered by the state, while those enrolling in high cost networks may have to pay an additional fee of up to $1,200 per year for an individual and $2,400 for a family.12

For the most part, networks would be geographically-based, generally defined by the board as being within a 30 minute drive, or 60 minutes by mass transit from the patient’s residence.13 However, statewide networks would also exist to serve a few special occupational groups, notably farmers and teachers.14

The legislation does not specify how network providers are to be reimbursed. However, since the network’s total revenue is limited to their bid, presumably reimbursement will be on a capitated, rather than a fee-for-service basis. Networks are required to spend at least 92 percent of revenues on the provision of services or capital investments.15

Private health insurance will be prohibited for services covered under Healthy Wisconsin.16 Individuals who are currently satisfied with their health insurance would nonetheless lose that insurance and be required to join the new plan. In many cases, this would mean that individuals would no longer have access to their current providers. For instance, if a woman’s primary care physician joined network A, but her ob-gyn joined network B, she would be forced to choose between them. Moreover, since the networks are geographically based, it is possible that none of her current physicians may be included in the networks from which she’s allowed to choose. And if their networks were classified in the upper tier, she would have to pay extra in order to join that network and continue to see the physician of her choice.

In theory, the state will also establish a state-wide, fee-for-service plan similar to Medicare or Canada’s single-payer system.17 There is to be an additional charge for participating in this plan unless an individual lives in an area without a network. The Board will determine reimbursement rates under this plan, which are to be “fair and adequate,” yet these terms remain undefined.18 Supporters of Healthy Wisconsin have suggested that Medicare’s “very reasonable” fee schedule should be the basis for reimbursements.19

It is unclear whether physicians would be able to accept patients outside the new system on a cash, private-contract basis. However, since participation in Healthy Wisconsin is mandatory for patients, those who wanted to pay out-of-pocket for care would necessarily be paying twice for such care—once through taxes to support Healthy Wisconsin and once on their own.

The benefits networks provide must be at least as generous as those provided by the state to lawmakers and the governor, and must also provide mental health and drug and alcohol rehabilitation benefits not currently included in the state plan.20 But the benefits may be far more generous. The Healthy Wisconsin Board is given unrestricted powers to add whatever benefits it decides would “reduce health care costs, avoid health care risks, or result in better health outcomes.”21 That language represents a virtual blank check and an open invitation for special interests to seek inclusion for their specialty or disease. Considering that Wisconsin already has some 31 mandated insurance benefits adding as much as 20 percent to the cost of an insurance policy in the state, it is reasonable to expect a further expansion of the benefits package.22

Public choice dynamics are such that providers (who would make money from the increased demand for their services) and disease constituencies (whose members naturally have an urgent desire for coverage of their illness or condition) will always have a strong incentive to lobby legislators for inclusion under any minimum benefits package. The public at large will likely see resisting the small cost increase caused by any particular additional benefit as unworthy of a similar effort. It is a simple case of concentrated benefits and diffused costs.

Even Alain Enthoven, who helped develop the idea of managed competition (see below) says that Healthy Wisconsin advocates are “naive” to believe that special interests and provider lobbies can be restrained.23

Managed Competition (Sort of)


Healthy Wisconsin combines many aspects of a single-payer health care system with the central structure of a concept known as “managed competition,” the brainchild of Stanford University professor Alain Enthoven who testified in favor of the bill at the hearing that the Senate held on the proposal.24 The underlying concept behind both the 1993 Clinton health care plan and Mitt Romney’s Massachusetts reform, it is designed to take advantage of market competition, but within an artificial and carefully regulated marketplace.

Thus, in theory, Wisconsin residents are able to choose between competing “healthy care networks.” But any competition between networks would take place on a very constrained basis. For example, since all plans are required to offer the same core benefits package, there will only be marginal competition based on benefit design. There is price competition only in so far as upper-tier networks may require an additional fee. But again, such competition is strictly at the margins. For the vast majority of Wisconsin residents, they will pay the same amount (through their payroll tax) regardless of which plan they choose.

In addition, networks are prohibited from adjusting premiums based on such risk factors as age, sex, or health status.25 This is especially problematic because an inability to price according to risk typically results in overprovision of care to the healthy and under-provision to the sick.26

As University of Chicago law professor Richard Epstein has pointed out, “Managed competition is not so much a coherent government plan as an oxymoron. It is possible to have either managed health care or competition in health care services. It is not possible to have both simultaneously.”27 Even Alain Enthoven agrees that “managed competition is not a free market.”28

Healthy Wisconsin goes a step further, combining managed competition with key features of a single-payer plan such as global budgeting, thereby borrowing the worst of both worlds.

Rationing


While universal coverage is the most discussed rationale for Healthy Wisconsin, the proposal also has a second, and to some degree contradictory goal-“health care reform shall implement cost containment strategies that retain and assure affordable coverage for all residents of this state.”29

However, it contains few effective cost control mechanisms. Deductibles are limited to $300 per year for an individual and $600 for a family.30 Co-payments are limited to $20 per health care encounter, and combined yearly, out-of-pocket expenses (for both co-payments and deductibles) are limited to $2,000 for an individual and $3,000 for a family.31 There are no deductibles or co-payments at all for children, pregnant women, or people in disease management programs, and the Board has the authority to reduce or eliminate co-payments and deductibles for everyone else if they choose.32 Health savings accounts, part of the bill’s initial draft, were stripped from the final legislation.

Instead of consumer cost-sharing, the legislation establishes a statewide global budget for health care, limiting the growth of health care costs to no more than the national average. However, in recent years Wisconsin health care costs have been increasing faster than the nation’s costs as a whole. In 2006, state health care spending rose by 9.3 percent while the increase in national health care spending was slightly below 8 percent.33

If Wisconsin’s health care costs exceed the national average, the state’s Secretary of Administration, together with the Board of the Healthy Wisconsin Authority, is empowered to “establish, by rule, a program to contain health care costs.”34 The legislation gives no direction and puts no limitation on how this is to be done, beyond a mandate to eliminate “unnecessary operating and capita costs.” Yet if we look at how global budgets are enforced in other countries, or even how U.S. government programs like Medicare attempt to control costs, we can assume that any attempt to reduce costs would include reductions in reimbursements and/or capital spending.

This would almost inevitably reduce the availability of and access to care. A reduction in capital expenditures means fewer hospital beds and less modern medical technology. Simply compare the U.S. to Canada. The United States has more than five times as many MRI units per million people, three times as many CT scanners, and three times as many lithotripters.35

Similarly, reducing reimbursement rates will drive physicians out of the state. Canada has roughly 2.1 practicing physicians per 1,000 people, far less than the OECD average. Worse, there has been absolutely no growth in the number of physicians per 1,000 people since 1990. And while the number of nurses per 1,000 people remains near the OECD average, that number has been declining since 1990.36

Indeed, waiting lists are a major problem under the Canadian system. There is no accurate government data available, though provincial reports do show the existence of at least moderate waiting lists. The best information may come from a survey of Canadian physicians by the Fraser Institute, which suggests that as many as 800,000 Canadians are waiting for treatment at any given time. According to this survey, treatment time from initial referral by a GP, through consultation with a specialist, to final treatment, across all specialties and all procedures (emergency, non-urgent, and elective), averaged 17.7 weeks in 2005.37

Defenders of national health care have attempted to discount these waiting lists, suggesting that the waits are shorter than commonly portrayed or that most of those on the waiting list are seeking elective surgery. However, a look at specialties with especially long waits shows that while the longest waits are for procedures such as hip or knee replacement and cataract surgery, which could arguably be considered elective, fields that could have significant impact on a patient’s health such as neurosurgery, also have significant waiting times.38 In some cases, the delays could be life threatening. A study in the Canadian Medical Association Journal found that at least 50 patients in Ontario alone have died while in the waiting list for cardiac catheterization.39 And Canadian Supreme Court Chief Justice Beverly McLachlin wrote in a 2005 decision striking down part of Canada’s universal care law, that many Canadians waiting for treatment suffer chronic pain and that “patients die while on the waiting list.”40

It is also worth noting again that there will be no health care professionals on the Board. Yet, the Board is empowered to determine if care is “medically appropriate” and conforming to “best practices.” You thus have the possibility of a group of union representatives and corporate executives overruling doctors on questions of medical treatment.

Of course, advocates assume that costs can be controlled without resorting to rationing. They predict substantial savings from the elimination of insurance overhead costs, increased preventive care, and integrated disease management. One study suggests savings of more than $800 million in the first year alone.41 However, there is reason to be skeptical.

For example, it is assumed that the plan’s emphasis on primary and preventive care will lead to $565 million in savings.42 Preventive care advocates assume that if we focus on preventive medicine, we can prevent people from getting sick in the first place. And by emphasizing timely primary care, those who do end up with a chronic illness will develop fewer complications. By spending money up front to reduce the frequency and severity of illness we can reduce the amount of money needed to eventually treat those illnesses in the future.

As logical as this may seem, studies actually show that preventive care usually ends up costing money in the long run because there is no way to precisely target such care.43 For every disease that we prevent or catch early, we end up testing and treating many people who will never get sick. For example, Jay Bhattacharya, a doctor and economist at Stanford’s School of Medicine, estimates that to prevent one new case of diabetes, an anti-obesity program must treat five people.44 Similarly, a study of retirees in California by Jonathan Gruber, a health economist at MIT and long-time advocate of national health insurance, found that when retirees had fewer doctors visits and filled fewer prescriptions, overall medical spending declined.45 People became ill more frequently, but treating their illnesses was still less costly than paying for preventive care for everyone. Thus, increased preventive and primary care may well be beneficial for the individual in terms of health, but it is unlikely to provide a societal benefit in terms of reduced costs.

Second, there is an assumption that centralizing the purchase of prescription drugs and allowing the state to negotiate drug prices directly with producers will yield another $178 million in savings.46 But as the Congressional Budget Office concluded about a similar proposal for Medicare Part D, that is only likely to occur if the purchaser adopts a restrictive formulary limiting the number of drugs available in a therapeutic class.47 In the absence of such restrictions, government is unlikely to achieve significant savings beyond what private insurers, particularly managed care plans, have been able to negotiate. But the public is unlikely to accept a statewide restrictive formulary-not even considering the important medical reasons for rejecting such formularies-meaning that actual savings will be far less than projected.

Finally, it is assumed that a government-run system would result in substantial reduction of administrative costs, as much as $407 million.48 There is no doubt that administrative costs under private insurance plans add considerably to the cost of health care, roughly 8-16 percent.49 However, advocates of a government run system frequently underestimate the administrative burden under those systems. A study by Patricia Danzon of the Wharton School has estimated that administrative costs under Canada’s system run as high as 45 percent of claims.50 And even Medicare, often cited as a model of government efficiency, has administrative costs of more than 5 percent.51

If the predicted savings fail to materialize, it could pose serious problems for Healthy Wisconsin since the same actuaries analyzing an early iteration of a Wisconsin universal coverage proposal (the Wisconsin Health Plan) predicted nearly $1 billion per year in new costs from increased utilization.52 Similar utilization increases should be expected under Healthy Wisconsin. And this does not include the added cost if the political economy dynamics discussed above lead to the addition of yet more benefits.

In all likelihood, proponents of Healthy Wisconsin have overestimated savings and underestimated costs. This is not unusual with government programs, especially those regarding health care. In 1967, the House Ways and Means Committee predicted that Medicare would cost $12 billion in 1990. In reality, the program cost over $110 billion that year.53 In 1987, Congress estimated that the Medicaid Special Hospitals Subsidy would reach $100 million in 1992. The actual cost exceeded $11 billion.54 Should something similar happen with Healthy Wisconsin, rationing will be almost inevitable.

Adding Up the Cost


Healthy Wisconsin is estimated to cost at least $15.2 billion initially and increase state spending by 23 percent. Financing would primarily come through a new payroll tax. The exact size of the payroll tax will be determined later, but the legislation gives the Healthy Wisconsin Board the power to set employer contributions between nine and 12 percent of wages and employee contributions from two to four percent, up to the social security wage cap (currently $97,500).55 Proponents of the Healthy Wisconsin estimate that an initial payroll tax of 14.5 percent will be needed to raise the $15.2 billion necessary to fund the program.56

This represents more in taxes than the state currently takes in through income, sales, and corporate taxes combined.

In theory, the tax would be split, with the employee paying four percent and the employer paying 10.5 percent. But, while it might be politically appealing to claim that business will bear the new tax burden, nearly all economists would see it quite differently. The amount of compensation that a worker receives is a function of his or her productivity. The employer is generally indifferent to the composition of that compensation. It can be in the form of wages, benefits, or taxes. What matters is the total cost of hiring that worker. Mandating an increase in the cost of hiring a worker by adding a new payroll tax does nothing to increase that worker’s productivity. Employers will therefore seek ways to offset the added cost by raising prices (the most unlikely solution in a competitive market), lowering wages, reducing future wage increases, reducing other benefits (such as pensions), reducing hiring, laying off current workers, or outsourcing. In the end, one way or another, workers will bear the full cost.

Of course, the added cost of the payroll tax will be offset to the degree that businesses no longer have to pay health insurance premiums. Surveys suggest that health insurance currently costs the average Wisconsin business between 11.8 and 12.7 percent of wages.57 However, that average is not equally distributed. Wisconsin’s small and medium sized businesses generally pay far less, on average 5-7 percent of wages.58 And, of course, nearly 40 percent of Wisconsin’s small businesses currently do not offer health insurance.59 Thus, there will be a net increase in the cost of employing each worker for most businesses, and an enormous tax increase for small and medium sized businesses. Overall, it is estimated that employers will face $579 million per year in additional costs.60

The most obvious thing a business could do is relocate outside of Wisconsin. Given that Wisconsin’s tax burden and business climate are already significantly worse than surrounding states, the increased burden of Healthy Wisconsin is an almost certain recipe for slowed economic growth and lost jobs. The non-partisan Tax Foundation currently ranks Wisconsin 7th in the nation in terms of state and local tax burden. By comparison, Minnesota ranks 11th, Michigan ranks 14th, Iowa 17th, and Illinois 22nd.61 Similarly, Wisconsin ranks only 32nd in terms of business friendliness, well behind Michigan and Illinois (although Minnesota and Iowa did rank worse).62

It is no wonder that from August 2006 to August 2007, Wisconsin actually lost nearly 16,000 jobs. The state’s unemployment rate is now 5.3 percent, on a seasonally adjusted basis.63

If the 14.5 percent payroll tax is enacted, Wisconsin’s tax burden will rise to number one in the nation.64 Added to the other tax increases included in the Senate-passed budget, the state’s tax burden would rise from 12.3 percent of state income today, to 20.1 percent. To put this in perspective, the federal tax burden is only slightly higher, 21.7 percent of national income. On average, Wisconsin taxpayers will be paying more than 40 percent of their income in combined federal, state, and local taxes.

However, all of this may understate both the cost of the program and the taxes necessary to support it. The Wisconsin Department of Revenue projects wages in the state to grow by 4.6 percent annually, bringing revenue from the payroll tax to $23.4 billion by 2017.65 If health care costs grow by 6.5 percent annually, as projected by actuaries with the Lewin Group, benefits under Healthy Wisconsin would top $33.1 billion by 2017, leaving a nearly $10 billion deficit.66 That may not be the worst. As noted above, nationally, health care inflation has been running close to 8 percent annually, and the cost of employer provided health care in Wisconsin rose by 9.3 percent in 2006. If health care inflation in Wisconsin merely mirrors the national average over the next decade, the program’s cost will rise far faster than previously estimated, leading to a still greater budget shortfall.

And its not just businesses that are likely to relocate. Particularly in border areas, Health Wisconsin sets up a perverse set of incentives that will encourage healthy and insured residents to move out of state, while also encouraging uninsured and sick from out of state to relocate to, or at least take jobs in, Wisconsin.

This would significantly strain the health facilities in those areas, especially since the border areas largely consist of smaller communities with limited medical facilities. Wisconsin faced a similar burden in the 1980s, when the state’s higher welfare benefits acted as a magnate for poor families relocating from places like Chicago. Healthy Wisconsin could act as a similar magnate, particularly since it covers undocumented immigrants and extends special benefits to low-income pregnant women.67 Such an outcome would drive up program costs and create a host of other problems for the state.

HEALTHY WISCONSIN AND ERISA


Whatever Healthy Wisconsin’s merits or lack thereof as policy, there are significant questions about its legality. The federal Employee Retirement Income Security Act (ERISA) preempts state regulation of certain employer-provided benefits, including self-funded health insurance plans. The courts have generally interpreted this very broadly as prohibiting not only direct regulation of such plans, but any law or regulation that “relates to” or has a “connection with” them. A state law is a violation of ERISA if it “effectively mandates some element of the structure or administration” of an employer’s ERISA-protected plan.68

For example, when Maryland attempted to require businesses with more than 10,000 employees to either provide all their workers with health insurance or contribute a payroll tax, the court struck it down, holding that because it would require employers to “change how they structure their employee benefit plans,” it violated ERISA.69 Similarly in Wisconsin, laws attempting to regulate health insurance convertibility and continuation, and the Health Insurance Risk-Sharing Plan were struck down.70

Supporters of Healthy Wisconsin argue that ERISA does not apply because the plan neither requires employers to provide benefits to their workers nor conditions the payroll tax on the provision of those benefits. However, as the Wisconsin Legislative Council has noted, “it is undeniable that it will have an effect on [ERISA-protected] plans.”71 As the courts have pointed out, one purpose of ERISA is to enable multi-state companies to provide uniform benefits across state lines. But under Healthy Wisconsin, employers would have to change the benefits they currently offer. They would be offering different plans for Wisconsin workers than for those in other states (in many cases there would be no employer provided health benefits for Wisconsin workers).

Therefore, it is hard to see how Healthy Wisconsin could survive an ERISA-based court challenge.

What Should Wisconsin Do?


If Healthy Wisconsin is not the answer, then what can Wisconsin do to improve its health care system?

The unfortunate reality is that the state’s options are limited because both the real villains and solutions to America’s health care problems lie in Washington, and specifically with the federal tax code, beyond the reach of state lawmakers. However, there are some important steps that this state can take that will reduce the cost of health care and increase the number of people who are insured, while preserving-and even improving-the quality of the current system.

First, Wisconsin should do what it can to reduce the cost of health insurance. After all, the number one reason that people give for not purchasing insurance is that they cannot afford it.72 This is particularly true for young and healthy individuals: precisely the people who should be encouraged to enter the insurance market before they become older and sicker. Yet, current state regulations drive up the cost of health insurance and make it a reasonably logical decision for these young, healthy individuals to remain uninsured.

For example, Wisconsin currently has some 31 mandated benefits. These mandates force all insurance policies sold in the state to cover treatment for things like cleft palates and blood lead poisoning, and for in-vitro fertilization and AIDS vaccines.73 These mandates add significantly to the cost of insurance. The requirement for mental health parity alone adds as much as 10 percent to the cost of an insurance policy. Many of the other mandates add 1-3 percent each to insurance costs.74 Clearly, people should be able to purchase coverage for such conditions and providers if they desire it. But just as clearly, those who wish to purchase a less inclusive but also less expensive policy should be able to do so. Repealing such mandates would be one of the most effective steps that Wisconsin could take to reduce the cost of health insurance and thereby increase the number of people with insurance.

Of course repealing such mandates will encounter fierce resistance from special interests and may prove politically difficult. There is a potentially easier step that Wisconsin could take to achieve similar and possibly more comprehensive results. The state could amend its insurance laws to allow the sale of any health insurance plan approved for sale by any state.

Currently health insurance purchasers are essentially stuck with the regulatory regime of the state in which they reside. Wisconsin businesses and individuals are held hostage by Wisconsin insurance regulation. But if free to purchase health insurance regulated by states other than their own, customers could avoid regulations that added unwanted costs. They could in effect, “purchase” another state’s set of regulations by purchasing insurance from an insurer chartered in that state. If Wisconsin residents do not wish to purchase all 31 coverage mandates the state requires, they could purchase insurance from, say, Idaho, where there are only 13, or any state whose laws are more closely aligned with their own preferences.

Not only would such a simple change to Wisconsin’s insurance laws benefit consumers, reduce costs, and increase the number of people with insurance, the same competitive process that drives producers to improve quality and reduce costs in other products could help produce higher quality regulations. Wisconsin would have to compete for the best regulatory environment in the same way it currently competes with other states to have the best tax environment.

Secondly, the state should institute a thorough review of how it can reduce the cost of providing health care. In particular it should look at such issues as expanding the scope of practice for non-physician professionals, and removing barriers to hospital competition.

And third, the state should continue to do all it can to expand the use of consumer-oriented health plans such as Health Savings Accounts. I know that I have been widely quoted in the press and elsewhere as saying that “health savings accounts are not a silver bullet.” That is correct. That is because there are no silver bullets when it comes to health care reform. No single reform will solve all of Wisconsin’s, or the country’s, health care problems. A combination of interlocking reforms dealing with providers and consumers, supply and demand, will be required. And even then, utopia is not an option.

However, let me be clear about this. Health savings accounts are an important tool in health care reform. Any successful health care reform requires increasing price transparency within the system, making health care consumers more cost-aware, and health savings accounts are an important tool in accomplishing this. I fully support them.

I regret that I have not been able to come here and offer a silver bullet to fix the problems with Wisconsin’s health system. Indeed, some may be disappointed that so much of my advice is in the form of what not to do. This is because I believe, that in pursuing health care reform, legislators should be guided by the Hippocratic admonition, “First do no harm.”

It is understandable that you and your constituents are frustrated by the inability of Congress to address the undeniable need for health care reform. Yet it is sadly true that the keys to health care reform lie in federal, not state, legislation. There are limited steps that Wisconsin can take to make the situation better. But, in the end, you should be extremely careful to make sure that impatience does not push you into taking steps that will ultimately make the problem far worse, hurting Wisconsin taxpayers, businesses, health care providers, and perhaps most importantly, patients.

I thank you once again for your time and consideration. I would be happy to answer any questions.


1“Nobel Prize in Physiology or Medicine Winners 2006-1901,” The Nobel Prize Internet Archive, http://almaz.com/nobel/medicine/medicine.html.

2Pharmaceutical Manufacturers Association, “Facts about the U.S. Pharmaceutical Industry,” 2002.

3Economic Report of the President (Washington: Government Printing Office, 2004), p. 192

4Gerard Anderson et al., “It’s the Prices Stupid: Why the United States Is So Different from Other Countries,” Health Affairs 22, no. 3 (May/June 2003): 99.

5“Health at a Glance: OECD Indicators, 2005,” Paris, OECD Publishing, 2005.

6U.S. Census Bureau, 2000 Census.

7Robert L. Ohsfeldt, John E. Schneider, The Business of Health: The Role of Competition, Markets, and Regulation (Washington AEI Press, 2006).

8Varduhi Petrosyan, and Peter Hussey, Multinational Comparisons of Health Systems Data, 2002 (New York: The Commonwealth Fund, 2002), pp. 55-62; Gerard Anderson and Peter Hussey, Multinational Comparisons of Health Data Systems Data, 2000 (New York: The Commonwealth Fund, 2000), pp. 17-18; Gerard Anderson and Bianca Frogner, Multinational Comparisons of Health Data Systems Data, 2005 (New York: The Commonwealth Fund, 2006).

9“America’s Best Hospitals, 2007,” U.S. News & World Report, July 2007.

10Government workers would eventually be transitioned to Healthy Wisconsin, but only after their current labor contracts expire. The plan anticipates that the state will provide significant “wrap around” coverage to ensure that government workers do not lose any of the generous benefits they currently enjoy.

11“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

12Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(7)(b)(4)(a).

13Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(2)(b)(4)(c)(1).

14Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(4)(m)(2).

15Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(4)(b)

16Private insurance could continue to cover services over and above those covered by Healthy Wisconsin.

17Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(2)(a).

18Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(7)(b)(1).

19Jack Lohman, “Lohman: Pass, Expand Healthy Wisconsin Bill,” Wisconsin State Journal, July 16, 2007.

20Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.15

21Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.15(1)

22Victoria Craig Bunch, JP Wieske and Vlasta Prikazsky, “Health Insurance Mandates in the States 2007.” Council for Affordable Health Insurance, 2007.

23Guy Boulton, “Reformer Weighs in on Health Plan,” Milwaukee Journal-Sentinel, July 13, 2007.

24See Alain Enthoven, “The History and Principles of Managed Competition,” Health Affairs, supplement (1993).

25Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.30(4)(m).

26John Goodman and Gerald Musgrave, “A Primer on Managed Competition,” National Center for Policy Analysis Policy Report no. 183, April 1994.

27Richard Epstein, “Unmanageable Care,” Reason, May 1993.

28Alain Enthoven, “The History and Principles of Managed Competition,” Health Affairs, supplement (1993), p. 44.

29Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.05(4)(a)(2)(a)

30Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.20(2)(a).

31Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapters 260.20(3)(a) 260.20(4)(a,b).

32Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.20(3)(e)

33Guy Boulton, “Benefit Tab 26% Higher in State,” Milwaukee Journal-Sentinel, Nov. 20, 2006; “Health Insurance Cost,” National Coalition on Health Care, www.nchc.org, lasat visited August 30, 2007.

34Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 16.004(d).

35“OECD Health Data 2007: Statistics and Indicators for 30 Countries.” Organization for Economic Co-operation and Development, July 2007.

36“Health at a Glance: OECD Indicators, 2005,” Paris, Organization for Economic Co-Operation and Development, 2005.

37Nadeem Esmail, Michael Walker,and Dominika Wrona, “Waiting Our Turn 16th Edition: Hospital Waiting Lists in Canada,” Fraser Institute, 2006.

38Ibid.

39Madhu Natarajan et al., The Risks of Waiting for Cardiac Catheterization: a Prospective Study, Canadian Medical Association Journal, November 26, 2002.

40Chaoulli v. Quebec (Attorney General) 2005 SCC.

41“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

42Ibid.

43David Leonhardt, “Free Lunch on Health? Think Again,” New York Times, August 8, 2007.

44Jay Bhattacharya and M. Kate Bundorf, “The Incidence of the Health Care Costs of Obesity,” Stanford University, April 2005.

45Amitabh Chandra, Jonathan Gruber and Robin McKnight, “Patient Cost-Sharing, Hospitalization Effects and the Design of Optimal Health Insurance,” NBER Working Paper No. 12972, March 2007.

46“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

47“Issues Regarding Drug Price Negotiation in Medicare: Letter to the Honorable Ron Wyden,” Congressional Budget Office, April 10, 2007.

48“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

49Steffie Woolhandler, Terry Campbell and David Himmelstein, “Costs of Health Care Administration in the United States and Canada,” New England Journal of Medicine vol. 349, no. 8, August 21, 2003, 768-775.

50Patricia Danzon, “Hidden Overhead Costs: Is Canada’s System Really Less Expensive?” Health Affairs 11 (Spring 1992): 21-43.

51Merrill Matthews, “Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector,” Council for Affordable Health Insurance, January 10, 2006.

52“The Wisconsin Health Plan (WHP): Estimated Costs and Coverage Impact: Final Report,” The Lewin Group, June 2007.

53Steven Hayward and Erik Peterson, “The Medicare Monster: A Cautionary Tale,” Reason Magazine, January 1993.

54Chris Edwards, “Government Schemes Cost More Than Promised,” Cato Institute Tax and Budget Bulletin no.17, September 2003.

55Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.40 (2 and 3).

56“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007. This is slightly less than the 15.5 percent payroll tax that Lewin estimated would be necessary to fund the Wisconsin Health Plan. “The Wisconsin Health Plan (WHP): Estimated Costs and Coverage Impact: Final Report,” The Lewin Group, June 2007. While Lewin now suggests a 14.5 percent payroll tax, others continue to suggest a 15.5 percent tax will be required. As noted above, the Board has the authority to set the tax as high as 16 percent without further legislative action. Senate Amendment 1 to Senate Substitute Amendment 1 to SB 40, Chapter 260.40 (2 and 3).

57M. Scott Niederjohn and Mark C. Schug “An Evaluation of the Wisconsin Health Plan” Wisconsin Policy Research Institute Report vol. 20, no.1, January 2007. Although this study was focused on the Wisconsin Health Plan rather than Healthy Wisconsin, the underlying survey numbers and analysis remain valid.

58Ibid.

59Edward Neuschler, “A Profile of Employer Coverage in Wisconsin,” Institute for Health Policy Solutions power point presentation, September 20, 2001.

60“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

61“State and Local Tax Burdens Compared to Other U.S. States,” Tax Foundation Tax Data, April 4, 2007. http://www.taxfoundation.org/news/show/335.html

62Curtis Dubay and Chris Atkins, “State Business Tax Climate (Fourth Edition),” Tax Foundation Background Paper no. 52, October 11, 2006.

63State of Wisconsin, Department of Workforce Development, “August Unemployment Rates Announced,” press release, September 20, 2007.

64Curtis Dubay, “Things We Thought We’d Never See at the Tax Foundation, But Thanks to the Wisconsin Senate …,” Tax Foundation Tax Policy Blog, June 28, 2007. http://www.taxfoundation.org/blog/show/22454.html

65“Wisconsin’s Eroding Household Income,” The Wisconsin Taxpayer vol. 75, no.2, The Wisconsin Taxpayer’s Alliance, February 2007.

66“Healthy Wisconsin (HW) - Your Choice - Your Plan: Cost and Coverage Impacts,” AARP Wisconsin and the Lewin Group, June 19, 2007.

67Wisconsin Manufacturers and Commerce, “State-Run Health Care Proposal Will Cover Illegal Aliens,” press release, July 16, 2007.

68Retail Industry Leaders Association (RILA) v. Fielder, 475 F. 3d. 180 (4th Cir. 2007). At 192.

69Ibid.

70General Split Corporation v. Mitchell, 523F. Supp. 427 (E.D. Wisc. 1981).

71Memorandum from Richard Sweet, senior staff attorney, to Rep. Leah Vukmir, “Federal Preemption of Employer Assessments under the Healthy Wisconsin Plan,” Wisconsin Legislative Council, August 1, 2007.

72“The Uninsured: A Primer, Key Facts About Americans Without Health Insurance,” Kaiser Family Foundation, December 2003

73Victoria Craig Bunce, JP Wieske and Vlasta Prikazsky, “Health Insurance Mandates in the States 2007,” Council for Affordable Health Insurance, 2007.

74Ibid.