Reforming Health Care in Wisconsin

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Madame Chairman, Distinguished Members of the Committee:

My name is Michael Tanner and I appreciate the invitation toappear today and the opportunity to share my perspective on thevital issue of reforming health care and what Wisconsin should andshould 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. Beforethat I served as legislative director for the Georgia Public PolicyFoundation and as legislative director for health & welfarewith the American Legislative Exchange Council. In all, I havespent more than 20 years studying the American health care systemand am the author of five books on health care reform, mostrecently Healthy Competition: What's Holding Back AmericanHealth Care and How to Free It.

During my time studying this issue, I have concluded that, indeveloping health policy it is vital to keep in mind one pertinentfact: for all its problems, the United States offers the highestquality health care in the world. Most of the world's top doctors,hospitals, and research facilities are located in the UnitedStates. Eighteen of the last 25 winners of the Nobel Prize inMedicine either are U.S. citizens or work in thiscountry.1 U.S. companies havedeveloped half of all the major new medicines introduced worldwideover the past 20 years.2 Infact, Americans played a key role in 80 percent of the mostimportant medical advances of the past 30 years.3 Nearly every type of advanced medicaltechnology or procedure is more available in the United States thanin any other country.4 Byalmost any measure, if you are diagnosed with a serious illness,the United States is the place you want to be. That is why tens ofthousands of patients from around the world come to this countryevery year for treatment.

Of course, I'm aware that, as critics of American health careoften point out, other countries have higher life expectancies andlower infant mortality rates, but those two indicators are not agood way to measure the quality of a nation's health care system.In the United States, very low-birth-weight infants have a muchgreater chance of being brought to term with the latest medicaltechnologies. Some of those low-birth-weight babies die soon afterbirth, which boosts our infant mortality rate, but in many otherWestern countries, those high-risk, low-birth-weight infants arenot 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 violentcrime, poverty, obesity, tobacco and drug use, and other issuesunrelated to health care. As the OECD explains, "It is difficult toestimate the relative contribution of the numerous non-medical andmedical factors that might affect variations in life expectancyacross countries and over time."5 Consider the nearly three year disparity in lifeexpectancy between Utah (78.7 years) and Nevada (75.9 years),despite the fact that the have essentially the same health caresystems.6 In fact, theseexogenous factors are so distorting that if you correct forhomicides and accidents, the U.S. rises to the top of the list forlife expectancy.7

On the other hand, when you compare the outcome for specificdiseases like cancer or heart disease, the United States clearlyoutperforms the rest of the world. Take prostate cancer, forexample. Even though American men are more likely to be diagnosedwith prostate cancer than their counterparts in other countries, weare less likely to die from the disease. Less than one out of fiveAmerican men with prostate cancer will die from it, but 57 percentof British men and nearly half of French and German men will. Evenin Canada, a quarter of men diagnosed with prostate cancer, diefrom the disease.

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

Wisconsin, in fact, is the home of several top flight medicalcenters, including the University of Wisconsin Hospital andclinics.9

Clearly, there are problems with the U.S. health care system.Costs are rising and distributed in a way that makes it difficultfor some people to afford the care they want or need. Moreover,while the number of uninsured Americans is often exaggerated, thereare far too many Americans without health insurance, including asmany as 481,000 Wisconsin residents at any point in time, roughly8.8 percent of the population. And while the U.S. provides theworld's highest quality health care, that quality is uneven and toooften Americans don't receive the standard of care that theyshould.

It is important, therefore, that any reform of the health caresystem, either nationally or here in Wisconsin, not destroy thosethings that make our health care system so effective-individualchoice and free markets. In particular, you should avoid thetemptation to increase government regulation and control over thestate's health care system. I am concerned, therefore, that HealthyWisconsin is headed down the wrong road to reform.

Government-Run Insurance

Under Healthy Wisconsin, every state resident except governmentworkers and those currently enrolled in Medicare orMedicaid/SCHIP/BadgerCare would be required to join a tax-financed"healthy care network."10Healthy Wisconsin also extends its reach across the state'sborders, requiring some 158,000 workers who live in other statesbut work in Wisconsin to enroll.11

These networks would be composed of a wide range of health careproviders, including physicians (both primary care andspecialists), physicians' assistants, nurses, clinics, one or morehospitals, and facilities for the treatment of mental illness, drugabuse, and alcoholism.

Each network would submit a bid detailing the per-person costfor providing health care to all persons signing up for thatnetwork. On the basis of these bids, the state will divide networksinto two categories-low cost and high cost. Those who enroll in thelow cost network will have their costs fully covered by the state,while those enrolling in high cost networks may have to pay anadditional 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'sresidence.13 However,statewide networks would also exist to serve a few specialoccupational groups, notably farmers and teachers.14

The legislation does not specify how network providers are to bereimbursed. However, since the network's total revenue is limitedto their bid, presumably reimbursement will be on a capitated,rather than a fee-for-service basis. Networks are required to spendat least 92 percent of revenues on the provision of services orcapital investments.15

Private health insurance will be prohibited for services coveredunder Healthy Wisconsin.16Individuals who are currently satisfied with their health insurancewould nonetheless lose that insurance and be required to join thenew plan. In many cases, this would mean that individuals would nolonger have access to their current providers. For instance, if awoman's primary care physician joined network A, but her ob-gynjoined network B, she would be forced to choose between them.Moreover, since the networks are geographically based, it ispossible that none of her current physicians may be included in thenetworks from which she's allowed to choose. And if their networkswere classified in the upper tier, she would have to pay extra inorder to join that network and continue to see the physician of herchoice.

In theory, the state will also establish a state-wide,fee-for-service plan similar to Medicare or Canada's single-payersystem.17 There is to be anadditional charge for participating in this plan unless anindividual lives in an area without a network. The Board willdetermine reimbursement rates under this plan, which are to be"fair and adequate," yet these terms remain undefined.18 Supporters of Healthy Wisconsin havesuggested that Medicare's "very reasonable" fee schedule should bethe basis for reimbursements.19

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

The benefits networks provide must be at least as generous asthose provided by the state to lawmakers and the governor, and mustalso provide mental health and drug and alcohol rehabilitationbenefits not currently included in the state plan.20 But the benefits may be far moregenerous. The Healthy Wisconsin Board is given unrestricted powersto add whatever benefits it decides would "reduce health carecosts, avoid health care risks, or result in better healthoutcomes."21 That languagerepresents a virtual blank check and an open invitation for specialinterests to seek inclusion for their specialty or disease.Considering that Wisconsin already has some 31 mandated insurancebenefits adding as much as 20 percent to the cost of an insurancepolicy in the state, it is reasonable to expect a further expansionof the benefits package.22

Public choice dynamics are such that providers (who would makemoney from the increased demand for their services) and diseaseconstituencies (whose members naturally have an urgent desire forcoverage of their illness or condition) will always have a strongincentive to lobby legislators for inclusion under any minimumbenefits package. The public at large will likely see resisting thesmall cost increase caused by any particular additional benefit asunworthy of a similar effort. It is a simple case of concentratedbenefits and diffused costs.

Even Alain Enthoven, who helped develop the idea of managedcompetition (see below) says that Healthy Wisconsin advocates are"naive" to believe that special interests and provider lobbies canbe restrained.23

Managed Competition (Sort of)

Healthy Wisconsin combines many aspects of a single-payer healthcare system with the central structure of a concept known as"managed competition," the brainchild of Stanford Universityprofessor Alain Enthoven who testified in favor of the bill at thehearing that the Senate held on the proposal.24 The underlying concept behind both the 1993Clinton health care plan and Mitt Romney's Massachusetts reform, itis designed to take advantage of market competition, but within anartificial and carefully regulated marketplace.

Thus, in theory, Wisconsin residents are able to choose betweencompeting "healthy care networks." But any competition betweennetworks would take place on a very constrained basis. For example,since all plans are required to offer the same core benefitspackage, there will only be marginal competition based on benefitdesign. There is price competition only in so far as upper-tiernetworks may require an additional fee. But again, such competitionis strictly at the margins. For the vast majority of Wisconsinresidents, they will pay the same amount (through their payrolltax) regardless of which plan they choose.

In addition, networks are prohibited from adjusting premiumsbased on such risk factors as age, sex, or healthstatus.25 This isespecially problematic because an inability to price according torisk typically results in overprovision of care to the healthy andunder-provision to the sick.26

As University of Chicago law professor Richard Epstein haspointed out, "Managed competition is not so much a coherentgovernment plan as an oxymoron. It is possible to have eithermanaged health care or competition in health care services. It isnot possible to have both simultaneously."27 Even Alain Enthoven agrees that "managedcompetition is not a free market."28

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

Rationing

While universal coverage is the most discussed rationale forHealthy Wisconsin, the proposal also has a second, and to somedegree contradictory goal-"health care reform shall implement costcontainment strategies that retain and assure affordable coveragefor 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 $600for a family.30 Co-paymentsare limited to $20 per health care encounter, and combined yearly,out-of-pocket expenses (for both co-payments and deductibles) arelimited to $2,000 for an individual and $3,000 for afamily.31 There are nodeductibles or co-payments at all for children, pregnant women, orpeople in disease management programs, and the Board has theauthority to reduce or eliminate co-payments and deductibles foreveryone else if they choose.32 Health savings accounts, part of the bill'sinitial draft, were stripped from the final legislation.

Instead of consumer cost-sharing, the legislation establishes astatewide global budget for health care, limiting the growth ofhealth care costs to no more than the national average. However, inrecent years Wisconsin health care costs have been increasingfaster than the nation's costs as a whole. In 2006, state healthcare spending rose by 9.3 percent while the increase in nationalhealth 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 ofthe Healthy Wisconsin Authority, is empowered to "establish, byrule, a program to contain health care costs."34 The legislation gives no direction and putsno limitation on how this is to be done, beyond a mandate toeliminate "unnecessary operating and capita costs." Yet if we lookat how global budgets are enforced in other countries, or even howU.S. government programs like Medicare attempt to control costs, wecan assume that any attempt to reduce costs would includereductions in reimbursements and/or capital spending.

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

Similarly, reducing reimbursement rates will drive physiciansout of the state. Canada has roughly 2.1 practicing physicians per1,000 people, far less than the OECD average. Worse, there has beenabsolutely no growth in the number of physicians per 1,000 peoplesince 1990. And while the number of nurses per 1,000 people remainsnear the OECD average, that number has been declining since1990.36

Indeed, waiting lists are a major problem under the Canadiansystem. There is no accurate government data available, thoughprovincial reports do show the existence of at least moderatewaiting lists. The best information may come from a survey ofCanadian physicians by the Fraser Institute, which suggests that asmany as 800,000 Canadians are waiting for treatment at any giventime. According to this survey, treatment time from initialreferral by a GP, through consultation with a specialist, to finaltreatment, across all specialties and all procedures (emergency,non-urgent, and elective), averaged 17.7 weeks in2005.37

Defenders of national health care have attempted to discountthese waiting lists, suggesting that the waits are shorter thancommonly portrayed or that most of those on the waiting list areseeking elective surgery. However, a look at specialties withespecially long waits shows that while the longest waits are forprocedures such as hip or knee replacement and cataract surgery,which could arguably be considered elective, fields that could havesignificant impact on a patient's health such as neurosurgery, alsohave significant waiting times.38 In some cases, the delays could be lifethreatening. A study in the Canadian Medical Association Journalfound that at least 50 patients in Ontario alone have died while inthe waiting list for cardiac catheterization.39 And Canadian Supreme Court Chief JusticeBeverly McLachlin wrote in a 2005 decision striking down part ofCanada's universal care law, that many Canadians waiting fortreatment suffer chronic pain and that "patients die while on thewaiting list."40

It is also worth noting again that there will be no health careprofessionals on the Board. Yet, the Board is empowered todetermine if care is "medically appropriate" and conforming to"best practices." You thus have the possibility of a group of unionrepresentatives and corporate executives overruling doctors onquestions of medical treatment.

Of course, advocates assume that costs can be controlled withoutresorting to rationing. They predict substantial savings from theelimination of insurance overhead costs, increased preventive care,and integrated disease management. One study suggests savings ofmore than $800 million in the first year alone.41 However, there is reason to beskeptical.

For example, it is assumed that the plan's emphasis on primaryand preventive care will lead to $565 million insavings.42 Preventive careadvocates assume that if we focus on preventive medicine, we canprevent people from getting sick in the first place. And byemphasizing timely primary care, those who do end up with a chronicillness will develop fewer complications. By spending money upfront to reduce the frequency and severity of illness we can reducethe amount of money needed to eventually treat those illnesses inthe future.

As logical as this may seem, studies actually show thatpreventive care usually ends up costing money in the long runbecause there is no way to precisely target such care.43 For every disease that we prevent orcatch early, we end up testing and treating many people who willnever get sick. For example, Jay Bhattacharya, a doctor andeconomist at Stanford's School of Medicine, estimates that toprevent one new case of diabetes, an anti-obesity program musttreat five people.44Similarly, a study of retirees in California by Jonathan Gruber, ahealth economist at MIT and long-time advocate of national healthinsurance, found that when retirees had fewer doctors visits andfilled fewer prescriptions, overall medical spendingdeclined.45 People becameill more frequently, but treating their illnesses was still lesscostly than paying for preventive care for everyone. Thus,increased preventive and primary care may well be beneficial forthe individual in terms of health, but it is unlikely to provide asocietal benefit in terms of reduced costs.

Second, there is an assumption that centralizing the purchase ofprescription drugs and allowing the state to negotiate drug pricesdirectly with producers will yield another $178 million insavings.46 But as theCongressional Budget Office concluded about a similar proposal forMedicare Part D, that is only likely to occur if the purchaseradopts a restrictive formulary limiting the number of drugsavailable in a therapeutic class.47 In the absence of such restrictions, governmentis unlikely to achieve significant savings beyond what privateinsurers, particularly managed care plans, have been able tonegotiate. But the public is unlikely to accept a statewiderestrictive formulary-not even considering the important medicalreasons for rejecting such formularies-meaning that actual savingswill be far less than projected.

Finally, it is assumed that a government-run system would resultin substantial reduction of administrative costs, as much as $407million.48 There is nodoubt that administrative costs under private insurance plans addconsiderably to the cost of health care, roughly 8-16percent.49 However,advocates of a government run system frequently underestimate theadministrative burden under those systems. A study by PatriciaDanzon of the Wharton School has estimated that administrativecosts under Canada's system run as high as 45 percent ofclaims.50 And evenMedicare, often cited as a model of government efficiency, hasadministrative costs of more than 5 percent.51

If the predicted savings fail to materialize, it could poseserious problems for Healthy Wisconsin since the same actuariesanalyzing an early iteration of a Wisconsin universal coverageproposal (the Wisconsin Health Plan) predicted nearly $1 billionper year in new costs from increased utilization.52 Similar utilization increases should beexpected under Healthy Wisconsin. And this does not include theadded cost if the political economy dynamics discussed above leadto the addition of yet more benefits.

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

Adding Up the Cost

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

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

In theory, the tax would be split, with the employee paying fourpercent and the employer paying 10.5 percent. But, while it mightbe politically appealing to claim that business will bear the newtax burden, nearly all economists would see it quite differently.The amount of compensation that a worker receives is a function ofhis or her productivity. The employer is generally indifferent tothe composition of that compensation. It can be in the form ofwages, benefits, or taxes. What matters is the total cost of hiringthat worker. Mandating an increase in the cost of hiring a workerby adding a new payroll tax does nothing to increase that worker'sproductivity. Employers will therefore seek ways to offset theadded cost by raising prices (the most unlikely solution in acompetitive market), lowering wages, reducing future wageincreases, reducing other benefits (such as pensions), reducinghiring, laying off current workers, or outsourcing. In the end, oneway or another, workers will bear the full cost.

Of course, the added cost of the payroll tax will be offset tothe degree that businesses no longer have to pay health insurancepremiums. Surveys suggest that health insurance currently costs theaverage Wisconsin business between 11.8 and 12.7 percent ofwages.57 However, thataverage is not equally distributed. Wisconsin's small and mediumsized businesses generally pay far less, on average 5-7 percent ofwages.58 And, of course,nearly 40 percent of Wisconsin's small businesses currently do notoffer health insurance.59Thus, there will be a net increase in the cost of employing eachworker for most businesses, and an enormous tax increase for smalland medium sized businesses. Overall, it is estimated thatemployers will face $579 million per year in additionalcosts.60

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

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

If the 14.5 percent payroll tax is enacted, Wisconsin's taxburden will rise to number one in the nation.64 Added to the other tax increases includedin the Senate-passed budget, the state's tax burden would rise from12.3 percent of state income today, to 20.1 percent. To put this inperspective, the federal tax burden is only slightly higher, 21.7percent of national income. On average, Wisconsin taxpayers will bepaying 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 programand the taxes necessary to support it. The Wisconsin Department ofRevenue projects wages in the state to grow by 4.6 percentannually, bringing revenue from the payroll tax to $23.4 billion by2017.65 If health carecosts grow by 6.5 percent annually, as projected by actuaries withthe Lewin Group, benefits under Healthy Wisconsin would top $33.1billion by 2017, leaving a nearly $10 billion deficit.66 That may not be the worst. As notedabove, nationally, health care inflation has been running close to8 percent annually, and the cost of employer provided health carein Wisconsin rose by 9.3 percent in 2006. If health care inflationin Wisconsin merely mirrors the national average over the nextdecade, the program's cost will rise far faster than previouslyestimated, 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 perverseset of incentives that will encourage healthy and insured residentsto move out of state, while also encouraging uninsured and sickfrom out of state to relocate to, or at least take jobs in,Wisconsin.

This would significantly strain the health facilities in thoseareas, especially since the border areas largely consist of smallercommunities with limited medical facilities. Wisconsin faced asimilar burden in the 1980s, when the state's higher welfarebenefits acted as a magnate for poor families relocating fromplaces like Chicago. Healthy Wisconsin could act as a similarmagnate, particularly since it covers undocumented immigrants andextends special benefits to low-income pregnant women.67 Such an outcome would drive upprogram costs and create a host of other problems for thestate.

HEALTHY WISCONSIN AND ERISA

Whatever Healthy Wisconsin's merits or lack thereof as policy,there are significant questions about its legality. The federalEmployee Retirement Income Security Act (ERISA) preempts stateregulation of certain employer-provided benefits, includingself-funded health insurance plans. The courts have generallyinterpreted this very broadly as prohibiting not only directregulation of such plans, but any law or regulation that "relatesto" or has a "connection with" them. A state law is a violation ofERISA if it "effectively mandates some element of the structure oradministration" of an employer's ERISA-protected plan.68

For example, when Maryland attempted to require businesses withmore than 10,000 employees to either provide all their workers withhealth insurance or contribute a payroll tax, the court struck itdown, holding that because it would require employers to "changehow they structure their employee benefit plans," it violatedERISA.69 Similarly inWisconsin, laws attempting to regulate health insuranceconvertibility and continuation, and the Health InsuranceRisk-Sharing Plan were struck down.70

Supporters of Healthy Wisconsin argue that ERISA does not applybecause the plan neither requires employers to provide benefits totheir workers nor conditions the payroll tax on the provision ofthose benefits. However, as the Wisconsin Legislative Council hasnoted, "it is undeniable that it will have an effect on[ERISA-protected] plans."71As the courts have pointed out, one purpose of ERISA is to enablemulti-state companies to provide uniform benefits across statelines. But under Healthy Wisconsin, employers would have to changethe benefits they currently offer. They would be offering differentplans for Wisconsin workers than for those in other states (in manycases there would be no employer provided health benefits forWisconsin workers).

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

What Should Wisconsin Do?

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

The unfortunate reality is that the state's options are limitedbecause both the real villains and solutions to America's healthcare problems lie in Washington, and specifically with the federaltax code, beyond the reach of state lawmakers. However, there aresome important steps that this state can take that will reduce thecost of health care and increase the number of people who areinsured, while preserving-and even improving-the quality of thecurrent system.

First, Wisconsin should do what it can to reduce the cost ofhealth insurance. After all, the number one reason that people givefor not purchasing insurance is that they cannot affordit.72 This is particularlytrue for young and healthy individuals: precisely the people whoshould be encouraged to enter the insurance market before theybecome older and sicker. Yet, current state regulations drive upthe cost of health insurance and make it a reasonably logicaldecision for these young, healthy individuals to remainuninsured.

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

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

Currently health insurance purchasers are essentially stuck withthe regulatory regime of the state in which they reside. Wisconsinbusinesses and individuals are held hostage by Wisconsin insuranceregulation. But if free to purchase health insurance regulated bystates other than their own, customers could avoid regulations thatadded unwanted costs. They could in effect, "purchase" anotherstate's set of regulations by purchasing insurance from an insurerchartered in that state. If Wisconsin residents do not wish topurchase all 31 coverage mandates the state requires, they couldpurchase insurance from, say, Idaho, where there are only 13, orany state whose laws are more closely aligned with their ownpreferences.

Not only would such a simple change to Wisconsin's insurancelaws benefit consumers, reduce costs, and increase the number ofpeople with insurance, the same competitive process that drivesproducers to improve quality and reduce costs in other productscould help produce higher quality regulations. Wisconsin would haveto compete for the best regulatory environment in the same way itcurrently competes with other states to have the best taxenvironment.

Secondly, the state should institute a thorough review of how itcan reduce the cost of providing health care. In particular itshould look at such issues as expanding the scope of practice fornon-physician professionals, and removing barriers to hospitalcompetition.

And third, the state should continue to do all it can to expandthe use of consumer-oriented health plans such as Health SavingsAccounts. I know that I have been widely quoted in the press andelsewhere as saying that "health savings accounts are not a silverbullet." That is correct. That is because there are no silverbullets when it comes to health care reform. No single reform willsolve all of Wisconsin's, or the country's, health care problems. Acombination of interlocking reforms dealing with providers andconsumers, supply and demand, will be required. And even then,utopia is not an option.

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

I regret that I have not been able to come here and offer asilver bullet to fix the problems with Wisconsin's health system.Indeed, some may be disappointed that so much of my advice is inthe form of what not to do. This is because I believe, that inpursuing health care reform, legislators should be guided by theHippocratic admonition, "First do no harm."

It is understandable that you and your constituents arefrustrated by the inability of Congress to address the undeniableneed for health care reform. Yet it is sadly true that the keys tohealth care reform lie in federal, not state, legislation. Thereare limited steps that Wisconsin can take to make the situationbetter. But, in the end, you should be extremely careful to makesure that impatience does not push you into taking steps that willultimately 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 wouldbe happy to answer any questions.


1"Nobel Prize inPhysiology or Medicine Winners 2006-1901," The Nobel Prize InternetArchive, http://almaz.com/nobel/medicine/medicine.html.

2PharmaceuticalManufacturers Association, "Facts about the U.S. PharmaceuticalIndustry," 2002.

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

4Gerard Anderson et al.,"It's the Prices Stupid: Why the United States Is So Different fromOther Countries," Health Affairs 22, no. 3 (May/June2003): 99.

5"Health at a Glance: OECDIndicators, 2005," Paris, OECD Publishing, 2005.

6U.S. Census Bureau, 2000Census.

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

8Varduhi Petrosyan, andPeter Hussey, Multinational Comparisons of Health Systems Data,2002 (New York: The Commonwealth Fund, 2002), pp. 55-62;Gerard Anderson and Peter Hussey, Multinational Comparisons ofHealth Data Systems Data, 2000 (New York: The CommonwealthFund, 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 BestHospitals, 2007," U.S. News & World Report, July2007.

10Government workerswould eventually be transitioned to Healthy Wisconsin, but onlyafter their current labor contracts expire. The plan anticipatesthat the state will provide significant "wrap around" coverage toensure that government workers do not lose any of the generousbenefits they currently enjoy.

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

12Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter260.30(7)(b)(4)(a).

13Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter260.30(2)(b)(4)(c)(1).

14Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter260.30(4)(m)(2).

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

16Private insurancecould continue to cover services over and above those covered byHealthy Wisconsin.

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

18Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter260.30(7)(b)(1).

19Jack Lohman, "Lohman:Pass, Expand Healthy Wisconsin Bill," Wisconsin StateJournal, July 16, 2007.

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

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

22Victoria Craig Bunch,JP Wieske and Vlasta Prikazsky, "Health Insurance Mandates in theStates 2007." Council for Affordable Health Insurance, 2007.

23Guy Boulton, "ReformerWeighs in on Health Plan," Milwaukee Journal-Sentinel,July 13, 2007.

24See Alain Enthoven,"The History and Principles of Managed Competition," HealthAffairs, supplement (1993).

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

26John Goodman andGerald Musgrave, "A Primer on Managed Competition," National Centerfor Policy Analysis Policy Report no. 183, April 1994.

27Richard Epstein,"Unmanageable Care," Reason, May 1993.

28Alain Enthoven, "TheHistory and Principles of Managed Competition," HealthAffairs, supplement (1993), p. 44.

29Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter260.05(4)(a)(2)(a)

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

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

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

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

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

35"OECD Health Data2007: Statistics and Indicators for 30 Countries." Organization forEconomic Co-operation and Development, July 2007.

36"Health at a Glance:OECD Indicators, 2005," Paris, Organization for EconomicCo-Operation and Development, 2005.

37Nadeem Esmail, MichaelWalker,and Dominika Wrona, "Waiting Our Turn 16th Edition: HospitalWaiting Lists in Canada," Fraser Institute, 2006.

38Ibid.

39Madhu Natarajan etal., The Risks of Waiting for Cardiac Catheterization: aProspective 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," AARPWisconsin and the Lewin Group, June 19, 2007.

42Ibid.

43David Leonhardt, "FreeLunch on Health? Think Again," New York Times, August 8,2007.

44Jay Bhattacharya andM. Kate Bundorf, "The Incidence of the Health Care Costs ofObesity," Stanford University, April 2005.

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

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

47"Issues Regarding DrugPrice 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," AARPWisconsin and the Lewin Group, June 19, 2007.

49Steffie Woolhandler,Terry Campbell and David Himmelstein, "Costs of Health CareAdministration in the United States and Canada," New EnglandJournal 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 Medicareand the Private Sector," Council for Affordable Health Insurance,January 10, 2006.

52"The Wisconsin HealthPlan (WHP): Estimated Costs and Coverage Impact: Final Report," TheLewin Group, June 2007.

53Steven Hayward andErik Peterson, "The Medicare Monster: A Cautionary Tale," ReasonMagazine, January 1993.

54Chris Edwards,"Government Schemes Cost More Than Promised," Cato Institute Taxand Budget Bulletin no.17, September 2003.

55Senate Amendment 1 toSenate Substitute Amendment 1 to SB 40, Chapter 260.40 (2 and3).

56"Healthy Wisconsin(HW) - Your Choice - Your Plan: Cost and Coverage Impacts," AARPWisconsin and the Lewin Group, June 19, 2007. This is slightly lessthan the 15.5 percent payroll tax that Lewin estimated would benecessary to fund the Wisconsin Health Plan. "The Wisconsin HealthPlan (WHP): Estimated Costs and Coverage Impact: Final Report," TheLewin Group, June 2007. While Lewin now suggests a 14.5 percentpayroll tax, others continue to suggest a 15.5 percent tax will berequired. As noted above, the Board has the authority to set thetax 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 Niederjohnand Mark C. Schug "An Evaluation of the Wisconsin Health Plan"Wisconsin Policy Research Institute Report vol. 20, no.1, January2007. Although this study was focused on the Wisconsin Health Planrather than Healthy Wisconsin, the underlying survey numbers andanalysis remain valid.

58Ibid.

59Edward Neuschler, "AProfile of Employer Coverage in Wisconsin," Institute forHealth Policy Solutions power point presentation, September20, 2001.

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

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

62Curtis Dubay and ChrisAtkins, "State Business Tax Climate (Fourth Edition)," TaxFoundation Background Paper no. 52, October 11, 2006.

63State of Wisconsin,Department of Workforce Development, "August Unemployment RatesAnnounced," press release, September 20, 2007.

64Curtis Dubay, "ThingsWe Thought We'd Never See at the Tax Foundation, But Thanks to theWisconsin Senate …," Tax Foundation Tax Policy Blog, June28, 2007. http://www.taxfoundation.org/blog/show/22454.html

65"Wisconsin's ErodingHousehold 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," AARPWisconsin and the Lewin Group, June 19, 2007.

67WisconsinManufacturers and Commerce, "State-Run Health Care Proposal WillCover Illegal Aliens," press release, July 16, 2007.

68Retail IndustryLeaders Association (RILA) v. Fielder, 475 F. 3d. 180 (4thCir. 2007). At 192.

69Ibid.

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

71Memorandum fromRichard Sweet, senior staff attorney, to Rep. Leah Vukmir, "FederalPreemption of Employer Assessments under the Healthy WisconsinPlan," Wisconsin Legislative Council, August 1, 2007.

72"The Uninsured: APrimer, Key Facts About Americans Without Health Insurance," KaiserFamily Foundation, December 2003

73Victoria Craig Bunce,JP Wieske and Vlasta Prikazsky, "Health Insurance Mandates in theStates 2007," Council for Affordable Health Insurance, 2007.

74Ibid.