University can’t duck health cost reform

The new task force looking at ways to restructure the University of Wisconsin System will be looking at many issues, but it will be unable to avoid the funding crisis caused by the state’s unimaginative management of its soaring costs of health care.

Many essential government programs are being crowded out by bloated health care costs. Look no further than major decisions made by the governor and legislature in the state’s current biennial budget.

The university system was cut by $250,000 million, taking it down to 6% of the total budget, about half of where it used to be in the 1980s and 1990s. In the same document, where almost all state programs took a haircut, Medicaid spending by the state was increased by $1.2 billion. That is the epitome of  “crowding out.”

K-12 education and environmental programs also took hits.

Another iceberg sinking the university ship is the health care costs of its own employees. Total employment of the system is about 32,000, about half of the state employee total.

Last I checked, the Employee Trust Fund, which buys insurance for state employees, was spending $21,000 per employee. That compares to $7,000 for private companies using best practice management innovations for health care delivery. That would be companies like QuadGraphics, KI in Green Bay and Burger Boat in Manitowoc. They all offer very comprehensive coverage at the $7,000 mark.

At $21,000, three times best practice, the university is spending more than $600 million per year. If the university converted to a consumer-driven plan, based on Health Savings Accounts, it could save at least 20% of its health care bill.

That would be enough to offset the cuts in the 2011-13 budget. Further, there are other innovations, such as on-site primary care, that can cut the costs even more, while delivering better care.

How can the task force not look at best practices for the delivery of health care?

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  • Eric

    Excellent article as usual Jon. What I find most distrubing about this situation (aside form the unnecessary cost to the taxpayer) is that this is the same university system that trains physcians and other medical professionals. Those of us in the healthcare industry need to take cost controlls serriously. Most healthcare professionals have little to do with charges, but when we are personally insulated from cost (overly generous insurance) our disconnect from the reality of the typical patinet with private insurance becomes even greater. Recently I read that UW, the Medical College of Wisconsin and Marquette are forming a task force to look at ways to reduce costs for others. “Physician heal thyself” comes to mind. Neither the Medical College or UW health are low cost leaders. Why aren’t those of us that are actually reducing cost at the table? You’d be a great addition.

    • Anonymous

      Agree, Eric. We need a business approach to health costs, not a wonk approach. It’s about managerial science, not political science or even economics.

  • Bill Kraus

    Brilliant. To steal from a Clinton era quote: It’s all about the money, stupid.

  • Jfulkerson

    The Employee Trust Fund took an inovative approach to pharmacy coverage when it carved out these costs from the rest of their insurance contracts and negotiated direct deals using a local pharmacy network manager called Navitus. Navitus was started by Jay Fulkerson, Terry Maves, and Sandy Panzer from Touchpoint Health Plan in Appleton, adn Bob Palmer and Allison Mooney from Dean Health Plan in Madison. This new company, Navitus, negotiated on behalf of the State and produced millions in savings and established new jobs in Wisconsin.
    This same innovative approach can be had for State employees using many of the tools you describe in your book. Keep sharing the challenge!

    • Anonymous

      I agree that the state’s use of Navitus for drugs is the kind of innovative thinking that is needed across the board on health care.

  • Skorczeb

    Unfortunately, many employees on Health Savings Accounts can’t save enough to pay for medical expenses so they avoid preventative and other care. Consumer-driven plans based on Health Savings Accounts have an adverse effect on healthy living.

    • Anonymous

      Unfortunately, your data is not correct. Four national studies have shown that HSA owners are more likely to use preventive health care than owners of standard plans. People get their heads in the game of health cost and health. They become healthier.

  • Ray Cross

    Very good analysis John — we need to use a serious managerial process to improve the incentives and to engage the employee in the reduction of the costs of their health care.  Right now they are disconnected from the costs and that shouldn’t be the case.

    Good work John,


    • Anonymous

      The savigs could help the colleges.