Wisconsin bargaining gone; HSAs next

Like it or not, now that the Republican majority in the Wisconsin Legislature has unshackled local government and school districts from bargaining with their unions over benefits, there is a golden opportunity to reset how they deliver health care benefits.

This will have wide ranging impacts across Wisconsin, the Heartland and the nation. Only a few public sector payers have taken advantage of consumer-driven health care, and now they are free up to do so.

An estimated 40 million Americans have signed up for personal health accounts in the form of HSAs or HRAs since they were enabled eight years ago. Tens of millions of additional consumers could be created if local governments, all of whom are facing intense budget pressures, follow this route.

Current health care costs in government are outrageously high, the product of deep-seated hyper-inflation on the economic side of medicine and years of gradually more expensive concessions by boards and administrators. What’s been missing in the public sector is the innovation that has allowed the private companies to radically improve the economic model for health care.

The contrast is staggering. Take West Bend in Washington County, Wisconsin. My company, Serigraph Inc., delivered full health benefits in 2010 for $8300 per employee for a family plan. The comparable costs for school districts in the County range from $19,344 in West Bend to $22,428 on the high side in Kewaskum.

The national average for a family plan in  2010, according to Kaiser Permanente, was $14,033 per employee.

So, the school districts pay out more than double what Serigraph pays for essentially the same coverage.

This differential is no small matter. Say a district has 500 employees using its family health plan: the annual health cost expenditure comes to about $10 million. Saving half of that by adopting a more intelligent plan would yield $5 million, more than enough to offset pending cuts in school aids from the Madison.

Further, this reform, real reform, would not be a one-time fix. The fundamental principles of well-designed private plans endure for the long term. Serigraph, for example, has kept its annual average increase under 3% for eight years running.

There are three platforms necessary for meaningful reform of health care economics. First, incentives and disincentives need to be introduced, which is accomplished by giving each employee a personal health account, accompanied by a higher deductible and co-insurance. Up to an out-of-pocket maximum, it becomes the employees’ money to spend or not spend.

It is now beyond debate that behavior around health care changes dramatically with skin in the game. Individual responsibility kicks in. People become intelligent consumers of health care, instead of passive recipients.

Second, the health plan must be designed to keep people out of the hospital. They are dangerous and expensive places. You don’t want to be there, especially at $5000 a night.

The best way to keep people healthy is proactive, free, on-site primary care. Companies like Quad Graphics do just that. They surround employees and family members who have chronic diseases with all the primary care tools they need to stay out of the hospital.

Third, the health plans need to steer their members to “centers of value,” those health care providers that offer the best combination of service, quality and price. Why pay $50,000 for a hip replacement when high quality hospitals in the same market area deliver a ceramic-coated, titanium hip for half that?

These changes may seem scary to public employee, because they depart from the status quo. But they can be introduced in stages and they can be made voluntary – with heavy incentives to make the switch.

Gov. Mitch Daniels used that approach in Indiana, and it worked with his state employees. More than 80% have converted to a consumer-driven plan, and the savings have been huge.

Besides, the pain of switching to a new kind of health plan isn’t all that high. Surveys show high levels of satisfaction with those types of plans. The Serigraph health plans scores high in employee surveys.

A recent analysis by Aetna shows savings of more than 20% for such consumer-driven plans. That generally squares with previous studies by Mercer and Cigna.

The Daniels’ voluntary approach should be palatable for local and state government in Wisconsin. Who can really argue with creating an option? A change-resistant teacher could stick with a standard plan if he or she wanted to pay more.

School districts in Wisconsin have been exceedingly slow to innovate, mainly because of the need to bargain for any change. With the requirement to bargain changes now history, the time for change is now.

The donnybrook in Madison over the last month has been ugly to watch. But the laws of the state did change as a result.  Challenges to the changed law care unlikely to prevail. Courts are generally unwilling to overrule actions of a majority of the legislature and the governor

No fair-minded citizen wants to see union members lose health coverage or benefits. These public servants are responsible for some of society’s critical functions, such as educating our children. But they don’t have to lose anything under more intelligently designed health plans.

Indeed, benefits can be improved, such as offering on-site primary care. The employees can win, and so can the taxpayers.

(For more information on this topic, check out my book, The Company That Solved Health Care or my blog: www.johntorinus.com.


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