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At the same time that Congressional Republicans and President Trump were deriding the Affordable Care Act (ACA) marketplaces for leading to less competition in the private health insurance market in many states, the board of Republican appointees who oversee the Wisconsin State Employee Health Plan (WSEHP) voted to purposely move from a highly competitive insurance market to a non-competitive self-insured model. Weeks later, Republican Governor Scott Walker submitted a state budget that would implement this plan to intentionally decrease competition in health insurance.
The WSEHP is one of the longest-running health insurance marketplaces in the United States. It predates the Massachusetts Connector by more than 25 years and the ACA marketplaces by more than 30 years. Since 1983, the WSEHP has provided health insurance via 72 health insurance exchanges—one exchange for each county in Wisconsin.
The WSEHP now uses an explicitly competitive model for holding down private health insurance premiums. State employees are annually offered a choice among competing Health Maintenance Organizations (HMOs) as well as a fee-for-service plan. All plans offer the same benefits. Competition occurs at the county level: thus, there are 72 county exchanges. In 70 counties, at least three HMOs compete; in some counties, the number of competitors exceeds three HMOs, rising to as many as nine. Each HMO decides for itself which county, or cluster of counties, it wants to bid on. Each HMO also sets its own premium. State employees pay the least if they enroll in a low-premium HMO (placed in Tier I). They pay a significant extra amount, out of pocket, if they instead enroll in a higher-premium HMO or the (always more expensive) fee-for-service plan (placed in Tiers II or III). The incentive state employees have to save money, by choosing a low-premium Tier I plan, puts pressure on the HMOs to keep their premiums down.
Competition Can Work
In 2014, I worked with a team that published The Dane Difference: Why Are Dane County’s Exchange Premiums Lower? Our report encouraged policymakers to look at the long-running success “of the WSEHP in controlling the rapid rise of health insurance costs in Dane County—where Madison, Wisconsin’s state capital, and the University of Wisconsin, are located—as they seek to improve the effectiveness of the ACA’s marketplaces and health insurance costs in general.”
Our research indicated that in Dane County—where WSEHP provides health insurance for over 20% of the entire county’s population not enrolled in Medicaid or Medicare, and where several high-quality HMOs exist—the competitive model produces substantial cost savings:
“The WSEHP consistently obtains substantially lower health insurance premiums in Dane County than in Wisconsin’s 71 other counties. In 2013, an individual plan in the WSEHP was about $1,400 cheaper annually in Dane County, or 16 percent less than the average in the rest of the state; and a family plan was about $3,500 cheaper, also a 16 percent difference. This Dane difference has existed for at least a decade, with the gap slowly widening over that time.”
The report concluded:
“Based on the strength of our evidence, it would be reasonable for policymakers to conclude that an exchange is far more likely to hold down premiums and costs, without sacrificing quality, if the exchange also has at least one, and optimally more than one, of the following features:
The exchange’s pool comprises a very large percentage of the privately insured lives in the exchange’s bidding region;
2.The exchanges offers a large number of high-quality plans; and
Those plans are integrated delivery systems.
These conclusions assume that the exchange provides pooled members with a standard benefit package, and that it offers them a clear economic incentive to choose a low-premium health care plan by requiring them to pay a portion, if not the full extra cost, of a plan that offers a higher premium.”
Conflict Over Competition
Republicans in Congress have treated as a failure the many ACA marketplaces with a small number of competitors. During a February 5, 2017, appearance on NBC’s Meet the Press, House Speaker Paul Ryan called the ACA “a collapsing law,” because of its lack of competing choices:
“Five states have one plan to choose from. A third of all the counties in America have one plan to choose from. Seventy percent of all counties in America have one or two plans to choose from—that’s a monopoly or duopoly.” Ryan implored his fellow Republicans to “step in front of this crash and rescue people from this collapsing health care system and replace it with something better.”
In his February 28, 2017, address to a joint session of Congress, President Trump concurred:
“One-third of counties have only one insurer, and they are losing them fast. They are losing them so fast. They are leaving, and many Americans have no choice at all. There’s no choice left. Remember when you were told that you could keep your doctor and keep your plan? We now know that all of those promises have been totally broken. Obamacare is collapsing, and we must act decisively to protect all Americans.”
Yet Wisconsin’s Group Insurance Board and Governor Walker are recommending going in the opposite direction of what national Republican leaders have called for. Despite the evidence that competition can work, on February 8, 2017, Wisconsin’s Group Insurance Board approved a plan to abandon the current competitive model and switch to a regional self-insured model. This proposed change would carve the state into four regions with two third-party administrators along with one statewide/nationwide administrator. Premium competition among HMOs would disappear. Instead of paying premiums bid under competitive pressure, the state would pay claims directly.
Risk and Cost
The Wisconsin Group Insurance Board and Governor Walker are also proposing that Wisconsin take on a large new risk, with no guarantee of savings and a serious possibility of higher taxpayer costs.
Two consultants have estimated savings that may—or may not—happen from the switch from competition to self-insurance. A report by Deloitte concluded the state could save $20 million or lose $100 million. Segal Co.’s first report concluded that the state could potentially save between $50 and $70 million, but its second report lowered the savings estimate to $42 million. Governor Walker has already proposed using a separately estimated $60 million in savings in the 2017-2019 biennial state budget.
The estimates of savings—or loss—are for one year only. The Group Insurance Board did not examine what would happen to costs for taxpayers beyond the first year. Nor did it examine how Wisconsin’s private insurance market would be disrupted in any year. There is a potential for significant disruption with the reduction in competitors in such a significant share of Wisconsin’s private market. There is also no available estimate of how many jobs would be impacted and what the economic impact of this proposal would be.
The proposal creates a risk that tens of thousands of individuals may have to give up their current health care providers. But the biggest risk arises from the shift of risk to Wisconsin’s taxpayers. Today’s competitive model places the risk of unanticipated health care costs on the 17 HMOs that compete and are paid a fixed per-enrollee premium. The self-insured model would by definition shift the risk of unknown health care costs to the State of Wisconsin—that is, to the state’s taxpayers in the form of reduced investment in education or infrastructure maintenance, or in the form of foregone tax cuts. Taking on this risk is a massive shift in policy that deserves further analysis and debate.
Under Wisconsin law, the Wisconsin Legislature’s Joint Committee on Finance is empowered to review and approve any contract to switch to a self-insured model. Once the negotiations to implement a switch are complete, the Committee has 21 days to notify the Group Insurance Board of its intent to review the contract. If the Committee gives notice, the contract may not proceed without the Committee’s approval.
Several members of the Joint Committee on Finance, including the Assembly Co-Chair, have expressed doubts about the plan to give up on competition and embrace self-insurance. At this point, it is not clear what decision the Committee will make. But Governor Walker and the powerful insurance companies that favor a self-insured model may have enough influence to push the plan into law.
The experience in Dane County strongly suggests the competitive model should remain—but with improvements. Most importantly, the state should increase the size of the purchasing pool to hold down costs. Combining state and local government workers in the same county into the same purchasing pool would result in a significantly larger pool with more market leverage. The state should also encourage and incentivize participation by multiple integrated delivery systems in each county.
The state could go one step further and combine all government workers with non-government individuals and groups who utilize the competitive ACA marketplace to buy health insurance. It would be possible to structure this expansion to enable government workers to choose a plan that lets them buy the same benefit package they now receive, at current levels of cost sharing. If workers chose to purchase the same benefit package from a more costly health insurance plan, they would pay the extra cost.
The ACA now allows this type of expansion by giving states the power to open the marketplace to employers—including government employers—of any size. A Segal Co. analysis that compared the WSEHP to Wisconsin’s ACA Marketplace concluded that, if state government workers were able to choose a platinum-level plan in the Marketplace (slightly more generous than the 88% actuarial value plans in the WSEHP), taxpayers would have saved $240 million in 2015.
In addition to saving hundreds of millions for state taxpayers, combining an all-government health insurance network of exchanges with the ACA exchange structure would likely lower health insurance premiums for local taxpayers as well as non-government individuals and small employers. The Dane County model—a very large purchasing pool, intense competition among high-quality integrated delivery systems, and consistent incentives for enrollees to select low-cost and high-quality plans—is likely to put consistent and powerful pressure on competing HMOs, other insurance plans, and providers themselves to lower costs, improve quality, and enhance health outcomes.
Posted Sep 12, 2017
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