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Public sector should manage health costs - Pacific Research Institute

Public sector should manage health costs

Milwaukee Journal Sentinel (Milwaukee, WI), February 28, 2009

For an eye opener, go to the Web site of the state Department of Employee Trust Funds and check out the premium for a single state employee.

It comes to $896 a month, or $10,752 a year.

Then go to a recent report from the Wisconsin Taxpayers Alliance and check out the cost for single coverage in the Milwaukee Public Schools System.

It was $7,900 a year two years ago.

At Serigraph, the price for a single premium in 2008 was $3,460. That’s everything, including dental, drugs, administration and health account. We are a little under the national average for single coverage.

Those numbers demonstrate the inability of public sector payers to purchase health care effectively. MPS is two times the national average, and ETF is almost three times as high.

State spending for Medicaid and medical assistance in Wisconsin has soared to $1.75 billion annually, and that is only 40% of the bill. The federal government pays 60%. So the total price tag approaches $4.4 billion a year and surely will go higher when the new Wisconsin hospital tax kicks in.

The program has covered 785,500 people, so the spending comes out to $5,560 a year, which is about 50% above the private sector. The covered group is poor but diverse.

Again and again, these hard numbers prove that the public sector does a poor job of managing health and health costs. Most of these plans have low deductibles and co-insurance, meaning that there is no self-discipline on the part of recipients. They just buy whatever they think they need from whomever they pick, regardless of price.

Contrast that with the private sector in Wisconsin, where there is a groundswell movement toward consumer-driven health plans. That means employees are offered plans with high deductibles and offsetting personal health accounts. In effect, the first rounds of medical spending come from money put into their accounts by employers. It becomes their money.

When that happens, everything changes. People get responsible about their health and their health costs, and expenditures drop like a rock.

That has been the experience at many Wisconsin companies, like KI and Bellin Health in Green Bay, Bucyrus International and Rockwell Automation in Milwaukee, and Serigraph in West Bend.

It also has been the experience at the few governmental units where political leaders have had the courage to lead. Manitowoc and Calumet counties have made the jump. So has the city of Cedarburg. And a group of three counties in the Wausau area has adopted a consumer-driven plan for nursing home employees. All have reported sharp drops in premiums.

If that isn’t proof enough for public policy-makers that restructuring needs to be accomplished as part of any meaningful health care reform plan, check out the health plans offered by major hospital corporations and major health insurers. Almost all of them have adopted consumer-driven plans for the thousands they employ.

In his recent budget speech, President Barack Obama made the case for more money to cover more people. The U.S. is already spending $2.3 trillion on health care out of a $14 trillion economy. He didn’t talk about the bloated cost structure.

More of the same

Obama has said many times that he was going to be a pragmatic president and do what works. In the case of health care, he is proposing to do more of the same.

The president needs to start thinking about management and incentives if he is going to be pragmatic. If he does, there is plenty of money already in the system to cover everybody in this country.

Sally Pipes, president of Pacific Research Institute, points out that, of the 42 million Americans who are uninsured, 14 million already are eligible for existing public programs, and another 18 million earn more than $50,000 a year. They choose not to apply for the government programs or not to buy health insurance.

Nonetheless, they could be forced into coverage by a mandate on individuals to buy health insurance policies, as has been done in Massachusetts. If the cost of bringing those people into the system were at $3,460 per individual, there would be plenty of money to subsidize those who can’t afford individual insurance.

Dodged a bullet

Wisconsin dodged an expensive tax bullet when Gov. Jim Doyle dropped BadgerChoice from his budget. That proposed expansion into the small business markets would have cost taxpayers a bundle. This time around, there simply wasn’t enough tax money in Wisconsin to do that government take-over. So the Democrats in Wisconsin are waiting to see what Obama does on the federal level.

Before the president and governor levy all kinds of new taxes to raise money for health care that doesn’t need to be raised, they need to learn more about managing the runaway costs.

It’s already being done in the private sector.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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