[ Mission  Petition  Reform  Links  Thanks  Vince  Comment ]
Reform

GETTING MORE AND SPENDING LESS

 

 

 A Study Prepared for and Released by

 

by:  James T. Wrich

J. Wrich & Associates, Inc.

 

Edited by: Darcy C. Haber

Graphics and cite-checking by: Meghan Boyle

 

 

 

 Embargoed Until May 12, 2003 at 11:00am

 

 

 

 

Support for this report was generously provided by the Public Welfare Foundation.

 

 

 

Executive Summary

This study concludes that Wisconsin already spends enough money on health care annually to provide every resident with comprehensive, quality health care. While it may seem counterintuitive that insuring everyone costs less, insuring everyone equally produces the very valuable benefit of streamlining administration and cutting out the waste.  For the State of Wisconsin, the savings in administration would be more than enough to cover everyone currently uninsured and to fully insure those that are currently underinsured.  In fact, under the proposed Unified System with an Integrated Health Advocacy Program (“IHAP”), the projected total cost of universal coverage the first year would be nearly 700 million dollars less than Wisconsin’s current health expenditures. In addition, providing every Wisconsin resident with the right kind of care the first time helps contain health care costs for the future by cutting down on delayed and emergent care, and eliminating cost-shifting for uncompensated care.  Even if there were no cost increases in the current system, over the next five years the proposed system could yield savings of $11.7 billion. However, given the trends, the savings such a unified system could yield would compute to $55.6 billion.

 

Part of these savings would be realized in the state budget in its health plan for state employees.  Because the State is also a large employer and incurs above average health care costs, savings to the state from the state employee health plan could grow to at $100 to $150 million annually by the fifth year. Overall, public tax dollar spending on health care for state employees could be reduced by $557 million over the next five years with no reduction in service or additional cost shifting to employees.

 

Potential cost savings against current trend line increases for publicly funded programs such as Medicare and Medicaid could grow to $1.7 billion annually in the fifth year and amount to a total of $5.2 billion over five years.

 

Figure 1: Total Health Care Expenditures of Current System v. Proposed Unified System Over the Next Five Years

Background

The Lewin Group of Fairfax, Virginia has conducted statewide studies regarding the cost and delivery of health care in Massachusetts, Maryland, Vermont, and California.  Although the variables in cover-age, funding mechanisms and other issues pertinent to those particular states are too numerous to examine in this paper, a common theme emerged which can be helpful as the Wisconsin realizes its present health care system is not sustainable.  While the Lewin studies vary in depth and scope, they all indicate that adoption of a unified system[1] with streamlined administration would provide compre-hensive health care for every resident while lowering overall state health care costs by hundreds of millions of dollars.

 

The basic premise is that the cost of administering hundreds of different types of plans, estimated at 20% to 30% of premium, leaves a medical loss ratio (MLR) of only 70% to 80%.  The MLR is the per-centage of health insurance premium that is spent on direct care actually delivered to patients.  By streamlining the plan design to a uniform set of benefits and a unified care delivery system, and reducing the risk pools from hundreds to one, or at most two, the savings in overhead and marketing costs would more than cover the cost of providing care to those who are uninsured.  Indeed, the administrative costs in national health plans such as the Canadian system represent only a fraction of the amount spent in U.S. private sector plans.  But, we do not need to search the international scene for answers: administrative costs in our own Medicare and Medicaid plans average about 6 percent.

 

The Problem

While all of the problems with our current health delivery system cannot be enumerated here, a global summary of some of the major issues is presented.  It is estimated that total health care costs in Wisconsin, including private and publicly funded programs, have reached $28 billion annually.  Without a significant change in our health care system, this number could grow to $43 billion per year by 2008 based on a 9% annual trend line.

The current $28 billion estimated annual expenditure computes to about $5150 per year average for every man, woman and child in Wisconsin.  Nonetheless, many Wisconsinites have been left without health insurance coverage. An estimated total of 597,000 Wisconsin residents had no health insurance during part or all of 2001, up from 589,000 a year earlier.  Of greater significance, an estimated 221,000 had no insurance of any kind during the entire year, up 6% from 209,000 in 2000.  The remaining 376,000 were without insurance for part of the year in 2001.  A “snapshot” estimate indicated that at any given time, 268,000 Wisconsin residents were without coverage.[2]  At the same time, the cost of health insurance is rising at seven times the rate of inflation.[3]

 

Without a plan to strengthen and improve health coverage while containing costs, Wisconsin’s citizens and employers will pay higher premiums for lower quality and less access.  Businesses, already strapped for cash by the downturn in the economy, are being forced to increase co-pays and deductibles, and some find it impossible to offer employees any health coverage at all.[4]  Of the 183,000 uninsureds age 18 to 64, more than 68% (125,000) were employed: 76% (95,000) full time.  Of the 34,000 uninsured children, 90% (31,000) lived with an employed adult.[5]

 

The current cost and financing of health care affects nearly everyone adversely, from the largest corporate entity to the smallest child.

·       Large corporations have difficulty competing in world markets against companies whose governments provide national health care. Moreover, through cost shifting, employers with generous health plans are often charged more for services in order to offset the providers’ cost of uncompensated care generated by public programs and private insurance plans with poor benefits.[6]  Thus, the employees of these companies face a dilemma: good insurance coverage may jeopardize their jobs or result in lower wages.

·       For many families, the biggest threat to individual family financial security is not lack of earning power as much as poor health. Without adequate health insurance coverage, one serious illness or accident can wipe out a family’s lifetime savings and with it the educational opportunities of the children and the economic security in later years for the adults.[7]

·       Small employers, the self-employed and farmers often cannot afford to buy health insurance for themselves or their employees.[8]  Small group policies are very expensive to begin with, and premiums can rise suddenly and at a staggering rate.  Individual policies are even costlier.[9]  They often have very high deductibles and pre-existing conditions clauses that leave policyholders with no coverage for the very conditions that will most likely require medical attention.

·       Health providers, in spite of attempts at cost shifting, are saddled with bad debt that exceeds the amount of charity care they can provide. Uncompensated service for Wisconsin hospitals alone totaled $384 million in 2001, up 8% over the previous year. Of that amount, $224 million was bad debt and $160 million was charity. The projection for 2002 was another increase of  9% to $419 million overall with $246 million in bad debt and $173 million in charity.[10]  These expenses end up being borne by the general public in the form of increased fees for service.

·       With few exceptions, the cost of health insurance is beyond the means of those who are without it.[11] Many who have coverage are strapped by high co-pays, deductibles, and preexisting condition clauses which still leave them in dire financial straits.[12]

·       As problems with cost, accessibility and quality increase, the prospect of delivering effective health care at a reasonable cost diminishes. When health issues are not addressed effectively early in their onset, they become more expensive to treat and the prognosis for recovery is poorer.[13]  Both human suffering and the cost of care increases. At the end of the day, the only reliable way to contain health care expenditures is to assure that people get the right care, the first time, at a reasonable cost. 

 

Dire as this situation is, Wisconsin has a lower than average number of uninsured citizens compared to the nation as a whole.  Without discounting its seriousness, our situation does provide a better opportunity to take corrective action which accomplishes three major goals:

 

1.     Improve family and individual financial security by assuring that every Wisconsin citizen has access to the right care, the first time, at a reasonable cost that amounts to less money expended overall and provides cost stability in the future.

2.     Improve the business climate and reduce the burden on employers by making available a quality health care plan through a delivery system that eliminates the problem of cost shifting, and is within the means of farmers, small businesses, the self-employed and individuals.  Employees and employers would retain the right to negotiate added benefits.  Because the estimated cost of the proposed unified system in this study allows for such a comprehensive package, there should be no need for additional coverage except for elective services  such as  cosmetic surgery or private rooms. (See Appendix A, Badgercare Summary of Benefits.)

3.     Because the State is also a large employer and incurs above average health care costs, its employees could be included in a universal plan that provides good coverage at a savings to the state that grows to $100 to $150 million annually by the fifth year.  Overall savings in public tax dollar spending on state employee health care could amount to $557 million over the next five years. 

4.     Overall, savings in tax dollar spending on current  public health care programs could grow to $1.7 billion annually in the fifth year and a total of $5.2 billion over the next five years, roughly 40% of which would be state money. 

 

Financial Viability of a Universal Health Care Alternative

A fundamental premise in the Lewin reports is that the typical administrative costs incurred in private health plans can be reduced under a unified plan with streamlined administration.  In Wisconsin, these administrative savings can then be used to fund coverage for the uninsured and still have money left over.  Of the four states studied by Lewin, the two whose demographics most closely parallel Wisconsin’s are Massachusetts and Maryland.  Moreover, they describe two different delivery

 

 

 

models which have significant cost ramifications, and in the case of Maryland both a unified and multi-payer approach were analyzed.  Vermont, on the other hand, is so much smaller than Wisconsin that too many extrapolations must be made to approach comparability. And California is both several times larger than Wisconsin and has a multiplicity of issues that are unique.

 

In the Massachusetts study, Lewin estimated that the total cost of health care was more than $35 billion per year. It assumed a comprehensive plan of benefits[14] and a relatively long term (1999 through 2005) incremental implementation of a universal care model that included virtually no cost containment gatekeeping.  It was projected that all residents could be covered and that cost savings would ultimately compute to $170 million in year five[15], or 34/100ths of 1 percent.  Estimates of uninsured citizens in Massachusetts are conducted biennially and include only those living in households.  In 2002, the midpoint of the project implementation period, at any given time 6.7% of the state’s 6,239,000 residents were uninsured, which yields a conservative “snapshot” of 418,309 people.[16]  Wisconsin’s “snapshot “ was 268,000 in 2001, or 5.1%.

 

Maryland’s population in the Lewin report was estimated at 5,159,000 in 2001, and is comparable to Wisconsin’s.  However, 760,000 citizens, or 14.7 % of the population, were without insurance part or all of the year versus Wisconsin’s 11.4%. (A ”snapshot” estimate of Maryland’s uninsured was not provided.)  While the plan was almost identical to that proposed for Massachusetts, it did include a Primary Care Gatekeeper who would be paid a fee to coordinate the care for patients with chronic illnesses.  As a result, the savings compared to Maryland’s current delivery system were projected to begin in the first year, versus the fifth year in Massachusetts. In addition, the Maryland study outlines the cost of both a single and multi-payer plan and compared them to the current system. The unified model was less expensive, showing a savings of $346 million, or 1.7%, after covering all uninsured citizens. The multi-payer model, like the unified plan, also covered virtually everyone but showed an overall increase in cost of $207 million, or 1%.[17]  Total spending, public and private, was estimated at $20,412,900,000 under the unified model and $20,965,900,000 under the multi-payer model.

 

Wisconsin appears to have advantages that were not available to Massachusetts or Maryland. First, we have fewer uninsured citizens.  Thus, less of the administrative savings are needed to provide coverage for this group.  Second, through its BadgerCare program, Wisconsin has  experience extending the Medicaid benefit to those who would otherwise have no insurance.  In fact, BadgerCare is a major reason Wisconsin has fewer uninsured citizens than the national average.  By essentially expanding BadgerCare to all Wisconsin residents, and by managing it in the interests of enrollees, Wisconsin can assure all its residents receive the right care, the first time, at a reasonable cost.  As a result, the health status of the population would improve, which would create less future demand and help stabilize costs.  Unlike our current system, providers could give patients the attention they need, work reasonable hours, place more emphasis on preventive education, and be paid a reasonable fee for their services.  Bad medical debt would essentially be eliminated.  Charity care would be provided only to those who meet an income means test regarding co-payments and deductibles.  The financial calculations are as follows:

 

 

 

Containing Cost Escalation by Providing the Right Care, the First Time.

While the numbers above are impressive, one must not overlook the importance of the second to the last line – the Integrated Health Advocacy Program.  Universal care model will not, in itself, contain costs.  The Maryland multi-payer universal model showed an increase of 1%, or more than $200 million. And the Massachusetts study, even though it was a unified model, showed cost increases during the initial four-year period. While the $689 million in potential savings in Table 1 is impressive, it still only represents 2.4% of the total expenditure. If it were based on the same assumptions as either the Massachusetts or Maryland studies a hiccup in the actual experience could change that estimate overnight.

 

The difference between our estimate for Wisconsin and those done by Lewin is that the management of the model we propose is not based exclusively on restricting the supply of services. Our estimate is based on a model that focuses on reducing the demand by helping those at greatest risk achieve an optimum health status, and therefore require significantly less care.  This model, referred to as the Integrated Health Advocacy Program (IHAP), has been successful in reducing health care costs by as much as 34% over five years at two pilot sites while actually improving the amount and quality of care to enrollees.[19] More than $435 million is included in Table 1 for this purpose. Without the cost of

providing a humane and effective method such as IHAP to manage the program in the interests of enrollees, our initial potential savings in Table 1 could have been projected at more than $1.1 billion the first year.  But, there would be no assurance that current cost escalation of 12% to 30% would be addressed.

 

Many plans include deductibles and co-payments, which could further increase the projected cost savings if applied to all enrollees. But, while participant fee contribution can be helpful, and a decision may ultimately be made to include them in a Wisconsin model, experience has shown that simply juggling co-payments, deductibles and premiums while clamping down on access and length of care will not contain health care costs.  Permanent solutions to chronic problems are not found in acute care responses or contemporary managed care efforts. Unless people get the right care, the first time, at a reasonable cost, the quality of their lives will continue to deteriorate and the cost of health care for the risk pool they are part of will continue to escalate.

 

The IHAP’s basic premise is that since 15% of the enrollees in any health plan account for 75% to 80% of the costs, they require special attention.[20]  Claims analyses of this group consistently show that they are fraught with behavioral health problems (lifestyle, mental health and addictive disorders) which drive the preponderance of their medical costs.  Yet, they rarely receive the mental health and addictions treatment they need.  Even when behavioral health problems are not present, regular medical care frequently misses the target. This high risk group usually has co-morbid medical conditions than go untreated largely because the practice pattern doctors have been forced to adopt under managed care puts them in front of patients for only seven to ten minutes.  Rarely is one’s whole health status adequately reviewed to produce the complete diagnosis that is needed to assure appropriate care. Moreover, potential relapse caused by environmental, lifestyle and other non-medical factors is largely ignored.

 

The IHAP is a program, not a health insurance plan. It reaches out to high-risk individuals, includes mental health/chemical dependency parity in the true sense of the word, and waives co-pays and deductibles for those who agree to participate.  Its Core Team does a complete, comprehensive assessment of a participant’s entire health status, recommends care for each issue diagnosed, provides ongoing decision support, aftercare and self care, and measures outcomes across eight domains of wellness.

 

Additional savings could be generated with the implementation of a contraceptive equity program, bulk purchasing of prescription drugs, and full funding of Community Health Centers, which, because of their proven efficiency, would likely be a logical extension of our model recommendations. Moreover, additional savings would result because those now without insurance frequently seek high cost Emergency Room service for routine problems.  Potential savings from such initiatives have not been included in Table 1.

 

A Possible Model for Consideration

In order to protect those who are most vulnerable and stay within Federal Medicare and Medicaid guidelines, a unified model with two risk pools should be considered for Wisconsin.  Benefits should be based on the MA Covered Services[21] offered under the BadgerCare program and an IHAP, or some other humane, clinically effective, cost-worthy mechanism that focuses on demand, should be used to assure quality care and cost stability.

 

The two pools would be: Group I consisting of  the roughly 45,000 Aged and 106,000 Disabled and Blind who are currently eligible under Medical Assistance[22] and, Group II, all other residents of the state of Wisconsin. Both groups would be administered by the State, with contracts to the private sector for claims administration as necessary. In fact, there could be several different private sector administrators enlisted by contract, probably on a regional basis. The key to streamlining administration is that there would be a uniform set of benefits and uniform criteria for paying claims that to which all contractors would adhere.

 

Funding

In a Universal Health System, Wisconsin would not spend more on health care, but less. If the amount currently expended continued to be spent but was efficiently reallocated, virtually all Wisconsin residents could have a good health care plan and there would be money left over.  While specific options are numerous, the general principles are that a Universal Health System would be funded by an equitable premium contribution by employers and employees, plus current Federal and State funds, and provider charity equal to 1% of total patient revenue.

 

As things currently stand, all four major sources of health care funding in Wisconsin will spend significantly more in the future with the greatest increase borne by employees as employers shift costs. Bad debt incurred by providers will also increase significantly. Under the plan proposed here, all funding sources could experience savings in absolute dollars, except Medicare and Medicaid, but, even these, will be less expensive than the current trend indicates.

 

 

Table 2: Comparison of Current Spending and Spending in 5 Years Under Each System By Source of Funds

               In Billions

                                                            Current System               Proposed Unified Plan

	Current Spending	2008	% Change	Current          Spending	2008	% Change
Employers	$14.2	$20.7	46%	$14.2	$11.0	(23%)
Employees	5.7	11.0	93%	5.7	4.3	(25%)
Public Funds(Taxpayer $)	7.5	10.2	36%	7.5	8.5	13%
Charity and Bad Debt	.5	1.1	120%	.5	.2	(60%)

 

 

Effect on State’s Budget Deficit

Such a model could help the state as it struggles to wipe out the budget deficit.  The cost of state employee health care is estimated at $590 million for 2003, up 14.6% over 2002, of  which one fifth (3% of the total) is due to headcount increases.[23] For 68,226 employees this computes to $8848 each.  Based on the results of two pilot projects mentioned above, the Integrated Health Advocacy Program coupled with a unified plan which included state employees could help the State not only reduce the rate of increase, but actually reduce its annual costs by $100 to $150 million in the fifth year. Over a period of five years, the unified plan with IHAP could save the state $557 million.

 

As stated earlier, savings against the current trend in tax dollar spending on public health care programs could grow to $1.7 billion in the fifth year and a total of $5.2 billion over the next five years. This does not reduce the current expenditure in absolute dollars but it does significantly reduce the projected cost increases, about 40% of which would be state money.

 

Credentials of the Author

Jim Wrich, CEO of J. Wrich & Associates, Inc. and Partner in Benefits Performance Associates , LLC, (“BPA”)  is one of the pioneers in the Employee Assistance Program (EAP) field and, more recently, in the area of managed care accountability. His career began in 1972 when he  developed several of the country’s first EAPs. He was also instrumental in developing one of the first insurance laws in the United States mandating chemical dependency coverage. As Associ-ate Professor in the School of Business Administration at the University of Minnesota, Mr. Wrich designed and taught courses at the Graduate level for businesses and unions on how to develop effective EAPs. In 1974 he authored The Employee Assistance Program, which has been referred to as the standard text in the industry and is credited with coining the phrase "EAP".

 

After serving as Director of Consultation Services at Hazelden in 1976 Mr. Wrich was appointed Executive Director of the State Alcohol and Drug Authority in Minnesota. He oversaw the operation of a statewide chemical dependency treatment delivery system and managed the development of more than 800 Employee Assistance Programs in small private and public employment settings. Subsequently he served as the first Director of Employee Assistance Program for United Airlines and the first President of Parkside EAP, Inc. Among other major employers, he helped design programs for Amoco, Bank of Montreal, General Electric and Burlington Northern. The EAP at United received the Ross Von Weigand Award from EAPA as the outstanding labor-management employee assistance program in the U.S. He also developed some of the first pre-certification, utilization review and select provider protocols in the EAP field and one of the first outcome evaluation and Benefit to Cost studies.

 

Currently, Mr. Wrich manages his own firm, J. Wrich & Associates, Inc. (JWA) a health systems performance company. JWA provides a broad range of consulting, purchasing decision support, performance review, and evaluation services in managed behavioral care, health benefits plan design, EAP and drug-free workplace programs. In 1992 JWA conducted one of the first, most widely publicized, comprehensive audits of a major managed behavioral care service. It has conducted several other audits since in both public and private sectors and has become a nationally recognized authority on the subject. Much of this work focuses on the relationship between the cost and value of health services with a special emphasis on the co-morbid relationship between untreated behavioral health problems and resultant medical surgical costs. His analysis of State of Vermont employee medical claims showed that, contrary to conventional  assumptions, their HMOs actually cost more than the self administered indemnity plan when comparing like enrollees. He helped write a loss ratio law enacted by the State of Maryland which requires providers to disclose the percentage of premium that is actually spent on direct care. Also for the State of Maryland, he developed an econometric model based on research and experience to demonstrate how much a payor should expect to spend on behavioral health care in order to achieve acceptable clinical outcomes and reduce comorbid medical expense.

 

At BPA, Mr. Wrich was involved in the early design of an integrated health system in which medical surgical and behavioral clinical practice and management are merged to address co-morbidity and reduce its devastating impact on health costs. This program focuses on those 15% of enrollees who typically account for 75% of health care costs. Known as The Integrated Health Advocacy Program, this concept substantially increases access to the right care the first time, thereby improving the quality of care and outcomes while significantly  reducing costs.

 

As a consultant and frequent lecturer, Mr. Wrich’s services and concepts have been used by major corporations, governments, health care providers and insurance companies throughout the United States, as well as in Canada, Europe and South America. In addition to several private and public employers, the American Management Association, AFSCME, the United Autoworkers, the International Association of Machinists, and the Airlines Pilots Association have all enlisted his consulting and education services.

 

A graduate of St. John's University, Collegeville, Minnesota, he has done graduate work at East Carolina University, Rutgers, Georgetown and DePaul. A member of several professional associations, he was the founding President of the Employee Assistance Society of North America. He also served as Vice President of Operations for Employee Assistance Professionals Association. He simultaneously served on the program standards committees of both organizations and on the Ethnic and Cultural Concerns Committee of EAPA.

 

Mr. Wrich has been interviewed on CBS “60 Minutes” and “20/20”; by Newsweek Magazine, the London Financial Times, the New York Times, and the New Republic. His work has been written up in the Wall Street Journal, Harvard Business Review, Benefits Today, The Personnel Administrator, the EAP Digest and Crain’s Chicago Business.

 

The recipient of several civic and professional awards, in 1990, he was inducted into the "EAP Digest"  Employee Assistance Hall of Fame. In 1995 he was the recipient of the Humanitarian Award from the National Council on Alcoholism and Drug Dependence for his long-term advocacy of Employee Assistance Programs. In 1996 he was the recipient of the Lifetime Achievement Award from the Employee Assistance Society of North America.

 

APPENDIX A -  BADGERCARE SUMMARY OF COVERED SERVICES

·  Prevention services such as doctor visits, prenatal care, preventive check ups and immunizations (shots)

·  Vision care (including eyeglasses)

·  Prescription drugs

·  Family planning services and supplies

·  Speech, physical and occupational therapy

·  Mental health services with no caps

·  Medical equipment

·  Hospital care

·  Chiropractic Care

·  Hearing services (including hearing aids)

·  Lab and x-ray services

·  Dental services

·  Transportation to medically covered services