By Jack Pladziewicz
For the Chippewa Valley Post
The first two parts of this series analyzed public and private employee retirement plans and their costs, and suggested that both sectors would benefit by allowing private employers and their employees to opt voluntarily into the state’s retirement system. This concluding segment focuses on public and private employee health insurance coverage in Wisconsin, where the issues are much more complex.
A number of potential changes in the public sector are currently being given serious consideration, driven by such factors as the Affordable Care Act (“Obamacare”). These changes could well improve effectiveness and reduce costs, and they will affect different types of health insurance plans differently. The potential changes also offer an opportunity to consider whether it might be advantageous to offer private sector employees and employers the option of securing health insurance through a revamped state employee plan.
Because the process is ongoing, specific predictions about its eventual impact are currently somewhere between difficult and impossible. That said, here is what we do know about Wisconsin’s current health insurance landscape and how it might evolve.
(For an explanation of the acronyms in the following material, click here.)
Public Sector
While the Wisconsin Retirement System (WRS) provides a common public employee pension plan there is no single health insurance system across the spectrum of Wisconsin’s public employees. State agencies, school districts, cities and counties provide health insurance independently of each other.
The Wisconsin Group Insurance system provides health insurance for the largest single group of public employees. It is managed by the Employee Trust Fund (ETF), with oversight through its Group Insurance Board (GIB).
In 2014 the ETF system included 70,400 state and 12,800 local public employees, or about 30% of all Wisconsin public employees. Members of the ETF system choose from the various insurance providers serving their geographic area.
Prior to Act 10, most public employees negotiated comprehensive health care coverage with their employers paying all, or almost all of the cost as a trade-off for low salary increases. Most of these negotiations were done decades ago when health care costs were a much smaller fraction of total compensation. Because of that, the negotiations often resulted in so-called “Cadillac” (i.e., no deductible and very low or no co-payment or co-insurance) health coverage policies that covered more than 95% of employees’ health care costs.
Health care costs have risen much faster than other benefit costs and salaries, and these comprehensive health plans have become very expensive for public employers. Typical annual family plan premiums now range from $20,000 to $25,000. In the lexicon of the Affordable Care Act (ACA) these are Platinum plans (ones covering more than 90% of health care costs) and are far superior to health insurance plans generally provided in the private sector.
Since passage of Act 10 in 2011 public employees pay a minimum of 12.5% of their health insurance premiums. Furthermore, removal of collective bargaining placed decision-making authority completely in the hands of local public employers or, for the state system, with the GIB.
That board is currently considering a series of changes to the way the state provides health insurance, including a possible move to a self-insurance model in which employee payments for coverage presumably would go directly to the state and the state would then pay the provider directly for employees’ eligible medical expenses. A consultant’s report last March estimated that the changes could save between $50 and $70 million annually.
Private Sector
It is extremely difficult to generalize the health care insurance of private sector employees because this varies greatly by employer – both in the extent to which the employer helps pay for insurance and the overall cost. Nonetheless, the great majority are plans with much lower premium costs than those of public employees but with higher deductibles and significant co-payments and co-insurance.
For example, typical Gold (greater than 80% costs covered) family plans available on health exchanges in Wisconsin have annual premiums of $12,000 to $16,000, deductibles of $2,000 to $5,000 and out-of-pocket (OOP) limits of $5,000 to $6,500. Moreover, many plans now purchased by private sector employees are below the ACA Gold level (i.e., Silver or Bronze), with still lower premium costs, and higher deductibles and OOP limits.
There is a good reason why low or no-deductible plans are uncommon in the private sector: the premium costs are too high. Such a family plan typically costs 60% more than those with higher deductibles, co-payments and out-of-pocket limits.
Issues of basic fairness suggest that these differences are unsustainable in the longer term. Public support for Act 10, especially among private sector employees, is clear evidence that public employees have lost the support of their privately employed neighbors when it comes to health insurance and pension plans that are so much more generous than in the private sector.
It does not matter to politicians or private sector taxpayers that the advantage in benefits enjoyed by public employees was gained at the bargaining table, often in lieu of increased wages or salaries. It may in fact be one of the primary reasons that collective bargaining power was withdrawn from public employees.
But beyond fairness, there are compelling economic reasons for reconsidering how health insurance is provided to both public and private employees in the state of Wisconsin.
Changes and Opportunities
As health care costs have increased, both private and public employers have looked for ways to lower them. This has led to increased interest in Consumer Driven Healthcare (CDH) plans, which have lower premiums and higher deductibles than traditional plans and include a Health Savings Account (HSA). Both the employer and the employee may contribute to an HSA and employees can use the account to cover co-payments, deductibles and most other healthcare expenses. An attractive feature of an HSA is that funds remaining at the end of the year roll over to the next year.
There is growing evidence that the high deductibles of CDH plans encourage consumers to be more aware of healthcare costs and to pursue the most cost-effective means of treatment available. These plans are attractive to employers because the lower premium costs more than offset the employer’s contributions to the HAS. In addition, the employees’ increased health consciousness leads to a healthier workforce which in turn helps to restrain future increases in healthcare costs.
The Affordable Care Act encourages higher deductible plans and consumer engagement by limiting the inclusion of HSAs to plans which have those higher deductibles (at least $1,300/$2,600 single/family) and increased OOP cost limits ($6,250/$13,100 single/family). There is considerable evidence that CDH plans are becoming more popular nationally, as well as in Wisconsin’s private sector because research increasingly indicates that they are effective both at improving health and lowering costs to participants.
The Insurance Board also has shown an interest in the potential of these plans to lower premium costs for the state and its employees. In late 2014 it engaged Segal Consulting to conduct a comprehensive management review and data analysis of health care markets and provide recommendations for strategies to improve both health outcomes and cost efficiency.
Segal’s first report includes a detailed review of a five-state peer group, national data, private insurance in Wisconsin and the ETF insurance plans. Its analysis is wide-ranging and thought-provoking and has led to a number of specific recommendations to the GIB, some of which will be implemented in 2016. Its second report is due to the GIB for its meeting later this month and will be released to the public on its website thereafter.
Both “Obamacare” (the ACA) and the Segal report point toward the importance of CDH and replacing the historic system of fee-for-service reimbursement with one that has incentives for quality of care and patient results. This is an important part of what’s called the Total Health Management (THM) approach, which uses large datasets to identify the greatest health risks of a particular group. It then engages patients, insurers, providers and employers to work together proactively to use available resources for preventive care and treatment.
For example, the Segal report used extensive national and local databases to identify chronic diseases like diabetes where the ETF group has higher than typical risk and where applying THM could be most cost effective.
Nationally, 55% – 70% of healthcare costs are due to chronic diseases that are related to preventable or modifiable risks. Those diseases include diabetes, heart diseases and asthma and the risks that can be managed include smoking, poor diet, alcohol use, inactivity, hypertension and high cholesterol. Consumer Driven Healthcare and Total Health Management are clearly seen as two of the most promising approaches to improve health and lower these costs.
The ETF added a high deductible plan in 2015 that lowered the employee family premium payment by $1,788 per year compared to the current year’s comprehensive plan and provided an annual employer HSA contribution of $340. However, that new plan attracted only 400 participants, possibly because it was new or perhaps because it includes a $3,000 deductible and a $5,000 OOP limit.
Following Segal’s recommendations the ETF increased the 2016 HSA contribution to $1,500 for the new CDH family plan, while keeping the employee premium, deductible and OOP limit the same. Meanwhile, a $500 deductible was added to the older comprehensive family plan, the OOP limit was raised from $1,000 to $2,500 and the employee premium was reduced by $156 per year, most likely reflecting the increased deductible and OOP limit. (The changes, however, did not apply to plans covering retirees on Medicare.)
These changes have the effect of making the CDH plan more competitive with the much more popular, higher benefit and more expensive comprehensive family plan. It is also worth noting that the premium cost savings from ETF’s CDH plan are being shared with the employees, with more than half of those savings going to reduce employee premiums and add to the HSA.
What’s Next?
For 2015, 98% of employees chose a comprehensive plan while less than 0.5% chose the high deductible CDH plan. The goal of the GIB is to get more employees to choose CDH, which seems wise considering the convincing case made in the Segal report that these plans are more cost effective and enable members to make healthy choices, join incentive-based preventive care programs and become more savvy in shopping for services.
CDH plans also are closer to those found in the private sector and would be classified as Gold plans by the ACA. At the national level enrollment in CDH plans grew from 4% in 2006 to 20% in 2014.
In comparing ETF plans with health insurance exchanges utilized by the Wisconsin private sector, the Segal report finds equivalent plans on the exchanges to be priced 5% to 20% lower than comparable ETF plans. This suggests the possibility of additional savings through more effective negotiations with insurance providers. Splitting the employee pool among 18 insurers statewide, as is now the case, mutes the advantage ETF has of representing a large group.
The most provocative approach the Segal report suggests is the potential for ETF to self-insure, i.e., to collect employees’ payments and then pay their eligible health care costs (rather than having employees and the state pay premiums to insurance companies who would then pay those costs). While this transfers financial risk to ETF, it eliminates or lowers a number of costs including insurers’ profits, premium taxes, ACA market share fees and administrative costs. Given the anticipated savings, it also seems likely to allow ETF to avoid the ACA’s 40% excise tax on Cadillac plans starting in 2018.
Self-insuring would allow ETF to control data collection and provide statewide uniformity in plan design, such as implementing and monitoring the total health management approach. It would also put the ETF in a strong position to negotiate with providers statewide.
A cost efficient and effective self-insurance system operated by ETF might be quite attractive to the balance of public employers and employees – the 70% currently not in the ETF system – thus extending the scope of both lower cost and higher quality care. Increasing the group size would also lower the risk in self-insuring by reducing the impact of very costly low frequency events.
These changes have the potential to lower the cost of health insurance in the public sector and bring it closer to private sector costs. It will be a bigger challenge to extend to the private sector the healthcare improvements attained through these changes, but one worth pursuing. Strategies for total health management that are found to work for ETF could be extended to Wisconsin’s private sector employees – possibly by allowing private employers to opt into the public plans. If a self-funded model is adopted, this would require a mechanism to determine the appropriate private employer/employee cost share of ETF’s self-insurance expenses.
Conclusions:
While significant differences remain in the levels of coverage and costs of healthcare insurance between private and public employees in Wisconsin there is clear evidence that they are moving closer together. The requirements of the Affordable Care Act and the recent efforts of the ETF’s Group Insurance Board continue to facilitate this movement. Nonetheless, it is a period of flux both locally and nationally and it remains unclear exactly how the recent changes – and those still being considered – will play out.
It is encouraging that the disruption caused by these changes is triggering serious efforts to improve healthcare databases and use high-level analysis to measure healthcare outcomes, drive improvements and more fully engage the consumer.
Bringing public and private employee benefits into congruence may also help repair the divisiveness attending the passing of Act 10 by reducing the disparity in key aspects of compensation for public and private sector employers and employees.
Bringing the cost of public employee health insurance closer to that in the private sector is a worthy goal as long as the quality of care and outcomes are not compromised. There is good evidence that significant cost savings are possible while at the same time improving healthcare outcomes, but this will take a significantly greater level of consumer/patient engagement than currently exists.
(For an explanation of the acronyms in this article, click here.)
About the Author: Jack Pladziewicz was a member of the chemistry faculty of UW-Eau Claire from 1973-2002 and is Professor Emeritus. Between 2003-2014 he worked in various capacities for Research Corporation for Science Advancement (rescorp.org), a private foundation dedicated to funding basic scientific research in the United States since 1912. He retired as president of the foundation in 2014.
For a list of sources consulted for these articles, Click Here