President’s Column: WI Health Care Leads as Cost Pressures Grow

January 15, 2019

It’s becoming a bit redundant to begin this annual column by noting the outstanding performance of Wisconsin’s health care system, but excellence in any Wisconsin industry is good for all of Wisconsin. Indeed, once again the Agency for Health Care Quality (AHRQ), the gold standard in national quality ranking, has ranked Wisconsin health care as some of the very best in the country. According to the AHRQ, in 2018 our state has the 4th best health care in the country, and 1st in the Midwest.  

Since AHRQ began issuing rankings, Wisconsin has been in the top four 10 of 12 years, ranking first in the nation in 2006, 2008, and 2017 and second in 2007, 2009, 2011, and 2015. Quality care delivers superior outcomes for patients and ultimately better value for employers.  

Achieving this high performance is one thing, sustaining it is another. While Wisconsin hospital finances have remained relatively stable over the past few years, a snapshot of the data flashes “caution ahead”:    

  • Comparing FY2015 to FY2017, Wisconsin hospitals experienced a 21% decline in operating margins 
  • More than half of all Wisconsin hospitals saw a decline in both operating and total margins 
  • 38 Wisconsin hospitals had a negative operating margin 
  • 33 hospitals had a negative total margin, including 13 rural critical access hospitals. 
Wisconsin’s health system leaders point to three issues that most directly impact those finances and pose the greatest challenge to sustaining Wisconsin’s superior quality care:

Workforce: Like most industries, health care is grappling with serious shortages in key areas. Unlike most industries, demand for health care’s “product” is largely a function of demographics rather than typical economic cycles. Wisconsin’s population is aging, in fact our over 65 population is expected to double in the next 10 years. This assures growing utilization of health care services and increasing demands on and for the health care workforce during a period of record unemployment and a diminishing labor force.  

Despite advances in technology, health care is still a very labor-intensive business. In 2017, Wisconsin hospital labor costs totaled nearly $8.8 billion, up 7.3% in two years. That’s a big number but comes in second to hospital supply costs (including drugs), which totaled $9.4 billion in 2017—up 16% in two years. It’s not getting cheaper to deliver health care.  

Health Insurance Coverage:  Uncertainty is the bane of health care leaders, and no aspect of health care has been less certain recently as health insurance, due largely to ongoing Obamacare battles in Washington, D.C. and Madison. For the past two years I’ve speculated in this column that repealing Obamacare would prove extremely difficult for Congress. I was wrong—it’s been impossible. In fact, certain aspects of repealing Obamacare, such as preventing health insurers from denying preexisting condition coverage, became a pivotal issue in Wisconsin’s Governor’s race and others. Obamacare was signed into law nearly 8 years ago, yet it still dominates politics and influences political fortunes. 

Political ramifications aside, the inability to either repeal and replace or just fix Obamacare has contributed to an upward spike in health insurance costs (Obamacare premiums +36% in 2018) and a commensurate uptick in Wisconsin’s uninsured rate. In the “business” of health care, when people become uninsured, the care they still receive from Wisconsin’s hospitals becomes “uncompensated.” In 2017 hospital uncompensated care rose 11% to $417 million—the first increases since Obamacare insurance started in 2014 and hundreds of millions in unpaid costs that must be shifted to Wisconsin employers and families.  

The good news here is the Obamacare insurance market is showing signs of stabilizing. For the first time since 2014 there will be a net increase in the number of insurers offering coverage on the Wisconsin exchange. Even more promising, premiums in Wisconsin are actually projected to DROP in 2019 by 4.2%—a 40 point swing in one year, in part due to Obamacare fixes adopted by Wisconsin.  Two major trend reversals signaling much needed stabilization.    

Government Health Care Programs:  Payment from Medicaid (state) and Medicare (federal) continue to fall far below what it actually costs hospitals to provide care. Critics of health care costs will often point to other elements of the economy and ask, for example, “Why is buying health care so much different than buying a car?” The simple answer is, auto dealers are not required by law to sell cars at 35% below their own cost (Medicaid), or for some customers, 100% below cost (see “uncompensated care” above).  The difference between hospital cost and payment in Medicaid alone was $1.1 billion last year, the equivalent of adding another 13% to hospital labor costs (keep that in mind when Wisconsin debates expanding Medicaid in 2019). Compounding this situation is the fact that the “payer mix” at many Wisconsin hospitals can be as high as 75% Medicaid/Medicare—that’s three-quarters of their customers paying well below cost. Throw into that equation the unfortunate reality that these unpaid costs have to be shifted to everyone else, and you can see why “selling” health care isn’t quite like selling a car. 

Eric Borgerding,
President/CEO

This column is excerpted from the Wisconsin Bankers Association’s 2019 Wisconsin Economic Report.
 

This story originally appeared in the January 15, 2019 edition of WHA Newsletter