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Doubling the lily pads: Controlling the explosion in health care costs

MADISON – Back in his math teacher days, Al Jacobs taught students about the power of doubling by talking about lily pads. Imagine a colony of lily pads on a pond and the pads doubled in area every day: How long would it take for an area of two square feet of lily pads to cover a pond of 250,000 square feet?

Only 17 days, thanks to the power of doubling. Two square feet becomes four, eight, 16, 32 and so on, until on the 17th day, 131,072 square feet of lily pads doubles and becomes 262,144 square feet, more than covering the water surface.

Jacobs is no longer teaching math, but he still tells a lily pad story to describe a different fast-growing menace – rising health care costs. The national health bill will double in eight years unless a new system is put into place, he predicts. What makes Jacobs’ warnings worth heeding is the fact he runs a health insurance company.

Jacobs is the executive director of the WEA Trust, a non-profit corporation created by the Wisconsin teachers’ union for its members. Formed in 1970, the WEA Trust offers group health, dental, life and disability insurance plans. With more than 200,000 educators and their families under coverage, it is Wisconsin’s second-largest health insurer.

“The health-care crisis we face today is far, far worse than most people realize,” insisted Jacobs, who said a doubling of health costs every eight years since the mid-1970s has eroded our buying power and undermined the nation’s economic competitiveness. “Trying to modify the existing system isn’t going to fix the problem. We need fundamental reform.”
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Jacobs’ four-part solution, which he has pitched to groups large and small since the fall 2003 Wisconsin Economic Summit in Milwaukee, is a blend of group-buying market dynamics, government pricing guidelines, increased use of information technology, and more state involvement in preventive and catastrophic care. Here’s a summary:

The launch of “WisconsinRx” in the fall of 2003 was promoted by WEA Trust as a way to reduce drug costs. It is a statewide, non-profit cooperative that can be joined by virtually any Wisconsin business, so long as their current health coverage plan does not include drug coverage. So far, participating businesses are seeing reductions in drug costs of 10 percent or more due to volume discounts that are available in equal proportions to small and large businesses alike. For more information, go to www.wisrx.com

When health-care providers talk about “transparency” in a cost system, they mean: Does the system give patients and doctors the ability to know what services and products cost? Jacobs argues the current system is about as transparent as a slab of granite, making comparison shopping all but impossible.

Jacobs wants to create a state “relative value” system upon which all providers must base their charges. Providers would be required to charge every patient the same amount for their services, but they would be free to declare the percent of the state schedule at which they will set their fees. Insurers and health plans would be required to set the amount they reimburse as a uniform percentage of the schedule. The goal is to even out charges and reimbursements among large and small health coverage plans.

The current system is a maze of paperwork, regulations, coding, medical necessity standards, discount arrangements, credentialing requirements and more. A more centralization transaction system would end the fragmentation, Jacobs said, reducing costs and improving quality and safety. “We also lack an organized means of retrieving and analyzing data to improve population health,” he said.

For too many poor people, the health-care system doesn’t kick in until there’s an emergency. Better preventive care could save lives and dollars. On the other end of the care spectrum, business health care plans can be devastated by a few catastrophic claims that raise costs for everyone – or force the business to drop coverage. Jacobs believes the solution is state coverage of preventive and catastrophic care, leaving the rest of health care for private coverage.

Jacobs plan is controversial, to be sure. Many state legislators will be tempted to see it as another version of “socialized medicine” or cost-shifting. And the doubling of the “lily pad” is only a disaster if the size of the pond is static; so long as the economy grows, health-care costs cannot subsume all other activity.

At the same time, there’s little argument that rising health-care costs are hurting the ability of Wisconsin businesses to compete in the global marketplace. Health-care costs must be confronted in a rational way that takes into account what (and how) we’re paying and what we’re getting in return. Veteran health insurers such as Jacobs should be a part of shaping the solutions.

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Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.

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The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Comments

Mary Jurmain responded 9 years ago: #1

Jacobs may be on the right track, but it's still too little, too late. We don't just have a health care crisis in this country, we have a HEALTH crisis, and until we accept and deal with that fact, everything else we do is working at the margins. In all such plans I've heard discussed, lip service ands cant thought are given to prevention, but it's really the only practical long-term solution. When we get serious about implementing plans such as Dean Ornish's and John McDougall's recommended diet and lifestyle changes, that's when we'll see costs drop like a rock.

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