Many reasons for Milwaukee area’s high health costs

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An article by Guy Boulton in Friday’s edition of the Milwaukee Journal Sentinel looked at four studies on health costs and concluded that the Milwaukee area has some of the highest health care costs in the nation. The studies were conducted by the Government Accountability Office, BSG Analytics, Milliman Inc. and the Institute of Medicine over different periods of time with different methodologies.

Despite these differences, the article is correct that Southeastern Wisconsin health care costs are not competitive when compared to similar cities in the Midwest or elsewhere in the nation. However, while some observers in the article lay the blame primarily on employers for limited competition between health systems, the reality is that many individuals and organizations share responsibility for regional health costs.

Covered employees and their dependents are ultimately decide what services they receive, and from whom. In addition, employers are responsible for plan selection and educating employees on steps they can take to consume health services more wisely. The provider community also needs to be engaged and ready to assist cost-conscious patients.

Insurance companies are naturally an important part of this equation as well. Traditionally, insurers had a strong incentive to negotiate lower prices with providers, because this meant they had to pay out less in claims. Yet the Affordable Care Act’s medical loss ratio now limits expenses unrelated to care (including overhead, salaries, and profits) to 20% in the small group market and 15% in the large group market. Higher health care costs thus have the effect of growing the pie from which insurers can take their slice. This effect will no doubt be mitigated by competition between insurers, but it still affects the motives of the player who has historically had a big impact on controlling health care costs.