Justin Sydnor

Justin Sydnor

Justin Sydnor

Wisconsin’s Group Insurance Board will meet this week to consider transitioning health insurance for state employees to a “self-insured” system.

Most large employers, including many state plans, are self-insured. Prior to self-insuring, most employers buy insurance from one or two large insurance companies, using broad networks of doctors and hospitals. When these big employers move to self-insurance, they pay medical bills directly. But they often continue to hire these large insurers, at reduced fees, to administer their health-insurance program.

For large employers, self-insuring potentially saves money by changing how they finance health care without changing how employees experience their benefits.

But the state of Wisconsin is not a typical employer, and it does not have a typical health care market. Wisconsin has the most competitive health-insurance market in the country. Our largest insurer’s market share is around 15 percent, compared to 60 percent nationally. Our state-employee plan uses and supports this uniquely competitive environment by purchasing insurance from 17 different health plans, including many smaller plans.

Wisconsin is also unique because we have an unusual number of smaller integrated health systems where the insurance company is directly associated with the doctors and hospitals. These community health plans participate in the state-employee program and are especially popular in certain areas of the state, such as Dane County.

Some ways of self-insuring may disrupt our unique health care landscape. In particular, if a new program uses a few larger insurers to administer the plan across bigger geographic areas, some of our smaller integrated health systems may struggle to participate. That could be problematic for two reasons.

First, reduced involvement of smaller health systems in the state program may create a force for consolidation and reduced competition in some health care markets in the state. Research shows clearly that reduced competition leads to higher health care costs over time, which means the modest savings from self-insurance could be swamped by more rapid growth in health care costs.

For example, in less competitive Minnesota, costs for the state-employee plan, which is already self-insured, are rising 8.7 percent next year. In contrast, our Group Insurance Board kept our increase for next year to only 1.6 percent. If our health care costs grew at Minnesota’s rate, it would cost us an additional $100 million next year, much more than the projected savings from self-insuring.

Second, our smaller integrated health systems deliver quality care and may give Wisconsin unique opportunities for reforming health care. Health policy experts are encouraging more experiments with paying hospitals and doctors for peoples’ health outcomes instead of for procedures they perform. Integrated health systems are especially well-suited to lead these experiments. Even for integrated systems that are able to continue participating in the state-employee program, self-insuring may make it more complicated for them to experiment with payment reforms.

It makes sense for the Group Insurance Board to investigate self-insurance. But the current system appears to be effective, and we need to be cautious about how any changes may impact the level of competition and the involvement of smaller integrated health systems in Wisconsin’s health care markets.

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Sydnor is a UW-Madison business professor specializing in risk management and insurance.

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