Failed ‘Healthy Wisconsin’ Proposal Returns

Published April 3, 2008

As Wisconsin’s legislative session wound to a close last week, senators encountered an unwelcome sight: a resurrected piece of “health care reform” legislation known as “Healthy Wisconsin.”

The plan, which would inflate Wisconsin’s entire health care system into a state-run program, was considered–and rejected–in 2007.

Thanks to the efforts of pro-market legislators such as Rep. Leah Vukmir (R-Wauwatosa) and Wisconsin voters, the 2007 attempt at government-run health care was scrapped entirely.

Now Sen. Jon Erpenbach (D- Middleton) has reintroduced it as SB 562, the “new and improved” Healthy Wisconsin plan. But it’s just as expensive and ill-advised under its new name as the old version.

The bill’s backers originally expected it to cost around $15 billion per year–most of which would be funded by an increased payroll tax, at a rate set by a board established to oversee the program.

The payroll tax rate necessary for that $15 billion has been estimated at no less than 14 percent. In fact, the $15 billion needed for the program represents more tax revenue than the state currently takes in through sales, income, and corporate taxes combined.

Michael Tanner, the Cato Institute’s director of health and welfare studies, observed during his October 2, 2007 testimony to the Wisconsin Assembly Committee on Health and Health Care Reform that the payroll tax would theoretically be “split, with the employee paying 4 percent and the employer paying 10.5 percent.

“But, while it might be politically appealing to claim that business will bear the new tax burden, nearly all economists would see it quite differently,” Tanner continued. “The amount of compensation that a worker receives is a function of his or her productivity. … Mandating an increase in the cost of hiring a worker by adding a new payroll tax does nothing to increase that worker’s productivity.”

Therefore, Tanner notes, businesses will have to raise prices (unlikely in a competitive market), lower wages, reduce future wage increases, cut other benefits (such as pensions), reduce hiring, lay off current workers, or outsource. “One way or another,” he notes, “workers will bear the full cost.”

Given that Wisconsin’s tax burden is already worse than several neighboring states’, Healthy Wisconsin is an almost certain recipe for slower economic growth and lost jobs. The nonpartisan Tax Foundation currently ranks Wisconsin as having the 7th highest state and local tax burden in the nation. Iowa, ranking 18th, will be a particularly attractive destination.

The job losses will cut into projected tax revenues for the plan, while costs will rise faster than expected because health care inflation is running far ahead of projected wage and revenue increases across the nation.

With its health care-by-geographical-area framework, Erpenbach’s retread proposal would eliminate consumers’ ability to choose their providers and, in Tanner’s words, “set up a perverse set of incentives that will encourage healthy and insured residents to move out of state, while also encouraging uninsured and sick from out of state to relocate to, or at least take jobs,” in Wisconsin.

That would significantly strain health facilities in the state’s border areas, acting as a magnet for undocumented immigrants and low-income pregnant women–thus increasing program costs exponentially. The revenue shortfalls and price inflation would soon force providers and the state to ration health care.

Wisconsin should seek common-sense reform to deal with the health care crisis. Opening up the market to greater competition and decreasing the number of procedures and operations mandated by law for insurance coverage from the current total of 31–including, for example, chiropractics–would greatly alleviate the current biggest problem with health insurance: affordability.

The state should also amend its insurance laws to allow the sale of any health insurance plan approved for sale by any state. Most states do not allow this, and it would work wonders in bringing down health insurance costs through competition.

Instead of repackaging failed attempts to place more burdens on an area of the market that is already suffering from over-regulation, Wisconsin should implement real reform, measures that decrease government involvement, increase consumer choice, and strengthen the market.

Jeff Emanuel ( [email protected]) is health care research fellow for The Heartland Institute.