Ian Morrison

Policy wonks love to talk about alternative ways to cover the uninsured, exciting new quality and patient safety initiatives, meaningful pay for performance systems and so forth. All of this is completely irrelevant. The single biggest issue that affects health care in the short term and the long term is tax policy. When the rich among us received a big tax cut, it virtually dictated massive state budget crises and a rise in the uninsured. The massive federal deficit the tax cuts created constrains meaningful expansion of health care to the uninsured and will require Medicare beneficiaries to dig deep into their own pockets to pay the premiums for the old Medicare Part B and for the new drug benefit. If we make the tax cuts permanent, we are sealing the fate of many of the vulnerable elderly and the uninsured.

Why is tax policy so important, and how do we differ from other countries and health systems? Here are some thoughts:

American health care financing is increasingly regressive. Health care premiums are a regressive form of taxation for a social good: Everyone pays the same regardless of income. Indeed, when you factor in the corporate tax deductibility of health insurance premiums, well-compensated executives getting health insurance from their company are receiving a nice tax-free benefit; the higher paid they are, the more the benefit is worth in net terms.

Admittedly, while Social Security tax maxes out at $87,000 of income (2003 ceiling), the Medicare tax of 2.9 percent (half paid by employee, half by employer, all by the self-employed) is a flat tax with no ceiling. It’s still not a progressive tax. Million-dollar earners are paying $29,000 toward Medicare–a big number to be sure. But consider this: According to distinguished Canadian health economist Robert Evans, the top decile of income earners in Canada are spending on average 10 percent of their total income to support the health system in Canada through progressive general taxation. There are actually a few million-dollar earners in Canada such as Wayne Gretzky, Jim Carrey, William Shatner and Michael J. Fox (most of whom actually pay taxes in the United States–but play along with me for purposes of exposition). Those same million-dollar Canadian earners would pay about $100,000 toward the Canadian Medicare system. Admittedly, they don’t have to pay any health premiums, just taxes. So for the sake of fairness, you have to add to the American executive’s bill about $10,000 in premiums for a family (nice coverage too). Bearing in mind it’s a tax-free benefit, and while it really is part of total compensation, many folks think health care provided by their employer is free. Suppose also that there is some portion of general taxation earmarked for health care purposes like Medicaid–let’s say 2 percent of earnings (or $20,000). We’re still only at $59,000.

Remember that Canadians spend 10 percent of the GDP on health care, a number that has been flat throughout Chretien’s terms as prime minister (ironically because rich Canadians wanted a tax cut, which meant constraining the total health budget). We in the United States spend close to 15 percent of the GDP. So it is logical to assume that Canadian-style progressive tax financing (even using American top rates of tax, which are not that much different) would create a tax burden for the hypothetical rich American in a single payer system of about $150,000 as opposed to the $59,000 they currently pay. This is crude analysis; I’d love to see a real policy wonk do it properly. It’s hard to figure out. But do you know who has figured it out? Rich people. That’s why the rich are more likely to vote Republican, and more likely to be against single-payer policies (unless they are rich people from Boston, New York, Seattle or San Francisco–the civilized world as we now know it).

The values are shifting away from social solidarity. Health care systems can survive only if there is a massive transfer of income from rich people to poor people and from well people to sick people. Even the American system does this, because allocating health care solely on the ability to pay is barbaric. But as the medical concierge and VIP medicine crowd are finding out, there is a very good reason for providers to want a cross-subsidy to the poor sick from the rich well. Why? There aren’t enough rich people to go around. A lot of doctors think consumers should pay for all care out of their pockets. These doctors believe their waiting rooms are full of malingering riffraff with minor boring conditions, and that if ability to pay was factored in, their waiting rooms would be full of rich people with interesting diseases. Wrong. Cross-subsidy matters, not just for social solidarity purposes, but because it is good for providers.

My colleagues at Harris Interactive have asked the public about their values and beliefs. A classic question sums it up: Do you agree or disagree with the following statement? “The higher someone’s income is, the more that he or she should expect to pay in taxes to cover the cost of people who are less well off and are heavy users of medical services.” In 1991, on the eve of a Clinton presidency, 66 percent of Americans agreed with the statement. By 2003, in the midst of the Bush administration, only 51 percent agreed with the statement. It says a lot about the erosion of social solidarity that has occurred in 12 years.

Tax credits for the rich and poor. A centerpiece of Bush administration policy has been tax credits and tax advantaged medical savings accounts for rich and poor alike. But if you have mastered first-grade arithmetic, you will know that a tax credit or a tax advantaged plan is worth more to rich people who pay high taxes than to poor people who pay little or no taxes.

The undeserving rich. America rightfully honors its million-dollar earners; you come here with nothing and you make a lot. America has been very, very good to Arnold, and Ariana, and Wayne Gretzky, and me. But what made America the greatest country in the world is not that it had the lowest taxes, but that it was a country that offered freedom and opportunity in a place that was safe, fair and compassionate. Giving massive tax breaks to Paris Hilton so she can buy more Prada handbags doesn’t strike me as consistent with American values. Better she has fewer handbags and we have less uninsured.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

The presidential election of 2008 will be the most important event in the history of American health care. While health care is always a hot political topic in any election year (including this one), it is going to be absolutely critical in 2008, no matter what the outcome is this November. Why? Here are a few reasons.

Consumer-deflected health care. There is considerable momentum behind the move to shift costs to consumers, and despite consumers’ bitching, there is little to stop the trend. Health costs for employers have been rising at double-digit rates for almost five years, and employers have finally developed the backbone necessary to stick it to their employees. Because everyone is worried about having his or her job outsourced to India, the employee is eating the cost shift, albeit reluctantly. There is no reason this trend cannot continue for three or four more years, but it is not a long-run solution. Just imagine how cranky we will all be in 2008 when we are paying, out of our own pockets, thousands of dollars a year for health care.

The baby boomers confront retirement security. The oldest baby boomers will turn 60 in 2007, and it is quite likely that this will be exactly the time when the penny finally drops for them: They have not saved enough money for retirement. Most importantly, they will realize that they don’t have the close to $200,000 actuaries tell us they will need for out-of-pocket health care costs. Most of us will have to work forever; we will all become limo drivers in Boca Raton hauling other baby boomers around.

From a soccer-mom agenda to a retirement security agenda. The baby boom has transformed every institution it has touched, from the elementary schools of the 50s to the colleges of the 60s and 70s and the workplace of the 80s and 90s. We boomers are used to being accommodated and being in charge. While Clinton rode to political power partly on the strength of the soccer moms’ support, the 60-somethings of the future will be a powerful political force. Will they anticipate their looming retirement politically in 2008, or will they wait until it is almost too late (2012)? Medicare won’t go bust, they say, until 2017–and maybe further out if you believe some of the optimists. But there is no question that a massive cohort of selfish, insecure, worried, narcissistic baby boomers will expect to be catered to, and I will be at the head of the line.

The fallout from Medicare reform. As I wrote in a previous column, “Medicare Reform as Three Movies,” the new Medicare benefit will be the status quo in 2008. Unless overturned or substantially modified in the interim, the elderly will have real experience with discount cards and doughnut holes, and the pharmaceutical industry will have many of its blockbusters off patent (either generic or over the counter). The 2008 election will be a referendum on the effectiveness of Medicare reform.

What will be the outcome? I don’t know. But I hope we have a real debate about American values of fairness; innovation; and economic, personal and fiscal responsibility. Most importantly, by 2008 we will need to have the national debate about the fundamental and total redesign of health care delivery and the system to finance it. Because one thing we can’t ignore is the reality of 2022, when the peak of the baby boom hits 65 and all of us will be sitting around in nursing homes singing “I got you, Babe.” We can’t extrapolate that demographic onto the current health care system.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN OnLine.

I’ve often joked that there is a unique field of health economics because of the special nature of health care, while there is no field of dog food economics. I suddenly realized that I am wrong. There is a remarkable similarity between health care economics and dog food economics. I had this epiphany while listening to a panel of health care experts debate the consumer’s role in health care versus the role of managed care.

To economists, health care is seen as different from other markets. The reason, they argue, is that there is asymmetry of information: Providers know what they are selling, while consumers largely do not know what they are buying. The asymmetry of information is the cause of market failure in health care and the reason the doctor plays such a special role as agent for the patient in the health care transaction. Third-party payment makes the issues even more complex, yet we buy other forms of insurance in a marketplace without the need for special agents.

Then it struck me. Dogs don’t buy dog food. They may eat it, but they don’t buy it. Dogs have preferences and may refuse to eat something (voting with their paws, so to speak) but they don’t generally select the food they eat. Sometimes they have choice. My large and aged golden retriever has demonstrated that he prefers pepperoni pizza, prawns and whole sticks of butter (given the opportunity to steal food) over the dry, boring pellets for overweight old dogs we feed him. Dogs rely on an agent (the owner) to help them make decisions and pay the tab.

In the past, we patients were just like the dogs. We knew what we didn’t like but all we could do was bitch about it (pardon the pun) and change doctors. Armed with information, we patients now are supposed to be intelligent consumers. Yet, I think to a large extent we do need to have some help. Harris Interactive surveys show that the square root of zero humans (actually less than 1 percent) have ever made a decision on selecting a plan or doctor based on a report card they saw or read. Don’t get me wrong–I am a big fan of report cards, and dog shows for that matter. But dog shows and report cards are more important to dog owners and providers than they are to dogs and patients.

Dogs need help, and patients do, too. There is still an important role for agency in health care. Clearly, we are moving away from the paternalistic notion that only the dog owner, or doctor, or health plan knows best. Managed competition put the consumer more in the decision-making role, but the plan sponsor helped orchestrate the choice of health plans and set the consequences for lack of cost-conscious choice. We do this with our dog, too: If he is foolish enough to steal pizza, he sleeps outside.

But the current trend toward consumer-directed health care doesn’t give us much in the way of help. Health plans and purchasing coalitions are arming us with Web sites. Some sophisticated providers offer medical concierge services to help us navigate through the complexity of health care. Yet, surveys show that we still rely heavily on our doctors and our friends and family to navigate through the health care system. We trust them to do what’s right, just like my dog trusts me.

Before we all get too carried away with consumerizing health care, we need to think through this issue of agency. As more responsibility for cost and choice is forced on the patient, it becomes both difficult and dangerous to ask the doctor to be both retailer to and trusted confidante of the patient. That’s like asking her to be a cross between St. Thomas Aquinas and H&R Block: She has to do your tax return before she can prescribe anything. We need to develop a new cadre of trusted agents; otherwise health care will go to the dogs.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California

With the passage of the Wholly Inadequate Prescription Drug Benefit for Seniors (WIPDBS) and the capture of Saddam Hussein, George Bush should be a shoo in for re-election unless the economy reverses its apparent recovery. Bush and his advisors have taken the healthcare issue away from the Democrats while apparently rewarding their supporters in the private sector of health care: most notably health plans and pharmaceuticals. But in the long run the combination of the passage of Medicare reform may come back to bite the republicans and the drug industry. The best way to think about the long term effects of the legislation is by using three movies as metaphor.

Movie 1: As Good as it Gets…for the Private Sector and Some Seniors

Much of the mainstream media has portrayed WIPDBS as a major victory for the pharmaceutical and managed care industries. And from a myopic point of view that is right, after all the drug companies got: prohibition on price controls on drugs, (Medicare cannot use its raw naked purchasing power), and there is prohibition on reimportation of pharmaceuticals from Canada. In addition, many actors got short and long term handouts: corporations to subsidize retiree health plans, health plans to provide Medicare PPOs, PBMs to deliver pluralistic administration, and doctors and hospitals to deliver services and support the bill. Rich people got MSAs and HSAs (The Warren Buffet PPO) and no new taxes. And to be fair, there was some fresh new coverage for the poor uncovered elderly who are not in states with rich PACE or Medicaid programs. To many analysts this was as good as it gets for the private sector and for some low-income seniors.

While it is undeniable that some low-income seniors will see a benefit from the new plan (when it becomes fully operational in 2006) most seniors will face a high degree of cost sharing for their prescription drugs. The key cost sharing feature is the famed “donut hole” in the middle where seniors would be exposed to the full cost of their drugs between $2,250 and $5,100 of annual expenditure on medications. Practically speaking, most seniors taking two or three prescription drugs would end up stuck in the middle of the donut and on the hook for 30-50% of the total cost of medications (according to actuarial estimates in the bill). Many critics of the donut hole cite this as a necessary evil because of the lack of money to pay for the bill. I disagree. As we say here in Silicon Valley “it’s not a bug, it’s a feature”. The donut hole mirrors exactly the initiatives in the private sector (tiered formularies and escalating co-payments) that have successfully forced employees to switch to generics and forego medications. It is part of a broader trend in healthcare to make the consumer more responsible for payment, thereby reversing a forty year trend since the passage of Medicare in which the consumers has paid a smaller and smaller share of the total health care bill. This is an effort by corporations and politicians to “break the culture of entitlement” by making consumers more responsible. The early evidence shows that the poor and the chronically ill are most affected, but even the middle class trade down to generics twice as often as they trade up to the brand when faced with steep co-payments.

Movie 2: The World is Not Enough…

Despite the fact that the private sector seems to have gotten the world, the world is not enough. Why?

• When the wholly inadequate coverage arrives in 2006 most people will be paying for more than half their medications.
• There will be tremendous price transparency of drugs, now and in the future (discount cards in the short run and donut holes in the long run).
• The drug industry will experience the coverage kicking in when many of their big blockbusters are off patent and when huge classes of drugs like statins will be both generic and OTC.
• Despite the subsidies to corporations there is still a huge incentive for corporate America to phase out retiree health benefits and now a morally acceptable alternative exists (i.e. have their retirees look after themselves through Medicare).
• HMOs and HSAs will have to find a way to make money on anybody but the rich well elderly (all four of them).

When it comes to healthcare for the elderly we are all poor. Most people cannot afford the enormous burden of paying for retirement and healthcare costs. It is likely this bill will be a platform for future Democrats to go after the drug industry when it is at a low ebb, lacking innovation and subject to five years of public outrage about prices. What would Hillary do with Medicare in 2008?

Movie 3: The Ten Commandments

While the bill may backfire it really is an attempt to set in stone a set of ideological principles kinda like the Ten Commandments:

• There shall be competition (Even if it is unpopular, doesn’t work, and there are no HMOs or congressional districts willing to participate in it).
• There shall be liberty for seniors to be confused by a myriad of private health plan and drug coverage offerings.
• There shall be skin in the game (consumer responsibility for payment through co-payments, deductibles and premium sharing) because it is good for consumers to pay at the point of care (it will stop them overusing the Medicare system for recreational purposes and it teaches seniors that they should look after themselves in their forties and fifties).
• There shall be no supplementary coverage because supplementary coverage nullifies skin in the game.
• There shall be no new taxes for rich people, only raised premiums for all.
• There shall be privatization because private is better than public (don’t argue, this is a commandment).
• There shall be unrestricted free choice of plans each of which has a restricted choice of doctors because choice is good.
• There shall be big differences in coverage among seniors but thou shall not covet thy neighbor’s coverage.
• There shall be no Canadian drugs in the veins of Americans even if the drugs are made in America and purchased by Americans.
• There shall be no senior left behind…in traditional Medicare.

Actually, I believe that while the intent may be to undo traditional Medicare the new plan offerings will be so confusing and lame that good old traditional Medicare program will be the choice of most seniors. The question is now what do we do?

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in Hospitals and Healthcare Systems Online, March 2004.

Hospital prices are seen as a bad deal already, even though consumers don’t even pay for them directly. More than ten years ago in a presentation to Tommy Frist (of HCA fame) a colleague and I showed a Conference Board survey in which hospitals ranked 49th out of 50 items ranked on being a good value. Chicken was seen as the best value in America, lawyers fees was ranked 48th of items surveyed. Mr.Frist the elder became upset, not because hospitals were near last, but because they were behind lawyers. We pointed out that the reason that hospitals are seen as such a bad value is that hospitals persist in sending the patient a bill. Who could justify $58 Tylenol or outrageous prices for simple lab tests? Some wag in Mr. Frist’s executive team said “Yeah, in the future we shouldn’t send the patient a bill, we should send them a chicken”.

Fast forward to 2004. The hospital reimbursement trends of the moment lead us towards consumer responsibility for payment, tiered networks and transparency in pricing. We are moving back to a health system where consumers are exposed to a larger share of the cost of each of the healthcare silos. While subtly disguised as “consumer directed healthcare” or “tiered networks” consumers will see how much the cost of a stay in hospital will affect them in the pocketbook. Well, that’s the theory.

On a wonderful, special trip to France last September, my wife and I splurged on an extravagant gourmet dinner in a fancy French hostellerie in St. Emilion. As we were seated at the table, the maitre d’ furnished me with a menu with prices on it, and my wife (presumed the economic ally discriminating inferior), with a menu with no prices. My wife offered that she might start with the lobster soup, I casually flashed the menu with the prices (“Not, for $43 a bowl” I suggested). After she enjoyed the green salad instead, we reflected on what this means for healthcare.

There is no price list in the American hospital. We patients are like the guest at an expensive banquet, with no clue of what the lobster soup really costs. We select things (on those rare occasions in a hospital when we have such choices) completely oblivious to the cost to the patient or the third party paying the majority of the bill.

Thus, it is argued, consumers need to pay at the point of care and be more frugal. OK, then, show me the prices in advance, when I am conscious, upright, rational, and informed. Hospital accounting is arcane and glacial at best, few hospitals know the true cost of clinical interventions, fewer yet have the information systems to communicate such data in real time to a fully informed patient on the edge of clinical expenditure.

How hard could this be? Car repair is as complicated as hernia repair and yet most Shell stations can give you a pretty decent estimate in advance and they call you before spending more if they find something else wrong. (Is it just me, or do you always need two new tires when you take your car in?)

A lot of this patient responsibility for payment is silly. But, if we are going down this road, please give us all a menu with prices on it. And live with the consequences: more green salad and chicken and less lobster soup.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in Hospitals and Healthcare Online January 2004.