Ian Morrison

Well, it’s health reform season again. Every 10 years or so we get geared up to reform health care. We never actually do anything, but we have a great old time talking about it at conferences.

At some point in the debate, maybe soon, we start casting around for solutions from abroad. Somebody must be doing it right, we start to think. Well, actually, every system around the world is an ugly compromise among cost, quality, access and security of benefits, and almost all systems are in crisis according to the local news media. We in the United States have a bad bargain, maybe the worst: high costs, uneven quality, poor access and no security of benefits except for those over age 65.

Looking around the world, there are lots of things to learn from the United Kingdom, France, Germany, Canada and others. The place that has my attention these days is Australia. I like Australia for the people, the wine and the weather-but it has a lot to teach us about health care, too.

Australia is a big country (bigger than the continental United States), but it has only 20 million people. Aussies are a no-nonsense, sarcastic, fun-loving and friendly people who have a very low tolerance for pretentiousness-my kind of people. On a recent visit, I had a chance to meet with the nation’s top CEOs of health plans and learn a little about what Australia is doing. Australia can teach us some important lessons to fuel the U.S. health reform debate.

The Aussie Health Plan

All health care systems are difficult to describe, and all reflect the culture and values of the country. Here is a very brief and simplistic overview of Australia’s health care system.

Imagine the Canadian system as a base (a national health system funded through taxes that provides all ambulatory care and has public hospitals where care is effectively free to residents, although their choice of specialists and amenities in the hospital would be somewhat limited). This is what Australians call Medicare.

Add to that a private insurance system that supports hospital care in private hospitals and in higher-amenity environments in public hospitals for people with private health insurance. The private system is not dissimilar to the United Kingdom’s. The big difference is that, while less than 10 percent of Brits have private insurance, nearly 50 percent of Australians have some form of private coverage that was purchased directly by families and individuals. And unlike the United Kingdom, where the private sector has historically been characterized as queue jumping for minor procedures like varicose vein removal, the Australian private system covers about half or more of chemotherapy, joint replacement and other high-tech care.

Private insurance in Australia is relatively cheap by our standards, with cost depending on the type of coverage purchased from a few hundred dollars a year up to about $3,000 (Australian) for “Rolls Royce” coverage. Experiments are under way to fund health services through private insurance “outside the hospital gate,” as they say down under, meaning in the ambulatory environment.

Overall, the nation spends about 10 percent of its GDP on health, compared with 16 percent in the United States. The people seem as happy as anyone else, based on international surveys, and they live longer and seemingly better than we do. I think it’s the beer, the beaches and the barbie that does it, not the health care, but that’s another story.

Incentives

How do Australians manage to get people signed up for a two-tiered system and deliver what seems a pretty decent value to all Australians? Here are some clues that we might learn from:

An explicit choice/cost trade-off. Australians face a clear and seemingly socially acceptable choice: You can have free care, paid by you and your fellow taxpayers, but you will have no choice of provider for specialty hospital-based care, and you will not get the fancy private room unless you are devastatingly ill. Or you can buy a private insurance policy and have complete choice of provider, no waiting and higher amenities. If you buy the private insurance (as in the United Kingdom), you still have to pay your taxes to the Australian Medicare system, and all Australians get pretty much the same primary care and ambulatory public services. Private patients care about the public system because they are subsidized by the public system while in the hospital, in that Medicare is paying for a significant portion of the private patient’s stay. That is one reason the private insurance system accounts for only 11 percent of overall funding for health, despite its 50 percent penetration of the population. Overall, Australia is a very interesting example of what the Europeans call social solidarity, blended with and supplemented by private insurance. It will be interesting to see as the private sector grows outside the hospital gate whether the solidarity remains so solid, but to date, the Aussies seem to have broad buy-in for the system, with the exception perhaps of trade unions and the political left.

A simple tax subsidy. In the last decade, Australia has experimented with tax-based inducements for individuals to purchase insurance. They tried means-tested subsidies, but those did not seem to work, and Aussies have now hit on a 30 percent flat rebate as a way to stimulate growth in the private system. It seems to be working like a charm. Since the introduction in 1999 of the rebate and lifetime health coverage guarantees (I’ll say more about the latter below), enrollment in private insurance, which was dwindling at around a third of the Australian population prior to the reform, jumped dramatically to now almost exactly half of all Australians being covered by some form of private insurance (with 43 percent having coverage for hospital care). It’s not just the richest half who signs up. A quarter of those with private insurance have annual household incomes of less than $33,000 Australian (about $27,000 in U.S. dollars), and half of all privately insured Australians have household incomes of less than $70,000 (Australian), which is about $58,000 U.S. and pretty close to the U.S. median household income. My impression from the Sydney news media and local ads for coverage is that buying health insurance is viewed as a no-brainer for the middle class, largely because of the tax subsidy.

Incentives to sign up young and stay in. Critics of private insurance point to the classic sources of market failure: cream skimming, adverse selection and moral hazard. True, Australia has to be wary of all of these. But it has developed a sensible inducement to sign up when you are young and healthy and stay in for life. Most importantly, private health insurance in Australia is community rated, and a reinsurance pool handles the risk adjustment that could face insurers who get disproportionate enrollment from the elderly or the sick. (What a radical idea! I am still mystified that we in the United States abandoned community rating over the last 20 years with seemingly no public or political debate about the consequences of the shift.) In addition, as part of the 1999 reform, Australians 30 years old or under who sign up for private insurance pay a lower premium throughout their lifetime than those who postpone enrollment. People over the age of 30 will face a 2 percent increase in premium over the base rate for every year they postpone joining an insurance plan. Brilliant. (Recent legislative changes remove this penalty after people have paid the increased premiums for 10 years because research showed that it was a reason people abandoned private health insurance. Again, this latest move is targeted to keep the younger people enrolled.)

The employer has no role. The Australian system is about government, private insurers and consumers figuring out how to get along. Employers are out of the picture. There is almost no group insurance, and almost no employer sponsorship of health insurance. Who needs it if you have community rating and risk adjustment? Australian businessmen do not have to fret about how health care costs are eating their earnings per share. They just have to pay their taxes and let their employees figure out on their own if they like the value proposition of private health insurance.

Marketing and administration costs are low. The traditional rap against individual insurance markets is that they have astonishingly high administrative costs to pay brokers, do underwriting and so forth. It appears that this is not the case in Australia. Total administrative costs of private insurance (including profit) are around 9.5 percent, way less than in the United States. This is partly because the products seem to sell themselves as a result of the tax subsidy, partly because they are simple and not overly expensive products, and partly because the industry is efficient and seems to operate in a form of collegial competition through regional oligopolies rather than through an advertising and marketing arms race.

Containing costs through the pharmacy benefit scheme. The private sector CEOs of health plans in Australia love the nation’s pharmacy benefit scheme, a universal system of coverage paid by the Commonwealth (the federal government), which covers most medications through a very tight price-controlled, reference-price-based system. It is a system that is detested by every global drug company, but is enthusiastically embraced by the health plans (or health funds, as the Aussies call them).

Where do they go from here? I gave a little talk in Sydney to a group of health fund leaders about what we are doing in America about value purchasing, transparency, pay for performance and so on, and the Aussies seem interested in embarking on many of these initiatives. Indeed, my mate Dr. Michael Armitage, a former health minister of South Australia and current CEO of the Australian Health Insurance Association, is pursuing many of these initiatives with his members. In other areas, like health IT, the Aussies are way ahead of us.

There is no such thing as a perfect health care system. But Australia has wrestled, I think successfully, with big issues such as the balance between public and private coverage, the role of employers, the value of tax subsidy, simplicity of insurance product design and coordination of public and private controls for new technology. Australia is worth a visit for a whole host of reasons, including some ideas about health care. So as the Australian tourist board ad says: “Where the bloody hell are you?”

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This article first appeared on July 9, 2007 in HHN Magazine online site.

Everywhere I go in health care as a patient, a family member of a patient or a futurist, I see that people in health care are really busy. Actually, frenetic is a better term. Doctors are frantically pedaling to keep up with medical innovation; declining reimbursement; and waiting rooms full of patients who get older, fatter, crankier and more demanding every day. This is the hamster care I have described elsewhere: Doctors are like hamsters on a treadmill of discounted fee-for-service, scurrying faster and faster to make their target income as real reimbursement per unit of service declines.

But nurses and other caregivers are even more harried. They live in a world of hyper-documentation, of HIPAA compliance, of measurement of everything, of endless meetings and exhortations for performance improvement, all enabled by information systems that are feeble, disconnected or nonexistent.

Health care delivery is like Jet Blue on a bad day, trying hard to be cheery when it is overwhelmed.

High-Tech Chaos

As my wife was being cared for recently in a prestigious teaching hospital with magnet status, fabulous doctors and nurses and shiny new buildings, I watched the nurses scribbling on Post-it Notes that they placed on top of the keyboards of expensive mobile workstations that seemed to be permanently disabled. There were signs about infection control processes, warnings about name duplication of patients and exhortations to wash hands everywhere you looked–a disorienting blizzard of quality improvement information.

My wife was surrounded by, and plugged into, an assortment of expensive-looking machines that we Americans love so much. “Machines that go ping” Monty Python once called them. No one seemed to pay much attention to them or the alarms that went off. The very expensive bed moved itself periodically, whether you wanted it to or not, making it virtually impossible for the patient to get comfortable.

Every few hours a whole new cast of characters became my wife’s caregivers. Everyone did a great job, but I was struck that no one in their right mind would actually design work processes that way. Health care delivery really is Pimp My Ride writ large, with layers of gadgets and technological excess on a tired, old, and beaten-up chassis.

More recently, as a nation we experienced shock and awe that our brave military folk who have been wounded in Iraq are not receiving seamlessly coordinated care, that health care information systems for veterans don’t talk to one another and that there are significant failures in integrating sophisticated acute care with the rehabilitation and management of chronic conditions and serious mental illness so epidemic in Iraq veterans. But that’s no different from the rest of us.

A Stop to the Madness

I do not blame the valiant doctors and nurses who are trying their best. I think they are overwhelmed. So I am proposing a mammoth time out for health care. Here is how it would work:

Declare a technology moratorium. No new drugs or devices would be approved for two years until we learn how to properly use the ones we have. I would suggest we pay the manufacturers exactly what we are paying them right now, but instead of selling new stuff, they send all their smart people into the hospitals and doctors offices to apply their sophisticated business acumen in redesigning care processes so that they are efficient and effective. The technology vendors could still do R&D on new products, but the rules would be different when the moratorium ends: We won’t buy anything unless it is better, faster and cheaper than existing methods, otherwise it’s not happening.

Ban the consultants. Futurists and health care consultants would be banished for two years unless they were prepared to do bedside management engineering, helping doctors and nurses design care processes that really work. There would be no conferences about the future of health care, PowerPoint presentations would be outlawed and there would be no national meetings, unless they were authorized by Don Berwick.

Freeze the insurers. All insurers would be required to keep all the members they currently have. There would be no marketing or dropping of coverage, and all the money saved from their marketing budget would be sent to the Time Out Czar, who would use the money to build a new delivery system from scratch for the uninsured.

Shut up the politicians. Politicians would not be allowed to talk about health care unless they specified how it was going to be made more affordable. Promising Magic Kingdom entry passes to a dysfunctional health care delivery system would be banned.

Furlough the doctors. All doctors would be furloughed at a salary of $500,000 a year for a specialist and $200,000 a year for a primary care doctor. They would be called back to staff a redesigned delivery system as needed. This suggestion actually might save a lot of money, because physicians’ net income is only about 10 percent of health care costs. It is the economic havoc they wreak trying to get that income in a fee-for-service system that causes all the problems.

Zero-base the delivery system. Starting with the uninsured, the Time Out Czar would design a rational delivery system. I started my health care career doing zero-based budgeting in Canadian health care. It was made fashionable in the late 1970s by Jimmy Carter, but the premise was simple: What would you do with your first dollar of expenditure, then with the next layer of spending, and so on, all to reach the optimum outcome?

At a recent meeting of emerging global health care leaders from Africa, Asia, North America and Europe, I suggested that if you took the zero-based approach to health globally, you would start with spending your first health care dollar on clean water and condoms, then add lady health workers (as they do in Pakistan, where local women, not nurses, are empowered to give basic prenatal care, dramatically reducing infant mortality), then add immunization and hydration therapy for infants, then capitated primary care (as they do in Chile), then free generic drugs (as in South Africa), then basic outpatient surgical services. All of this could be done for probably less than $1,000 per capita, even in the United States. You would have to spend much more before you ever built hospitals or bought MRIs, but even developing countries fall into the trap of building fancy Western hospitals as a symbol of a great health care system.

Obviously, this is not a serious proposal. But if we do not pause and reflect; if we do not start to set priorities based on cost-effectiveness criteria; if we do not change the reimbursement system for providers to reward outcomes, not volume of marginally effective services; if we do not become more judicious in our introduction of new technology, we will bankrupt ourselves. We will create millions more uninsured and underinsured, and we will have no policy options left.

Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN OnLine. This article 1st appeared on May 1, 2007 in HHN Magazine online site.

We should cover the uninsured. You hear that a lot. We have been saying it for 40 years. Hasn’t happened.

Even in the roaring ’90s when the economy was rocking and rolling, when really rich Americans earned a lot and paid a lot in taxes, when we had a popular Democratic president and when we had a government surplus, we did not cover the uninsured. Maybe we don’t want to. Maybe it is just too expensive now. Maybe we can’t be bothered, what with Iraq and the war on terrorism and global warming and all.

Nevertheless, you are going to hear a lot about covering the uninsured in 2007. It is becoming fashionable again. Politicians, from governors to mayors to maybe even presidential candidates, are going to speechify about covering the uninsured. Some may even go further than that and pass some legislation through their elected bodies.

Massachusetts offers an interesting state-level experiment in which everyone, both employer and individual, is compelled to participate. In Massachusetts, health care insurance is both a right and an obligation: You have the right to expect health insurance coverage, but you have an obligation to pay something for it. (Note that it doesn’t seem providers have to sacrifice anything–they just get more insured patients.)

We will all watch Massachusetts very closely, but can we learn from the experiment and apply it elsewhere? As I point out to my Boston buddies, we have more uninsured in California than they have people in Massachusetts, so the problem is of a different scale in California or Texas.

California Coverage

Speaking of California, the residents of that state have a wave of initiatives coming at them over the next couple of years. They have universal coverage in San Francisco. (Actually it is not coverage, because according to the mayor it is not insurance, because insurance would be challenged on ERISA pre-emption grounds and challenging ERISA is like challenging big tobacco: You don’t go there. So it may look like insurance–you pay a premium and you get covered services–but it is not insurance, OK?)

At least in San Francisco the bureaucrats have run the numbers past actuaries and come up with a very rich benefits package for only $201 per month. How can they do it? They’re presuming that all providers will spontaneously accept Medicaid rates. Other plans have been floated in California, including everything from single-payer alternatives to employee mandates (the so-called SB2 ballot initiative that was shot down recently, but may well resurface).

Again in California, Kaiser Permanente has developed an ambitious and logical proposal to cover the state’s uninsured by requiring all taxpayers to participate in some form of coverage. Those who are ineligible for existing public and private programs or cannot afford them (below 300 percent of the federal poverty level) would be funded through a mix of payroll and provider taxes at a total additional cost of $7.5 billion.

And Gov. Arnold Schwarzenegger has declared that universal health care coverage is his top priority. The governor’s plan is to be commended for the “shared sacrifice” that it requires. Government (especially the federal government) has to give some, and state taxpayers have to give some. Businesses with more than 10 employees have to “pay or play” (provide insurance or pay into a state pool). Other individuals, including those who work for small businesses, have to buy at least a catastrophic coverage plan. And most interestingly, providers are taxed (4 percent for hospitals and 2 percent for doctors) in recognition that their uncompensated care burden would be reduced by expanded coverage and improved Medicaid reimbursement. All oxen are gored in the process, which is a good thing.

This and all plans say very little about how health care will become more affordable or how costs will be contained in the long run. But overall, it represents an emerging consensus that health care is both a right and an obligation. You have the right to expect some access to health care, and you have the obligation to participate in paying for it. It’s easy to say, but the hard part is figuring out who pays for what.

Focusing on Care

We can expect more proposals as politicians see an opportunity to focus on an issue that has political traction, even though the potential solutions are complex, messy and difficult to communicate–and end up costing payers, employers, providers, patients or taxpayers much more. That’s why we may find that all these schemes go nowhere, and the number of uninsured continues to rise, particularly if we see double-digit increases in the cost of care (the single biggest driver of the uninsured) or, even worse, a downturn in the economy. Because if you cannot cover the uninsured when you are at full employment and a budget surplus, as in 1999, when can you?

Maybe we need to change the focus from coverage to care. For example, giving people an insurance card helps only if a provider accepts both them and the card. Try, for example, finding an OB/GYN in California if you are on Medi-Cal. We might be better off training a whole cadre of nurse practitioners to create universal prenatal and well-baby care as a government-funded service, like K-12 education. People can always buy additional insurance if they want more than the basic program.

A further benefit of focusing on care delivery, not coverage, would be reducing the absolutely staggering costs of administering the eligibility requirements for complex, means-tested programs involving moms and kids in poverty. My favorite statistic is that there are 1,900 people employed in Los Angeles County who do nothing but fill out Medi-Cal eligibility forms for county residents at a union-mandated productivity target of two such forms per day! We should give these employees white coats and have them go to schools to immunize kids and teach them about the perils of a fast-food diet. Oh, and if we extended the universal care system to all kids, eligibility would be easy; if you are a kid, you get care: no coverage, no forms, no questions.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN OnLine. This article 1st appeared on March 6, 2007 in HHN Magazine online site.