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Choice, Security and Stuff « Ian Morrison

Choice, Security and Stuff

Life is filled with trade-offs, and health care is no exception.

By Ian Morrison

All economies and all health systems struggle with trade-offs among three key elements: choice, security and stuff.

Choice

Choice is a manifestation of freedom. Americans love freedom and the choice that goes with it. We like choice of doctors, maybe even health plans, and we certainly don’t want our choices limited by government fiat or managed care bureaucrats. When choice is constrained we get very cranky. We hate gatekeeper physicians, we detest pre-authorization, we can’t stand limits on our use of expensive technology, even when it does more harm than good, and we go crazy when we are told we can’t get what we want.

But sometimes we have too much choice for our health. We have a plethora of cheeseburger options (including a cheeseburger embedded in a Krispy Kreme doughnut–I am not making this up). Seniors have 45 or more baffling Prescription Drug Plan choices in the new Medicare Part D world. Doctors are free to perform any procedure they want if a consumer with cash asks for it. Sure there is a wee thing called professional ethics, but the variation literature says there is a lot of excessive care based on provider preferences compared with best practices.

We have codified the health plan of the future as “you can have anything you want as long as you pay for it out of pocket.” Certainly, we have some annoying bureaucratic hurdles, but generally you can get anything you want in health care, if your insurer–or more often now, you–are willing to pay for it.

All this choice comes at a cost. Not only are we being asked to pay more for choice in the form of premium sharing, copayments and deductibles, but because we have so much choice, and we are unwilling to put limits either individually or collectively on our choices, health care is becoming increasingly unaffordable. Our freedom to choose in the short run may limit our choices in the long run. It’s a bit like global warming.

Choice and Security

Unfettered choice is fueling cost escalation, and in the long run it will limit our ability to choose and undermine our health security. We see it in the growing numbers of uninsured: In the last five years there has been a dramatic rise in the percentage of lower and middle-income people without health insurance, largely due to the fact that small businesses and individuals increasingly can’t afford health insurance.

We see it in the dire forecasts of how much money it takes to retire at 65 to pay for out-of-pocket medical costs (currently estimated to be more than $200,000). We see it in the rising number of medical-related bankruptcies. We see it most acutely in the rust-belt industries where retired auto workers have to gamble between health security and income security: For example, GM has offered a $140,000 buyout to workers with at least 10 years on the job who are willing to walk away without continuing benefits.

We may see it in the public sector and local government, in particular, as the GASB (Governmental Accounting Standards Board) Statement #45 provisions begin to take effect starting at the end of the year. (I am no accountant, but in a nutshell these provisions require state and local governments to make their unfunded retiree health benefit costs explicit on their balance sheets, starting with largest entities on December 2006 and phasing in over the following three years.)

A senior financial services executive told me the effect would be to make every municipal bond in America a junk bond. He may be overstating the case, but these provisions will surely put pressure on state and local governments to cut the generous retirement health benefits that schoolteachers, firefighters and folks at the DMV have enjoyed. The private sector has already cut the obligations to future retirees; the public sector will likely follow. Many people chose the public sector for health and retirement security over income security–they may be disappointed in their choice.

Choice, Security and Stuff

To date rising health care costs and the looming threat of a retirement with inadequate or expensive benefits has not really limited our consumption of stuff. Low interest rates and high house prices have buoyed American’s net worth (albeit on paper). We take out home equity lines to buy SUVs and other stuff. We consumers keep the American economy humming by borrowing money and getting bigger houses to store our stuff, as George Carlin so famously pointed out.

Health care may give us cause for concern in the future, but it has not seemed to cramp our style in the consumption of stuff in the present. And we don’t seem that upset about it. This mystifies me. Economists will tell you that health benefits are part of total compensation (albeit tax-advantaged). Yet the lucky folks with health insurance think they get it free, or for the modest premium sharing. The reality is that working people with health insurance haven’t had a wage increase in a decade because it all went to health benefits. Health care has limited their consumption of stuff, yet they blame rising gas prices, not health care for the problem.

Looking Ahead

The trade-off among choice, security and stuff may come to a head in the next presidential election cycle. Voters may seek security over choice. Watch for politicians who will preach about the need for health security for an aging and excessively cheeseburgered middle class. In the Social Security debate we elected for the security part over the choice and the prospect of more stuff that came with the private accounts.

In addition, consumers will be forced to select between a wide choice of providers and having more stuff as health care goes retail, making these trade-offs even more dramatic. In health care we may start to value security over everything else, even if it means limiting our choices and getting a little less stuff.

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