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Pearl Harbor, The Tipping Point, and Glacial Erosion « Ian Morrison

Pearl Harbor, The Tipping Point, and Glacial Erosion

Change happens for different reasons and in different ways

By Ian Morrison

I have been a student of structural change in society for thirty-five years. I started as an undergraduate at Edinburgh University studying how the Scottish Highlands were transformed by a combination of political, economic, and cultural forces in the 18th century (not exactly a degree you could get a job with). As an urban planner, I studied how cities develop and change, and how they can be changed for the better through public and private investment and leadership. As a futurist and consultant, I have analyzed trends and developed scenarios, and tried to help my clients prepare for and respond to change. As I always say, you cannot predict the future but that doesn’t mean you can’t think systematically about it.

Change happens in many ways, of course and for many reasons, but in thinking about the prospects for structural change in health care (such as big health reform or a shift in paradigm toward prevention or a rise of true consumer directed healthcare) three simple models might help.

Pearl Harbor. The dreadful attack on Pearl Harbor on December 7th, 1941 brought a reluctant US into World War II and changed the course of world affairs. American blood and treasure helped liberate and reconstruct Europe and transformed Japan to a modern state, fundamentally altering the global economy. At a recent global healthcare meeting, a senior British health official remarked that health care in America would not fundamentally change without a “Medical Pearl Harbor”. He speculated that it would take avian flu, SARS or some event-driven crisis or disaster to totally transform the health care system. This has been a popular notion in health policy: that Americans respond best to crisis and that it will take an event-driven form of change to really move the system in a meaningful way.

The Tipping Point. Malcolm Gladwell changed our vocabulary forever with his excellent book “The Tipping Point”. In this form of change, circumstances, trends, and people conspire to create a Tipping Point where complex social systems go off in a different direction and change rapidly to a new state when the Tipping Point is reached. Again in health policy, Tipping Point theories and metaphors have become popular. Hey, I have used them myself. In one Tipping Point model of change, aging baby-boomers, burdened by ever escalating out of pocket costs and the looming financial chasm of retirement, reach a point where they tip toward asking for a bigger role for government funding and regulation. Similar Tipping Points have been argued with regard to drug prices or even a backlash against overweight unhealthy people by the well-behaved and buff who refuse to pay the subsidy from well to sick that is implicit in all health insurance. (The concept of disruptive innovation, or discontinuous change brought about by technology falls into this general Tipping Point category).

Glacial Erosion. A third model of change is glacial erosion: huge forces that move slowly and inexorably with great power but that can grind down mountains, scoop out valleys, and totally alter the landscape. I would argue that this is the most common form of change in American healthcare (okay, a wee bit quicker than glacial erosion but play with me here). For example:

  • Demographic Change. We get older one year at a time. It’s a pretty slow process. The percentage of population over age 65 in the US has moved from 11.2% in 1980 to 12.5% in 2000 (compared to 9% and 17% in Japan in the same period) admittedly when the baby boom starts turning 65 in 2012 we will see a bigger jump to 16.6% in 2020 but that is still a way off. In addition, all the respected academic literature shows that aging per se, has a very small impact on the growth in utilization (a 1-2 % per annum increase), that doesn’t nearly explain double digit cost increases.
  • Cost-Shifting. While it is true that cost-shifting to consumers might wake them up and cause them to go to the barricades to demand major health care reform, we see little evidence of this in the polls. The reason may be that these changes are incremental, diffused, insidious, and experienced very differently depending on your circumstances. We could have a lot of coverage erosion before the ice dam breaks.
  • The Rising Costs of High-Tech Care. One core driver of expense is our unwillingness to control, harness, regulate or suppress the use or profitability of new medical technology. Americans like the idea of technology and innovation. Many of our leading economists tell us we are getting good value from this innovation in terms of life extension and quality of life (even though Koreans spend less than one fifth per capita what we do on health care and live longer) and we seem incapable individually or collectively to say no at the margin to the new hi-tech interventions whether they are cost-effective or not. I do not anticipate that we will suddenly get tough on technology any time soon. We may ask for discounts, or even some price controls, but in general we want the new stuff, and we have no institutions to limit the spread of marginally effective but expensive technologies.
  • Healthcare as a Superior Good. The international comparative healthcare data tell us that the richer a nation gets, a higher proportion of its GDP goes to healthcare. (This argument breaks down at the micro-economic level in the US, because of the regressive-premium rather than taxes-nature of our financing. Rich people pay a much smaller share of their income on healthcare as they get richer, but let’s not let data interfere with the general point). As costs rise and more costs are shifted to consumers, the top 10% of households based on income are probably going to be fine (meaning they can pay for both medicine and merlot), even the top third of households may be OK, but the rest of us may be trading off healthcare for cars, or vacations, or maybe even food.

Together these long-term, glacially slow processes may accumulate and radically alter the landscape just as glaciers did in the physical world. If the glacial processes of change come to dominate over the event driven (Pearl Harbor) or the Tipping Point models of change, here is what to expect: huge and widening disparities in cost, quality and service based on income of the patient; large and growing out of pocket costs for all, regardless of income and wealth; higher taxes for everybody (because on the one hand the ranks of Medicare and Medicaid must grow because of the glacial demographic forces we describe and because we are not heartless bastards, yet and we will not leave people with absolutely nothing); lower reimbursement and profit per unit (maybe, but you technology vendors enjoy the inverse trend for the moment); and a perpetual sense of system in crisis.

I have been in America twenty years, anticipating structural change. Eli Ginzberg formerly of Columbia University, was a mentor and colleague to many of us students of structural change before he passed away, and he always counseled us to not over anticipate massive structural change, as he said, the system may just “schlep along” forever. We will spend more, we will complain, and nothing will stop it. He was thinking glacial erosion, not Tipping Points or Pearl Harbor. And I think he was probably right.

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