Matthew Holt

My forecast: a sad conclusion to the health care bubble…

Brian Klepper and David Kibbe have written a terrific piece on how and why health care is in a handbasket and wondering where it’s going. But as we ex-futurists know, there’s lots of luck required to make a good forecast.

When I met Brian five years ago he told me that the sky would fall within five years, and at the time he was trying to persuade players in the health care system to self-reform. He suggested to them that the alternative would be soon be much worse.

I said, “no no, it'll take longer (10-15 years) and the system players will never self reform”. Instead I thought “reform” would be be done to them by the government when the system hit crisis. My guess was a combination of Medicare with 5 years of baby boomers on board and a middle class with 80 million uninsured would arrive around 2012–15. And then the brown stuff would be hitting the whirly object soon after that when the Chinese wanted their money back.

As it turns out we were both wrong and both right.

I was right to think that the system would never self-reform and that the players are still delusional about the long-term consequences, as they fight to maintain their short-term interests. The current activities of AHIP, PhRMA & ADVAMED are proving me right.

Brian was right to say that crisis was coming to health care in more like five rather than 15 years. But, Brian was lucky in his forecast because it's currently the wider economy taking health care down, not vice versa. But as health care becomes a bigger piece of a shrinking pie, the reverse is a real risk. If employers can barely afford to add $14,000 family coverage in good times, things sure as hell are not going to get better when employment is falling off a cliff at the rate of almost a million jobs being lost every month. And of course, even those on the government nickel are going to find that they’re not immune—especially as cities and government agencies find that they’re going to have to account for future liabilities and have balance sheets that look like GM’s.

So I think the worse things get on the economy and/or in the system, real reform remains inevitable–probably coming in the shape of de facto single payer  (other than for the 15% at the top) with price controls and fixed budgets. Which looks somewhat like the UK without the pay for performance part. But I still think it’s a few years off.

Sadly, we have probably one shot at doing this right before then–and by right I mean doing two things. #1 Creating a universal social insurance pool which has a dedicated tax base (or at least a politically visible cost). And #2 creating an Enthovian/Dutch system of rewarding private intermediaries to ensure providers reduce cost while improving both outcomes and the patient experience.And I increasingly think we're going to have to do those two things effectively at the same time. (I used to think that we could do #1 and #2 a little later).

But instead it seems that we're going to blow it mainly through Presidential and Senatorial timidity (not to mention health industry opposition). Instead, as I’ve been saying for a while, it seems very real that we’re going to leave the industry in charge of fiddling while Rome burns, and come up with some type of unenforceable pay-for-play withut real insurance reform–meaning we don’t do my #1, and leaving in place the current mess of FFS and peverse incentives meaning we don’t do #2.

And by the time we’ve seen in a few years that what we’re about to do won’t work, there’ll be no appetite for getting it structurally right.

My fantasy is that after Obama puts the 20 bankers in a room and beats them to a pulp the way Tom Friedman wants him to, he puts the 50 health care players in a room and does likewise. Handing off the mike to Karen Ignagni (as apparently he did at the conclusion of last week's White House summit), a happy precedent does not set.

Spread the love

12 replies »

  1. Hello!
    Very Interesting post! Thank you for such interesting resource!
    PS: Sorry for my bad english, I’v just started to learn this language 😉
    See you!
    Your, Raiul Baztepo

  2. I think I agree with David. If we really are in the midst of a “bubble” and are aware of being in the “bubble”, does it really qualify as a “bubble”? The reason bubbles explode with obvious dire consequences is that everybody is happily and obliviously riding the trend. The sheer fact that we are having this conversation now, combined with the fact that even in the worst scenarios that I can come up with, healthcare will not implode in the next few months, even years, means that there is ample time to come up with a satisfactory solution. I am not entirely convinced that making quick and bold (and possibly reckless) decisions right now is the best course of action and I don’t think this should be classified as timidity. Thoughtfulness maybe?

  3. Read – I would suggest baseline health risk appraisals for everyone, possibly when they renew their drivers license. Then we could have periodic screenings to look for problems. I’m not suggesting we punish people that inherited health problems, but we are a sick nation and that is a significant cost driver that many of our discussions ignore. I would be interested in doing a “stress test” on the healthcare systems of the OEDC countries using a sick population like ours. It would be interesting what it does to their health costs as a % of GDP.
    Ill and Uninsured – You made several comments that are worth further discussion. No one gets sick on purpose, but many are leading unhealthy lifestyles and making themselves sick. I’m not sure why that’s acceptable.
    Getting hit by a bus is highly unlikely. Obesity is becoming increasingly likely, even among young children. I don’t know about you, but I think an obese 6 year old is a big red flag, as is a pregnant 14 year old. Those are things you’ll find in this country in far greater numbers than any other country.
    If people cost the system more because they are healthier and live longer, that sounds like a win for the healthcare system. The cost per year of productive life would be far less. They should, in theory, be able to work until a later age to contribute to society.
    I’m intrigued by the “inevitable conditions of the aged”. Can you give example of that? Conditions you say are inevitable might actually be preventable. I’m concerned that chronic illness has become so commom among the elderly, that we just accept it as inevitable.
    There is a VERY important point that should be discussed. Just because we are healthy now, doesn’t mean that unhealthy behaviors we are engaging in won’t end up leading to chronic conditions in 10-20 years. The medical and public health communities absolutely must highlight that fact. Many of you probably read my posts and think you’re ok because you haven’t seen the doctor in over a year. That is a potentially dangerous way of looking at health. The road rage you are experiencing, the long hours you’re working, the fast food you’re eating, etc. may not be causing you problems in the short term, but it is highly likely that they will lead to chronic conditions in the long term. The problem is, very few take a long term view of things. Look at the profile of the average Medicare beneficiary with the multiple chronic conditions, 10+ meds, 6+ providers. Most of them probably thought they were healthy at one point too.

  4. Well, Matthew, I’m sure we certainly agree about most things! My question is whether anything that President Obama says about health care reform would be determinative or not. I don’t think he’s capable of controlling the “downsizing” of health care in the short term, so I’m not as disappointed as you are that he’s not articulating an alternative that would, somehow, avert a crisis.
    What President Obama is doing very well is stirring the debate, in which we’re taking part. He has set an expectation for significant change, and set all of the participants/stakeholders into motion. That is creating a new transparency, slowly but sure.y. We are all asking “who will benefit from this or that change?” And who will not benefit?
    And this is within the first 2 months of his presidency!

  5. Thank you for these insights, Matthew.
    Much of what you says certainly seems true. I would add, though, that it looks like AHIP is going all-in for their bailout…which would be a mandate-first plan, with the guarantee that they can stay in business forever as a result.
    This would be a politically-fascinating situation. Arnold Schwarzenegger’s health plan fell apart mostly because of the mandate it included (“what’s the fine?”). Nationally, I imagine a mandate would provoke the same furious opposition from the healthcare reform grassroots.

  6. My first reaction to Brian/David’s post was similar to tcoyote’s:
    Sorry Bryan and David, the health system is not “going down the tubes”. Not yet, anyway. It is strong enough and government subsidized enough that if it does, most of the rest of society will have collapsed ahead of it…
    But then I thought further….
    Compare the U.S. health care system to the rest of the world from an economic perspective. We spend close to double the average GDP on health care when compared to other developed countries, yet we get mediocre results in health outcomes and longevity.
    How can you NOT define this as a “bubble”?
    The value of this article is in its deliberate provocation — forcing us to think differently.

  7. David, I think you and Brian (and others like Alan Greene) are doing a terrific service warning others about the bubble potential in health care. And you’ve been doing that at least since the rumblings in the wider economy became visible.
    But there’s one more aspect about bubbles, which is that even if you think sytemically it’s a bubble, you almost have to get sucked into it for your own good–at least in the short term, or you’ll miss the $400 increase in Amazon stock that other fund managers got, you’ll miss on the 100% appreciation in house prices, or whatever, and your short term position will not be as good as everyone elses. Clearly, we have a set of health care players who are still looking to get a short-term advantage (e.g. AHIP’s desire for new members and new money while giving up not much), and who have little to no appreciation for the longer term consequences for their collective action.
    So we essentially agree about the nature and degree of the bubble/crisis. Where we may disagree is how forceful Obama is likely to be to create the solutions to as you correctly say “avoid the pain and chaos that a sudden implosion of the health care economy might impose on all of us in the rest of society, the kind of pain and chaos that we’ve just seen with our banking system debacle.”
    The signs coming from the White House are better than we’ve seen in 28 years. But they’re not enough to match the crisis if it’s coming right now. I hope I’m wrong — actually I hope we’re both wrong. But I fear we’re right.

  8. Dear Matthew: I am not certain I agree with you, Matthew, either with respect to the analysis of the problem or its potential solution: because, in my opinion, things are already much more out of anyone’s control than even we “ex-futurists” imagine.
    There are two ever-present characteristics of market bubbles that I’ve experienced in my own lifetime, which seem also to apply to those I’ve read about from other periods. The first is that almost no one sees them coming. And, when a few people warn of the dangers of the gap between the inflated valuations and intrinsic values, and how this gap must inevitably close at some point, the warnings are routinely dismissed, the messengers scoffed at or worse. Second, after the collapse of the market (homes, stocks, dotcoms, tulips, health care services), virtually everyone says “we could have, should have, seen it coming.”
    I think we are dealing with powerful mechanisms of denial, greed, and shame that are built into all of our human systems where very large amounts of money are generated through market transactions and series of intermediaries, including those systems we have built for the payment and delivery of health care services.
    So, Matthew’s approaches #1 and #2 are eminently rational, and they might work well if the inherent psychology of market bubbles was itself rational. Which it is not. The longer the bubble persists, the more irrational we become…right up until the moment it bursts. I think, Matthew, you concede this point, when you invoke fantasy and the leadership of the health plan membership group in the same sentence!
    I don’t think the issue here is about who is right, and who is not right, about the timing. No one is keeping score that I know of. The only meaningful issue is how to avoid the pain and chaos that a sudden implosion of the health care economy might impose on all of us in the rest of society, the kind of pain and chaos that we’ve just seen with our banking system debacle.
    The first step in that process seems to me to recognize the risks of continuing to deny how unbalanced and unstable our health care economy truly is. To come out of denial, wake up, stop thinking that it’s all going to turn out fine after all. Brian and I are trying to be messengers of those signals that indicate the instability of inflated health care prices all along the complex supply chain involved, from insurance premiums to X-ray machines to EOBs for outpatient procedures that cost 10x what they should, or what they actually do cost, in other countries.
    Thanks for your post, Matthew. This is a good conversation to be having. DCK
    I think that President Obama “gets it.” He’s several times made the point publicly that the inflation of our health care costs is a structural flaw in our overall economy that inhibits growth and robs investment from sustainable new areas of development, e.g. renewable energy, education, and green sciences.

  9. This post is a case study in why Matthew Holt is among the very best health analysts working anywhere today, and why his readership, leadership and influence have, by hard work and deep smarts, outstripped many in much more lofty and easily-won positions. Knowledge of a vast, complicated industry is rare, but insight is rarer.
    I agree with everything Matthew has to say here. It is one thing to be able to intuit the vectors that are leading down a clearly defined path. It is quite another to accurately predict when the calamities will finally strike. But these are times we “ex-futurist(s)” – I like Matthew’s use of that term – feel like Cassandra, Priam’s daughter who could see but could not prevent the sacking of Troy.
    And to extend that metaphor a little more, Matthew has also hit on what could be the Achilles heel of the current reform dynamic: Presidential timidity and a worrisome coziness with the industry leaders who have led us precisely into our current crisis.

  10. Everyone already has responsibility for his own health, Deron — no one gets sick on purpose. People who live a so-called healthful lifestyle aren’t any less likely to need health care than anyone else. No matter how carefully you live, you can still get hit by a bus, contract contagious diseases, fall heir to hereditary disorders or injure yourself while doing your exercises.
    In fact, the people who “take care of themselves” may well cost the system the most: If they live longer, they’ll need more services over time, not to mention costly care for the inevitable conditions of the aged.

  11. Thanks Matt for the post.
    Deron – What ideas do you have? It’s difficult for financial incentives to fairly take into account random genetic variation, family history, how good your parents were at instilling healthy habits and raising you in a healthy lifestyle, the health of your mother while she was pregnant with you…. these things (especially the latter) have a greater impact on your health than any behaviors conducted while an adult.

  12. If a social pool is created and funded through tax $$, do you agree that steps must be taken to ensure that individuals take more responsibility for their own health? If not, I think you run the risk of providing even more of a disincentive for citizens to take care of themselves than we have now.

Leave a Reply

Your email address will not be published. Required fields are marked *