Leadership & Business

The GREAT BIG Elephant

Perhaps the biggest elephant in the healthcare room is the cultural one.  Until we address the cultural problem in healthcare, all other problems are nothing more than a distraction.  Denial about the nature of our cultural problem is, to me, both undeniable and unbelievable.  Consider some examples:

Every 5,000 miles you change the oil in your car. Why?  Because it helps the engine last longer and ultimately reduces maintenance costs for your car.  Does your car insurance pay for it?  Of course not.  You pay for it yourself.  In fact you have absolutely no expectation that your car insurance will pay for it—perhaps because it never has.

So why does your dental insurance pay for you to have your teeth cleaned twice a year? The answer I’ve been offered by the dental insurers is that over the years they found that if they encouraged you to clean your teeth (by paying for it), it would reduce the number of cavities you get and would therefore save them money.  Perhaps that’s true.  But why then do you get your oil changed at your own expense?  I think it’s because if your engine fails, your insurance doesn’t pay for that either—you do; so you invest in avoiding it.  But if you get a cavity, your insurance does pay for the repair, so people don’t worry as much about that cavity (hard as it is to believe, it’s true).  Even at the office the cultural problem is rampant. For example, if you miss work once a week because your car keeps breaking down, that’s a problem that could ultimately lead to the loss of your job. But if you miss work too often because you’re at the dentist having things fixed because you failed to take care of your teeth, that is a legitimate medical absence and it would be improper to penalize you for it.  Why are the two situations so different?

Before you answer, ask yourself if your answer is how you really feel, or is it derived from a lifetime of biased expectations.

While from the dental insurer’s perspective, offering to pay for teeth cleaning might have been a good idea at one point; but then the law of unintended consequences clearly struck. Over time, we’ve come to EXPECT that insurance will pay for it. 

Another example:  a knee replacement.  Knee replacements average between $20,000 and $30,000 depending on where you live.  A knee replacement can lead to a remarkable improvement in your overall quality of life by eliminating pain, allowing you to participate in enjoyable activities (golf, or tennis, perhaps) and may even forestall other health issues because you’re more mobile and get more exercise later in life.  Yet while a couple might choose to borrow $30,000 on a home equity line of credit to remodel a 30 year old kitchen, the idea of borrowing $30,000 on a home equity line to remodel their knee sounds absurd.  While I agree that there are some who don’t have the $30,000 to borrow and that we need to figure out how to help them as well, the cultural expectation that insurance will pay for it cannot be denied.  So while we expect our medical insurance to replace an outdated knee, no one expects their homeowner’s insurance to replace an outdated kitchen.

I saw an interview recently where an older Medicare recipient said, “I’m going to get everything done that they’ll pay for—because I can.”  This is what happens when we start out helping those who can’t help themselves and over time allow things to turn into entitlements.  Medicare was designed to be an insurance policy.  It’s turned into a huge entitlement. The cultural ramifications become increasingly embedded in our psyche with each passing generation.

Now don’t get me wrong.  I am not suggesting that we don’t need to overhaul our healthcare system.  In fact I’m actually a proponent of universal coverage (as long as we cover the right things) and I’m happy to pay higher taxes to ensure those who need help get it.  But I’m not happy to pay for you to have your teeth cleaned. Anyone with a job can make the $150 a year for teeth cleaning a priority over spending on something else.  And I’m not happy to pay for you to have your knee replaced while you spend money refurbishing your kitchen.  I’m not happy to pay for your well-child care so you can go on a summer vacation.  And I’m not happy to pay for your prenatal care because you’re too irresponsible to take care of it yourself.  And while I’m happy to pay $2,000 for you to have your broken leg set because you don’t have it right now, I see no reason why most people can’t pay that back over the next couple of years.  You borrow money so you can have a nicer car than you need. Why can’t you borrow money to have the leg that you do need? There’s a difference between a chronic condition that costs $30,000 a year in medications and a one-time $30,000 knee replacement.  And there’s a difference between a heart attack and a broken finger.  Insurance should be there to cover catastrophic and chronic needs. It should be there to help offset the extreme cost of things that are unexpected.  But if everyone is to ultimately have their knee replaced, then we haven’t really set up a “risk sharing” model; we’ve just set up a warped loan program where we pay into an insurance fund instead of repaying a loan on our knee (or better yet, pay for it with the money we’ve saved).

Insurance certainly has a place in society.  Catastrophic coverage pays for our home when it burns down, our car when we crash into a telephone pole, and it even helps us out with a limited income when we’re out of work.  These are all terrific uses of insurance.  But when insurance starts paying for things that we can pay for ourselves, when it starts to become an entitlement versus a protection, and when we start making decisions about whether to take care of ourselves and our families based on whether insurance will pay for it, we’ve gone too far.  That’s what’s happened and it will take a generation or more to reverse the trend—assuming we acknowledge the problem and start trying to address it.

The bottom line is that until attitudes about healthcare change, the focus on competition, waste, and the role of government are of little significance. The problems as most see them today are literally unsolvable under the existing paradigm.  We need much bigger change—and despite all the rhetoric, we haven’t even begun to broach the subject in any real way.

I Write About Reality--And I Want to Share It!

One of the burdens you accept when you decide to begin writing about what’s on your mind is criticism.  That’s because it’s all but a statistical certainty that 100% of the population—and even 100% of your readers—won’t agree with everything you write.

I’ve also been asked lately why I write about things like economics and politics, while my company’s focus is performance excellence. The reason there is simple, but even simple answers can have more than one part to them.  The first part of the answer is that I don’t see politics and economics all that differently than business and what I write about are my conclusions based on DATA driven analysis.  The second part of the answer is even simpler than that; these topics interest me.  I spend a lot of time studying them and figure my investment in time and analysis isn’t really worth much if I don’t share it.  In fact, to quote a friend who recently published a terrific book, “It’s not reality unless it’s shared.” I write about reality—and I want to share it.

To recap some of what I’ve written about in the past.

January 2nd, 2008: I said the recession had started. In June the economists were still talking about how we had skirted one.  November 26th, 2008:  I said the depression had started.  The economists are still denying it, but just yesterday, Paul Volker, Chairman of the President’s Council of Economic Advisors did call it a GREAT Recession (they’re “easing” us into it).  On December 10th, I wrote of the need to let at least one of the big three automakers go bankrupt.  How much money will have been wasted delaying that inevitable conclusion?  The point is that the data leading to all of these conclusions is fairly straight forward—and if we’d listen to the data, instead of emotions and politicians, we might actually solve problems a little faster.  So I will continue to write about a range of topics broader than the day to day focus, because as President Obama just demonstrated by appointing both a Chief Performance Officer and a Chief Technology Officer to focus on technology innovation, the principles that we espouse here at BMGI apply to just about anything—and everything.

A Secretary of Innovation? Great Idea!

In a recent article, Thomas D. Kuczmarskiwrites that he thinks President Obama could use a Secretary of Innovation.  I agree with him.

Kuczmarski writes that our current approach to stimulus is not likely to get the job done.  Again, I agree with him.

It strikes me that there is still a fundamental misunderstanding on the part of most people, including economists.  And that is that the global economy is not slowing down.  It has essentially stalled.  And the attempts at recovery are kind of like pulling the cord on a lawn mower.  You can pull, and pull, and pull, but if you’re not pulling really hard and fast at least once, all you do is use up your energy without the engine starting.  Well, all the relief and stimulus programs around the world—from China to Germany to the US—are basically just like using up energy, only instead we’re using up money.  That’s because it appears that no one has the courage to “jolt” the engine of the economy back into a growth mode.  We’re going to pour money into this problem for years before we see real growth again.  The lost decade is becoming a more likely scenario every day.  It’s very sad—and very frightening. 

Stimulus, Schmimulus

There’s only about one silver lining to the coming stimulus plans of our new government: TIMING.  That is to say, it’s going to take quite some time for any real money to hit the economy.  First, Congress has to pass a bill.  Then, specific projects, if not identified in the bill, need to be chosen. Some already exist on the drawing board, but still, plans need to be laid, bridges designed, contractors given the opportunity to bid.  Contracts need to be awarded and new people hired. It will take many, many months before any real money hits the market—and that’s a good thing—because maybe it will give us a chance to hit the bottom before it does.  Of course, by then it will be too late to stop the spending and will more likely help fuel inflation, but we can fight that battle when we get there.  What we really have to hope for is fast enough contraction that we get back to a supply and demand balance before the money hits; otherwise, we’ll be dragging out the depression even longer.  The good news—that’s exactly what’s happening.  For the first time in months I’m becoming cautiously optimistic.

Think about the last stimulus package:  $160B.  For what?  To keep the retailers alive for another month?  That’s what it amounts to.  Had we not spent the $160B, our national deficit would be about $150B lower (remember, some taxes were generated), and the retailers we propped up would have realized a month earlier how bad things were going to get.  They’d have started laying people off a month earlier. And we’d be a month closer to the end.  That may sound cold, but it’s the truth.

Right now what companies need to focus on—as I said the other day—is the reality that none of us can really predict the timing of anything with any great accuracy these days.  So while I am becoming cautiously optimistic that I see some precursors to a bottom, the responsible thing to do is to continue to assume the worst.  Our economy is, if nothing else, extremely fragile right now. Where the end lies cannot be predicted because we cannot predict the behavior of others—whether we’re talking about governments or terrorists. While there are signs that we may soon reach a supply and demand equilibrium, there are still many things that can tip us over yet another cliff.

One thing I would like to encourage you to do is to start thinking about the things that you can be doing differently without spending money.  There’s a certain “paralysis” that has persisted for the past few months as companies grappled with reality setting in and made downsizing plans.  Now that the bulk of the downsizing is done, the paralysis is lifting.  Now is the time that tough times can be turned to our advantage.  These are the times when new ideas start take hold, like the shop in Dubai that’s serving $1 cups of coffee, taking tremendous market share away from Starbucks.  There are new risk sharing and partnering models that are popping up in B2B businesses.

Once an industry hits its bottom, it’s remarkable how quickly things can get back to normal.  Who would have thought, for example, that the airlines would be achieving stability during such times.  Only a year ago it looked like the entire industry could go bust, but they downsized and restructured.  Many thought their efforts would be in vain, only to be crushed by a contracting economy, but that’s turning out not to be the case. They downsized—cutting not only heads but also flights—to achieve a supply and demand balance.  The flights I take today are more full than ever.

So take note:  we can’t predict the turn, but it will come, and surprisingly fast.  The time to capitalize on unusual opportunity is now.