Business model innovation lessons abound in the daily news, and not just in the business section. CNN and Fox News provide recent examples. Both offered breaking but inaccurate news that the US Supreme Court ruled Obama’s signature healthcare reform – the Affordable Care Act (ACA) – as unconstitutional. Their paradigm – a mental model for how things work – coupled with competition to offer breaking news resulted in their reporting mistake.
Most of the courtroom and media debate about the ACA centered on whether the US Constitution’s commerce clause allowed the federal government to mandate insurance coverage. This discussion produced a paradigm that the case would be ruled on this clause. Chief Justice Robert’s reading of the majority decision even started with the mandate not being constitutional under the commerce clause. So CNN and Fox jumped to a false conclusion. That’s what paradigms do – they create unconscious short cuts to decisions.
How often do your beliefs – about how markets work or what customers want – lead you to false conclusions? How many entrepreneurial opportunities have you missed because your paradigm suggests impossibility? How often do you form false conclusions about a person or his motives because of paradigms?
Another item dominating the news before the ruling – the devastating Colorado wild fires – might have reminded public commentators about an alternative paradigm for deciding the case.
Great business model innovation ideas are missed because paradigms prevent mental connections between seemingly disparate ideas. APPLE founder Steve Jobs avoided this trap. He wanted the elegance of beautifully designed furniture and appliances in electronic equipment, what he called liberal arts meeting technology. The rest is history.
Here’s how wildfires and the ACA connect.
When it comes to natural disasters, US communities are in a common insurance pool for federal disaster relief, paid for through taxes. We share this pool because protection from natural disasters is a public good – an area in which the nation would invest too little in if privatized. Because non-payers benefit from payers’ investments, they become free-riders. Society benefits when government uses its taxing authority to increase investments in public goods.
It turns out that Roberts, the deciding vote, ruled the ACA mandate constitutional under the federal taxing authority. The newscasters failed to make the connection between taxes for natural disasters and those to insure all citizens are insured, a practice of all other developed nations. They recognize health has public good elements, as the insured pay more when care of the uninsured is unpaid and when population health declines.
The ACA has other parallels to federal natural disaster assistance. The reform moves both the uninsured and employers and individuals in small, insured pools to larger insurance pools. Small pools can be prohibitively expensive leading only the sickest to participate. Just as the US can help Colorado because New Jersey has few natural disasters, insurers can afford to accept people with preexisting conditions and eliminate limits on lifetime spending in larger, healthier pools.
We would not allow Colorado residents to hold back a percent of their federal taxes until a devastating fire. The mandate for health insurance works the same way. The “tax” as Robertson called it is a penalty payment for being a free rider.
I’m optimistic as the law incentivizes insurers to improve health and lower the healthcare costs of the insured pool. They’ll do so by applying strategies they’ve used to help self-insured employers, a change already underway. With the anticipated shortage of primary care doctors, watch nurse practitioners and physician assistants manage very basic care, lowering costs. I expect Congress will broaden plan options, pass malpractice reform and allow insurers to compete across state boundaries, also lowering costs.
What customer and market paradigms underlie where your business competes and how it tries to win business? Identify alternative paradigms and the business model innovation opportunities they present. And, to build innovation mental skills, once a day connect seemingly disconnected concepts or things.