It was the winter of our discontent, 2009. A season of bank failures, massive layoffs and $5-a-gallon gasoline.
Finally, a fractured country could at least agree on one thing: This had to change.
So President Barack Obama set out to deactivate the next bomb
awaiting the U.S. economy, the one ticking inside our bloated,
beleaguered health system.
Since the 1990s, insurance premiums had averaged double-digit annual
increases. America was spending over $7,500 per person per year — 50
percent more than Norway, the next largest contender. Health spending
alone was chewing up one-sixth of the U.S. economy, double that of
competitors like Japan, and putting American employers at a severe
disadvantage.
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| Gage Skidmore/Creative Commons |
Although
Affordable Care Act enemy House Speaker
John Boehner repeatedly claims
the U.S. has "the best
health-care delivery system in the world," the
World
Health Organization puts us at number 36. |
"We spend one and a half times more per person on healthcare than any
other country, but we aren't any healthier for it," Obama told Congress
in 2009. "This is one of the reasons that insurance premiums have gone
up three times faster than wages."
Big Medicine had done its best to keep it that way. Since 1999, it
had spent nearly $6 billion on lobbying, three times what the
next-largest industry, insurance, had spent. An obedient Congress had
allowed it to build a system in which millions couldn't afford coverage,
huge swaths of the country were essentially served by monopolies, and
prices continued to go up.
"In the decade up to 2009, 79 percent of all the growth in household
income was absorbed by healthcare," says Dr. Brian Klepper, CEO of the
National Business Coalition on Health. "Everything in Washington is
rigged, but the thing most rigged is healthcare, because they have even
more money than the banks. Both sides take money at a rapid clip from
the industry in exchange for getting their own way. So everything is
done in the special interest, and nothing is done in the common
interest."
But that spring, with an enraged electorate and the economy in
tatters, Obama was given a once-in-a-lifetime chance to break Big Med's
stranglehold. He vowed to do it the old-fashioned way: by introducing
competition, forcing Big Med to earn its keep.
Everyone would sit "around a big table," Obama had told a crowd in
Virginia the year before. "We'll have doctors and nurses and hospital
administrators, insurance companies, drug companies. They'll get a seat
at the table. They just won't be able to buy every chair."
Five years later, it's hard to argue with Obamacare's success. Some 7
million people have signed up for insurance. The sick can no longer be
barred from coverage, nor can the chronically ill be kicked to the curb.
Yet Republicans still rail that Obamacare is some socialist
perversion. Democrats, meanwhile, often treat the plan as an
illegitimate child they'd rather not acknowledge.
What both sides neglect to mention is their complicity in sabotaging
the bill, selling out an unprecedented opportunity to the very guys who
created the time bomb in the first place.
The president's ultimate goal
was coverage for the country's 48 million uninsured. In places like
Europe and Canada, the government pays basic healthcare costs for all
citizens. This type of insurance is often called "single-payer," because
one payer, the government, covers basic medical care.
Anyone wondering how it might function need look no further than
Medicare, which runs all senior healthcare in this country. It's
arguably the most popular government program in America, and one of the
more cost-effective.
Start with the cost of administration. Medicare's ranges between 2
and 5 percent of its budget. For private insurance, the average is 12
percent. The Government Accountability Office once estimated that this
simple savings alone would be "more than enough to offset the expense of
universal coverage."
Moreover, a single provider would have the size to negotiate better
prices from providers and pharmaceutical companies. According to a
New England Journal of Medicine
study, this would save another $400 billion and provide a boon for
American business, reducing labor costs by 10 to 12 percent.
A CBS poll found that 59 percent of the public favored a government
health plan. Unfortunately, the body politic is more impressed with
power than with the will of the people. The insurance industry, one of
the biggest players in Congress, wasn't about to get squeezed out of its
lucrative role as middle man.
Insurers treat single-payer as a threat to their very existence. With
a single-payer system, most health insurers would vanish overnight. So
the industry set out to ensure that such a program never saw the light
of day.
"Of course they don't want it," wrote Robert Reich, a former
Secretary of Labor in the Clinton administration, in a 2009 opinion
piece. "A public option would squeeze their profits and force them to
undertake major reforms. That's the whole point."
Congress, naturally, would not allow a frontal assault on the
insurance industry. So Senator Ron Wyden (D-Oregon) pitched the Healthy
Americans Act, which had several Republican sponsors and significant
support on both sides of the aisle.
It was a simple plan: Instead of supplying insurance to employees,
companies would give that money to workers to shop for policies on their
own, allowing them to pocket any savings. With so many shoppers
flooding the marketplace, insurers would be forced to truly compete.
Obama's first big mistake was delegating the plan's
creation to a cabal of senators and healthcare lobbyists, some still
employed by the industry, some recent additions to the senators' staffs.
They met behind closed doors, hashing out the details and squeezing
other legislators out of the process.
Leading the effort was Senate Finance Committee chairman Max Baucus
(D-Montana), who from 1999 to 2005 accepted more special-interest money
than any other senator. He delegated the real lifting to his chief
health aide, Liz Fowler. Baucus described Fowler as overseeing "the
87-page document which became the basis, the foundation, and the
blueprint from which all healthcare measures in all bills on both sides
of the aisle came."
Fowler was also a former vice president at WellPoint, the country's
largest health-insurance carrier. She returned to Baucus's staff just
for this occasion. As the
Guardian would later write, "Few people embody the corporatist revolving door greasing Washington as purely as Elizabeth Fowler."
Meanwhile, Big Medicine donated heavily to Democrats, who suddenly began to see the industry in a far less menacing light.
Obama also started back-pedaling. "We don't want a huge disruption as
we go into healthcare reform, where suddenly we're trying to completely
reinvent one-sixth of the economy," he said. Avoiding a single-payer
setup and Wyden's plan not only kept the donations flowing, but allowed
the president to make his famous claim that people could "keep the plan
that you have."
In exchange for maintaining the status quo, hospital groups pledged
$150 billion in Medicare and Medicaid savings over the next decade,
while insurers agreed to limit their overhead to 20 percent. Anything
more would have to be rebated to customers.
"Clearly, we made a mistake in taking so much off the table before we
ever started," says Congressman John Yarmuth (D-Kentucky). "We should
have left single-payer on the table just so people had an idea what the
extreme really was. I'm sure that was just a bone to insurance companies
to get them on board."
Of all the participants in health reform, the fattest cats came out of it smelling the best — a telling indictment of Obama and Baucus.
Drugs are the most profitable sector of healthcare. Pharmaceutical
companies make more than $1 trillion annually, a third of from U.S.
sales. Their profits not only dwarf those of other health sectors, but
pharmaceutical ranks seventh highest out of 215 industries tracked by
Morningstar, an investment research company.
For years, the drug makers' consigliere was Louisiana congressman
Billy Tauzin. He was a conservative Democrat who rose to the position of
assistant majority whip, only to switch sides after Republicans won the
House in 1994, comparing the situation to reaching a fork in the Yellow
Brick Road.
"I had one hand on a party that desperately needed a brain and
another on a party that desperately needed a heart, and I had to make a
choice," he says today. "I decided to go with the party that needed a
heart, because heart-transplant surgery was possible."
In 2003, Tauzin helped shepherd through one of the great corporate
giveaways in American medicine: President George W. Bush's Medicare Part
D prescription-drug plan.
The rationale for Part D was noble enough. It was designed to ease
the squeeze on seniors who saw fixed incomes eaten up by the cost of
their prescription drugs, which were rising at a double-digit clip.
But instead of running the government-subsidized program through
Medicare, where it could have been administered at a fraction of the
price, Republicans handed the job to the insurance industry. They also
teamed with Democrats like Baucus and Senator John Breaux (D-Louisiana)
to ban Medicare from negotiating prices.
That meant that instead of using Medicare's massive size to extract
price breaks, taxpayers would have to pay whatever drug makers felt like
charging the insurers. According to the Congressional Budget Office, it
amounted to a $137 billion giveaway over 10 years.
When the bill took effect, drug makers saw a 34 percent spike in
profits. By then, Tauzin had left Congress to become the president of
the Pharmaceutical Research and Manufacturers of America (PhRMA), the
drug industry's trade organization. Breaux left a year later to open a
lobbying firm, where he received a $300,000 contract to lobby for Big
Pharma.
On the campaign trail in 2008, Obama blasted Part D's ban on negotiating, promising to get tough.
"We'll tell the pharmaceutical companies, 'Thanks, but no thanks for
overpriced drugs,'" Obama had said at a Virginia campaign stop in 2008.
"We'll let Medicare negotiate for lower prices. We'll stop drug
companies from blocking generic drugs that are just as effective and far
less expensive. We'll allow the safe re-importation of low-cost drugs
from countries like Canada."
After all, there was ample evidence that U.S. consumers were being
gouged. For example, in France, which negotiates prices, Eli Lilly
charged patients $47 for a one-month supply of Cymbalta, a medicine used
to treat depression and anxiety. The cost in America was $176.
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| Michael Fleshman/Creative Commons |
Occupy
Wall Street protestors at Pfizer's world headquarters in
New York. The
pharmaceutical giant benefits from the government's
inability to
negotiate a better price for their drugs -- Canadians pay
about a third
less for Pfizer's Celebrex than Americans do. | | | |
Pfizer charged Canadians $53 for Celebrex, an anti-inflammatory painkiller. The bill for Americans: $162.
In one TV ad, Obama blistered Tauzin for the kind of inside corruption that's made Washington famous.
"The chairman of the committee, who pushed the law through, went to
work for the pharmaceutical industry, making $2 million a year," Obama
announced to the camera, his sleeves rolled up for action. "That's an
example of the same old game-playing in Washington. You know, I don't
want to learn how to play the game better; I want to put an end to the
game-playing."
A year later, he would find that game not so unpleasant after all.
After he became president, Obama would indulge Tauzin in the same
closed-door dealings he once lambasted. The drug industry agreed to
taxes and rebates involving $80 billion in savings over 10 years. In
exchange, Obama reneged on three crucial promises: to speed generics to
market, to allow the importation of cheaper drugs, and to retain the
right to negotiate Medicare drug prices.
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| Senate Democrats/Creative Commons |
Florida
Senator Bill Nelson tried to enact legislation that would
allow
Medicare to negotiate drug prices. Three Democrats --
Max Baucus, Robert
Menedez, and Tom Carper -- joined with
committee Republicans to kill
that idea. | | |
Senator Bill Nelson (D-Florida) was
among several congressmen who tried unsuccessfully to maintain
negotiation rights. He proposed a bill that would have forced drug
companies to match prices offered to other government programs
(Medicaid, Veterans Administration) that do negotiate.
"I'm not here picking on PhRMA," Nelson said at the time. "I just
think, philosophically, that Medicare patients shouldn't be paying more
than Medicaid beneficiaries."
But three Democratic senators — Baucus, Robert Menendez (D-New
Jersey), and Tom Carper (D-Delaware) — teamed with Republicans to ensure
that Nelson's bill was stillborn in committee. They were more
interested in keeping their word to the drug makers than in their duty
to the American people.
"A deal is a deal," Carper explained.
A less-noticed provision gave pharmaceutical companies the right to
extend patents on biologic drugs to 12 years, compared to the five years
that conventional drugs receive. This may prove to be the greatest
budget-buster of them all.
Biologics are the industry's new cash cow. They're more difficult to
manufacture because they're grown rather than chemically assembled. This
is the pretext for setting prices 22 times higher than those of
ordinary drugs. Some prescriptions cost as much as $100,000 annually.
"Unfortunately, both the administration and leadership felt they
should put a moratorium on Medicare being able to buy in bulk and access
generic drugs," says Congressman Raúl Grijalva (D-Arizona). "In doing
so, they locked in a price scheme that is many times out of control.
That concession was painful to many of us, because we allowed the fox to
control the henhouse."
Congress and the administration also repeatedly balked at the most direct route to lower prices — greater competition — even though much of the country was without it.
An American Medical Association study found that one insurer
controlled more than half the market in thirty states. "In Alabama,
almost 90 percent is controlled by just one company," Obama told a crowd
in 2009. "And without competition, the price of insurance goes up and
quality goes down."
Hit the hardest were rural residents, typically poorer and less
healthy than the rest of the country. Metro areas offered the greatest
profit, so big insurers and hospital groups had little incentive to
compete for nickels and dimes in the countryside. Absent competition,
premiums and hospital prices soared.
Many Democrats pushed for a public insurance plan, which would
compete with companies like Aetna for customers. But Republicans rallied
to insurers, claiming it was unfair to make them compete with
government. Never mind that they represented some of the most unhealthy
and least competitive stretches of the country, particularly in the
South.
"We shouldn't have ever called it a public option," says Kentucky
congressman Yarmuth. "We should have called it 'Medicare for all,' and
then people would have been for it, because 'public option' was too
vague."
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| Gage Skidmore/Creative Commons |
Senate
Minority Leader Mitch McConnell's home state
of Kentucky has one of the
most successful state co-ops,
Kynect, which grabbed 60 percent of the
market. McConnell
helped sabotage co-op funding in 26 other states. |
Senator
Kent Conrad (D-North Dakota) proposed a compromise by creating
nonprofit insurance co-ops to compete with monopolies and provide
coverage to rural areas. Actuaries suggested that $10 billion in grants
would be enough to get co-ops started in every state. Yet the
marionettes in Congress began to strip away their effectiveness almost
immediately.
Senator Ben Nelson (D-Nebraska), a former insurance exec and one of
the wealthiest members of Congress, withheld his vote unless the grants
were changed to loans, making sure the co-ops were saddled with debt
from the beginning.
Others sneaked in measures barring the co-ops from competing for the
more lucrative business of large employers and banned them from using
the government loans for marketing. It was as if Congress merely wanted
fig-leaf competition while quietly sabotaging any chance to actually
compete.
The $10 billion in loans was continually sheared away. Democrats
repeatedly agreed to deals with Senate Minority Leader Mitch McConnell
(R-Kentucky) to strip the money away.
In the end, only 23 co-ops received funding. "They don't want to do
anything to make the situation in the states better," says Yarmuth.
"Instead, they're actively undermining the programs."
Nobody gave the co-ops much of a chance.
They had to put together plans overnight, win competitive pricing from
providers, and get word of their existence out without spending any of
the government loan money.
Still, many were run by real pros with decades of experience. Take
Dr. Martin Hickey, CEO of the New Mexico Health Connections co-op and a
former executive with Cigna and Blue Cross. "This wasn't just a
do-gooder thing," he says. "This was people who understood business,
understood insurance and what it was going to take to make this really
work. Hope is not a strategy."
Soon, co-ops were offering the lowest premiums in a third of the
states in which they operated. And even when they weren't the lowest,
they were providing enough competition to drive down all premiums by 8
percent.
In New Mexico's case, Hickey found that hospital groups had a motive to expand competition.
"We were able to sit down with large groups and say, 'This market is
consolidating, and the last thing you want is one or two major players,
because they'll hammer the hell out of you,'" he says. "I used to work
at one. I know. 'It's in your interest to give us a good rate to give us
a foothold in the market. We're physician-oriented and physician-led.
We get it.'"
The most thriving co-op is Maine Community Health, which has taken 80
percent of the new market from Anthem Blue Cross Blue Shield (a
WellPoint subsidiary), despite comparable prices. Co-ops in Nebraska and
Iowa secured more than half the market, while Kentucky's co-op grabbed
60 percent.
The latter proved a bitter irony for McConnell, who was instrumental
in eliminating funding for 26 other states. Next year, the Kentucky
co-op will expand into West Virginia, one of three moving into
neighboring states.
"We don't need to own the whole market," says Julia Hutchins, CEO of
Colorado Health Insurance Cooperative. "There's an opportunity to push
the entire industry in a direction more focused on consumers, and we can
do that even with a very small market share."
Of course, not every co-op has been successful. Minuteman Health in
Massachusetts, Evergreen Health Co-op in Maryland, and Oregon's Health
CO-OP were hamstrung by faulty websites. Others wound up on the wrong
side of price, such as Arizona's Meritus Health Partners, which was
dramatically undercut by private insurers.
Some, such as the Louisiana Health Cooperative, have already run into
trouble. Former CEO Terry Shilling tried to turn it into a money grab
for his former health consulting firm, Beam Partners, proposing a
four-year contract whereby Beam would receive a $3.3 million consulting
fee, a 20 percent performance fee, and up to 50 cents for every person
who signed up for the plan.
Moreover, there remains the question of what happens when some of the
co-ops inevitably fail. Republicans, who have attempted to subvert
Obamacare at every turn, are sure to turn such failures into
Benghazi-size incidents on Fox News. Those on the front lines don't
possess much faith that Obama will have their backs.
"How do you spin that?" asks Hickey. "It is spin, and I'm not trying
to be critical, but up until now, the administration hasn't done a great
job of spin on any issue with the Affordable Care Act. So that worries
me."
There's little doubt that Obamacare has achieved some remarkable things.
Given that Congress can barely agree on whether to pay its bills, the
simple act of helping 7 million people get insurance is extraordinary in
itself.
And there is reason for optimism.
 |
| Courtesy of the Brookings Institute |
| Brookings's
Thomas Mann takes a more optimistic view of the ACA: "Sometimes it
takes something that looks godawful to set things in motion for some
steps that will eventually give us a better system." |
Brookings Institution scholar Thomas Mann is an expert in political dysfunction. He co-authored
It's Even Worse Than It Looks: How the American Constitutional System Collided with the New Politics of Extremism.
Considering the "Republican party's swing to the right and decision to
oppose anything," he believes it's important to take a long view of
Obamacare.
"He succeeded where presidents for a half-century have failed, so it
wasn't going to be pretty," Mann says. "And it wasn't going to be easy."
Every expansion of the social safety net has been contentious. None
kicked off without difficulties. The question is whether Democrats will
be willing to wade back into the fight to address Obamacare's woes,
particularly the lack of cost controls and competition, while taking
endless fire from Republicans, who've shown no interest in repairing
healthcare at all.
As Mann sees it, Obamacare is but the first battle.
"Sometimes it takes something that looks godawful to set things in
motion for some steps that will eventually give us a better system," he
says. "To the right, it looks like communism, but to more rational
observers, these are constrained, incremental changes. But they could
add up to something quite non-incremental."
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