America’s Bitter Pill

Oh, joy. Healthcare is back in the news. The Supreme Court just struck down another challenge to the law. Aetna and Humana, two of the largest insurers in the country just announced a merger deal, with more such mergers likely to follow. The task of writing the regulations that go along with the law is an ongoing process.

To get in the right spirit for the momentous King v. Burwell decision, I decided to refresh my memory on the healthcare debate with Steven Brill’s America’s Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System.

Fittingly, the book starts with a portrayal of fear: the fear a patient feels as he or she is in need of desperate care (Mr. Brill is actually speaking from personal experience in this case). This fear is what makes the economic good known as “healthcare” so much different than other goods people might buy. A man being rushed to the hospital in the back of an ambulance cares little for whether the hospital he is being taken to has the most competitive price for the procedure he needs. A patient in a less urgent, though no less serious, situation will probably opt to have a procedure done at a hospital that charges 50% more than another hospital, even though there is only a 10% increase in quality over the cheaper option. This kind of thinking turns normal economics on its head and requires politicians, particularly conservatives, to think twice before endorsing any particular solution to our health care problems. Calling for “free market health care solutions” may sound good on paper, but the reality is that the basic tenets of conservative economic thought don’t always apply without qualification.

After the frightening and illustrative personal story the author shares, the book leaps into a broad narrative that touches on many aspects of healthcare. Everything from the legislative battle to create the Affordable Care Act; the intense lobbying by pharmaceutical companies, insurers, hospitals, and medical device manufacturers that shaped the law; the fights taking place in the courts between insurers and hospitals; the rush to implement the law and build the insurance marketplace after the law was passed; and ideas for future reforms are covered. The entire narrative is illustrated with examples of every day people who got screwed one way or another by the system as it was before Obamacare.

The law that many Americans now know as Obamacare began as a reform idea largely championed by the “Lion of the Senate,” Ted Kennedy. By the time reform gained enough steam with other lawmakers like Sens. Chuck Grassley and Max Baucus, Ted Kennedy was too ill to continue leading the fight for the reform. That left the task largely to Max Baucus and his cadre of dedicated health care aides, one of whom, Liz Fowler, is prominently featured in the book. Max Baucus’s “Call To Action” white paper, released in November 2008 was the opening act in the legislative ballet that would culminate with the ACA.

As the movement for reform gained steam in Congress, two things largely made the law possible: the new President’s decision to make it his signature domestic issue in his first term, and the insurance industry’s support of the reform as conceived in Massachusetts (under Governor Mitt Romney), incubated by Ted Kennedy, and articulated for the country as a whole by Max Baucus. But the law would face strenuous opposition from a new force that arose in response to the new Obama Presidency: the Tea Party.

Even though the reform itself was signed into law in the state of Massachusetts by the eventual 2012 Republican nominee, Mitt Romney, lawmakers in the Republican party quickly found out that the reform bill taking shape was a political firecracker. Some, like Olympia Snowe and Chuck Grassley, supported reform initially, attempting to mold it more to conservatives’ liking. However, in the charged political atmosphere of the time, they paid a price for doing so at the hands of venomous constituents during town hall meetings. These grassroots forces promised stiff primary challenges for anyone who challenged the anti-reform orthodoxy. All Republicans quickly found that it was in their best interest to denounce the law, fight against it tooth and nail, and see their poll numbers quickly rise. It quickly became the main battle in the war against the Obama administration’s agenda. But there was one enemy the Tea Party could never defeat.

If the law had been a bad deal for the healthcare industry it would have, without a doubt, died in Congress. It’s no secret that the law was a huge boon for the industry, with its “not-for-profit” executives pulling in multi-million dollar salaries, and pharmaceutical companies raising prices for new drugs year after year. The fact is, the passage of the law was a huge payday for the industry, as millions of previously uninsured people signed up for the exchanges and medicaid was drastically expanded. Once the industry signed onto the reform, eventual passage was a much more likely possibility. After hitting a few speed bumps along the way (think: Scott Brown) the law was eventually signed into law by President Obama in March of 2010.

But that was only part of the battle. Writing the regulatory rules the law required, building the federal exchange website, and overcoming a number of surefire judicial challenges were the next monumental hurdles that Obamacare had to overcome. Mr. Brill covers each in detail: the insistence of the Administration on slow-jamming the federal government through the rule-writing process (to pad his chances in 2012), the eventual support provided by the Supreme Court, and the slow-motion disaster that was the website roll-out (and its subsequent rescue by a troupe of Googly computer nerds).

Throughout the text, the author also peppers in stories about the war between the hospitals and the insurers. This is another little-covered battle that has been playing out since the law’s passage. And it leads me to what I found to be the most interesting part of the book: the author’s ideas on what further healthcare reform is needed. The author’s argument is essentially that, while the law succeeded in extending healthcare coverage, it did pretty much nothing to “bend the cost curve,” that is, lower healthcare costs (His argument seems mostly sound in this regard). This can be achieved, the author says, by allowing the battle between hospitals and insurers play out to its logical conclusion. Let me explain.

When describing this titanic struggle that is playing out, (most prominently in Western Pennsylvania) the author describes the tendency of hospital networks to start their own insurance subsidiary, or for insurance companies to buy out hospital networks during the ups and downs of this love-hate relationship. The logic is simple: cut out the middle man (independent insurance companies) in order to lower overhead. If it makes sense for hospitals and insurers to combine to save cost, why not let them, nay, encourage them to do so? Doing so would make it easier for consumers to see what network they are buying into, while also making it easier for insurers to move away from the payment-for-services model (which is wonk-speak for “totally screw over customers by forcing a bunch of services on them that they don’t really need”).

For a more detailed discussion of these ideas, I highly recommend that you read the book. It’s a great recap of the whole messy debacle.

Ted Cruz knows what he wants to do with your healthcare.

But what else should Republicans plan on doing once we retake the White House? What reform should candidates be talking about now so that when the time comes to put forth a bill, they will be ready? The Republican leadership’s reaction to the possibility of a victory in King v. Burwell is very telling. There is no consensus on what “repeal and replace” actually means. Ted Cruz certainly knows what he would try to do. The Rubio plan is another good starting place for what a replacement could look like. But the most important thing to remember when putting forth any replacement plan is that Obamacare’s biggest flaw is not the drastic expansion of government power in the healthcare industry that it provides for. It’s the law’s lack of provision for controlling costs.

Thus, the first and foremost goal must be to create stronger cost cutting incentives in the healthcare marketplace. This must start with a rejection of the fee-for-service model that, combined with the tax exempt status of employer-provided healthcare plans (a relic of World War II days) destroys incentives to control costs. Mr. Brill’s idea to encourage the combination of hospital networks and insurers would certainly be a step in the right direction. As others have argued, some other steps might include ending the harmful tax status of employer-provided plans that incentivize employers to spend more on premiums and leave employees without a clue about what they’re actually covered for.

Reducing regulations on insurance providers and hospitals will also foster a more innovative atmosphere. This, combined with allowing customers to purchase across state lines, and providing a voucher directly to families who can then research and purchase exactly the level of coverage they’d like would go a long way toward bending the cost curve. In a word, steps must be taken to put the consumer closer to the service he or she actually will receive. All this can be achieved without the clumsy Obamacare “marketplace”.

The final reform that must take place is the toughest area for conservatives. As Steven Brill points out in his book, the pharmaceutical industry has run amok in the United States. There is nothing even close to a free market for drugs in our country at the present moment. Opening up the domestic pharmaceutical market to imports from other countries such as Canada (obviously under the strict scrutiny of the FDA), while also fostering regulations that would allow the much-cheaper generics to thrive are some steps that would make the domestic pharmaceutical market to operate more like a pure free market.

I am not even close to being an expert on the Byzantine subject of healthcare policy. But it is obvious even to me that Republicans will need a plan ready to go as soon as the White House and Congress are in Republican hands. Fleshing out these ideas now, while it may not be politically advantageous for candidates, is a necessary exercise to prepare for the battles over reforms to come.

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