Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America

by Matt Taibbi

  Meanwhile the castrated left wing, the constituency that worked so hard to get Barack Obama elected in the first place, suddenly perceived Obamacare as a crypto-fascist fusing of state and private power, an absurdly expensive capitulation of democratically elected officials to concentrated private interests. And they weren’t wrong, although whatever negative ideology they thought they were protesting in the bill was mostly in there by accident.

  Really Obamacare was designed as a straight money trade. The administration meant to deal away those billions in subsidies and the premiums from millions of involuntary customers in exchange for the relevant industries’ campaign contributions for a few election cycles going forward. It was almost the perfect example of politics in the Bubble Era, where the time horizon for anyone with any real power is always close to zero, long-term thinking is an alien concept, and even the most massive and ambitious undertakings are motivated entirely by short-term rewards. A radical reshaping of the entire economy, for two election cycles’ worth of campaign cash—that was what this bill meant. It sounds absurdly reductive to say so, but there’s no other explanation that makes any sense.

  That the bill was a grotesque giveaway was, by the end, a secret to almost nobody in Washington. If you wanted proof of that, all you had to do was look at who wrote one of the bill’s early drafts—a Senate aide named Liz Fowler who had joined Senator Max Baucus’s staff in February 2009 after a few lucrative years away from government, working for the insurance giant WellPoint. Here’s something that Liz Fowler said out loud a few years back, during her brief but lucrative hiatus from government service:

  “People used to love me when I worked on the Hill,” she said, “because I wrote bills that gave away money.”

  And she outdid herself this time, but the public perception of the thing was almost exactly the opposite. “It was … I guess the word is just weird,” said a sort of dazed-sounding Dennis Kucinich a day after the Taylor speech about the health care house being gone with the flood.

  “There was this conscious effort to try to make this into a left versus right thing when that was in fact a nonsensical interpretation. It was a backroom deal that had nothing to do with the public perception. There’s a book in this somewhere, about how the public debate around this thing was crafted.”

  The epic struggle to pass health care reform was at once a shameless betrayal of the public trust of historic proportions and proof that a nation that perceives itself as being divided into red and blue should start paying attention to a third color that rules the day in Washington—a sort of puke-colored politics that puts together deals like this one and succeeds largely through its mastery of the capital city’s bureaucracy. The defining characteristic of puke politics is that if it must have government at all, the government should be purposefully ineffectual almost across the board in terms of the functions we usually ascribe to the state and really only competent in one area, and that’s giving away taxpayer money in return for campaign contributions.

  In the summer of 2009 I visited a hospital that was embroiled in a losing battle with an insurer. The plight of the Bayonne, New Jersey, Medical Center exactly symbolized the comical levels of cruelty, inefficiency, and unnecessary expense handcuffing the American health care system—and it was the almost universal exposure of the American public to exactly the sorts of problems Bayonne was experiencing that made radical health care reform such a winning rallying cry during the 2008 presidential election.

  On a muggy afternoon in August in Bayonne I walked into a modest conference room at the medical center, an unassuming little hospital in a middle-class neighborhood surrounded by the ambiguous smells of the nearby Hudson River. The hospital president, Dan Kane, accompanied by a PR spokesman named John Dinsmore, sat with folded hands looking at me nervously—I got the feeling they had been through this ritual, unsuccessfully, with many other reporters.

  “So we had this one patient,” Kane began. “It wasn’t such a serious problem that he had, but he was on Coumadin.”

  This patient, he said, was being treated at home for a chronic illness, one that required him to take that common blood thinner. But he had a complication and had to come in to his local hospital for surgery.

  So he came in and the doctors slowly weaned him off the Coumadin before operating. “We didn’t do anything to him, just gave him some time to get off the Coumadin,” Kane said. “Once we were clear, we did the procedure, and everything worked out great.”

  Shortly thereafter the word came back from the insurer: it would not be paying the bill for this procedure, because the operation had not been conducted “in a timely fashion.”

  Of course, had the hospital operated on the patient “in a timely fashion,” he would have bled to death on the operating table, because you can’t operate on a patient taking blood thinners.

  The Bayonne doctors in New Jersey—a state that had seen ten hospitals close since 2007, and another six file for bankruptcy, a little slice of the national hospital network that might easily be described as the front lines of the death of American health care—pointed this little issue out to the insurer, Horizon Blue Cross Blue Shield. No soap.

  “We explained it, said, you know, we would have killed the guy if we’d operated. But their physician’s assistant upheld the denial,” Eileen Popola, the hospital’s case manager later explained.

  Popola estimates that she spends roughly half her time chasing claims from just this one insurer, the dominant insurer in New Jersey; her hospital estimates that fully half of its administrative staff is employed solely to try to collect payment from insurers.

  This backs up the one thing we know for sure about health care in America: a great deal of the costs come from the one part of this whole equation that absolutely nobody gives a fuck about, that has no natural support in the Congress or anywhere else—the paperwork.

  Because we have no single-payer system, because we have 1,300 different insurance companies that all require different forms to be filled out and have different methods for judging claims, the great bulk of nonmedical personnel at hospitals and clinics are assigned to chasing claims. The half of the Bayonne administrative staff devoted to claims is not at all unusual.

  American health care, to employ a seriously overused term, is a Kafkaesque parody of corporate inefficiency, with urgently necessary procedures approved at split-second speed by doctors standing over living patients at one end, balanced out on the other end by a huge Space Mountain of corporate denials that must later on be negotiated in the dark by helpless underpaid clerks in order to extract payment for those same procedures.

  Studies have backed up the notion that paperwork is where most of the excess cost in the U.S. health care system comes from. By now almost everyone knows that American health care costs more than health care anywhere else in the world: the most recent studies show that American health care costs more than 16 percent of GDP, compared with notoriously socialistic states like France (its next-closest competitor) at around 11 percent, Sweden at 9.1 percent, and England at 8.4 percent.

  Americans spend an average of about $7,200 a year on health care, compared with the roughly $2,900 average for the other market economies that make up the OECD (Organization for Economic Cooperation and Development), and for that greatly increased outlay we get higher infant mortality, higher obesity rates, lower longevity, fewer doctors per 1,000 people (just 2.4 per 1,000 in the United States, compared with 3.1 in OECD states), and fewer acute care hospital beds (2.7 per 1,000, compared to 3.8 per 1,000 in the OECD countries).

  Moreover, private insurance provides almost nothing in the way of financial protection for those who have it. A full 50 percent of all bankruptcies in America are related to health care costs, and of those, three-fourths involve people who actually have health insurance.

  So where does all that added expense come from? Among other things, from the added paperwork from the nonstandardized insurance company system. A 2003 New England Journal of Medicine
study found that administrative costs make up a full 31 percent of all health care spending in the United States. That’s compared to 16.7 percent in Canada. Moreover, the administrative costs in the United States are not only growing but skyrocketing: they were $450 per capita in 1991, but were up to $1,059 per capita in 2003. All that extra money is going to the one part of this whole deal that adds nothing to patient care: clerks fighting over claims.

  Bayonne had been one of the six facilities in New Jersey bankrupted since 2007. It was in reorganization now, and by the time the Obama administration sent Congress to work reforming the health care system in the summer of 2009, it was slowly getting back on its feet financially.

  But it was in a war with Horizon Blue Cross, which was miffed that the hospital had been insolent enough to drop out of its network earlier in the year, imperiling its revenue stream as it prepared for an IPO in the next year that would make its executives an instant fortune.

  The current American health care system is not regulated at the federal level and instead relies upon a tight network of powerful state-level insurers and plugged-in state regulatory officials, with whom the relevant companies have close relationships. Jack Byrne, who served as the CEO of the insurance giant GEICO for decades, described it to me as a “cartel” system and said that at the state level, the relationship with the state regulator is crucial.

  “I probably spent ten to fifteen percent of my career in meetings with state regulators,” Byrne, seven years retired, recalls now. “That was so much of how this business works.”

  In any case, Horizon Blue Cross was the poster child for local health insurance cartels—it dominated the state of New Jersey, operating like a Mafia gang that insisted on its protection money, and it was a dangerous thing for any hospital to buck its power. In this case, Bayonne’s decision to drop out of the network inspired a serious reprisal: the insurer drowned Bayonne in paper and denials.

  It denied repayment in one case involving a patient who had come in to the hospital and received IV antibiotics; the grounds were that the patient had been a nurse twenty years earlier and should have been able to administer that care herself, in her own home.

  “I guess if your father’s a surgeon and your mother’s an anesthesiologist, lie down on the kitchen table and get your heart fixed there,” Kane quipped.

  Routine requests for approval for an ambulance ride to rest homes and other secondary care facilities were often held up until the end of business hours or the next morning, or just long enough to stick the hospital with the cost of caring for the patient for one more day. Popola was flooded with requests for more clinical information before payments were approved: send copies of this, of that, we’ll get back to you. Meanwhile, the costs piled up.

  And worst of all, patients who were brought to Bayonne for emergencies were systematically sought out and pressured to move to member hospitals—sometimes by couriers sent by Horizon, who snuck past hospital security and warned still-woozy patients in their beds that if they stayed, they might incur massive bills of tens of thousands of dollars or more.

  And if Horizon couldn’t get couriers through, they’d pepper the patient’s family with phone calls, or call the patient himself. They did this to patients after heart attacks, after accidents and trauma—the hospital even had a frightened patient get up and walk out of the hospital on his own two feet one day after going into atrial fibrillation, which is very often a fatal event.

  The Bayonne doctor (who also didn’t give his name, depending heavily as he does on Horizon customers) who told me about watching his atrial fibrillation patient walk out the front door recounted the story like a man describing a fantastic dream—“I literally couldn’t believe my eyes.”

  One patient, who also declined to give her name, had checked herself into the hospital with pneumonia and within three days was getting phone calls from Horizon and being told to pull out her IV drips, get up, and leave. “Horizon told me I was well enough to move, to get dressed and walk out of the hospital,” she says. “I panicked. I was having trouble breathing. So I did what they said.”

  One would think that hospitals would have some sort of recourse against these kinds of tactics, but in point of fact the behavior of Horizon Blue Cross is exactly in line with the way the American health care system was drawn up. The system is designed to give regional insurers the power to coerce and intimidate customers in exactly this manner, and also to force them to pay inflated rates.

  This is thanks to one of the worst pieces of legislation in American history, a monster called the McCarran-Ferguson Act that just might be a more shameful chapter in our legal history than the Jim Crow laws—and you won’t understand exactly how bad a deal Obamacare is until you can grasp the subtext of the whole so-called health care reform effort, which was to pass a “health care reform bill” without touching McCarran-Ferguson.

  Almost everyone in America is familiar with the Sherman Antitrust Act, and most people have a fairly good idea of why it was enacted. The law was passed in 1890 (sponsored, ironically, by a predecessor of Max Baucus, a Senate Finance Committee chairman named John Sherman) and was designed to curtail the power of the monopolistic supercompanies that were beginning to dominate American business.

  The original law grew out of an investigation into the practices of the insurance, coal, railroad, and oil industries in Ohio, where state officials had begun to see evidence of collusion and price-fixing among those firms, one of which was John D. Rockefeller’s Standard Oil. The truly amusing thing about the Sherman Antitrust Act (and the related state vanguard legislation, Ohio’s Valentine Antitrust Act of 1898) is that most modern Americans look back at the period when powerful companies routinely got together and colluded to constrict supply and jack up prices as something out of the Stone Age, impossible to conceive of in the modern United States.

  In the case of Rockefeller in Ohio, the old buzzard had arranged things leading up to the turn of the century so that his control over the oil supply into Ohio was almost absolute; he could therefore contract the oil supply on demand and escalate prices as he pleased. He was actually tried once in the Hancock County courthouse under the Valentine Act and in that case one of the jurors, a Mr. C. J. Myers, was twice offered a bribe of five hundred dollars to hang the jury, which was hot to convict Rockefeller. Unlike our modern congressmen, who would have taken the money without blinking, Myers refused the bribe and instead ratted out Rockefeller’s henchmen, leading to new charges.

  The Sherman and Valentine acts were mostly ineffective at first but ultimately were used to break up all of the famous monopolies: Standard Oil, which became Exxon, Mobil, Chevron, and Amoco, among others; American Tobacco, which became R. J. Reynolds and Liggett and Myers; and the American Railway Union, which had forced the government into its business thanks to the Pullman fiasco of 1893.

  George Pullman, the millionaire owner of the Pullman Palace Car Company, had decided to execute numerous wage cuts. The thing is, most of his employees lived in Pullman, Illinois, a town he virtually owned, meaning his employees were forced to buy from his stores, rent his houses, and so on. When he cut wages repeatedly without cutting other prices in Pullman, the workers flipped and, led by Eugene Debs, went on strike.

  So Pullman did a brilliant thing and decided to attach U.S. Mail cars to his Pullman trains. Without workers servicing the mail cars, the mail stopped operating and the strikers were suddenly criminals guilty of interfering with the delivery of the U.S. Mail. Grover Cleveland sent twenty thousand troops to break up the strike and get the trains running, and Debs got six months in jail.

  On the flip side, however, the Sherman Act was shortly thereafter used to break up Pullman’s authority. This was the sort of thing Congress used to have to do to make sure revered businessmen didn’t act like antebellum plantation owners, and the fact that both Congress and a few presidents (most notably Teddy Roosevelt) fought hard to give these laws teeth and break up these companies provides a sharp contrast bet
ween what government used to be like and what government is like, well, now.

  However, the Sherman story wasn’t entirely rosy. It seems there was one important exception to the Sherman Act, and that was the insurance business, which by custom and in many cases by statute was simply not regarded as “commerce” under the trust-busting laws designed to regulate interstate commerce.

  And for decades insurance companies basically had carte blanche to behave exactly as Rockefeller and Pullman did, until in the early forties a southern cartel of insurance firms went a little too far and got themselves dragged into the Supreme Court.

  The case involved a group of insurance firms headquartered primarily in Georgia called the South-Eastern Underwriters Association, which were basically pulling all the same old shit Rockefeller pulled in Ohio, creating an impenetrable local cartel that dominated the whole market and then not only fixing prices but intimidating vendors and customers by threatening to walk away entirely if their price demands were not met (hold on to that thought—that theme will resurface in a moment).

  The SEUA’s lawyers in this case somewhat nonsensically argued that the federal government did not have the authority to regulate insurance as interstate commerce because insurance was somehow not commerce.

  These appellants were backed by decades of congressional decisions affirming, if not always directly, their contention that the Sherman Act was not intended to apply to insurance companies. Hugo Black and a majority of other justices disagreed and threw U.S. v. South-Eastern Underwriters Association back in their faces, announcing once and for all that insurance companies operating across state lines were interstate commerce and therefore could be regulated by the federal government.

  The Supreme Court had spoken, but the insurance companies weren’t giving up. They immediately turned to the Senate, where they had an ally in an unbelievable asshole of a Nevada senator named Pat McCarran.