by Steven Brill
When the Dallas teachers signed up for Blue Cross in 1929, Americans spent about 1 percent of the country’s gross domestic product on anything related to healthcare. By 1966, it was 6 percent, and by the time Obama and his opponents took the stage in Las Vegas, it was 16 percent, heading toward 20 percent. A negligible cost in 1929, probably less than the pocket change people spent on candy or snacks, had become the country’s and every family’s number one financial burden.
THE HISTORY OF THE century-long political debate over healthcare that culminated in this singly focused 2007 Las Vegas candidates’ forum mirrors that process of medical care pricing itself into the pubic consciousness.
Theodore Roosevelt had proposed national health insurance during his unsuccessful 1912 campaign to reclaim the presidency on a third-party ticket. However, that plan was aimed mostly at providing compensation to workers who lost wages because of injury or illness, not what was then the relatively inconsequential (for all but the poorest Americans) cost of care.
Those on the left who tried to pick up and expand on TR’s cause over the next two decades were successfully attacked from two sides. At a time when Germany had become a prime American enemy, some argued that government-supplied healthcare seemed too much like the kaiser’s program. Others, playing off the Red Scare then coursing through American politics, said it smacked of socialism or communism. The attacks worked, in no small part because people were still not reaching into their pockets too deeply when they got sick.
By 1935, insurance programs like the one that had begun in Dallas were slowly popping up around the country. Meanwhile, costs were beginning to rise as medical care progressed beyond bloodletting. This put Franklin D. Roosevelt under pressure from aides and constituents on the left to add health insurance to his proposal for Social Security pension protection. But FDR (despite his own health issues) never had the enthusiasm for health insurance that he demonstrated for Social Security. He held off on including it in his historic 1935 initiative.
By the time FDR came back to the idea during the later years of his presidency, he faced new opposition: labor union leaders, who were the core of his political base.
The reason the unions were against government-supplied healthcare had to do with a quiet decision made during World War II by Franklin Roosevelt’s National War Labor Board, a panel he had appointed to enforce wartime wage and price controls. In 1943, the board ruled that fringe benefits—including health insurance—were not subject to wage controls, which prohibited an employer seeking to encourage workers to join or stay at his company from enticing them with higher pay. Under the board’s ruling, an employer could lure workers by offering to pay for health insurance, to be supplied by what would soon become a flood of insurance companies flocking into the new market. The decision released much of the political pressure for reform by allowing a large swathe of the population to start getting protected from healthcare bills, while motivating the unions to oppose government intervention.
According to an article published in 2008 by the American Enterprise Institute scholar Robert Helms, “There is no indication that the Board debated this policy or made any prediction of its future consequences.”
The Internal Revenue Service then magnified the effect of the National War Labor Board edict by ruling that if health insurance benefits were not wages, they should not be taxed as such. In other words, if a worker in the 20 percent income tax bracket got health insurance worth $1,000 a year, that was $1,000 free of what, at a 20 percent rate, would be a $200 tax. For an executive in the 50 percent bracket, the ruling was worth $500. Years later, when the insurance benefit might be worth $10,000 or even $20,000 because medical costs and insurance premiums had gotten so high, the tax break would be even more addictive.
It was this largely unheralded bureaucratic decision (followed in 1954 by a formal IRS regulation during the Eisenhower administration) that launched America’s most gaping tax loophole, one that would forever change the course of healthcare in the United States.
As a result of the labor board’s ruling, unions began pushing for and winning health insurance in their contracts with employees. For the government to usurp that with its own insurance (which came to be called a single-payer system), or with a completely government-operated health system—which were generally the models followed in Europe and ultimately in most developed countries—would undercut the important new benefit the unions could offer workers who joined their ranks. With that kind of pressure coming from his base, Roosevelt tabled the idea of healthcare as his last New Deal breakthrough. Had the labor board decided instead that offering health insurance violated the wartime wage-control regime, which it arguably did, the need—and political pressure—in the United States to provide health insurance for all, the way every other country had, would almost certainly have forced a different outcome during the Roosevelt presidency or soon thereafter.
Harry Truman—influenced, historians say, by the number of recruits he had met during the war who showed up for duty too sick to fight—took up the banner after he succeeded Roosevelt in 1945. But by then rulings by the National Labor Relations Board had solidified healthcare coverage as a key ingredient of collectively bargained contracts. As a result, the unions were even more opposed to the idea, and their members were largely indifferent to it.
Meanwhile, the more predictable opponents—the incumbent insurers and hospitals and drug companies worried about having to bargain with one single payer—were arrayed against Truman’s push, which he presented to Congress in 1949.
Opposition to Truman’s bill from Republicans and the growing healthcare industry was fierce. The most vehement opponent was the American Medical Association, the then-powerful professional association of the nation’s doctors. The AMA spent what in 1949 was an astounding $1.5 million to campaign against the plan, labeling it socialized medicine that would be “the key to the arch of a socialist state,” which would destroy doctors’ independent relationships with their patients and lead to doctors becoming government employees.
The rejection of public insurance for all at the same time that private insurance flourished, courtesy of the National War Labor Board and the IRS, added up to a lot of toothpaste gushing out of the tube. In 1940, fewer than ten million Americans had private health insurance. By 1950, 76.6 million enjoyed that protection, with enrollment growing rapidly.
Yet there were still tens of millions of Americans who were left out because they did not have jobs working for businesses that offered insurance. The largest and fastest-growing group among them were the elderly who had retired.
But then came LBJ. In 1965, President Lyndon B. Johnson and his Great Society took the elderly out of the equation.
Fresh off a landslide presidential election victory and propelled by huge Democratic majorities in Congress, Johnson signed legislation establishing Medicare, the government health insurance program for everyone over sixty-five. Medicare also included a program for the disabled of any age. And the companion Medicaid program that Johnson pushed through at the same time offered limited protection for those living below the poverty line.
By the time the candidates appeared that night in Las Vegas in 2007, 162 million nonelderly Americans had employer-paid health insurance, either in their own name or as family members of workers who had been given coverage. That was more than 80 percent of the people who were not protected by Medicare, by Medicaid, or by a Clintonera program aimed at insuring poor and lower-middle-class children.
THE STARS ALIGN IN 2007
With all of those people covered either through private insurance or through Medicare or Medicaid, why was healthcare such a crisis that it deserved its own stage that night?
“By 2007, the stars were aligned to do something about healthcare, because we had to,” recalled Tom Daschle, the South Dakota Democrat who had been the Senate majority and minority leader and a leading policy thinker on healthcare until losing a reelection bid in 2004.
Here’s how
those stars were now aligned:
First, there was the galloping cost of advances in the science of medicine. While all that progress was good news—I’m glad they invented that MRI to pinpoint what was going on in my chest—it ballooned healthcare costs across the board.
As a result, insurers now had to pay more for their policyholders’ claims, so insurance premiums went up. As John Podesta had pointed out in his introduction to the forum, “Today the average family insurance policy costs $11,841. That’s a thousand dollars more than a full-time minimum-wage worker makes in a year.”
The cost spikes for the government programs that protected the elderly and the poor were even worse. Better medical care kept people alive longer, and that meant Medicare had to pay for more complicated and more expensive treatment during those prolonged lives. In 1965, Medicare had been projected by a House of Representatives committee to cost $12 billion by 1990. Its actual cost by then was $110 billion. And by 2011—the third year of the prospective first term of the presidential candidates vying on the 2007 Las Vegas stage—government healthcare spending was projected to exceed all private spending and account for nearly a third of the overall federal budget.
And, of course, there was the crushing burden for those forty-five million Americans (a number rising every year) who didn’t have insurance at all.
Those who were out of work or in jobs that didn’t offer insurance had to face buying insurance on their own in the so-called individual market. The rates they faced were so exorbitant—typically approaching or exceeding $10,000 a year in 2007—that most couldn’t even contemplate buying it. And those that tried often couldn’t get covered at any price because insurers were allowed to screen them for what were called “preexisting conditions.” In other words, the people who needed insurance the most—because they suffered from preexisting conditions—were locked out of the market.
The second star in alignment had to do with the growing plight of people—particularly in low-wage jobs—who did have what they thought was health insurance but were not really covered when they faced a serious—or even not-so-serious but highly billable—medical issue. Their insurance was like a parachute that didn’t open.
These were people who might have been indifferent to earlier reform pushes, but were now buttonholing the candidates on the campaign trail with their sad stories about rising medical costs and insurance that was a lot less protective than it used to be. Podesta had pointed out in introducing the forum that healthcare premiums for workers—the amount they had to contribute to their employers’ insurance—had increased four times faster than their wages. What he could have added was that the amount they paid that was not covered by insurance—in so-called co-pays, co-insurance, or deductibles—was increasing just as quickly.
Worse, employers were increasingly trying to stem their skyrocketing insurance costs by allowing insurers to set limits on coverage so that the insurers could incur less risk and, therefore, offer lower premiums. This allowed employers to avoid the short-term budget trauma of escalating insurance premiums, but made insurance much less protective. Workers might now be on their own after they hit $50,000 in costs in a year, or maybe $200,000 or $300,000 over their lifetimes. Hitting these limits seemed unlikely until someone got grievously ill and realized that exceeding them was the norm.
Or workers, especially those in low-wage jobs, might be offered insurance that capped daily charges—$1,000 per day in the hospital, for example—that were far below what they were likely to face in the real world of the twenty-first-century American healthcare marketplace.
The bills for my aortic aneurysm topped $197,000 for eight days in the hospital.
As early as 1973, Ted Kennedy had seen how elusive real insurance could be for people who thought they had it. That year, Kennedy spent endless hours with his son, who was being treated for cancer with a variety of trailblazing drugs. According to his widow, Vicki, the Massachusetts senator sat with parents who faced the ultimate good news/bad news roller coaster: being offered the miracles of great new treatments that were unimaginably expensive and either not covered by insurance at all or covered for only a limited period that did not extend through their child’s treatment.
“Teddy would tell me,” Vicki Kennedy recalled, “that when he was in the hospital ward with his son he would talk to mothers who could only afford five or ten of the twenty-three chemo treatments, and they’d ask him what to do.”
By 2007, the problem Kennedy had observed nearly thirty-five years earlier had extended to even mundane, seemingly routine health needs.
THE BUS DRIVER AND THE CHARGEMASTER
Not long after the Las Vegas forum, Emilia Gilbert—a school bus driver earning about $1,800 a month, whom I wrote about in the Time article—fell victim to these coverage gaps.
For six years, Gilbert, who was sixty-one at the time, would be forced by a judge to make weekly payments on the bill she got after she slipped and fell on her face in the small yard behind her house in Fairfield, Connecticut. Her nose bleeding heavily, she was taken to the emergency room at Bridgeport Hospital. She went home a few hours later with a half dozen stitches.
“I was there for maybe six hours, until midnight,” Gilbert told me, “and most of it was spent waiting.” Gilbert got three CT scans—of her head, her chest, and her face. The last one showed a hairline fracture of her nose.
Along with Greenwich Hospital and the Hospital of St. Raphael in New Haven, Bridgeport Hospital is owned by the Yale New Haven Health System, of which Yale–New Haven Hospital is the flagship. Although Yale University and Yale New Haven are separate entities, Yale–New Haven Hospital is the teaching hospital for the Yale School of Medicine. University representatives, including Yale’s president, sit on the Yale New Haven Health System board.
Yale New Haven’s Bridgeport unit applied its list prices to Gilbert’s bill, the way most hospitals do before Medicare or insurance company discounts kick in. In the hospital business, these list prices are derived from what is called the hospital’s chargemaster. Decades ago, a chargemaster was a document the size of a phone book; now it’s a massive computer file, thousands of items long.
In Gilbert’s case, insurance-related discounts off the chargemaster prices didn’t kick in, because of what she soon learned were the severe limits on her insurance coverage.
The CT scan bills alone were $6,538. Medicare, which pays hospitals based on their costs, plus overhead and a small profit margin, for providing each service, would have paid about $825 for all three tests.
Also on Emilia Gilbert’s bill were items that neither Medicare nor any insurance company would pay anything at all for: basic instruments, bandages, and even the tubing for an IV setup. Under Medicare regulations and the terms of most insurance contracts, these are supposed to be part of the hospital’s facility charge, which in this case was $908 for the emergency room.
William Gedge, a senior vice president for payer relations at Yale New Haven Health System, insisted to me that “the chargemaster is fair,” but said, after making inquiries, that he had “no way” of explaining how the CT scan bills or anything else, including seemingly inflated bills for blood tests and equipment, were calculated.
Gilbert’s total bill was $9,418.
“When I got the bill, I almost had to go back to the hospital,” Gilbert told me. “I was hyperventilating.” Contributing to her shock was the fact that although her employer supplied insurance from Cigna, one of the country’s leading health insurers, Gilbert’s policy was from a Cigna subsidiary that insured mostly low-wage earners. The policy covered just $2,500 of Gilbert’s bill, leaving her on the hook for about $7,000.
That made Gilbert one of the millions of Americans that Stern and Podesta were asking the candidates that night to focus on. They were routinely categorized as having health insurance but didn’t have anything approaching meaningful coverage.
After the hospital sued Gilbert for the full $7,000, a judge ruled that Gilbert, who represente
d herself in court because she could not afford a lawyer, had to pay all but about $500 of the original charges. The judge put her on a payment schedule of $20 a week.
In describing the forces that impelled the push for healthcare reform, Harvard Business Review would later cite a 2007 study reporting that medical bills “had become a factor in 62 per cent of personal bankruptcies, an increase from just 8 per cent in 1981.”
If Gilbert had been forced to pay her bill from Yale New Haven Health System in one lump sum, she would likely have been one of those, all for a fall in her backyard and a few hours in the emergency room.
As the candidates took to the Las Vegas stage that night in 2007, Yale New Haven, which has a tax exemption as a nonprofit institution, was on its way to recording operating income of more than $125 million. Its chief executive would earn a salary of more than $2.5 million, roughly 70 percent more than that of the president of Yale University.
HILLARY’S SCARS
During Hillary Clinton’s presentation to the crowd in Las Vegas she remarked with a chuckle, “I know probably better than anybody how hard this will be. Yeah, I know. I’ve got the scars to show for it and I’ve been through it.”
Everyone understood what she was talking about. Soon after he took office in 1993, President Bill Clinton had appointed his wife to come up with a plan for a massive overhaul of the country’s healthcare system.
That unusual role for a First Lady, albeit one who was a respected lawyer and policy wonk, produced the scars that Hillary Clinton now kidded about. Following an orgy of expert panels and subpanels, mostly operating in secret, she came up with a plan that was so complex that few could understand it. “Hillarycare” ostensibly proposed to operate within the incumbent private market system but would have overhauled it by organizing a network of insurance-buying cooperatives regulated by the federal government.