America's Bitter Pill

by Steven Brill

  To the extent anyone could figure it out, the First Lady’s plan seemed likely to force most Americans to give up the insurance they had in favor of these new government-supervised co-ops.

  The key industries—insurers, drug companies, hospitals, doctors—had ended up opposing it. The drug companies famously sponsored a series of ads featuring a middle-class couple, “Harry and Louise,” whose plain talk about keeping the government out of “our healthcare” galvanized the public, most of whom had private insurance and feared radical change.

  When the Democrats lost control of the House of Representatives a year later, Hillarycare was tagged as a major cause.

  THE DEMOCRATS’ NEW REPUBLICAN ALTERNATIVE

  So why did Clinton and the other 2008 contenders think they could avoid new scars, even if the problems of costs and poor coverage had only gotten markedly worse?

  The answer was Mitt Romney and a young economics professor named Jonathan Gruber. They put the third star—in addition to high costs, and weakening insurance that was pushing those costs onto everyone—into alignment: a new reform model that seemed politically achievable.

  When he was a freshly minted Harvard PhD in economics, Gruber had worked in the Clinton administration under Larry Summers, the celebrated Harvard economics professor who had become deputy Treasury secretary. Summers had been Gruber’s adviser on his thesis—which was about employer-sponsored health insurance.

  As Gruber were preparing to leave government in early 1998, Summers gave Gruber what Gruber says was “the best advice of my life.”

  Summers told Gruber—an outgoing guy who had the intellectual chops of an Ivy League academic without the withdrawn personality—that he could carve out a great career creating economic models that provided practical advice to politicians and policy makers seeking to understand the implications and likely results of the policies they were debating.

  “Academics usually didn’t do that,” Gruber later explained. “They didn’t connect what they knew or what they were doing to specific policy debates in real time so they could chime in with real, practical answers. I loved the thought of that.”

  In 1998, Gruber, by then thirty-three, became an assistant professor of economics at MIT’s Sloan School of Management. He began picking up grants to create algorithms that could produce models of the economic consequences of various healthcare plans and reforms.

  Using thousands of lines of code that plotted behavioral patterns, Gruber would program hundreds of variables into a black box and out would pop the likely outcomes of this tweak or that big change in healthcare systems or rules. The young professor would then turn the black box’s pronouncements into widely followed articles in scholarly journals and even some publications with broader reach. He earned tenure at MIT, and his reputation grew.

  By 2005, aides to Mitt Romney came calling.

  Romney, a first-term Republican governor of Massachusetts, was a Harvard MBA, who had been a successful management consultant and private equity investor. In large part because Massachusetts faced losing hundreds of millions of dollars in Medicaid support from Washington unless it came up with a new plan to insure more of its citizens, Romney wanted to create a market-based healthcare reform program. Would Gruber help?

  Gruber was taken with Romney from their first meeting. “Here was a guy who seemed to me to be the perfect public servant,” he later told me. “He was courteous. Warm, even solicitous. And really smart. He knew this stuff cold. He was deep into the details but also eager to talk about the broader ideas. I really liked him.”

  Romney and his staff were focused on an idea first floated in 1989 by economist Stuart Butler, then the director of Domestic Policy Studies at the Heritage Foundation, the conservative Washington think tank. The way to fix healthcare, Butler reasoned, was rooted in a classic conservative principle: individual responsibility. An ideal plan would require everyone to buy health insurance, although those who could not afford the full cost would get the government’s help. That way, people would not show up in emergency rooms uninsured or with poor insurance.

  Butler summarized his argument for compulsory insurance this way: “If a man is struck down by a heart attack in the street, Americans will care for him whether or not he has insurance. If we find that he has spent his money on other things rather than insurance, we may be angry but we will not deny him services—even if that means more prudent citizens end up paying the tab.

  “A mandate on individuals recognized this implicit contract. Society does feel a moral obligation to insure that its citizens do not suffer from the unavailability of health care. But on the other hand, each household has the obligation, to the extent it is able, to avoid placing demands on society by protecting itself.”

  The plan would be financed by eliminating the tax break the government provides by not taxing employees for the value of employer-sponsored health insurance, Butler wrote. The billions the government would save would be applied to subsidize premiums for everyone to buy their own insurance.

  Although he was a Democrat, Gruber had been thinking about the Heritage individual responsibility idea for a while. He thought it made sense as a way to make insurance markets work better by getting more people, even healthy people, into the pool of people paying premiums. That way, insurance companies could cover the unlucky ones who got sick while using revenues from the enlarged base of healthy policyholders to charge lower premiums.

  However, Gruber judged it politically impractical to try to scrap the federal tax break on employer-paid insurance. The unions would fight it, as would insurance companies and even employers, who liked the idea of being able to offer a tax-free benefit to workers (even if they were being forced to cut back on its scope because of rising costs) and whose executives benefited from the tax break disproportionately because they were in higher tax brackets. Besides, Massachusetts alone couldn’t overturn federal tax law.

  Gruber began working with Romney and his staff and people from Heritage. Importantly, aides to Senator Ted Kennedy—whose help would be crucial in getting a federal aid package to support the state’s reforms—were also involved from the beginning. Together, they came up with a plan that would spread health insurance coverage to almost everyone in the Bay State. Employer-sponsored insurance would not be tampered with. In fact, Gruber and the Romney staff came up with the opposite idea: To keep their plan from threatening the private insurance market status quo, Massachusetts law would be changed to require all but the smallest businesses to offer basic health insurance to their workers.

  Requiring big business to ante up this way might have seemed like an un-Republican, even radical, idea. Yet its origins dated back to a proposal Richard Nixon had pushed, beginning in 1973. In part to counter more liberal reforms then being promoted by Kennedy, Nixon announced a plan that would force employers to buy insurance for all of their workers. On top of that, Nixon offered an even more unlikely Republican idea: The government would give subsidies to people of limited means who were not covered at work so that they could buy insurance in the individual market. The insurance would be sold in markets—called exchanges—that would be regulated by the government to ensure that the offerings were consumer friendly and competitive.

  Because he had won the support of Wilbur Mills, the Democratic chairman of the all-important House Ways and Means Committee, Nixon seemed on his way to getting Nixoncare through. But then Mills was suddenly dethroned by a scandal involving a female companion who was arrested one night for jumping into the Washington pond known as the Tidal Basin. And soon after that, Nixon was derailed by the Watergate scandal.

  The Gruber/Romney team’s mandate that employers buy insurance for their workers was not new. But in order to get everyone covered, their plan featured other, more radical, changes to fix the market in which individuals bought insurance for themselves.

  THE THREE-LEGGED STOOL

  The plan had three major, interrelated features, which everyone began to call “the three legs of t
he stool.”

  The first leg was a reform in how insurance was sold that Gruber and other economists had come to believe was a key to eliminating a major flaw in the market for individual insurance. Insurance companies in the individual market would not be allowed to screen people with preexisting conditions in order to exclude them or to charge them more than healthy people. In other words, sick people, who need insurance the most, would be able to buy affordable insurance.

  But what would prevent people from waiting to buy insurance until they got sick? The whole idea of insurance is shared risk: We all pay equally into the pot, and those of us who get sick can withdraw funds to pay for care.

  That’s where the second leg came in: the Heritage Foundation mandate. Gruber and the Romney team paired the requirement that preexisting conditions could no longer be used to deny anyone insurance with a mandate that anyone not in a job where insurance was provided by an employer (or not covered by Medicare or Medicaid) would have to buy insurance or pay a penalty for not doing so. There would be no one filling out insurance applications on their way to the hospital.

  The mandate was the linchpin. In fact, in pushing for this plan beginning in 2005, Romney, citing the original Heritage Foundation article, would deride the “free riders” who refuse to buy insurance and call the mandate “the ultimate conservative idea” because it was rooted in the principle of individual responsibility.

  To make the mandate more palatable, insurers would compete to sell individual policies on the kind of exchange Nixon had envisioned, so that prices and coverage could be compared. The resulting competition would presumably drive prices down.

  But what about people who could not afford insurance, no matter how much competition on the exchanges held the line on prices?

  The third leg of the stool addressed that. As with the old Nixon plan, there would be government subsidies for people below certain income levels so that they could buy policies. And, again, to make sure that employers would not stop paying for their workers’ insurance and throw them onto these exchanges where they would get government subsidies, the plan, as with the old Nixon proposal, included penalties for companies (other than small businesses) that did not pay for workers’ health insurance—a provision that further ensured that the employer-insurance status quo would not be disrupted.

  By now Kennedy was enthusiastic about this more conservative approach. “Teddy always told me ‘You take what you can get,’ ” recalled David Blumenthal, a physician and longtime healthcare policy expert who had worked on Kennedy’s Senate staff. So Kennedy eagerly partnered with Romney in an effort to corral Democrats and Republicans in the Massachusetts legislature by negotiating all kinds of tweaks and compromises.

  A BIPARTISAN CELEBRATION

  As a result of that unlikely partnership, less than a year before the Las Vegas forum, on April 12, 2006, there had been an event in Boston’s historic Faneuil Hall that made it seem as if healthcare—because it had become such a pressing, personal issue for so many Americans—could be the dilemma that brought the country together.

  The vast hall, filled with state legislators from both sides of the aisle, was festooned with banners celebrating “Making History in Healthcare.” Romney aides handed out buttons saying the same thing. It all had the air of a revival meeting.

  Romney mounted a raised podium in front of statues of John Adams, John Quincy Adams, and Daniel Webster and under the hall’s looming iconic painting of Webster debating the fate of the Union on the Senate floor. Not trying to contain his enthusiasm, Romney joked that this was a “Cecil B. DeMille moment,” referring to the over-the-top movie director whose extravaganzas had included The Ten Commandments and The Greatest Show on Earth.

  On the stage with Romney, celebrating the governor’s signing of what would come to be called Romneycare, were Ted Kennedy and Heritage Foundation senior fellow Robert Moffit. Romney called it “an extraordinary sight, not just because how many people are here but because who is here.”

  After thanking Gruber, Romney noted that for him to be returning to Faneuil Hall, the site of a debate Romney had famously lost to Kennedy when Romney had run against him for the Senate in 1994, “feels like the Titanic returning to visit the iceberg.” Unable to resist another acknowledgment of how surreal the moment seemed, he added that his son had said that “having Senator Kennedy and me in a room for this will help slow global warming because hell has frozen over.”

  Romney introduced Kennedy, applauding heartily as the Senate warhorse, whose brother had come to the same hall on the night of November 8, 1960, to thank Americans for electing him president, took the podium. “Yet again, the pioneering spirit of the people of Massachusetts has prevailed,” Kennedy thundered. “And you may well have fired the shot heard round the world on health care in America.”

  Heritage’s Moffit, an icon of conservative orthodoxy, was just as enthusiastic. “We have retained what is best in American healthcare while correcting its deficiencies,” he declared when it was his turn to address the crowd, before adding “Too often excessive partisanship corrodes civility.… The opposite has happened here.”

  In the days that followed, some critics on the right, most notably the Wall Street Journal editorial page, attacked the plan as an assault on liberty, because of the mandate that everyone had to buy insurance. Some on the left, including progressive activists and union leaders who had been Kennedy’s comrades in arms since the 1970s, complained that any reform that didn’t scrap private insurance and feature the government as the single payer was a cop-out.

  But the optimism prevailing that day in Boston had not waned in the eleven months leading up to the Las Vegas candidates’ night. There had been a nerve-rattlingly slow rate of sign-ups in the early days after the Massachusetts exchange had opened in January 2007. But by March, activity was already beginning to pick up. And the bipartisan spirit of the enterprise had stayed so strong that supporting Romneycare had become a matter of civic boosterism, not politics. Even the Boston Red Sox promoted Romneycare.

  Meantime, across the country, governors, most notably California’s Arnold Schwarzenegger, were taking note and pushing their own versions of Romneycare.

  “Romneycare,” said Daschle, “was the game changer. We could now see a plan that would extend coverage for all, not upset the private market, and attract broad bipartisan support.”

  OBAMA TREADS CAUTIOUSLY

  It was not surprising, then, that Edwards and Clinton, while not crediting the Republican governor by name, touted the three-legged Romneycare stool as the crux of their solution: prohibit insurance companies from discriminating based on preexisting conditions; keep premiums relatively low by requiring everyone without employer-based insurance to buy insurance on exchanges (while requiring employers to keep offering insurance); and provide subsidies for those who needed it to pay those premiums.

  Healthcare had not been much of an issue during the 2004 campaign. To the extent it had been talked about, the Democratic candidates’ positions ran the gamut from single-payer to more modest proposals for government programs to take care of a greater share of the still uninsured. Now, everyone except Kucinich, who was never seen as a serious candidate, seemed to be on the same page.

  But Barack Obama didn’t go as far as the others. In the 2003 run-up to his 2004 U.S. Senate campaign, Obama had promised a union rally that he would fight for the single-payer system that Kucinich now championed. Not anymore. In Las Vegas, Obama not only discarded that position; he also didn’t talk about an individual mandate, though he did vaguely back the notion of getting the uninsured into “large pools” where risk could be spread.

  Obama’s hesitancy was not because he wasn’t already schooled in at least that detail. Stern, the service workers union leader who had organized the Las Vegas forum, later told me that months before, over dinner in Washington on the eve of announcing his candidacy, Obama had said he feared a mandate would be so politically unpopular as to be unrealistic. “He wasn�
�t where Hillary or Edwards were,” said Stern.

  Despite what Stern had said from the Las Vegas podium about the polls showing great voter concern about healthcare, Obama’s team was less enthusiastic about the idea that the issue would fire up the troops. His pollsters were finding that, while Americans were worried about it as a pocketbook issue, they were also leery, as they had been in the days of Hillarycare, about the government interfering with the insurance that most of them already had.

  There was something else that constrained Obama’s view beyond the yellow light his campaign staff was flashing. Obama had not yet put in the time that Clinton and Edwards had on the campaign trail—where so many people had stopped them on rope lines to tell a tale of woe about medical bills their families had faced.

  That would change. Obama would soon have his own list of ordinary citizens who had bent his ear about medical bills.

  In fact, when he left the stage on March 24, 2007, Obama could have gotten a primer from a gate agent working at the airport that night.

  THE GATE AGENT’S DAUGHTER

  Checking suitcases and boarding passes for US Airways passengers moving through McCarran International Airport in Las Vegas on a shift that ended at 3:30 A.M. was not how Mary Fowler, then sixty-two, had planned to spend her retirement when her husband ended his Minneapolis medical practice and they moved to Henderson, Nevada, at the beginning of 2006.

  At the time of the move, Dr. Robert Fowler was sixty-five and enrolled in Medicare, so health insurance was not an issue for him. For Mary, it was.

  Years earlier she had contracted hepatitis C through a contaminated blood transfusion given to her during the birth of their son. The Fowlers were so worried that she was nearing death that they were considering a liver transplant. Then she was put into a clinical trial testing what was thought might be a miracle drug. It worked. By the time Mary Fowler, who had worked as an accountant, got to Nevada, she had been symptom free for seven years.