by Steven Brill
But to Gruber and most other economists, including some on Obama’s campaign team, as well as the entire insurance industry, the difference between a mandate and no mandate was crucial: If people didn’t have to buy insurance but could instead sign up when they became ill, the resulting wait-until-you-need-it dynamic, which the economists called adverse selection, would cripple the entire scheme. Insurers, faced with insuring a disproportionate number of people who knew they needed it while not collecting premiums from the young and others who thought they didn’t, would have to raise rates to cover the added risk. The inflated rates would, in turn, exacerbate the problem in a vicious downward spiral by discouraging all but the truly ill from signing on to pay the still-higher premiums.
That logic didn’t cut it with Obama’s political team. They had polled a mandate and thought it was a loser. “People hate health insurance companies,” one Obama political aide told me. “So now we’re going to tell healthy people they have to buy insurance from them? Are you kidding?”
Ted Kennedy was unworried by Obama’s position. “Teddy was focused on electing Obama, who he thought represented the kind of new generation his brother did,” recalled senior Kennedy healthcare aide John McDonough, who had run a Massachusetts healthcare reform advocacy group that had helped lay the groundwork for Romneycare. “And he knew that that would be the best way to produce healthcare reform.… And knowing Teddy,” McDonough added, “assuming he cared about Obama’s position on the mandate, I bet he always figured Obama would come around to the mandate once he was elected, because he would see the logic as the [legislative] process ran its course.”
AN UNUSUAL SENATE ALLIANCE
As the 2008 primary campaign continued, Kennedy and Baucus formed an alliance to lay the groundwork for healthcare reform. Although both were Senate Democrats, they each chaired committees that shared—and often fought over—turf when healthcare was on the agenda. So their willingness to work together was, in itself, seen by Capitol Hill insiders as a sign that the issue was gathering momentum.
Kennedy’s Committee on Health, Education, Labor, and Pensions—called HELP—was stocked with some of the Senate’s leading liberals, including Iowa’s Tom Harkin, and Bernie Sanders, the Brooklyn-born Vermont senator who called himself an independent but caucused with the Democrats. The Finance Committee, on the other hand, had more moderate Democrats, such as Baucus and North Dakota’s Kent Conrad.
Among the many reasons the Clinton healthcare reform push had died on Capitol Hill in 1993 was that the Finance Committee, then chaired by New York centrist Democrat Pat Moynihan, had stiff-armed Kennedy and his HELP Committee. Moynihan’s committee had jurisdiction over anything having to do with raising money. Because Moynihan had no enthusiasm for tackling major changes in healthcare, he froze the process of getting a coherent bill to the Senate floor.
Baucus and Kennedy and their staffs were determined that this time would be different.
“The two staffs really got along,” recalled Kennedy staffer McDonough. “Liz [Fowler] gets along with everyone.… And we all remembered the Clinton years. So early on we met—and then Baucus and Kennedy met—and planned how we would work together.”
The plan was for each committee to write, or “mark up,” its version of healthcare reform and then negotiate the differences. “We knew that their bill would be more liberal than ours,” Fowler explained. “But because we’re the Finance Committee, ours would have the fees or taxes in it that would raise the money, while theirs would have more liberal reforms.”
On the other side of the political divide, the Republicans in the 2008 presidential primary weren’t talking much about broad healthcare reform—except for Romney, who touted his success in Massachusetts. Still calling his mandate “the ultimate conservative approach,” Romney declared at a debate in Simi Valley, California, that “A lot of people talk about health care. I’m the only one that got the job done. I got health insurance for all our citizens.… I’m proud of what we accomplished.”
Other than occasionally attacking Romney’s mandate as an assault on freedom, GOP front-runner and eventual nominee John McCain said little on the subject.
“BILLY”
By April, Barack Obama had turned healthcare into one of his favorite topics. The issue became a way to promise a big idea that would touch people’s lives while also demonstrating that, unlike Clinton, he was not a Washington insider and was not going to go to the White House to play the inside-the-Beltway game. Thus, one of Obama’s strongest TV spots used his promise of healthcare reform to attack a Louisiana politician who seemed a real-life parody of a Beltway insider doing the bidding of the special interests that wrote him checks.
The Obama campaign called the ad “Billy.”
The spot opened with Obama, in shirtsleeves, speaking at a campaign reception. “The pharmaceutical industry wrote into the prescription drug plan that Medicare could not negotiate with drug companies,” he began. “And you know what? The chairman of the committee, who pushed the law through, went to work for the pharmaceutical industry making $2 million a year. Imagine that!”
Obama was referring to former congressman Wilbert Joseph Tauzin II, whom everyone calls Billy.
The bare facts of the Billy story were even more gasp worthy than Obama could get across in a thirty-second ad. A lawyer and member of the Louisiana legislature from the small town of Chackbay, Tauzin was elected to the House of Representatives as a Democrat in 1980. Though more conservative than most congressional Democrats, Tauzin, who is part-Cajun, deployed a combination of small-town charm and sharp elbows that served him well in Washington. Repeatedly elected with little or no opposition, he eventually worked his way up to majority whip and chair of the powerful Energy and Commerce Committee, becoming the most powerful conservative Democrat in the House.
When the Republicans took over the House following the 1994 elections, Tauzin was unbowed. He switched parties.
He was rewarded for jumping ship with the same Energy and Commerce chair he had had as a Democrat, making him the first member of Congress to achieve a leadership position in both parties. Voters back home didn’t care; they kept reelecting him.
It was when he was chairing Energy and Commerce for the Republicans, in 2003, that Tauzin had engineered the drug benefits bill that Obama referred to in the ad. It funded Medicare to buy drugs for seniors but did not let the agency try to negotiate discounts from the drug companies. It was the same bill that Baucus had supported, to the consternation of many fellow Democrats.
And, yes, just as Obama had told his campaign rally, soon after that, Tauzin had quit Congress and taken a $2 million a year job as the pharmaceutical industry’s lead lobbyist.
The ad closed with Obama adding a few more lines linking Billy to the larger mess he was going to clean up: “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.”
In Tauzin’s telling, there was one complication to his story that the Obama ad didn’t mention. In the year before he took the $2 million Pharmaceutical Manufacturers Association of America (PhRMA) job, he had been diagnosed with what he told me was colorectal cancer. His doctor had initially said he had a 1 percent chance of surviving. But he was saved by a newly developed drug. “I’m alive because of the pharmaceutical industry and its ability to invest in new drugs,” is how he put it. “So that was a big part of my decision.”
Nonetheless, Tauzin was not upset by the Obama ads. “That kind of stuff just rolls off my back,” he later explained to me, chuckling.
In fact, by the time the “Billy” ad ran, its namesake was already thinking about the kind of deal he might make for the drug companies with a new president, even Obama. Tauzin was becoming convinced that a Democrat, probably Obama, was going to be elected and that healthcare was going to be high on the new administration’s agenda. In that case, his members’ profit margins would no doubt become a prim
e target.
“Billy liked to say that if you’re not at the table, you’re going to be on the menu,” recalled the CEO of one of the largest drug companies who was on the PhRMA board’s executive committee. “He said we should think about making a deal and get to the table first, so we could minimize the damage. The Democrats were talking about some things that were life threatening to our industry.”
INSURANCE COMPANIES AT THE TABLE
At the leading insurance company lobby—America’s Health Insurance Plans (AHIP)—executive director Karen Ignagni was thinking the same thing in the summer of 2008. She, too, did not want to be on the menu.
Ignagni, who was fifty-four in 2008, was considered one of Washington’s most effective lobbyists, though in an un-Billy way. She was a good, solicitous listener. She didn’t pull her punches, but she didn’t try to fast-talk her way through a pitch with over-the-top rhetoric or hollow arguments, either. Ignagni also had an interesting pedigree for someone representing one of the Democrats’ favorite big business targets. The daughter of a Rhode Island fireman, she was a Democrat who had worked on healthcare issues for the AFL-CIO before being recruited to AHIP in 1993.
As early as 2006, as Romneycare was being hammered out in Massachusetts, Ignagni had begun coaxing her insurance trade association to get on the healthcare reform train instead of in front of it by articulating its own reform proposals.
Like Tauzin, Ignagni sensed the political momentum building for reform. However, she and the insurance company executives who were her bosses were also aware that the status quo wasn’t working for them, either. Unlike Tauzin’s pharmaceutical manufacturers, who seemed to enjoy record profits year after year, the insurance industry was not what it used to be.
Large employers were increasingly saving money by self-insuring—setting aside their own money to pay their share of their workers’ healthcare bills and leaving the big insurance companies the lower margin job of simply vetting and processing the bills for them.
The individual market was in deeper trouble. In fact, it was in danger of drying up completely. In states such as Mary Fowler’s Nevada, where insurers were allowed to reject applicants who had preexisting conditions or charge them high prices, people were increasingly going uninsured. Worse, a few states, like New York, had done what Obama was now proposing: force insurers not to discriminate but without an accompanying mandate that everyone had to buy insurance. As a result, insurers in New York—fearful of the adverse selection dynamic, in which only the sick would buy policies—had jacked up premiums to $15,000 to $25,000 a year for families of four. The prices were so out of reach that the market had dwindled almost to extinction. In New York, twenty-six thousand individual policies would be sold statewide in 2010.
Ignagni and her members feared that the country might soon be beset with New York–style “reform.”
So in June 2008, Ignagni convinced her members to put together a more detailed reform proposal than the one AHIP had first espoused about six months earlier. Along with cost-cutting initiatives, such as electronic medical records and tort reform to curb medical malpractice suits that were thought to encourage doctors to practice expensive defensive medicine, Ignagni’s plan called for universal coverage that would include “limits” on excluding people with preexisting conditions, accompanied by a mandate that everyone had to buy insurance.
Moreover, federally financed subsidies would be offered to people who needed help paying the premiums. In other words, there would be universal coverage, with taxpayers helping people pay their insurance bills. It would be a Romneycare-like win for advocates of universal coverage. And a win for Ignagni’s members.
ANOTHER ACCIDENT OF HISTORY
With the Democratic candidates pushing reform, and even the drugmakers and insurers thinking about how to support it, only one event threatened the building momentum in mid-2008. As with the Watergate scandal that derailed Nixon’s reform push, it was an unrelated accident of history.
In May 2008, Ted Kennedy suffered a seizure and was diagnosed with a brain tumor. Suddenly, reform’s most ardent and effective champion, the master of Capitol Hill deal making, was likely going to be sidelined.
Kennedy had brain surgery in June, an operation that did not reverse the grim diagnosis his doctors had given him. However, he instructed his staff to begin meetings among themselves and with stakeholders so that they could keep working in parallel with Baucus’s people. They needed to have a plan ready for the newly elected president.
The group Kennedy’s staff assembled, mostly HELP Committee staffers and friendly healthcare reform policy advocates, were all Democrats. But they had been directed by Kennedy to come up with a package that could pass a Senate with Republican votes. Democrats had only fifty-five votes in 2008, even assuming the support of their most conservative members, plus the presumed vote of independent Bernie Sanders. Getting something through the Senate would require a sixty-vote margin to survive a filibuster.
At the same time, Fowler and her staff—pushed by Baucus in meetings that seemed to happen every other day or so—charted a more public course. As Baucus had instructed, they organized witnesses to testify at Finance Committee hearings in the late spring. Those hearings would be the lead-up to what Baucus envisioned as an unusual show of momentum and consensus: a daylong bipartisan “summit” that Baucus and his senior Republican colleague on the committee, Chuck Grassley of Iowa, would convene in June.
Grassley and Baucus were good friends and had worked together to produce numerous Finance Committee legislative initiatives. The Democratic and Republican staffs also got along. “I remember going to one of the Finance staff meetings on health,” recalled one Kennedy staffer, “and you couldn’t tell the Democrats from the Republicans.” Their summit, organized by the staff to include participation in marathon panel sessions by everyone who was anyone in healthcare policy, was going to be a big deal.
CHAPTER 4
“THIS IS WHAT I THOUGHT THE SENATE WOULD BE LIKE”
June 2008
“I HAVE BEEN MARRIED FOR A VERY, VERY LONG TIME,” IOWA SENATOR Chuck Grassley began. “I have long since given up thinking I can get what I want, when I want it, and how I want it.
“It is called compromise in any venue,” the senior Finance Committee Republican continued. “We all have to be willing to listen to each other, recognize strengths, improve upon weaknesses, and find a common ground that best serves our nation. The opportunity is coming.… I challenge you to make a difference and improve our health care system, as you expect Senator Baucus and me to make a difference and to improve our health care system.”
Grassley was addressing the opening session of the June 16, 2008, healthcare summit that Baucus and Fowler had organized on Capitol Hill in an ornate auditorium at the Library of Congress. About three hundred members of Congress, staffers, lobbyists, and healthcare policy specialists were gathered to hear experts speak on subjects from cost control to insurance to preventive care to medical high tech. Including Baucus and Grassley, sixteen senators in all—half Democrats, half Republicans—would chair the various panels.
THE MOON SHOT
Before he introduced Grassley, Max Baucus had likened the job ahead to President John Kennedy’s effort to land a man on the moon: It was a seemingly insurmountable goal that could be achieved only if everyone pulled together. In fact, Baucus had given the summit a title reminding everyone of the pioneering, patriotic days of the moon shot: “Prepare to Launch.”
Baucus used a review of the hearings his committee had held in the days immediately before the summit to outline the urgency of the work ahead. He cited the testimony of Raymond Arth, who, he said, owned a small Ohio manufacturing company. “His company’s premiums have increased rapidly for several years because many of his employees have stayed on the job and have aged,” Baucus said. “Even after he switched his employees to a high-deductible plan, his premiums jumped thirty-two percent in one year because one of his employees has an expensive
medical condition. Just one sick employee can make coverage unaffordable in the small group market.”
Arth, whose company specialized in making faucets for recreation vehicles, later told me that in 2008 his premiums had not only increased by 38 percent, but that the policy’s deductibles—the amount his employees had to pay before insurance kicked in—had jumped from $500 per family to $5,900.
The panels that followed presented an encyclopedic catalog of the problem. The more they talked, the more the senators seemed to come together. Grassley’s plea for teamwork seemed not at all out of the question.
The first speaker was Ben Bernanke, the Republican-appointed chairman of the Federal Reserve Board. In June 2008, Bernanke was, of course, grappling with the impending collapse of the American economy. Yet he had come to the summit, he explained, because “the decisions we make about health care reform will affect many aspects of our economy, including the pace of economic growth, wages and living standards, and government budgets, to name a few.”
Bernanke proceeded with a litany of the threat posed by healthcare’s skyrocketing costs; government spending just for Medicare and Medicaid, he pointed out, would consume half of the entire federal budget by 2050 if changes weren’t made, up from an already-ruinous 25 percent in 2008.
Baucus then asked the Fed chairman a question that produced an extraordinary answer—and a stunning reaction from his Republican counterparts.
“Some people suggest,” Baucus began, “that because the American system is so complex and because it is so tied to the political pressures in all different segments, whether it be pharmaceuticals, insurance companies, consumers of health care, and whatnot, that perhaps we should look at some kind of a Federal health board, somewhat patterned after the Federal Reserve system, to help solve some of these problems.”