America's Bitter Pill

by Steven Brill

  One member of the group, while sharing everyone else’s near delirium, later recalled that there was something slightly troubling about what Obama said next. The president seemed more focused on the work ahead involving getting people to sign up on the exchanges, rather than on executing all the steps that had to be completed—the regulations, the software, the rules for the insurance companies—to get people to the stage where they could sign up. “Assumption that passage = execution, which is worrisome,” is how this healthcare staffer shorthanded it that night in a journal that this person kept.

  There was none of that concern two days later, on March 23, 2010, when Barack Obama signed the Affordable Care Act in an elaborate East Room celebration. As the ceremony began, Vice President Biden said to the president—and into a mike that, unknown to him, was turned on—“This is a big f——king deal.”

  Biden was right. Barack Obama, alone among more than a century of presidents, had scaled what has been called “the Mount Everest” of American domestic policy challenges.*10

  Insisting on not giving up on multiple occasions when the fight looked hopeless, or at the least like a reckless gamble of his political capital, Obama had gotten a law passed that in theory could provide every American with health insurance coverage.

  “AN AMAZING PERSON”

  Zeke Emanuel, who had fought hard and mostly without success for more cost-cutting provisions, went around collecting autographs from the legislators and other dignitaries in the room.

  Liz Fowler was one of two members of Baucus’s staff invited to the event (along with his chief of staff, who had convened that meeting eleven months before to raise the secret fund from PhRMA to pay for pro-reform ads). Fowler didn’t collect autographs, but she was given a signing pen by Obama.

  The next week Baucus took to the Senate floor to make an unusual speech. “I wish to single out one person,” he began. “Her name is Liz Fowler … my chief health counsel.… Liz Fowler worked for me many years ago, left for the private sector, and then came back when she realized she could be there at the creation of health care reform, because she wanted that to be, in a certain sense, her professional lifetime goal. She put together the White Paper last November 2008—which became … the blueprint from which almost all health care measures in all bills on both sides of the aisle came. She is an amazing person. She is a lawyer; she is a Ph.D. She is just so decent. She is always smiling. She is always working. Always available to help any Senator, any staff. I thank Liz from the bottom of my heart.”

  * * *

  *10. For the origin of the “Mount Everest” metaphor, please see “Methodology and Source Notes” in the back of this book.

  CHAPTER 13

  IN WASHINGTON “EVERYTHING IS SLIPPING,” BUT NOT IN KENTUCKY

  April–December 2010

  THE CELEBRATORY SIGNING CEREMONY HAD NOT COMPLETELY DISTRACTED the White House political team from the challenges it faced. Polls measuring what people thought of the reform law were negative from the start. The messy narrative of backroom deals, Tea Party rallies, claims of a government takeover, and the partisan vote had taken their toll.

  Hoping to recover quickly, Obama and his team staged a campaign-style rally in Iowa two days after the East Room ceremony. The president’s appearance featured the woman who had been with him for a healthcare speech during the Iowa primary campaign three years before—Amy Chicos, whose husband’s cancer care bills had threatened to bankrupt her because the premiums to cover his preexisting condition were so high.*11

  Another aspect of the attempt at political recovery was, to paraphrase Nancy Pelosi, an effort to get people to realize the benefits that were in the bill, by giving them some of those benefits as quickly as possible. This involved issuing regulations for those provisions of the new law that could be implemented immediately because they did not need the long planning and building process that creating the insurance exchanges required.

  The person in charge was Nancy-Ann DeParle, the head of the White House Office of Health Reform. With Valerie Jarrett’s help and her widely viewed status as one of the president’s pets, DeParle had so far been able to shrug off efforts by Summers and Orszag to bring in someone from the outside to take over.

  DeParle had expressed a desire to go back to her private equity firm in 2010, after which she wanted Jeanne Lambrew to run the effort. However, Obama had persuaded her to stay and, in the process, hinted that she might be getting a promotion to a position higher up in the White House hierarchy.

  DeParle delegated much of the work to Lambrew, the former Texas professor and expert on healthcare programs for the poor, who was in charge of the Department of Health and Human Services Office of Health Reform. Lambrew’s ability to get those regulations written—a tortuous process in the federal bureaucracy in the best of circumstances—would soon be seen by the economic team as not nearly as strong as her desire to control the process of writing them.

  The initial implementation meeting of the staffs from the Domestic Policy Council, the Office of Management and Budget, and the National Economic Council who were assigned to work on healthcare didn’t happen until April 8, more than two weeks following the passage of the law.

  The first issue on the agenda was “grandfathering”—how long people who had insurance policies that now offered insufficient coverage under the new law would be allowed to keep them. Lambrew wanted to get rid of all the offending policies as soon as possible and certainly by the time coverage was to be offered on the exchanges. Someone asked if she or someone on her staff had checked with Ignagni at AHIP, the health insurance trade association. “We haven’t because we don’t trust them,” Lambrew answered matter-of-factly, according to the notes of someone at the meeting.

  It made sense politically to try to get a regulation targeted at the insurers out the door first. Insurance reform had worked for Simas and the political team. Besides, this was basic consumer protection; these were mostly lousy policies that offered inadequate coverage when people really needed it. Stephanie Cutter, a top Obama political aide who had been assigned to direct the marketing of Obamacare, chimed in that grandfathering sounded like a loophole to her. It would be good to go after those policies head-on. The less grandfathering, the better.

  However, as the White House team would later learn, on this issue Cutter had a political tin ear. This was a regulation that would be viewed as victimizing people who already had insurance policies—the policies Obama had promised they could keep if they liked them.

  Not talked about at all in the first month of meetings were the regulations that might have the most immediate impact and be the simplest to issue—the ones to implement the provisions Senator Grassley had inserted restricting what hospitals could charge needy, uninsured patients such as Emilia Gilbert, the school bus driver sued by Yale–New Haven Hospital. The subject would not come up until late May, at which time someone on Lambrew’s team said, vaguely, that the IRS “is working on that.”

  By April 21, 2010, every deadline the team had set for issuing regulations had been extended. All of the myriad categories of regulations they needed to write now seemed more complicated than anticipated. They were eager to throw another dart at the insurers by writing the rules for that medical loss ratio—the MLR, which required insurers to spend a stipulated percentage of their premium revenues on paying out claims as opposed to administrative expenses and shareholder dividends. But that job had gotten bogged down in debates over how to define administrative expenses.

  On top of that, the insurers were already lobbying furiously at the White House, at HHS, and on Capitol Hill, which had oversight responsibility for the regulations and could make life tough for the administration. They were focused on what another set of regulations would say about what would be included in “preventive services” that they had to provide for free and about the “essential services” that had to be covered in every insurance plan.

  At another April session, the head of the IRS told the tea
m that verifying the subsidies people buying insurance on the exchange were entitled to based on their prior year’s tax returns would be a “nightmare” requiring platoons of his best people. Larry Summers agreed, calling it “a new frontier for the IRS—140 million tax returns with new attachments,” according to notes taken at that meeting.

  Meanwhile, Aneesh Chopra—the U.S. chief technology officer—sent an email to people on the domestic policy staff offering to help oversee what was happening with the website build. “STOP!” was the only reply he got.

  At an April 29 meeting that DeParle chaired there was a consensus, according to one note taker, that “Everything is slipping.”

  The original deadline for releasing the first set of regulations had been set for the next day, April 30.

  That day, none were issued. In fact, the first set—by far the easiest ones to write, pertaining to a provision allowing children under age twenty-six to be covered in their parents’ policies—wouldn’t come out until May 13. A month into the law, the team was two weeks behind schedule.

  HAPPY TALK AT THE WHITE HOUSE

  On April 30, 2010, the day they missed their first deadline, DeParle issued this report on the White House blog: “Just over a month ago, President Obama signed the Affordable Care Act into law.… The day of that signing the President made one thing clear—he expects his Administration to deliver the benefits of reform to the American people as effectively and expeditiously as possible. As the President said, ‘we need to get this right.’ Over the last month, we’ve begun doing that. We’ve made significant progress in implementing the new law and making reform a reality for millions of Americans.”

  By early May, DeParle and Lambrew were giving biweekly memos to the president reporting that there was excellent progress on all fronts. The only exception was the building of the website for the exchanges, which had not started because the Department of Health and Human Services’ CMS unit was going through the usual process of drafting a statement of work that would serve as a document for soliciting proposals to do the job from government contractors. The president even started receiving a “dashboard”—a chart appearing on his computer or tablet screen—with color-coded grids showing the progress on all the tasks. Everything was green. No yellows or reds.

  “THE PRESIDENT LIKES TO HEAR SOLUTIONS, NOT PROBLEMS”

  In May, Kocher and Zeke Emanuel convinced their bosses, Summers and Orszag, that they had to do something. Summers and Orszag began by talking to Rahm Emanuel about the need to bring in someone with real experience running a private-sector insurance and/or e-commerce business to be in complete charge. Emanuel told them to talk to the boss, but warned that Obama “loved” Nancy-Ann, and so did Valerie Jarrett.

  One of them talked to Jarrett, starting with the problems they already could see coming. “The President likes to hear solutions, not problems,” she reportedly replied, according to someone who was told about the conversation. “If there are problems, bring them to Nancy-Ann [DeParle]; she is the one the President put in charge.” Of course, to them, DeParle, along with Lambrew and the dysfunctional HHS technology procurement process, were the problems. So, according to four people on the White House staff, Orszag wrote the president a memo urging him to bring in someone to supplant DeParle. He got no answer.*12

  When I later asked the president whether he remembered the Orszag memo, all he would say was, “At this point, I am not so interested in Monday Morning quarterbacking the past.”

  “The president doesn’t like confrontations,” one of his former senior advisers later explained to me, in a conversation echoed by three other senior White House alumni. “The ‘no-drama’ Obama stuff you always read about starts with him. Sometimes if you confront him with something like this he’ll just stare at you silently, as if telling you to change the subject. Or, he’ll say ‘You guys work it out.’ And, you know, in so many other instances things did work out for him, so I guess we all kind of thought, this, too, would work itself out.”

  “He had never run anything before,” added another former close adviser who was in the White House at the time. “And I think he was feeling his way about how much detail to get into, how much attention he should pay to this stuff. It was always ‘You guys figure it out.’ ”

  “If you tried to talk to Obama about Valerie having too much influence and undercutting the chief of staff on stuff like this, you would just get a cold stare,” added a third Obama confidant. “It was really troubling.”

  1,492,000 MAN-HOURS OF PAPERWORK

  The first eighteen pages of what, according to The Washington Post, would be 9,625 pages of regulations covering Obamacare were published in the Federal Register on May 13, 2010, in a printed volume and on the Register’s website. Included in the notice, with no trace of appreciation for the irony, was a statement that “the collection of information contained in these regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995.” As a result, the notice continued, the Office of Management and Budget estimated that it would take 1,492,000 man-hours to complete the paperwork required to comply with just these eighteen pages of regulations related to one provision of the law.

  By the time of a June 7 White House meeting, DeParle’s team was focused on the prospect that many more states than they had anticipated might not create their own exchanges.

  The House bill had provided for one national exchange run by the federal government. The Senate bill that prevailed after the Scott Brown election in Massachusetts allowed each state to set up an exchange, with the federal government providing an exchange for states that opted not to run their own.

  A major technology challenge that Kocher and Zeke Emanuel had worried about in their December memo to Summers and Orszag was the one associated with the need for the federal government’s Treasury Department and IRS to connect with fifty state exchanges to provide payments to the insurers and vet subsidy requests by the consumers. Now it also looked like the backup federal website they thought they would need in case a few states opted not to create their own could become an e-commerce site that had to provide state-specific exchanges for dozens of states, all emanating from one central federal website.

  A “PENALTY,” NOT A “TAX”

  The reason their prognosis had changed so much for the worse was simple: The vituperative politics of Obamacare hadn’t subsided following its passage. Quite the opposite. It had intensified. Repeal had become a Republican rallying cry for the 2010 midterm elections. And twenty-eight different state attorneys general, all Republicans, were on their way to court to have the law declared unconstitutional.

  The reform team had received their first briefing on that litigation from White House counsel Robert Bauer in late April, when there were already nine active suits. The chief claim against the law was that the penalty for not complying with the individual mandate was an overreach of the authority given the government in the Constitution’s Commerce Clause to regulate commerce. This wasn’t regulating commerce; it was penalizing people for not engaging in commerce by refusing to buy insurance from some private company.

  It was an argument conservatives had not raised when the Heritage Foundation had championed the mandate, but it had a certain ring to it. Yet Bauer, taking the view that most legal academics had already espoused, said he was confident the courts would not interfere with Congress’s judgment that this was a penalty necessary to regulate and improve the health insurance market, which, of course, was commerce.

  “We think we’re in a strong position,” Bauer reported, according to notes of the meeting taken by one of the participants.

  Unmentioned in the discussion (although it was always mentioned in the government’s briefs) was that had Congress called the penalty a tax, there would have been no case at all. The Constitution gave broad taxing power to Congress. And the nation’s tax collector, the IRS, had been charged under Obamacare with collecting what anyone who ignored t
he mandate owed. Yet no politician on Capitol Hill or in the White House wanted to be associated with raising taxes if he or she could avoid it. Many, like David Axelrod and Charles Schumer, were wary of the penalty as it was.

  Months before, in the early stages of drafting the bill, someone on the Finance Committee staff had mentioned the possibility of calling it a tax because he had heard a Republican staffer say something about the Commerce Clause. However, he was quickly shot down. The issue hadn’t come up since—until the lawsuits started flying. Still, Bauer did not mention the possibility of calling the penalty a tax as a defense. He was confident about the Commerce Clause. Insurance was commerce, and the mandate was simply a necessary way to regulate that commerce by strengthening the insurance market.

  As various federal trial courts and intermediate appeals courts came down on different sides of the Commerce Clause question about the mandate, the case would take two more years to reach the Supreme Court, during which time the Republicans’ argument would increasingly pick up steam among legal and political pundits.

  A POLITICAL FIRESTORM HIDING IN PLAIN SIGHT

  On June 17, 2010, the regulations governing grandfathering were published in the Federal Register. The insurance companies noticed them and immediately pushed back. Ignagni complained to the White House and Baucus’s staff that this would cause chaos when most people with plans that no longer met the adequacy test were cut off at the end of 2013.

  But to Lambrew, for whom this was a pet issue, these regulations were already a compromise. Except for plans that had lifetime limits, the sale of which would be banned within months, she had allowed a transition period extending to the end of 2013 for plans with impermissible annual limits and plans that otherwise provided inadequate coverage. That way, those people could buy new insurance on the exchanges, which would have been launched by then.