America's Bitter Pill

by Steven Brill

  “I hate that company,” she said during one staff meeting, referring to a prominent marketer of inexpensive insurance. “They’re bottom feeders. But I guess we need them to stay in business until 2014.”

  Hiding in plain sight—if anyone other than those in the industry had read the Federal Register—was this matter-of-fact prediction that Lambrew’s team had included in the Federal Register notice: “Reliable data are scant, but a variety of studies indicate that between 40 percent and 67 percent” of the fourteen million policies in effect in the current individual market would have to be canceled under these regulations. That seemed to mean that five to ten million people would be notified in the fall of 2013, just as the Obamacare exchanges were launching, that their insurance policies would be canceled on December 31.

  AN EARLY TECH WIN

  On June 30, 2010, the Department of Health and Human Services launched an Obamacare-related website that suggested that anyone worried about the agency’s digital proficiency was crying wolf. The site, envisioned as a forerunner to the exchanges, allowed visitors to review all the current insurance plans offered in the individual marketplace, broken down by the zip code where a consumer wanting to do comparison shopping lived.

  Monthly premiums were listed, as were deductibles and other details of each plan. Although those details were complicated and difficult to understand, because health insurance is inherently complicated and difficult to understand, the presentation, on a website designated HealthCare.gov, was clear, simple, and smart. It was a promising step toward President Obama’s promise that Obamacare was going to make buying health insurance like buying an airplane ticket from Orbitz or Expedia.

  But this was not an e-commerce site. You couldn’t buy anything yet, or find out what your subsidies would be.

  The man behind this quick win, launched just three months after the law had been signed, was Todd Park, the Department of Health and Human Services chief technology officer who also held the title of “entrepreneur in residence.” Park was the person Bob Kocher had talked to about running the Obamacare implementation.

  Just after the president had signed the bill into law, Park had quickly and quietly put a team together to design and build HealthCare.gov.

  How did Park do that amid all the bureaucracy around him? First, he persuaded the people at Health and Human Services working on the technology for the “real” Obamacare website that this one was simply an informational tool, a PR project. As such, it was not something the HHS technology procurement people, let alone the technology office at its CMS unit working on the real website, had to worry about. Then, because it was an informational offering that involved a minor software project, he persuaded the staff at the HHS Office of Public Affairs, which usually ran all PR projects, to let him take that burden off their hands.

  And then he had proceeded as if doing one of his start-ups—not by procuring a contractor, but by gathering a small team of coders who worked with him.

  In fact, one of the people he had “contracted” to help design and code the easy-to-navigate home page was someone Park had met by responding to a tweet from a Web designer in New Jersey who had tweeted to his followers a description of his idea for Park’s site. Someone had then retweeted his message to Park.

  Yes, Park’s version of government procurement was a tweet.

  KENTUCKY ENTERS THE DERBY

  Also in June 2010, a similarly modest effort to get in on the Obamacare action began in Frankfort, the state capital of Kentucky. Carrie Banahan, a career civil servant, who was then fifty and had worked her way up to executive director of Kentucky’s Office of Health Policy, began writing a grant application to the federal government to pay for Kentucky to begin planning its Obamacare exchange.

  Banahan had read a lot about Obamacare, including its provision to fund an expansion of Medicaid to all of the poor in any state. She was hoping Governor Steven Beshear, a Democrat, was as enthusiastic about the new law as she was. In addition to having one of the nation’s highest poverty rates, Kentucky had some of the absolutely worst healthcare rankings: 43 rd in sedentary lifestyles, 44th in annual dental visits, 49th in heart disease, 49th in poor physical health days, 50th in cancer deaths, and 50th in smoking. Anything that might provide Kentuckians with more medical care seemed to Banahan like a great idea.

  However, Kentucky was also not a place where a politician might want to launch something called Obamacare. In 2008, Barack Obama had lost Kentucky to John McCain 57 to 41 percent, and his popularity was perceived to have been sinking since, in significant part because his environmental initiatives so threatened the state’s dominant coal industry.

  Governor Beshear, a former lawyer and state attorney general, is glib and charismatic and can excite a room with a speech. Banahan is much the opposite—blond but hardly glamorous, soft-spoken, and modest. But both are strong-minded. And it turns out that they shared a determination to get behind Obamacare, including launching their own killer exchange.

  By August 31, Banahan had submitted Kentucky’s grant request for $1 million to begin planning the exchange. It included all the precise timelines and expense detail that the government required, including the fact that the grant would cover 25 percent of Banahan’s $100,000 salary to supervise the planning. Banahan got the go-ahead from Washington just a month later.

  “We were the first to get a grant,” Beshear later told me. “And after that we applied for everything we could from Washington. But we kept it as our program.”

  Even the name was Kentucky-bred. To Kentuckians this would be “Kynect,” not Obamacare.

  Other governors took the opposite approach. In Minnesota, Republican Tim Pawlenty, preparing for a 2012 presidential race, announced that he would turn down all grants and any other money from Washington. In fact, he issued an executive order to all state agencies telling them not to participate in any aspect of the new law.

  * * *

  *11. When I reached Chicos in early 2014, she declined to talk about whether the Affordable Care Act had helped her situation, saying that she had been made “uncomfortable” about being thrust into the limelight, adding “I have since come to realize how much the corporatocracy influences and controls these things, and keeps the rest of us busy writing letters and articles, happy to let us think we are making a difference.”

  *12. Neither Summers nor Orszag would be interviewed or quoted for attribution; each refused to confirm or deny the existence of the memo. I have not seen the memo. DeParle agreed to be interviewed but declined to have direct quotes attributed to her. She did convey the impression that she remembered such a memo, but said she was not certain of its existence.

  CHAPTER 14

  AN OFFICE BECOMES A CENTER—AND IT MATTERS

  January—June 2011

  “ONCE OCIIO BECAME CCIIO, IMPLEMENTING [OBAMACARE] became pretty much impossible.”

  Huh?

  That was the explanation that was later offered to me by a senior Obama administration official as troubles with the rollout of the law started making headlines. He thought I’d get it immediately. Which, of course, I didn’t because I was not steeped in the interplay of Washington bureaucracy and politics.

  Here’s what he meant. Bear with me. The story of this mind-numbing parade of acronyms actually matters.

  The original setup was that the Centers for Medicare and Medicaid Services—CMS, the unit of the Department of Health and Human Services cabinet agency that runs Medicare and Medicaid—was going to run Obamacare. Jeanne Lambrew, the head of the CMS Office of Health Reform was to oversee things there, and Nancy-Ann DeParle was to oversee her from the White House.

  At CMS, Lambrew was going to work with the Office of Information Services (the technology people), the Office of Acquisition and Grants Management (the procurement people), and the Office of Consumer Information and Insurance Oversight. The acronym for that last one is “OCIIO.”

  OCIIO’s job was to coordinate all of the insurance companies’ particip
ation in the exchanges. That included making sure the policies they put on sale met the law’s standards (which OCIIO was supposed to promulgate), that the pricing and subsidy calculations for buying the policies would work, and that all the other rules and processes for selling insurance on the exchanges produced information that was clear to the consumer. They also had to make sure the exchanges provided seamless, real-time connections between the insurance companies and the consumers visiting the site, as well as connections to the government agencies that had to calculate subsidies and vet citizenship or legal immigration status.

  In other words, OCIIO was really the hub, the center of the action. And the other offices—such as technology and procurement, as well as the Office of Communications, which was worried about marketing—were spokes, feeding their work into what OCIIO was responsible for. However, because all of those players were offices, too, the organization was multiheaded and convoluted. For at CMS, no head of an office could order around the head of another office.

  Then, as the midterm election returns came in on November 2, 2010, the confused structure became worse. OCIIO, the hub of the wheel, was quickly demoted.

  The night the Republicans took back the House of Representatives, they vowed to repeal Obamacare or at least kill it as a practical matter by cutting off the funds to implement it. The key funding ingredients of Obamacare had been written into the bill and could not be taken away, except by new legislation. But other smaller yet important funding categories for the personnel necessary to run the exchanges and oversee all the new insurance rules remained part of the regular annual appropriation process that the House controlled. This included the money for OCIIO.

  Worried not only about that, but also about the baggage Obamacare now seemed to present going into the president’s 2012 reelection campaign, the administration went into a full defensive crouch. The bureaucratic upshot was that the Office of Consumer Information and Insurance Oversight, or OCIIO, would now have to become the Center for Consumer Information and Insurance Oversight, or CCIIO.

  Why? Because a center could be buried deep within the bowels of CMS where it would need no independent funding from the newly Republican House of Representatives the way an office would.

  Whoever ran the key division meant to implement Obamacare had now been demoted to running a center. That meant that at CMS he would rank below those running the offices responsible for procuring the necessary work from contractors to build it all for him and then for making sure the technology worked. At CMS rank meant everything, which was one reason that between 2010 and 2014 four different frustrated men would rotate through the job of being head of the newly demoted center.

  The shift from office to center also meant that a man named Henry Chao, who had been made director of technology for the Office of Consumer Information and Insurance Oversight—where he was supposed to oversee the technology build for the federal exchange—now had to be put back in his old position as deputy director of technology in the Office of Information Services. Chao was still supposed to work on the federal exchange, but he, too, lost clout. And there was no senior person in the new center—which, again, was supposed to be the hub of the entire effort—who had any responsibility for the technology.

  Yes, it all seems like a game of who sits at which table in the high school cafeteria. But in Washington this is high-stakes stuff.

  There were other bureaucratic shuffles soon after Election Night, 2010. Larry Summers left as head of the National Economic Council. Orszag, too, told colleagues he was on his way out to a banking job in New York. That left Zeke Emanuel and Bob Kocher without the bosses who had been able at least to try to insinuate them—and their preoccupation with costs and, now, management—into the implementation meetings run at the White House by DeParle. By the late spring and early summer of 2011 they, too, would be leaving.

  At the same time, Nancy-Ann DeParle was promoted to White House deputy chief of staff for policy. To fill her spot, DeParle brought Jeanne Lambrew from HHS to the White House as the new head of the Office of Health Reform. The former professor was now the White House person in charge of overseeing the launch of Obamacare, including the complicated e-commerce website and all the rules and technology powering it.

  DeParle later told me she was uninvolved in implementing Obamacare after that, because Lambrew’s office was put under the purview of the Domestic Policy Council, headed by Melody Barnes. Unlike DeParle, Barnes, a highly regarded lawyer and former adviser to Ted Kennedy on legal and civil rights issues, had no experience in healthcare policy or the HHS and CMS bureaucracies.

  Three other members of the White House staff told me, however, that DeParle stayed involved in Obamacare from her perch as deputy chief of staff, where, as a practical matter, she was Barnes’s boss. Notes kept by two White House staff members and a journal kept by one White House staff person indicate that DeParle chaired multiple meetings about Obamacare implementation through 2011.

  Liz Fowler had left Baucus’s office in July to work on implementing the law at HHS. In December, she, too, moved to the White House. She was going to work on those aspects of the launch affecting issues under the purview of the National Economic Council and the Treasury Department. Although she had always been friendly with Lambrew, Fowler would soon grow disaffected. Lambrew had sharp elbows and guarded her turf so jealously that there was little for Fowler to do.

  Stephanie Cutter—the political operative in charge of Obamacare marketing—had been talking to the reform staff in the spring, according to notes kept by a staff member, about sending out “SWAT Teams” across the country to “tell the story of Obamacare.” But she all but abandoned her operation following the midterm elections. The only visible sign of activity from Cutter was a message she posted on the White House blog touting the issuance of the medical loss ratio (MLR) rules, which had taken until November 22 (six months behind schedule) to be completed.

  To the extent that the president talked about Obamacare following the midterm blowout it was mostly about how, in addition to kids now being able to stay on their parents’ policies until age twenty-six, the insurance companies were going to be brought to heel. They could no longer exclude people with preexisting conditions or cancel their insurance. Most important, the coming exchanges would save consumers money by forcing insurance companies to present their products clearly in one place where people could compare prices. It was all about competition driving prices down—when, in fact, as Obama and his team knew, what was actually going to drive prices down were the subsidies. The projections were that 75 to 80 percent of those buying online would be middle-class and lower-middle-class families who could get an average of more than half of their premiums paid for by Uncle Sam.

  These generous subsidies were never stressed. “Millions of Americans Are Paying Less for Obamacare Than Cable” is how a headline on the Vox news website would read, accurately, when the subsidies were tallied after the initial Obamacare enrollment period in 2014. In 2011, there were no news stories like that.

  Millions more living below the poverty line would get healthcare, via Medicaid, for free, because under Obamacare the federal government was paying the states to extend it to everyone living in poverty. Before Obamacare, states set their own rules, and many states had especially severe restrictions that limited their programs to people living at a fraction of the poverty level or just to families with children.

  In fact, although the Obama team never stressed it and the press mostly missed it, the Congressional Budget Office projected that 16 million Americans who were going to get insurance under the new law by 2019 were going to get it from Medicaid—that is, poor people getting something for free—rather than through the exchanges. That was 50 percent more than the 10.6 million Americans receiving federal welfare when Ronald Reagan ran against welfare in 1980, or the 10.9 million getting welfare checks in 1997 when President Clinton compromised with the Republicans and reformed the program.

  Put simply, between the su
bsidies and Medicaid expansion, Obamacare was a massive income redistribution program providing health insurance to those who could not pay for it—something Democrats in a different time might have been proud, rather than afraid, to acknowledge.

  But heading into the 2012 reelection campaign, it was better to trumpet Obamacare as a modern innovation that would force another hidebound industry to be more competitive. “Expedia for health insurance” was a more winning bumper sticker than “Money for the poor,” let alone “Money for the poor so they can buy the same product everyone else does at the same prices that make everyone in the healthcare industry so rich.”

  Which made a successful build of that cool new online insurance exchange that much more important.

  WHO? HOW? WHAT?

  Through the summer of 2011, the White House and HHS and CMS staffs, along with people from the Labor Department and the Internal Revenue Service, met and struggled with who was going to do what to make those exchanges work.

  Labor had to deal with implementing the mandate that employers provide workers with insurance. What kind of reporting would be required? How would it be verified? How would Labor coordinate with CCIIO at CMS?

  The law called for insurers who ended up with an unusually sick population to be compensated from a fund paid for with contributions from insurance companies who had ended up with unusually healthy populations. (The goal was to make sure insurers weren’t incented to try to discourage sick people from signing up.) What were the funding rules for that going to be?

  What would be the process for vetting claims from people who said that a hardship should exempt them from the mandate?