America's Bitter Pill

by Steven Brill

  ANOTHER CAPITOL HILL “EMERGENCY”

  Another milestone, little noticed outside Capitol Hill and in the medical community, was also reached on March 31, 2014. It was a reminder that the website might have been fixed, but Washington wasn’t.

  Congress passed an eleventh-hour emergency doc fix to put off the unrealistic, formula-driven reductions in Medicare’s payments to doctors that had been passed in 1997 and suspended at the last minute sixteen times since.

  It had to be done that way because of the Obama team’s broken promise to the American Medical Association (see this page) that, in return for its support of Obamacare, a permanent fix would be included in the healthcare reform law. That provision had then been thrown overboard as the law was coming up for a vote, because keeping it out of the bill would produce a much more favorable Congressional Budget Office score. The doctors had then been promised, however, that once Obamacare was passed, the Democrats would get a permanent fix voted on separately. Now that, too, had not happened; thus emergency fix number seventeen.

  GOING OVER EIGHT MILLION

  The next day, April 1, 2014, Obama trumpeted the enrollment numbers in a Rose Garden ceremony. Sebelius, Jarrett, and McDonough, all smiling, sat together in the front row. Park and his team, however, took little time to celebrate. Yet another set of rule changes issued by CMS allowed anyone who had started an application to continue to complete it up until April 15. So the rescue squad had to keep the website humming.

  By April 15, the federal and state exchanges together passed eight million sign-ups, a million more than the rosiest projection before the launch. And 28 percent were eighteen-to-thirty-four-year-olds—the coveted young invincibles. That was below the original target of 30 to 40 percent but close enough to avert the disastrous demographic “death spiral” that would have come if few young people had signed up, forcing insurers to raise premiums to cover the riskier older customers, which, in turn, would have discouraged still more younger customers.

  And because younger people were less likely to be early buyers, it seemed likely that more would be attracted after the first year, especially if the subsidies that made their actual premiums so low were emphasized in the second year. In fact, soon after the enrollment period ended, Enroll America’s Anne Filipic issued a report analyzing her organization’s efforts, in which she concluded that her messaging in 2015 should put much more emphasis on the generous federal subsidies.

  In addition to the eight-million-plus exchange enrollees, approximately six million more Americans had been enrolled in Medicaid as a result of Obamacare’s expansion of the program to those states that decided to allow it.

  That meant a total of fourteen million enrollees.

  Almost thirteen million of those fourteen million were getting subsidies or getting their coverage for free—all six million Medicaid recipients, plus 87 percent of the eight million people in the exchanges.

  “This thing is working,” said Obama, taking another victory lap in the White House press room on April 17.

  In May, Obama invited the tech surge team, including Mikey Dickerson, to an East Room celebration honoring them and Anne Filipic’s Enroll America troops. (Todd Park told me Dickerson actually dressed up for the occasion in “a jacket over the T-shirt.”) When Obama called out Dickerson and his crew, the room spontaneously erupted in a chant, “Tech team, tech team.”

  A few weeks later, White House CTO Todd Park described to me how a new version of the website—“Marketplace 2.0”—was being staffed by alumni of the tech team and some of their Silicon Valley colleagues. It was, he said, being built in modules “according to Silicon Valley best practices,” and designed for any and all mobile screens. And it was going to be tested on 1 percent of the population and then broader test groups before being rolled out for the 2015 enrollment year that would begin November 15.

  That radical change in approach was not the only lesson learned from the October 2013 debacle. The Obama administration also decided that the HealthCare.gov website should get—guess what?—someone in charge.

  Kathleen Sebelius had left as secretary of health and human services in April, once the initial enrollment period was over. She had been replaced by Office of Management and Budget director Sylvia Burwell, a seasoned manager. One of Burwell’s first announcements was that she was going to hire an exchange CEO.*23 And that CEO, she said, was going to report to Burwell’s new chief operating officer—Andrew Slavitt. Slavitt is the executive from the UnitedHealthcare subsidiary who had overseen the tech surge team, including Mikey Dickerson—and had tried to recruit them to join his UnitedHealthcare unit because it was, he promised, going to become the Google of healthcare.

  To top that, in August, the Obama administration announced that Mikey Dickerson, who had been pursued by Todd Park, had been hired to run a new “U.S. Digital Service,” which a White House press release described as “a small team of the country’s best digital experts that will work in collaboration with other government agencies to make websites more customer friendly, to identify and fix problems, and to help upgrade the government’s technology infrastructure.”

  Meanwhile, lawsuits were flying around pitting states whose own exchanges had crashed, such as Oregon, Minnesota, and Maryland, against their contractors. It was a reminder that the federal government didn’t have a monopoly on public works mismanagement.

  OVER THE TOP AT OSCAR

  In Manhattan, Joshua Kushner, Mario Schlosser, and Kevin Nazemi didn’t get their final enrollment files from the state until the third week in April 2014.

  The numbers were terrific.

  The tally was 15,800—more than double the projections Oscar had given prospective investors. In the final weeks, Oscar got an impressive 10 percent share of everyone who enrolled in the New York counties where Oscar competed. If it matched that market share next year, it would reach in two years the 40,000 customers Kushner and his partners had projected for the end of the third year.

  Their start-up expenses had run according to plan, but the medical claims Oscar had to pay out were running higher. They had hoped to get to a medical loss ratio—the amount of claims they paid out as a percentage of the premiums they received—of 87 percent by year-end. It now looked like it would be about 90 percent. However, they were confident that they could get the ratio under control by digging into the data to discover more ways their customers could cut bills while getting as good or better care, and by expanding the risk pool with customers beyond those who had enrolled in the first year and spreading the resulting larger premium revenue across stable costs for administration and infrastructure.

  By April, Kushner and his partners had raised more than $150 million. They were going to use it to expand into New Jersey in 2015 and into parts of Texas and California the following year. A majority of the money was from third parties, not Kushner or his own investment firm.

  Oscar—which by April had seventy employees, up from forty-two in January—was hot. On paper, its value, based on the percentage of the company that the last investors got for the amount they invested, was $700 million.

  They had tried, Kushner and his partners told me after the March enrollment tallies came in, to learn from their early mistakes. Now all customer calls were routed to their office in the Puck Building first, before the routine ones—a customer asking about an ID card or a provider asking about an unpaid invoice—were sent to their outsourced call center in Ohio. Any caller there who asked for a supervisor was routed back to them in New York.

  “By us being here next to the [twenty people] getting calls,” Kushner explained, “we can see problems in the system and keep improving the system quickly.”

  The biggest immediate challenge following the end of the enrollment period was preparing their 2015 rates for New York and, now, for New Jersey. “Last year, when we started, everyone was working from the same data sold by the same consultants,” explained Schlosser. “Now we had our own data from our own customers and our own co
sts from our own providers. But it was only four or five months’ worth, and we had no idea what the other guys would do with their data.… Once you file the prices you can’t change them for the whole year,” Schlosser added. “We also now knew that premium prices really counted. Would someone go crazy and undercut everyone?”

  By September, with ninety staff members and three dozen more due by the end of the year, Oscar was deep into staffing up for its New Jersey launch and recruiting for its 2016 forays into Texas and California.

  KENTUCKY WINS THE DERBY, MRS. BROWN SEES A DOCTOR, AND MCCONNELL TREADS LIGHTLY

  March 31, 2014, was “crazy busy,” Carrie Banahan told me in early April. Her call center was inundated, even with 150 extra operators having been added. The website had a record number of visitors and concurrent users. But it never went down.

  By midnight on March 31, Kentucky had enrolled an astounding 370,829 people out of 630,000 uninsured Kentuckians, or 58 percent.

  The federal government had by now spent $840 million just to build its website—more than triple its original budget. Carrie Banahan and her team had spent less than $154 million of the $254 million Washington had made available to Kentucky for building the kynect site and for marketing it.*24

  By April, Viola Brown—who had signed up on October 4 and been covered as of January 1—had been able to see three separate doctors who were “helping her with all kinds of problems,” her husband, Tom, reported. She was getting the medication she needed to control her diabetes. More important, one of her new doctors had discovered a cardiac problem that had required urgent treatment.

  In late May, Senate minority leader Mitch McConnell of Kentucky told a reporter for Louisville newspaper LEO Weekly that he favored repealing Obamacare—but wanted to keep his home state’s now-popular kynect.

  Kynect was, of course, Obamacare—enabled by Obamacare’s Medicaid expansion, the individual mandate, and the premium subsidies. While still showing himself completely devoted to manning the partisan barricades, McConnell, who was facing what looked like a tough reelection campaign, was now apparently realizing that in Kentucky, at least, the program had been such a resounding success that he had to tiptoe around it.

  In fact, by the end of July, so many more people in Kentucky had signed up for Medicaid, which was not limited by the April 15 enrollment deadline, or had had a changed life circumstance that allowed them to enroll on the exchange after the deadline (such as losing a job that had provided insurance), that 521,000 Kentuckians—12 percent of the state’s population—were now covered under Obamacare. Everyone in Kentucky probably had benefited from, or knew someone who had benefited from, the law that McConnell had fought from the beginning.

  In June, Viola Brown was told she might have to have open-heart surgery. But by August her doctor had decided that the medication she was taking seemed to be taking hold. She needed to be closely monitored—with regular visits to her cardiologist—but “for now,” she told me, “I don’t need the surgery.

  “I’m probably alive because of kynect,” she added.

  * * *

  *21. On August 4, 2014, the Department of Justice announced that the hospital chain had agreed to pay $98 million and sign a Corporate Integrity Agreement to settle all of the suits.

  *22. Republicans in the House of Representatives would vote in July to sue the president for allegedly overstepping his authority in making this decision.

  *23. In August, Kevin Counihan, who had run the successful Connecticut exchange, was appointed CEO of the federal exchange.

  *24. The total federal budget for the technology, plus all the support staff and marketing, was $3.52 billion, which included the support paid to the fourteen states, including Kentucky, and to the District of Columbia, which built their own systems.

  CHAPTER 24

  STUCK IN THE JALOPY

  THIS IS THE PART WHERE I AM SUPPOSED TO TELL YOU WHAT I MAKE of all this—what the Obamacare saga really means, what it portends, and what we might do about it.

  First, the easy stuff that I was thinking about as the enrollment returns came in on March 31, 2014.

  Do I wish that the National War Labor Board had ruled in 1943 that health insurance benefits did, in fact, count as wages and, therefore, that adding them would not be allowed under the wartime wage control regulations?

  Sure. Along with the follow-on decision by the IRS that insurance benefits could be tax free, that was the fork in the road that set the United States off in the wrong direction—putting employers on track to be the primary providers of health insurance. That is a different path from that taken by every other developed country, all of which produce the same or better healthcare results than we do at a far lower cost. Without employers offering insurance to workers, the pressure on politicians to provide a public program would have been unstoppable.

  America’s dysfunctional healthcare house, with the bad plumbing and electricity, leaky roof, broken windows, and rotting floors, would never have been built and become so entrenched in its special interest foundations that it could not be torn down. We would have never been stuck with the broken-down jalopy that we could only repair piecemeal. Pick your favorite metaphor for the hurdles faced by reformers for the past seven decades.

  Was the way that the bipartisan spirit of Max Baucus’s June 2008 healthcare summit—when Senator Kent Conrad exclaimed, “This is what I thought the U.S. Senate would be like”—degenerated into a bitterly partisan fight and a government shutdown a national embarrassment?

  Of course. The question is whether that summit is an artifact of a better time that is not coming back, or whether America will somehow overcome the way special interest money has forced so many Republicans and Democrats into their respective corners, avoiding compromise because they are more worried about challenges from the less moderate wings of their parties than they are about getting anything done.

  Should we be amazed at how Barack Obama, who seemed not to care much about healthcare at that Las Vegas forum in 2007, became the president who refused to lose the fight for broad reform?

  Yes. And we should admire him for it.

  Should we also be amazed, and disappointed, at how Obama treated the nitty-gritty details of implementing the law as if actually governing was below the pay grade of Ivy League visionaries?

  Absolutely. This failure to govern will stand as one of the great unforced disappointments of the Obama years.

  Should we be embarrassed and maybe even enraged that the only way our country’s leaders in Washington could reform healthcare was by making backroom deals with all the interests who wanted to make sure that reform didn’t interfere with their profiteering?

  Of course. We’ll be paying the bill for that forever.

  But should we blame Obama and Baucus for making those deals?

  I don’t think so. The Browns of Kentucky got healthcare because of those deals. They and six million others got Medicaid because of those deals. Eight million more got insurance on the exchanges, of whom 87 percent got government subsidies to buy it.

  That’s 14 million people with new insurance. Subtracting those whose policies were canceled even under the watered-down cancellation rules and who bought new coverage on the exchanges or went without insurance, that is still about 10.3 million newly insured Americans, according to an estimate in an August 28, 2014, report by The New England Journal of Medicine. As a result, in one year, the percentage of nineteen-to-sixty-four-year-old Americans who are uninsured dropped to 15 percent from 20 percent.

  “Millions of Americans have gained access to affordable coverage, and some of the worst insurance company abuses are now things of the past,” is how President Obama described the bottom line to me. He’s right.

  So, yes, given the choice, all those deals seem to have been worth it, because all of the realistic alternatives were worse.

  At the same time, we should recognize that the quality of medical care is going to continue to be jeopardized by the broken economics
of the marketplace, which provides rich incentives to everyone except those actually treating all of these newly covered patients. As doctors remain bogged down in paperwork and face mounting business pressures, the portion of our best and brightest who want to care for the sick instead of cashing in on the business of healthcare is likely to drop.

  From 2011 to 2013, the median physicians’ and surgeons’ income in the United States rose 1.4 percent, to $187,200. In just one year, from 2011 to 2012 (the last year for which complete figures are available), total cash compensation for the CEOs of nonprofit hospitals surveyed by the trade publication Modern Healthcare grew an average (a median was not provided) of 24.2 percent, to $2.2 million. And from 2011 to 2013, total compensation paid to the CEO of drugmaker Amgen rose 92.3 percent, to $13.6 million.

  Is Obamacare going to take its place alongside Medicare and Social Security as a broadly popular program that strengthens the legacy of the Democratic Party?

  Probably not anytime soon, and maybe never. It’s more likely that polls will continue to find that a majority of Americans disapprove of the new law. Beyond the lingering reputational stain of the bungled launch, there’s the reality that unlike Social Security and Medicare, Obamacare was directed at a minority—the roughly 20 percent of people who were uninsured and another 5 to 10 percent (depending on your definition) who, like the Recchis, were underinsured. The rest of us were essentially unaffected, except that when our employers raised our deductibles or co-pays—because healthcare costs kept going up—they now had something and someone to blame it on. They could, and usually did, say that their cutbacks were because of Obamacare. President Obama took on all the baggage of our healthcare system when he took on healthcare reform. And Republicans aren’t likely to help him or any other Democrat any time soon improve on the law by agreeing to even the most obvious fixes.