America's Bitter Pill

by Steven Brill

  Is it depressing to see that Washington, surrounded with all those edifices reminding everyone of our glorious history—the Capitol dome, the Supreme Court Building, the Jefferson and Lincoln memorials, the White House, the Washington Monument—has become so mired in cynicism and red tape that many of the best and brightest refuse to run the gauntlet of working there, or refuse to seek contracts to help the government do its work?

  Yes, especially because that repellent climate creates a talent vacuum that allows people with less talent and little sense of mission to hang on to those jobs.

  Was it painful to see one of the best and brightest who did serve, Liz Fowler, dragged down by Glenn Greenwald and other journalists, who assumed the worst, or knew readers would assume the worst, because in Washington that’s not a bad assumption?

  Definitely. And it’s something we should think about every time we assume that everyone in public life is in it for himself or herself.

  Should we be disgusted with the government procurement and technology management system that produced the October 1, 2013, version of HealthCare.gov?

  What other reaction could there be to a system that rewards an insular group of Beltway contractors who have never met a botched product, cost overrun, or missed deadline they can’t pin on someone else?

  Does the relentless, magical work of the tech team led by Todd Park, Jeffrey Zients, and Mikey Dickerson—who cared nothing about gaining glory or money for what they did—suggest that America’s troubles have more to do with what Washington has become than what the American people have become?

  Obviously, yes. And their work should stand as a reminder of what Washington could be like if, even without an emergency like the one this team swooped in to fix, we could attract more talented, motivated people to work there.

  Despite Todd Park and company’s work on the website and the new appointment of experienced managers to run the exchange, will government contracting by well-connected incompetents really change now that the crisis has passed? Will someone like the newly recruited Mikey Dickerson really be able to change such an embedded Washington culture, or will the contracting establishment inside and outside the government reject this T-shirted transplant?

  I’m skeptical. But maybe government really can be moved to fix itself when a crisis like the website launch debacle shines a spotlight on the need for change. “Mikey Dickerson now works at the White House (frequently without a jacket or tie),” the president told me. “And he is leading an effort to simplify and improve digital services to help make sure America’s government can be innovative, flexible, and help bring in the talent we need.… I have sent a very clear mandate throughout this administration that it is time to shake things up, change the pace of business.”

  Perhaps, but on July 8, 2014, CGI won another federal contract qualifying the company to do multiple projects for the General Services Administration.

  Should we admire Oscar and its founders and be glad that Obamacare gave birth to their different kind of insurance company?

  Sure. However, the harder question is whether Oscar’s consumer-centric ethos, cool technology, and commonsense use of telemedicine and free generics can overcome the reality that insuring against the cost of hospital bills, MRIs, and miracle drugs is not a terribly good business.

  Are we fooling ourselves by assuming that with even the best website, health insurance can be bought with the ease of choosing an airplane ticket?

  Of course.

  “What you saw towards the end of the last open enrollment, when the Marketplaces were working,” Obama told me, “was that for the first time, people could compare plans, side by side, and see exactly what they were going to pay for coverage that met their families’ needs.”

  Not really. According to consumer research firm J. D. Power, users of the exchanges found significantly more ease and satisfaction with the enrollment experience when they enrolled in person or by phone with the help of a navigator or agent. Other surveys found that people typically paid attention only to the monthly premium, not the deductible, the co-insurance, or the maximum out-of-pocket provisions, which could end up being more important than a $30 or $50 difference in the monthly premium. In fact, many consumers did not even know what those other terms meant. Nor was it easy to tell what hospitals or doctors were in an insurer’s network, much less whether that insurer had negotiated a better deal with a hospital than another insurer (which would mean that even the same co-insurance percentage could produce a lower out-of-pocket cost).

  So, yes, Obamacare provided more coverage, but its exchanges aren’t doing for healthcare what travel websites did for buying airplane tickets. In fact, while travel agents have been largely pushed aside by travel websites, the Obamacare exchanges create more need for insurance agents.

  Beyond all that, does the Affordable Care Act really provide affordable care?

  Yes, for millions of Americans. But not for everyone. Millions of others, particularly in the middle class, will continue to struggle to pay for healthcare.

  The huge premium increases that some in the industry and the press speculated would come when the 2015 rates were filed mostly did not materialize. But increases still seem to have averaged about 8 percent, well above inflation.*25 And even with some of the large insurers, such as UnitedHealthcare, creating more competition by entering the exchange market more aggressively in 2015, premiums are destined to continue to increase as healthcare costs continue to rise. Insurance profit margins are so thin that premiums have to go up when claim costs go up.

  Thus, insurance on the exchanges may not be affordable for the portions of the middle class whose subsidies to pay for it decline rapidly as incomes approach or exceed 300 percent of the poverty level—about $72,000 a year for a family of four—and zero out at 400 percent.

  More important, premiums in the much larger portion of the market—employer-based insurance—are continuing to increase at the same or greater pace that they did in the years leading up to Obamacare.

  Which only raises the other half of the same question.

  Is Obamacare affordable for the country? Can we continue to let the healthcare industrial complex that negotiated those deals prosper at our expense when we have now given them so many millions of new customers whose bills taxpayers are paying through Medicaid or those exchange subsidy premiums?

  It is hard to see how the country’s budget or the budgets of American businesses and families can continue to shoulder that burden—a burden that continues to be a huge competitive disadvantage in a global economy.

  “Frankly what we’ve seen in progress on costs has surpassed almost anybody’s most optimistic expectations,” the president insisted to me.

  But there is actually little evidence of that.

  True, some of the reforms that the Obama economic team were able to get into the law have worked incrementally. The new penalty that hospitals pay for Medicare patients who have to be readmitted within thirty days of being treated seems to have focused many hospitals on providing the care and follow-up that prevents these readmissions—despite the fact that the hospital lobby fought to make the penalty formula so low as to be almost negligible compared to the hospitals’ overall revenue. And while the Medicare experiments in bundled care have produced mixed results in terms of actual savings, they, too, have focused providers on looking for alternatives to the conventional fee-for-service model.

  However, these improvements have been marginal at best. The battles and closed-door deals of 2009 and 2010 emasculated the efforts by the White House economic team to use reform to “bend the cost curve.” Like its Romneycare predecessor, Obamacare was the product of a choice—most would say a choice forced by political reality—to increase coverage first and deal with costs later, if ever. As a result, although there may be short-term lulls in cost increases related to the general economy or quirks such as the expiration of expensive drug patents, we seem destined to continue to spend 16 to 20 percent, and maybe more, of our gro
ss domestic product on healthcare. Other countries will spend half to two-thirds of that with the same or better results.

  When it comes to individuals and families, the bill will be the same 16 to 20 percent or more of their incomes, paid by a combination of money from the families’ own wallets, employer contributions (paying for their workers’ premiums, which results in lower wages), and, increasingly, the government, through Medicaid, Medicare, and the exchange premiums, which becomes part of a family’s tax bill.

  In fact, it will only get worse as employers continue to increase deductibles and blame it on Obamacare.

  At the same time, less visible changes in the insurance rules governing who pays what—such as raises in co-payments and co-insurance rates for prescription drugs—continue to increase the burden on consumers.

  With Obamacare, the government’s share for protecting those who do not have employer-based coverage is destined to keep rising, too—because of the law’s expanded Medicaid coverage and expensive premium subsidies, which will be only partially offset by the taxes, fees, and Medicare savings extracted in those deals with the industry.

  WHEN YOU’RE LYING THERE “NAKED”

  These questions seemed to have clear enough answers as I waited for the final enrollment numbers to arrive on March 31, 2014. Put simply: Obamacare gave millions of Americans access to affordable healthcare, or at least protection against not being able to pay for a catastrophic illness or being bankrupted by the bills. Now everyone has access to insurance and subsidies to help pay for it. That is a milestone toward erasing a national disgrace. But the new law hasn’t come close to making health insurance premiums and out-of-pocket costs low enough so that healthcare is truly affordable to everyone, let alone affordable to the degree that it is in every other developed country.

  More important, it hasn’t done much to fix the healthcare system. It is just stuffing more people into the jalopy, which is only going to make the jalopy more expensive to keep running.

  HAVING NOW SEEN THAT problem from so many sides, could I think of any practical, realistic ways to fix it?

  That’s the puzzle I was struggling with as the enrollment deadline neared on March 31. That is, that’s what I was thinking about until about five o’clock that afternoon, when I sat with my wife in my doctor’s office staring at his plastic mock-up of a heart. He showed us where the bubble was perched on my aorta. The aneurysm had grown so big that there was now a 15 to 17 percent chance every year that it would suddenly burst, he explained. When that happened, I would likely bleed to death before getting to the emergency room.

  Three nights later, I was in the hospital, where I had that dream about the CEO of New York–Presbyterian Hospital stopping me as the gurney took me into the operating room

  I later heard that New York–Presbyterian chief executive Steven Corwin, himself a heart surgeon, often reminded his employees that “when you’re lying there in our hospital, you’re naked in every way. Physically and emotionally. It’s everyone’s job here to understand that.”

  The people treating me understood that. And for a while it threw me. Was a journalist who questioned hospital administrators about the line items on their bills missing the forest for the trees?

  It was hard not to think that amid the Mother Teresa care I got when I was terrified about coughing and blacking out, or when I woke up in a sweat with a nurse standing over me after I had relived my surgery in a dream.

  However, over the next few days, I came around to a middle ground about how this experience balanced but did not crowd out my chargemaster view of the healthcare world.

  It even helped me begin to frame an unusual idea for how we could go beyond Obamacare and fix American healthcare.

  BEYOND OBAMACARE

  The idea developed gradually during my weeks of recovery.

  At first, pieces of it came in the form of seemingly random thoughts that popped up during the extra time I had to read and watch television. But they soon began to come together.

  When I read that Republicans were making what was quickly proved to be the false charge that a large portion of the eight million people who had signed up on the exchanges were not paying their premiums, while also continuing to pursue a series of court challenges to the law, it was another reminder that the opposition, like the Japanese soldiers who hid out in the Philippines for years after World War II ended, was not about to give up anytime soon. By now, President Obama was clearly resigned to the continuing battle. “Keep in mind,” he told me, “not only did the ACA become law, it was upheld by the Supreme Court in 2012, and, in the same year, voters rejected the candidate who promised to repeal it. Despite all that, you’ve seen a sustained effort to sabotage the law at every turn—from fifty-something repeal votes to efforts aimed at defunding its implementation, to lawsuits. This from a party that’s typically opposed to frivolous lawsuits.”

  So, although Obamacare would generally fade as a Republican piñata in the November 2014 midterm elections, legislative fixes to Obamacare were not likely.

  I began watching the networks’ six-thirty evening news shows more regularly and homed in on something I had only casually noticed before: the predominance of drug ads. That provided a new window on the profit margins that motivate not only extravagant lobbying, but what I now saw was over-the-top media spending. One night, out of fourteen commercials on one broadcast, I counted nine for drugs. Five of them ran a full minute, instead of the usual thirty seconds, because the announcer had to fast-talk his way through an encyclopedia of dire warnings about side effects. I then began to notice the same thing in magazines. Again, the ads were typically extra long—two or three pages to cover all the warnings. It seemed like the drug industry was single-handedly propping up two declining media businesses—television’s nightly newscasts and consumer magazines.

  One of the ads I kept seeing was for Celebrex, which is used to treat arthritis and other muscle and joint pains. Along with eleven other prescriptions I had left the hospital with, I was taking two Celebrex pills a day.

  I loved those white, blue-striped pills, though my surgeon had warned I should not stay on them too long because of possible side effects. The tagline for Celebrex on its website and ads was “For a body in motion.” It rang true to me, and I admit I felt even better about taking it after seeing the ads, even with all the warnings.

  I did some research after watching one of the TV spots and found out that Celebrex was pharmaceutical giant Pfizer’s fourth largest selling drug in 2013 (ahead of Lipitor and Viagra), with sales of $2.9 billion.

  I paid, or rather my insurance company paid, $50 for each pill. My neighborhood druggist paid a wholesaler about $49.50 for it. That’s right; it’s not the drugstores that thrive on the country’s nearly $300 billion a year in prescription sales, although my local druggist no doubt paid more than one of the drugstore chains.

  Based on what the usual industry profit chain looks like, Pfizer probably sold my pill to the wholesaler for about $48.

  In 2013, Pfizer’s actual incremental cost of producing and shipping its products, before counting expenses for marketing, overheard, or research and development, was 18.6 percent, yielding a gross profit margin of 81.4 percent. To keep the math simple, let’s call it 80 percent.

  If Celebrex fell within the range of that profit for all Pfizer products, it would mean that Pfizer’s incremental profit on each of my $50 pills was $38.40 (80 percent of the $48 that Pfizer sold the pill to a wholesaler for). During my recovery, my insurance company was giving Pfizer $76.80 a day in profit for my two pills.

  I also found that Pfizer had been involved in litigation over a deal it had tried to make with a generic drugmaker to extend its Celebrex patent, which was set to expire the month after I had started taking it, and thereby delay the generic company’s entry into the market. These deals with generic companies were becoming increasingly controversial. But by then I had no reason to care about saving money on a generic rather than paying $50 for the r
eal thing. I had long since exhausted the limits on my UnitedHealthcare policy of both my deductible and on my maximum out-of-pocket payout, so my cost for the drug was zero either way. Why not get the brand name I saw on television?

  My newfound devotion to Celebrex and understanding of the profits it yielded was a reminder of how badly broken the healthcare marketplace is.

  Which brings us to my insurance policy and my bills.*26

  MY CHARGEMASTER

  Within two weeks of being discharged from the hospital, I had received thirty-six different first-class envelopes from UnitedHealthcare. Each had an Explanation of Benefits for a separate treatment related to my surgery—one for each prescription drug, one for each lab test done outside the hospital, one for each doctor, such as my anesthesiologist or my surgeon, and one covering my main hospital bill.

  This was all the paperwork that the Oscar people had told me they were determined to eliminate by sending or emailing one explanation containing all the charges. However, when I checked, I found that UnitedHealthcare had an option I could have chosen to get these online. I also learned that Oscar was still sending these same notices, one by one, too. Unlike UnitedHealthcare, they had not yet found a way to get around regulations requiring them to use snail mail, and they had not found an outsourced vendor who could consolidate the notices. “We’re hoping to get that done in the next few months,” Oscar’s Mario Schlosser told me. “We’re building our own system, and because we’re a start-up we’ve been super paranoid about all the regulations.”