Health insurance premiums all over the country are rising at rates that, only a year ago, were rare, and when they occurred, provoked angry and threatening letters from Secretary Sebelius. Increases in premiums of 40% are not uncommon this year, and businesses across the land (which otherwise might be inclined to do their patriotic duty, as defined by President Obama, and hire some people) are suffering because of it.
Republicans, of course, already smell blood in the water. A federal judge has declared Obamacare – the entire law – to be unconstitutional, and has given the administration only a limited time to apply for a stay of his ruling. President Obama himself seems to be faltering on the individual mandate, telling states that they can forgo this mandate – if, that is, they can come up with an alternative plan that does everything the President claims Obamacare is supposed to do.*
*States can’t really accomplish this, of course, so the President’s offer is empty. DrRich thinks that he is advancing this idea in order to make the argument, in court, that the mandate is not really a mandate, since, as he’s just made plain, it’s merely an option.
And now, Republicans gleefully point out, thanks to Obamacare health insurance premiums are rising faster than they ever have before, at rates that threaten to make our jobless recovery remain jobless forever. “Look at the damage Obamacare is already doing,” they’re telling us, “and most of its destructive provisions don’t even kick in for three more years.” The increase in insurance premiums will soon be felt – directly or indirectly – by every American who has health insurance. It will be a huge boost, Republicans think, to their efforts to get rid of Obamacare.
In an action that will undoubtedly surprise those many experts who persist in believing that Obamacare represents a major defeat for insurance companies (and who therefore must live in a perpetual state of surprise regarding many things about the healthcare system), the insurance industry is vociferously denying that their current premium increases have anything to do with Obamacare. According to the New York Times, for instance, Vincent Capozzi, an executive at Harvard Pilgrim, insists that only 1% of the premium increase this year is caused by Omabamacare (mainly its requirement for free coverage of preventive services). The insurance industry, according to the Times, maintains that “premiums are rising primarily because of the underlying cost of care and a growing demand for it.” That is, the cost of healthcare is accelerating thanks largely to our aging population and the adoption of expensive new technologies.
Whatever it is that’s making premiums go up, the industry asserts, it’s not Obamacare.
To understand what’s really going on here, DrRich asks you, Dear Reader, to put yourself in the place of a health insurance CEO in early 2011. After a long, hard fight, in which you had to debase yourself in public several times (in order to play your assigned role of Villain in the Obamacare set-piece), you are now a mere 33 months from Nirvana. In January, 2014, the individual mandate kicks in, and you will reap your reward of tens of millions of new subscribers, subsidized by the government, and thus you will have your long-coveted One Last Windfall. A year or two after that, once you have blown through this last windfall, you will become a public utility. It is not a glorious ending to your once-arrogant industry, but it is far better than the oblivion which otherwise would be your fate.
Common wisdom (such as that employed by most of those perpetually nonplussed “experts” to whom DrRich previously referred) might suggest that your best course would to be to lie low for the next 33 months, to remain as unobtrusive as possible so as not to upset the apple cart, in a word, to keep any increases in your premiums down to an unremarkable rate. But you are smarter than that. You understand that while instituting outlandish premium increases at this juncture is indeed risky, you’re still walking a tightrope, and keeping your premium increases to a more reasonable level is equally risky.
There are two good reasons for you to raise your rates right now to a truly stunning degree. First, of course, you only have three more years to control your own insurance premiums. Once Obamacare is fully actuated, and the mandates are applied, stringent controls will be placed forevermore on your ability to raise your premiums. So naturally, you need to establish as high a baseline as possible during these next three years.
Perhaps more importantly, you need to place a shot across the bow of the Republicans. You need to let them know that if they manage to repeal Obamacare, either legislatively or through the courts, they will have a tiger by the tail. “Just look at us!” you are saying. “Today, before Obamacare even kicks in to any appreciable degree, we are forced to engage in these truly ridiculous premium increases. Increases like this will drive subscribers from our rolls, and will bring the wrath of the administration down upon our heads, but we do it nevertheless, as we have no choice. Look upon us, Republicans! If you succeed in repealing Obamacare, just look at what you will inherit! The alternatives you propose to Obamacare all hinge on a robust health insurance industry, but we are not robust – we are decrepit, we are dying. Our business model is so obviously broken that today we are behaving suicidally. We, your presumed partners in your post-Obamacare healthcare system, are the living dead. So think twice, Republicans, before you go any further!”
Just how well the insurance companies will succeed by this method in slowing the Republicans’ efforts to overturn Obamacare, one cannot say. Probably not much. But inasmuch as Obamacare is utterly necessary for the survival of the insurance industry, if this method fails DrRich is confident they will come up with something better.
One of DrRich’s most dearly held theories, which he has expounded upon at length, is that the American health insurance industry supported Obamacare from the very beginning (and continues to do so) because the President’s plan offers them a graceful exit strategy from their now-defunct business model. Without Obamacare, the health insurance industry was headed toward sure oblivion. With Obamacare, they are headed toward – something else.
The remarkable and sustained actions the insurance industry took in support of Obamacare, DrRich continues to submit, is all the evidence that one should need to conclude that a deal has been struck. But even DrRich has had to admit that it has never been entirely clear what, exactly, the deal was. What were the health insurance companies promised in exchange for their support?
One obvious benefit for the insurance industry is the one last windfall they will enjoy when the individual mandate kicks in, and a few tens of millions of mostly-healthy Americans are coerced into purchasing health insurance for the first time. This windfall should not only temporarily boost the insurers’ bottom lines and their stock prices, but will likely push out for a few years the timing of the industry’s ultimate demise. So that part of the “deal” is pretty clear.
The remaining question is what will happen when that “last windfall” runs its course. Here, DrRich has speculated on two possible outcomes. Perhaps the health insurance industry will declare, at the appropriate moment (after profits have been made, stock options exercised, golden parachutes deployed, &c.), that they just can’t make a go of it anymore. This, obviously, will leave the government (whether it is controlled at that particular moment by Democrats or Republicans) with no choice but to step in and take over, lock, stock and barrel. DrRich has called this single-payer end-game the Amtrak Model.
On the other hand, the end-game could follow the Public Utilities Model. Here, the health insurance companies will be converted, either all at once or gradually, into public utilities. Public utilities operate as private companies, but the rates they can charge, the profits they can make, and the products they can offer, are all determined by the government. Such an outcome would be only a quasi-single-payer healthcare system, and so might be easier to justify to a Tea-Partied-up American public.
Either option would provide a graceful exit strategy to our health insurance industry, and either would be far more attractive to them than the ignominious oblivion they would have faced without Obamacare.
Last week, we were informed that what Obamacare has in mind for the insurance industry is the Public Utilities Model. That evidence came in the form of the Medical Loss Ratio (MLR) rule that was formally issued by the HHS, in accordance with a provision of Obamacare.
Under Section 10101 of the Affordable Care Act (Obamacare), beginning in January, 2011, insurers are required report to HHS each year what percentage of their revenues from premiums they spend on a) clinical services for enrollees, b) “activities that improve health care quality,” and c) all other costs. Depending on the size of the group market (and a few other factors), insurers must spend either 80% or 85% of premiums revenue on actual health care. (This amount, in health insurance parlance, is called the “medical loss.”) So only 15% or 20% can be spent on administrative costs, marketing, profit, and other non-clinical expenditures.
Behind the scenes, there was a great amount of jockeying over the past six months to convince the National Association of Insurance Commissioners (NAIC, the organization designated to propose the MLR rule to HHS) as to what constituted clinical and quality-improvement activities and which did not.
The health insurance industry tends to insist that every activity it undertakes is aimed at improving healthcare quality, whereas congresspersons and policymakers and consumer advocates insist that very little of what health insurers do has anything to do with anything except profit and greed. So, for instance, insurers claimed that the “healthcare hotlines” they have set up for subscribers are a quality measure, and should be included under medical loss; whereas opponents of the insurance industry claim it is purely an administrative function.
(DrRich does not know whether opponents remembered to advise the NAIC how certain insurers have utilized such hotlines in the past. For instance, in 2002 Kaiser Permanente paid workers at three northern California call centers bonuses for limiting the number of doctors appointments they set up, and for limiting the duration of patients’ phone calls. Kaiser admitted that workers at the hotlines received between 2 and 4% of their salaries as bonuses if certain criteria were met. In order to receive their bonuses, the hotline workers were expected to make appointments for less than 35% of the callers, to spend an average of less than 3 minutes and 45 seconds per call, and to escalate less than 50% of their calls for further evaluation.)
In any case, the NAIC finally made its recommendation on the MLR rule, and on November 22 HHS accepted the proposed rule in its entirety.
For the purposes of this post, the details of the new MLR rule are not particularly relevant. What is relevant is that such a rule was made at all.
The MLR rule sets a federally mandated, one-size-fits all limit on how much of its revenue an insurance company can use for administration and profit. That is, the MLR rule is explicitly the very kind of control that government agencies always impose on public utilities.
For public consumption, proponents of Obamacare have always claimed that insurance expenses – including profits – will be controlled through the competition that will be provided by the new “health insurance exchanges.” If market-like competition were actually simulated through these exchanges, then it is true that the MLR ratio would be driven toward the optimal value.
But the MLR rule establishes, among other things, that market forces are actually not going to be allowed to function in this arena. Rather, the optimal value for MLR will be determined by governmental regulators.
And so, dear readers, it appears that the deal, which proponents of Obamacare struck with the health insurance industry, is beginning to take definite shape. What we’ve got here, increasingly clearly, is the Public Utilities Model – a truly graceful exit strategy by anybody’s reckoning.
Regular readers will know that DrRich is not enamored with Obamacare. Further, they will recall that DrRich’s chief objection to Obamacare is that it codifies into law the final destruction of the classic doctor-patient relationship.
Under Obamacare, the physician is not only released from her fiduciary obligation to her individual patient (i.e., the obligation to place the interests of the patient above all other considerations), but is strictly forbidden from acting in accordance with it. Indeed, elaborate mechanisms are established to assure that physicians will follow the directives which are to be handed down from omnipotent and immutable government panels, directives which will be explicitly aimed at optimizing collective rather than individual outcomes. And whereas physicians have long been discouraged from making healthcare decisions based on individual considerations and needs, Obamacare makes doing so a felony.
Combine that fact with inevitable future provisions that will prevent doctors from opting out of the system, and patients from spending their own money on their own healthcare, and you’ve got a prescription for a healthcare system (and a society) that are somewhat less friendly to individual needs, and somewhat more tyrannical, than supporters of Obamacare have promised us.
So, as a matter of principle, DrRich is sympathetic toward the newly-elected (and newly-reformed) Republicans who promise they will introduce and vote on a bill to repeal Obamacare.
But let’s be realistic. Even the most zealous Republicans understand that any repeal bill that passes in the House will stall in the Senate, and if it does not, the President will veto it. Indeed, it is this comforting assurance, DrRich thinks, that will induce many Progressively-oriented Republicans to go along with a repeal vote in the first place. By voting to repeal Obamacare, frightened and disoriented Republicans can mollify the Tea Party, without risking an actual abolition of the new reforms. Because if Obamacare were somehow repealed – well, where would the Republicans be then?
The health insurance industry, however, is taking no chances.
DrRich will remind his readers that Obamacare never would have become law in the first place if not for the solid and unrelenting support of the health insurance industry. The industry’s support for Mr. Obama’s effort was unfaltering. And during the long and perilous process that finally brought Obamacare to the President’s desk, whenever the cause faltered and appeared to be lost, representatives of the insurance industry would rise up and take whatever strong and difficult action was needed to get it back on track.
DrRich will further remind his readers that the insurance industry did not support Obamacare out of any principle, or compassion, or any sense of what was moral or right. They did it as a matter of life and death – theirs. For the health insurance industry had run out its string, shot its wad, blown up its business plan, and had nowhere else to turn. It was Obamacare – and its soothing “promise” to allow the industry to survive in diminished form, as a government-controlled utility – that offered insurers their only visible path away from oblivion.
The insurance industry is not about to go back. Furthermore, unlike Nancy Pelosi, Harry Reid and even President Obama, the insurance industry is not satisfied to let the political realities of the day block the Republicans’ efforts at repeal. For all they know, nervous Democrats in the Senate who want to be re-elected in 2012 will allow the repeal bill to go to the President’s desk. Worse, unused to seeing Presidents willing to sacrifice themselves on the alter of principle, the health insurers, in their existential panic, must wonder whether even Obama might finally change his mind and decide that he wants to be re-elected badly enough to sign a repeal bill. These possibilities seem pretty far-fetched to DrRich, of course, but to DrRich the prospect of repeal does not spell Armageddon.
During the long and painful process that saw Obamacare become law, the health insurers clearly demonstrated just how far they were willing to go to keep that process alive. DrRich is certain they will be happy to go at least that far to block repeal.
So it came as no surprise when, just last week, the insurers sent Republicans their first, gentle reminders that they will not countenance any such thing. At the Reuter’s Health Summit in New York, David Cordani, the CEO of Cigna, warned Republicans, “I don’t think it’s in our society’s best interest to expend energy in repealing the law. Our country expended over a year of sweat equity around the formation of it.” And Mark Bertolini, president of Aetna, said that any attempt to repeal Obamacare, or even an attempt to hold up funding for it, would be “problematic.” “We can’t go back,” said Bertolini, “We need to keep moving, and we need to improve upon what we have.”
These seemingly mild-mannered statements should send a chill up the spines of Congressional Republicans. Any repeal of Obamacare necessarily and utterly relies on the acquiescence of the insurers, on their desire (or at least willingness) to continue with their current business model (possibly with some tinkering around the edges). Republicans, bless their innocent hearts, assume that’s what the insurers want.
But the truth is that the insurers know that their current business model is completely defunct, and far beyond any salvation. They see Obamacare as their only visible lifeline, and any serious threat to Obamacare as a threat to their survival.
The health insurers simply will not countenance a repeal of Obamacare. They will do whatever is necessary to demonstrate this fact to the Republicans. Their initial foray is suitably gentle. But once the repeal effort gets revved up, watch out. The insurers have already graphically demonstrated just how ungentle they can be.
If the Republicans really want to get rid of Obamacare, they’re going to have to propose an alternate solution that, among other things, provides the health insurance industry with a new and viable business model, one that seems at least as good to them as the rather paltry one Obamacare has promised. (If the Republicans want such an alternate solution, they have only to ask DrRich.)
DrRich does not think the Republicans have any idea of what may be coming their way, and from the very industry, no less, they consider to be their chief ally in the healthcare wars.
They should pay more attention.
Why Big Health Insurance Supported Obamacare, Part IV
In the past few posts (in particular, here and here), DrRich has shown why the health insurance industry embraced Obamacare, and indeed, took extraordinary steps to assure that Obamacare became the law of the land. This, of course, is especially interesting in light of the common perception that Obamacare constitutes a major defeat for the greedy health insurance industry. But the fact that big health insurance gave critical support to Obamacare is far more than merely interesting. It has major implications both to supporters of Obamacare, especially the ones who hope for an eventual single-payer outcome, and to opponents of Obamacare, many of whom hope to repeal it after the 2010 mid-term elections.
For the health insurance industry to have supported Obamacare, especially in the manner that it did, leads us to three conclusions.
First, while almost nobody realized it at the time, the passage of healthcare reform – in some form or another – turns out to have been inevitable. Quite simply, the insurance industry was telling us in every way they knew how that they just could not tolerate the status quo any longer. And since the insurance industry is critical to maintaining the status quo, then one way or another, the status quo had to end.
Second, the health insurance industry has just succeeded in demonstrating its great and continuing worth to the Progressive agenda, a fact that might make it more difficult than many think for Progressives to achieve their real goal – a single-payer healthcare system. If our Progressive leaders have been paying attention, the health insurance industry has taught them two important lessens in this regard.
The insurance industry has taught them that running the American healthcare system, especially under a covert rationing paradigm, is a messy, ugly and painful job, and further, that it is destined to turn out badly. This, indeed, is the chief lessen that the health insurance industry has learned over the past 15+ years. DrRich believes that many of the Progressives who are now in a position of leadership, and who are on the brink of achieving at long last a primary goal of the Progressive agenda – government control of healthcare – are aware of this fact. So they are probably not quite as self-assured about their ability to achieve healthcare nirvana, for instance, as the insurance executives were in 1994. They can see, from the experience of the insurance industry, that even draconian efforts to covertly ration healthcare are very likely to fail to slow healthcare inflation over the long term.
Furthermore, the insurance industry has taught them, if such a lesson was even necessary, just what a great boon it is to have at one’s disposal a ready villain, especially a villain which assumes the form of a business, and in particular a villain which is satisfied to play its assigned villainous role whenever called upon to do so. When things go south with Obamacare, as things will, it will go a lot easier for our Progressive leaders if they still have the insurance industry – even in a greatly diminished form – to blame. Having a foil to absorb the blame will not solve the problem, of course, but it will buy the Progressives more time, during which they can do what Progressives always do, and institute another round of “tough regulations” to hold the villains in closer check. So keeping the health insurance industry around, rather than going to a single-payer system, will indeed provide a critical level of additional insurance – albeit to our political leaders, and not to patients.
One need only look at the mortgage crisis to see another good example of the great utility of having an evil foil at one’s disposal. As readers may recall, the mortgage crisis resulted when the government instituted a free-wheeling easy-loan policy that defied every known rule of free markets, engaged Fannie and Freddie to make the easy loans, and then recruited private businesses to absorb, distribute and hide the risk. When the excrement predictably hit the fan, the investment banks (which, like the health insurance companies, did indeed behave very badly in response to fundamentally unsound governmnent policies) were offered up as the bad guys. It proved so useful to have serviceable villains during the mortgage crisis that the taxpayers were called upon to bail the villains out lest they disappear, and then, most recently, financial regulations were completely overhauled to make sure the villains will always be there. (DrRich calls this policy “Too Evil to Fail.”) In this way, Fannie and Freddie can continue making unsustainable loans, without ever having to take the blame for the consequences.
In other words, villains who reside in the domain of private enterprise are extremely useful to the Progressive program. The health insurance industry has just graphically demonstrated that it is every bit as helpful to the government’s takeover of healthcare as the investment banks were to the government’s takeover of the housing market. So DrRich, for one, bets that the health insurance industry will have a long – if unhappy – life as a government-regulated public utility, which can be called upon, whenever necessary, to display its fundamentally evil nature, in order to prove yet again that the problem is (even now!) not enough government regulation.
In contrast, once the government assumes full, direct control of healthcare (or any other aspect of the economy), then there will be nobody to blame but the government when things go wrong. (This is not strictly true. All-powerful authorities can always find somebody to blame. Historically, for instance, they often begin with the Jews, though today one must speculate that the obese will also be near the top of the list. DrRich, and, he suspects, most of his American Progressive friends, would much rather submit corporate villains to an *auto de fe* than go once again down this well-trod historical path.)
The role of Court Villain may not be exactly what the health insurance executives had in mind when they saved Obamacare, but since they had no choice in the matter, it will have to serve.
And finally, the third conclusion. Since the health insurance industry has been telling us that they are at the end of their rope, to the point that their best option was selling themselves out to President Obama and his ruthless refomers, then the idea that Obamacare can simply be repealed, or de-funded, or de-featured, or declared unconstitutional, so that we can just go back to the healthcare system we’ve had since 1994, is absurd.
Indeed, even though Obamacare is now law, the health insurance companies are by no means out of the woods. There remains a real question as to whether the provisions of Obamacare will be sufficient for the short-term viability of the health insurance industry. Most of the provisions of Obamacare – in particular, the individual mandates the insurance companies are relying upon for their One Last Windfall – do not go into effect until 2014.
At least until then, the insurance companies likely will need to keep increasing their annual premiums at astronomical rates in the attempt to remain sufficiently profitable. Can the system sustain such increases until 2014? Or, will the provisions of Obamacare have to be accelerated? Or, will Obamacare have to be revised, for instance, to add the much reviled (or much desired, depending on your political views) “public option?”
But while Obamacare may need to be accelerated or further radicalized, it cannot just be repealed. For the same reason that healthcare reform was inevitable, we can’t just go back. The insurance industry simply will not tolerate it.
What we all have to remember – and the main point of this series of posts – is that we can’t just get rid of Obamacare and go back to the way things were. If we think we need to substantially change Obamacare, so as to shed ourselves of the extremely disturbing spectre of government-controlled covert rationing (which will be far more destructive than the insurance-company-controlled covert rationing we’ve painfully endured for 15 years), we’ll need to have another solution in hand.
DrRich, of course, knows such a solution, and he has described it in detail elsewhere.
Why Big Health Insurance Supported Obamacare
Part III – How the Health Insurance Industry Saved Obamacare
DrRich explains it all in, Fixing American Healthcare – Wonkonians, Gekkonians and the Grand Unification Theory of Healthcare.
Why Big Health Insurance Supported Obamacare, Part III
When the time came, the support the insurance industry gave to President Obama’s efforts to reform healthcare followed four simple rules:
1) Do not actively oppose Obamacare. In stark contrast to its behavior during the Clinton’s effort to reform healthcare in 1993-94, this time the insurance industry never engaged its vast public relations resources to stifle healthcare reform. There was no Harry and Louise this time. (Actually, Harry and Louise – the original actors – did make a brief appearance, but now, like the insurance industry itself, they were older, wiser, and sadder, and this time they fully supported the proposed reforms.)
2) Submit quietly to demonization. A key strategy of the Democrats in passing Obamacare was to remind Americans repeatedly that the for-profit health insurance industry is fundamentally evil. This strategy was based on the time-honored precept that it is easier to get the unwashed masses to cooperate through hatred than through reason, and so, to gain their cooperation, one must give them something to hate. Obviously, this strategy meant that the health insurance industry had to accept its role as the bad guys in the reform debates without complaint, and without engaging in any serious self-defense.
3) Offer subdued public support to Obamacare. The AHIP (America’s Health Insurance Plans) issued public statements that cautiously supported President Obama’s healthcare reforms. But its support had to remain subdued and tepid, since Satan can’t be seen leading the hymns.
4) Whenever necessary, rise up and demonstrate to the world just how evil you really are. At the end of the day, this was the most important role the insurance industry played in advancing Obamacare. It was certainly their most active role.
It was not a difficult role to fill. Since 1994 the health insurers had engaged in the sorts of truly evil, inhumane, and reprehensible practices that are naturally engendered by covert healthcare rationing, and that harmed or killed many of their subscribers. The only difficult part was choosing which reprehensible behaviors to feature, and when to do it.
In at least two key moments during the fight over healthcare reform – June, 2009 and February, 2010 – when the proponents of reform felt their momentum lagging, the insurance industry intervened with gratuitous behaviors whose chief function was to remind Americans just how unremittingly wicked and inhumane they really are. In the second case, at least arguably, the insurance industry turned the reform effort from apparent defeat to almost certain victory. Indeed, it is not too much of an exaggeration to assert that, in the end, the health insurance industry saved Obamacare.
June, 2009: Say Hello To My Little Friend
The debate over Obamacare entered a new phase in May and June of 2009. It was during those months that the opposition to healthcare reform found its voice, and it began to seem as if perhaps the Obama steamroller could really be slowed, if not stopped. People were even beginning to say that many Democrats in Congress, after getting an earful from their constituents when they held their summer town hall meetings, would abandon any idea of supporting President Obama’s healthcare reforms.
Supporters of Obamacare decided it was time to invoke the demons. So in mid-June, the House Subcommittee on Oversight and Investigations called three health insurers to testify on the practice of rescission, and to face not only indignant Congresspersons, but also some of the people who had been personally harmed by their practices.
“Rescission” is when an insurance company voids subscriber’s health insurance (after happily accepting premiums from that subscriber, often for many years) once they get sick. Under some circumstances, rescission might be justifiable. It is legal and proper to cancel a policy if the subscriber is found to have purposely lied on the insurance application about a prior illness that is material to the current illness.
But health insurance companies for years have actively and aggressively practiced rescission on subscribers whose insurance applications contained inadvertent and non-material inaccuracies. (Just to put it in perspective, this kind of bad behavior is to be expected under a system of covert healthcare rationing, which again, is rationing by whatever means you can get away with.)
Furthermore, the health insurance industry does not merely engage in occasional unfair rescission practices; it has industrialized the process. It employs health insurance detectives whose job is to comb the prior medical records of subscribers who are newly diagnosed with certain, expensive medical conditions, looking for even trivial discrepancies on insurance applications, which they can inflate to “fraudulent” omissions, thus voiding the policy. These health insurance detectives are paid by commission, according to how much money their efforts can save the company. Many of them find it a very lucrative career.
So, at the cost of perpetrating a bit of inhumanity, rescission can save insurance companies a lot of money.
Consider some of the individuals who testified in Congress along with the insurance companies that day
During the hearing, the three health insurance executives were caused to listen to these and other incredible stories describing some of the inexcusable pain, suffering and death their unfair rescission practices had caused, and then were forced to listen to withering commentary by stunned Republicans and Democrats on the Subcommittee, whose own investigation had found that the three companies on the docket had retrospectively canceled the policies of 20,000 sick subscribers over the past 5 years.
After these heart-rending testimonies and the blistering attacks from extremely angry congresspersons, the executives were challenged by Chairman Stupak (D-Michigan) to now commit to discontinuing the practice of rescission unless intentional fraud could be shown.
All three replied, in turn, “No.”
Such a reply, in such a setting, almost defies belief. The only possible explanation, in fact, is that the insurance industry was stepping up to the plate, and embracing its assigned role as the Evil One in the great healthcare debate.
Even the most stone-hearted insurance executive can see that canceling the health insurance of a newly-diagnosed cancer patient, because she’d forgotten she’d required acne medicine before the prom 20 years ago, is just a bit unfair. But how did these three executives react? They did not attempt to deny such reprehensible behavior, or to explain it, or to defend it. They were simply defiant about it.
One is put in mind of Tony “Scarface” Montana, bereft of friends, family, allies and bodyguards (albeit because of his own actions), hopelessly surrounded by an army of heavily-armed assassins, screaming, “Say hello to my little friend!” then launching defiantly into a wild, bloody and spectacular suicide.
One cannot for a moment believe that that Richard A. Collins, chief executive of UnitedHealth’s Golden Rule Insurance Co., Don Hamm, chief executive of Assurant Health, and Brian Sassi, president of consumer business for WellPoint Inc., would have been stupid enough to publicly defy Congress over such an indefensible practice, if doing so was against their own long-term interests. Appearances to the contrary notwithstanding, they were not auditioning for a remake of Scarface.
This is not how an industry behaves which wants to court the goodwill of Congress at a critical juncture in its life cycle. This is not the strategy of an industry that wants Congress to defy its own party’s President and defeat healthcare reform, or that is begging Congress to give them another chance to figure out how to bring healthcare costs into check. This is not the behavior of any industry that wants to elicit any sort of favorable action from Congress. Indeed, these executives would have seemed more sympathetic and deserving if they had proposed instead to place live puppies on a spit and roast them over an open fire during half-time at the Super Bowl.
There is only one explanation for their astounding public defiance on this matter. Which is, it must have suited their long-term interests.
Recall that at the time of this remarkable hearing, there was growing skepticism about President Obama’s healthcare reform efforts, not only on the part of Republicans, but also on the part of a critical minority of Democrats in Congress. And for the first time since the election, there was some question about whether his reform plan would succeed in gaining sufficient support.
What must the health insurance industry do in the face of this faltering support for its desperate end-game? It must act to bolster Obamacare.
In this light the stark, defiant, public “no” uttered by the three insurance executives makes sense. “Look at us,” they were saying, “See how evil we are! We are utterly devoid of human decency, ethical obligations, or a sense of fair play. If we behave this defiantly when we are in the position of mere supplicants to your eminences, just think how we will behave if you fail to rein us in with new reforms! Abandon all hope, those of you who rely on us for your healthcare, and behold the congressional dogs that placed us in this position of power over your very lives!”
Given the headwinds the healthcare reform effort was to face during the next nine months, it is difficult to say with any certainty how much good the insurance industry did in June, 2009, when it took such an extraordinary step to remind Americans just how incredibly evil it is. But when the time came to help boost the President’s reform efforts, nobody can deny that the insurance industry stepped up and did its duty.
February, 2010: Raising Obamacare From The Dead
Things looked especially bleak for healthcare reform in early February of 2010. The incredible, possibly Constitution-defying, machinations Congress employed in its desperate attempt to pass healthcare reform had disgusted a majority of Americans, and momentum was clearly shifting to the opponents of Obamacare. And when Republican Scott Brown incredibly won the Senate seat in Massachusetts, robbing the Democrats of their crucial, filibuster-blocking 60th vote, many thought healthcare reform was dead.
But then out of nowhere, in early February, Wellpoint’s California subsidiary, Anthem Blue Cross, announced it was raising its already-astronomical health insurance premiums by as much as 39%, a move that promised to greatly increase the number of Californians who are uninsured.
The demoralized Democrats in the administration greedily capitalized on this new opportunity.
Kathleen Sebelius immediately fired off a very public letter to the company, demanding that they justify this unconscionable rate increase. And Wellpoint, lustily assuming its assigned role as villain, was delighted to reply, equally publicly.
We’re in a recession, Wellpoint brazenly asserted, and in a recession, like it or not, people exercise their prerogative to drop their health insurance. The only people who don’t drop their health insurance are the sick people, or those who are likely to become sick, which means that our cost per subscriber goes way up. So naturally, we have to increase premiums. By a lot. It’s just business. That’s just the nature of our current, unreformed healthcare system. So choke on it.
Wellpoint was also kind enough to mention (for anyone dense enough to have missed the point) that the need for higher insurance premiums would be nicely mitigated if everybody was mandated by the government to purchase health insurance.
Wellpoint’s anounced premium increase immediately triggered great volumes of delighted outrage by thankful Democrats, who desperately needed a large dose of “evil insurance company” at just that time. Wellpoint’s action reignited the proponents of healthcare reform, who were inspired to remind all Americans that this is what would happen to everyone if healthcare reform failed, and the greedy insurance companies had their way.
Stunned Republicans, seeing their impending victory over Obamacare evaporating before their eyes, could only issue a few lame and uncomfortable attempts to diminish the significance of Wellpoint’s unfortunate action. But to little avail. The momentum had shifted. At least arguably, it was Wellpoint’s decision to announce an unconscionable rate increase at this extremely critical juncture that put healthcare reform back on the road to adoption.
From a pure business standpoint, there was no good reason for Wellpoint to stir the soup at that moment. Wellpoint is the most financially sound private health insurance company. While its California subsidiary did lose money in 2009, overall the company performed quite well, and reported a very nice profit growth for the year. And with several of its competitors in trouble, Wellpoint stood to do comparatively well for the foreseeable future.
Furthermore, it has since been learned that Wellpoint’s math was bad. An independent actuary working for the California Department of Insurance reported on May 5, 2010 that the company had made “numerous errors” in calculating is rate increases, and further, that Wellpoint could cut its rate hikes substantially, and still meet its required 70% medical-loss ratio threshold.
It stands to reason that if Wellpoint really wanted healthcare reform to go away, they would have first checked their math before announcing seismic rate increases, and then, if such astounding rate increases were really needed, they would have waited a few months – while Obamacare died – before announcing their rate hike.
The last thing they would have done is to throw the reformers a critical lifeline just as they were going under for the last time.
In any case Wellpoint’s action, especially at that moment, seems entirely gratuitous. Wellpoint could only have chosen to do its demon dance, at such an inopportune moment, in order to revive Obamacare during its darkest hour.
And that’s precisely what happened.
In the final post in this series of articles, we will take a look at the implications of the insurance industry’s support of Obamacare, as we who find Obamacare less than desirable contemplate what we ought to do about it.
Why Big Health Insurance Supported Obamacare
Part IV – What It Means That the Health Insurance Industry Saved Obamacare
DrRich explains it all in, Fixing American Healthcare – Wonkonians, Gekkonians and the Grand Unification Theory of Healthcare.
Why Big Health Insurance Supported Obamacare, Part II
The fact that the health insurance industry supported Obamacare from the very beginning was entirely missed by the mainstream press. This is perhaps understandable, since a) the mainstream press does not understand the dynamics of the healthcare system, and b) during the Obamacare drama, the health insurance companies had been assigned, and had graciously accepted, their vital role as the Forces of Evil. To the famously credulous members of the mainstream press, it was easy to imagine that the insurers were actually among the opposition.
But the insurance industry supported Obamacare from the start – and even before the start. During the Presidential race of 2008, for instance, managed care companies donated far more money to both Barack Obama and Hillary Clinton than to any Republican candidate, even though both of these Democratic candidates publicly castigated the insurance companies for producing most of the problems in American healthcare, and promised to institute reforms that would drastically cramp their style and reduce their profits.
Why would the insurance industry support the very candidates whose chief healthcare strategy was to demonize them? Quite simply, it was because the insurance industry had nowhere else to go.
By the time Mr. Obama became president, the once proud, self-confident, and even arrogant American health insurance industry had been completely humbled. Like the old Soviet Union twenty years earlier, it still may have looked formidable from the outside, but it was really an empty shell. The industry had run out its string; it was entirely bereft of ideas. Its business model was completely broken, and it desperately needed an exit strategy. And it was due to the need to find a serviceable exit strategy that the industry supported Obamacare.
To understand what landed the insurance industry in this sad state of affairs, it is necessary to review its recent history.
The Rise of the For-Profit HMOs
When the Clintons set out to reform the American healthcare system in 1993, the health insurance industry initially claimed to support them. The Clintons had promised them a vast new market – the millions of heretofore uninsured Americans whose premiums would be paid, presumably, by the government.
But the alliance fell apart the moment the insurance industry began reading the massive tome of regulations the Clintons finally produced, and found in it much they didn’t like. Chiefly, they they didn’t like the parts that ceded full control of their industry to the government. So Big Health Insurance immediately turned against the Clintons, and spent millions of dollars introducing us to Harry and Louise (a “typical” American husband and wife who were viewed in numerous TV commercials discovering various appalling provisions of the Clinton plan). In the end, when the Clinton’s reform plan went down to ignominious defeat, the powerful health insurance industry, appropriately, got most of the credit.
Most of us Americans were happy at the time that the Clintons’ plan had been defeated, but during the debate over healthcare reform we had become convinced that the old way of doing healthcare wasn’t any good either. The healthcare system, we all knew by now, was bankrupting us. And something needed to be done about it. But with the Clinton plan off the table, what were our options?
In the ashes of the Clintons’ failed effort, the health insurers saw their golden opportunity. And they presented the American people with a savior. The savior was, of course, them.
The insurance industry made its pitch in a new guise which we Americans had never seen before. For the big fee-for-service insurance companies had transformed themselves into HMOs, and had fully assimilated the language of managed care. These were not the touchy-feely, non-profit HMOs that had been puttering around in the healthcare system for a decade or so. These were meat-and-potatoes, for-profit HMOs, run for the most part by hard-nosed business executives, and newly formulated for a new era of American healthcare.
And here is what they said: “Citizens! We all – employers, patients, physicians, hospitals, manufacturers and insurers – have just dodged a bullet. Thanks to us, the frightening socialist reforms of the Clintons have been soundly defeated. But where does this leave us? We stand now between Scylla and Charybdis, between the specter of nationalized healthcare on one hand, and the continued profligacy of traditional fee-for-service medicine on the other. And we cannot countenance either. But here,” they continued, “is a third way. A painless way, based on the sound principles of managed care, open markets, and free enterprise. Let healthcare become a business like any other business, and the market forces will find ways not only to cut costs but also to improve quality, and with no government intervention.”
The offer, in other words, was to turn healthcare over to the business professionals now running the New Model HMOs, who were cocky with the certainty that they could harness the efficiencies of the marketplace to control costs, make a big profit at the same time, and be feted as saviors to boot. Because we’re Americans and we know the benefits of capitalism, and because the other choices we faced looked even worse, we all said, “Go for it.”
This change led to the most rapid transformation the American healthcare system has ever seen, and within a few short years, the majority of Americans were enrolled in HMOs, or some other species of corporate managed care.
So HMO executives set out to control the cost of American healthcare, and to make a spectacular profit doing it. And for a few years, they seemed successful. Healthcare inflation slowed dramatically in the late 1990s, and HMO profits soared.
But it was all an illusion.
The Fall of the For-Profit HMOs
The initial impressive profitability of New Model HMOs was due to the one-time reduction in cost you always get when you implement efficiencies of scale (made possible by merging enterprises), and by instituting the new standardization techniques favored by managed care theory. These steps reduced the cost of healthcare for a while, but the underlying rate of healthcare inflation (which is mostly caused by new medical technologies and an aging population, neither of which are cured by managed care) was pretty much unchanged. So by the early 2000s, when these one-time cost reductions had been fully realized, healthcare inflation was right back on the same unsustainable trajectory it had been on before.
Unfortunately for the HMOs, the big profits they enjoyed throughout the 1990s could not last. Their rapidly expanding valuations were attributable not to their efficient management of healthcare, but instead, to the frenzy of mergers that rapidly ensued, and to the acquisition and privatization of not-for-profit public assets for a tiny fraction of their true value.
So not long after the turn of the century the for-profit managed care companies were getting very nervous. For the very first time in their history, HMOs were faced with the prospect of having to earn their profits, profits sufficient to satisfy their shareholders, by actually managing the healthcare of sick people. This is something they had never accomplished before, and, by the time the election of 2008 approached, they knew they never would.
By that time they had tried everything. Beginning in 1994, filled with confidence and enthusiasm and cheered on (initially, at least) by the public and by public officials alike, the health insurance companies had more than 15 years of more-or-less unfettered freedom to institute any efficiencies they wanted to. In the ensuing years insurance companies tried all kinds of legitimate ideas for reducing healthcare costs, such as managed care, gatekeepers, clinical pathways, disease management programs, pay for performance, wellness programs, medical homes, and even a ruthless consolidation of the industry to achieve “efficiencies of scale.”
They also tried every sneaky and underhanded idea they could think of for reducing costs, like cherry-picking the healthy patients, treating chronically ill patients like pariahs so they would go away, making access to specialty care as inconvenient as possible, forcing doctors to sign “gag clauses” to prevent them from telling their patients about certain treatment options, browbeating primary care physicians into zombie-like compliance with handed-down care directives, refusing to cover expensive-but-effective medical services, and canceling the policies of tens of thousands of patients after they get sick, based on trumped-up technicalities. Indeed, they tried everything short of dispatching teams of Ninjas in the dark of night to slaughter their most expensive subscribers in their beds. And finally, when all else failed, they instituted huge and unsustainable annual increases in premiums, to the point of driving their customers out of the market. (This latter move, of course, was an open acknowledgment that the industry had entered its death spiral.)
All these efforts were to little avail. The cost of healthcare continued to skyrocket, entirely unabated. And by 2009, when President Obama began his push for healthcare reform, the insurance companies knew they had no prospect of long-term profitability. Their business model was no longer viable, and, while telling soothing stories to avoid shareholder panic, they were urgently casting about for an exit strategy.
A drowning man will cling to any piece of flotsam that comes his way. What the insurance industry found floating by was Obamacare.
What Health Insurers Get From Obamacare
In return for its support in the healthcare reform battle, President Obama offered the insurance industry the graceful exit strategy it so desperately needed. Under Obamacare, for at least a few years the insurers hope to get One Last Windfall – namely, profits from the influx of previously-uninsured Americans whose premiums will be paid, or at least subsidized, by taxpayers. Here, the insurers are relying on the likelihood that the inflow of new premiums will, for a year or two at least, greatly outweigh the outflow of money they will have to spend caring for these new subscribers. Obviously, they will use every trick in their well-worn book to stave off expenditures for these new subscribers for as long as they can, but if they actually knew how to avoid paying healthcare costs indefinitely, they wouldn’t be seeking a government bail-out today. In any case, an inflow of new subscribers will be a very temporary source of profit for insurers. Hence, at best it is One Last Windfall.
What happens to the insurers after they exhaust this last windfall is still up in the air. Obamacare may, of course, eventually transition to a single-payer system, an outcome which many conservatives desperately fear, and many liberals fervently desire. In this case, there may very well be some final compensatory buy-out (or a buy-off) for the insurance companies. But more likely, the insurance companies under Obamacare will continue to exist essentially as public utilities. That is, they will exist as companies chartered by the government, which administer healthcare under the direction of the government, with the products they may offer, the prices they may charge, the profits they may keep, and the losses they may incur, determined solely by the government. It’s not glorious, but it’s a living.
And it’s much better than where they would have ended up without Obamacare. Which is why they supported it from the start.
Now that we know why the insurance industry supported Obamacare, in the next post we will explore how the industry, at no small cost to its own public image, supported the President when it counted most.
Why Big Health Insurance Supported Obamacare
DrRich explains it all in, Fixing American Healthcare – Wonkonians, Gekkonians and the Grand Unification Theory of Healthcare.
Why Big Health Insurance Supported Obamacare, Part I
When President Obama moved into the White House in January of 2009, he found in the Oval Office a bust of Sir Winston Churchill, a gift from Great Britain to the United States during the Reagan presidency, a gift meant to symbolize the close ties between our two nations. The new President quickly decided he did not want to look at it. And, as one of the first acts of his presidency (before advancing his Stimulus Package, or pushing healthcare reform, or even inviting Andy Stern to dinner), he had that bust placed into a crate, packed with sawdust, and shipped by the afternoon mail right back to England.
DrRich can think of several reasons why it might have been a better idea, instead of beginning his reign with a completely gratuitous insult to America’s longest and best and most-needed ally, for President Obama to quietly have had the bust moved to the White House basement, where Sir Winston could have spent the next four to eight years contemplating all those other now-obsolete or embarrassing diplomatic trinkets, such as the gold plate from the Shah of Iran, and the fine old portrait of Ferdinand and Imelda Marcos.
And here’s one of them.
Despite the fact that President Obama was elected by a wide margin, and that he brought with him a filibuster-proof majority in the Senate and a large majority in the House, and that he had loyal, powerful and dogged leaders in each chamber of Congress who completely supported his agenda, and that the major American media was largely behind him all the way, the passage of the Obamacare legislation was very hard-fought, and a very close thing. Its ultimate passage was a major victory for the President, and a great tribute to his persistence. In fact, DrRich believes that President Obama has not received nearly enough credit for the utter doggedness and persistence he displayed in the face of the terrible headwinds he sometimes encountered while passing his healthcare reform agenda.
Indeed, during this arduous process, he was almost Churchillian in his steadfastness.
So, had he kept it, President Obama might now gaze upon bust of Churchill and see not the man who had campaigned against people of color in order to keep the British Empire together, but rather, a man who, not unlike himself, had almost single-handedly saved western civilization from the forces of evil.
But there is another striking similarity between these two men, aside from the remarkable singlemindedness they displayed under pressure, which is: neither of them could have succeeded alone. Their iron will, their persistence, their personal courage, and their (too often weak-kneed) support from political allies would not have carried the day, had it not been for the assistance of a powerful, if silent, partner.
In 1940-41, when Winston Churchill stood virtually alone against the Nazi onslaught, and with dwindling resources and a badly beaten military tried to face down a powerful enemy, he utterly relied on the support – often tacit, rarely public, only occasionally material, but always firm and unwavering – of Franklin Roosevelt. And no matter how bleak things looked, Churchill always believed that, one way or another, in the end President Roosevelt and the great might of the United States would provide a way to final victory.
Similarly, when the President’s initially smooth path to healthcare reform was suddenly interrupted by a blitzkrieg of contentious town hall meetings, followed closely by the formation of the vociferously anti-Obamacare Tea Party movement, followed next by the surprising victory of Chris Christie for the governorship of New Jersey, and capped by the stunning ascension of Scott Brown to the Senate seat long held by Ted Kennedy, an event that appeared to leave the prospects for healthcare reform so bleak that a week later the issue was barely raised in the State of the Union address, and that caused even the sympathetic press and some of his fellow Democrats to declare the prospects for healthcare reform to be dead, President Obama had to reach deep within himself to find the resolve for one last push. And in that dark moment he, too, was able to draw courage from the tacit, rarely public, only occasionally material, but strong and unwavering support of his own silent partner.
That silent partner, of course, was the American health insurance industry.
And as was the case with Sir Winston, in the moment of greatest crisis President Obama’s own silent partner threw itself into the fight with great abandon, and ultimately enabled a final victory.
Why the health insurance industry supported Obamacare, and how it did so, should be of more than mere casual interest to Americans. It has major implications for anyone who favors repealing Obamacare or major parts of it, or de-funding it, or declaring it unconstitutional. Anyone who is approaching the 2010 mid-term elections thinking that we can just get rid of Obamacare and go back to the way things were – or even to a substantial modification of the way things were – had better understand what just happened.
So in his next few posts, DrRich will examine the role that the American health insurance industry played in the passage of Obamacare, and what the recent behavior of that industry implies as we decide what we should – and can – do next.
Why Big Health Insurance Supported Obamacare