Deadly Spin (17 page)

It was indeed an amazing array, and I was quite proud to be a part of the effort to make sure that the Clintons’ vision of reform would never be realized. At the time, I was still a true believer in both the concept of managed care and the idea that the free market could work in health care if the government would just get out of the way. It never occurred to me that fearmongering and fake grassroots initiatives were anything to get worked up about, because they were being used to defeat a reform plan that I thought would be bad for the country—and for the companies that enabled me to pay my mortgage.

By early fall of 1994, shortly after HLC’s radio campaign ended, the Clinton plan was officially dead. Senate majority leader George Mitchell pulled the plug on reform on September 26 when it became clear he would never have enough votes in the Senate to overcome a filibuster. “The $300 million that the health insurance and other lobbies had spent to stop health care reform was well invested,” Clinton wrote ten years later in his memoir.
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Republican allies of the HLC did their jobs during the debate by debunking the Democrats’ narrative and claiming that the characterization of the U.S. health care system as dysfunctional was a canard. They argued that the United States actually had the world’s finest health care delivery system and that Clinton’s government-managed health care would place significant barriers between Americans and their doctors.

A large part of the political effort by the GOP to kill the initiative was aimed at bringing back the “glory” of the Reagan years by continuing to deregulate the economy. The stakes couldn’t have been higher. Antigovernment conservatives pulled out all the stops, according to Theda Skocpol, a Harvard University sociologist, who wrote in a 1995 postmortem,

Ideologues and think tanks launched lurid attacks on the plan. Small-business members of the National Federation of Independent Business and other associations mobilized against [a provision in the bill that would have required all employers to offer coverage to their employees]. Portrayals of the plan as a bureaucratic takeover by welfare-state liberals were regular grist for Rush Limbaugh and other right-wing hosts of hundreds of news/talk radio programs that reach tens of millions of listeners (indeed, more than half of voters surveyed at polling places in the November 1994 election said they tuned in to such shows, and the most frequent listeners voted Republican by a 3-to-1 ratio). Similarly, Christian Coalition groups, already attacking Bill and Hillary Clinton on cultural issues, began to devote substantial resources to the anti–health care reform crusade. Moderate Republicans who had initially been inclined to work out some sort of compromise began to backpedal in the face of such antireform pressures from within their own party. And interest groups whose leaders had been prepared to bargain over reforms soon were pressured by constituents and Republican leaders to back off from cooperation with the Clinton administration and congressional Democrats.
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REFORM DEFEAT LOOSENED
UNBRIDLED GREED

Without energetic support in Congress, the initiative simply ran out of political and parliamentary steam. “The president and his allies could have done a better job than they did of explaining the regulatory mechanisms in their plan,” wrote Skocpol. “But even if the Clinton administration had communicated more effectively, the plan might still have gone down to a defeat that backfired badly against the Democrats. The bedrock fact is that the Clinton plan promised too much cost-cutting regulation and not enough payoffs to organized groups and middle-class citizens pleasantly ensconced in the existing U.S. health care system.”
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That November, the political bill for Clinton’s miscalculations came due. Riding a wave of antigovernment sentiment that the health care reform battle had aroused, Republicans took advantage of an anemic Democratic turnout and won control of the House for the first time in forty years and the Senate for the first time since 1986. The party coalesced around its Contract with America to restore the Reagan revolution. Republicans would shrink government, reduce taxes, reform the welfare system, impose term limits, and fulfill all the dreams conservatives held dear. The contract made no mention of health care.

Against this backdrop, the industry with the most to lose under Clinton’s health care reform suddenly stood tall and unscathed. Instead of facing new regulations that threatened the health insurance business model, insurers faced conditions that were perfect for letting the invisible hand of capitalism spread aggressive management of medical care across the country—and create enormous profits in the process.

It’s clear that voters were frightened away from Health Security by the specter—conjured up by the insurance industry and its business and political allies—of government bureaucrats coming between them and their doctors. What Americans got instead was private insurance companies doing exactly the same thing.

Within months, the Blue Cross and Blue Shield Association took a little-noticed but monumental step. The trade group, a bastion of nonprofit health insurers that included the founders of the modern health insurance system, amended its bylaws to permit members to convert into public-stock companies.
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In one fell swoop, the association’s new rules delivered a for-profit jolt to the health insurance industry. The change refocused health plans away from local service and nonprofit status. They now dreamed of consolidation into for-profit, national entities that could crush weaker local competitors.

For years, the Blues had enjoyed state and federal tax breaks granted by state lawmakers who recognized their special status as “insurers of last resort.” But after Medicare and Medicaid were created in 1965, the Blues no longer had to cover millions of elderly, disabled, and poor Americans—fundamentally changing the private health insurance market.

The Blues defended their transformation as necessary for raising money from investors to keep pace with commercial competitors unburdened by public service traditions. They also avoided discussing increasingly sophisticated “underwriting” techniques designed to help avoid covering people with health risks—even though they were the very people who needed insurance protection. In this new environment, Blues executives claimed that consolidation would create economies of scale, spreading fixed overhead costs over larger numbers of customers and saving money for everyone.
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But these executives had a far simpler motivation for such mergers: They would earn bigger pay packages for managing larger businesses, and if they could convert them to for-profit companies, they stood to earn even more.

Fourteen Blue Cross plans, most of which dominated their statewide markets, converted from nonprofits into for-profits, and by 2004 all fourteen wound up as wholly owned subsidiaries of WellPoint: the Blue Cross plans in California, most of southeastern New York, Georgia, Indiana, Missouri, Virginia, Colorado, Wisconsin, Connecticut, Maine, Kentucky, Ohio, New Hampshire, and Nevada. About one third of nearly one hundred million Blue subscribers in the United States now belong to a for-profit plan operated by WellPoint, which today has the biggest enrollment of any private insurer.

Not all the conversions went the way the Blues wanted. A few state insurance commissioners pushed back. In 2002, Kansas insurance commissioner Kathleen Sebelius, now President Obama’s secretary of health and human services, rejected Blue Cross Blue Shield of Kansas’s request to switch from a mutual insurance company to a stock company so it could be acquired by WellPoint. Sebelius argued that the transaction would push premiums higher after the health plan raised its profit margins to match those of other commercial insurers. The decision was politically popular, leading her to the governor’s mansion in Topeka.
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In the same year, Maryland insurance commissioner Steven Larsen, who later joined Sebelius’s team soon after Obama signed the 2010 health care reform bill, was asked by nonprofit CareFirst Blue Cross Blue Shield to allow the company to convert to for-profit status, a decision that would also affect sister companies providing Blue Cross coverage in Delaware, the District of Columbia, and northern Virginia. CareFirst’s top executives claimed to be motivated by concern for the long-term welfare of the company and the millions of customers who depended on it for their well-being. The truth was that the transaction was engineered to maximize the executives’ personal compensation, as revealed by an article in the
Washington Post
on September 16, 2002: “The 10 top executives of the region’s largest health insurer stand to collect $47.9 million in severance benefits if state regulators allow the nonprofit CareFirst BlueCross BlueShield to be acquired by for-profit WellPoint Health Networks Inc.,” it stated. “Severance packages, including payroll and excise taxes, would cost $78 million if all 10 left after a merger.”

Six months later, Larsen, who is now deputy director of the U.S. Office of Consumer Information and Insurance Oversight, concluded that CareFirst’s board was trying to sell the company at a below-market price and that it had failed to show that conversion was necessary for it to stay in business.
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Time has borne out Larsen’s judgment.

The consumer victories in Kansas and Maryland effectively halted Blue Cross conversions, but they did not stop nonprofit or mutual Blue Cross franchises from paying eye-popping compensation. For example, Blue Cross Blue Shield of Wyoming had only one hundred thousand members in 2007, but CEO Timothy Crilly collected a salary of $471,000, or $4.71 per member, the highest per capita rate in the nation.
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MONEY FOR INVESTORS, BUT NOT THE
SICK AND DYING

Of course, the Blues didn’t corner the market on health insurance industry consolidation. Mergers and acquisitions became routine for commercial insurers as well, and the government did nothing to limit them. All told, health insurers have been involved in more than four hundred corporate mergers since 1996, according to antitrust lawyer David Balto, a former Federal Trade Commission policy chief.
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As mergers and acquisitions swept the health insurance marketplace and competition waned, the Department of Justice antitrust division and the FTC stood by silently. During the Bush administration, the FTC and the DOJ took no consumer-protection anticompetitive-practices actions. The FTC’s health care industries antitrust enforcement was targeted almost exclusively at providers—usually small groups of doctors, many of them in rural areas.

The result of this laissez-faire regulation was that a cartel of huge for-profit insurance companies set the tone for the entire industry. It’s no coincidence that huge institutional investors, like Dodge & Cox, Barclays Bank, BlackRock, and T. Rowe Price, along with moneymen like Warren Buffett, had substantial holdings in the health insurance industry (although Buffett, significantly, sold the millions of shares he held in WellPoint and UnitedHealth Group in early 2010).

In February 2010, the AMA issued its annual report on the state of competition in the health insurance industry, and the results were alarming. In twenty-four of forty-three states covered by the AMA report, the two largest insurers had a combined market share of 70 percent or more. That was up from eighteen of forty-two states the year before. Among the 313 metropolitan markets, an astonishing 99 percent were “highly concentrated” under Department of Justice guidelines, up from 94 percent the year before. In 54 percent of metropolitan markets, at least one insurer had a market share of 50 percent or greater, up from 40 percent of metropolitan markets in 2009.
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“The near total collapse of competitive and dynamic health insurance markets has not helped patients,” said AMA president Dr. J. James Rohack. “An absence of competition in health insurance markets is clearly not in the best economic interest of patients.” The AMA urged the DOJ and state agencies to more aggressively enforce antitrust laws “that prohibit harmful mergers.”

Health insurance companies have used their enormous size to engage in anticompetitive behavior, rig the system to impose unaffordable premium increases, and deliver massive and growing profits for themselves and their shareholders. As premiums have skyrocketed, insurers have cut benefits, increased out-of-pocket costs for workers, and shed millions of enrollees who can’t afford insurance. Americans have been left to pay more while getting less and less. For those without enough money for private insurance and not eligible for government-sponsored coverage, there are now only two options: buy coverage that burdens them with soaring out-of-pocket costs or go “naked.”

The health care marketplace has been distorted by insurance companies wielding concentrated power because of their unique role as both sellers of insurance and buyers of health care services. Insurers have run roughshod over weaker health care providers, paying independent doctors and hospitals cut-rate fees. With only a handful of large insurers operating in most local markets, weak doctors and hospitals have had no choice but to accept the offered fees, even if it’s unprofitable to do so. In self-defense, many hospitals have merged or formed alliances, and many doctors have joined large group practices to have more clout at the bargaining table, contributing to an endless upward spiral in health care costs.

In markets where there still is significant competition among insurers, some of them have been able to make sweetheart deals with special providers—a region’s biggest hospital, a famous academic medical center, or a children’s hospital with no nearby competitor—who have used their size and stature to negotiate more favorable rates than those of other nearby providers.
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Insurers aren’t hurt by these various levels of deal making. As long as they can continue to pass costs on to consumers through higher premiums and cost sharing, insurers can’t lose. In this environment, they could only be affected if competitors were to purchase the same medical services for less and use the savings to steal customers. With little competition and unfettered capacity to pass on costs, insurers have had no real need to curb growth in provider fees. Without additional choices in the marketplace, consumers have had no choice either.