From the library: America’s Bitter Pill, by Steven Brill

Last updated on: March 22, 2015 at 10:16 pm by Jane the Actuary

From the library: America’s Bitter Pill, by Steven Brill 2015-03-22T22:16:02-06:00 Jane the Actuary

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This book is a bit of a bait-and-switch; you all know about the famous “Bitter Pill” article Brill wrote for Time magazine (now behind a subscriber paywall — and, wow, that was two years ago!) and the title grabs you, in browsing the new book shelf at the library, on that basis, but this book, subtitled “Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System” is really an in-depth history of the genesis, passage, and implementation of Obamacare. What’s more, it’s a bit of a two-books-in-one, with a surprise ending.

Part one, the history of the whole thing, is, on the one hand, useful as a refresher, even if you followed the news reporting during this time, and, secondly, provides a window into the point of view of liberals on healthcare reform.

Brill starts with the context, and the “need” for reform, citing the (debunked) claim that 60% of bankruptcies are due to medical bills. He gives some background on Obama’s initial unpreparedness on the topic, and his later insistence that he’d differentiate himself from Clinton by opposing the mandate she supported. At the same time, members of Congress, including Max Baucus and Republican Chuck Grassley, were already talking about reform, and Baucus himself prided himself on his ability to make deals across the aisle. Hence, the initial plans were bipartisan, and the Romney model in Massachusetts was the basis.

Because Baucus and other players in the Senate and House had already been busy, Obama continued to let them take the lead, for good or bad. Grassley continued to provide input, and the Dems hoped to get Olypmia Snowe on board as well for some measure of bipartisanship. At the same time, the Cornhusker kickback, the Louisiana Purchase, and a multitude of other special deals brought reluctant Democrats on board. And dealmaking of all kinds occured with the industry players: getting each of hospitals, insurance companies, and drug makers to agree to concessions, on the rationale that they’d get more customers, and that half a loaf is better than none, or, rather, that agreeing to support limited concessions would be better than even more onerous taxes that the bill-writers threatened them with.

A window into the presidency: true to other reports, Valerie Jarrett is here portrayed as controlling the president, insisting that he be provided a “consensus” report from the various advisors, with any conflicts among them seemingly ironed out (due, in reality, to one or the other of them having won any given battle), with simple checkbox-type choices laid out. Obama also went “off-script” by casting the insurers as the bad guys in speeches, even though they weren’t the ones raking in the money; their profits weren’t that exceptional.

In the end, after the summer break, it became clear that the Senate bill would be passed by the 60-senator Democratic majority, with no GOP support. More horse-trading, and manipulation of the CBO “scoring” process. The House passes their version of the bill, but then Scott Brown wins the Senate seat formerly held by Teddy Kennedy, meaning that the usual conference process was foreclosed. The House would have to vote on the Senate bill as-is, and then the Senate, using the Reconciliation process (no filibuster required), could vote on a set of changes limited only to financial components of the bill.

So there you have it. Well, Brill then continues into the disastrous implementation of the exchanges, the court battles, the real-world feel-good stories of people with new coverage, and so on — but let’s skip ahead.

Throughout this story, Brill makes his opinion clear. To begin with, he simply doesn’t understand insurance.

Insurance plans offered by large employers, called group plans, do not screen individuals for their health history or even their age. That’s because the “pool” of people to be insured is large enough that the risks among them average out — which is what insurance is supposed to be about: large groups of people paying premiums in order to share hte risk that some of them will need help.

But . . the individual market was premised on the insurer gauging the risk — which is called underwriting — of each person applying for insurance.

In that sense it was not really insurance at all, because it was not about a large group covering for the losses of one of its members. Rather, it was about the insurance company making a bet on [an individual’s] risk of getting sick. Only it was making a bet using data about [her] age, her health history . . . and her lifestyle and circumstances.

All that data — all that underwriting expertise — gave the insurers [and unfair advantage] . . . like card counting in blackjack. (p. 38)

So — what do you do with that? He has it completely backwards. Insurance is completely about determining an individual’s risk of filing claims, and pricing premiums accordingly. You’d be pretty upset if, as a careful driver, you paid the same auto insurance premium as someone with frequent accidents for which they were at fault, or a history of speeding tickets. And of course you expect that your home insurance premium will reflect such features as proximity to the fire department or fire hydrant, overall crime rates in the neighborhood, or other elements. You’d also be pretty irritated if life insurance had the same premium rates for everyone, regardless of age. Yes, an insurance company can ultimately stay in business even when its customers file claims, only when it has a large enough customer base to balance out the claims that some file, but that’s not what makes it insurance.

Brill also makes no secret of his preference for a single-payer system like the UK, and uses the analogy that a healthcare plan that preserved the main outlines of the existing system — predominantly employer-provided, via insurance copmanies — is like “adding ornaments to the hood of a jalopy” (p. 66). He also makes his disappointment clear that proposals for a “public option” were dropped. And he strongly suggests that the Republicans had no real grounds for opposing Obamacare, other than a plan to oppose anything Obama supported, and were hence acting in bad faith, because, after all, the plan kept the general insurance-company-based structure, and had its antecedents in Romneycare and a Heritage proposal (side note: from what I understand, though I haven’t looked at this in-depth, “Romneycare” was based to a considerable degree on demands from the Democrats who controlled the Massachusetts legislature, and the Heritage proposal was not something that had previously gathered particularly much support, but was a single policy proposal by a staff member).

The other thing that you start to realize is this:

The core elements of Obamacare are pictured as a three-legged stool, with each element indispensable — but that’s because its backers start with the elimination of the ability of insurers to underwrite based on pre-existing conditions. When this is the starting point, then it’s clear that a mandate is necessary, and subsidies follow. But it doesn’t work in the reverse: it is entirely possible to provide a set of subsidies (or a complete voucher program) without upending the concept of insurance underwriting.

So that’s the history part of the book. And the two-books-in-one aspect? Because after all of this, and all of my gripes about his attitude about insurance, he actually, when it gets to the last section of the book, the “what I’d do to fix the system” part, he actually ends up where I’ve ended up: with a staff-model HMO as the predominant form of healthcare delivery. Hospitals are already buying up doctors’ practices, and building extensive networks, and in some cases are already sponsoring their own insurance plans. This concept has a lot to recommend it: putting together the medical expertise of doctors and hospitals with the cost control perspective of insurers ought to mean that, if each such doctor/hospital/administrative entity competes against others in a given city, that they’ll fight for market share based both on price and quality of care.

Of course, in larger markets, Brill envisions there being as many as four or five such entities, but in medium-sized cities, there may be only two, and in smaller towns, a monopoly — and in the last of these cases, he’d treat this entity as a utility with utility-like regulation. He’d also impose such regulations as an 8% operating profit cap, a salary cap at 60x the lowest-paid doctor, an ombudsman’s office, and regulated prices for the uninsured. Interestingly, he shops his idea around to some of the experts he interviews, and one, an executive at UnitedHealth Group, says, “well, that’s pretty much we do in Brazil” — which is interesting to me largely because I was reading about Brazil’s healthcare system for a project at work today.

So this is particularly interesting to me because a while back I was asking, “why didn’t the Staff Model HMO work?” It still continues, in California with Kaiser, but it’s not as if they’re such an extraordinary cost savings compared to other insurance options that others are emulating them. And yet you’d think it ought to work, though with some difficulties, as when you’re travelling and need medical care, and simply can’t access the provider network. What’s more, this system would, in many cases, really require leaving the current employer-based system; employers want nationwide insurance options, for the most part, and don’t want to make arrangements with multiple providers in each town, especially in the ideal scenario in which consumers have their choice of multiple competing hospital/doctor options in their particular area.

So there you have it.

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