Goodman at Health Affairs: New Approach to Health Economics

Recently published on Health Affairs, Dr. John Goodman reviews Steven Brill’s latest book, America’s Bitter Pill: Money, Politics, Backroom Deals, And The Fight To Fix Our Broken Healthcare System.

Secret meetings. Cynical e-mails. Hidden contributions to political action funds. “It was not the new way of doing business that Barack Obama had promised,” writes Steven Brill in America’s Bitter Pill.

On the campaign trail, the president had pledged: “We’ll have the negotiations televised on C-SPAN, so people can see who is making arguments on behalf of their constituents, and who [is] making arguments on behalf of the drug companies or the insurance companies.”

It was not to be, says Brill. Instead, key players in health care reform met behind closed doors in what years ago would have been smoke-filled rooms. Everyone knew that if you weren’t at the table you were going to be on the menu, reminding the unwary of the saying that “laws are like sausages. It’s better not to see them being made.”

Brill describes Sen. Max Baucus (D-MT), the powerful head of the Senate Finance Committee at the time, as someone prepared to deal. His staff carefully estimated how much health reform would be worth to each major constituency, and from each of them he asked for significant concessions in return.

The pharmaceutical industry, for example, would reap a $200 billion windfall during the first ten years after passage of what would eventually become the Affordable Care Act. In return, Baucus wanted $130 billion back in the form of lower drug prices under Medicare and Medicaid and a tax on drug company revenues. If not, there were threats on the table: Medicare could start negotiating drug prices, the government could make it easier for Americans to buy drugs from pharmacies in Canada, and comparative effectiveness research might discover that a lot of drugs simply aren’t worth what they cost.

Billy Tauzin, then head of the pharmaceutical trade group Pharmaceutical Research and Manufacturers of America (PhRMA), also came ready to deal: $80 billion in concessions was his bottom line, and he wasn’t going to budge. Ultimately, Tauzin prevailed, and Brill explains why: To have any chance of legislative success, the Democrats needed sixty Senate votes. Without PhRMA, Tauzin knew they would never get there.

What was true of Big Pharma was true of other industry groups that had the political power to derail the entire health reform effort. Health care special interests as a whole spend four times as much as the military-industrial complex on lobbying and campaign contributions, writes Brill.

The health insurance industry bargain was a bit more complicated, Brill explains. During negotiations the bar kept rising, and in the end the mandate to obtain coverage was not nearly as strong and the subsidies not as generous as the insurance companies had hoped.

Officially, America’s Health Insurance Plans (the trade group of the insurers) supported the Affordable Care Act. But Brill reveals that the “big five” carriers—Aetna, Cigna, Humana, UnitedHealthcare, and WellPoint—secretly contributed $86 million to a US Chamber of Commerce effort to derail the act.

My biggest disappointment in Brill’s narrative concerns the role of big business and big labor. He notes that there was a special tax on self-insured plans, in which employers act as their own insurers, but he fails to say what these interests got in return. What they got was enormous discretion over the content of their own plans. He also neglects the deals done to get the support of the American Medical Association, to quell the opposition of small business and the insurance brokers, and to get AARP to agree to huge cuts in Medicare.

Another disappointment in the book is Brill’s inadequate treatment of the health reform plan proposed by Sen. John McCain (R-AZ)—even though White House health policy adviser Zeke Emanuel favored the McCain approach and White House economic adviser Jason Furman had written a paper endorsing that approach when he was at the Brookings Institution.

Under Obamacare right now there are only about 8–10 million Americans who have good economic incentives on the buyer side. In the health insurance exchanges, or Marketplaces, people get a fixed-sum subsidy that does not increase if they buy more-expensive insurance. By contrast, almost everyone else in the country faces incentives that are just as perverse as they were before reform, if not worse. The 149 million Americans who get health insurance through employers, for example, can all lower their taxes by buying more expensive insurance. And with more coverage comes more health care utilization.

Brill notes that Sen. Ron Wyden (D-OR) at one point threatened to introduce a variation of the McCain approach right in the middle of the Obamacare negotiations. But Brill completely misses why that would have been so disruptive. Republicans would have had a hard time voting against the McCain approach. And with Wyden’s sponsorship, it might have attracted Democratic votes as well.

Think about that. Instead of a partisan, special interest–driven health reform law, we might have had a bipartisan bill that really reformed the health care system.

Originally posted at Health Affairs here.