Exploring Human Potential

The Three Pillars of the Medical-Industrial Complex – and the Physician. Part 4. Inside the White House – Cost vs. Coverage.

Posted on | July 11, 2016 | Comments Off on The Three Pillars of the Medical-Industrial Complex – and the Physician. Part 4. Inside the White House – Cost vs. Coverage.


Mike Magee

When President Obama entered office in 2008, and made the political assessment that it was now or never for health care reform, he saw waste and excess everywhere he looked. As New York Times columnist, Steven Brill, explained in 2015, he found: an $86 billion expenditure annually for ineffective treatments of back pain; obesity driven knee and hip joint replacements to the tune $17 billion a year; 31.5 MRI machines per million (5X the number in the UK); pharmaceutical prices twice the rate in other developed nations; a health sector lobbying effort that was now the largest in the nation and 4X the size of the runner-up Military-Industrial Complex; 62% of personal bankruptcies now the result of health care bills; 40 million + citizens uninsured, and many more under-insured; and a $3 trillion dollar a year sector employing 1 in 6 American workers.

Following the play book laid out by Governor Romney in Massachusetts, a plan originating with the conservative Republican Heritage Foundation a decade earlier, the President engaged Senator Max Baucus, the 66 year old chair of the Senate Finance Committee, and former South Dakota Senator and health care guru, Tom Daschle, to mount a legislative campaign. Inside the White House, he also constructed two health care teams to advance what became two competing themes – cost and coverage.

The cost team was led by former Clinton aid and Harvard Economics professor, Larry Summer, supported by the director of the Office of Management and Budget (OMB), Peter Orszag. Rounding out the team were two physician economists – Zeke Emanuel, the taciturn brother of Obama’s Chief of Staff, Rahm Emanuel, and Bob Kocher, who had headed up the McKinsey Consulting firm’s health policy division. On the coverage side were Liz Fowler, Baucus’s former health policy lead for the Senate Finance Committee, University of Texas health policy wonk and Daschle ally, Jeanne Lambrew, and Obama’s trusted adviser, Valerie Jarrett.

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There was considerable early discussion about cost which reflected the realization that healthcare had now become so large it was synonymous with the US economy at large.  As Steven Brill recounts in his book, Fed Chairman, Ben Bernacke, said as much at the time with these comments, “the decisions we make about healthcare reform will affect many aspects of our economy, including the pace of economic growth, wages and living standards, and governments budgets, to name a few.” Orszag came armed with numbers citing that the sector wasted at least $750 billion a year. And some years later, President Obama himself reflected that “I believed that reforming our Healthcare System wasn’t a side project, but a vital part of rebuilding our economy…It was clear that we couldn’t address the problem of the middle class falling behind in the long term, without taking on Healthcare in the short term.” But, as Princeton Health Economist, Uwe Reinhardt, stated at the time, “Cutting health care costs means cutting someone’s income.”

Ultimately the steering committee leaned on those who had done it before in Massachusetts. Jon Kingsdale, who ran “Romney Care”, advised the group,“I think politically…we went for coverage before we went for specific cost containment. Though there is a broad agreement on the need for containment, any particular cost containment idea means reducing revenue flow to somebody, and there is always strong opposition from even a smaller party than there is broad depth of broad support. So, I think that’s the right order…So we’re now wrestling with cost containment…trying to control costs too much dooms whatever you do, because the lobbyists will kill you.” And the former Harvard economics PhD candidate, Jonathan Gruber, whose faculty adviser had been none other than Larry Summers, and who was credited with constructing the design of “Romney Care”, advised that lobbyists would broadly support coverage extensions “because that creates more customers. What it won’t allow is cost control.”

They did begin with coverage, copying the 3-legged Gruber design of the Massachusetts law. This included: 1) insurance for all with prohibitions on exclusions for any reason including prior conditions, 2) mandated coverage, with financial penalties managed by the IRS, for those employers who fail to provide insurance, and those individuals who fail to purchase insurance on new federal and state insurance exchanges, and 3) financial subsidies for those who can not afford insurance, with decreasing amounts that eventually peaked at incomes of 400% of the poverty level.

As we’ve seen, cost eventually was addressed as well in “givebacks” from  Billy Tauzin of PhRMA; Karen Ignani, Democratic daughter of a Rhode Island firemen, former health policy expert at the AFL-CIO, and now head of the insurance lobby group, AHIP (America’s Health Insurance Plans); and Rick Umbdenstock, president of the American Hospital Association. The launch of the Obamacare website,, which was the public’s link to new exchanges, was an early disaster. But the memory of that faded rapidly as a new team rebuilt the site, and sign-ups exceeded expectations. At the same time scores of legal challenges to the law were repelled, but not without draining administrative time and energy.

As 2016 arrived, numbers of uninsured were in steep decline, and health care cost projections were being adjusted, in some cases, dramatically downward. The successes have come, in part, without the cooperation of Republican leaning states. 36 states refused to organize new exchanges, leaving it to the federal government to fill the gaps. And initially, many refused to expand Medicaid, after the Supreme Court declared they had the right to decline. Gradually, those states have been reversing those decisions, especially on Medicaid, since the federal government is committed to funding the expanded coverage at 100% for three years and at 90% indefinitely after that. But 18 states continue to hold out.

But in general, the public has responded positively to the Affordable Care Act, which the President insists he is more than proud to see labeled “Obamacare”. Although Republicans have finally suggested an alternative, which would include turning back the clock, and repealing the law, this is highly unlikely. What is more likely is that some of the original pieces of the legislation prioritizing coverage over cost, which were deleted in order to get the law passed, will be added in the future, especially if the Democrats win Congressional control.

In the final segment of this 5 part series, we’ll take a close look at the future of our nation’s premier medical institutions, and recommend to the AMA and AAMC an ethical path of action that decouples clinical care and medical education from scientific research.


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