The Triumph of Harry and Louise : How the Mighty Insurance Lobby Skunked Clinton and Demolished His Health-Care Plan

Congratulations, Harry and Louise. As Congress huffs and puffs toward a health-care finale, you two earnest fortysomethings should have plenty of champagne on ice. Thanks to you and your backers, Congress is unlikely to dramatically reform the insurance industry, even as insurers mount a sweeping takeover of health care in America.

Talk about a turnaround. Just a year ago, reformers were still seriously discussing a Canadian-style medical plan that would have meant the end of private health insurance as we know it. Just a few weeks ago, Congress was still debating caps on insurance premiums and stringent restrictions on how insurers could write policies. But no more. Caving in to an onslaught by an army of insurance lobbyists spending tens of millions of dollars--probably more than any other industry--Congress has “run up a white flag to the insurance companies,” says Rep. Jim McDermott (D-Wash.), a strong proponent of a Canadian-style plan. “There’s no question they have won.”

Insurance lobbyists, however, are not yet ready to claim victory. “We are still in the thick of it,” says Bill Gradison, president of the Health Insurance Association of America, which represents small and medium insurance companies, accounting for a quarter to a third of the health-insurance market. But when confronted with a list of HIAA’s major positions, Gradison admits he’d prevailed in most major battles--so far.

“First off, you’ve won single-payer,” I say, talking recently to the lean, quietly intense former congressman, whose office is a mile from Capitol hill.

“Of course,” he answers. And Clinton-style premium caps? “Yes, they’re gone, too,” he says.

And on we go, down a list that includes mandatory alliances, pure community ratings, “hard” triggers on price controls and more--all of which the insurance industry, including HIAA, has defeated or weakened. (Other industry lobbyists, including the Group Health Association of America, representing health maintenance organizations, and the Alliance for Managed Competition, representing large insurers, have agendas that differ in some respects from HIAA’s, but the basic aim is the same: less government regulation.) No bill at all would make them even happier.

Insurance lobbyists still complain about provisions in certain bills, including expansion of Medicare benefits to cover the poor and taxes on high-priced premiums, but prospects for both are growing dim.

Of course, few people outside the debate have any idea what a “hard” trigger is, or a mandatory alliance, or pure community rating. Which is part of the reason Americans are so confused about health care, telling pollsters that they would rather worry about the comparatively simple problems of crime and the economy. It’s also why Harry and Louise, talking like lovable characters in a sitcom, have been so devastatingly effective. Take the following ad, called “Choices,” which ran last fall:

Gentle music plays as the camera closes in on a couple sitting at their kitchen table, surrounded by stacks of bills, an adding machine and yellow pads. The words “Sometime in the Future” flash across the screen, presumably referring to a period after a Clinton-health-care bill is passed.

“But this was covered by our old plan,” says Louise, looking at a bill.

“Oh yeah! That was a good one, wasn’t it?” says Harry. Dressed as an everyman in a flannel shirt, he is trying to make sense of the paperwork spread out on the table. He punches numbers into the adding machine. He jots down figures and then crumples up the paper in frustration. A voice-over says: “Things are changing, and not all for the better. The government may force us to pick from a few health care plans designed by government bureaucrats.”

“Having choices we don’t like,” says Louise, her brow knotted in concern, “is no choice at all.”

“They choose,” says Harry.

“We lose,” says Louise.

Wow! Here was a couple looking like a ‘90s version of Ozzie and Harriet saying reform might leave us worse off than we already were, even as President Clinton promised his plan would make us feel better. And what was that they said about bureaucrats and choice? Could that be true?

In fact, the original Clinton plan would have increased choice for many Americans by mandating that everyone have at least three plans to choose from--including a fee-for-service option that would have allowed policyholders to see the doctor of their choice, but for more money. As for the bugaboo of government bureaucracies, the ads were largely correct; Clinton was opting for a much larger federal role in managing health care. Whatever the facts, the ads played brilliantly to viewers’ fears. They worked even better, however, at terrorizing senators and representatives, the real targets of the ads, who saw them as an attack against something not even mentioned by Harry and Louise--mandated alliances. This was a Clinton idea that would have required states to organize people not insured at the workplace into huge pools, a measure the HIAA bitterly opposed, fearing such alliances might reduce the power of insurers to dominate the market--particularly the small and medium insurers represented by Gradison’s association. Congressmen also saw the ads as a display of the insurance lobby’s raw power; they understood that an industry capable of spending almost $15 million on Harry and Louise might unleash similar invective come election time against those who voted the wrong way.

Harry and Louise also gave the HIAA added leverage over Congress when Gradison went to the Hill looking for deals. At one point this spring, he strong-armed Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), then the President’s point man on health care in the House. In a remarkable display of lobbying muscle, Gradison reportedly persuaded his former colleague to remove or dilute key Clinton provisions in exchange for yanking Harry and Louise off the air. The agreement later fell through when Rostenkowski resigned as chairman in the wake of his indictment for mishandling government funds, prompting Gradison to launch more Harry and Louise salvos.

NOT FAR FROM CAPITOL HILL, BUT A WORLD AWAY, 37-YEAR-OLD Kim Brady cuddles two West Highland Terriers, O’Reilly and Macintosh, as she struggles to take a breath in her Columbia, Md., home. Brady would make a great fill-in for Louise--amiable, believable and as anguished as the actress on television. Except that Brady’s apprehensions are not only real, they also offer a glimpse into a brave new world of health care controlled not by government, but by private insurers, whose victory on the Hill is merely a part of their larger triumph outside Washington. In recent months, insurers have loosed a radical restructuring of American medicine, using as their blueprint something called “managed care.”

Theoretically, this is a system where insurers set limits governing patient care and then closely monitor interactions among patients, doctors and hospitals to ensure compliance. The idea is to enhance quality and to cut costs by eliminating waste and unnecessary procedures. In practice, however, managed care is fast becoming synonymous with a no-frills, Wal-Mart style of care that not only limits a patient to a set list of cut-rate doctors, pharmacies and hospitals but also has become, in the eyes of some, more interested in cutting costs than in providing quality. This perception is particularly apropos right now, as insurers eagerly embrace managed care, signing up so many new enrollees in the past few months that one in three Americans is now in these plans. HMOs alone grew from 30 million enrollees in 1987 to 45 million last year.

There are several types of managed-care plans, including HMOs, which usually offer the most restricted services and doctor choices for a low prepaid premium that covers all allowed care. Other plans, which may also use a prepaid premium, usually offer more choices but still restrict policyholders to specific hospitals, doctors and procedures and either prohibit the use of outside providers or charge extra for such services.

New managed-care plans are sprouting up everywhere, as even the “Big Five”--Aetna, Prudential, CIGNA, MetLife and Travelers--begin to shift millions of customers from fee-for-service plans to managed care. Whether this switch is good for patient care, however, remains to be seen.

For Kim Brady, the verdict is already in. Born with a defective aortic valve and a hole in her septum, she had open-heart surgery in 1989 to insert an artificial valve. Soon after, she joined an HMO, only to find she could no longer visit the specialist monitoring her pacemaker. Told to see the HMO’s own cardiologist as a cost-saving measure, Brady found herself growing so weak and breathless she had to stop working, becoming a virtual invalid. “The HMO cardiologist admitted he knew nothing about this pacemaker,” she says. “He kept tinkering with it anyway, but nothing worked.”

It was then that Brady contacted the pacemaker’s manufacturer. They put her in touch with their specialist, who agreed to see her for free. “He told me the problem was that my pacemaker was not adjusted properly,” she says. “He fixed it, and almost instantly, I could breathe. I could exercise. I could live again.” Back with the HMO cardiologist, her health again declined and she now faces her third open-heart surgery.

Kim Brady’s experience is perhaps extreme, though she’s hardly alone. Indeed, in an ironic twist to Harry and Louise, Brady and others talk about problems with the system that sound remarkably similar to the ads--the fears and frustrations of dealing with bureaucracies, the limitations on physician choice and so forth. Yet Kim Brady is talking about insurers, not the government.

So is William Webb, a retired Washington, D.C., schoolteacher who says he found out after double-bypass surgery that his cardiologist of 11 years was not on the approved list of his managed-care plan--which meant he was stuck paying more than $1,000 in fees. Webb says he is paying out of pocket because he doesn’t want to lose his doctor, though he may soon have to drop the cardiologist because he can’t afford him.

And so is Steven Silas, a physician who resigned from an HMO in Albuquerque after being ordered to give elderly patients a cheap brand of antihistamine that made them sleepy, reserving the more expensive drugs that have no side effects for younger people who might sue if they became drowsy on the job.

And Kathy Kosciewicz, who works in Wilmington, Del., and lives in Baltimore, two hours away, because her husband works in Washington. Expecting her first baby this fall, Kosciewicz was told by her HMO that she must deliver in Delaware. “But what if I have trouble on the way?” she asked, noting that she lives within minutes of several Baltimore hospitals. “What if the baby comes too fast?” She’s forced to stay with relatives in Delaware shortly before her due date.

In fact, lawmakers have been receiving complaints about managed care in many states and in Washington, though comprehensive data remains elusive. “We have no formal system of collecting complaints,” says an official at the Health Care Finance Administration, which oversees Medicare, though surveys taken by HCFA suggest dissatisfaction with managed care is increasing. At the top of the list, says this official (who asked not to be named), were patients who complain they weren’t covered outside their own city, those who were denied access to doctors of their choice and those who have quality-of-care concerns. Agency officials are also investigating fraud cases in which insurance agents sign up members without properly explaining managed-care restrictions or costs.

According to Princeton economist Uwe Reinhardt, however, none of these complaints is likely to be as pervasive as the headache of coping with managed care. A supporter “in theory” of managed care, Reinhardt nonetheless says it’s just a matter of time before we become overwhelmed with too many choices offered by competing plans and by employers who change insurers every few months to get a better deal. “The sheer dynamism of this thing is going to drive people bonkers,” says Reinhardt, warning that abrupt shifts in plans, policies and doctors will get worse and that constant change is already replacing the stability most patients crave in health care.

Managed-care insurers dismiss such talk by pointing to surveys that report high rates of satisfaction. For instance, the Henry J. Kaiser Family Foundation last year released a survey, jointly conducted with the New York-based Commonwealth Fund, that claimed 85% of the nation’s 45 million HMO enrollees are either very satisfied or somewhat satisfied with their coverage. Critics dismiss these surveys as misleading because most HMO policyholders are young and healthy and seldom use their insurance except for routine care. They also note that managed-care programs are growing so quickly it is impossible to know how millions of new enrollees will feel in coming months.

For good or ill, everyone agrees that managed care is changing American medicine at a very fundamental level: We are shifting from health care as a private matter between patient and physician to a world in which insurance companies will be interfering in even the smallest details of a patient’s treatment.

A bedrock shift is also underway for doctors and hospitals, who once dominated health care on a more or less equal footing with insurers. Health-care providers, in fact, are among the big losers in the reform wars, as insurance companies have outflanked them to become the ultimate arbiters of health care, with non-physician clerks and accountants increasingly second-guessing medical decisions and some doctors shut out of managed-care rosters. Hospitals, too, are finding their autonomy greatly impinged by managed care, as plans force deep discounts or pay flat fees for patients regardless of their condition or the complexity of their cases.

Some of this cutting down to size is richly deserved by physicians and hospitals, who are as responsible as anyone for skyrocketing health-care costs. But as Reinhardt points out, “a health system run by fed-up doctors is not going to be a good health-care system.” He also suggests there is a danger in treating physicians too shabbily, since they might be pushed into fighting back by unionizing and using their still considerable clout to stage boycotts and strikes against insurers. “You may end up with a world of bilateral monopolies,” he says, “big, powerful health plans pitted against unionized doctors.”

AMERICANS MIGHT BE WILLING TO SACRIFICE FREEDOM of choice, physician autonomy and even their beloved get-whatever-you-want style of medicine if they truly believe it will save them money. But is this happening? Are insurers really bringing down health-care expenditures?

On an individual level, many policyholders say yes. For instance, an editor in New York City--he’s healthy and in his early 40s--says he can now go to a doctor virtually any time for only $15. “Before,” he says, “I paid three or four times that out of pocket because I had a high deductible.” Nationally, too, most health-care observers agree prices are dropping. Medical inflation fell last year to 5.4%, the lowest in several years, in part because managed care meant less was paid to hospitals and doctors.

This modest drop hardly signals a steep decline. For not only was 5.4% still twice the rate of overall inflation, health-care spending in real dollars also increased last year by a whopping 10%, according to an estimate from the Congressional Budget Office. This means we paid almost $75 billion more for health care in 1993 than we did the year before, more than the federal government spent on transportation or fighting crime. It’s an amount so prodigious it would rank in the Top 10 of the Fortune 500 if it were a company. And this is just the increase in spending.

But how can this be, if managed care is supposed to cut costs?

The answer, in a word, is profits, which gobble up whatever savings are achieved by managed-care cutbacks. In a business where a profit margin of two cents on the dollar was once considered acceptable, several top HMOs tracked by the Sherlock Company, a Pennsylvania-based managed-care consulting firm, have earned profit margins averaging from six to eight cents on the dollar since 1992, reaching almost nine cents so far this year. This comes at a time when many managed-care companies are seeing operating income spiral upward by as much as 150% a year as enrollments go up and payouts to providers go down. Overhead also remains a drag on overall health-care savings, siphoning off 10 to 50 cents on the dollar.

Not all insurance companies are doing well. According to Larry Leisure, a managed-care analyst at Price Waterhouse, some plans are “going down fast” as competition heats up and strong regional companies begin to beat out locals unable to force deep cuts on doctors and hospitals. In some areas, says Leisure, huge managed-care companies are even reducing premiums, taking a short-term hit on profits in an effort to kill off the little guys, a strategy some economists warn will lead to regions of oligopolies where large insurers dominate major markets.

Yet premiums are hardly coming down across the board, as some managed-care proponents claim. HMO premiums, for instance, increased by nearly 9.6% last year--considerably less than recent hikes as high as 16% though still far above 1987, when they rose by about 4%.

Thus we have an industry lowering premium increases a little, but not a lot, while slashing payments to providers by as much as 61%, an equation that will continue to equal big profits for companies that can pull it off.

The question remains: Can we afford to have insurers earning nine cents on the dollar at a time when health costs continue to soar? And what does such an intense focus on earnings mean for patient care? According to Reinhardt, companies earning high profits deserve them as a kind of fee, or “bounty” for cutting out fat in health care--i.e., for forcing doctors and hospitals to close down extra beds and to eliminate wasteful spending practices. But we are talking tens of billions of dollars being handed over to an industry that doesn’t exist in most countries, which may begin to explain why health care in the United States costs as much as three times that in other Western nations.

OF COURSE, THERE IS GREAT IRONY IN THE INSURANCE industry’s gains. For it was President Clinton who originally championed private insurance as the vehicle for reform, ending any hope for enacting the system favored by Franklin D. Roosevelt and Harry S. Truman: national health insurance. Clinton also insisted on emphasizing managed care as a magic elixir to reduce spending, elevating what had been one idea among many to star status.

The insurance lobby, however, played Clinton and his health-care gurus for the naifs they seem to be. Not only because they refused to endorse the President’s plan but also by betraying his faith in them when they unleashed the likes of Harry and Louise, a blitz the President made worse by attacking the ads, Bill Gradison’s HIAA and other critics, giving them a gold mine of free exposure in the media.

The full extent of Harry and Louise’s victory, however, remains to be seen. Congress may still pass a bill with some insurance reforms, such as a ban on insurers denying coverage for pre-existing conditions and a guarantee that policyholders will not lose coverage or be dropped when they move or change jobs. But unless Congress imposes meaningful cost controls, which seems unlikely, insurers will simply raise their rates to compensate for these added risks. This would launch another round of surging costs, something that’s happened every time Congress has tried to brake health-care spending in the past.

This time will be different, however, as many of us find ourselves living in a nation where health care is as restricted, rationed and regulated as it is in Canada, Germany and other countries with socialized medicine, even as we pay hundreds of billions of dollars more to keep Harry and Louise’s creators in business. Here, the rationers will be private insurers, not the government.

Oh, and by the way, the real Harry and Louise--actors Harry Johnson and Louise Caire Clark, both of Los Angeles--are “generously insured” through the Screen Actor’s Guild, according to a People interview last spring. For their sakes, let’s hope “generous” means that America’s First Couple of insurance won’t be dropped, lose their doctor or find out a future illness is not covered. As for those Americans with less generous plans, or no plan at all, inaction on Capitol Hill will mean fending for themselves. Meanwhile, the insurers are gearing up to take the battle to state legislatures if Congress fails to act.