The Affordable Care Act: Not a Government Takeover But a Privatized Bonanza

"(Obamacare) is not a government takeover of medicine. It's the privatization of health care."

Those words were spoken by Tom Scully, former administrator of the Centers for Medicare and Medicaid Services (CMS) during the George W. Bush administration. The occasion was as keynote speaker at an event in late October, 2013 hosted by the Potomac Research Group, a Beltway firm that advises large investors on government policy. He went on to say that Obamacare is more capitalistic than anything we've seen to date, and is going to make some people very rich.

Scully spoke from experience, for he was instrumental in the design of Medicare Part D, which opened up new roles and financial opportunities for pharmacy benefit managers (PBMs) when it was implemented in 2006. Scully was by then back in the private sector as an investor in MemberHealth, a smaller PBM, which increased its revenues in just three years from $6 million to $1.2 billion. After Medicare Part D was launched, Express Scripts, grew from a smaller Midwestern PBM to Fortune's 24th largest company in America. (1)

Though constantly attacked by the right as a government takeover, Obamacare (The Affordable Care Act, or ACA) is by no means a not-for-profit public program. Wall Street and investors recognize the potential for profits under the ACA. Bloomberg View notes that health care stocks went up by almost 40 percent in 2013, the highest of any sector in the S&P 500. (2) Hyping new investment opportunities for private exchanges under the ACA, Venture Valkyrie sees the likelihood to "turn chaos into gold: while much of the U.S. populace sees chaos as they watch Obamacare unfold, the investment community sees opportunity to prosper." (3)

Privatized Medicare plans give us a good example of how for-profit insurers have gamed the system and how friendly the government has been in response. Medicare + Choice (M+C) plans were started in the late 1980s and 1990s. From the beginning, they have successfully negotiated overpayments by the government compared to traditional Medicare, despite their track record of restrictions of choice, denial of services, under-treatment, discontinuity of care, gaming the system to avoid sicker enrollees, and abandoning markets where they were not sufficiently profitable. Their successor, Medicare Advantage plans, continue to receive generous overpayments. Again they have overpromised what they deliver, and have found ways to game risk assessment measures to claim that their enrollees are sicker than they are. A 2013 study found that $122.5 billion in overpayments have been made by the government since 2004. Incredibly, the Department of Health and Human Services (HHS) announced plans in April 2013 for $71.5 billion in overpayments over the next ten years. (4) Dr. Don McCanne's view of this overpayment scheme, stated ten years ago, is still an accurate description of the situation today as another yet another example of subsidized "competition" gone awry:

"Subsidizing private health plans is anathema to the Republican concept of using competition to ensure value. Private plans should be funded at no more than the same level as the traditional fee-for-service Medicare program, with appropriate adjustments for risk. The plans have already indicated that they would not participate without the subsidy to cover their greater administrative costs [and profits}. But that should be their independent decision. It is immoral to grant them extra Medicare Trust Funds in a phony effort to create a mirage that they are somehow competitive. Take away the extra subsidy and then let them compete if they dare to. Removing the subsidies would meet the Republican goal of reducing waste of Medicare funds, and would meet the Democratic goal of being certain that the traditional Medicare program receives at least the same level of public funding, risk adjusted, as the Medicare + Choice (now Medicare Advantage) options." (5)

Since the ACA involves few if any real price constraints across private health care markets throughout the medical industrial complex, it has unleashed a whole new round of marketeering and profiteering from the IT industry to insurers and hospital systems, where new profits can be secured as the government subsidizes many millions of newly insured without effective price constraints.

What is so interesting about the distorted health care debate is the blatant hypocrisy on the right as it opposes and calls for repeal of Obamacare. In the ACA it has government offering new markets with minimal regulation and millions of new customers for private health care services. From conservatives' perspective, what's not to like about these new expansive Wild West markets? And yet the right is vehemently opposed to Obamacare, even as it offers no credible alternative of its own.

Tom Scully has it correct. As an insider who has straddled the fence between government and the private marketplace, he calls Obamacare what it is -- a potential bonanza for vested interests on the supply side, with friendly government subsidies creating new, expanded markets. The pharmaceutical and insurance industries, together with other corporate stakeholders, were protected from the start, and are still in the driver's seat.

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Suggested Reading:
1. Davidson, Adam. The President wants you to get rich on Obamacare. The New York Times Magazine, October 30, 2013.

2. Soltas, E. Nobody should get rich off Obamacare. Bloomberg View, December 3, 2013.

3. Suennen, L. Here come the exchanges . . . And an opportunity to turn chaos into gold. Venture Valkyrie, October 6, 2013.

4. Outrage of the Month: Medicare Advantage--Whose advantage? Health Letter. Public Citizen 29 (6), June 2013.

5. McCanne, D. Quote of the Day. Comment on the Medicare Prescription Drug, Improvement, and Modernization Act of 2003., accessed November 26, 2003.