Sebelius and DeParle Keep Health Reform Going

Once a week, almost without fail, Kathleen Sebelius and Nancy-Ann DeParle escape their Washington offices to grab some food and talk health care. Along the way, Sebelius, President Barack Obama's Health and Human Services Secretary, and DeParle, his Deputy Chief of Staff, have forged a bend-don't-break strategy that since October has given governors and companies as much leeway as possible as they start to implement Obama's health-care law.

They have freed more than 900 businesses and groups from some of the law's requirements, including easing up on the minimum insurance coverage employers must offer employees. They are now working with states on budget-cutting plans that will result in thousands of people being dropped from Medicaid, the government health plan for the poor. Obama tacitly endorsed the strategy of flexibility on Feb. 28 when he said he would support legislation letting states opt out of the health-care law to set up their own systems starting in 2014. That's three years earlier than the act now provides. States would still have to provide coverage equal to that of the federal law.

All the forbearance has a goal: push implementation of Obama's besieged overhaul through to completion, without worsening the political discord. "We wanted the least disruption possible," says DeParle, before 2014, when everyone must purchase health insurance and most employers must provide coverage or pay a fine. "They found if they weren't flexible they were going to end up being criticized for being the cause of lots of people losing their coverage," says Robert Laszewski, president of Health Policy and Strategy Associates, an Alexandria (Va.) consulting firm that works with health insurers. "I give the Obama team credit for being careful here. It is just realpolitik."

Sebelius, 62, a former Democratic governor from a Republican state, and DeParle, 54, once a private-equity executive, understand the art of the deal. "They don't see themselves as in an adversarial relationship with the states," says David Axelrod, Obama's former chief political adviser, who has returned to Chicago to start the President's reelection campaign. Sebelius, largely playing the outsider role, educates state officials on the law's benefits and addresses their concerns, she says from a suite of offices overlooking the National Mall. DeParle plays the inside game as the top White House official making big-picture decisions on when to step back and when to hold firm. Having been a director of several health-care companies "made me more open to listening and understanding" the industry, DeParle says from her White House office.

There's rarely a week when the two don't meet, and they e-mail constantly. Often they gather in the White House. Sebelius says the main challenges for the health law "are not necessarily philosophical" anymore. Now "they're practical," she says.

The daughter of former Ohio Governor John Gilligan, Sebelius won the top job in Kansas in 2002, when 46 percent of voters were Republicans and only 27 percent were Democrats. Last month she worked with Arizona Governor Jan Brewer, a staunch Republican, on the state's plan to knock 250,000 childless adults off its Medicaid rolls to save $541 million, thus cutting almost half of an estimated $1.2 billion deficit. "There are extraordinary budget challenges that all the states are trying to figure out," Sebelius says. Washington Governor Christine Gregoire, a Democrat, says Sebelius knows that health reform will work only if the governors implement it. "She's not taking her foot off the pedal because of lawsuits or because of talk in Congress," Gregoire says.

DeParle, who ran the Tennessee welfare program in the late 1980s, has served on the boards of Boston Scientific (BSX), a medical device maker; DaVita, a supplier of dialysis services; and pharmacy benefit manager Medco Health Solutions (MHS). From 1997 to 2000, she led the precursor agency for the Centers for Medicare and Medicaid Services. DeParle was instrumental in granting waivers that allowed McDonald's (MCD) and 29 other companies to cover low-wage workers with bare-bones "mini-med" plans, rather than holding them to higher coverage standards in the law. Since then minimum-coverage requirements have been waived for plans affecting more than 2.4 million people, according to a government list. "These mini-med policies, it's not what I'd want for my family, but that doesn't mean it's inherently bad and wrong," DeParle says. She says her aim, whenever possible, is to deliver on Obama's promise that "if you like what you have, you can keep it."

The bottom line: To keep health reform on the rails until full implementation in 2014, officials are granting generous waivers to companies and states.

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