What Everyone Knew About Obamacare and Wouldn't Say

When customers complain about a product change, here’s what not to do: Declare that your customers are idiots who don’t understand that they didn’t actually want the thing you took away from them.

As I noted the other day, when Obamacare "czar" Jeffrey Zients announced that the health-insurance exchanges would be working by Nov. 30, he bought the administration some time. Unfortunately for them, most of that time has so far been spent discussing "rate shock" and policy cancellations: the folks in the individual market whose policies were canceled thanks to new regulations and will now have to replace them with something more expensive or that carries a higher deductible.

We don't actually know how bad a problem this is. Mathematically, two things must be true: There are some people in this country who are losing their current insurance and gaining better insurance at a lower cost, and there are some people in this country who are losing their current insurance and getting worse insurance at a higher cost. And there are some who are now getting insurance they couldn't afford at all before.

We don't know how many people are in each group. Nor do we know how big a problem rate shock will be for the folks who experience it. But that doesn't matter for the news story, which, in the absence of data, will be a war of anecdotes. Not ideal, but frankly, most of the folks now complaining about the "rate shock" anecdata were often the same folks who eagerly showcased every anecdotal story about a poor single mom who was excited to be getting insurance for the first time. So I find it hard to take their distress too seriously.

The law's supporters have made some quite reasonable points in response -- that rate shock was an unfortunate but necessary consequence of broadening coverage to people with pre-existing conditions, and it may not even affect that many people. You can't make even the nicest of omelets without breaking eggs. And some of them did mention this at least once during the run-up to the law's passage.

They've also, however, made some arguments that were, at the very least, extremely ill-considered, such as saying that the insurance people had before wasn't "real insurance" and implying that they are too stupid to know what's good for them. As product marketers will tell you, when customers complain about a product change, here's what not to do: Declare that your customers are idiots who don't understand that they didn't actually want the thing you took away from them. If you don't believe me, just ask the folks on the New Coke team.

There's also a growing trend toward suggesting that either the people complaining about rate shock or their insurers are engaged in some sort of nefarious behavior. I'm pretty sure that David Frum and Bob Laszewski are neither lying nor too stupid to understand what is happening with their insurance policies, and David's experience basically matches mine shopping on the Washington exchange -- not shopping for some outside policy that might be more expensive than the marvelously cheap insurance that I've seen people insisting must be available on the exchanges.

Nor do I find it easy to believe that nonprofit insurers such as Kaiser Permanente, with a strong commitment to accessible and affordable insurance, are sending these letters to spite the government or cheat their members. If they're sending cancellation letters, I tend to think that this is because those letters have to be sent.

But the most interesting line of defense is, essentially, that "we always knew this was coming." The Official Blog Spouse chronicled the emergence of this meme last summer, and it hasn't changed much since. It's interesting because it's both completely true and completely false -- depending on who you think "we" is.

It's absolutely true that every policy wonk who was writing or speaking about the law in 2009 and 2010 understood that it would mean premiums going up for at least some people, many of whom would lose insurance that they would have preferred to keep. Who it would be depended a bit on how the law unfolded, of course, but at a minimum, young, healthy people who made more than $46,000 a year could expect to pay higher premiums for the same level of coverage. They had to; mathematically, it was not possible for coverage to expand and everyone's premiums to go down -- not unless you spent more in premium subsidies than the government could afford.

But I think it's also clearly true that the majority of the public did not understand this. In 2008, the Barack Obama campaign told them that their premiums would go down under the new health-care law. And the law's supporters believed it.

Q. Obama says his plan will save $2,500 annually for my family. How?

A. Through a combination of developing efficiencies in the system, expanding coverage to all Americans, and picking up the cost of some high-cost cases. Specifically:

-- Health IT investment, which will reduce unnecessary and wasteful spending in the health care system. Examples include extra hospital stays because of preventable medical errors and duplicative diagnostic tests;

-- Improving prevention and management of chronic conditions;

-- Increasing insurance industry competition and reining in the abusive practices of monopoly insurance and drug companies;

-- Providing reinsurance for catastrophic cases, which will reduce insurance premiums; and

-- Ensuring every American has health coverage, which will reduce spending on the "uncompensated" care of uninsured people who end up in emergency rooms and whose care is picked up by institutions and then passed through higher charges to insured individuals.

The part about reinsurance was always nonsense; unless it's subsidized, reinsurance doesn't save money for the system, though it may reduce the risk that an individual company will go broke. But the rest of it all sounded entirely plausible; I heard many smart wonks make most of these arguments in 2008 and 2009. However, it's fair to say that by the time the law passed, the debate had pretty well established that few to none of them were true. "We all knew" that preventive care doesn't save money, electronic medical records don't save money, reducing uncompensated care saves very little money, and "reining in the abusive practices" of insurance companies was likely to raise premiums, not lower them, because those "abuses" mostly consist of refusing to cover very sick people.

But that information did not get communicated very well to the public. The administration reiterated that, in Obama's words, "We will keep this promise to the American people. If you like your doctor, you will be able to keep your doctor. Period. If you like your health-care plan, you will be able to keep your health-care plan. Period." They also promised that the average family would save $2,500 a year on premiums. There was no fine print about how some folks would lose their insurance, be forced into narrower doctor networks, and see premiums rise, even though they seem to have known what was going to happen.

And the wonk community did not exactly hasten to disabuse them. The risks of higher premiums for some were acknowledged in an aside, but they were not headlined. Unless you were reading volumes of writing about health care very carefully indeed, it wasn't hard to miss that little detail -- at least one former Democratic staffer whose boss voted for the law seems to have been unaware that this was a possibility until her rates increased.

For that matter, I still see regular commenters on the liberal wonk blogs that I read repeating the canards about cost savings from uncompensated care, preventive medicine and so forth. I know that many of them were reading those blogs when they pointed out that these things aren't true, but it doesn't seem to have sunk in, perhaps because these pronouncements did not get quite as much airtime as analysis of the benefits of the law.

In other words, the wonks were living in what I think of as "Expertopia." It's a shiny, happy place where everyone knows all the salient facts that the experts have agreed on. The problem is, everyone else was living in the real world, where what "everyone knows" is some compendium of anecdotes from friends, the political speeches they watched, and what they managed to read on the Internet or hear on the news in five-minute bursts snatched from their workaday lives.

To see what I mean, consider two stories.

In 2002 or thereabouts, I had some bloggers over to my house. Late at night, after more than a few drinks, we began discussing equity research reports. (Two of the bloggers were in finance, and I'd spent an unproductive summer at Merrill Lynch between my first and second years of business school.) We were discussing ... actually, I don't remember what we were discussing, but somehow, the topic of buy ratings came up.

"No one reads the buy ratings," said Blogger No. 1. "You read equity research reports for the notes."

Blogger No. 2 agreed vigorously. "The buy and sell ratings are obviously meaningless."

And I was tempted to agree. After all, I'd taken multiple classes designed to teach me how to "back out" the most common accounting dodges from financial statements, as well as a summer trying to employ those skills in the real world. And all my professors, and everyone I dealt with, agreed on certain things. For example, ignore the buy/sell ratings, because "hold" actually meant "sell" and "sell" meant "short." You read equity research reports for the verbal analysis, not some meaningless rating. "Everyone" also knew that you had to ignore ephemera like "big bath" accounting, in which a company facing a big negative charge loads as many negative changes onto the balance sheet as possible, so that they can later reverse some of those charges and have a happy upside surprise.

But hold on a minute. Why were companies bothering to massage their earnings if "everyone knew" that you had to back out the surplus charges? And why were equity research analysts issuing hold ratings when they actually meant sell? Presumably because not everyone knew that all these things were meaningless. Some people were buying stocks based on these insider tricks. But we never talked about them. We never even thought about them.

By "we," I don't mean people writing the reports and financial statements; I mean those of us who were busily selectively revising them to get a truer result. No one in my financial-statement analysis class ever raised a hand and asked why companies engaged in all those gymnastics; we simply took it as a given. Some of my classmates presumably went on to write financial statements and equity research reports. But even those of us who didn't just sort of ... forgot about the folks all that "useless" writing was supposed to impress. We took it for granted that "everyone" knew which bits to pay attention to, and which bits were high-test horse pucky.

That's right: We'd moved to Expertopia. And the folks who didn't live there were so far away that we couldn't see or hear or even think of them.

The second story comes from the George W. Bush administration. I told it in my profile of Austan Goolsbee, the former head of Obama's Council of Economic Advisers:

A senior economic adviser for George W. Bush once told me a rather haunting story about the administration's decision to sign the 2002 farm bill, one that illustrates why Obama might have liked having Goolsbee around. Like virtually all sound economists, Bush's advisers disliked the bill, a subsidy-laden monstrosity that was considerably worse than the farm bill that had preceded it in 1996 -- but they reluctantly allowed it to go forward, because they thought passing the farm bill would buy legislative support for something they considered even more important: the authority the president needed to advance the next round of treaty negotiations at the World Trade Organization.

As compromises go, this one didn't seem too bad, so Bush's advisers put on their game faces as the president signed it into law on May 13, 2002, with a touching speech about providing a safety net for farmers. All went well until later, when someone cracked a joke about how "we don't need another farm bill." The president, shocked, demanded an explanation. "What's wrong with the farm bill? No one told me to veto the farm bill." The adviser wasn't trying to hide the football, but had just assumed that Bush knew. So had everyone else. It was so obvious to economists, no one thought to tell the president.

I could keep elaborating the examples: How come in the conservative wonk community, pretty much "everyone knows" that tax cuts don't raise revenue ... but among the conservative rank and file, almost "everyone knows" that they do? But I've made my point, and you're probably getting a little weary. Let's move on.

In Expertopia, you make unfortunate but necessary trade-offs, like making some people pay morefor worse insurance in order to help others pay less for better insurance. But there's no need to say so, loudly and often, because the trade-offs are obvious -- hardly worth mentioning, even. Maybe you make an offhand reference once or twice, just to keep your bases covered, or maybe you forget. It doesn't matter much, one way or the other, because how on earth could you think that everyone was going to get to pay less for better insurance? I mean, we're talking basic math here.

We forget that when millions of people hear the president say that "if you like your insurance, you can keep it" and "premiums will fall by $2,500 for the average family," they don't listen with a wry smile. They don't write it off as understandable hyperbole from a president who is working to pass a great law with a few flaws. They don't think this speech means "I care about getting the best insurance for as many people as possible." They think it means "if you like your insurance, you can keep it" and "premiums will fall by $2,500 for the average family." If they didn't think it meant that, they might not have supported the law.

That gap matters -- not least because there's a strong risk that when the people outside Expertopia finally figure out what everyone knew all along, they will turn on the people who allowed all that tacit knowledge to stay tacit. That's what Democrats are now experiencing. It's kind of surprising, in fact, that not everyone knew this was going to happen.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

You might like: