[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

HEALTH REFORM IN THE 21ST CENTURY:
EMPLOYER-SPONSORED INSURANCE

=======================================================================

HEARING

before the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

__________

APRIL 29, 2009

__________

Serial 111-17

__________

Printed for the use of the Committee on Ways and Means

----------
U.S. GOVERNMENT PRINTING OFFICE

52-376 PDF WASHINGTON : 2011

For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001

COMMITTEE ON WAYS AND MEANS

CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington SAM JOHNSON, Texas
JOHN LEWIS, Georgia KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee ERIC CANTOR, Virginia
XAVIER BECERRA, California JOHN LINDER, Georgia
LLOYD DOGGETT, Texas DEVIN NUNES, California
EARL POMEROY, North Dakota PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon DAVID G. REICHERT, Washington
RON KIND, Wisconsin CHARLES W. BOUSTANY, JR.,
BILL PASCRELL, JR., New Jersey Louisiana
SHELLEY BERKLEY, Nevada DEAN HELLER, Nevada
JOSEPH CROWLEY, New York PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky

Janice Mays, Chief Counsel and Staff Director

Jon Traub, Minority Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.

C O N T E N T S

__________

Page
Advisory of April 22 announcing the hearing...................... 2

WITNESSES

Elise Gould, Ph.D., M.P.Aff., Director of Health Policy Research,
Economic Policy Institute...................................... 7
J. Randall MacDonald, Senior Vice President for Human Resources,
IBM Corporation................................................ 22
Kelly Conklin Owner, Foley-Waite Associates, Bloomfield, New
Jersey......................................................... 30
Denny Dennis, Senior Research Fellow, NFIB Research Foundation... 36
John Sheils, Senior Vice President, The Lewin Group, Falls
Church, Virginia............................................... 41
Gerald Shea, Special Assistant to the President, AFL-CIO......... 55

SUBMISSIONS FOR THE RECORD

Joe Solmonese, Statement......................................... 108
Judy Waxman, Statement........................................... 109
National Small Business Association, Letter...................... 116

HEALTH REFORM IN THE 21ST CENTURY:
EMPLOYER-SPONSORED INSURANCE

----------

WEDNESDAY, APRIL 29, 2009

U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m., in Room
1100, Longworth House Office Building, Hon. Charles B. Rangel
[Chairman of the Committee] presiding.
[The Advisory of the hearing follows:]

ADVISORY

FROM THE
COMMITTEE
ON WAYS
AND
MEANS

CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
April 22, 2009
FC-8

Hearing on Health Reform in the 21st Century:

Employer-Sponsored Insurance

House Ways and Means Chairman Charles B. Rangel (D-NY) announced
today that the Committee will hold another hearing in the series on
health reform. This hearing will focus on employer-sponsored insurance.
The hearing will take place at 10:00 a.m. on Wednesday, April 29, 2009,
in the main committee hearing room, 1100 Longworth House Office
Building.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.

BACKGROUND

Nearly 160 million people receive health benefits through their
employer, making it the predominant form of health coverage in America.
Employer-sponsored insurance expanded significantly during World War II
as a way for employers to provide extra benefits to compete for scarce
workers when the National War Labor Board (NWLB) froze wages.
Clarifications of the Internal Revenue Code in the 1940s and 1950s
established that employer-provided health insurance coverage is
excludible from an employee's taxable income. As a result, the number
of employers offering coverage and the number of people receiving
health coverage at their place of employment grew. While the rate of
employer-sponsored coverage has dropped in recent years and millions of
workers are not eligible for coverage offered by their employers, it is
still the primary source of coverage for nearly 63 percent of
individuals under age 65. It is also a stable source of coverage for
millions, with 98 percent of firms with more than 200 workers
consistently offering coverage for the past ten years.

One advantage of employer-sponsored insurance is that workplaces
pool large groups of people irrespective of health status, in order to
balance the health risk of employees. Small businesses and their
employees do not have the same advantage of large risk pools, tend to
have higher administrative costs than large employers, and are exposed
to premiums that can vary greatly from year to year. As a result, large
firms are more likely to offer coverage than small firms, with an
estimated 99 percent of firms with 200 or more employees offering
coverage as compared to 62 percent of firms with 3 to 199 employees.

A challenge for employer-sponsored health insurance is that costs
have risen faster than inflation or wages. Between 2001 and 2007,
premiums for employer-sponsored health insurance rose 78 percent, while
general inflation increased at a rate of 17 percent and workers'
earnings increased at a rate of 19 percent over the same time period.
These rising costs have forced some employers to reduce, alter or
eliminate their offerings. Workers that still have offers for coverage
from their employers must shoulder an increasing share of the cost.
From 2006 to 2008, the percentage of workers facing deductibles of
$1,000 or more increased from ten percent to 18 percent. A higher rate
of individuals working in firms with less than 200 employees saw this
rise in deductibles, with employees facing deductibles of $1,000 or
more growing from 16 percent to 35 percent.

To minimize disruption for the overwhelming majority of those with
private coverage today, health reform must preserve and encourage
employer-sponsored insurance. In addition, reform must help slow the
rise in health costs for all health care purchasers, including
employers and individuals, through delivery and payment system reform
proposals, as well as other reforms.

In announcing the hearing, Chairman Rangel said, ``A healthier
American workforce is a more competitive workforce in the global
marketplace. Health reform efforts need to build on, and strengthen,
employer-sponsored insurance, which provides coverage for approximately
160 million people in working families. American businesses should be
lining up to help comprehensive health reform become a reality so that
we can ensure that everyone has affordable care that meets their needs
and work to reduce the rate of spending and control health care costs
to enable economic growth.''

FOCUS OF THE HEARING:

The hearing will focus on trends in employer-sponsored health
insurance and strategies to strengthen and build upon job-based
coverage.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee Web site and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``Committee Hearings''. Select the hearing for which you would like to
submit, and click on the link entitled, ``Click here to provide a
submission for the record.'' Once you have followed the online
instructions, complete all informational forms and click ``submit'' on
the final page. ATTACH your submission as a Word or WordPerfect
document, in compliance with the formatting requirements listed below,
by close of business Wednesday, May 13, 2009. Finally, please note that
due to the change in House mail policy, the U.S. Capitol Police will
refuse sealed-package deliveries to all House Office Buildings. For
questions, or if you encounter technical problems, please call (202)
225-1721.

FORMATTING REQUIREMENTS:

The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.

1. All submissions and supplementary materials must be provided in
Word or WordPerfect format and MUST NOT exceed a total of 10 pages,
including attachments. Witnesses and submitters are advised that the
Committee relies on electronic submissions for printing the official
hearing record.

2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.

3. All submissions must include a list of all clients, persons,
and/or organizations on whose behalf the witness appears. A
supplemental sheet must accompany each submission listing the name,
company, address, telephone, and fax numbers of each witness.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.

Chairman RANGEL. Good morning.
This is the fourth in a series of hearings that we have had
for national health care. We have a very exciting panel of
witnesses. We hope, in working with Energy and Commerce, that
we can combine their jurisdiction over Medicaid with our
jurisdiction over Medicare; and at the end of the day make
certain that no one falls between the cracks as we move on the
President's wish to sign a mandate that we have quality care,
lower cost and maximum coverage, for everyone.
Today we will be concentrating on the employer-sponsored
insurance and making certain that we recognize how important it
is and that we do everything to strengthen it. And as the
President says, If you like what you have got, we are not
thinking about doing anything except trying to lower the cost
across the board.
We want also to make certain that the private insurance
plans do take the high-risk people, that preconditions are not
an issue. And we will be entertaining the question of employer
mandate, we will be entertaining the question of a public plan.
All of these things will be discussed.
And so, again, sometimes on our side, David, we believe
that the hearings are the best that we can do. But it is almost
not fair to the witnesses to prepare and then have 5 minutes
and just the questions. But we do hope all of you will make
yourselves available if we have a roundtable where you don't
have the 5 minutes, where you can expand on your visions as to
how we can make a healthier America.
I would like to yield at this time for Mr. Camp.
Mr. CAMP. Thank you for yielding, Mr. Chairman.
And before I make my opening statement, I just want to take
a moment and recognize the chairman's commitment to the issue
before us, health reform in the 21st century, and his
receptiveness to working together to find the right way to
reform health care in this country.
Now, last week, I requested additional witnesses so that we
could fully vet the complexities involved in improving both
health insurance and health care. And I just want to say that
the chairman has granted the minority an additional witness.
Mr. Chairman, I need not tell you, there are several new
Members on this Committee, particularly on our side as well,
and this is not an insignificant act on your behalf, and I want
to thank you personally very much for that.
I look forward to continuing this approach to health care
reform; and hopefully, this will spur further bipartisan talks
and negotiations. I remain confident that we can find common
ground.
Health care reform should not be a partisan issue. It is
not a partisan issue; it is not a Republican issue or a
Democrat issue. It is an American issue.
It is not to suggest we don't face difficult questions. In
fact, today's hearing will explore one of the tougher
challenges we face: How do we protect employer-sponsored
insurance and the access to affordable health care it provides
millions of Americans? And today we will hear from several
employers, one of them Denny Dennis of the National Federation
of Independent Business, which represents hundreds of thousands
of small businesses, businesses that typically employ about
five people, and collectively create 60 to 80 percent on the
new jobs in America.
Of particular concern to these job providers and creators
is a Federal mandate to provide insurance or pay a penalty.
That tax, per Mr. Dennis' testimony, would harm small
businesses, especially those operating at the margin, and
disproportionately impact low-income workers.
Others today will suggest that a government-run health plan
must be a part of the solution, though such an option carries
significant risks. As Mr. Sheils at The Lewin Group will
testify, their April 2009 study that found the introduction of
a government-run plan that reimbursed providers at government-
set Medicare rates would have significant ramifications for
those who already have health insurance, one finding almost 120
million Americans would lose their current health insurance
coverage. Inside that data we found that of the 120 million who
lose their coverage, 108 million are those who have employer-
provided insurance.
A total of roughly 160 million Americans have health
insurance through an employer. That means seven out of ten
people--workers, husbands, wives, children--will lose their
health insurance provided by employers due to a government-run
plan. I think my colleagues on both sides of the aisle will
agree that it is difficult enough to provide access and
coverage for the 30 to 45 million Americans without insurance
without having to take on the responsibility of an additional
108 million individuals with employer-sponsored insurance.
Nor does an employer mandate which trades job creation for
insurance coverage make our job any easier. Employer-provided
insurance is under pressure and in many cases is already
eroding. This is a trend we need to reverse, not accelerate. We
need to improve upon our current health care system, not end
it.
Now, I know some of the majority have suggested Republicans
are making the government-run plan an issue. And as I noted
last week, even the White House has said that reform does not
hinge on the inclusion of this provision. And just yesterday
the Washington Post opined, and I quote, ``It is entirely
possible to imagine effective health care reform changes that
would expand coverage and help control costs without a public
option.'' And the editorial went on to read in part, and I am
quoting again, ``It is difficult to imagine a truly level
playing field that would simultaneously produce benefits from a
government run system. Medicare keeps costs under control in
part because of its 800-pound-gorilla capacity to dictate
prices, in effect to force the private sector to subsidize it.
Such power of exercising a public health option eventually
would produce a single payer system. If that is where the
country wants to go, it should do so explicitly, not by
default.''
And, Mr. Chairman, I ask that the Washington Post editorial
be submitted into the record.
And with that, I yield back the balance of my time. Thank
you.
Chairman RANGEL. Thank you. Without objection, Mr. Camp.
[The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman RANGEL. In furthering an opportunity to make
certain that we have maximum participation, even if we don't
get maximum support, if the minority really feels that there
are some things here that can be worked out without having
formal hearings, there is no reason why we cannot get experts
to take a look at that, whether we use the library, H-137, or
even the hearing room.
But this is so important that even if you can't vote for
it, we would like to be able to accommodate in terms of
bringing the experts here that you might need or we might need
to better understand some of the complexities that just may
impede someone from wanting to receive the goal, but just not
being able to support a bill that has it or doesn't have it. So
we will work that out after.
We have an outstanding group of witnesses: Dr. Elise Gould;
Randy MacDonald; Bill Pascrell from Jersey will be introducing
a small business man from his district, Kelly Conklin; Denny
Dennis, who is a research policy person from the National
Federation of Independent Business; John Sheils is Senior Vice
President of The Lewin Group; and our last witness will be
Gerry Shea, who comes representing the President of the AFL-
CIO. So this is going to be a good day for all of us.
We will start with Dr. Gould, who is the Director of Health
Policy Research, an outstanding background, an author and
lecturer; and she will give us some views on why a public
health insurance plan would be able to help us.
Thank you for taking time to share your views with us. You
may proceed. As you know, we have 5 minutes more or less, and
we want to give the Members an opportunity to ask questions
while you are here. Thank you. You may proceed.

STATEMENT OF ELISE GOULD, PH.D., DIRECTOR OF HEALTH POLICY
RESEARCH, ECONOMIC POLICY INSTITUTE

Ms. GOULD. Good morning Chairman Rangel, Ranking Member
Camp and distinguished Members of the Ways and Means Committee.
My name is Elise Gould, and I am a health economist and
Director of Health Policy Research at the Economic Policy
Institute. I appreciate the opportunity to appear before you
today to share my views.
Employer-sponsored insurance--I will call it ESI from here
on out--provides insurance for the majority of under-65
Americans. ESI, particularly among large firms, works because
it pools risks, has low administrative costs and offers a
stable source of coverage for a large share of the population.
Many of these people enjoy the benefits they receive and
would like to keep them. However, we have seen a weakening in
ESI over the last several years, and it is important to examine
strategies--and I commend that Chairman Rangel in holding a
hearing to examine strategies--to strengthen ESI and find ways
to provide this high-value coverage to more Americans.
The employer-sponsored health insurance industry in the
United States did not flourish until the middle of the 21st
century. During World War II, employers offered health benefits
as a way to attract workers when the National Labor Board froze
wages. In 1954, Congress amended the Internal Revenue Code to
clarify and expand a 1943 administrative tax ruling that
granted tax exempt status to employers contributions for their
employees' group medical and hospitalization premiums.
Excluding premium contributions from taxable income made $1
worth of health insurance less expensive to provide than $1
worth of wages.
In general, this tax exemption, effectively a government
subsidy, reduced aftertax insurance premiums enough to
encourage even the healthiest employees to enroll. In that way,
sustainable risk pools were formed and group policies became
more attractive to insurance companies.
Over the latter half of the 20th century, employer-
sponsored health insurance became increasingly popular. Workers
have grown to rely on employers to provide insurance and
employers have used it as a tool to attract and retain the best
workers and improve the health of their workforce.
Employer-based coverage remains the most prominent form of
health insurance today. About 63 percent of the under-65
population has insurance either through their own or a family
member's employer. Over 80 percent of the college educated and
80 percent of those in the top half of the income distribution
have ESI coverage. In fact, if you break the nonelderly
population in fifths by household income, we would see that
those in the top-income fifth are nearly four times more likely
to have coverage than those in the bottom fifth. So we see that
employer-sponsored health insurance is working well for tens of
millions of American workers and their families.
That said, the problem remains that many folks who are left
out are ill served by the employer-sponsored system. Further,
while ESI remained the dominant form of health coverage through
the 2000s, the share of people covered by ESI declined 5
percentage points since 2000. This erosion, or unraveling, was
occurring even during the economic recovery.
During an expansionary period, we would have expected
coverage to increase as employment grew, but it simply did not.
High and rising health costs are mostly to blame. Average
premiums for an employer-sponsored family plan have risen
nearly 120 percent since 1999, three-and-a-half times faster
than workers' earnings and more than four times faster than
general inflation.
Small business owners and their workforce face particular
challenges in obtaining ESI. The coverage rates in firms with
fewer than 10 workers is less than half that of workers in
firms with more than 100 workers. Half of all the uninsured are
employed by a business with fewer than 100 workers, and 36
percent work in firms with fewer than 25 employees.
Small firms that do offer health insurance face high costs,
paying on average 18 percent more than larger firms for
identical policies. This is due to higher and more variable
health risks, a lack of competition amongst insurers and
greater administrative expenses.
I know, in 2007, in the small firm where I work, with less
than 30 days' notice, our insurer raised rates by 27 percent,
forcing us to switch carriers at the last minute, which is not
easy in the limited marketplace. It is these high and
unpredictable costs that have made it increasingly difficult
for small firms to provide the insurance they want to offer
their workers.
So what does the future hold? The current economic downturn
and forecasts of high employment indicate continued erosion of
employer-sponsored insurance in the near future. I estimate
that by the end of 2009, nearly 50 million nonelderly will be
uninsured.
The link between insurance and work has been a tradition in
this country. ESI, particularly in large group markets, can
effectively pool risk, lower administrative costs and maintain
stability. But we must recognize its limitations. There has to
be a way for nonworkers, part-time workers and even those full-
time workers that have been closed out of the current system to
find affordable coverage.
Private market reform, such as community rating and
guaranteed issue, can improve competition between insurance
companies by ensuring that this competition takes place on the
grounds of efficiency and not on a company's ability to sort
the population for the lowest risk.
The best way to ensure that coverage is universally made
available to those who do not have good ESI is to construct a
national insurance exchange that includes a public health
insurance option. A public health insurance option is an
essential part of this exchange. While giving Americans more
choices for coverage, it also has the added advantage of
increasing competition to already limited markets, reducing
costs and cost growth, driving quality advancement and
innovation and serving as a benchmark for the insurance market.
As we move forward to a meaningful reform, we must be wary
of quick fixes to our insurance system. One such fix involves
taxing health benefits. Research shows that taxing high-priced
health coverage will heavily burden two groups: workers in
small firms and workers in employer pools with higher health
risks, such as those with a high percentage of older workers.
Small businesses are paying high premiums for the insurance
they provide to their employees not because the plans are
especially lavish, but because they have high administrative
costs and include too few employees to constitute the broader
risk pool that would qualify them for lower premiums.
Capping the tax exclusion exacerbates the problem small
firms already have. It would encourage the young and healthy to
opt out of these pools, and upon their exit, premiums would
likely rise for those remaining. Instead, we should build on
what works well in today's American health care system, ESI for
the bulk of the workforce, as well as extremely popular public
programs like Medicaid.
Thank you, and I am more than happy to answer any questions
you may have.
Chairman RANGEL. Thank you so much for your testimony.
[The statement of Ms. Gould follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman RANGEL. We would now like to call on Randy
MacDonald, who is a Senior Vice President for Human Resources
at the IBM Corporation, and is the chairman of the board of the
Policy Association, that represents more than 250 of the
largest corporations in the United States. And he is committed
to providing health insurance to employees, but he is
concerned, as all of us are, with the rising health care costs.
So we are very anxious to get your views on how we can be
helpful with our bill.

STATEMENT OF J. RANDALL MACDONALD, SENIOR VICE PRESIDENT FOR
HUMAN RESOURCES, IBM CORPORATION

Mr. MACDONALD. Good morning, Chairman Rangel, Ranking
Member Camp and Members of the Ways and Means Committee. My
name is Randy MacDonald. I am the Senior Vice President of
Human Resources for the IBM Corporation. As mentioned, I also
serve as Chairman of the HR Policy Association, a group of
chief human resource officers for more than 260 of the largest
corporations in America.
Simply put, IBM is building smarter health systems with a
more personalized experience for patients. A smart health care
system will be better instrumented, interconnected and
intelligent, centered around the patient. IBM intends to be a
leading proponent of health care reform because it is both a
competitive necessity and because it is good business for us.
We believe that broad systemic reform is necessary. A
successful agenda will build on a patient-centered,
accountable, competitive health care market that delivers
effective outcomes in improving the cost.
I must say, adding millions of people to an overburdened,
underperforming system is somewhat like diverting water into
the Red River while you are piling up sandbags. Change must be
structured, it must be planned and it must have incremental
giant steps.
IBM has 450,000 reasons to be an active participant in this
national discussion. Those reasons are employees, our retirees
and their dependants, and the fact that we spent $1.3 billion
on health care in 2008 alone.
Successful health care reform doesn't have to begin from
scratch. Employer-based health care is a good starting point,
but we need a broad-based approach to fix fundamental flaws,
including effective incentives for wellness, prevention,
primary care, better cost controls and higher quality outcomes.
Earlier this decade, IBM had double-digit cost increases.
Accountability and transparency were nonexistent for employee
decisionmaking. Real cost, prices and subsidies were actually
hidden. Between 2005 and 2007, our assessment showed dramatic
declines in employee health risk, including behaviors such as
smoking. Participation in wellness programs rose sharply and
more adopted healthy behaviors such as exercise and good
nutrition. Program costs during this period were $81 million
with a total savings approaching $200 million.
Today, our employee population is healthier, employee costs
remain lower than our benchmarks. With this experience, we
support a national health care reform agenda with seven
recommendations.
First, strengthen the voluntary employer-based system of
health care;
Second, adopt a comprehensive national reform agenda;
Third, significantly improve wellness, prevention and
primary care;
Fourth, create a competitive and accountable marketplace;
Fifth, control cost, improve quality and reduce cost
shifting;
Sixth, assure adoption of health care information
technology; and
Seventh, ensure all Americans have health insurance.
Mr. Chairman, reform can only succeed with an approach
built on shared responsibility. All stakeholders must come here
with an open mind and share the burdens as well as the benefits
of reform. In my written testimony and through the work of the
HR Policy Association, I have detailed what we see as those
stakeholder responsibilities.
In sum, we believe that the crisis in American health care
is too complex for any one person, for any one organization or
one sector of our society to figure out the best solution. We
need a comprehensive solution. Not a Band-Aid here or there,
but a solution.
The panacea in health care is a system that does more than
just deliver quality care at reasonable cost. Our aim should be
to make all Americans healthier and our economy stronger. Thank
you.
Chairman RANGEL. Thank you, Mr. MacDonald.
And we will make certain that whatever we move forward we
don't hurt what is already working for IBM and for America. So
thank you for your contribution.
[The statement of Mr. MacDonald follows:]
Statement of J. Randall MacDonald, Senior Vice President for
Human Resources, IBM Corporation
Good morning, Chairman Rangel, Ranking Member Camp and Members of
the Ways and Means Committee. My name is Randy MacDonald and I am the
Senior Vice President for Human Resources for the IBM Corporation. In
the United States during 2008, IBM provided health coverage for 118,500
employees, 93,200 retirees, and 235,000 dependents--a commitment of
some $1.27 billion in 2008 alone.
In addition to leading IBM's global human resources organization, I
also serve as the Chairman of the Board of the HR Policy Association
(HRPA), a group of the chief human resource officers of more than 260
of the largest corporations in the United States. Representing almost
every industry, HRPA members employ more than 12 million persons in the
United States.
IBM is also working to create smarter health systems, with an
increasingly more personalized experience. A ``smart'' health care
system will be better instrumented, interconnected and intelligence-
centered around the patient. In a smarter, IT-enabled health system, a
networked, collaborative team of care-providers will work with
individuals and families with children at the center to build strong
trusting relationships which promote wellness, prevent and control
chronic disease and disability. This smarter health care system will
enable behavior change and vastly improved health care decisions that
produce better health outcomes and greater efficiency by eliminating
waste, and needless administrative cost.
A successful health care reform agenda will build a patient-
centered, accountable and competitive health care market place that
delivers effective outcomes and improved unit costs. It will:

build upon our employer-based system
control costs and improve value in terms of quality and
health status
ensure all Americans have health insurance,
enhance the focus on wellness, prevention and primary
care, and
accelerate the adoption of health information technology.

We believe the crisis in American health care is too complex for
any one person, one organization, or one sector of our society to
figure out the best option for reform. Our ideas are offered in the
spirit of stimulating a discussion with Congress, the administration,
and other stakeholder groups to figure out the best solution. We look
forward to building consensus to achieve the collective goal of
transforming the nation's troubled health care system and improving the
health and productivity of our population.
There is growing consensus among all key stakeholders, including
large employers that purchase billions of dollars of health care
products and services, that the current system of health care in the
United States will be further stressed by improving access without at
the same time fundamentally reforming the system.
Large employers like IBM have become more active in this debate
because we see pervasive deficiencies in the availability of
comprehensive primary care; the lack of evidence-based use of medical
technologies; insufficient transparency to allow consumers to make
informed decisions; and inadequate adoption of information technology
that would make care safer and more efficient.
Coverage Provided to IBM employees
Let me explain how IBM has worked to tackle some of these problems.
IBM provides coverage to both full-time, part-time, and long term
supplemental employees of IBM, as well as retirees and dependents. IBM
and our retirees participate in the Part D Retiree Drug program sharing
in any subsidies provided by the government--splitting the subsidy in
proportion to their respective contribution to the retirees' aggregate
prescription drug costs.
We operate our plans for employees across the nation and there are
no geographic differentials in employee/retiree contributions for our
self-insured plans.
There are a number of innovative features in the coverage for IBM
employees:

Eligible full time employees have access to at least one
health plan at no cost.
Enrollees receive deductible-free coverage for preventive
services
Primary Care is covered deductible free and at a low
coinsurance
Employees are offered a Healthy Living Rebate Program
(130K rebates earned in 2008)--employees earn up to $300/year to
complete healthy activities such as physical activity-nutrition,
preventive care and the cutting edge Children's Health Rebate for
family-based activities to build healthy weight behaviors in children
and youth
Over 80,000 IBMers are now physically active and over
half of our employees who were in a high health risk group have lowered
their risk category
From 2004 to 2008, IBM paid out over $133 million to the
Healthy Living Rebate program.
IBM offers all employees an on-line Health Risk
Assessment (64,000 completed 2008) and Personal Health Record
Our efforts to improve IBMers health and reduce costs
Earlier this decade, we were seeing double-digit increases in
health care costs for IBM. Our contracting strategy was not optimized
for quality, service, efficiency or price. Population health status and
prevention, clinical care needs for chronic diseases, and coordination
of care were absent in the marketplace. Accountability and transparency
were non-existent for consumer decisionmaking--real costs, prices and
subsidies were hidden.
IBM talked the problem through a new vision: healthy people for
high performance.
Our strategy currently combines:

Value (quality and cost)
Meaningful choice
Sustainable cost structures
Prevention
Primary care
Smart decisions
Privacy and HIT

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Today, our employee population
is healthier and our costs are
lower. For both cost and trend,
IBM is routinely at or below
market. Employee costs remain
lower than benchmarks. In 2008,
our costs were $8,585 per
capita while the marketplace
benchmark was $8,895. Between
2004 and 2007, our internal
health assessments showed
dramatic declines in employee
health risks. Participation in
the wellness programs rose
sharply and our employee
population reduced risky
behavior such as smoking, while
increasing healthy behavior
such as exercise and

healthy nutrition. Over 80,000 IBMers participate in our physical
activity incentive program. Generic drug utilization has increased to
96% without reducing medication options. The reduction in health risks
translates into savings in health care claims costs estimated at $79
million between 2004 and 2007 alone.
But we are only one company. Systemic problems are at issue and we
need to ensure we are all focused on the right problems.
It's Not Just a Covered Problem; It's Also a Cost and Quality Problem
While some health care reform advocates believe that we can reform
our nation's health care system by simply creating universal coverage
through private insurance reforms or some form of a government-run
single-payer system, we do not believe this would achieve our goals for
health and health care. Above all, our society cannot afford to pay
billions more into a fundamentally flawed delivery system to provide
uninsured Americans access to the fragmented, episodic, procedure-
oriented care that delivers poorer outcomes compared to other OECD
countries. This is why we believe that broad, systemic reform is
necessary. Our problems will only be exacerbated by bringing the
uninsured into our current dysfunctional health care system.
Objectives of Health Care Reform
We support a national health care reform agenda that meets the
following seven objectives:

1. Make Significant Improvements in the Voluntary Employer-Based
System of Health Care In Order to Ensure Its Continued Existence

IBM and other HRPA members have expressed a commitment to
maintaining the nation's voluntary system of employment-based health
insurance if and only if major reforms to improve value, efficiency,
and transparency can be achieved. The majority of Americans--more than
160 million--receive health care through employment-based coverage, and
most Americans who do so are pleased with it. Even with its existing
flaws, we believe our mix of employer-based coverage, private market,
and public safety-net programs is superior to shifting to a government-
run, single-payer system. Because of the lack of choice and stifled
innovation that would result from a single-payer system, we are
committed to working from the foundation of our current system to make
significant improvements.
I know that there are questions about the proper balance between
public and private insurance options as we look at health care reform.
It is a fact that the government has long played a vital role in
providing coverage for difficult-to-cover populations. Indeed, many IBM
retirees already participate in Medicare Part D--a public plan, and
expansions in the CHIP program this year will provide much needed
assistance for uninsured children and youth. The question is how to
strike the right balance between providing public options for those who
truly need them, without undermining the bedrock of our U.S. health
care system, which is voluntary employer-provided private insurance
options.
We need to identify a balance that avoids problems like adverse
selection for private sector plans, and we must proceed quite carefully
as we consider the impact to the voluntary employer-based system of
proposals that expand public coverage to those who are uninsured or
disadvantaged in the individual group market like small businesses and
the self-employed. We need to be careful because public plans might
change the pool characteristics of private sector plans in a way that
could shift costs onto private, employer-sponsored plans that have been
the force for many innovations in wellness and health promotion, care
services, transparency and pay for performance.
The ability of large employers to continue providing voluntary
coverage depends greatly on the near-term adoption of significant
changes that would help contain skyrocketing costs, improve the
effectiveness and efficiency of health care, improve health outcomes,
eliminate waste, and transform quality processes and accountability
throughout the health care system. Changes in the employer exclusion of
health care costs would threaten that system by adding to the burden
employers are already carrying in providing health care coverage
without addressing the need for shared responsibility across all
stakeholders.

2. Adopt a Comprehensive National Reform Agenda

While there is considerable experimentation underway at the state
and local level, at present more than half of Americans are covered by
employer-based health insurance; many of these workers are employed by
companies doing business across state lines. Many large employers offer
benefits that are regulated by the Employee Retirement Income and
Security Act (ERISA), which provides uniform rules for the health
benefits enjoyed by millions of workers and their families. ERISA
preempts state laws that relate to ERISA plans in order to ensure
uniformity among the states.
Pressure on ERISA is constant. States and localities relentlessly
search for ways to penetrate its protective shield. For example, some
states and localities have recently started to attach benefits
requirements to public sector contracts--threatening to create the
benefits patchwork that ERISA and the courts have long prevented.
The nature of health benefits offered by multi-state employers
makes it unworkable--and unfair--to reform health care using a
patchwork of state and local solutions. Rather, our health care system
should have consistent and uniform guidelines to ensure that affordable
and comprehensive benefits can be delivered to all Americans.

3. Significantly Improve Wellness, Prevention, and Primary Care

A successful national reform agenda must focus on maximizing the
health status of individuals, not just treating the sick. Costly
chronic conditions such as diabetes, coronary artery disease, obesity,
and asthma account for a disproportionate share of health care costs.
Half of the population spends little or nothing on health care, while
five percent of the population accounts for almost half of the nation's
health care expenditures.
Health care reform must build a strong primary care foundation for
the health care delivery system. Many health care providers, especially
primary care physicians, share the frustration of payers and consumers
about our current health care system's focus on the delivery of acute
and episodic care, high volumes of procedures, intensive use of high-
cost technology, specialty services, and administrative overhead.
Primary care physicians want to provide accessible, continuous,
coordinated and comprehensive care, but to do this a payment model in
which they do not have to suffer financially for providing evidence-
based medicine and communicating and coordinating care that keeps their
patients healthy. Payment reform and new models of care delivery with
primary care providers, such as occurs within a ``patient-centered
medical home'' model, can encourage providers to keep patients healthy
and deliver timely, comprehensive, and appropriate care.

4. Create a Competitive and Accountable Marketplace

Two key elements that drive healthy markets--consumer information
(transparency) and choice--are woefully lacking in our health care
system. Providers operate under perverse incentives that reward the
volume of services delivered, rather than the quality and efficiency of
the care provided. Many consumers receive coverage through a third
party that pays for their health insurance without knowledge of the
cost of services. Health insurers compete based on the avoidance of
risk (i.e., individuals who are most likely to generate medical bills),
leaving many people with individual policies without access to coverage
or unable to afford it. The U.S. must inject market-based principles
that foster competition among health care providers and choice among
consumers to help lower overall costs and increase value within our
health care system.

5. Control Costs and Improve Quality

A successful reform agenda must control costs and ensure that our
health care system delivers consistent high quality care to everyone.
While the United States pays $7,026 per capita on health care--more
than any other nation--we rank near the bottom on a variety of health
care indicators, including infant mortality, obesity, and potential
years of lost life due to diabetes. Disparities in health care quality
are pervasive, with minorities and low-income people often receiving
lower-quality care across a variety of measures.
The business community has a record of banding together on quality
and efficiency issues. For example, HRPA's Pharmaceutical Coalition is
made up of 60 member companies who purchase pharmacy benefits for more
than five million Americans. In 2005, they launched the Transparency in
Pharmaceutical Purchasing Solutions (TIPPS) initiative. TIPPS is an
effort by the Coalition to ensure the interests of a pharmacy benefit
manager (PBM) are aligned with those of its employer clients. The
Coalition has developed a uniform set of rigorous transparency
standards for PBMs when contracting with Coalition members. PBMs are
certified annually by completing a RFP process to ensure they are
willing to meet the TIPPS standards.
Our experience with the TIPPS initiative has demonstrated that in
some instances market reforms can be successful. When the program was
first launched in 2005, only three PBMs were willing to meet the
standards. Today, 15 PBMs have been certified, representing more than
50 percent of the market that serves large employer clients.
Another example of businesses banding together to solve health care
problems is HRPA's Retiree Health Access (RHA). The Association
developed RHA as an alternative solution to provide coverage to pre-
and post-65 retirees. RHA was introduced in 2006 with five employers
and 40,000 retirees participating.
At the time, carriers aggressively competed for post-65 retirees--a
population that comes with significant employer contributions and
government funding. However, no carrier would offer comprehensive,
guaranteed issue coverage to early retirees without substantial
employer subsidies and minimum levels of retiree participation.
As a result, the Association elected to place its RHA business out
to bid in an effort to secure coverage for early retirees on a
guaranteed issue basis without an employer subsidy or minimum
enrollment requirements. The result of that bidding process was that a
new RHA benefit offering guaranteed issue coverage for pre- and post-65
retirees became available January 1, 2008. This has proven to be a very
popular solution. Since the new RHA solution was announced in 2007,
more than 200 employers have expressed an interest in considering it.
As of December 2008, 48 employers had decided to offer RHA with more
than 80,000 retirees enrolled.
Reforms must include changes to the current provider reimbursement
models within private reimbursement arrangements and in public programs
such as Medicare and Medicaid to promote and reward value.
In addition, the business community must sponsor and support
quality initiatives such as requiring providers and health plans to be
involved in collecting and managing quality data. Enabling innovation
to find new ways to treat patients, balanced with research into the
comparative effectiveness and efficiency of various treatments, can be
applied to improve care and lower costs.

6. Ensure All Americans Have Health Insurance

There is clear consensus that any successful health care reform
agenda must result in the uninsured becoming insured. People who lack
health insurance do not receive timely care and tend to use the most
expensive care option--emergency rooms--when they are sick. Health care
providers then shift the cost of the uninsured on to those paying for
health care services, resulting in an extra $922 per year for family
health insurance and $341 for individuals.
A successful solution has to take into account the different
circumstances of those who are uninsured. This group includes low-
income people eligible for public programs but who are not enrolled,
those who make too much to qualify for public programs but still
struggle to pay for coverage, employees of small businesses,
individuals at high risk or with pre-existing conditions, and pre-65
retirees who are not yet eligible for Medicare. In addition, people who
can access and are able to afford coverage, yet choose not to purchase
insurance, make up another segment of the uninsured that must be
addressed.
One of the greatest advantages of the employer-based system is that
employees typically form large and diverse risk pools--an important
factor that, when combined with significant employer subsidies, results
in relatively stable and affordable premiums for workers. However,
individuals faced with purchasing coverage on their own in the
individual market, especially those who are sick or high-risk, can face
challenges in securing affordable coverage due to unaffordable premiums
and policy denials. People without access to employer-sponsored
coverage should be able to have guaranteed access to private coverage
and comparable tax breaks to purchase coverage on their own.

7. Assure Adoption of Health Information Technology

Health care information technology (HIT) needs to be widely adopted
by health care providers to improve patient safety, increase
efficiency, and produce significant savings throughout our health care
system. The potential for HIT to improve care and lower costs has been
well documented when it has been put in place. It is clear that the
technology is available. Other industries such as the airlines,
finance, and consumer electronics have been able to achieve a level of
interoperability for years, despite rapidly changing technology and
constant innovation. Although the health care industry is not perfectly
analogous to other industries, there is significant room for
improvement to expand the adoption of HIT. Health systems can connect
people to information, to experts and to each other and can act
proactively to better manage and deliver preventative and therapeutic
care. Strong incentives need to be put in place to encourage providers
to consistently adopt this technology in a manner that benefits
patients through safer and more convenient care, and in a way that
lowers administrative costs.
Achieving the Objectives Through Mutual Responsibility
To achieve true reform of the health care system in the United
States, we have adopted an approach of Mutual Responsibility. All key
stakeholders must compromise and accept added responsibility, and share
in the burdens as well as the benefits of reform. Our HRPA
comprehensive national reform agenda includes the following mutually
complimentary elements:

Federal Government. Public spending on health care,
primarily for Medicare and Medicaid, accounts for approximately 46
percent of total health spending. Therefore, the federal government
must play a critical role in health care reform. The federal government
should, among other things, maintain the ERISA framework to enable the
continuation of the employer-based system and not erode the employer
based system by capping the employer exclusion of health care expenses;
eliminate cost shifting from public programs to private payers;
restructure public programs to move away from traditional fee-for-
service reimbursement that pays providers based on volume of service
toward value-based purchasing; stimulate the growth and availability of
comprehensive primary care, pay providers to reward prevention and the
delivery of evidence-based medicine; facilitate and promote prevention
and wellness programs in the public and private sector; and; adopt
uniform interoperability standards for health IT.

Individuals. The Congressional Budget Office estimates
that 13 percent of the nonelderly accounts for 68 percent of health
care costs. We will not realize higher quality and lower costs within
our health care system without individuals being more responsible for
managing their health. Individuals should:

maintain health insurance coverage through a private
plan or a public program if eligible;
take greater accountability for their health care by
living healthier lifestyles and participating in available
prevention and wellness programs in order to receive public and
private subsidies for health care; and
take steps to manage chronic conditions to avoid
acute illnesses where possible.

Health care providers. Most health care in the United
States is paid on a fee-for-service basis, which encourages providers
to deliver a higher volume and intensity of services instead of
providing the most effective treatments as efficiently as possible.
Health providers should:

publicly report on quality and cost measures using
uniform standards adopted by the federal government;
treat patients based on evidence-based medicine in
accordance with uniform standards and the specific
circumstances and needs of each individual patient;
transition away from fee-for-service reimbursement
and embrace new reimbursement models that require
accountability and reward superior quality and efficiency; and
focus on improving individual and population health
and the delivery of high quality, cost-effective, evidence-
based care.

Insurance carriers. Health insurers play an important
role by covering people in fully insured arrangements or as third-party
administrators for self-insured plans. Insurers are in a position to
change misaligned incentives, disseminate quality and cost information,
and give individuals access to the most cost-efficient benefit plans
via individual and group coverage solutions. Insurers should:

cover all individuals seeking coverage on a
guarantee-issue or modified guarantee-issue basis without
regard to preexisting condition or risks;
shift away from fee-for-service reimbursement to pay
providers to encourage quality and efficiency; and
report cost and quality measures for health care
providers using national standards.

Employers. Nearly 160 million Americans under age 65
receive coverage through an employer-based plan. While employer-
sponsored coverage, especially coverage offered by large employers,
provides some advantages over individual health insurance--including
relatively lower premiums, more stable premium increases, and
guaranteed access to coverage for eligible beneficiaries--there are
steps that employers can take to improve our health care system. Under
our plan, employers would:

design and offer benefit plans that encourage
individual and population health by creating incentives to
encourage individuals to establish continuous care in primary
care practices, seek timely preventive care, participate in
health assessments, and participate in prevention and wellness
programs; and
push for benefit plans that reward providers for
delivering high quality and cost-effective care.
Employer Play-or-Pay Mandate
We strongly believe in the voluntary nature of the employment-based
health care system. Only when all other reforms discussed in HR
Policy's reform position have been undertaken should Congress consider
the possibility of implementing some form of a federal play-or-pay
mandate for certain employers to contribute to the cost of providing
coverage for certain full-time workers. The mandate to contribute a
specified minimum amount toward the cost of coverage should apply only
for W-2 employees who work more than 30 hours per week. Under no
circumstances would it be acceptable to pursue a state-by-state or
local play-or-pay mandate scheme. Moreover, any employer mandate should
not discourage employers from designing and offering cost-effective
health benefit plans. For example, an approach that requires employers
to spend a minimum percentage of payroll on health care benefits could
cause many employers to abandon efforts to contain costs.
Even under a uniform federal standard, there are instances in which
unintended consequences might occur if employers were required to
provide coverage. For example, companies that employ large numbers of
low-wage, part-time, and seasonal workers may find it economically
burdensome if subjected to an employer play-or-pay mandate. As such,
Congress may carefully weigh all factors when considering proposals
that include a play-or-pay mandate.
In reviewing those recommendations, we cannot stress too strongly
that we see the interplay of all elements of the package necessary for
reform. We do not intend for this reform position to be a menu for
policy makers and other stakeholders to select the items they find most
appealing. Highlighting individual elements without reference to the
entire position would result in a misunderstanding of the systemic
nature of the problems we are facing.
Mr. Chairman, we believe the crisis in American health care is too
complex for any one person, one organization, or one sector of our
society to figure out the best option for reform. Our ideas are offered
in the spirit of stimulating a discussion with Congress, the
administration, and other stakeholder groups to figure out the best
solution. I hope the IBM experience I have discussed here today, and
our ideas for reform, will be helpful to you and the Committee as you
take on this most important task.
Thank you.
IBMs Employee-centered Health care Innovations
2004
IBM defines contribution for health care (50/50 share of
trend)
Employee-centric subsidy allocation strategy
``Free'' PPO & Buy-Up options
Focus on prevention: no deductible, disease management,
healthy living rebates: smoking cessation, physical activity
Move toward strategic plan mix: eliminate Indemnity Plan,
opt out credit
Dependent de-subsidization
2005
Improve purchasing efficiency via best in market vendor
strategy
Reach strategic plan mix (all PPO based)
Introduce Health Savings Account
Enhanced web-based total health management portal with
quality, plan/provider and self-managed tools
2006
Offer 100% coverage for prevention benefits (no co-pay)
Primary Care: deductible-free
Introduce new Healthy Living Rebate driving preventive
care
Update dollar features of plans (Deductibles, Out-of-
Pocket Maximums, etc.) in keeping with cost inflation
2007
Care coordination program to assist with rapid, effective
services access
Behavioral health care advocacy progam
Expanded Healthy Living Rebate program
Maintain full coverage for routine preventive services
Patient-centered primary care pilot in Mid-Hudson Valley
NY
2008
Children's Health Rebate, helping parents & families with
healthy nutrition, meals, physical activity for healthy weight
Women's and Men's Health resources optimizer tool added
to Preventive Care Rebate Program
Primary care: reduced coinsurance employee pays for
primary care
Expanded flu shot coverage
2009
Patient-centered primary care (medical home) pilots in
Arizona, Vermont
Generic drug Incentive Program
Generics Advantage program drives efficient use of
generic pharmaceuticals
Program introduced to optimize safe usage of specialty
medications

Chairman RANGEL. Mr. Pascrell will have the honor of
introducing his--a Member, outstanding Member of his community.
I yield to Congressman Pascrell.
Mr. PASCRELL. Thank you, Mr. Chairman. I am proud that we
have on our panel today Mr. Kelly Conklin, who both lives and
works in my district. Mr. Conklin is the cofounder of Foley-
Waite Associates, an architectural woodworking company in
Bloomfield, New Jersey. He and his wife and business partner,
Kit, started their business in 1978.
Foley-Waite Associates specializes in the fabrication of
architectural woodwork and serves an exclusive high-end
clientele in New York. He employs highly skilled experienced
craftsmen in wood and related materials.
Mr. Conklin and his wife are lifetime residents of New
Jersey. They currently live in Glen Ridge.
And, Mr. Chairman, if you will note during the testimony,
if you haven't already read the testimony, it specifically
zeros in on the question of transparency and where do our
premium dollars go.
So Mr. Conklin thank you for joining us.
Mr. Chairman, thank you for allowing me to introduce him.
Chairman RANGEL. Mr. Conklin, the Chair anxiously awaits
the comments of the business gentleman from New Jersey.

STATEMENT OF KELLY CONKLIN, FOLEY-WAITE ASSOCIATES, INC.,
BLOOMFIELD, NEW JERSEY

Mr. CONKLIN. Thank you, Mr. Chairman, Members of the
Committee, Mr. Pascrell. My name is Kelly Conklin and I am here
to talk about health care and its impact on small business.
I would like to make one thing clear right up front. I am
not a policy expert on health care, but I deal with broken
policy every day in my business. I own, with my wife, Kit, as
the Congressman said, our business in Bloomfield, New Jersey;
and my purpose today is to give you a window into small
companies like mine and how the mess that is our current health
care system impacts us. I will start with some background to
try to explain where we are and finally lay out a few ideas as
to where we might go.
A little history. My wife and I opened Foley-Waite in 1978
in a 700-square-foot shop in Montclair, New Jersey. In 1987, we
expanded and hired four employees and we started offering
health insurance. The premiums were about 5 percent of our
payroll, and we paid it all.
Today, we employ 13 people, occupy 12,000 square feet of
loft space and serve some of the most influential people in the
world, and we fork over $6,000 a month in health insurance
premiums. That is 20 percent of our payroll, one of the largest
single expenses in our budget.
Why do I still offer coverage? Practically, it is necessary
to attract and retain skilled employees, but I do it because it
is the right thing to do for my people, it is the responsible
thing too. If I didn't offer coverage, I just would be shifting
costs onto someone else.
We have got to stop pretending that we can escape this
cost. It is a fixed cost. When responsible employers offer
coverage and others don't, it creates an unlevel playing field.
If I am contributing for my employees and a competitor isn't,
they have an advantage.
We would be much better off in a system where all employers
contribute a reasonable amount instead of this game of cost-
shifting. That is why a supported system of shared
responsibility where employers pitch in their fair share.
April is a month that I dread, but not for taxes. Taxes are
simple. I call my accountant. But health insurance renewal is a
nightmare. Rising costs force us to cap our contributions for
employees' coverage, and we are switching carriers each year.
We had a rise in Blue Cross/Blue Shield, but they just raised
our rates 25 percent, so we are switching to Health Net. That
means new primary care physicians, and for my wife, who has a
chronic illness, a new doctor who knows nothing of her medical
history.
It is very frustrating as the person who writes and signs
the checks every month to know that a lot of that money we
spend isn't going to health and it isn't going to care. My
shopping for health insurance, my choice, is who is the
cheapest this year--3 years, three insurance companies. And
over the past 2 months, as we transition to our new carrier,
our premium bills are now $8,700 per month. While I am writing
the check for the new company, I am paying full freight for the
old company.
This is efficiency? This is not bureaucratic? This is cost
effective? Really?
The health insurance market has failed to deliver on its
promise for small business. It fails to contain cost, enhance
efficiency or improve outcomes. It fails to provide coverage to
millions--our dry cleaners, our corner store owners, Joe the
Plumber and Al the Mechanic. Something has to be done.
I think transparency is critical. It is time to have the
insurance companies come clean and say up front what is covered
and what is not. It is time to ensure everyone access to
affordable health care based on shared commitment where
employers like me, our workers, health providers and the
government all pitch in.
We can take a big step by creating a public health
insurance option. A well-designed public health insurance plan
would finally give small businesses like mine real bargaining
power, provide a guaranteed backup and introduce greater
transparency. Most importantly, by creating genuine competition
and restoring the vitality of the market, dynamic innovation in
the private sector will occur.
I am not against private insurance; I am just saying we
need more options. As a cabinetmaker by trade, I think about it
like this: A toolbox holds a variety of tools, each perfected
to perform a specific task. You can't drive nails with a
screwdriver or cut wood with pliers. And in my experience, when
a critical tool is missing, well, things can get ugly.
With health care, we have tried to do everything with a
hammer. The public plan option is a critical tool missing from
the toolbox, the one that could stem rising costs.
According to Commonwealth Fund, reform with a public option
would save employers $231 billion between 2010 and 2020 and $3
trillion for the Nation. Without a public plan, we lose three-
quarters of that. Billions for the little guy, imagine what we
could do with that.
I have read about ideas I can't support. I don't think new
tax credits are the solution to this problem. I would rather
have real health reform that addresses costs rather than a tax
credit that will only be consumed with skyrocketing premiums.
We don't need to fiddle with taxes or jigger the Tax Code; we
need policies to stabilize a health care system in critical
condition.
I know I am not alone. I am a member of the New Jersey Main
Street Alliance, a coalition of over 300 New Jersey businesses
working for health reform that works. In a survey referenced in
my written testimony, small business owners said three things:
One, we are willing to contribute, but we can't go it
alone. Seventy-three percent said they would, 12 percent said
they wouldn't; that is a six-to-one ratio.
We support reform that includes choice of a public health
insurance plan, 59 to 26 percent, two-to-one.
We want government to play a stronger role in making health
care work, 70 to 16 percent, four-to-one.
Businesses are looking to you for leadership. We need you
to enact health reform that works for us and our employees this
year so we can do our part for economic recovery.
Thank you, Mr. Chairman.
Chairman RANGEL. Thank you Mr. Conklin. Tell our friends in
New Jersey help is on the way.
Mr. CONKLIN. Thank you, Mr. Chairman.
[The statement of Mr. Conklin follows:]
Statement of Kelly Conklin, Owner, Foley-Waite Associates,
Bloomfield, New Jersey
Introduction
I would like to thank the Chairman and Members of the Committee for
this opportunity to share my experience with and views on our employer-
sponsored health insurance system as a small business owner. My name is
Kelly Conklin, and I am a co-owner of Foley-Waite Associates, an
architectural woodworking company in Bloomfield, New Jersey.
We've been in business for thirty years, and have worked for a wide
range of commercial clients including Prudential Insurance, First
Fidelity Bank, Shering Plough, Merck, and Citi Bank. For the past 15
years, we've focused on serving a high-end residential customer base in
New York City. We have 13 employees, and currently we pay about $6,000
a month in health insurance premiums. Health insurance is close to 20
percent of our payroll at this point, and it's the third largest single
expense in our budget. So this is an issue of great concern to me.
Small Businesses and Health Insurance: Responsibilities and Challenges
I share below a brief ``health history'' of my business to show
what things are like on the ground level, but I'll first address the
big picture of what small businesses are facing now with health
insurance. It is often repeated in the public square that small
business is the backbone of our economy. It sometimes looks from Main
Street, that along with the economic and political well-being of the
free world, the small business community is charged with the health and
wellness of the American worker. But the skyrocketing costs of health
coverage for small businesses are pushing us to the brink.
Why even offer health coverage? First, there's a strong business
case: it's a critical benefit to attract and retain the skilled
employees we need to succeed as a company. But there's more to it. I do
it because I feel it's the right thing to do for my employees. Part of
why we started our own business was to create an environment where we
ourselves would want to work. I once had a business consultant advise
me that I should tell my employees I had to drop their health coverage
to ensure their job security, but I just couldn't do it--the ethics
seemed questionable. It's also the responsible thing to do because if I
didn't offer coverage, I'd just be shifting the cost of my employees'
health care onto someone else.
It's counterproductive to try to escape the costs of health care.
From my standpoint, it's a fixed cost, an inescapable cost. The way
we're doing things now, where responsible employers offer coverage and
others don't, that creates an incredibly unlevel playing field. If my
employees and I are sharing the costs, then another employer who isn't
contributing for health care has a competitive advantage over us. We'd
be much better off in a system where all employers are contributing a
fair share, instead of this game of cost-shifting we're stuck with now.
Small business owners like me are willing to contribute--73 percent
said so in the Taking the Pulse of Main Street survey I was a part of
last year.
Small businesses who want to offer health coverage face a number of
serious challenges. We have no bargaining power with the insurance
carriers--it's ``take it or leave it.'' We pay more in administrative
costs--25 percent or more of our premium dollars, compared to around 10
percent for larger groups. Because of our small size, we can't spread
risk effectively, and we get penalized for it. Because of rising costs,
we're forced to reduce benefits by increasing deductibles and our
employees' share of the premiums. And, we must contend with the great
lack of transparency in the insurance market. It's so hard to know what
you're buying and impossible to determine whether your dollars are
being spent well.
April is a month I dread, not for taxes, but for health care. We
struggle every year to find a way to make it work. We've been forced to
cap our contributions for employees' coverage, and we've gotten used to
switching carriers every year. We had Horizon Blue Cross/Blue Shield
last year, but they raised our rates 25 percent, so we're switching to
Health Net. That means enrollment forms, discontinuation forms, finding
new primary care physicians and, because my wife has a chronic illness,
new specialists who know nothing about her health history. It's
extremely frustrating, as the person who literally writes and signs the
check every month, to know that a lot of that money is not going to
provide care for the people I'm paying the benefit for--I pay thousands
of dollars for a system that is inefficient and doesn't deliver the
promise of decent care or financial security.
Back in '78 if you had told us that one day we would employ 13
people, occupy 12,000 square feet of loft space, serve some of the most
influential people in the world and fork over $6,000 a month in health
insurance premiums, we would have questioned your sanity. Like
thousands of other small company owners we felt our way along, picking
up sound business practices by the seat of our pants, usually preceded
by a swift kick to the same. Not many graduates of the Wharton School
work on Main Street, or make their living as plumbers or serving
hamburgers and soda at the corner coffee shop or turning wrenches at
the local auto repair. To this day I am appalled whenever I read on a
health insurance document that if an employee should have a question or
problem with their health insurance plan they should ``first contact
the company health insurance administrator''--that being me. Talk about
``in the land of the blind a one-eyed man is king.''
My ``shopping'' for health insurance consists of finding the least
expensive policy--my ``choice'' is who is cheapest this year. Three
years, three health insurance companies and over the past two months as
we ``transition'' to our new carrier, our premium bills are $8,700 per
month. Some of that premium money will be returned, but when my broker
walks in the door with enrollment forms I have to write the check then
and there for the new carrier, while maintaining current coverage with
the ``old carrier.'' This is efficiency? This is not bureaucratic? This
is ``cost effective''? Really?
Too often the ``catastrophe'' in catastrophic illness is not the
disease, it's the devastation of medical bankruptcy in the aftermath.
The lack of transparency in health insurance policies means that the
insurance purchased in this case by your local cabinet maker (me) could
be a financial disaster waiting to happen. What are the limits of our
policy? How many Americans think they're covered but then find
themselves destitute because their employer ``shopped'' for the
cheapest coverage? How many of us actually know our policy limits and
how that compares to what we might need? And how much of what I and my
employees spend on health insurance goes to make up the system's
shortfall because millions of our fellow Americans are too poor to
afford any insurance at all and receive their care in the emergency
room, where the costs are highest and the outcomes least certain?
The health insurance market has failed to deliver on its promise
for small businesses. It fails to provide peace of mind or deliver
quality care. It fails to contain costs, enhance efficiency or improve
outcomes. It fails to provide coverage to millions of our poorest
citizens, to our low-wage workers, to our sole proprietors, to our
corner coffee shop owner, our local plumber and car mechanic. Something
has got to be done.
Real Solutions for Small Businesses
We need to stop whistling past the graveyard and face this problem
full on. There are no cheap or easy solutions. But there are things we
can do.
We can promote transparency by having the private insurance
companies come clean in plain English about where our premium money
goes. We can have the private insurance companies produce policies that
clearly explain and comparatively measure regional cost and
probabilities so consumers can understand what it is they can expect
and how secure they are from medical bankruptcy. We can assure everyone
access to health care, preventative and therapeutic, and we can agree
that this should be a shared commitment where employers like me, our
workers, health providers and the government all contribute to make it
so.
I believe we can go a long way toward these goals by creating a
public health insurance option. The choice of a public health insurance
plan would finally give small businesses like mine real bargaining
power, it would provide a guaranteed backup, and it would promote
greater transparency in the system. Perhaps most importantly, by
creating genuine competition and restoring vitality to the market
dynamic, this will bring about broad-based positive change in the
private sector health insurance industry. According to the Commonwealth
Fund, health reform that includes a public option has been estimated to
save employers $231 billion over 2010-2020, and $3 trillion for the
nation. Without the public plan option, those savings shrink from $3
trillion to less than $800 billion: we lose three quarters of the
savings. I would submit that these are savings we cannot afford to pass
up.
A word of caution about some things I believe won't help address
the problems we face as small businesses. I don't believe new tax
credits are a good solution to this problem. I would rather have real
health reform that addresses the cost drivers in health care and bends
the cost curve down than a tax credit that won't mean anything in two
years after the costs just keep skyrocketing. That said, I'm against
capping the employer exclusion for health benefits: this would only
push more small businesses over the edge into dropping coverage. We
need to create a more stable environment so businesses and employees
can afford to contribute, not undermine that stability.
The Brief Health History of a Small Business: Foley-Waite Associates
In 1978, my wife and partner Kit Schackner and I formed Foley-Waite
Associates in Montclair, New Jersey. Our shop, equipped with machines
built between the Wilson and Eisenhower administrations, occupied 700
square feet. As a new enterprise, we aspired to furnish homes and
businesses with fine woodwork and furniture. Working side by side and
determined to survive, we realized anything made with our tools and
talent that paid the rent and kept the lights on would have to suffice
while we built a reputation and client base. The glory work would have
to wait. Luxuries like plastic garbage bags and Coca-Cola would have to
wait, too. Our gross receipts that first year were $27,000. Medical
insurance, as it was known then, wasn't even on the radar. After all,
we were young, healthy and broke.
We survive on Main Street by honing the specialized skills of our
trades, by our reputations for dependability and a strong work ethic.
Administration and paperwork, like payroll filings, workman's comp
insurance and government mandated reports, are pretty well down the
daily priority list. That's one reason that on Main Street so many
small enterprises are the simplest and smallest, a ``sole proprietor''
or a ``mom and pop'' partnership that statistically will likely fail in
its first year. For these, the hardest working, most at risk in
business, medical insurance is an unattainable goal. There is something
very wrong with that.
Along with our company's slow but steady growth came the ability to
start a family and in 1984 our daughter Louisa was born. With Kit's
pregnancy a new awareness of the cost of medical care came into clear
focus. We bought medical insurance. As I recall, that insurance was
``basic medical,'' meaning it would provide payment of medical bills
for catastrophic illness and of course pregnancy. Primary care
physicians, referrals, deductibles, co-pays and denial notices were all
new to us.
We had previously had a relationship with our doctor. He knew us
and more important our medical history, because he was writing it. Our
first insurance policy changed all that: our doctor didn't take our
medical insurance. With no awareness of what the future would hold, we
began a long, expensive, frustrating journey into the mess that is
modern health insurance.
Aside from Kit's OBGYN and Louisa's pediatrician, Kit and I didn't
see a doctor for years. At the time, that did not seem unreasonable.
For my wife and me, our health care insurance plan provided little in
the way of health or care. We were still young and pretty healthy, but
that would change.
We moved our little operation from Montclair to Bloomfield in 1987.
Our enterprise evolved: it could no longer survive as a mom and pop. We
would have to assemble a crew of skilled workers trained in our trade
to meet the demands of a growing customer base. Our new shop was a vast
space of 4,500 square feet and Louisa's bedroom no longer served its
dual purpose as Kit's office. We now had 4 employees and our project
list included a conference table for the board room of The Prudential
Insurance Company's headquarters in Newark, New Jersey.
We offered health insurance to employees who were with our company
for six months or more. There was no employee contribution. To find
skilled workers and most importantly to keep them, Foley-Waite
Associates had to offer health insurance. At that time, it wasn't easy
but it wasn't impossible. Our health insurance premiums were about 5
percent of our payroll.
Health coverage is personally very important to me because my wife
suffers from a chronic condition. She has Discoid Lupus: a chronic,
disfiguring auto-immune disease of the skin, hard to diagnose and
almost impossible to effectively treat. She lives with the symptoms of
this disease every day, and has become a master of theatrical make-up
and can paint out with brown spray paint the ever-more-difficult-to-
hide signs of alopecia.
For nearly 10 years, general practitioners--our ``primary care
physicians''--were stumped. The local ``in-network'' dermatologists she
saw seemed to quickly lose interest in her disease, when it became
clear that the conventional therapies would offer no real relief.
Instead they resorted to scolding her about lifestyle choices, like
gardening. Her case is special, but that's no excuse for the clumsy and
ineffectual way it has been handled by an overly complex, disconnected,
impersonal and incompetent ``health care system.'' Just in the last 3
years she found a dermatologist at NYU who has for the first time given
her the sense that someone competent and caring will do everything he
can to help her with this relentless disorder. There is only one
problem--like many of this country's best and brightest doctors, he
doesn't take ``health care insurance''; period. Cash only, pay as you
go.
Ten of Foley-Waite's eligible employees participate in our health
care plan. One who does not is a permanent resident of the United
States and a citizen of Great Britain. Before he came to work for us,
he had a real scare a few years back when he discovered a lump on his
leg and went to the doctor in New Jersey. A biopsy was taken and he was
given the terrible news that he had aggressive melanoma. He was advised
to get his affairs in order, the prognosis was terminal.
He decided to get a second opinion in England. He hopped on a plane
and went to a doctor near his family's home in London, where a second
biopsy was performed and the diagnosis of his American physician was
confirmed. He did indeed have a rare, very aggressive form of cancer
that would require immediate surgery and a relatively new but promising
course of chemo-therapy. He agreed to the English doctor's
recommendation, had the surgery within days of the diagnosis and began
a rigorous course of chemo. As he says, ``The chemo almost killed me,
but with my faith in god, the help of my family and the British
doctors, I survived.'' That was five years ago and after his most
recent visit to his English doctor, his prognosis is excellent.
Another employee, one who participates in our health plan, had a
simple but painful medical condition requiring a routine outpatient
procedure. He went to his primary care doctor, got the diagnosis and
with his HMO Blue Access card in hand showed up on the appointed day
for his surgery. The person behind the reception desk in her white
uniform, the nearest ``expert,'' informed him he needed a referral. He
called me and I told him he didn't, but to no avail. Back to the
primary, the surgery appointment blown, he found that I was right, the
expert was wrong and the surgery was re-scheduled. By this time the
condition was too painful for him to come back to work while he waited
for his surgery. He had the surgery on a Thursday. Over the weekend the
stitches pulled, the surgical site became infected and my guy, now in
great discomfort, was back at the doctor's office Monday morning.
Ordered home with a new course of medication, he was told to stay home
for the rest of the week. Out of work two weeks.
Compare the stories of these two employees: It took as long for his
doctor to treat a hemorrhoid as it did for a doctor in England to
perform a biopsy, diagnose a deadly cancer, perform surgery and begin a
state-of-the-art course of chemotherapy. This is the health care system
as my employees and I experience it. This is what I pay $6,000 a month
for. This is the best health care in the world?
Looking to Congress for Leadership
My challenges with health care and my views on what needs to be
done to fix it are by no means unique. Back home in New Jersey, I'm a
member of a coalition called the New Jersey Main Street Alliance. We're
a coalition of over 300 New Jersey small businesses that are working
together to support health reform that works for us. Last year I was
surveyed as part of a national small business survey project, where
surveyors polled Main Street business owners door to door and asked
face to face what we thought about the state of health care.
The results of this survey, reported in Taking the Pulse of Main
Street: Small Businesses, Health Insurance, and Priorities for Reform,
confirm that the views of my fellow business owners across America are
quite different than those often attributed to us. The survey results
challenge the conventional wisdom on small business and health care in
three key areas:

1. Our willingness to contribute: When asked if we were willing to
contribute for health coverage for our employees, more than two thirds
(73 percent) of small employers said yes. Furthermore, 63 percent
indicated a willingness to pay 4-7 percent of payroll (in some cases
more) to guarantee effective, affordable coverage for our employees.

2. Our support for real choices, including a public health
insurance option: When asked to choose between a proposal with a public
insurance option and a proposal with more private options, respondents
chose the proposal with a public alternative two to one (59 percent to
26 percent, with 14 percent undecided/other).

3. The role of government in making health care work for us: When
asked about public oversight and the role of government, small business
owners supported more public oversight of the insurance industry by a
margin of almost six to one (75 to 13 percent), and a stronger
government role in guaranteeing access to quality, affordable health
coverage by a margin of over four to one (70 to 16 percent).

We need Congress to act, and act swiftly, to advance real health
reform, this year. In closing, I would like to thank the Chairman and
Members of the Committee for allowing me to share my experiences as a
small business owner. I am certain that if Congress can step back for a
moment from the political blood battles that dominate the nightly news
and instead keep Main Street in mind, you can craft the legislation we
so desperately need to fix health care.

Chairman RANGEL. I would like to yield to Mr. Camp to
introduce our next couple of witnesses.
Mr. CAMP. Well, thank you.
Our next witness is Denny Dennis, who is a Senior Research
Fellow at the NFIB Research Foundation. And following that we
will hear from John Sheils, Senior Vice President of The Lewin
Group in Falls Church.
Thank you.
Mr. Dennis.

STATEMENT OF WILLIAM J. DENNIS, JR., SENIOR RESEARCH FELLOW,
NFIB RESEARCH FOUNDATION

Mr. DENNIS. Thank you very much Mr. Chairman and Mr. Camp.
This is an interesting day because Friday I start my 34th year
in NFIB.
I would like to make two points initially in my testimony.
The first one is, employer-mandated health insurance that is in
the form of just funding premiums--pay-or-play, the payroll
tax, they are all the same thing--they all become a mandate,
are bad for small business, are bad for low-income people and
they are bad for the economy.
The second point I would like to make is that health care
costs must be addressed, preferably prior to coverage
expansion, certainly no later than simultaneous to coverage
expansion, and hopefully not later than coverage expansion.
As to the former, mandates are bad for small business
because, initially--and I am going to underscore the word
``initially''--in the short term, small business will absorb
the brunt.
Now, since there is a direct correlation between the amount
of income that a small business owner takes from the business
and his propensity to provide health insurance, meaning that if
you take a lot out, you tend to, almost always, provide health
insurance; if you take a little bit out, you tend not to
provide health insurance. Under those circumstances, the abrupt
necessity to absorb additional costs, attack the most marginal
and vulnerable of employers. The same is true not only with
low-income employers, but low-margin businesses.
Second, an employer mandate effectively requires not only
subsidization of low income, but also sometimes high income,
which means it is a very blunt instrument, and you are looking
for a targeted instrument.
And, finally, it really embeds an employer-based system on
smaller firms when an employer-based system clearly does not
work for smaller firms. One of the things we are going to have
to talk about is who the system works for and who it doesn't;
and clearly, for small businesses, it doesn't.
The employer mandate is also bad for low-income people
because they are eventually going to have to pay for this. They
pay for it in lost wages, they pay for it in lost employment
and they pay for it in other opportunities such as shorter
working hours. This is generally understood by economists. This
isn't new. In fact, I cite several prominent articles in my
written testimony.
One of them is particularly interesting. It comes from the
American Economic Review, 1989, written by someone I think most
of us, or probably all of us, in this room have heard of, a
fellow by the name of Larry Summers.
Recently, there came an article in the Journal of the
American Medical Association, JAMA, also from some people we
have probably heard of, Ezekiel Emanuel and Victor Fuchs, which
concludes the same thing, that the cost of mandates is all
passed back to low-income people.
And then, thirdly, it is bad for the economy because it is
essentially a regressive tax, a very regressive tax, and
supposedly we are concerned in this day and age about income
inequality. Yet we are going to try and add more cost onto all
our low-income people.
So your choice is this when it comes to the employer
mandate: Make low-income people pay for their health insurance,
effectively in a hidden, blunt and politically easy way under
the guise of employer money on the table; or you can subsidize
the health insurance of the low-income, target your subsidies,
but do so in a politically more difficult way.
With regard to costs--I think we all agree that a major
reason for the coverage problem is cost. I don't think that is
in dispute. But what we are talking about here is a sequencing
issue.
Let's take a look at Massachusetts. Massachusetts took up
coverage first and now they are concerned with cost. So what
happened? Between 2005 and 2007 Massachusetts cut its uninsured
rate by about half. There is some argument about numbers, but
it is about half. Meanwhile, costs, the entire costs of health
care in Massachusetts, rose 23 percent. The entire health care
cost in the United States comparatively rose 11 percent.
Now, if we do the same sequencing in the United States that
they did in Massachusetts and have the same results that they
had in Massachusetts, we are going to have a much worse
problem, because Massachusetts started out with a very low
uninsured rate, much lower than the Nation as a whole, plus
they had a series of other advantages.
So your choice then is really to enact cost-control reforms
before or simultaneous to coverage, because after there will be
a huge new demand placed on the system for which there will be
no offsets.
I thank you very much, Mr. Chairman. I would be more than
happy to answer questions, and also to go more into the
employer-based system and why it doesn't fit small business
very well. Thank you.
Chairman RANGEL. Thank you.
[The statement of Mr. Dennis follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman RANGEL. Our next witness.
Mr. CAMP. Thank you.
Mr. Sheils, you have 5 minutes.

STATEMENT OF JOHN SHEILS, VICE PRESIDENT,
THE LEWIN GROUP

Mr. SHEILS. Thank you. I am a Vice President with The Lewin
Group. We are a nonpartisan health management consulting firm
specializing in health care; we don't advocate for or against
any legislation.
President Obama's proposal, while running for the
presidency last year, was to create a public plan that would be
available to people who are self-employed and small businesses
that want to offer insurance to their employees.
Senator Baucus' proposal states that the new public plan
would be similar to the Medicare Program. And implementing the
program in a manner that is consistent with Medicare has some
huge implications.
If you turn to page 4 of the testimony, right now, payment
rates for providers under the Medicare Program are equal to
about 71 percent of what private payers pay. For physicians'
care, the payments are equal to about 81 percent of what
private insurers pay. So you have a 25 to 30 percent lower
price, lower premium, as a consequence of that.
In addition, there are some--in addition, administrative
costs are lower under the program. For private insurance--for
private-sector insurance, administrative costs average around
13.4 percent of claims. In the public program, we expect the
costs to be about 7 percent of claims. So we have a premium
that is 20 to 30 percent lower than the premium that you have
in private insurance today.
And if you look at the chart on page 5, average private
coverage premiums right now are about $970 per month per family
for family coverage. That would drop to $7,600 per family, if
you were to buy it through this public plan. That is a savings
of about $2,500 over the course of a year. So it is going to be
a very attractive option; lots of people are going to want to
go into it.
On page 6, we show what happens under the proposal. But to
give it a little better context, the public plan has been
proposed as part of efforts to expand coverage. One of those
requirements is a requirement that the employer either pay a
tax or provide insurance.
Also, President Obama's proposal included some expansions
of Medicaid and some new tax credits to help people buy
insurance. So we ran the model, did our estimates with simply
those assumptions.
If you look at the right side of the chart, we show first
of all that there are about 28 million people who are uninsured
today who would become covered under the program as a result of
the program. That includes an increase of 16 million people on
Medicaid.
The public plan would cover about 132 million people, but
most of that is going to be people dropping their private
coverage and moving into the public plan. That is about 120
million people and 70 percent of the private insurance market.
Just to--in our paper we also looked at the impact if you
would limit it just to small firms, and that is on the left
side of this page; and in that case, if you limit it just to
small firms, overall there is a loss of private coverage of
about 32 million people.
For employer coverage specifically, again on the right-hand
side of the table, private employer insurance would go down by
107.6 million people. There would be an increase in the number
of employers who are buying coverage for their workers through
the public plan of 113 million. It is really a net increase in
the number of employers contributing to the cost of the
insurance for the worker that derives primarily from the pay-
or-play requirement, which is to provide insurance or pay a
tax. So this is a very large shift away from employer coverage.
On page 10 we have an estimate of what happens to provider
income if we were to set up a program available to all firms,
using Medicare provider payment rates. Hospitals would lose
about $36 billion in net income, physicians would lose about
$33 billion. If you limit it to small firms, actually hospitals
come out a little bit ahead. And that reflects the fact that
there is uncompensated care that is reduced by covering more
people. These are net figures. But covering everyone under
Medicaid with--under Medicare payment rates would have a fairly
substantial negative effect.
The last thing I wanted to talk about is cost-shifting.
This is a chart on page 11 which summarizes the payment system
for hospitals in the United States. And we have arrayed people
by their source of coverage and we have expressed the payments
as a percentage of costs.
Right now, in the middle, Medicare--actually, in 2003,
payments were equal to about 95 percent of costs. Medicaid
payments were lower, about 89 percent. And then the uninsured
accounted for a substantial amount of uncompensated care.
To recover those shortfalls, the hospitals, and physicians
as well, will increase what they charge private payers. Private
payers were paying 122 percent of costs. And the key to
understand here is, when you put more people in Medicare where
their payment rates are at this level, it will push down
revenues for hospitals for those people and require the
hospitals to increase their charges to privately insured
people.
If you look at the final page here, we estimate that if we
were to set up a program where all firms can go in using
Medicare rates, there would be a cost shift to privately
insured people of about $526 per person for a privately insured
person, and maybe $1,500 for a family policy. But if you were
to limit it to just small employers, small firms, the program
would have less of a cost shift. In fact, because of the
reduction on compensated care, it actually would be a small
reduction in the cost shift.
So the point of the paper was to explain that there are
different ways that you can construct this program. You don't
have to use Medicare rates; you could use midpoints between
private and Medicare.
There are a number of choices, and in our study, we look at
the impacts, all of these impacts, under those various several
scenarios. Thank you.
Chairman RANGEL. Thank you very much.
[The statement of Mr. Sheils follows:]
Statement of John Sheils, Senior Vice President,
The Lewin Group, Falls Church, Virginia
The Lewin Group is a health care and human services policy research
and management consulting firm. We have over 25 years of experience in
estimating the impact of major health reform proposals. The Lewin Group
is committed to providing independent, objective and non-partisan
analyses of policy options. In keeping with our tradition of
objectivity, The Lewin Group is not an advocate for or against any
legislation. The Lewin Group is part of Ingenix, Inc., which is a
wholly owned subsidiary of the UnitedHealth Group. To assure the
independence of its work, The Lewin Group has editorial control over
all of its work products.
The Cost and Coverage Impacts of a Public Plan
Thank you for this opportunity to address the committee on the
coverage effects of a public plan. I am a Vice-president with The Lewin
Group with 25 years experience in studying and analyzing proposals to
reform health care and extend health insurance to the uninsured. We are
committed to providing independent, objective and non-partisan analyses
of policy proposals. The Lewin Group does not advocate for or against
legislative proposals.
President Obama and Senator Baucus have proposed to create an
``exchange'' offering individuals and employers a selection of health
plans. They also propose to create a new ``public plan'' that would
compete for enrollment with private insurance plans in the exchange.
Premiums under the public plan would be up to 30 percent less than
private insurance plans if Medicare payment levels are used. Due to
this substantial cost advantage, we estimate that up to 119.1 million
of the 171.6 million people who now have private employer or non-group
coverage would move to the public plan (70 percent).
Although the details of these proposals are still being developed,
President Obama's health reform proposal from the 2008 presidential
campaign states:
``The new public plan will be open to individuals without access to
group coverage through their workplace or current programs. It will
also be available to people who are self-employed and small businesses
that want to offer insurance to their employees.'' \1\
---------------------------------------------------------------------------
\1\ ``Barack Obama's Plan for a Healthy America: Lowering health
care costs and ensuring affordable high-quality health care for all.''
---------------------------------------------------------------------------
The white paper on health reform developed by Senator Baucus would:
Create an exchange ``through which individuals and small businesses
in the market for insurance could obtain affordable health care
coverage'' and states that ``the exchange would also include a new
public plan option, similar to Medicare.'' \2\
---------------------------------------------------------------------------
\2\ ``Call to Action: Health Reform 2009,'' U.S. Senator Max
Baucus, Chairman, Senate Finance Committee.
---------------------------------------------------------------------------
Also, the Commonwealth Fund reform proposal would eventually allow
employers of all sizes to purchase coverage in the public plan for
their workers.\3\
---------------------------------------------------------------------------
\3\ ``The Path to a High Performance U.S. Health System: A 2020
Vision and the Policies to Pave the Way,'' The Commonwealth Fund
Commission on a High Performance Health System, February 2009.
---------------------------------------------------------------------------
To assist in designing the public plan, we developed estimates of
the number of people enrolling in the plan under alternative design
features. We estimated the effect of varying eligibility by firm size
and provider payment levels under the program, which at this time seem
to be the key design features.
Our estimates and methodology and results are presented in the
following sections:

Features of the public plan;
Premiums in the public plan;
Coverage effects;
Employer Coverage;
Provider impacts; and
Cost-Shifting.
Features of the Public Plan
The public plan has been proposed as part of broad health reform
proposals that would substantially expand insurance coverage. For
illustrative purposes, we assume that the public plan would be
implemented as part of a health reform program that includes coverage
expansions similar to those proposed by President Obama in the 2008
campaign. Key elements of the President's proposal include: \4\
---------------------------------------------------------------------------
\4\ ``McCain and Obama Health Care Policies: Cost and Coverage
Compared,'' The Lewin Group, October 8, 2008.

There would be a mandate for children to have coverage;
Medicaid eligibility is expanded to include all adults
living below 150 percent of the Federal Poverty Level (FPL), including
able-bodied adults without custodial responsibilities for children;
Tax credits are provided to people purchasing private
insurance who live between 150 percent and 400 percent of the FPL;
Medical underwriting and health status rating is
eliminated in all insurance markets, but rating by age is permitted;
Medium and large employers are required to offer
insurance or pay a payroll tax; and
Tax credits are provided to small employers (fewer than
10 workers) with low-wage workers for up to 50 percent of employer
spending for worker coverage.

We assume that the benefits provided under the public plan are the
same as those offered under the BlueCross/Blue Shield Standard Option
offered to Members of Congress and Federal workers under the Federal
Employees Health Benefits Plan (FEHBP) (as proposed by President
Obama). These benefits include hospital care, physician services,
prescription drugs, substance abuse, mental health services and dental
care. For in-network utilization, there is a $15 copayment for office
visits with no deductible. The plan includes a $250 deductible and
higher copayments for out-of-network utilization, up to a maximum out-
of-pocket limit amount of $4,000.
We used The Lewin Group Health Benefits Simulation Model (HBSM) to
simulate the effect of such a program on coverage.\5\
---------------------------------------------------------------------------
\5\ ``The Health Benefits Simulation Model (HBSM): Methodology and
Assumptions,'' The Lewin Group, February 19, 2009.
---------------------------------------------------------------------------
Premiums in the Public Plan
For illustrative purposes, we begin the analysis by estimating the
effect of creating a new public plan modeled on Medicare that is
available to individuals and the self-employed. We began by estimating
the effect of the plan assuming that it would use Medicare provider
reimbursement levels. We then estimated enrollment and costs assuming
enrollment is limited to small firms and under alternative provider
reimbursement assumptions.
We estimate that premiums for the public plan under this scenario
would be roughly 30 percent less than premiums for comparable private
coverage (effects vary by firm size). As shown in Figure 1, provider
payment levels for hospital services under Medicare are equal to only
about 71 percent of what is paid by private health plans for the same
services. In fact, Medicare payments to hospitals are actually equal to
only between 92 percent and 95 percent of the cost of the services
provided by hospitals.\6\ For physician services, Medicare pays only
about 81 percent of what is paid by private health plans for the same
services.\7\
---------------------------------------------------------------------------
\6\ American Hospital Association, ``Trends Affecting Hospitals and
Health Systems,'' TrendWatch Chartbook, April 2008.
\7\ State Health Facts, The Kaiser Family Foundations (KFF), 2003
report.
---------------------------------------------------------------------------
Figure 1
Benefits and Administrative Costs under a Medicare-based Public Plan
and Private Insurance Compared: 2010

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source:
American Hospital
Association, ``Trends
Affecting
Hospitals and
Health
Systems,'' TrendWatch
Chartbook
April 2008;
``Report to
Congress: Medicare
Payment
Policy,''
Medicare
Payment
Advisory Commission (MedPAC), March 2008; and State Health Facts, The
Kaiser Family Foundations (KFF), 2003 report.

Administrative costs are also expected to be lower for the public
plan than under private insurance, reflecting that the public plan
would not include an allowance for insurer profit and insurance agent
and broker commissions and fees. Administrative costs, including profit
and commissions, for privately insured firms are on average equal to
about 13.4 percent of covered benefits. If implemented through
Medicare, administrative costs would be equal to about 7.0 percent of
covered services.
Our estimate of administrative costs is based upon a detailed
analysis of administrative costs under insurance pools which we present
in our model documentation.\8\ These administrative costs are about
twice what administrative costs currently are in the Medicare program
(about 6.5 percent of benefits). Costs will be higher in the public
plan than in Medicare because the program will need to process the
movement of individuals across health plans when people decide to
change their source of coverage. The plan will also need to collect
premiums from individuals and employers who decide to enroll. These
functions are not required for the current Medicare populations once
enrolled.
---------------------------------------------------------------------------
\8\ ``The Health Benefits Simulation Model (HBSM): Methodology and
Assumptions,'' The Lewin Group, February 19, 2009.
---------------------------------------------------------------------------
Figure 2 presents our estimates of the average cost of insurance
for individuals in the public plan and in the private insurance
markets. Premiums for family coverage under the public plan would
average $761 per month compared with $970 per month in the current
private insurance market.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Figure 2
Impact of Using Medicare Provider Payment Rates on Premiums in the
Public Plan in 2010
Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).
Coverage Effects
We estimate that the Obama-like health reform program described
above would reduce the number of uninsured by about 28 million people.
This reflects expanded eligibility under Medicaid/CHIP, and the tax
credits under the proposal.
As discussed above, the President's campaign proposal would limit
enrollment to individuals, the self-employed and small employers. Large
employers would not be permitted to cover their workers through the
public plan. Under this scenario, about 42.9 million people would be
enrolled in the public plan (Figure 3). The number of people with
private coverage would fall by about 32.0 million people.
If we assume that the public plan is open to all individuals, the
self-employed and all firms, the public plan would enroll about 131.2
million people (includes some uninsured who become covered). The number
of people with private health insurance would decline by about 119.1
million people (Figure 3). This is equal to about 70 percent of all
people currently covered under private health insurance (excludes
supplemental coverage for Medicare beneficiaries).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Figure 3

Public Plan
Enrollment
and Reduction in Priva
te Coverage
under a Public Plan Us
ing Medicare Payment
Levels
2010 (millions)

a
Changes in coverage
under Medicaid and oth
er programs not
shown.

Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).

The impact of the program on private coverage would depend largely
on the levels of reimbursement under the program. While Medicare
payment levels have been proposed, it would be possible to pay
providers at other levels. To illustrate, we estimated the number of
people enrolling in the public plan under two alternative payment level
assumptions.
If the program is implemented using private payer rates (i.e.,
``negotiated'' rates), premiums under the public plan would be only 6
percent to 9 percent less than in private plans, reflecting that the
program would still have lower levels of administrative costs than
private insurance. Public plan enrollment, assuming all firms are
eligible to enroll, would fall from 131.2 million people with Medicare
reimbursement levels to about 20.6 million people at private payer
levels (Figure 4). We also show enrollment assuming payments are set at
the midpoint between Medicare and private payment levels.
Figure 4
Enrollment in Public Plan Under Alternative Public Plan Scenarios

----------------------------------------------------------------------------------------------------------------
Eligible Groups
-----------------------------------------------------------------
Small Firms, Self-employed and All Firms, Self-employed and
Individuals Only Individuals
-----------------------------------------------------------------
Private Midpoint Medicare Private Midpoint Medicare
Payer Payment Payment Payer Payment Payment
Levels Levels Levels Levels Levels Levels
----------------------------------------------------------------------------------------------------------------
Public Plan Premiums as Percent of Private -9% to -15% to -25% to -6% to -12% to -25% to
-11% -30% -40% -9% -24% -32%
----------------------------------------------------------------------------------------------------------------
Coverage Effects (millions)
----------------------------------------------------------------------------------------------------------------
Reduction in Uninsured 23.8 26.1 27.4 25.1 26.7 28.2
----------------------------------------------------------------------------------------------------------------
Enrollment in National Public Plan 17.0 31.5 42.9 20.6 77.5 131.2
----------------------------------------------------------------------------------------------------------------
Change in Private Coverage -10.4 -21.5 -32.0 -12.5 -67.5 -119.1
----------------------------------------------------------------------------------------------------------------
Source: The Lewin Group estimates using the Health Benefits Simulation Model (HBSM).

Employer Coverage
We estimate there will be about 157.4 million people with private
employer-sponsored Insurance (ESI) in 2010 including workers,
dependents and retirees. These include both private employer and
government worker programs. In Figure 5, we present our estimates of
the changes in the number of workers and dependents where the employer
contributes to the health insurance premiums.
Figure 5
Changes in Employer Participation in Worker Coverage Using Medicaid
Payment Levels in Public Plan (millions)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

a Assumes employers are required to either provide insurance
or pay a 6 percent payroll tax.
Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).

We estimate that if all firms are permitted to buy coverage for
their workers through the public plan assuming Medicare payment levels,
about 107.6 million workers and dependents would lose the private
employer coverage they now have. However, employers would pay the
premium for coverage under the public plan for about 113.9 million
people. This would result in a net increase in the number of workers
and dependents where the employer is contributing to the cost of
insurance of about 6.3 million people. These include primarily workers
in firms where the employer decides to cover their workers under the
public plan rather than pay the payroll tax.
Figure 6 presents the impact of the proposal on employer
participation in worker health benefits under alternative design
scenarios.
Figure 6
Changes in Employer-Sponsored Insurance (ESI) under Alternative Public
Plan Scenarios (thousands)

----------------------------------------------------------------------------------------------------------------
Eligible Groups
-----------------------------------------------------------------
Small Firms, Self-employed and All Firms, Self-employed and
Individuals Only Individuals
-----------------------------------------------------------------
Private Midpoint Medicare Private Midpoint Medicare
Payer Payment Payment Payer Payment Payment
Levels Levels Levels Levels Levels Levels
----------------------------------------------------------------------------------------------------------------
Currently with Employer Coverage 157,448 157,448 157,448 157,448 157,448 157,448
----------------------------------------------------------------------------------------------------------------
Changes In Employer-sponsored Insurance (thousands)
----------------------------------------------------------------------------------------------------------------
Change Private ESI (6,732) (13,917) (24,417) (10,120) (59,917) (107,617)
----------------------------------------------------------------------------------------------------------------
Employer Pays Public Plan Premium 8,905 18,553 29,667 12,732 65,259 113,948
----------------------------------------------------------------------------------------------------------------
Change in Employer Participation In Coverage 2,173 4,636 5,250 2,612 5,342 6,331
----------------------------------------------------------------------------------------------------------------
Source: The Lewin Group estimates using the Health Benefits Simulation Model (HBSM).

Provider Impacts
The program would have a significant impact on provider net
incomes. Expanding coverage would reduce uncompensated care for
uninsured people and would result in increased health services
utilization for the newly insured, all of which would represent new
revenues to providers. These increases in revenues would be largely
offset by reductions in payment levels for people who shift from
private insurance to the public plan and the provider's cost of
providing additional care to the newly insured.
Assuming the public plan is open to all individuals and all
employers, total hospital margin would fall by $36.0 billion in 2010
(Figure 7). This is equal to about 4.6 percent of total hospital net
revenues (i.e., gross revenues less contractual allowances) in that
year. Physician net income would fall by about $33.1 billion, which is
equal to about 6.8 percent of physician revenues. Thus, under this
scenario, health care providers are providing more care for more people
with less revenue.
The effect on provider income is substantially smaller under a
scenario where large firms are excluded from participation in the
public plan. For example, hospital margin would actually increase by
$11.3 billion in 2010, assuming the plan is limited to only
individuals, the self-employed and small firms. Thus, the increased
revenues for newly insured people (including reduced uncompensated
care) are greater than the loss of revenues for people who would become
covered under the public plan. Physician income net of practice
expenses would fall by $3.0 billion under this scenario.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Figure 7
Impact of Public Plan on Provider Income if Medicare Provider Payment
Rates Used
Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).

In Figure 8, we present estimates of the impact of the program on
provider incomes under alternative payment level assumptions for the
public plan.
Figure 8
Impact on Hospital and Physician Net Income in 2010 (billions)

------------------------------------------------------------------------
Hospital Income Physician Income
---------------------------------------------------------
Small Firms All Firms Small Firms All Firms
Only Eligible Only Eligible
------------------------------------------------------------------------
Assuming Medicare Payment Levels
------------------------------------------------------------------------
Payment Level -$10.7 -$58.0 -$6.0 -$36.1
Reduction
------------------------------------------------------------------------
Payments for $22.0 $22.0 $3.0 $3.0
Previously
Uncompensated
Care
------------------------------------------------------------------------
Net Change $11.3 -$36.0 -$3.0 -$33.1
------------------------------------------------------------------------
Change as a 1.0% -4.6% -1.6% -6.8%
Percent of
Total Revenue
------------------------------------------------------------------------
Assuming Midpoint Payment Levels (i.e., between Medicare and Private
Payer Rates)
------------------------------------------------------------------------
Payment Level -$6.1 -$29.3 -$4.8 -$19.8
Reduction
------------------------------------------------------------------------
Payments for $22.0 $22.0 $3.0 $3.0
Previously
Uncompensated
Care
------------------------------------------------------------------------
Net Change $15.9 -$7.3 -$1.8 -$16.8
------------------------------------------------------------------------
Change as a 2.0% 0.9% -0.5% -3.1%
Percent of
Total Revenue
------------------------------------------------------------------------
Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).

Cost-Shifting
Provider payments under private insurance are inflated to cover
uncompensated costs for the uninsured and underpayments for services
under public programs. This added cost to the privately insured is
known as the cost-shift. For example, Figure 9 depicts hospital
payments for various payer groups. In 2003, Medicare payments were
equal to only about 95 percent of the cost of the care provided.
Hospital payments under Medicaid were equal to 89 percent of costs and
payments by the uninsured were equal to about 14 percent of the cost of
their care.
To compensate for these shortfalls in payment, hospitals typically
charge higher amounts to privately insured patients. In 2003, payments
for privately insured people were equal to about 122 percent of costs.
Thus, payments under private insurance are inflated by the cost of
covering uncompensated care and payment shortfalls under public health
coverage programs.
Figure 9
Average Payment-to-Cost Ratios for Hospitals by Payer Group Nationally
for 2003

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: Al Dobson, Joan DaVanzo and Namrata Sen, ``The Cost-Shift
Payment `Hydraulic': Foundation, History, and Implications,'' Health
Affairs, January/February 2006, volume 25, number 1.

Data provided by MedPAC show that as the growth in provider
payments under public programs is slowed, provider payments under
private insurance increase. For example, Medicare hospital payment
levels declined from 95 percent of costs in 2003 to 91 percent of costs
in 2007. At the same time, private payer rates increased from 122
percent of costs in 2003 to about 132 percent of costs in 2007.
Not all of the shortfalls in payments are shifted to private
insurers. The literature indicates that only about 40 percent of
uncompensated care and payment shortfalls are passed-on as higher
prices for the privately insured. The remainder (60 percent) appears to
be absorbed through reductions in costs and net income. Similar effects
also have been observed for physician care. The evidence on cost-
shifting includes:

There are two separate studies indicating that about one-
half of hospital payment shortfalls are passed on to private payers in
the form of higher charges.\9\ Two other studies showed considerably
less evidence of hospital cost-shifting, although they did not rule out
a partial cost-shift.\10\
---------------------------------------------------------------------------
\9\ Dranove, David, ``Pricing by Non-Profit Institutions: The Case
of Hospital Cost-Shifting,'' Journal of Health Economics, Vol. 7, No. 1
(March 1998); and Sloan, Frank and Becker, Edward, ``Cross-Subsidies
and Payment for Hospital Care,'' Journal of Health Politics, Policy and
Law, vol. 8., No. 4 (Winter 1984).
\10\ Zuckerman, Stephen, ``Commercial Insurers and All-Payer
Regulation,'' Journal of Health Economics, Vol. 6. No. 2 (September
1987); and Hadley, Jack and Feder, Judy, ``Hospital Cost-Shifting and
Care for the Uninsured,'' Health Affairs, Vol. 4 No. 3 (Fall 1985).
---------------------------------------------------------------------------
One study of physician pricing by Thomas Rice et al.,
showed that for each one percent reduction in physician payments under
public programs, private sector prices increased by 0.2 percent.\11\
---------------------------------------------------------------------------
\11\ Rice, Thomas, et al., ``Physician Response to Medicare Payment
Reductions: Impacts on public and Private Sectors,'' Robert Wood
Johnson Grant No. 20038, September 1994.
---------------------------------------------------------------------------
Our own analysis of hospital data indicates that about 40
percent of the increase in hospital payment shortfalls (i.e., revenues
minus costs) in public programs were passed-on to private-payers in the
form of the cost-shift during the years studied.\12\
---------------------------------------------------------------------------
\12\ Sheils, J., Claxton, G., ``Potential Cost-Shifting Under
Proposed Funding Reductions for Medicare and Medicaid: The Budget
Reconciliation Act of 1995,'' (Report to the National Coalition on
Health Care), The Lewin Group, December 6, 1995.

Based upon this evidence, we estimate that increasing the number of
people covered under Medicare will increase the cost-shift for people
who remain uninsured. This increase would be partly offset by reduced
uncompensated care resulting from the expansion in coverage under the
Obama proposal (28 million uninsured become covered under the
proposal). Using existing research, we assume that 40 percent of the
net reduction in provider payments would be passed back to private
payers through the cost-shift.
Using these assumptions, we estimated the change in the cost-shift
for each of the six scenarios presented above. The cost-shift would
increase by about $526 per privately insured individual the scenario
where Medicare payment rates are used and firms of all sizes are
permitted to enroll their workers in the public plan (Figure 10).
These cost-shift assumptions are highly speculative, however. For
example, the health plans most likely to survive in a system dominated
by the Medicare plan are likely to be integrated delivery systems such
as HMOs. Many of these systems have their own hospitals and would be
able to avoid cost-shifting, because they serve only those enrolled in
their plan. Thus, it is difficult to be sure of the extent of cost-
shifting with the public plan.
Figure 10
Change in Cost-Shift per Privately Insured Person under Alternative
Public Plan Scenarios

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: The Lewin Group estimates using the Health Benefits Simulation
Model (HBSM).

Chairman RANGEL. Now we hear from Gerry Shea, who is the
Special Assistant to the President, John Sweeney, right?
Mr. SHEA. Thank you, Mr. Chairman. I am Gerry Shea. I am
the assistant to John Sweeney.
Chairman RANGEL. Let me ask you this. The Service Employees
International Union, are they working with the AFL in terms of
monitoring what we are going through and seeing what labor
drink is best for their members?
Mr. SHEA. Very closely. My last meeting yesterday was at a
meeting with a number of unions, including both the Service
Employees and the United Food and Commercial Workers, neither
of which are affiliated with the AFL-CIO, as well as a number
of the AFL-CIO unions--and the NEA by the way.
Chairman RANGEL. That is very helpful. We anxiously await
your testimony.

STATEMENT OF GERALD M. SHEA, ASSISTANT TO THE PRESIDENT,
AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL
ORGANIZATIONS

Mr. SHEA. Thank you, Mr. Chairman and Mr. Camp. We
appreciate the invitation to share our perspective based on the
union's bargaining experience with 40 million Americans, and I
am honored personally to be before this Committee.
You have a tremendous responsibility in providing
leadership on this crucial question, and I come to you both
with a plea for help, which you have heard before, and also a
pledge for cooperation and flexibility in terms of approaching
this.
We have to solve this problem this year. And, in part, we
have to solve this problem because even though the employer-
based system, which is after all the backbone, as you pointed
out, of our health care coverage and financing situation has
served us pretty well, it is really hanging on, holding on, by
its fingertips.
I can tell you that based on our experience monitoring
bargaining situations across the country, this continues to be
the most difficult issue in bargaining. I could give you
examples today if I were free to share some confidential
information about current large bargaining, where this is the
only issue on the table and where strikes may ensue in short
order in some very critical services because of this.
It is true that large firms still provide coverage. But
when you look beneath those gross statistics, you see that
there is very substantial cost-shifting to individuals. So that
the studies are that the number of uninsured have gone, or the
percentage of underinsured, have risen from 15 percent to 25
percent over the past 5 years. Those are people who have
insurance, but can't afford to get the care that they are
prescribed to get.
So we are just seeing the erosion of the employment-based
system. And even if you didn't want to do national health
reform and cover everybody, we would need your help to
stabilize that system because it can't be done without
government leadership.
I am involved many, many hours a day working with employers
and with other unions on ways that we can restructure health
care to make it higher quality and more efficient. Those are
very, very important conversations from our point of view. They
are vital to the future of health care in this country.
One of the clear lessons from that is that we can't do it
alone as the private sector. This has to be done by the private
sector and the public sector, that is, with government, working
together.
So what are the elements of stabilizing employment-based
coverage in our opinion? One, it is controlling costs, because
without controlling costs, whether you look at a private
employment-based system or a public, say, single-payer system,
without controlling costs, we can't afford the health system we
now have. It is simply unsustainable for anybody. So that is
priority number one in terms of employment-based coverage as
well as other coverage.
Secondly, you have to have everybody in the system. If you
are going to continue, if you want to rely on the employment-
based system, we have to have all individuals and all companies
participating in the financing of that care.
And then, thirdly, government has to play the role of
making sure that there are fewer rules that are enforced across
the board and, in our opinion, by sponsoring a public health
insurance plan option.
So let me just elaborate a little bit, first, on costs.
Long term we need to restructure the way we deliver and pay for
care. The estimates from the Institute of Medicine are that
$300 billion a year in this--of what we spend, go to care that
is neither beneficial and sometimes downright dangerous for
people. That is a lot of waste and inefficiency, and we know we
can do better.
We have shown in many institutions that we can reduce
hospital-acquired infections; we have shown that we can reduce
the readmission rates in a number of hospitals by taking
certain proven steps; we have shown that we can reduce the
horrific problem of mistakes in surgery by simple protocols
checklist and time-out kinds of procedures.
We can do this. It won't be easy, and it won't be
overnight, but we can do it; and that is the most important
thing, long term. Because while there are a lot of ways that
you could control costs in health care we think that the best
way and the most acceptable way to people in this country is
going to be by improving the quality and efficiency of that
care.
Secondly, the point about including a public insurance plan
plays in here. Mr. Sheils has talked about the effect of a
public insurance plan in terms of the savings that it could
engender. We believe, while there is a lot of policy dispute
about the number of people who would shift from the private
insurance to the public insurance sector, Mr. Sheils has rather
high estimates of that, in our opinion.
There is a clear understanding that this would reduce costs
and save us money, so we think that is a critical step.
On the issue of cost-shifting, by the way, of the private
sector--and this goes to the point about whether or not we
should require everybody to pay--let me just give you our
experience. Workers regularly trade off wages to keep health
benefits. They make this decision on the ground every day, and
their decision is consistently, we want health benefits, even
if it means trading off wages and, in some cases, even trading
off jobs. It is that important to American families for the
simple reasons that you would all understand. We all hold the
same position on this.
So people want everyone to participate. They are willing to
pay their fair share in this as long as everybody else does.
And then, last, the government must maintain the rules to
the road for everybody. And we are doing--we are starting this
in a number of the quality improving areas by requiring
reporting on uniform national standards of quality and making
that information public to inform both purchasers, individuals
and clinicians; and we need to extend that beyond this.
So, Mr. Chairman and Mr. Camp, I appreciate the opportunity
to appear before you. I just want to make one last point if I
could; and that is that the idea of taxation of health benefits
has come up as a way to raise money. And I just want to say--
going back to my point about what we need to focus on here is
stabilizing the employment-based system--if we were to go to
taxation of benefits, that would be the ultimate destabilizing
step we could take.
You may consider the employment-based system, an accident
of history in the United States; we heard some of the history
from Dr. Gould. It is, however, composed of several core
elements, one of which is the tax preferred treatment of
benefits. You take that away and you are really pulling the rug
out from under this system.
Now, maybe you want to change the system altogether. There
are a lot of proposals to do that. But this taxation of
benefits would certainly stabilize it. And in terms of the
public support for health reform, asking people to pay again
for the health insurance they already think they pay an
enormous amount for is not going to wash. This is not going to
get public support; it is going to get tremendous public
opposition. So I would just caution against going down that
road.
Thank you, Mr. Chairman.
Chairman RANGEL. Thank you.
[The statement of Mr. Shea follows:]
Statement of Gerald Shea, Special Assistant to the President, AFL-CIO
Good morning, Chairman Rangel, Congressman Camp and distinguished
Members of the Committee. Thank you for the invitation to participate
in this hearing and to offer our perspective, on behalf of working
women and men, on the role of employer-sponsored health insurance in
health reform. I would like to commend the committee for launching this
series of hearings on health reform and for the commitment this
Congress and our President have made to enacting comprehensive health
care reform this year, in order to secure affordable, high-quality
health care for all Americans.
Employer-sponsored insurance is the backbone of health coverage and
health financing in America. Over 160 million people under age 65 have
health benefits tied to the workplace. Despite its shortcomings,
employer-sponsored insurance has proved remarkably successful and
durable. It is widely considered to be the base on which health reform
should be built, allowing working families to keep what they now have
or choose from a new set of options to maintain coverage. Additionally,
it is seen as the anchor for health reform, where all people would have
affordable, high quality care.
But realizing this vision requires action to stabilize employment-
based coverage and reverse the steady erosion in coverage caused by
unsustainable cost increases. Our system of employer-sponsored health
benefits is not falling apart but is teetering on the brink. For
several years coverage has been declining at an accelerating
rate.i Without prompt, strong action, that rate is likely to
increase dramatically.
---------------------------------------------------------------------------
\i\ E. Gould, ``The Erosion of Employer-Sponsored Health Insurance:
Declines Continue for the Seventh Year Running,'' Economic Policy
Institute, October 9, 2008.
---------------------------------------------------------------------------
Today, I want to share the AFL-CIO's view of what needs to be done
to return employer-sponsored insurance to a successful path. Doing so
will require the willingness to change by all parties--providers of
care, insurers, consumers and employers, both those now providing
benefits and those not.
The AFL-CIO represents 11 million members, including 2.5 million
members in Working America, our new community affiliate, and 56
national and international unions that have bargained for health
benefits for more than fifty years. Our members are among the most
fortunate: through bargaining, they have good benefits from their
employers. Yet even the well insured are struggling with health care
costs hikes that are outpacing their wage increases and far too many
working families increasingly find themselves joining the ranks of the
uninsured or under-insured as businesses close or cut back. If we could
take a snapshot of coverage at this point in our economic crisis, the
number of uninsured would almost certainly be north of 50 million.
Between 1999 and 2008, premiums for family coverage increased 119
percent, three and one half times faster than cumulative wage increases
over the same time period.ii Workers' out of pocket costs
are going up as well, leading to more under-insured Americans who can
no longer count on their health benefits to keep care affordable or
protect them from financial ruin. Between 2003 and 2007, the number of
non-elderly adults who were under-insured jumped from 15.6 million to
25.2 million.iii And skyrocketing costs are pushing more
workers out of insurance altogether. About 18 million of the 47 million
uninsured have a household income that exceeds $50,000.iv
---------------------------------------------------------------------------
\ii\ Kaiser Family Foundation and Health Research & Educational
Trust Employer Health Benefits 2008 Annual Survey, September 2008.
\iii\ C. Schoen, S.R. Collins, J.L. Kriss and M. M. Doty, ``How
Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007,''
Health Affairs Web Exclusive, June 10, 2008.
\iv\ C. DeNavas-Walt, B. Proctor, J. Smith, ``Income, Poverty, and
Health Insurance Coverage in the United States: 2007,'' U.S. Census
Bureau, Issued August 2008.
---------------------------------------------------------------------------
Health costs are also straining American businesses. Globally, U.S.
manufacturing firms pay more as a percent of payroll and as an hourly
cost than our major trading partners.v Here at home, firms
that provide good benefits to their workers and their families find
themselves at a competitive disadvantage to firms that either don't
offer affordable coverage or don't provide coverage at all. Their
payroll costs are higher by virtue of being good employers who provide
health benefits and they shoulder an additional burden picking up costs
from their competitors that skimp on care. Even public employers that
have typically provided good health benefits are struggling under
growing cost pressures, especially as more states find their budgets
hit by the economic crisis.
---------------------------------------------------------------------------
\v\ L. Nichols, S. Axeen, ``Employer Health Costs in a Global
Economy: A Competitive Disadvantage for U.S. Firms,'' New America
Foundation, May 2008.
---------------------------------------------------------------------------
Without fundamental reforms aimed at substantially lowering the
health care costs that are driving these growing gaps in coverage, we
will continue to see a depression of wages and economic activity, as
well as a federal budget increasingly consumed by health care costs. As
then CBO director and now OMB director Peter Orszag has noted, health
care cost trends are the ``single most important factor determining the
nation's long term fiscal condition.'' vi
---------------------------------------------------------------------------
\vi\ P.R. Orszag, ``Growth in Health Care Costs: Statement Before
the Committee on the Budget, United States Senate,'' January 31, 2008.
---------------------------------------------------------------------------
The statistics we all regularly cite are broadly recognized signals
of a system under severe strain. But this hearing and others in the
series reflect your commitment to moving past simply a recitation of
the problems to focusing on a comprehensive solution that will extend
coverage to all Americans and curb health care cost hikes that are
crippling families, business and government at all levels. Health
reform done right is key to fixing our economy and putting future
federal spending on a more sustainable track.
Our view of health reform builds on three primary principles: (1)
everyone must participate in the system, both employers and
individuals; (2) the government has a key role to play by setting and
enforcing rules for a fair insurance market and by sponsoring a public
health insurance plan to compete with private plans; and (3) costs must
be constrained through delivery system reforms that link quality to
payment and through the cost savings achieved with the efficiencies and
purchasing power of a new public health insurance plan.
We believe the solution should build on what works in our health
care system--public and private coverage--in order to close gaps,
improve quality and lower costs. The majority of non-elderly Americans
(62%) obtain coverage through employer-sponsored health plans. And
despite its flaws--including higher cost sharing and the hassles and
outright denials they've come to expect from insurance companies--most
Americans are happy with their employer-based health benefits, in large
part because they know it is still far superior to being on their own
in the individual insurance market. Building on this core piece of our
health care system will both minimize disruption and garner greater
public support.
To be sure, employment-based health benefits have significant
advantages. They provide a natural pooling mechanism, lowering costs
and covering individuals who might not otherwise be able to afford
coverage if they were subjected to medical underwriting or rating based
on age. It makes plan choice convenient, facilitates enrollment, and
lowers transaction costs. It has, in many cases, spurred innovation in
workplace programs to promote healthy living, assist workers with
family caregiving, and address problems related to chronic disease,
substance abuse, and stress. And in unionized workplaces, it has also
led to cooperation between unions and employers to advocate for
improved quality and efficiency.
To build on the employer-based system, we must stabilize it by
lowering costs that have driven the steady erosion of employer-
sponsored benefits so that workers can retain the coverage they have
and other workers now left out can gain health coverage. Doing so will
reverse the trend to more and more uninsured: the share of Americans
who obtain coverage through their employer is strongly and inversely
correlated to the share of Americans who are uninsured.
Another significant component of stabilizing employer-based
coverage would be to require employers to either offer health benefits
to their workers directly or pay into a public fund to help finance
workers' coverage, i.e. ``pay or play.'' There are significant benefits
of this approach. First, it will create a more level playing field
between firms that offer health benefits and those that don't. It will
also eliminate the cost shift that occurs when employers offering good
family coverage see their costs rise when they provide coverage for
spouses employed in firms that either offer too costly coverage or no
coverage at all. To the extent policymakers may choose to construct pay
or play in a way that allows families to be enrolled in the same
employer plan, we believe one approach to consider would be to require
a dependent's employer to make a contribution to the employer covering
the whole family.
Furthermore, given other policy elements under consideration and
the federal fiscal challenges affecting health reform, pay or play will
be a necessary component if health reform is to succeed. If reform
includes a new requirement that all individuals obtain coverage,
expanding employer based health benefits will be key to making coverage
affordable for workers that do not qualify for income-based public
subsidies. It will also bring in a modest amount of revenue to help
fund subsidies for low-income individuals and extend coverage to many
of the uninsured since most are in families with at least one full time
worker. Finally, without a requirement that employers participate in
the new system, health reform that includes publicly subsidized
coverage for low-wage workers will prompt many employers of low-wage
workers to eliminate their coverage to take advantage of public
subsidies. The resulting increase in federal costs may well doom reform
efforts.
The design issues involved in a pay or play approach are critical,
as they can create both opportunities and limits. Policymakers will
have to define a ``play'' test, or the minimum amount employers must
spend directly on job-based benefits, as well as the ``pay''
requirement for those employers not directly offering benefits.
Employers opting to ``play'' must be required to offer benefits
that are at least adequate enough to allow their employees to meet an
individual requirement to purchase coverage. The ``play'' test should
also require employers to make a defined minimum contribution to the
premiums for that coverage.
A ``pay'' requirement could be calculated from the costs associated
with offering and subsidizing benefits that meet the ``play'' test.
This contribution rate could take a number of forms, from a payroll tax
to an amount per worker, and there are tradeoffs associated with each.
Setting the contribution rate based on payroll would lessen the
impact on low-wage workers and would be a better measure of a firm's
capacity to contribute to health benefits than the number of employees.
Alternatively, a requirement tied to each individual employee will be
more effective at reaching the entire workforce than a requirement tied
to a percentage of total payroll, since it will protect against an
employer meeting the percent of payroll test by offering relatively
generous benefits to only a share of their workforce. However, such an
approach, if applied only to full-time workers, would create incentives
for employers in certain sectors to hire part time workers or reduce
workers' hours to minimize the application of the contribution rate.
The contribution rate could be prorated for part-time workers, in order
to protect workers and to ensure adequate revenue for subsidized
coverage.
Another key consideration is how to index the contribution rate. To
keep pace with actual costs, the index should be constructed to reflect
health care inflation, so long as other reforms achieve cost savings
and lower year-to-year cost increases. In the absence of reduced health
care costs over time, the risk of future cost growth is not easily
resolved in a manner that gives assurances to employers that they will
have stable and predictable costs and to consumers that they will have
access to affordable coverage to meet their requirement to purchase
coverage.
Policymakers will also have to prescribe which firms are covered
under an employer obligation to offer coverage. While many proposals
exempt small businesses, since those firms face higher premiums in the
current market, we believe this ignores important factors. First and
foremost, the number of employees is a poor predictor of a firm's
ability to pay: a doctor's office or small law firm may have more
capacity than a larger restaurant or store. A carve out for small firms
also creates a potentially costly hurdle for a firms near the threshold
to hire additional employees. In addition, many health reform proposals
under review would make it easier for small businesses to meet the
``play'' requirement by allowing them to buy coverage through a newly
constructed exchange, including a public health insurance plan that
would make coverage more affordable. If policymakers choose to treat
small business differently, either in the application of pay or play or
with additional help to purchase coverage (i.e., a tax credit for small
employers), we believe the committee should consider phasing out that
special treatment over time to eliminate disparities based on firm
size.
Opponents to including an employer requirement in health reform
will raise objections based on new costs for firms. However, the impact
on businesses would vary depending on whether they are currently
offering health coverage or if they are offering coverage that is
inadequate. Those firms that do not offer health benefits would be
directly affected by a new ``pay'' requirement, and others will have to
spend more on the benefits they now offer in order to meet the
requirement. These objections are misplaced.
Opponents may argue that employers subject to new health care costs
may be less likely to raise wages in the short term; however, the
widely endorsed economic view is that these employers would still raise
wages over the long term. Opponents may also argue that employers
subject to new health care costs may eliminate jobs or hire more
slowly. However, we can expect results similar to the experience with
raising the minimum wage. Recent studies of minimum wage raises have
found no measurable impact on employment.vii Furthermore,
economists often note that employers faced with higher costs under a
minimum wage increase can offset some of the costs with savings
associated with higher productivity, decreased turnover and
absenteeism, and increased worker morale.viii We can expect
similar results with a pay or play requirement.
---------------------------------------------------------------------------
\vii\ A. Dube, T. W. Lester, M. Reich, ``Minimum Wage Effects
Across State Border: Estimates Using Contiguous Counties,'' Institute
for Research on Labor and Employment Working Paper Series No. iiwps-
157-07, August 1, 2007.
\viii\ J. Bernstein, J. Schmitt, ``Making Work Pay: The Impact of
the 1996-1997 Minimum Wage Increase,'' Economic Policy Institute
(1998); D. Card, A. Krueger, ``Myth and Measurement: The New Economics
of the Minimum Wage,'' Princeton University Press, 1995.
---------------------------------------------------------------------------
There are other factors that will compensate for any increase in
employer cost. First, the majority of firms that currently do not offer
health benefits are in markets where their competitors also do not
provide benefits, so they would see increases similar to those of their
competitors. Second, firms that will pay more for health care than they
currently do will see at least some of those costs offset by a
healthier workforce. Third, broadening the pool of employers that would
contribute to health financing could improve competition among firms
within sectors by creating a more level playing field based on health
benefit costs. Fourth, to the extent there is currently a shift of
uncompensated care costs to employer-sponsored plans, all firms now
offering coverage will see their costs decrease as we expand coverage.
Finally, our economy as a whole will benefit from more rational job
mobility and a better match of workers' skills to jobs when health
benefits are no longer influencing employment decisions.
Finally, concern about new health costs to firms ignores a key
element of reform that is not part of your focus in today's hearing but
very much bears upon the success of efforts to stabilize the employer-
based system. Creating a public health insurance plan to compete with
private health insurance plans will lead to substantial savings
throughout our health care system as a result of that competition.
Employers that continue to provide benefits directly will benefit from
these savings, as will employers that will be able to purchase coverage
for their workers through the exchange. Building a public health plan
option into reform is essential to holding down costs for employers,
consumers and government.
I want to offer one final note of caution. Some of your colleagues
in the Senate are considering changes to the current exclusion of
health benefits from income and payroll taxes. We believe this would be
a step in the wrong direction. A cap on the tax exclusion would
disproportionately affect firms with higher cost plans because of
factors other than the level of coverage, including a higher percentage
of older workers, higher risk in the industry and firm size. There is
also likely to be some employer response even to capping the exclusion,
including increases to employee cost sharing to a level where they may
become unaffordable for low-wage workers. Finally, capping the tax
exclusion would undermine the place where most Americans now get their
coverage before we have built a proven effective, sustainable
alternative to employer-based plans.
It is hard to imagine successful health reform that does not
include a substantial role for employer-based coverage. To secure that,
with a stable source of affordable coverage where workers can meet a
coverage requirement and enhanced revenues for public subsidies,
Congress must require employers to contribute to their workers'
coverage within a well designed pay or play component. Failure to do so
will undermine the ``shared responsibility'' that is the key to
enacting effective, sustainable, equitable and broadly supported health
reform.

Chairman RANGEL. Let me make it clear--I want to thank the
panel and to make it abundantly clear that we recognize that
you are not Republican and Democratic witnesses; it is just who
invited you. But we know that all of you are concerned about
improving the health care of Americans and that they get access
to affordable health care.
I don't think it is necessary to say that, but I just want
to make the record clear as I tear into Denny Dennis, the
Republican witness.
Mr. Dennis, you made it abundantly clear that cost is a
factor in terms of people having access to health care. We
have, I guess, 45 million people, half of which work every day.
And if they have a serious illness in this great country of
ours, they have got to get care; do you agree?
Mr. DENNIS. Yes.
Chairman RANGEL. Where would they get this care?
Mr. DENNIS. Where would they get this care today?
Chairman RANGEL. If they are going to be treated, they have
the swine flu, colds, broken legs; they don't have insurance.
They work hard every day, their employer loves them, but can't
afford health insurance. Where do they get it?
They don't ask whether they are Republican or Democrat.
They say, Have you got insurance? They say ``no.'' In some
moral mandates, the people have to take care of these people,
especially in our hospitals, especially in the emergency rooms.
Mr. DENNIS. Correct.
Chairman RANGEL. What do we do with these people? Do we
allow them to continue not to be insured? They don't pay for
it, the taxpayer pays for it. What would you suggest we do for
them?
Mr. DENNIS. Well, one of the things that we suggested, as
far as smaller firms are concerned----
Chairman RANGEL. No, no, I am talking about the employee.
He is right now, as you and I talk, working every day, scared
to death the kids are going to get sick. He can't afford
insurance; the employee can't afford insurance. They are here
in large numbers, millions of people.
So we can't ignore them if we are talking about universal
coverage. But for you, recognizing costs, what do we do?
Mr. DENNIS. In terms of making sure that they have coverage
and care, yes, they do. The question becomes who is going to
pay for it, and that is the issue.
There are certainly better ways to deliver care for the
low-income folks who are not insured than we are doing today.
We are doing it through emergency rooms. Why aren't we doing it
through clinics?
Chairman RANGEL. Well, your contribution would be expand
community health care clinics?
Mr. DENNIS. I am suggesting that would be--there are
several steps that we could take, Mr. Chairman, that would----
Chairman RANGEL. Well, that is what we are here for,
because we have a serious problem. It is going to cost money.
Many of us truly believe that the facts yell at us that it
is going to save money. They kind of believe--I am no doctor
and neither are you--that if these people have preventive care,
have examinations, where they are tired of hearing, You should
have come earlier; now you have to be admitted to the hospital,
which is the most expensive type of care.
But if they knew that their kids could get examinations, if
they knew they had the dignity to ask the employer, I have got
to go for my check-up.
You just don't have to be a scientist to know you are
saving money. And as a patriot and the chairman of this
Committee, to me, it means they are healthy, they will be
working, they will be paying taxes.
Mr. DENNIS. Yes, Mr. Chairman, we had a study done for us
by Professor Rossiter at William and Mary to look at costs,
precisely places that we can go to save costs, and we have
given a copy to Committee staff.
Chairman RANGEL. Where? Well, I have already said, and you
are not going to contradict, that 48 million people that don't
have health insurance, if we give them, overall the country is
going to save money. Forgetting productivity and all that
economist talk, we have got to save money in terms of them not
costing society----
Mr. DENNIS. Yes.
Chairman RANGEL. Health care that they don't have insurance
to pay for.
What I want you to do is not to admit that we have a
problem, but we are mandated today to move forward and resolve
this problem, and we just need your expertise to say if I tell
you that one of the things we are considering is having a
public plan----
Mr. DENNIS. Yes.
Chairman RANGEL. If the employer has a plan, you keep it if
you like it.
Mr. DENNIS. Yes.
Chairman RANGEL. But if indeed you have got a precondition,
you can't get in the plan, or it is too costly, that the
government would say, this is backup.
Mr. DENNIS. Yes.
Chairman RANGEL. This is backup for you. And you have got
to do it. Could you go along with it?
Mr. DENNIS. No.
Chairman RANGEL. No?
Mr. DENNIS. No, not with that particular proposal. What we
would suggest instead is to look at the Massachusetts----
Chairman RANGEL. Forget Massachusetts. Tell me how it
works.
Mr. DENNIS. Essentially we have something called a
connector or an exchange. It provides a central clearinghouse,
we want to talk about a clearinghouse, where insurance
companies register their plans, and people can go to them,
particularly low-income folks can go to them, individuals can
go to get their insurance. And so it is like a big, central
marketplace where individuals and small business have more
choices to shop for better plans.
Chairman RANGEL. And the government mandates that the
employers must insure these people.
Mr. DENNIS. No.
Chairman RANGEL. Not with compassion.
Mr. DENNIS. No, it doesn't.
Chairman RANGEL. I understand that is the Massachusetts
plan, that it is an employer mandate.
Mr. DENNIS. Well, it is $295 worth of mandate.
Chairman RANGEL. I don't care how much of mandate. I am
saying an employer has to provide insurance for an employee.
Mr. DENNIS. Why would you want to put people out of work?
Why would you want to depress wages? There has got to be a
different way to approach this. The question becomes--there is
an interesting issue here. It is called--you know, we use the
politically really nice term of ``shared responsibility.''
Chairman RANGEL. You are using it.
Mr. DENNIS. I am just bringing it up. I am not using it. I
am saying I don't know what that means. I know what----
Chairman RANGEL. You don't have to know, I didn't raise it.
You can argue with yourself what it means. I am saying that----
Mr. DENNIS. Okay.
Chairman RANGEL.--we have to do something, and you are
suggesting I don't know what.
Mr. DENNIS. No, no, I am not suggesting.
Chairman RANGEL. We are going to take care of these people,
and if you don't help us to do it, we may have a way to do it
that you don't like.
Mr. DENNIS. No.
Chairman RANGEL. We are going to say that the employer has
a responsibility, and the employee has a responsibility, and
the government has a responsibility. And we are not going to
Massachusetts, we are staying right here and hammer this thing
out. So when you think of something that you say, well, that
makes some sense, I don't agree with it all, then come back and
we will talk.
Mr. DENNIS. Well, let me say, Mr. Chairman, that the
pooling and the whole idea of getting rid of being able to rate
on claims experience and that sort of thing, which is all
inherent in the system I am talking about, is certainly very
much directed toward the type of thing that you are talking
about. After all, the State cut its insurance or its number of
uninsured by half. That certainly gets to, I think, what you
are looking at, isn't it?
Chairman RANGEL. I am talking about full coverage.
Mr. DENNIS. So I think, well, it would be nice, yes. But at
least we are moving in the right direction. This is clearly, I
think, a very positive suggestion, and we know there are other
kinds of things that could easily be done. Excuse me, I take
that back. I will get rid of the word ``easily.'' Other things
that can be done to lower costs which will bring in more people
into the system. So I think indeed that we are proposing some
very positive steps to directly go after the kind of concerns
that you have.
Chairman RANGEL. Well, would you write an amendment to your
written testimony and spell out what you think those are, and
by unanimous consent I will have it put in the record. And once
I see what your ideas are, then we will get back to each other.
But it is not easy.
[The information requested by the Chairman follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

I yield to David Camp.
Mr. CAMP. Thank you, Mr. Chairman.
Thank you all for your testimony this morning.
Mr. Sheils, in your testimony you mention that if a new
government-run health plan paid providers at private market
rates, the premiums in the government-run plan would be 6 to 9
percent below those in the private market.
Mr. SHEILS. Yes.
Mr. CAMP. You cite the reason as higher administrative
costs in the private sector. And this has been a discussion we
have had in the Committee over many months about comparing
administrative costs between the government and private-sector
health programs. And my comment is I believe it is an apple-to-
oranges comparison. There are many programs that significantly
improve the health and well-being of those in private health
coverage that I believe are considered administrative costs,
disease management programs, 24-hour nurse help lines. I think
those serve critical functions, but they are considered
administrative costs in this comparison that often occurs. And
private plans also spend money building provider networks which
can improve access, for example, to top-quality providers and
exclude poor performers. And so this provides real value to the
employees, but also falls into the category of administrative
costs.
And similarly, antifraud programs which help reduce the
cost of health care. I think those are irrelevant in private
health plans, while government-run programs like Medicaid and
Medicare have pretty poor records on fraud and abuse. In fact,
there was a recent article in Congressional Quarterly, and it
found that, and I am quoting, ``The government has never done a
particularly good job detecting fraud in Medicare much less
preventing fraud in the first place. Most claims are never
checked at all.'' But these antifraud programs and other costs
are also considered administrative.
So I would ask unanimous consent to submit for the record a
letter to the editor in the Wall Street Journal which was
written by the former Administrator of CMS that highlighted
some of the problems of trying to compare administrative costs
between Medicare and private health insurance, and I would just
like to ask your comment on that.
[The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. SHEILS. Sure. There are management--utilization
management functions that most private health plans have.
Precertification. You might find on your insurance card you
have got to call in to get permission to go get an MRI, you
have to get permission to go to the emergency room and so on.
Those things are estimated to save costs between 4 and 8
percent. Our own study came up with something in the
neighborhood of 4 percent.
The numbers we have on the cost of services are adjusted in
here to roughly reflect that adjustment. So we are not really
counting it--we are counting it where I think you should count
it, the cost of the utilization.
The administrative costs are what they are. But then the
differences in utilization and the impact that has on the
premium is also part of it. So it accounts for that very
roughly. I can't say--it roughly accounts for it.
Mr. CAMP. And, Mr. Sheils, Lewin Group has done work for
hospitals and physicians, but you have also done work for the
Economic Policy Institute, who is testifying here today, as
well as for The Commonwealth Fund; is that accurate?
Mr. SHEILS. That is right.
Mr. CAMP. Mr. Shea, would it be a fair statement to say
most of your members would like to keep what they have?
Mr. SHEA. That would be a fair statement, sir.
Mr. CAMP. And would it also be fair to say that a Medicare-
like coverage would probably not be an acceptable replacement
for the level of benefits that most of your members have now?
Mr. SHEA. We cover many retirees, including Medicare
recipients, Mr. Camp, and we usually supplement the Medicare
benefits to bring them to the standard of what active workers
get.
Mr. CAMP. Particularly the nonretiree members would find a
Medicare-like plan to be significantly below the benefit level
they are receiving now; would that be fair to say?
Mr. SHEA. We strongly believe that with a public plan, you
need to allow for a private insurance role, a private union
fund role----
Mr. CAMP. Yes.
Mr. SHEA.--that would supplement or compete with. You want
to have something not just a public plan.
Mr. CAMP. Yes, but comparing the two, a Medicare-like plan
has much--the plan they have now has a much higher benefit
level than a Medicare-like plan.
Mr. SHEA. That is true. And widely for many years people
have said if we were to extend Medicare to other people, you
would have to raise the benefits and modernize them.
Mr. CAMP. Yeah. And so that for your retirees, as you
mentioned, you use a supplement.
Thank you all for your testimony. I yield back the balance
of my time.
Mr. LEVIN [presiding]. It is interesting, Mr. Sheils, when
Mr. Camp asked you about the administrative costs, you said
that you were comparing apples and oranges. I think your answer
was you are not.
Mr. SHEILS. You are correct. I would say that is correct.
Mr. LEVIN. Okay. So I don't think we can just pick and
choose when we like your results and when we don't. But I think
we can question your--some of your assumptions in terms of what
would be the transfer from employer insurance to a public plan,
because as people thought about transferring, the private
sector might well respond to competition, to competing with the
public plan, right?
Mr. SHEILS. Yes.
Mr. LEVIN. And so therefore, the private plan might become
more effective, right?
Mr. SHEILS. We expect improvements, but we don't think that
they will be able to--most plans won't be able to survive in
that environment. The ones that will survive will tend to be
integrated systems, HMOs. And where, for example, some of these
HMOs own their own hospitals, they don't have to worry about
the cost shift.
Mr. LEVIN. Let me ask you this: If you look at employer
plans in the construction industry, which I used to know
something about, you assume that the employers would shift to
the public plan en masse.
Mr. SHEILS. Based on the price for coverage that they would
be offered, it differs a little bit by firm size, but we
basically figure out what the cost of insurance is in today's
market for individuals, which is kind of an involved process.
And then we figure out what the cost of the plan is for the
plan, and then we use models of how people respond to changes
in the relative prices of health care to figure out how many
people go into the public plan.
Mr. LEVIN. But these employer-based plans are controlled by
collective bargaining agreements, aren't they?
Mr. SHEILS. Well, 16 percent of----
Mr. LEVIN. I am talking about in the construction industry.
Mr. SHEILS. In the construction industry, I believe that is
correct, yes.
Mr. LEVIN. Your assumption is there would be a massive
shift, that they are subject to collective bargaining
agreements, and that the employee representatives would decide
to shift to a public plan?
Mr. SHEILS. Yes. There are two things to consider. First of
all, in a competitive environment you would want--you know, you
almost have to. I mean, if your competitor uses a public plan
and is saving $2,500 a year for family coverage, then you are
going to be at a competitive disadvantage unless you do the
same thing.
Mr. LEVIN. Of course if----
Mr. SHEILS. I just want to add that Mr. Shea pointed out
that workers explicitly make these trade-offs between costs and
benefits, and it seems to me likely that when a family has a
chance to save that kind of money, the workers may develop a
considerable demand for the change.
Mr. LEVIN. Okay. Though one plan might be better than the
other.
Mr. SHEILS. Yes.
Mr. LEVIN. Your figures assume that there would be a major
reduction in the uninsured?
Mr. SHEILS. Yes.
Mr. LEVIN. Mr. Dennis, just to pick up what our Chairman
was saying.
Mr. DENNIS. Yes, sir.
Mr. LEVIN. I reread your testimony, and the problem is you
don't like a mandate, you don't like a public plan, but you
have no plan. I mean, the problem with the opposition here,
they don't like a public plan, they don't like the mandate,
they have some other complaints, but coming up with a plan that
will clearly reduce the uninsured of close to 50 million people
in this country, there is no plan. And I think you should take
up our Chairman's offer.
I have your small business principles, but I think what you
need to do if you don't like the mandate and you don't like the
public plan is to come forth with a very specific proposal that
would assure that there would no longer be 50 million uninsured
in this country, and that in a reasonable period of time the
number would be essentially zero or close to that, because
otherwise simply trying to slug it out by critique doesn't work
if there is no alternative.
My time is up.
Chairman RANGEL [presiding]. Thank you, Mr. Levin.
Mr. Herger from California.
Mr. HERGER. Thank you, Mr. Chairman.
As you know, at last week's hearing Ken Sperling testified
on behalf of the National Coalition of Benefits. The Chair
asked about the Coalition's view on a government-run plan.
Since then, Members of National Coalition of Benefits Steering
Committee, who collectively represent hundreds of employers
that sponsor health benefits for tens of millions of Americans,
sent a letter to you stating their position on a government-run
plan.
In part the letter says, ``Proposals to have a public plan
compete in the private marketplace are of grave concern to
employers who provide health insurance coverage. The public
plan's unfair competitive position, both by size and regulatory
authority, will merely shift cost to the private sector and
employees covered by private plans.''
The letter goes on to say, ``Medicare's underpayment
results in private payers and the people covered by these plans
making up the shortfall, and increases the cost to employers of
providing quality health-care coverage. A public plan option
administered by the Federal government is inherently
destabilizing to employed-based health insurance benefits,''
close quotes.
Mr. Chairman I would ask unanimous consent to enter the
letter into the record.
Chairman RANGEL. Without objection, Mr. Herger.
[The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. HERGER. Mr. Sheils, you estimate that a government-run
health plan paying Medicare rates would mean a $36 billion cut
to hospitals and a $33.1 billion cut to physicians, and that is
just in 1 year. Since it is paying below-market rates, the
government-run plan could charge below-market premiums. While
the government-run health plan might be cheaper, it doesn't
mean it will be better.
I worry that people enrolled in the new government-run plan
may find themselves with health coverage, but without access to
care. Today half of physicians are no longer accepting Medicaid
patients, and 28 percent of Medicare beneficiaries searching
for a new primary-care physician are having a problem finding
one.
Wouldn't a public option, that is a government-run plan,
paying providers Medicare rates only exacerbate access-to-care
problems?
Mr. SHEILS. I think you are correct, it would make it much
more difficult for the providers. It is fair to say that our
numbers are showing that the physicians under this plan and
hospitals will be providing more services to more people for
less money. And it is hard to imagine you can do that without
something bad happening somewhere.
I think that we spend enough on health care in this country
that through efficiencies we could get by on a level of
spending. The question is will a system actually give us those
efficiencies, or will it simply, as you say, cause some
providers to stop seeing privately insured--the members of the
plan and so on.
I don't think there would be a wholesale rejection of the
plan by providers, however, because so many people would go
into the public plan. Who would you care for; if you didn't
accept Medicare, who would you care for? There would be 120
million people in it; 132 million people in it plus Medicare
itself, so it is 170 million people. I don't think any provider
will be able to walk away from what is probably 60, 70 percent
of the whole marketplace that way.
Providers will have to somehow do it within the amounts
they are being paid. Whether that compromises the quality of
care or not is an open question. It could be done in ways which
are bad for patient health. It could be done in ways, if we are
careful, where it does not impact patient health so seriously.
But it is very hard to imagine taking this much money out
of the system while at the same time increasing demand for
services without something bad happening somewhere. So I guess
that would be my answer. I am not terribly specific, I
apologize.
Chairman RANGEL. Let me thank you and the panel and tell
you where we are. The bells mean we have to respond. The budget
bill is on the floor. It will take 15 minutes, roughly 10 are
left, to answer that. And then two suspensions are there. That
is roughly 5 minutes. And so if we could suspend and all return
at 12 o'clock. I apologize to the panel for this break, but you
might be able to get something to eat, and we will come back,
start promptly at 12 o'clock, and we will try to proceed as
expeditiously as possible.
Chairman RANGEL. Thank you, and we adjourn until 12:00.
[Recess.]

RPTS DEAN
DCMN NORMAN

Mr. MCDERMOTT [presiding]. If the witnesses will take their
seats, we will resume the hearing. Although I took the Chair
here, I also am the next one to ask questions so I will start.
I am having a little trouble understanding where a couple
of you people are coming from. I can understand a big company
having their employees and want to keep them in private, inside
the company in some kind of a health plan, because you have got
them trapped today. They are scared of losing their jobs so
they will accept whatever you do, and you can keep off-loading
the health-care costs onto the employees of the company. But
what I am having trouble understanding is what happens to the
smaller employer who sounds like they are represented by the
NFIB.
But, Mr. Conklin, I don't understand; you started out
paying 5 percent of payroll and now you are up to 10 percent of
payroll?
Mr. CONKLIN. No, Mr. McDermott; it is 20 percent.
Mr. MCDERMOTT. So you are 20 percent of payroll. Now, I
hear from your industrial organization there that if you have
that kind of cost, you will have to lay off people. Have you
laid off anybody?
Mr. CONKLIN. No, sir. In fact we just recently hired up. So
the fact that health-care costs go up to the employer does not
that you are going to lay off workers?
Mr. CONKLIN. No, we--I mean we have to offer that benefit
in order to attract workers. It is an expectation.
Mr. MCDERMOTT. So at what point--I mean you are paying--I
can't quite tell from your testimony--I read it all--you are
paying $8,700 per person?
Mr. CONKLIN. No, $8,700 for the company. I have 10 people.
Mr. MCDERMOTT. Per month?
Mr. CONKLIN. Right.
Mr. MCDERMOTT. So that is $870 per person, per month?
Mr. CONKLIN. Right. And I want to make sure that this is
understood for the record. This is during the transition. Now,
what is happening is I have some employees coming off our old
carrier and going on to a new carrier. And while that is
happening I have to keep the old policy in place and pay a
percentage of the new policy.
Now, this process is taking 2 to 3 months, so we will have
$8,700 outlays for 2 to 3 months. And then at some point in the
future, our old carrier, HMO BlueCross, will return the unused
portion, so to speak. But like all insurances I have to pay it
up front. In order to maintain coverage for everybody until
this process is complete, that is my premium expense.
Mr. MCDERMOTT. Why wouldn't you want to have--given that
story you just told, why wouldn't you want to have a public
option that you could say to your employees, go to this public
option, it is a generous program, it is as good as what I am
able to buy for you, and be able to get it for, say, 10 percent
of payroll?
Mr. CONKLIN. I have no difficulty with that. My hope is
that if that option were available, and I would hope from this
process that if it is done right, the public option would serve
a couple of different purposes. One is--and it is very
important--is that it would make it easier for me as an
employer to understand and explain to my employees what they
are getting for our money, because they are making a
contribution too. I don't pay the whole freight on this. And if
we could do that and there was a plain-language component of
the public sector solution, whatever form that public sector
solution takes, then the private sector, which I think has some
conflicts of interest that it tends to camouflage, and the way
it presents the products would be forced to reveal what the
real costs are.
Mr. MCDERMOTT. Tell me how they camouflage.
Mr. CONKLIN. Well, they camouflage it by presenting me with
a 3/4-inch thick booklet of arcane, legalistic language that
explains what the policy really is. And what I am looking for
is a very plain-English thing that says here is what you are
getting. This is what the co-pays are, that is all there; and
what the deductibles--this is how much you will spend each
month, but here are the limits of the policy. If you go into
the hospital and you have a serious problem and that problem
is, let's say, cancer, the average cost of, say, a cancer
treatment in the New York Metropolitan Area for a serious
illness is, say--and am making all this up, like I said, I am
not a policy expert but this is sort of my thinking--and that
problem or that illness on average costs $1.5 million to treat
in New Jersey, okay; our policy only covers 1.25 million. You
are going to be on the hook for 250,000, because when you go in
the hospital, you sign that document that says whatever the
insurance company doesn't pick up, I will pay.
So one of the things I am hoping is if we have that sort of
transparency in the process, then we can also have an honest
discussion about medical bankruptcy. And then we are going to
really know what insurance should cost and how we can fully
cover everybody. Until we have that kind of transparency, I
don't even think we know how much health insurance really
costs.
Mr. MCDERMOTT. Do you have an idea what is a fair amount
for a small businessperson to spend on the health care of their
employees; 5 percent, 2 percent, 1 percent, 8 percent?
Mr. CONKLIN. Well, it would be great if it is 1 percent or
it would be great if it was half of a percent. But if it costs
10 percent, then as an employer I want to pay 10 percent. And I
want the guy down the street to pay 10 percent, I want the guy
up the block to pay 10 percent. But if what we have to do to
cover everybody is create a progressive payment system, I will
live with that too.
When I started my business, and it was my wife and I, we
had no health insurance, but we were young and we were healthy
and, as I said in my written testimony, we were broke. So we
weren't going to go out and buy any health insurance.
That is a problem that has to be addressed. I don't know
whether you will be able to address that level of detail in the
legislation you are considering now. And I hope that as this
discussion continues, we realize that we are probably not going
to get it right this time. It is probably not going to be
perfect, whatever you come up with. If you come up with a
public option, it is probably not going to be perfect.
And if we don't cast it into stone or steel and say that
its a Federal program that can never be changed but we
recognize that through this process we are going to have to
make adjustments and improvements, then I think, great.
Anything that gets it closer to a fair, equitable system that
gets 100 percent coverage has to be reflected in my bottom line
and reduce cost. That just--I am giving it to you from my
perspective, which is on the street.
I was thinking earlier during the testimony that there used
to be a TV program, ``Homicide: Life on the Street,'' this is
sort of like ``Health Care: Life on the Street.'' And, you
know, what I experience is something different than what I am
hearing from the other panelists, which is not to say that
their testimony is inaccurate or hasn't been well thought out.
It is just not quite--it doesn't quite jibe with what happens
in real life as I have experienced it.
Mr. MCDERMOTT. You would like a public option, you could
pay 10 percent?
Mr. CONKLIN. Absolutely.
Mr. MCDERMOTT. Would you move tomorrow to that?
Mr. CONKLIN. Well, I would certainly give my broker the
opportunity to convince me that it wasn't a good idea. And if
he could do it at a competitive rate, and tell me why it wasn't
a good idea, in clear language, and if he had a competitor who
was giving me the real information, then he would be forced to
do that.
Mr. MCDERMOTT. Thank you very much.
Mr. MACDONALD. The whole issue about migration to a public
plan; I think if we took a real-life example that I have is
migration is going to occur as quickly as others would suggest
it is. A case in point would be a couple of years ago, through
a consortium, several companies created what was called Retiree
Health Access, and the actuaries in the IBM case thought that
probably about 60,000 would migrate to that plan. The first
year was 2,000 people.
I think there is a general reluctance for people to migrate
away from an employer plan. So I think a lot of it will be
driven off of the design, the cost structure, the access. I
don't think you will see that migration as quickly as some
would suspect that you would.
I think the second thing is when you raise the issue around
cost; is there an argument being made that you are laying off
people because of health care costs? I think Gerry said it
quite appropriately; there is a tradeoff of costs. If health
care is rising at 20 percent or 10 percent, whatever the number
is, then you make decisions around what are my raises going to
be this year? What am I going to do in investing in human
capital? What am I doing for training programs? There is always
offset. Somewhere there is always offset. It is not incremental
upward, it is always trying to create a level playing field. So
I don't see the migration as quickly as others do.
Mr. MCDERMOTT. May I ask you one other question?
Mr. MACDONALD. Sure.
Mr. MCDERMOTT. If you lay people off at IBM, where do they
go? Can they afford the COBRA option?
Mr. MACDONALD. First of all, we have a benefit continuation
policy that is up to 6 months right off the bat. So we pay for
that, and they go beyond that with COBRA.
Mr. MCDERMOTT. And at the end of 6 months they are on their
own.
Mr. MACDONALD. Then they go to COBRA. They go to a
continuation----
Mr. MCDERMOTT. And where you are operating, is COBRA enough
money--I mean, can you make out of your unemployment insurance
enough to pay COBRA and the house rent?
Mr. MACDONALD. Well, in the spirit of bluntness, IBMers
tend to be at the higher end of the pay scale. And so in the
spirit of honesty, our average wage is close to approaching
$100,000. So you would assume there is some level of savings
there to create that offset.
Mr. MCDERMOTT. Thank you very much.
Chairman RANGEL [presiding]. No one is thinking about IBM
planning to go to any public plan.
Mr. MACDONALD. That is what I am suggesting.
Chairman RANGEL. I know you are. It just makes sense that
every plan is not as good as yours, but the plan that we are
talking about, when Mr. Conklin sees his competitor with
nothing and he is paying this large amount, he wants everyone
to get in there and share this so that his competitors would
include health care as a part of doing business. It just
makes--Mr. Sheils, are you here in Washington?
Mr. SHEILS. Yes, sir.
Chairman RANGEL. Talk with my buddy from New Jersey.
Because, you know, you have got the theory and everything, but
like he says, he has to deal with this every day. It is a cost
on him. And I am not talking about compassion, I am talking
about saving money. Having people working every day, not having
to worry about their kids getting sick or their wife not being
able to get medicine, but being able to concentrate on making
some cabinets. But a person in trouble, with no health care, is
not a productive person.
And so, you know, we have got to do something about it. And
I would rather work with you so that we can get bipartisan
support of this darn thing. You come in with something--you
talk with Mr. Conklin and if he is convinced, we have got a
deal.
Let me call on my hero of the Congress, Mr. Johnson.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. Dennis, the Economic Policy Institute has proposed
imposing a health care pay-or-play mandate on businesses. And
their proposal would require employers pay 75 percent of
individual premiums and 66 percent of family premiums for all
employees working at least 20 hours a week. Employers who can't
meet these requirements would be forced to pay 6 percent
payroll tax.
The Lewin Group estimates this would represent a tax
increase of nearly $1,600 per employee. Is this mandate the
type of thing that small businesses could afford?
Mr. DENNIS. First, let me just say this, Mr. Johnson.
Whether you call it paying for the premium, pay-or-play, or a
payroll tax, it is the same thing. So we are talking about a
generic group here where the parts are equivalent to one
another.
If initially the business has to pay $1,600 per employee,
and the business has 10 employees, that is $16,000. Sixteen
thousand dollars, the question is where do you get that money?
One place is to take it off your salary, the owner's income. I
don't think any of us want to have $16,000 taken off our
salary.
This is just another mandate. It is going to end up in lost
jobs, it will end up--we have already talked about how
employees' wages are depressed because of benefit costs.
Mr. JOHNSON. Well, it seems to me--and I had a small
business at one time--if you are not making money or on the
margin a little bit, you are going to have to--you can't afford
another increase. What you will do is probably lease out your
medical stuff. You know, fire the employees and work them out
of a different organization, you know, I don't think any of you
realize what it costs to run a small business. It is not a
simple operation. And some of you know. You work sometimes,
some months, just to make ends meet. And if we stick you with
another tax, which is what that is, I don't think you are going
to like it. Mr. Conklin, I don't think you would either.
Mr. DENNIS. I think, Mr. Johnson, there is one really
important point in this, and that is we have about 5.9 million
small employers in this country. Some of them are doing very
well. It sounds like Mr. Conklin's business is doing quite
well. That is great. I am all for that. There are some others
that aren't doing so well, and there are some others that are
just starting. The condition of each business is very
different. And I am not talking about one business, I am
talking about the group of businesses, all of them together.
Some provide.
I think the very fact there is a relationship--and I
repeat--there is a relationship between what you take out of
the business and whether or not you provide employee health
insurance, a direct relationship. That speaks volumes.
When business does well, the employer does well and the
employees do well. When a business doesn't do so well, the
employees don't do so well and the employer doesn't do so well.
Mr. JOHNSON. Yeah, I know. There are some companies who
provide health insurance. Exxon is one of them. And about 20
percent of their people don't take advantage of the program
they offer, because they think they are bulletproof. You
understand that. The 21- to 35-year-old guys. In fact, one of
you testified that you didn't have insurance; I think it was
Mr. Conklin.
Well, I appreciate, Mr. Conklin, the efforts you have taken
to continue providing health insurance for your employees. I
have heard from a number of small business owners, just like
you, are finding health insurance to be increasingly
unaffordable. And we need to reverse that trend.
You mentioned the inability to pool employees and spread
risk the same way large employers do. I wonder if you would
support reforms that would allow small businesses to join
together and pool their risk. Association health plans never
have been passed up here. And the independent guys, i.e.,
Realtors, for example, are all for that kind of a program, and
they don't have health care, a lot of them. So doesn't buying
in bulk for supplies reduce cost?
Mr. CONKLIN. Yes, Congressman. Buying lumber bulk does
reduce costs. I don't think you want the same model to
determine what you are going to buy in health insurance. I
think one of the problems we have in the discussion we are
having about health insurance is we keep applying this business
model as if we were talking about widgets. But what we are
really talking about is people and the kind of care that is
available to them.
And when these larger groups, the question I have and I
can't--again, I am admitting I am not a policy expert--but the
question I have is who is going to determine who my carrier is
in this larger group. We are going to form an association and
we are going to go out in this group and shop for health
insurance. And then we are all going to somehow agree that the
best provider of health insurance for us is the X, Y, Z
company.
Now, I am not sure who makes that decision. I am not sure
what that decision is based on. And we are still stuck with
this sort of opaque process by which I don't really have a
choice, I have an option: join the association, shop for health
insurance in the open market.
Mr. JOHNSON. Well, association health plans don't have to
be one provider; it can be five or six and they can pick.
Mr. CONKLIN. We are still there, though. We may be saving a
few dollars on the side, but the group and the way the group is
structured and the available selections are still limited
within this organizational model. So I don't see that as being
a vast improvement over the system.
Mr. JOHNSON. Well, it is because they don't have any
insurance right now.
Mr. CONKLIN. Well, look, I said earlier that all the
solutions--I used the tool-box analogy. If that tool functions
the way some people are saying it might function, then it may
be useful to add it, but it is not going to solve the problem.
Ms. GOULD. Congressman, do you mind if I respond, as you
brought up my employers?
Mr. JOHNSON. Mr. Chairman? Go ahead.
Ms. GOULD. Thank you. You brought up the estimates of what
it might cost, 6 percent of payroll for small employers to
contribute. But what wasn't also brought to light in that
research that the Lewin Group did analyze is that the national
exchange with the public plan, small employers who are
currently offering insurance would actually experience windfall
savings with that kind of a framework. In fact, firms with 10
or fewer workers would save about $3,500 per worker compared to
even lower savings that you would see across all firm sizes. So
small firms stand to gain a lot from that kind of structure.
Chairman RANGEL. Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman. I commend the panel.
It has been a very interesting discussion. And Mr. Conklin, you
are the guy off the street; you have had compelling testimony
today, absolutely delightful.
I will start with Mr. MacDonald. In your capacity as a
leader within the HR world, let alone IBM, you would have an
expert view on the notion of whether or not the employer
platform ought to be a base for the delivery of health benefits
in the first place. Some believe it is time to move off of
that.
I would tell you I disagree with that. I believe there is
still enormous value, let alone the fact that we have got 65
percent, as Dr. Gould told us, covered with the employer model,
the platform. I believe we keep that part and build out, not
blow it up and start all over.
What are your thoughts on that?
Mr. MACDONALD. Clearly, as I think I said in my opening
statement, we shouldn't start from scratch, and that the
employer plan is a base or a foundation. As I look at whether
we want to talk about it in terms of a public plan or some
individual mandate, you know, perhaps we have to migrate there
over time. And I think part of the issue has to be that you use
employer-based plans as that model. Employer-based plans
typically have a foundation for wellness, they have a
foundation for preventive care, and a foundation for primary
care. Those are, I think, absolute critical components to any
plan that is designed, whether it be at a large employer or a
small employer.
Mr. POMEROY. Mr. MacDonald, how about Medicare? I am
dismayed that those elements did not seem to be advanced
effectively in present Medicare reimbursement incentives. Have
you been able to achieve a greater role for primary care,
preventive care, wellness and impacted your cost curve? If so,
you have got information that we desperately need to consider
as we develop Federal reinvestment policy.
Mr. MACDONALD. I would agree with you on the inefficiency
and the lack of effectiveness in the Medicare arena. And the
answer is yes. For instance, in the 3-year study that we did
where we fundamentally created what we call a healthy living
rebate, where we focused on nutrition, childhood obesity,
physical exercise and smoking cessation, we invested around $81
million. And in that 3-year period we saved $200 million.
At the same time we had a high-risk population that we
identified at about 13 percent of our population; 55 percent of
that high-risk population is now down to less than 7 percent.
So we see a direct correlation for making investments in areas
of preventive care, primary care that yields returns.
Mr. POMEROY. Did you elevate the role of primary care in
your interaction with your insureds? Is that how you were able
to maintain the behavioral modifications that produce this
positive health result?
Mr. MACDONALD. It is a two-prong approach. Yes, working
with our carriers and other insurers that we work with, was one
way we created designs. But part of that investment was a
significant investment in making the employee and their
dependents educated consumers.
Let me just give you an example on childhood obesity. You
say why childhood obesity, they are not your workers. Well, it
is also a statement of society, but more importantly, it really
reflects that if an employee goes to work and feels good about
their family situation, there is not an issue there, they will
be more productive and more satisfied.
One of the things we did is created IT tools, not
surprisingly, for people to go on and look at what does it mean
to have nutrition for children and exercise programs. One of
the interesting byproducts was that coming back in the surveys,
we found it was more family friendly. People began to discuss
what they were eating at dinner and what they were doing during
the day. A simple thing like not watching TV more than hour,
and the type of TV that the child was looking at, not being a
couch potato. All those things helped immensely in intervening
in those costs.
Mr. POMEROY. Your confidence in your plan indicates perhaps
to me that IBM would be one in a new insurance world where
large employers could continue to offer what they had been
offering or send their employees to shop in an insurance
exchange. You may very well continue to do what you have been
doing.
Mr. MACDONALD. Regardless of your aspiration about a public
plan or not, the thing that I would caution us as patriots,
using Chairman Rangel's approach, describing us appropriately
so by the way, we have to ensure that we are still engines for
information and transformation. I mean, what I was just
describing was a sense of transformation within the health-care
arena. And I think that has to be a fundamental premise of what
we are doing going forward.
I agree, by the way, with Gerry. The whole concept of
taking out the exclusion for tax deferral, we would completely
agree; and I think there would be a mutiny at the gate, so to
speak, if that were to occur. I think there are fundamental
things we have to maintain.
Mr. POMEROY. Mr. Chairman, may Mr. Shea also respond?
Mr. SHEA. Thank you, Mr. Chairman. I just wanted to
piggyback on Mr. MacDonald's comments and to make the point
that I really don't think it is useful for us to see this as
either/or--either Medicare is good or private is good.
If you look at the experience of people who have been
working together--I am talking about large employers, small
employers, purchaser groups, consumer organizations--and I
would put us in that category--or AARP, physician groups,
hospital groups, how you restructure the system to get better
value--a key component of that is what the government does. We
can do these things if we do them together. That is the lesson
from what has gone on in the last 10 years.
I think Mr. MacDonald would probably agree. Medicare has
led the way in terms of quality measures and quality reporting.
They, with a fairly modest investment, have got every acute-
care hospital in the country reporting on a standardized set of
measures. And one of the things that the hospitals will tell
you and the employers will tell you is, we don't want to have
one measure set over here and one measure set over there.
Medicare instituted a uniform set of measures that everybody
reports on. And we know from the statistics, even in the first
5 years of that, that has improved quality. The performance has
really improved on those measures. That is something Medicare
did that the private sector wants to emulate and be part of.
One of the things that bothers me about the debate over the
public insurance is it is like we are back to yesteryear this
is a polarized debate, in my humble opinion, which has
prevented us from straightening out our health care mess now
for decades. It is that precise kind of thing.
The only reason we talk about the public insurance program
is we think it is a good cost-containment mechanism. If the
private insurers want to come up and present a credible case
that they can control costs, then we would be very interested
in hearing it. But their history does not indicate that they
can make that case based on what they have done in the past.
So, therefore, we simply say, well let's try the public
insurance alternative and see if competition might get us
someplace that the private insurance market has never been able
to do. This is not--we are not enshrining a public insurance
program. We are trying to get these costs under control.
Mr. POMEROY. Thank you, Mr. Chairman.
Chairman RANGEL. Thank you. Mr. Brady from Texas may
inquire.
Mr. BRADY. Thank you, Chairman. I agree with Mr. Conklin
the churning of the health insurance adds to the problem a
great deal, not just in the private sector. We had Texas
Childrens Hospital and Texas Medical Center trade a nonprofit
health insurance program to try to lower costs, and they
failed, as they told me, mainly because small businesses have
to churn, move from insurance plan to insurance plan every 1
year, 2 years, 3 years, as they did in my small business, to
try to contain costs. The point from the leaders of the
Childrens Hospital is that until you connect behavior of that
patient to their health-care plan prevention, other
initiatives, won't really help.
I want to describe to you a model that I found in a small
town in east Texas; Evadale, Texas, just north of Orange. There
they have a papermill, and 7 years ago the papermill management
and the union there, the steelworkers, agreed that the
steelworkers would run the health-care plan. What they did was
they put together a very commonsense patient consumer model
that had three parts to it. One, they built a clinic at the
front gate of the plant so that every union--and there are
3,000 workers--and their family had immediate access to
preventive care. When the family, child, whatever got ill,
immediate access.
Secondly, they went out to bid for imaging and specialty
services, and even had insurance companies bid on that; put
together a list of good, qualified specialty imaging services.
Thirdly, they hired Navigator, a group that would help
their members navigate the health-care system to the point
where if you had a chronic disease or multiple illnesses, they
would send a nurse along with them to go from doctor to doctor,
and then sit down with that steelworker and work through the
options to continue the medication and make the right
decisions. It was a very basic process. The company pays an
average health-care costs. This group who I visited with,
toured the center, sat down with the groups, haven't had a
health-care premium increase in 7 years.
When you talk to union workers, they say, look, if my child
gets sick I take them to the clinic immediately, because if I
don't, not only do they not get well but that money comes out
of my pocket. When they needed to even blacktop the front of
the clinic, the union workers said, no, don't use our money for
that; just buy the materials, we will do it because that is our
health-care money.
You talk to the doctor who is there, who is hired by the
steelworkers, said I am practicing medicine the way I always
hoped to. Instead of spending 15 minutes with the patient and
15 minutes with paperwork, spends the whole 30 minutes
providing quality care; one, because he loses his job if he
doesn't. But second, he said, I don't have to worry about them
suing me. They are not anxious to sue themselves, because this
is their health-care money.
And then talked to the PA and they are all cross-trained in
the office. And their point was that one had worked at another
institution, at a hospital, and if someone came in with a sore
neck, they checked the insurance policy, and if this imaging
was allowed and that imaging was allowed then everything was
run, mainly because they could; and, second, because they lost
money on the ER and uncompensated care in Medicare. So we don't
do the cost-shifting here. We don't shift cost.
Bottom line, there was a direct connection between the
behavior of the patients, of those who were being covered, and
the health-care costs. I am convinced that no matter what model
we create--that was for 3,000 workers, so it wasn't a big
model. In fact, smaller may be better if we are going to try to
connect the consumer to the health care they get and the
ultimate cost of it.
My question is, regardless of what model we pick, how do we
really change behavior to prevention, to immediate action, to
quality care, if we don't, in whatever we do, connect that
informed consumer, provide them easy access to prevention, and
make sure they understand that those are their health-care
dollars. And I would open it up to the panel for any comments
you have.
Mr. CONKLIN. Can I get a job at that mill? It sounds great.
You know, if you could come up with a workable model for a
company of 13, I would say we are in. Again, I would say these
are the kind of examples and the kinds of ideas that we really
need to think through carefully and see how they might apply
within the broader marketplace.
One the problems I see with that example in our part of the
country is that----
Mr. BRADY. It isn't geographic. That model works wherever
you take it.
Mr. CONKLIN. It may or may not. And it may work at 3,000
and not work at 20.
Mr. BRADY. Obviously, a model like that--I don't want to
cut you short--but let's get serious. We are not talking about
that model for 13 workers or 20. You are talking about putting
together an amount that can create that synergy and do that
bidding. Any other comments?
Mr. MACDONALD. Congressman, I might suggest that one of the
ways of doing that is to focus on--some of us are old enough to
remember this--I am not suggesting that we go back that far--
but when the physicians visited us at our homes in the young
years.
But I would also argue that now one of the things that we
have done to incent that behavior that you discussed is really
trying to focus on the primary care physician, making the doc--
if you will, using a sports analogy--the quarterback, the
ability to coordinate care, the ability to take that medical
home approach.
You talk about paperwork, the inability of either the doc
or hospitals or the insurers to have a coordinated effort
around the IT function that needs to be brought into the
system. Those are three or four things that could be done
readily and we already have experience that have actually
proved to be very beneficial to an awful lot of people.
Mr. BRADY. Chairman, thank you.
Chairman RANGEL. It would help if the members shorten their
questions, so that within the 5-minute period we might get the
benefit of our distinguished guests who are here, because it is
embarrassing for the Chair to cut off the guest when he was
asked a question and time wouldn't permit it.
But having said that, we will go now to the gentleman from
New Jersey who brought the guest here, Mr. Pascrell.
Mr. PASCRELL. I thank the Chairman. I thank the panelists.
Excellent, all of you.
Mr. Conklin, I have a question for you and I have a
question for Mr. Dennis. I contend that an important part of
health reform is providing at least the minimum benefit to
ensure that individuals have meaningful coverage. Without this
component, I fear we will have a race to the bottom that leaves
many sick people behind and others with coverage that fails to
meet their needs.
Some have argued that a health-reform package that provides
for minimum benefit will restrict employers' ability to tailor
the benefits to the employees' needs. In your testimony you
highlight the experience you faced each year when you were
shopping for coverage, to use your word.
As I understand it, there is relatively no choice in either
what you are able to offer your employees and, consequently, no
choice in the options among what your employees can choose.
Now, this is a problem that is not just unique to your
business. I think you would agree with that. My question is
this: Given your experiences in shopping for coverage that
meets your employees' needs, do you really believe that a
minimum benefit standard would impede your ability to provide
adequate coverage to your employees?
Mr. CONKLIN. No, Congressman, I don't. I think it would be
one of those very useful tools in helping us evaluate and
understand what that minimum--we don't know what that minimum
is, I don't know what it is, and it would be great if somebody
could inform me in that way--and the employees.
Mr. PASCRELL. Thank you very much. Mr. Dennis, in your
position paper, one of the primary points made against an
employer mandate is that it fails to address the real problems
of the health-insurance market for small businesses, which is
primarily affordability. I agree with you to a point. An
employer mandate alone will not even begin to solve the
problems. I would like to make it perfectly clear that no one
here has claimed that making any single change will solve the
problems of our health systems. You haven't heard that from
anybody on either side. In fact four of President Obama's eight
health-reform principles address cost growth and affordability.
So I venture to say affordability is the single most important
issue in this debate.
On that note, I would like to point out that some of the
options you have provided us in reducing health-care costs
include expanding high-deductible plans--this is in your
testimony--preempting State laws that serve to provide
assurances of adequate insurance coverage. It is there. It
attempts to allow employers to offer the most bare-bones
policies.
Now let's get down to the nitty-gritty, because I have
heard some folks from the other side, my good friends, you
would almost think that Medicare was a bare-bones plan. So my
question to you is this: How do more bare-bones policies that
ignore State laws and fail even to cover reasonable benefits
provide protections for individuals, particularly those with
chronic conditions or complex health-care needs?
Are you suggesting therefore, Mr. Dennis, that we ration--
that we ration health care? Is that what you are suggesting.
Mr. DENNIS. When you are talking about a minimum benefit,
minimum benefit plans, you could have one with virtually
nothing in it; or you could have Cadillac-after-Cadillac-after-
Cadillac of plans.
Mr. PASCRELL. No, we are not talking about that kind of
distinction. Nobody on either side, sir, has ever said it is an
either/or proposition.
Mr. DENNIS. Oh, no, I'm sorry. I didn't mean to leave you
with that impression.
Mr. PASCRELL. Good.
Mr. DENNIS. Without saying there are two extremes to this,
you can go either very small and very bare bones, or you can go
to very expensive, let me put it that way. And there are all
kinds of gradations in between. Whenever you set a minimum
policy, whatever that policy is, there will be--that is the
level from where you start, and that is obviously the minimum
benefit. It can be either a very good policy or a very poor
policy.
Chairman RANGEL. It could be a good policy or a bad policy.
I want you to take notes.
Mr. DENNIS. My point is it is directly tied to cost.
Chairman RANGEL. I understand. It makes a lot of sense.
Mr. DENNIS. Directly tied to costs. And so what we are
talking about here is a cost issue. I am not sure, maybe I
don't understand the question.
Chairman RANGEL. No, we can't go through the question
again.
Mr. PASCRELL. I thought the question was pretty clear, Mr.
Chairman.
Chairman RANGEL. Well, anyway, we have to move on. We
certainly appreciate that on our side.
We have Mr. Ryan waiting.
Mr. RYAN. Thank you, Chairman.
Mr. Shea, I enjoyed the point you made before. I actually
agree with a lot of what you had said, which is the current
system is not getting costs down. We are not attacking the root
cause of health inflation. I don't think anybody is trying to
defend the current system from that perspective.
I guess there are just going to be two big different
approaches here on how best to attack the root cause of health
inflation. We need to do a better job of offering an
alternative, if we don't think that this is the plan to go
with.
On that, Mr.--is it Sheils or Sheils?
Mr. SHEILS. Sheils.
Mr. RYAN. I have been on the floor with the budget all day.
I apologize, I just arrived.

RPTS MERCHANT
DCMN SECKMAN

Mr. RYAN. I want to get into your actuarial analysis of the
EPI plan, and Ms. Gould, if you want to jump in, because I
don't want to unfairly characterize your plan, walk me through
what it seems to me is sort of a death spiral of private plans
that occurs. How do you arrive at the $119 million or $120
million figure whereby people lose their private health
insurance and go onto the government plan, as you have done in
your analysis? What is the dynamic that occurs that makes that
happen.
Mr. SHEILS. The dynamic that occurs is that people are
going to gravitate to the lowest-cost plan. The difference here
for a family in annual coverage cost is $2,500 a year. That is
shoes for kids. It is getting the car fixed, so you can go to
work. For uninsured people and people living, those things are
very, very important, so it is a huge amount of money.
Mr. RYAN. And that is because the payment rates are set at
the Medicare rates?
Mr. SHEILS. That is right.
Mr. RYAN. Which are lower on average than the private pay
rates.
Mr. SHEILS. Substantially, yes.
Mr. RYAN. And because of the cross-subsidization that
inevitably occurs with these lower rates than the private
rates, more people going toward the lower public rates will
push up prices in the private rates, making private insurance
that much more expensive----
Ms. SCHWARTZ. Will the gentleman yield?
Mr. RYAN. Not right now.
Go ahead.
Mr. SHEILS. This isn't the EPI policy. This is the public
plan. EPI is a different----
Mr. RYAN. Okay. Got you.
Mr. SHEILS. It is not the public program that people are
talking about, no.
Mr. RYAN. So your $120 million estimate is based upon the
assumption that we apply Medicare rates to the public plan.
Mr. SHEILS. Yes, if you were to do that. We also show what
happens if you are less aggressive in the pricing, use private
pay rates or use something in between.
Mr. RYAN. That is crossover, right?
Mr. SHEILS. Right. And the idea is to sort of give people a
smorgasbord of options so that you can look at what the impact
is on providers, on cost shifting, and arrive at some decision
of your own where you want to place things.
Mr. RYAN. Dr. Gould, let me ask you then about your plan.
Tell me if I am wrong, please. Your payment rates here are
income below 200 percent of poverty, premiums fully subsidized;
above 200 percent of poverty, you phase in between 200 and 300
percent of poverty, $70 for an individual, $140 for a couple,
$200 for a family of four; nonworkers, different payment
schedule; but the same for everybody based upon their income
qualifications. Is that essentially----
Ms. GOULD. You are talking about the subsidy structure for
low income?
Mr. RYAN. Yes.
Ms. GOULD. That is correct.
Mr. RYAN. And that caps it out of pocket, right, when you
throw in co-insurance and everything else, right?
Ms. GOULD. That is correct.
Mr. RYAN. So here is my question and concern. That is why I
want to ask Mr. Sheils and yourself, if we are going to pay the
same for the services, regardless of the quality of the
services, how are we going to expect the quality to improve,
meaning not all doctors are the same, not all hospitals are the
same? They don't give us the same quality of care. But if we
are going to be paying the same rates for the services,
regardless on the quality of these services; if a person has
the same health insurance, which regardless of whether you are
a smoker or you have bad behavior, if you are going get the
same deal, aren't we basically having a system where the good
cross-subsidize the bad in the health care provision of
services based on quality? And aren't we having a system where
we are making it harder for us to incentivize healthy living
and wellness management and those kinds of things if we had
such a standard plan and the same fixed rates applied against
providers regardless of their quality?
Ms. GOULD. I think you are neglecting the employer-
sponsored insurance will continue. And what we will see is what
we see with the examples of IBM and other large corporations
that are able to innovate with their delivery system and change
those incentives. Those can continue. There is no question that
those kind of innovations can continue.
Mr. SHEILS. I don't think we have talked today yet about
the things that are really wrong with the health care system,
the things that would really control costs. Controlling
payments, controlling what we pay providers, it reduces your
cost, but it doesn't affect the basic inefficiencies in the
system.
Mr. RYAN. Right.
Mr. SHEILS. We don't do anything here to correct the
underlying problem in the system, and that is that the
incentives for providers are way out of whack. We know that in
some parts of the country, you get twice as much health care as
you do in other parts of the country; yet it has been proven
that there is no correlation to your health status as a result.
So there is a great deal of suspicion, and much of what we do
is just plain unnecessary. None of these proposals--the public
plan proposal does not fix that.
Mr. RYAN. Right.
Mr. SHEILS. It does mean we pay less for the services that
we use.
Mr. RYAN. But it doesn't address the root cause of----
Mr. SHEILS. No. In California, we worked on a workers comp
problem, and people said, you know, our utilization in workers
comp is four times what it is in the neighboring states. Well,
we looked at it, but it turned out the costs were pretty much
the same in the neighboring States. The difference was that, in
California, the payment rates were much, much lower. I mean,
dirt cheap, low rates. And there was an increase in utilization
that was generating the increase, the revenues, so they are
able to maintain that kind of revenues.
We don't want to move to a system like this. And I don't
think that we have at all, whether a public plan or whatever, I
don't think we have gotten to the nub of the issue at all here.
Mr. RYAN. He is about to bang the gavel on me. There it is.
Thank you.
Chairman RANGEL. Soon and very soon the bells will ring,
and we will have a 15-minute vote, two 5-minute votes, but also
a new member is being sworn in. And so it will be at least an
hour that we will be away from the hearing.
We have ten members who have not yet had an opportunity to
inquire. And I would like at this time to see how many of those
here that haven't asked questions will be willing to come back
at 2:00. And I can't hold the witnesses to have to stay here,
but those that can, depending on the number of members that
would respond, would make a difference.
So by hands, those who haven't had an opportunity, how many
would be coming back at 2:00? So I think at this time after Mr.
Blumenauer gets his 5 minutes that we will then ask everyone
that is left in order to ask a question and ask who they would
want to answer, and I would ask the panel to submit an answer
in writing, and apologize to all of you for the awkwardness of
this time, but I can't thank you enough for the valuable
information that you have given to us.
And I may have to see Mr. Pascrell's friend in New Jersey
to get this all straightened out, because you told it like it
was, and we understand that.
So, Mr. Blumenauer, we are going to stay as long as we can,
and you are recognized.
Mr. BLUMENAUER. Thank you, Mr. Chairman. And I will try and
adhere to your admonition in terms of short questions.
I would just say that I was very impressed with the track
record of IBM as being creative, promoting wellness. We have
got some legislation we have introduced on a stand-alone basis
to try and further incent that.
And I appreciate the clarification that was made that a
private, even if we have a public plan, there will still be
tens of millions of people through the private sector driving
those issues of cost containment and promotion.
I have one specific question, Dr. Gould. The reference that
I am hearing about people that are going to be crowded out that
we are going to be seeing; if there is an employer mandate,
that it is going to lead to significant job losses or
reductions in wages. This is reminiscent to me of what we heard
when it was argued that we shouldn't increase the minimum wage
because that was going to have a massive negative effect.
In my State of Oregon and others around the country, the
higher-minimum-wage States actually appeared to be growing, not
shrinking. Does the research on minimum wage have any
application to having an employer mandate for health care?
Ms. GOULD. It absolutely does. When we think about how
firms paying for health care are going to be offset, you can
think, at the high end, there would be different forms of
compensation that could give perhaps. At the low end, you are
right, you are constrained by the minimum wage. But what we are
talking about here perhaps is something like a 5, 6, even 7
percent payment that would be required. Compare that to the
minimum wage, we have seen in the last 2 years that 27 percent
increase in the minimum wage.
We don't know yet really what the effects are of that
unemployment. But if we look again, as you say, to the minimum
wage literature in the 1990s, we can see that there were no
employment effects of that kind of increase. And in fact, I
would go one step further in saying, if we were to chart really
contained costs, and I think one thing that hasn't really been
mentioned here is that the introduction of the public plan
would actually do a good deal to contain costs and bend that
cost curve; if we were to do that, it actually can increase the
competitiveness of our firms.
Mr. BLUMENAUER. Thank you.
Mr. SHEILS. And I would challenge that.
Mr. BLUMENAUER. Excuse me. My time. I asked the witness a
question. I would like to ask another witness a question, if
you don't mind. Is that all right? I would like to----
Mr. SHEILS. I apologize if I have offended you, sir.
Mr. BLUMENAUER. That is fine.
I just want to ask my question to Mr. Conklin. You had
referenced the byplay, that you are on sort of a merry-go-round
having to switch plans, you are going back and forth trying to,
what impact does that have on you and your employees being on
this health care merry-go-round?
Mr. CONKLIN. Well, it has various impacts. One of them is
uncertainty for me and my employees. So these transition
periods cover a quarter of the year, in essence. And during
that quarter of the year, people still get sick. They don't
stop getting sick because we are changing our health plan. So
there is always the question of, which card do I use? And then
there is the question of, and what am I getting, you know? Is
it going to be 25 bucks when I go to the drugstore this time,
or is it going to be 40 bucks, the co-pay?
But really one of the more significant impacts of the
constant shifting is, who is your doctor? And who is choosing
your doctor, because you are not choosing your doctor? The
health insurance provider is choosing the doctor. I have got a
stack--I almost wanted to bring them for you so you could see
it. I got a stack about this high that I have collected over
the last 5 years of the list of doctors for each insurance
company.
Now, sometimes they cross over, and you will find them in
there, and sometimes they don't. So if you are going to go to
the doctor and get care, you are going to get it from somebody
who is as familiar to you as the guy who drives a taxicab. And
how would, you know, how do you feel going to the doctor
sharing some of the most intimate aspects of your life with a
perfect stranger?
I mean, there is a disincentive to go to the doctor that is
part of the system. And I think, and this I think is a really
important part of this discussion, it leads to the perception
that they are doing this on purpose; they are doing this to
keep me from going to the doctor. They are doing this because
it keeps their costs down, and there is an element of distrust
that now has completely permeated the private insurance system.
So there is a lot of repair work to do.
Mr. BLUMENAUER. Thank you, Mr. Chairman.
Chairman RANGEL. Let's see what we can accomplish with the
time that is left.
Mr. Boustany, why don't you inquire for a minute?
And we ask the panelists to respond in a minute, so that we
can move on, okay?
Oh, I am sorry. No. Mr. Boustany arrived earlier, John.
Mr. Boustany.
Mr. BOUSTANY. I am sorry. Am I on? Okay.
Thank you, Mr. Chairman.
Mr. Dennis, President Obama promised, if you have got
health care already, and probably a majority of you on the
panel do, then you can keep your plan if you are satisfied with
it. But you have research that shows employers, and especially
small businesses, that would stop offering private coverage
because employees could receive coverage under a government
plan. So wouldn't a bill that forces workers to lose existing
coverage, as has been described by Mr. Sheils, be contrary to
the President's campaign promise?
Mr. DENNIS. I am not going to get into that about campaign
promises.
But, clearly, I mean, we have a situation that the current
system itself, the current employer-based system does not work
for smaller firms. While you can start with the employer-based
system as a system from which you work around, clearly
something has to be done at the bottom to help us in that
regard.
From the small employer perspective, the costs of the
system are relatively high, and this gets to your point. There
was a cite offered earlier about an 18 percent difference in
relative effective cost between small and large. There is
another study that shows you get 78 to 83 percent of insurance
equivalent, which is effectively the same thing. You have
greater volatility of premiums because you are a small group.
Owners face real hassles. This was brought up with your
experience. Everybody agrees on this. A series of people who
are business owners, who are not experts in insurance, although
unfortunately they are having to become one.
We are talking about wellness and prevention. In a small
business, a 13 person firm, I don't think so.
And then we have bizarre things that happen in this system.
For example, you will see that the small businesses are much
more likely to pay 100 percent of the premiums than the large
ones; 40 percent of small businesses with insurance pay the
whole fare.
Chairman RANGEL. I am sorry to interrupt you, but Mr. Kind
would you inquire for 2 minutes.
Mr. KIND. Thank you, Mr. Chairman.
I will try to be brief. But first of all I want to thank
Mr. MacDonald for kind of showing us the IBM way of what up-
front preventative investment does to drive down costs in a
larger employer setting. And I think the testimony was real
impressive. And hopefully, as we move forward on reform, we
will figure out ways to further incentivize what IBM and others
are doing across the country. Because a lot of this is a lot of
common sense, you know, in the free market working to drive
costs down.
Mr. Dennis, let me, agree with you in your opening
testimony, where I am afraid that if coverage gets out ahead of
cost, this could become politically very dangerous, and the
system could be very tough to reform. But I don't want NFIB to
walk away leaving the impression you don't stand for anything.
Because I know over the last few years, I have worked closely
with NFIB. But not just NFIB, but AARP, SEIU, a restaurant
association, of realtors, to come up with what I think is a
very viable national purchasing pool plan that we have
introduced in a bipartisan basis with tax incentives, with
prohibition against risk-rating, and also virtual HR managers
for small businesses that could answer a lot of the problems
small businesses encounter in the free marketplace right now.
Could you comment on the wisdom of such an approach?
Mr. DENNIS. Surely. And the answer is yes. We have
distributed an outline, I believe, to the dais of what the
basic current SHOP act contains. But essentially, what we are
looking at is a pooling mechanism, a very large pooling
mechanism, where we are going to draw employers in, and we are
going to cap or control the ability to rate on the basis of
experience, health experiences, and claims, claims histories
and that kind of thing. So it is a program that I think is
effective, could work for small businesses. It won't solve
every problem that the world has ever come up with for us, but
clearly is a step forward. I think I can speak for our
legislative staff, of which I am not one, that it would welcome
any Member to join you in cosponsorship of this bill.
Mr. KIND. Mr. Dennis, I think you would also agree,
wouldn't you, if we do the proper health insurance reforms the
right way, such as eliminating underwriting or rating based on
health experience, that, too, could benefit small businesses?
Mr. DENNIS. Absolutely.
Chairman RANGEL. Mr. Heller, could you inquire for 2
minutes?
Mr. HELLER. I will. And I had a prepared question, but I
will make it brief.
Mr. Sheils, what else are we not doing here on this panel?
Mr. SHEILS. Well, I guess the basic concerns for me are the
incentives in the system. For physicians, the incentives are to
just provide as many services so that you can crank out as many
bills. We know, for example, well documented, that if you slow
the rate of growth in physician payment under Medicare, you get
a 30-cents-per-dollar offset from increased utilization. Those
are the things that are out of control.
We know what works in terms of cost containment. We have
done this--we have seen it twice. Once is in the 1990s. There
was a terrific investment in managed care that was made by
employers in the early 1990s. The rate of growth in spending
per worker declined from 18 percent a year in 1989 down to 8/
10ths of 1 percent by 1996. Adjusting for inflation, that is a
net reduction in what we spend on health care.
And then with the Medicare Part D program, this was a
competitive market-based approach as well, and we are all
gratified to hear that the program came in costing a great deal
less than what we had projected it would cost. And again, this
has to do with the competition that results. So I think that
the idea that has worked in the past is performing integrated
systems where everybody has an incentive to keep people
healthy, everybody has an incentive not to do things that are
unnecessary. And those models have worked.
They are very unpopular. I am talking about managed care.
They can be pretty unpopular. But there are ways to build on
that platform. If we have done it once or twice, we can do it
again. So that is the direction I have tended to think in terms
of.
Mr. HELLER. Thank you very much, Mr. Sheils.
Mr. Chairman, I yield back.
Chairman RANGEL. Thank you so much.
Ms. Schwartz, would you please inquire for 2 minutes?
Ms. SCHWARTZ. Thank you very much.
And I do want to point out, I know there has been some
frustration I think I hear from the panelists that you haven't
been allowed to or been asked very much about all the other
actions we should take to help improve quality, improve
efficiency and contain costs. We have had other hearings, and
maybe we can invite you back to discuss some of those things.
But the fact is my understanding was this was purposefully
set up to discuss employer-based health care.
I do want to say that I acknowledge Mr. MacDonald,
particularly speaking to health IT. We have done great work on
that in this administration already in investing in health
information technology. This Committee has done great work on
that under Medicare.
And primary care, we are very, very aware of the increased
need for primary care providers, and in fact, I am circulating
a bill today that is going to address many of those issues and
I hope answer many of those questions. And I do want to also
just second Mr. Kind's really good work and important work in
terms of the market reform for small businesses, the agents who
have joined together to purchase care.
The question I have has to do with other market reforms.
And I think I would ask Dr. Gould to start with his reaction to
the fact that we have talked about community rating, we have
talked about of course maintaining the employer-based system of
care. I don't think that we are all talking about that, most of
us anyway. But we do--I actually do that. It is really hard for
people to enroll.
I think that, Mr. Conklin, you talked about this, that even
when you have coverage, many employees don't take employer-
based coverage. And either they don't sign up, forget to sign
up, miss the 30-day notice and didn't have to have a life-
changing experience to sign up later; there are waiting periods
for 6 months, so even if your employer covers you, you can't
sign up. I think I want to change the playing field on this.
So my one question is, could we--quick question--maybe it
is a yes or no answer, if I could. What do you think about
doing automatic signup if your employer offers you health
insurance?
Dr. Gould, do you think we ought to do like we did for
401(k) fees and just have people automatically signed up? Of
course, they could opt out if they have health insurance
elsewhere----
Chairman RANGEL. The two-minutes have expired. If someone
wants to answer yes or no.
Ms. GOULD. I think auto enrollment would be a great idea.
Mr. MACDONALD. It is wrought with problems.
Chairman RANGEL. Congressman Roskam from Illinois will be
recognized for 2 minutes.
Mr. ROSKAM. Thank you, Mr. Chairman.
Anticipating the falling gavel, just maybe a word, not
really time for a question, but just to follow up with the
exchange between Mr. Dennis and the gentleman from New Jersey.
I served in the State legislature in Illinois for 13 years
and served on the insurance committee. What was interesting
was, take Mr. Conklin's situation, assume for the sake of
argument that he and his wife, his business partner, decide
that they are going to put a salesperson out on the road, and
they need to get a vehicle to do that. Let's say that the
vehicle is sort of the analogy for a health insurance policy.
The government comes in and says, you have got to have a really
safe vehicle. You may say, well, Ford Taurus is pretty safe,
but there is a government standard that says, no, no, no, Ford
Taurus, not safe enough, you have got to put them in the best
Volvo possible. And if you don't put them in a Volvo, you can't
put them on the road. So you are in a situation then, as the
owner of a company, that says, well, we can't really afford the
Volvo; we can give them a Schwinn, but they are not going to
let us do a Ford Taurus.
And that is not unlike what insurance is like in the State
of Illinois and other places where mandate after mandate after
mandate after mandate comes in. You listen to the testimony,
and it is sympathetic. Legislatures end up voting in favor of
these mandates but are really blind to the cumulative cost that
goes up. So I think that having a legitimate no-frills policy
has to be a part of this conversation.
And with that, I yield back.
Chairman RANGEL. Thank you.
Bob Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman.
Mr. Chairman, I would like to submit a couple of questions
for the record.
I will only ask one question in the expediency of time.
Mr. MacDonald, we have heard from a number of employers,
not just you but others, that how valuable it is as part of
your health benefits to really have a prevention and wellness
program. And in your testimony, you talked about your healthy
choice that translated into about an estimated $79 million in
savings in health care claims between 2004 and 2007.
And I happen to believe that preventative medicine has to
be a part of any health system we put together. I just think
that, without doing that, we don't get to where we need to get
to. My question to you is this: Can you talk just very briefly
about your program, about the specific cost savings? And
secondly, do you have any data on this that you could share
with this Committee?
Mr. MACDONALD. I won't give you the specifics. I will
respond in writing on the data, but there is an enormous amount
of data that we are willing to share. And I really think that
the primary issue that we have focused on is trying to connect
the employee and their dependants with the primary care
physician. I think that begins to drive behavior faster than
anything. The preventative wellness programs help, but the
single most important focal point for us is the primary care,
the medical home approach to medicine.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I yield back.
Chairman RANGEL. Thank you so much.
John Linder, thanks for your patience.
Mr. LINDER. Thank you, Mr. Chairman.
Mr. Sheils, how many Americans choose their health care
provider or their health care insurance?
Mr. SHEILS. How many choose their provider?
Mr. LINDER. How many choose their insurance?
Mr. SHEILS. I think it is 80 percent or more of those that
are offered it. Most of those people have coverage from some
other source.
Mr. LINDER. How many of those people have it chosen for
them by their employer?
Mr. SHEILS. Probably 30 or 40 percent.
Mr. LINDER. Don't the employers make most of the health
care decisions in this country?
Mr. SHEILS. They have done, yes, sir.
Mr. LINDER. Mr. MacDonald, what percentage of your payroll
does IBM pay for health care?
Mr. MACDONALD. As a percentage of payroll, it runs about 7
percent. But you have to remember that we have almost 300,000
lives, and therefore a lot of people, not a lot, but several
thousand people opt out, so it actually could be higher. And
plus our wage, as I indicated before, tends to be at the higher
end, so that percentage is a little deflated.
Mr. LINDER. How much does the employee pay? Does the
employee pay X percent of the premium?
Mr. MACDONALD. We are one of the few corporations in
America today that give a free PPO plan to all employees.
Mr. LINDER. If we had a public plan to compete with, what
percentage of employees do you think might opt for it?
Mr. MACDONALD. Before I mentioned to you, in my opinion,
that there would be little migration to a public plan
initially; I think that people are very reluctant to change as
it relates to health care. As evidenced with HSA, they have
been reluctant. I think a lot of it is really driven off of
design, access and pricing. And so for me to opine directly on
a public plan, I don't have the details yet.
Mr. LINDER. Thank you, Mr. Chairman.
Chairman RANGEL. Thank you.
Mr. Yarmuth of Kentucky.
Mr. YARMUTH. Thank you, Mr. Chairman.
Mr. Sheils, you mentioned earlier that, you were talking
about why people would move to a public plan, you talked about
cost savings and so forth, and seemed to imply that the only
reason, at least the only one we discussed, was that you could
pay lower rates to providers and that had a deleterious effect
on the system. Aren't there other factors involved that may
make it cheaper, like there is no profit component to the cost?
There is also the potential of lower administrative costs like
those achieved by Medicare that would allow the public plan to
be less expensive.
Mr. SHEILS. We showed earlier in the testimony that the
cost to private insurance administration, including profits, et
cetera, is around 13.5 percent of benefits. Under this plan, it
probably would be closer to 7 percent under this public plan.
Mr. YARMUTH. Thank you.
Mr. Conklin, first of all, thank you for saying a couple of
things which I have been saying, and that is why I applaud you
for saying them. And one is, we aren't going to get it right
the first time. There are going to be thousands of unforeseen
consequences that we will have to work on, but we need to start
on this effort.
And secondly, that we are trying, I think this is the way I
interpret it, that we are trying to apply business concepts to
something that is not necessarily a pure business. If you
wanted to leave your business right now, if you wanted to shut
it down, if you had a better opportunity somewhere else, given
unfortunately the condition of your wife, would you have an
easy time getting insurance if there weren't some kind of a
public plan?
Mr. CONKLIN. No, I don't think we would have an easy time
getting insurance, and the insurance we got would be expensive,
and I don't think paying more in that scenario would yield
better results for my wife. Right now, we have a pretty decent
HMO, and she, we, are paying for the best care she has ever
gotten 100 percent out-of-pocket.
Mr. YARMUTH. Thank you.
One final question. Did under the Lewin Group, Mr. Sheils,
estimate the, or what did the Lewin Group estimate is the 11-
year savings to national health expenditures under the
commonwealth plan?
Mr. SHEILS. I believe it was $4.8 trillion.
Mr. YARMUTH. So a significant amount. Thank you very much.
Thank you, Mr. Chairman.
Chairman RANGEL. Mr. Reichert is recognized.
Mr. REICHERT. Thank you, Mr. Chairman.
Would everyone on the panel agree that if an employee today
is happy with and satisfied with their health plan, that they
should be able to keep it? Is there anyone who disagrees with
that comment?
Mr. Sheils, if a new government-run health plan was created
and it paid providers Medicare rates, how many Americans would
lose their employee-based health insurance that they currently
have?
Mr. SHEILS. It would be about 108 million people.
Mr. REICHERT. And Mr. Chairman, I have one other concern. I
fortunately have been blessed to work with King County for King
County in Seattle, Washington. A great wellness activities,
preventative health care plan. I am concerned about saving $18
million over the last few years promoting prevention, health
prevention programs; Microsoft does the same thing. I am
concerned that if we move to a public health plan, a
government-run health plan, I should say, that we may lose some
of those innovative ideas.
And I yield. Thank you, Mr. Chairman.
Chairman RANGEL. Thank you. Mr. Meek is recognized.
Mr. MEEK. Thank you so very much, Mr. Chairman.
Anyone on the panel, one of the main reasons that we are--I
mean, one of the main issues that we run into with this whole
health insurance issue is preexisting conditions. And I just
want to ask anyone that wished to answer, what kind of
incentives should be out there as it relates to government
incentives to not only take on preexisting conditions when we
look at overall insurance?
Mr. SHEA. Congressman, the word comprehensive is often
associated with reform in our discussion these days. And I
really think it is worth bearing in mind that there are very
concrete parts of that. One of those pieces is that we have to
accept everybody into coverage. We can't exclude people because
of preexisting conditions.
But the correlate of that is if we get everybody in and if
we get them in from birth, we need to provide them with the
kind of preventative care, with the kind of early detection,
with the kind of management of chronic diseases that come up.
That is where the real cost savings are going to be in terms of
managing health care. So it is one piece of the overall puzzle,
and it is important that we address all of them together.
Mr. DENNIS. Congressman, you have not only the preexisting
condition in the sense of someone coming into a job, but you
have a similar situation when someone is in a job and faces,
job lock, which happens quite frequently in smaller firms.
Someone will be in a job, have insurance, and then can't move
to another job because of the health insurance situation.
Mr. MEEK. Well, that is something definitely we are going
to have to tackle, because I can see it even going down to
almost health care employment discrimination saying, well, if
you have a preexisting condition, I don't need you in my group
or in my company because you are going to cost us all more.
Thank you, Mr. Chairman.
Chairman RANGEL. Thank you.
You have been one of the best panels that we have had. I
cannot begin to tell you how many members who have so many
things to do with so many other pieces of legislation how they
have stopped by to say what a great panel this has been and how
important it has been.
I yield to Mr. Camp before we adjourn.
Mr. CAMP. Well, I would just agree with the chairman's
comments.
Thank you all for being here. I appreciate your testimony
very much.
Chairman RANGEL. And with that, most of you veterans know
how it works here. We regret the awkwardness here, but you made
a great contribution toward our thinking. We have got to have a
health bill. And hope all of you would feel that your input has
been a part of what we are doing. Thank you so much. The
Committee stands adjourned.
[Whereupon, at 1:27 p.m., the Committee was adjourned.]
[Questions for the Record follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

[Submissions for the Record follow:]
Written Testimony of Joe Solmonese, Human Rights Campaign
On behalf of the Human Rights Campaign and our over 700,000 members
and supporters nationwide, I thank Representative Rangel for convening
this hearing on employer-sponsored health insurance. The Human Rights
campaign is the nation's largest civil rights group advocating for the
lesbian, gay, bisexual and transgender community. Employer-provided
health care is of great concern to our community, as it is to most
Americans.
Over 60 percent of Americans under age 65 receive their health
insurance from their employers, who contribute a portion of the premium
for the employee and, often, for family members covered under the
employer's plan. Nationwide, employers are increasingly covering same-
sex couples in their insurance plans. As of this hearing, over 57% of
Fortune 500 companies now offer equal health benefits to their
employees' same-sex domestic partners--up from only one in 1992.\1\
---------------------------------------------------------------------------
\1\ The federal government, the nation's largest civilian employer,
does not provide these benefits. As a result, hardworking civilian
employees with same-sex partners do not receive equal compensation for
their service to the government.
---------------------------------------------------------------------------
Unfortunately, our tax system does not reflect this advance toward
true meritocracy in the workplace. Under current federal law, employer-
provided health benefits for domestic partners are subject to income
tax and payroll tax. As a result, a lesbian or gay employee who takes
advantage of this benefit takes home less pay than the colleague at the
next cubicle. Some families have to forego the benefits altogether
because this unfair tax renders the coverage too expensive--adding them
needlessly to the millions of uninsured Americans in this country.
The following example illustrates how this tax inequity affects a
same-sex couple with an average income: In 2006 Steve earned $32,000
per year and owed $3,155 in federal income and payroll taxes. Steve's
employer also paid the monthly premium of $907 for the insurance
coverage for Steve and his wife. Of this amount, $572 was the amount in
excess of the premium for self-only coverage. None of this coverage was
taxable under current law because employer contributions for the worker
and a spouse or dependent child are excluded from taxable income.
Steve's co-worker, Jim, earned the same salary and had the same
coverage for himself and his same-sex partner. However, the value of
the coverage provided to the partner is subject to federal income and
payroll taxes. As a result, $6,864 of income is imputed to Jim and his
federal income and payroll tax liability increased from $3,155 to
$4,710. This represents nearly a 50% increase over Steve and his wife's
tax liability.
For many families, especially those with modest incomes, the tax
hit is more than they can bear. In the example above, a family earning
$32,000 would most likely find that the additional $1,555 in tax
liability puts coverage beyond their means.
Taxing these benefits also raises costs for employers. The benefits
are not only considered imputed income, but also wages for payroll tax
purposes. As a result, the employer must pay additional payroll taxes
on these benefits that they do not pay for spouse and dependent child
coverage.
The high--and increasing--cost of health insurance is of particular
importance to LGBT people. Nearly one in four lesbian and gay adults
lack health insurance and these adults are more than twice as likely as
their heterosexual counterparts to be uninsured.\2\ For some of these
people, unfair taxation of employer-provided health benefits is partly
to blame. Furthermore, the additional tax burden could dampen the
incentive for employers to choose to offer equal benefits to their
employees with same-sex partners.
---------------------------------------------------------------------------
\2\ http://www.harrisinteractive.com/NEWS/
allnewsbydate.asp?NewsID=1307
---------------------------------------------------------------------------
It is imperative that the federal government not pile unfair taxes
onto some families who are coping with the spiraling cost of health
care. The Tax Equity for Health Plan Beneficiaries Act, which as H.R.
1820 in the 110th Congress, would eliminate the tax inequity and render
health insurance more affordable for many American families.\3\
Regardless of which approach Congress takes to health care reform, tax
incentives relating to family health coverage must treat all families
equally. As this Committee considers the role of employer-provided
health insurance in the future of health care, we strongly recommend
that it support eliminating the tax on employer-provided health
benefits.
---------------------------------------------------------------------------
\3\ A similar bill was introduced in the Senate in the 110th
Congress_the Tax Equity for Domestic Partner and Health Plan
Beneficiaries Act (S. 1556).

Statement of Judy Waxman
Chairman Rangel and Members of the Committee on Ways and Means,
thank you for this opportunity to provide written testimony on behalf
of the National Women's Law Center. As a non-profit organization
dedicated to expanding the possibilities for women and girls in this
country since 1972, we would like to express our concerns to the
Committee regarding the harmful practices of insurance carriers in the
individual and group health insurance markets and the disproportionate
impact that such practices have on women in the United States.
Introduction
Women have much to gain from carefully-implemented insurance market
reforms. Regardless of whether they receive coverage from an employer
via the group health insurance market or are left to purchase health
insurance directly from insurers through the individual market, the
harmful practices of health insurance companies can hinder women's
ability to obtain affordable and comprehensive health coverage.
The majority of American women have health insurance either through
an employer or through a public program such as Medicaid. In 2007,
nearly two-thirds of all women aged 18 to 64 had insurance through an
employer, and another 16% had insurance through a public program.\1\ In
contrast, a very small percentage of nonelderly women--just 7% in
2007--purchase health coverage directly from insurance companies in
what is known as the ``individual market.'' \2\ Because this is the
least common way to get health insurance, few people have any idea just
how difficult it can be to purchase coverage in the individual market.
For the 18% of women who are currently uninsured\3\--those who lack
access to employer coverage, or who earn too much to qualify for public
programs--the individual insurance market is often the last resort for
coverage.
---------------------------------------------------------------------------
\1\ National Women's Law Center analysis of 2007 data on health
coverage from the Current Population Survey's Annual Social and
Economic Supplement, using CPS Table Creator, http://www.census.gov/
hhes/www/cpstc/cps_table_creator.html.
\2\ Id.
\3\ Id.
---------------------------------------------------------------------------
While women who get health insurance from their employer are
partially protected by both federal and state laws, states are left to
regulate the sale of health insurance in the individual market with no
minimum federal standards. In the vast majority of states, few if any
such protections exist for women who purchase individual health
coverage. Furthermore, those seeking health coverage in the individual
market are often less able to afford insurance without the benefit of
an employer to share the cost of the premium.
The individual health insurance market presents numerous problems
for women, but even those who obtain group health insurance from their
employer are affected by some of the same harmful practices that impede
access to affordable coverage in the individual market
Women Face Many Challenges in the Individual Insurance Market
To learn more about the experiences of women seeking coverage in
the individual insurance market, between July and September 2008, the
National Women's Law Center (``NWLC'' or ``the Center'') gathered and
analyzed information on over 3,500 individual health insurance plans
available through the leading online source of health insurance for
individuals, families and small businesses.\4\ The Center investigated
two phenomena: the ``gender gap''--the difference in premiums charged
to female and male applicants of the same age and health status--in
plans sampled from each state and the District of Columbia (D.C.), and
the availability and affordability of coverage for maternity care
across the country.\5\ In addition, NWLC examined state statutes and
regulations relating to the individual insurance market to determine
whether the states and D.C. have protections against premium rating
based on gender, age, or health status in the individual market, and to
determine whether states have any maternity coverage mandates requiring
insurers in the individual market to cover comprehensive maternity care
(defined as coverage for prenatal and postnatal care as well as labor
and delivery for both routine and complicated pregnancies).
---------------------------------------------------------------------------
\4\ This source is eHealthInsurance, available at http://
www.ehealthinsurance.com. Notably, eHealthInsurance may not represent
all insurance companies licensed to sell individual health insurance
policies in every state. However, the company bills itself as the
leading online source of health insurance for individuals, families,
and small businesses, partnering with over 160 health insurance
companies in 50 states and D.C. and offering more than 7,000 health
insurance products online. NWLC chose to use eHealthInsurance for this
study because it presents the clearest available picture of the
individual market across the country, and because it is the most
readily available tool for individuals seeking private insurance who do
not wish, or cannot afford, to employ the services of an insurance
agent. Any limitations in eHealthInsurance's scope--in tandem with the
basic fact that its services are only available online and therefore
may not be accessible to individuals without a computer or internet
access or who are not web savvy--simply underscores the challenges
women (and men) face seeking coverage in the individual market without
a government-sponsored system to help facilitate their search.
\5\ While NWLC's review of health insurance plans examined coverage
for maternity-related care, it was much more difficult to determine
whether other pregnancy-related benefits, such as contraception or
pregnancy termination, are covered under a plan; accordingly, our
review did not include these important reproductive health benefits.
For example, in many plan brochures, if information about either of the
above benefits is available at all, it is visible only as part of a
long list of exclusions. This obfuscation reflects another challenge
women face in assessing the adequacy of a plan's coverage.
---------------------------------------------------------------------------
Based on this research, NWLC found that the individual insurance
market is a very difficult place for women to buy health coverage.
Insurance companies can refuse to sell women coverage altogether due to
a history of any health problems, or charge women higher premiums based
on factors such as their gender, age and health status. This coverage
is often very costly and limited in scope, and it often fails to meet
women's needs. In short, women face too many obstacles obtaining
comprehensive, affordable health coverage in the individual market--
simply because they are women.
Women often face higher premiums than men. Under a practice known
as gender rating, insurance companies are permitted in most states to
charge men and women different premiums. This costly practice often
results in wide variations in rates charged to women and men for the
same coverage. The Center's 2008 research on gender rating in the
individual market found that among insurers who gender rate, the
majority charge women more than men until they reach around age 55, and
then some (though not all) charge men more.\6\ The Center also found
huge and arbitrary variations in each state and across the country in
the difference in premiums charged to women and men. For example,
insurers who practice gender rating charged 40-year-old women from 4%
to 48% more than 40-year-old men.\7\ The huge variations in premiums
charged to women and men for identical health plans highlight the
arbitrariness of gender rating, and the financial impact of gender
rating is compounded when insurers also charge more for age and health
status when setting insurance premiums.
---------------------------------------------------------------------------
\6\ Lisa Codispoti, Brigette Courtot and Jen Swedish, Nat'l Women's
Law Ctr, Nowhere to Turn: How the Individual Market Fails Women (Sep.
2008), http://action.nwlc.org/site/PageServer?pagename=nowheretoturn.
\7\ Id.
---------------------------------------------------------------------------
It is difficult and costly for women to find health insurance that
covers maternity care. The vast majority of individual market health
insurance policies that NWLC examined do not cover maternity care at
all. A limited number of insurers sell separate maternity coverage for
an additional fee known as a ``rider,'' but this supplemental coverage
is often expensive and limited in scope. Moreover, insurers that sell
maternity riders typically offer just a single ``one size fits all''
rider option. Typically, a woman cannot select a more or less
comprehensive rider policy--her only option is to purchase the limited
rider or go without maternity coverage altogether.\8\ Individual market
insurers may also consider pregnancy as grounds for rejecting a woman's
application for coverage, or as a ``pre-existing condition'' for which
coverage can be excluded.\9\
---------------------------------------------------------------------------
\8\ Id.
\9\ Ed Neuschler, Institute for Health Policy Solutions, Policy
Brief on Tax Credits for the Uninsured and Maternity Care 3 (March of
Dimes 2004), http://www.marchofdimes.com/TaxCreditsJan2004.pdf.
---------------------------------------------------------------------------
The dearth of maternity coverage in the individual health insurance
market has been documented elsewhere. In California, for example, the
California Health Benefits Review Program found that only 22 percent of
the estimated 1,038,000 people in the individual market in California
in 2009 had maternity benefits--a dramatic decrease from the 82% of
people with individual policies that covered maternity in 2004.\10\
---------------------------------------------------------------------------
\10\ California Health Benefits Review Program, Executive Summary:
Analysis of Assembly Bill 98: Maternity Services, A Report to the 2009-
2010 California Legislature (Mar. 16, 2009), http://www.chbrp.org/
documents/ab_98_fnlsumm.pdf.
---------------------------------------------------------------------------
Insurance companies can reject applicants for health coverage for a
variety of reasons that are particularly relevant to women. For
example, it is still legal in eight states and D.C. for insurers to
reject applicants who are survivors of domestic violence.\11\ Insurers
can also reject women for coverage simply for having previously had a
Cesarean section.\12\
---------------------------------------------------------------------------
\11\ Women's Law Project & Pennsylvania Coalition Against Domestic
Violence, FYI: Insurance Discrimination Against Victims of Domestic
Violence, 2002 Supplement 2 (2002), http://www.womenslawproject.org/
brochures/InsuranceSup_DV2002.pdf. In the early 1990s, advocates
discovered that insurers had denied applications for coverage submitted
by women who had experienced domestic violence. See, e.g., 142 Cong.
Rec. E1013-03, at E1013-14 (June 5, 1996) (statement of Rep. Pomeroy)
(``the Pennsylvania State Insurance Commissioner surveyed company
practices in Pennsylvania and found that 26% of the respondents
acknowledged that they considered domestic violence a factor in issuing
health, life and accident insurance''). Since 1994, the majority of
states have adopted legislation prohibiting health insurers from
denying coverage based on domestic violence, but nine states and D.C.
offer no such protection to survivors of domestic violence. Even though
Vermont lacks legislation specifically prohibiting discrimination
against domestic violence survivors, the state requires guaranteed
issue of all individual insurance plans. See infra note 94 and
accompanying text. Though the report identifies nine states, as well as
the District of Columbia, which do not prohibit this practice, Arkansas
Gov. Beebe recently signed into law ACT 619, which amends Arkansas Code
Sec. 23-66-206(14)(G), to add ``status as a victim of domestic abuse''
to the list of attributes that insurers may not use as the sole
justification for denying an individual health insurance coverage.
\12\ Denise Grady, After Caesareans, Some See Higher Insurance
Cost, N.Y. Times, June 1, 2008, at A26, available at http://
www.nytimes.com/2008/06/01/health/01insure.html.
---------------------------------------------------------------------------
While both women and men face additional challenges in the
individual insurance market, these problems compound the affordability
challenges women already face. Insurance companies also engage in
premium rating practices that, while not unique to women, compound the
affordability issues caused by gender rating. These include setting
premiums based on age and health status.\13\
---------------------------------------------------------------------------
\13\ See supra note 6.
---------------------------------------------------------------------------
Women Face Similar Challenges in the Group Insurance Market
While there has been significant recent attention on gender rating
among insurers in the individual market, it is important to recognize
that this practice also occurs in the group health insurance market
where employers obtain coverage for their employees. Insurance
companies in most states are allowed to use the gender make-up of an
insured group as a rating factor when determining how much to charge
the group for health coverage. From the employee's perspective, this
disparity may not be apparent, since employment discrimination laws
prohibit an employer from charging male and female employees different
rates for coverage. Yet gender rating in the group insurance market can
present a serious obstacle to affordable health coverage for an
employer and all of its employees. If the overall premium is not
affordable, a business may forgo offering coverage to workers
altogether, or shift a greater share of health insurance costs to
employees.
Gender rating may affect health premium costs for large employers.
As a result of important state and federal anti-discrimination
protections that apply to employer-provided health insurance, gender
rating--while still present in the group market--manifests itself
differently than in the individual market. Under federal and most state
laws, employers unlawfully discriminate if they charge female employees
more than male employees for the same health coverage.
At the same time, when a business applies for health insurance, the
majority of states allow insurance companies to determine the premium
that will be charged using a process known as ``medical underwriting.''
As part of this process, an insurer considers various criteria--such as
gender, age, health status, claims experience, or occupation--and
decides how much to charge an applicant for health coverage. In the
large group market, insurers underwrite the group as a whole rather
than considering the health-related factors of each employee--but this
limitation provides little relief for employers with a high proportion
of female workers.\14\ Under the premise that women have, on average,
higher hospital and physicians' costs than men, insurance companies
that gender rate may charge employers more for health insurance if they
have a predominantly female workforce. This can raise premiums for all
employees and potentially move the employer to forgo providing health
coverage all together.
---------------------------------------------------------------------------
\14\ Id.; Henry J. Kaiser Family Foundation, How Private Health
Coverage Works: A Primer, 2008 Update (Apr. 2008), http://www.kff.org/
insurance/upload/7766.pdf.
---------------------------------------------------------------------------
Gender rating is a particular problem for small businesses and
their employees. Though insurers may use gender rating when setting
premiums for a group of any size, the smaller an insured group is, the
more harmful gender rating becomes. It may create insurmountable
barriers to coverage for women who own and work for small businesses,
in particular. When compared to their larger counterparts, small
businesses are considerably less likely to offer health coverage to
their workers, most often citing cost as the reason.\15\ Obtaining
affordable group coverage is a problem facing many small businesses,
and gender rating makes health insurance even more expensive for those
with predominantly female workforces. Indeed, small employers that do
not offer health coverage tend to have larger proportions of female
workers.\16\
---------------------------------------------------------------------------
\15\ Kaiser Family Found. and Health Research and Educ. Trust,
Employer Health Benefits 2008 Annual Survey 5 (2008), http://
ehbs.kff.org/.
\16\ Paul Fronstin & Ruth Helman, Employee Benefit Research Inst.,
Issue Brief No. 253, Small Employers and Health Benefits: Findings from
the 2002 Small Employer Health Benefits Survey 11 (Jan. 2003), http://
www.ebri.org/pdf/briefspdf/0103ib.pdf.
---------------------------------------------------------------------------
Some States Have Taken Action to Protect Consumers in the Individual
and Small Group Markets
Some states have taken action to address the challenges that women,
and employers with female employees, face in the individual and small
group markets.
Protections against gender rating: Because the regulation of
insurance has traditionally been a state responsibility,\17\ no federal
law provides protections against gender rating in the individual and
group markets. Overall, 40 states and D.C. allow gender rating in the
individual market, with two of these states limiting the amount
premiums can vary based on gender through ``rate bands.'' \18\ However,
even states that ban gender rating allow some plans to use this
practice, such as the bare-bones basic and essential plans offered in
New Jersey.\19\ There are three basic approaches to prohibit or limit
gender rating in the individual market:
---------------------------------------------------------------------------
\17\ McCarran-Ferguson Act, 15 U.S.C. Sec. Sec. 1011-1015 (2008).
\18\ See supra note 3.
\19\ N.J. Dept. of Banking & Ins., N.J. Individual Health Coverage
Program Buyer's Guide: How To Select a Health Plan--2006 Ed. (2006),
http://www.state.nj.us/dobi/division_insurance/ihcseh/ihcbuygd.html
(``carriers may vary the rates for the B&E plan based on age, gender
and geographic location'').
---------------------------------------------------------------------------
Explicit Protections against Gender Rating: Four states in the
individual market--Minnesota,\20\ Montana,\21\ New Hampshire,\22\ and
North Dakota\23\ have passed laws prohibiting insurers from considering
gender when setting health insurance rates.
---------------------------------------------------------------------------
\20\ Minn. Stat. Sec. 62A.65(4) (2008) (``No individual health plan
offered, sold, issued, or renewed to a Minnesota resident may determine
the premium rate or any other underwriting decision, including initial
issuance, through a method that is in any way based upon the gender of
any person covered or to be covered under the health plan.'').
\21\ Mont. Code Ann. Sec. 49-2-309(1) (2008) (``It is an unlawful
discriminatory practice for a financial institution or person to
discriminate solely on the basis of sex or marital status in the
issuance or operation of any type of insurance policy, plan, or
coverage or in any pension or retirement plan, program, or coverage,
including discrimination in regard to rates or premiums and payments or
benefits.''). Montana's ``unisex insurance law'' is not limited to
health insurance; it prohibits insurers from using gender as a rating
factor in any type of insurance policy issued within the state. See
Mont. Code Ann. Sec. 49-2-309(1) (2008) (``It is an unlawful
discriminatory practice for a financial institution or person to
discriminate solely on the basis of sex or marital status in the
issuance or operation of any type of insurance policy, plan, or
coverage or in any pension or retirement plan, program, or coverage,
including discrimination in regard to rates or premiums and payments or
benefits'').
\22\ N.H. Rev. Stat. Ann. Sec. 420-G:4(I)(d) (2008) (allowing
insurers to base rates in the individual market solely on age, health
status, and tobacco use).
\23\ N.D. Cent. Code Sec. 26.1-36.4-06(1) (2008) (imposing a rate
band under which age, industry, gender, and duration of coverage may
not vary by a ratio of more than 5 to 1, but providing that ``[g]ender
and duration of coverage may not be used as a rating factor for
policies issued after January 1, 1997''). Despite the statutory
prohibition on gender rating in North Dakota, the only company offering
individual policies through www.eHealthInsurance.com does use gender as
a rating factor. In an attempt to understand this seeming
inconsistency, NWLC contacted the North Dakota Insurance Department,
which indicated that this company is a ``hybrid situation'' and thus
permitted to rate its individual policies as if they were sold on the
group market; gender rating is allowed within limit for groups in North
Dakota. Telephone Interview with North Dakota Insurance Department
(Sept. 12, 2008).
---------------------------------------------------------------------------
Community Rating: Currently, six states prohibit the use of gender
as a rating factor under community rating statutes: New York imposes
pure community rating\24\; while Maine,\25\ Massachusetts,\26\ New
Jersey,\27\ Oregon,\28\ and Washington\29\ impose modified community
rating that, in addition to prohibiting rating based on health status,
also bans rating based on gender.
---------------------------------------------------------------------------
\24\ N.Y. Ins. Law Sec. 3231(a) (McKinney 2008) (defining community
rating as ``a rating methodology in which the premium for all persons
covered by a policy or contract form is the same based on the
experience of the entire pool of risks covered by that policy or
contract form without regard to age, sex, health status or
occupation'').
\25\ Me. Rev. Stat. Ann. tit. 24-A, Sec. 2736-C(2)(B) (2008)
(prohibiting insurance carriers from varying the community rate due to
gender or health status). Me. Rev. Stat. Ann. tit. 24-A, Sec. 2736-
C(2)(D)(3) (2008) (imposing a rate band under which insurance carriers
may only vary the community rate due to age by plus or minus 20% for
policies issued after July 1, 1995).
\26\ Mass. Gen. Laws ch. 176M, Sec. 1 (2008) (defining ``modified
community rate'' as ``a rate resulting from a rating methodology in
which the premium for all persons within the same rate basis type who
are covered under a guaranteed issue health plan is the same without
regard to health status; provided, however, that premiums may vary due
to age, geographic area, or benefit level for each rate basis type as
permitted by this chapter''). Mass. Gen. Laws ch. 176M, Sec. 4(a)(2)
(2008) (imposing a rate band under which the ``premium rate adjustment
based upon the age of an insured individual'' may range from 0.67 to
1.33).
\27\ 2008 N.J. Sess. Law Serv. Ch. 38, page nos. 12, 15 (Senate
1557) (West) (amending N.J. Stat. Ann. Sec. 17B:27A-2 (West 2008) to
define ``modified community rating'' as ``a rating system in which the
premium for all persons under a policy or a contract for a specific
health benefits plan and a specific date of issue of that plan is the
same without regard to sex, health status, occupation, geographic
location or any other factor or characteristic of covered persons,
other than age,'' and amending N.J. Stat. Ann. Sec. 17B:27A-4 (West
2008) to require individual health benefits plans to ``be offered on an
open enrollment, modified community rated basis''). New Jersey law
excludes bare-bones basic and essential plans from the modified
community rating requirement.
\28\ Or. Rev. Stat. Sec. 743.767(2) (2008) (``The premium rates
charged during a rating period for individual health benefit plans
issued to individuals shall not vary from the individual geographic
average rate, except that the premium rate may be adjusted to reflect
differences in benefit design, family composition and age.'').
\29\ Wash. Rev. Code Sec. 48.43.005(1) (2008) (defining ``adjusted
community rate'' as ``the rating method used to establish the premium
for health plans adjusted to reflect actuarially demonstrated
differences in utilization or cost attributable to geographic region,
age, family size, and use of wellness activities''); Wash. Rev. Code
Sec. 48.44.022(1)(a) (2008) (allowing insurers to only vary the
adjusted community rate based on geographic area, family size, age,
tenure discounts, and wellness activities).
---------------------------------------------------------------------------
Gender Rate Bands: Some states have passed laws limiting insurers'
ability to base premiums on gender by establishing a ``rate band,''
which sets limits between the lowest and highest premium that a health
insurer may charge for the same coverage based on gender. In the
individual market, two states--New Mexico\30\ and Vermont \31\--use
rate bands to limit insurers' ability to vary rates based on gender.
---------------------------------------------------------------------------
\30\ N.M. Stat. Sec. 59A-18-13.1(A) (2008) (allowing gender
rating); N.M. Stat. Sec. 59A-18-13.1(B) (2008) (providing that ``the
difference in rates in any one age group that may be charged on the
basis of a person's gender shall not exceed another person's rates in
the age group by more than twenty percent of the lower rate'').
\31\ Vt. Stat. Ann. tit. 8, Sec. 4080b(h)(1) (2008) (prohibiting
the use of the following rating factors when establishing the community
rate: demographics including age and gender, geographic area, industry,
medical underwriting and screening, experience, tier, or duration); Vt.
Stat. Ann. tit. 8, Sec. 4080b(h)(1) (2008), 21-020-034 Vt. Code R.
Sec. 93-5(11)(G), (13)(B)(6) (2008) (providing that upon approval by
the insurance commissioner, insurers may adjust the community rate by a
maximum of 20% for demographic rating including age and gender rating,
geographic area rating, industry rating, experience rating, tier
rating, and durational rating).
---------------------------------------------------------------------------
In the small group market, twelve states have banned gender rating
all together. Three states have applied gender ``rate bands,'' and one
state prohibits gender rating unless the carrier receives prior
approval from the state insurance commissioner.
Explicit Protections against Gender Rating: California,\32\
Colorado,\33\ Michigan,\34\ Minnesota,\35\ and Montana\36\ specifically
prohibit insurers from considering gender when setting health insurance
rates in the small group market.
---------------------------------------------------------------------------
\32\ Cal. Ins. Code Sec. Sec. 10714(a)(2), 10700(t)-(v) (West 2008)
(prohibiting small employer insurance carriers from setting premium
rates based on characteristics other than age, geographic region, and
family size, in addition to the benefit plan selected by the employee).
\33\ Colo. Rev. Stat. Sec. Sec. 10-16-105(8)(a), 10-16-102(10)(b)
(2008) (prohibiting small employer insurance carriers from setting
premium rates based on characteristics other than age, geographic
region, family size, smoking status, claims experience, and health
status).
\34\ Mich. Comp. Laws Sec. 500.3705(2)(a) (2008) (prohibiting
commercial small employer insurance carriers from setting premium rates
based on characteristics of the small employer other than industry,
age, group size, and health status).
\35\ Minn. Stat. Sec. 62L.08(5) (2008) (prohibiting the use of
gender as a rating factor for small employer insurance carriers).
\36\ Mont. Code Ann. Sec. 49-2-309(1) (2008) (``It is an unlawful
discriminatory practice for a financial institution or person to
discriminate solely on the basis of sex or marital status in the
issuance or operation of any type of insurance policy, plan, or
coverage or in any pension or retirement plan, program, or coverage,
including discrimination in regard to rates or premiums and payments or
benefits'').
---------------------------------------------------------------------------
Community Rating: New York \37\ imposes pure community rating in
its small group market, while Maine,\38\ Maryland,\39\
Massachusetts,\40\ New Hampshire,\41\ Oregon,\42\ and Washington\43\
ban gender-based rating under modified community rating.
---------------------------------------------------------------------------
\37\ N.Y. Ins. Law Sec. 3231(a) (McKinney 2008) (requiring all
small employer insurance plans to be community rated and defining
``community rating'' as ``a rating methodology in which the premium for
all persons covered by a policy or contract form is the same based on
the experience of the entire pool of risks covered by that policy or
contract form without regard to age, sex, health status or
occupation'').
\38\ Me. Rev. Stat. Ann. tit. 24-A, Sec. 2808-B(2)(B) (2008)
(prohibiting small employer insurance carriers from varying the
community rate based on gender, health status, claims experience or
policy duration of the group or group members).
\39\ Md. Code Ann., Ins. Sec. 15-1205(a)(1)-(3) (West 2008)
(allowing small employer insurance carriers to adjust the community
rate only for age and geography).
\40\ Mass. Gen. Laws ch. 176J, Sec. 3(a)(1), (2) (2008) (allowing
small employer insurance carriers to adjust the community rate only for
age, industry, participation-rate, wellness program, and tobacco use).
\41\ N.H. Rev. Stat. Ann. Sec. 420-G:4(1)(e)(1) (2008) (prohibiting
small employer insurance carriers from setting premium rates based on
characteristics of the small employer other than age, group size, and
industry classification).
\42\ Or. Rev. Stat. Sec. 743.737(8)(b)(B) (2008) (providing that
small employer insurance carriers may only vary the community rate
based on age, employer contribution level, employee participation
level, the level of employee engagement in wellness programs, the
length of time during which the small employer retains uninterrupted
coverage with the same carrier, and adjustments based on level of
benefits). Overall Rate Band: 50%.
\43\ Wash. Rev. Code Sec. 48.21.045(3)(a) (2008) (providing that
small employer insurance carriers may only vary the community rate
based on geographic area, family size, age, and wellness activities).
---------------------------------------------------------------------------
Gender Rate Bands: Three states--Delaware,\44\ New Jersey,\45\ and
Vermont \46\--limit the extent to which insurers may vary premium rates
based on gender through a rate band.
---------------------------------------------------------------------------
\44\ Del. Code Ann. tit. 18, Sec. 7205(2)(a) (2008) (allowing small
employer insurance carriers to vary premium rates based on gender and
geography combined by up to 10 percent). Age: Del. Code Ann. tit. 18,
Sec. Sec. 7202(9), 7205 (2008) (allowing the use of age as a rating
factor if actuarially justified).
\45\ N.J. Stat. Ann. Sec. 17B:27A-25(a)(3) (West 2008) (providing
that the premium rate charged by a small employer insurance carrier to
the highest rated small group shall not be greater than 200% of the
premium rate charged to the lowest rated small group purchasing the
same plan, ``provided, however, that the only factors upon which the
rate differential may be based are age, gender and geography''). Rate
Band for Age, Gender & Geography: 200%.
\46\ Vt. Stat. Ann. tit. 8, Sec. 4080a(h)(1) (2008) (prohibiting
the use of the following rating factors when establishing the community
rate: demographics including age and gender, geographic area, industry,
medical underwriting and screening, experience, tier, or duration); Vt.
Stat. Ann. tit. 8, Sec. 4080a(h)(2) (2008) (providing that upon
approval by the insurance commissioner, insurers may adjust the
community rate by a maximum of 20% for demographic rating including age
and gender rating, geographic area rating, industry rating, experience
rating, tier rating, and durational rating). Overall Rate Band: 20%.
---------------------------------------------------------------------------
Other: One state, Iowa,\47\ prohibits gender rating unless a small
group insurance carrier secures prior approval from the state insurance
commissioner.
---------------------------------------------------------------------------
\47\ Iowa Code Sec. 513B.4(2) (2008) (prohibiting the use of rating
factors other than age, geographic area, family composition, and group
size without prior approval of the insurance commissioner).
---------------------------------------------------------------------------
It is important to note that these regulations apply only to health
insurance sold to small groups, which states generally define as a
group of 50 people or fewer. Even in the 16 states with group market
protections against gender rating, premiums for larger groups are still
subject to this unfair practice.\48\
---------------------------------------------------------------------------
\48\ Nat'l Women's Law Ctr, ``Women and Employer Sponsored
Insurance,'' Reform Matters Toolkit (2008), at 9-10.
---------------------------------------------------------------------------
Maternity mandates: A handful of states have recognized the
importance of ensuring that maternity coverage--including prenatal,
birth, and postpartum care--is a part of basic health care by
establishing a ``benefit mandate'' law that requires insurers to
include coverage for maternity services in all individual health
insurance policies sold in their state. Currently, just five states
have enacted mandate laws that require all insurers in the individual
market to cover the cost of maternity care. These states are:
Massachusetts,\49\ Montana,\50\ New Jersey,\51\ Oregon,\52\ and
Washington.\53\ In New Jersey and Washington, individual insurance
providers are allowed to offer bare-bones plans that are exempt from
the mandate and exclude maternity coverage.\54\
---------------------------------------------------------------------------
\49\ Mass. Gen. Laws ch. 176G, Sec. Sec. 4(c), 4I (2008) (requiring
health maintenance organizations to include maternity coverage); Mass.
Gen. Laws ch. 176B, Sec. 4H (2008) (requiring medical service
corporations to include maternity coverage); Mass. Gen. Laws ch. 176A,
Sec. 8H (2008) (requiring non-profit hospital service corporations to
include maternity coverage).
\50\ Mont. Ins. Or. (Feb. 16, 1994); Bankers Life & Casualty Co. v.
Peterson, 866 P.2d 241 (Mont. 1993). Mandated maternity coverage is not
always imposed by state legislation or via administrative regulations.
Montana's mandate is the result of a 1993 state Supreme Court decision
which held that a health plan excluding maternity coverage
unconstitutionally discriminated based on gender.\74\ In response to
this court decision, the Montana Insurance Commissioner issued an order
that all insurers in the state must include maternity benefits.\75\
\51\ N.J. Stat. Ann. Sec. 17B:26-2.1b (West 2008) (requiring all
individual plans, except the bare-bones basic and essential plans, to
include maternity coverage). N.J. Dept. of Banking & Ins., N.J.
Individual Health Coverage Program Buyer's Guide: How To Select a
Health Plan_2006 Ed. (2006), http://www.state.nj.us/dobi/division-
insurance/ihcseh/ihcbuygd.html (``carriers may vary the rates for the
B&E plan based on age, gender and geographic location'').
\52\ Or. Rev. Stat. Sec. 743A.080 (2008).
\53\ Wash. Rev. Code Sec. 48.43.041(1)(a) (2008) (requiring all
individual plans, except the bare-bones catastrophic plans, to include
maternity coverage).
\54\ Id.; N.J. Dept. of Banking & Ins., supra note 8 (``B&E Plans
do not provide comprehensive benefits like the standard plans described
above,'' which include prenatal and maternity care).
---------------------------------------------------------------------------
Beyond this short list of five, other states have adopted limited-
scope mandate laws that require maternity coverage only for certain
types of health plan carriers, certain types of maternity care, or for
specific categories of individuals. Limited-scope mandate laws address
the provision of maternity care but may fall short of providing women
with full coverage for the care they need. In California,\55\
Illinois,\56\ and Georgia,\57\ for example, only Health Maintenance
Organizations (HMOs) are subject to state laws that mandate maternity
benefits in the individual insurance market.
---------------------------------------------------------------------------
\55\ Cal. Health & Safety Code Sec. 1367(i) (requiring health care
service plans to provide basic health care services); A.B. 1962, 2007-
2008 Sess. Sec. 1 (Cal. 2008) (recognizing that, in practice, health
care service plans are required to provide maternity services as a
basic health care benefit).
\56\ Ill. Admin. Code tit. 50, Sec. 5421.130(e) (2008).
\57\ Ga. Comp. R. & Regs. 290-5-37-.03(4) (2008).
---------------------------------------------------------------------------
In a few instances, state governments have stepped in (at taxpayer
expense) to fill gaps in private health insurance by establishing
programs to assist pregnant women who have private coverage that does
not meet their maternity care needs. At least two states have such
programs: California's Access for Infants and Mothers (AIM) program is
a low-cost coverage program for pregnant women who are uninsured and
ineligible for Medi-Cal (the state's Medicaid program).\58\ New
Mexico's Premium Assistance for Maternity (PAM) program is a state-
sponsored initiative that provides maternity coverage for pregnant
citizens who are ineligible for Medicaid.\59\ According to program
officials in New Mexico, PAM was established expressly because of the
gaps that existed in private market maternity coverage. If maternity
care was included as a basic benefit in comprehensive and affordable
health insurance policies, such programs would be unnecessary.
---------------------------------------------------------------------------
\58\ Managed Risk Medical Insurance Board, Access for Infants and
Mothers, http://www.aim.ca.gov/english/AIMHome.asp (last visited Sept.
17, 2008).
\59\ Insure New Mexico, Premium Assistance for Maternity (PAM)
Frequently Asked Questions, http://www.insurenewmexico.state.nm.us/
PAMFaqs.htm (last visited Sept. 17, 2008).
---------------------------------------------------------------------------
Recommendations for Health Care Reform
To address the harmful practices of insurers in the individual and
group markets, health reform must:

Eliminate the individual market;
Impose strict regulation on the sale of health insurance in all
markets, including: a prohibition on premium rating based on
gender, age, and health status; guaranteed issue and renewal;
and a prohibition on pre-existing conditions exclusions; and
Ensure women have access to the full range of reproductive
health services, including maternity care.
Conclusion
The individual insurance market is irredeemable; adequate
alternatives must be developed to eliminate the need for people to
resort to its use. This can be accomplished by making employer-
sponsored coverage easier to obtain and afford and by creating a health
insurance exchange or new market place with purchasing pools that are
large enough to accommodate everyone who needs coverage. In addition,
to ensure that comprehensive health coverage is easier to obtain and
afford, insurance carrier participation in all markets must be subject
to strict regulation. In particular, the harmful practices of gender
rating and rating based on age and health history should be prohibited.
Finally, all health insurance policies should cover the full range of
reproductive health services, including maternity care.
Without these changes, health reform will be meaningless for far
too many women; rather than improve women's access to health care,
reform that does not address these flaws in the individual market will
leave women in the exact same place where they are today. Too many
women will have nowhere to turn for health coverage or will be left on
their own at the mercy of health insurers. Inadequate and unaffordable
coverage may be their only choice, if they can find coverage at all.

National Small Business Association Letter
Dear Chairman Rangel:
On behalf of the National Small Business Association (NSBA), the
nation's oldest nonpartisan small-business advocacy group reaching more
than 150,000 small businesses nation-wide, I would like to provide
comments to a recent hearing held by the House Ways and Means Committee
titled, ``Health Reform in the 21st Century: Employer Sponsored
Insurance.''
Attached is a document, Small Business Health Care Reform: A Long-
Term Solution for All, that NSBA has worked on for several years with
small-business owners and health care experts to address problems with
the U.S. health care system. The principles outlined in this document
would benefit the group and non-group market by making the necessary
and appropriate reforms to the entire U.S. health care system. We trust
that you will take them into consideration as the Committee continues
to engage in the health care reform discussion.
As 99 percent of all employers, small-business owners are a very
important piece to the overall health insurance puzzle. Of the 47
million uninsured people in the U.S., roughly half are small-business
owners or employees. The trend of spiraling health care cost, and the
current financial markets crisis provides for an unfortunate incentive
to achieve health care reform in 2009. The ability to offer health
insurance is creating a significant competitive disadvantage for small
firms, as 99 percent of large businesses offered health insurance in
2008. Sixty-nine percent of small businesses surveyed in 2008 said they
want to offer health insurance, however only 38 percent were able to do
so--down from 67 percent in 1995.
NSBA's health care proposal addresses the health care delivery
system, health insurance market and tax code to deliver the fundamental
reforms needed by small businesses to provide affordable, quality
health care to their employees and their dependents. However, several
items have garnered exceptional attention since NSBA first developed
Small Business Health Care Reform: A Long-Term Solution for All,
including the current discussion on a public health insurance option
and the concept of ``shared responsibility.'' Due to the unrivaled
challenges that small business currently face in the health insurance
market, these proposed reforms could prove to be challenging to the
goals that small business seek in providing quality, affordable health
insurance. Thus, NSBA would like to provide the following comments on
each concept.
Public Health Insurance Option
NSBA is engaged in continual dialogue with small business owners on
the proposal to establish a public health insurance option to compete
in the private health insurance market. In general, the concept of
including a provision that would ensure honesty and trust in the
private insurance market is commendable. In addition, NSBA believes
that competition is good, and should be directed to lower cost for
consumers. However, NSBA urges the Committee to address these goals
within every aspect of the current health care system, and not simply
through the creation of a new public health insurance option.
Furthermore, NSBA is concerned that a public health insurance option
could do more to undermine than enhance needed market reforms.
With respect to the June and July goals to present legislation on
comprehensive reform, NSBA urges that the Committee present details
expeditiously to allow for appropriate feedback from the small business
community. We look forward to maintaining dialogue with the Committee
as more information is made available.
Shared Responsibility
NSBA is opposed to mandated `pay or play' provisions in any health
care reform proposal. Although mandating a `pay or play' provision may
not impact larger businesses that can already afford to offer health
care to their employees, small business would be forced to make
extremely difficult decisions to absorb the financial blow during the
current economy. In addition, proposals that provide cookie cutter
categories to justify pay or play participation simply fail to
recognize the diversity and unique goals of every small business.
Establishing mandates on small businesses based on gross sales, number
of employees, percentage of payroll, or other methods could prove
detrimental to some businesses.
Small employers are running out of options when trying to balance
their employee's needs with the livelihood of their businesses. The
combination of record annual increases in health costs and an economic
recession are forcing small employers to choose between reducing or
eliminating benefits or employees in order to sustain their businesses.
Now is not the time to add additional costs or burdens on small
businesses by mandating their participation in a `pay or play' scheme
for health insurance.
NSBA looks forward to working with Members of Congress to find
appropriate and reasonable streams of revenue to finance comprehensive
health care reform. However, NSBA opposes any mandates on small
business employers to provide health insurance to their employees. The
notion of a `pay or play' scheme on employers is riddled with complex
financial challenges and repercussions that could have a devastating
impact on the ability of small businesses to be productive and create
jobs.
It has become clear to NSBA that, to bring meaningful
affordability, access, and equity in health care to small business and
their employees, a complete reform of the health care and health
insurance systems is called for. The small business community needs
substantial relief from escalating health insurance premiums. This
level of relief can only be achieved through a broad reform of the
health care system with a goal of universal coverage, focus on
individual responsibility and empowerment, the creation of the right
market-based incentives, and a relentless focus on improving quality
while driving out unnecessary, wasteful, and harmful care.
For the last decade, health care reform has ranked number one or
number two on the list of priorities for small-business owners, and
continues to be among the top challenges facing the future growth and
survival of their business. Instituting more administrative and
financial constraints on small businesses in the form of mandates is
not the reforms that small businesses deserve, particularly in light of
the current economy. In addition, reforms that could result in the
deterioration of the private health insurance market should be avoided.
A pragmatic approach to health care reform would commence with making
the appropriate changes to the insurance market, delivery system and
tax code that have been outlined in NSBA's proposal for comprehensive
health care reform.
Thank you for the opportunity to provide comments on behalf of the
small businesses the comprise NSBA. I welcome the opportunity to be at
the table representing the needs of small business as the Committee
works to find solutions to American's health care needs.

Sincerely,
Todd O. McCracken
President
__________
Small Business Health Care Reform
A Long-Term Solution for All
In attempting to create positive health care reform for small
businesses, one quickly bumps up against the reality that the small
business problems cannot be solved in isolation from the rest of the
system. Since small businesses purchase insurance as part of the
overall small group (2 to 50 employees), the decisions of others
directly affect what a small business must pay and the terms on which
insurance is available to them. It has become clear to NSBA that, to
bring meaningful affordability, access, and equity in health care to
small businesses and their employees, a broad reform of the health care
and health insurance systems is called for. This reform must reduce
health care costs while improving quality, bring about a fair sharing
of health care costs, and focus on the empowerment and responsibility
of individual health care consumers.
The Realities of the Insurance Market
Small employers who purchase insurance face significantly higher
premiums from at least two sources that have nothing to do with the
underlying cost of health care. The first is the cost of
``uncompensated care.'' These are the expenses health care providers
incur for providing care to individuals without coverage; these costs
get divided-up and passed on as increased costs to those who have
insurance. It is estimated that this practice, known as ``cost-
shifting'', adds another 8.5 percent to the cost of health care for
those who purchase insurance. Second is the fact that millions of
relatively healthy Americans choose not to purchase insurance (at least
until they get older or sicker) due to cost. Almost four million
individuals aged 18-34 making more than $50,000 per year are uninsured.
The absence of these individuals from the insurance pool means that
premiums are higher for the rest of the pool than they would be
otherwise. Moving these two groups of individuals onto the insurance
rolls would bring consequential reductions to current small business
premiums.
Implicit in the concept of insurance is that those who use it are
subsidized by those who do not. In most arenas, voluntary insurance is
most efficient since the actions of those outside the insurance pool do
not directly affect those within. If the home of someone without fire
insurance burns down, those who are insured are not expected to finance
a new house. Not so in the health arena. Any individual with injuries
or illnesses will receive care from an emergency room, regardless of
whether or not the individual is insured. It is simply sound business
sense that the hospital will then look to other avenues to ensure the
cost for that uninsured injury or illness is recouped. Moreover,
individuals' ability to assess their own risk is somewhat unique
regarding health insurance. People have a good sense of their own
health, and healthier individuals are less likely to purchase insurance
until they perceive they need it. As insurance becomes more expensive,
this proclivity is further increased, which, of course, further
decreases the likelihood of the healthy purchasing insurance.
Individual Responsibility
There is no hope of correcting these inequities until we have
something close to universal participation of all individuals in some
form of health care coverage. NSBA's plan for ensuring that all
Americans have health coverage can be simply summarized: 1) require
everyone to have a basic level of coverage; 2) reform the insurance
system so no one can be denied coverage and so costs are fairly spread;
and 3) institute a system of subsidies, based upon family income, so
that everyone can afford coverage.
Required Coverage
Of course, the decision to require coverage would mean that there
must be some definition of the insurance package that would satisfy
this requirement, as well as a system of penalties for those who chose
not to comply. Such a package must be truly basic to ensure both
affordability and choice are inherent in the overall system. The
required basic package would include only evidence-based,
scientifically sound benefits that would be determined on a federal
level. The process for defining the basic package must be nonpolitical
and incorporate an appropriate array of stakeholder involvement
including state insurance commissioners, state legislative
representatives (governors or legislators), insurers, actuaries, small
and large businesses, consumer groups, providers, and those insured.
This group shall be responsible for not only defining the initial
package offering, but also for evaluating, on an ongoing basis, a broad
cost-benefit analysis of benefits offered, as well as evaluating such
analysis of any proposed additional benefits.
Fair Sharing of Costs/Market Reforms
Incumbent on any requirement to obtain coverage is the need to
ensure that coverage is available and affordable to all. In
coordination with the requirement that all individuals have coverage,
insurance companies would operate on a guaranteed issue basis--the
requirement to provide coverage to all seekers. A coverage requirement
on individuals would make insurers less risk averse by broadening the
make-up of their covered individuals, thus bringing to fruition the
goal of health insurance being paid for through fair-sharing rather
than through cost-shifting. The importance of a penalty for individuals
who seek not to purchase health insurance is imperative in preventing
individuals who only purchase health insurance when they get sick. The
guaranteed issue requirement on insurers must be accompanied by
safeguards in the form of an individual mandate and penalty systems
that prevent such behavior.
It follows, then, that the methods by which insurance companies
price or ``rate'' their product could reasonably withstand more
rigorous standards. The rating for the basic package would be based on
a modified community rating system with defined rate bands and only
limited allowable actuarially-sound rating characteristics, including
defined geographic regions. In addition, insurance companies would be
allowed to provide certain, limited discounts or benefit enhancements
to individuals or companies, or both (depending on who pays for the
cost of the plan) who implement a certified, evidence-based and
actuarially-sound wellness program. Insurance companies would operate
within narrow rate-bands and no additional charges or discounts could
be given outside that band.
Modified community rating would apply only to the federally-defined
basic package, any additional services purchased above the federal
package would be subject to market-based rating rules and would not be
eligible for preferred tax treatment. Although not subject to the
modified community rating rules, those additional services should not
be used as a means to game the system.
While the onus should no longer reside with employers to provide
health insurance, the option ought to remain open to those employers
who chose to carry out the administrative work for individuals in
securing health insurance. All market rules and regulations would apply
equally to the insurance plan regardless of who does the administrative
work.
As another method to balance the market and infuse a greater level
of choice, higher deductibles for those able to afford them would be
implemented. The shape of the package would help return a greater share
of health insurance to its role as a financial backstop, rather than a
reimbursement mechanism for all expenses. More robust consumer behavior
will surely follow.
Subsidies
Due to the requirement that individuals purchase health insurance,
without exemption for low-income individuals, there would be available
federal financial assistance for individuals and families based upon
income.
Finally, it should be clear that coverage could come from any
source. Employer-based insurance, individual insurance, or an existing
public program would all be acceptable means of demonstrating coverage.
Reshaping Incentives
There currently is an open-ended tax exclusion for employer-
provided health coverage for both the employer and employee. This tax
status has made health insurance preferable to other forms of
compensation, leading many Americans to be ``over-insured.'' This over-
insurance leads to a lack of consumer behavior, increased utilization
of the system, and significant increases in the aggregate cost of
health care. Insurance now frequently covers (on a tax-free basis) non-
medically necessary services, which would otherwise be highly
responsive to market forces.
The health insurance tax exclusion also creates equity concerns for
small employers and their employees. Since larger firms experience less
volatile rate increases, and have greater bargaining power than a small
firm, their health insurance packages are typically richer than what a
small business can afford. Therefore, a large firm can build very rich
benefit packages which are tax exempt for the business and are
considered a piece of the employees' compensation package. This gives
large employers a significant competitive edge over small businesses
with regards to both their tax treatment as well as their ability to
recruit employees. Furthermore, many small business employees are
currently in the individual insurance market, where only those premiums
that exceed 7.5% of income are deductible.
For these reasons, the individual tax exclusion for health
insurance coverage should be limited to the value of the basic benefits
package. But this exclusion (deduction) should also be extended to
individuals purchasing insurance on their own. Moreover, the tax
treatment of both health insurance premiums and actual health care
expenses should be the same. These changes would bring equity to small
employers and their employees, eliminate the federal subsidy for over-
insurance, induce much greater consumer behavior, and reduce overall
health care expenses.
Reducing Costs by Increasing Quality and Accountability
While the above steps alone would create a much more rational
health insurance system, a more fair financing structure, and clear
incentives for consumer-based accountability, much more must be done to
rein-in the greatest drivers of unnecessary health care costs: waste
and inefficiency. More accountable consumer behavior can help reduce
utilization at the front end, but most health care costs are consumed
in hospitals and by chronic conditions whose individual costs far
exceed what any normal deductible level is likely to be.
Health care quality is enormously important, not only for its own
sake, but because medical mistakes, waste and inefficiency add billions
to our annual health care costs. Medical errors, hospital-acquired
infections, and other forms of waste and inefficiency cause additional
hospital re-admissions, longer recovery times, missed work and
compensation, increased strain on family budgets and, in the most
severe cases, death. In fact, medical errors are the eighth leading
cause of death in the United States. The medical costs alone probably
total into the hundreds of billions of dollars.
What financial pressures are we bringing to bear on the provider
community to improve quality and reduce waste? Almost none. In fact, we
may be doing the opposite, since providers make yet more money from re-
admissions and longer-term treatments. It is imperative to reduce costs
through improved health care quality. Rather than continuing to pay
billions for care that actually hurts people and leads to more costs,
we should pay more for quality care and less (or nothing) when
egregious mistakes occur.
Insurers should reimburse providers based upon actual health
outcomes and standards, rather than procedures. Evidence-based
indicators and protocols should be developed to help insurers,
employers, and individuals hold providers accountable. These
protocols--if followed--could also provide a level of provider defense
against malpractice claims.
Through digital prescription writing, individual electronic medical
records, and universal physician IDs, technology can reduce unnecessary
procedures, reduce medical errors, increase efficiency, and improve the
quality of care. This data also can form the basis for publicly-
available health information about each health care provider, helping
patients make informed choices. The implementation of electronic
patient records played a significant role in the seismic shift in the
Veterans Health Administration from being a highly criticized system to
being one of the best around today--receiving a 67 percent rating for
overall quality as compared with the 51 percent ranking for a sampling
of non-government health care providers in a recent report from the
Annals of Internal Medicine.
The U.S. medical system can also benefit from thinking outside the
box. While traditional doctors' offices and hospitals remain the
primary mechanism of health care delivery, creative and effective
alternatives should also be taken into consideration. There are myriad
programs in existence today, such as Volunteers in Medicine, community
and retail clinics, urgent-care and 24-hour clinics, that can offer
near-term relief to many individuals in underserved communities, and to
uninsured individuals.
Availability of Information
Small businesses are particularly disadvantaged when it comes to
being able to access information. While large businesses that self-
insure conduct quality studies and compile provider information, small
businesses are at the mercy of their insurance carrier to provide them
with such data. As a result, little to no provider information with
regards to cost or quality is made widely available. This disadvantage
will be a heavy burden on individuals as well, if they are not armed
with the information needed to make important health care decisions.
Insurance companies and health care providers should take the lead
of the Centers for Medicare & Medicaid Services (CMS) in compiling
provider information and quality rankings, and making them publicly
available, easily accessed and understandable. Also included in these
rankings should be common-sense pricing lists. Increased information
flow to consumers will ensure better decisionmaking and improve the
long-term health status of Americans by empowering them as a partner,
with their primary care provider, in their own health. Engaging
consumers in their own care requires accurate and abundant information
that will help individuals evaluate the options and make their own best
decision.
With the increased attention many health providers are paying to
prevention and wellness programs, quality measurements must be a key
part to ensure their success and scientifically-proven benefit.
Prevention and wellness programs ought to be held to the same high
standards regarding the tracking and reporting of outcomes.
Additionally, health care providers should carefully track chronic
disease management and report on the risk-adjusted outcomes of such
programs. Tracking this data should enable doctors nation-wide to share
best-practices and adjust treatments for optimum outcomes in their
patients.
NSBA calls on hospitals and doctor's offices to make publicly
available, a plain-language list of the top 20 in-patient and out-
patient procedures' costs and risk-adjusted outcomes. This information
should be updated at least annually and the number of procedures
included incrementally over time until all procedures' cost and
outcomes are publicly listed. Under the lead of CMS, all health care
providers will compile the data in universal forms enabling the
consumer to easily compare providers against each other.
Reform Medical Liability
There is an enormous array of financial pressures and incentives
that act upon the health-care provider community. Too often, the
incentive for keeping patients healthy is not one of them. Our medical
malpractice system is at least partly to blame. While some believe
these laws improve health care quality by severely punishing those who
make mistakes that harm patients, the reality is that they simply lead
to those mistakes--and much more--being hidden.
In addition to instituting reasonable limits on medical liability
awards, NSBA supports the creation of so-called ``health courts.''
Health courts would serve as administrative courts to handle medical
injury disputes. Judges would be health-care trained professionals
assisted by independent experts to settle malpractice disputes between
patients and health care providers.
Plaintiffs would receive full economic damages, as well as non-
economic damages based on a compensation schedule. This new process for
medical liability would also provide the injured party with an avenue
to appeal with further review in the traditional court system. In
addition to easing the medical liability burden, health courts would
establish a mechanism that clear and consistent standards be developed
based on cases and the opinions of the judges.
Conclusion
The small business community needs substantial relief from
escalating health insurance premiums. This level of relief can only be
achieved through a broad reform of the health care system with a goal
of universal coverage, focus on individual responsibility and
empowerment, the creation of the right market-based incentives, and a
relentless focus on improving quality while driving out unnecessary,
wasteful, and harmful care.