[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OBAMACARE'S IMPACT ON JOBS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MARCH 13, 2013
__________
Serial No. 113-14
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania GENE GREEN, Texas
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee LOIS CAPPS, California
Vice Chairman MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
CORY GARDNER, Colorado BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas PETER WELCH, Vermont
ADAM KINZINGER, Illinois BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Health
JOSEPH R. PITTS, Pennsylvania
Chairman
MICHAEL C. BURGESS, Texas FRANK PALLONE, Jr., New Jersey
Vice Chairman Ranking Member
ED WHITFIELD, Kentucky JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan LOIS CAPPS, California
TIM MURPHY, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee JIM MATHESON, Utah
PHIL GINGREY, Georgia GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey JOHN BARROW, Georgia
BILL CASSIDY, Louisiana DONNA M. CHRISTENSEN, Virgin
BRETT GUTHRIE, Kentucky Islands
H. MORGAN GRIFFITH, Virginia KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina HENRY A. WAXMAN, California (ex
JOE BARTON, Texas officio)
FRED UPTON, Michigan (ex officio)
C O N T E N T S
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Page
Hon. Joseph R. Pitts, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 1
Prepared statement........................................... 3
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 3
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 5
Prepared statement........................................... 6
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 7
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 7
Hon. Phil Gingrey, a Representative in Congress from the State of
Georgia, prepared statement.................................... 97
Witnesses
Diana Furchtgott-Roth, Senior Fellow, Manhattan Institute........ 9
Prepared statement........................................... 11
Answers to submitted questions............................... 115
Linda J. Blumberg, Senior Fellow, The Urban Institute............ 39
Prepared statement........................................... 41
Tom Boucher, Owner and Chief Executive Officer, Great New
Hampshire Restaurants, Inc., Testifying on Behalf of the
National Restaurant Association................................ 49
Prepared statement........................................... 51
Submitted Material
Statement of Small Business Majority, submitted by Mr. Green..... 77
University of Virginia study, submitted by Mrs. Ellmers.......... 98
OBAMACARE'S IMPACT ON JOBS
WEDNESDAY, MARCH 13, 2013
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:12 a.m., in
room 2123, Rayburn House Office Building, Hon. Joseph R. Pitts
(chairman of the subcommittee) presiding.
Present: Representatives Pitts, Burgess, Hall, Shimkus,
Lance, Cassidy, Guthrie, Griffith, Bilirakis, Ellmers, Upton
(ex officio), Pallone, Dingell, Schakowsky, Green, Butterfield,
Barrow, Christensen, Sarbanes, and Waxman (ex officio).
Staff Present: Gary Andres, Staff Director; Sean Bonyun,
Communications Director; Matt Bravo, Professional Staff Member;
Paul Edattel, Professional Staff Member, Health; Steve Ferrara,
Health Fellow; Julie Goon, Health Policy Advisor; Debbee
Hancock, Press Secretary; Sydne Harwick, Staff Assistant;
Robert Horne, Professional Staff Member, Health; Carly
McWilliams, Legislative Clerk; Andrew Powaleny, Deputy Press
Secretary; Chris Sarley, Policy Coordinator, Environment and
Economy; Heidi Stirrup, Health Policy Coordinator; Lyn Walker,
Coordinator, Admin/Human Resources; Alli Corr, Minority Policy
Analyst; Amy Hall, Minority Senior Professional Staff Member;
Karen Lightfoot, Minority Communications Director and Senior
Policy Advisor; Karen Nelson, Minority Deputy Committee Staff
Director For Health; and Matt Siegler, Minority Counsel.
OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Pitts. The subcommittee will come to order. The chair
will recognize himself for an opening statement.
In today's sluggish economy, with depressed wages and
millions of Americans who simply cannot find work, the Federal
Government should be encouraging businesses to grow and expand
and hire more people. We should be incentivizing good jobs that
provide the opportunity for advancement and increased wages. As
a result of Obamacare, however, we are doing exactly the
opposite. And those who are hurt the most by the law are the
most vulnerable: Low-wage young Americans in the retail and
service industries.
Obamacare has multiple detrimental effects on American
workers. It contains perverse incentives for employers to, one,
not hire new employees; two, convert full-time employees to
part-time status or only hire part-time workers; and, three,
drop coverage they currently provide to employees.
Additionally, the new taxes and fees created by the law make it
even harder for employers to compete in our current economy.
First, Obamacare requires that employers with 50 or more
full-time equivalent employees provide Federally-approved
health coverage or face a tax penalty of $2,000 for every
employee beyond the 30th. If a business cannot afford to
provide government-approved health insurance, making the
decision to hire that 50thworker triggers the $2,000 penalty on
the previous 20 employees as well. In many cases, employers
have concluded that they simply cannot afford the cost of that
50th employee, effectively capping their growth and ensuring
that fewer jobs exist for the millions of Americans who are
unemployed or underemployed.
This is not theoretical. According to the January 2013
Report on Economic Activity published by the Federal Reserve,
``Employers in several districts cited the unknown effects of
the Affordable Care Act as reasons for planned layoffs and
reluctance to hire more staff.''
Secondly, Obamacare is causing employers to convert full-
time employees to part-time status and/or to hire only part-
time worker employees, because the law defines anyone working
30 hours a week or more as full time, thus counting against the
50 FTE threshold. We are already seeing employers reducing
hours of current employees so as not to trigger the employer
mandate and resulting fine. And this trend disproportionately
affects low-wage Americans in the restaurant, hotel, retail and
service industries. Last month, The Wall Street Journal
reported on a phenomenon known as part-time job sharing in the
fast food industry. Here fast food chains such as the
McDonald's, Burger King, or Wendy's will effectively share
employees. An employee will work part-time in one restaurant,
and then go work part-time in another. Both employers benefit--
Obamacare does not require them to provide health insurance for
part-time workers--but the employee suffers. He or she now has
two part-time jobs, and yet still does not qualify for
employer-sponsored insurance.
The Federal Reserve report confirms this trend. The report
states that in Fed District 7, Chicago, some employers, ``Are
also beginning to limit hours for part-time workers to less
than 30 hours in order to avoid the 30-hour''--that is the
full-time employee status--``rule related to the Affordable
Care Act.''
Thirdly, those Americans blessed with a full-time job may
lose their employer benefits. Many large employers have
concluded that paying the $2,000 fine is still cheaper than
providing health coverage. In some cases, large employers have
found that they could save hundreds of millions of dollars or
even billions of dollars by dropping coverage and paying the
fine.
These devastating consequences of Obamacare are already
being seen today. And as the law goes into effect in 2014, we
will only get worse in future years. I look forward to hearing
from our witnesses today exactly what the effects of Obamacare
will be on jobs and the workforce.
And my time is up, so at this time, I will conclude and
recognize the ranking member of the Subcommittee on Health, Mr.
Pallone, for 5 minutes for an opening statement.
[The prepared statement of Mr. Pitts follows:]
Prepared statement of Hon. Joseph R. Pitts
In today's sluggish economy, with depressed wages, and
millions of Americans who simply cannot find work, the federal
government should be encouraging businesses to grow and expand
and hire more people.
We should be incentivizing good jobs that provide the
opportunity for advancement and increased wages.
As a result of Obamacare, however, we are doing exactly the
opposite. And those who are hurt the most by the law are the
most vulnerable--low-wage, young Americans in the retail and
service industries.
Obamacare has multiple, detrimental effects on American
workers. It contains perverse incentives for employers to: (1)
not hire new employees, (2) convert full-time employees to
part-time status or only hire part-time workers, and (3) drop
coverage they currently provide to employees. Additionally, the
new taxes and fees created by the law make it even harder for
employers to compete in our current economy.
First, Obamacare requires that employers with 50 or more
full-time equivalent (FTE) employees provide federally-approved
health coverage or face a tax penalty of $2,000 for every
employee beyond the 30th.
If a business cannot afford to provide government-approved
health insurance, making the decision to hire that 50th worker
triggers the $2,000 penalty on the previous 20 employees, as
well.
In many cases, employers have concluded that they simply
cannot afford the cost of that 50th employee, effectively
capping their growth and ensuring that fewer jobs exist for the
millions of Americans who are unemployed or under-employed.
This is not theoretical.
According to the January 2013 report on Economic Activity
published by the Federal Reserve, ``[E]mployers in several
Districts cited the unknown effects of the Affordable Care Act
as reasons for planned layoffs and reluctance to hire more
staff.''
Second, Obamacare is causing employers to convert full-time
employees to part-time status and/or to only hire part-time
employees, because the law defines anyone working 30 hours a
week or more as ``full-time,'' thus counting against the 50 FTE
threshold.
We are already seeing employers reducing hours of current
employees so as not to trigger the employer mandate and
resulting fine. And, this trend disproportionally affects low-
wage Americans in the restaurant, hotel, retail, and service
industries.
Last month, the Wall Street Journal reported on a
phenomenon known as ``part-time job sharing'' in the fast food
industry.
Here, fast food chains such as McDonald's, Burger King, or
Wendy's will effectively ``share'' employees. An employee will
work part-time at one restaurant and then go and work part-time
at another.
Both employers benefit--Obamacare does not require them to
provide health insurance for part-time workers.
But the employee suffers--he or she now has two part-time
jobs and yet still does not qualify for employer-sponsored
insurance.
The Federal Reserve report confirms this trend. The report
states that in Fed District VII, Chicago, some employers ``are
also beginning to limit hours for part-time workers to less
than 30 hours in order to avoid the 30-hour (full-time employee
status) rule related to the Affordable Care Act.''
Third, those Americans blessed with a full-time job may
lose their employer benefits. Many large employers have
concluded that paying the $2,000 fine is still cheaper than
providing health coverage.
In some cases, large employers have found that they could
save hundreds of millions or even billions of dollars by
dropping coverage and paying the fine.
These devastating consequences of Obamacare are already
being seen today, and, as the law goes into effect in 2014,
will only get worse in future years.
I look forward to hearing from our witnesses exactly what
the effects of Obamacare will be on jobs and the workforce.
OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Chairman Pitts. Critics of the
Affordable Care Act have frequently claimed that the law would
have a negative impact on jobs and the overall health of the
U.S. economy. But these claims have not been borne out by the
facts. Simply put, health reform is contributing to lower
health care costs which benefits families and employers by
helping free up capital for saving, investing and hiring.
Overall, national health spending is growing at a lower rate
than it has in decades. The latest job numbers released last
week showed that over 6 million private sector jobs were
created since we passed the Affordable Care Act, and 750,000 of
those jobs are in the health care sector.
Now, today I expect my colleagues to attempt to make the
case that Congress must eliminate the employer mandate. Of
course, they advocate that we should repeal the health care
reform and, you know, their budget, which I understand they are
voting on right now in the Budget Committee, would once again
repeal the Affordable Care Act.
So, you know, they are honing in on the employer mandate as
just part of their overall effort to kill the Affordable Care
Act. But I strongly believe that these efforts to repeal not
only employer mandate, but the whole bill are misguided. Most
American workers already get their insurance through their
employers. In fact, almost all, 93 percent of businesses with
50 to 199 employees already offer coverage. The Affordable Care
Act purposely didn't change that, despite claims that it is a
Federal takeover of health insurance. And in a private
employer-based system aimed at getting at many Americans
covered as possible, which is the main goal of health reform,
it is important that all but the smallest businesses share the
costs. And that is why every small business with fewer than 50
employees is completely exempt from the laws and employer
responsibility provisions.
Now, it is no secret that medical care accounts for 18
percent of the U.S. Gross domestic product, and it is taking up
at least as much of the mind share of plenty of American
entrepreneurs and business owners. So what the Affordable Care
Act attempts to do is increase access to the millions of
uninsured Americans while slowing the growth of health care.
Now, I feel like we have had this discussion so many times,
I don't know how, 50, 100. We will have it again on the floor
with the budget this week. Unfortunately, it is still
misunderstood that the rate at which health care costs have
risen hang on the fact that so many have gone without
insurance. Those uninsured don't go uncared for if they get
sick, but, instead, they use the emergency room or simply go to
the hospital and don't pay. And these billions in uncompensated
care get passed along to the health care consumers, including
large and small employers who offer insurance in the form of
higher premiums. So by covering more people, we eliminate the
need to cover this uncompensated care.
Now, I advocated and pushed forward the Affordable Care Act
because I strongly believed that as health care costs were
skyrocketing, American families and businesses simply couldn't
continue to bear that weight. Business owners know that if
current trends continue, health care spending will double in
less than 10 years. For those American businesses and for the
economy, defending the status quo just simply wasn't an option.
And I know a lot of businesses are unsure, Mr. Chairman, of the
law and some are fearful that will cause an inability for the
business to grow. But I believe that the mandate helps put
smaller businesses on a more competitive footing with large
firms, and it evens the playing field for those businesses that
already provide health coverage but are forced to compete with
companies that don't.
So, Mr. Chairman, let me just close by saying above all
else, I believe that most employers want to be part of the
solution and once they begin to comply, I am confident they
will begin to understand the overall advantages to offering
health benefits. Republican efforts to discredit the law and
misinform the public can't obscure the fact that more and more
Americans are benefiting from the provisions of the Affordable
Care Act. I just don't understand. We continue to have hearings
about either repealing the bill outright, which is what the
Republican budget is discussing, you know, the Republicans are
discussing in the Budget Committee right now, or repealing
parts of it or cutting back on the funding.
The fact of the matter is the Affordable Care Act is a good
bill. And the more their efforts are cut back on funding it,
not implementing it, the more Americans will suffer. So I hope
this is the last hearing we have on why the Affordable Care Act
is, in the Republicans' opinion, not a good idea. But I guess
that is wishful thinking on my part. I yield back.
Mr. Pitts. That is wishful thinking. On Friday we have one
on premium increases that will further discuss the impact of
the new law on premiums.
With that, the chair now recognizes the chairman of the
full committee, Mr. Upton, for 5 minutes for his opening
statement.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman. You know, millions of
Americans are still struggling to find jobs, and is this
committee's main priority to get them back to work. Today we
are going to examine the Affordable Care Act's impact on the
economy and jobs. And, fortunately, based on testimony that we
are going to hear today, it is clear that the law is hurting
our Nation's economy, and those Americans are trying to find
work--particularly with those Americans who are trying to find
work and make ends meet. Just this past week, the Federal
Reserve released a report that painted a pretty grim picture of
how the law is going to affect our economy. According to the
Fed's own analysis, the law is leading employers to delay and
minimize new hires.
Uncertainty stemming from the health care law is a leading
concern for American businesses, large and small. One major
provision causing much of the uncertainty is, of course, the
law's employer mandate. Starting next year, employers with 50
or more full-time workers will be forced to provide Washington-
approved health care coverage or pay a tax penalty. As we are
going to hear from our expert witnesses today, this requirement
is going to hurt part-time workers looking for more hours and
Americans still looking for a job. As a result of the health
care law, employers with 49 workers must now weigh whether
hiring an additional worker is really worth the $40,000 tax
penalty imposed by the IRS if they are unable to provide
Washington-approved health care coverage.
At a time when our unemployment rate is still much too
high, the Affordable Care Act is making it harder for our
nation's employers to hire new workers. The new law is, in
essence, penalizing job creation. For employers who decide that
they are still going to want to offer health care coverage, the
law is going to make it even more expensive. Last week our
committee released a report highlighting over 30 studies that
analyzed the new law's impact on health care premiums. One
survey found that small group premiums could increase as much
as 200 percent for employers with younger workforces. A
specific provision causing premium increases is the $165
billion in new taxes on plans, medical devices, and drugs that
are going to go passed onto consumers.
In addition, the Affordable Care Act includes price
controls, regulations, and mandates that are going to lead to
huge premium spikes. In my home state of Michigan, some folks
will see their premiums go up as much as 35 to 65 percent.
These statistics are not just projections on a sheet of paper,
they have significant consequences as millions of American
workers will see lower wages and less take-home pay because of
the new law. Let's hope that we can work together to see what
we can do to get these things down. I yield the balance of my
time to Dr. Burgess.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
Millions of Americans are still struggling to find jobs,
and it is the committee's main priority to get them back to
work. Today, we will examine the Affordable Care Act's impact
on the economy and jobs. Unfortunately, based on testimony we
will hear today, it is clear that the law is hurting our
nation's economy and those Americans trying to find work and
make ends meet.
Just this past week, the Federal Reserve released a report
that painted a grim picture of how the law will affect our
economy. According to the Fed's own analysis, the law is
leading employers to delay and minimize new hires.
Uncertainty stemming from the health care law is a leading
concern for American businesses large and small. One major
provision causing much of this uncertainty is the law's
employer mandate. Starting in 2014, employers with 50 or more
full-time workers will be forced to provide Washington-approved
health coverage or pay a tax penalty. As we will hear from our
expert witnesses today, this requirement will hurt part-time
workers looking for more hours and Americans still looking for
a job.
As a result of the health care law, employers with 49
workers must now weigh whether hiring an additional worker is
worth the $40,000 tax penalty imposed by the IRS if they are
unable to provide Washington-approved health care coverage. At
a time when our unemployment rate is still much too high, the
Affordable Care Act is making it harder for our nation's
employers to hire new workers. The new law is essentially
penalizing job creation.
For employers who decide that they still want to offer
health insurance coverage, the law will make it more expensive.
Last week, our committee released a report highlighting over 30
studies that analyzed the new law's impact on health care
premiums. One survey found that small group premiums could
increase as much as 200 percent for employers with younger
workforces.
A specific provision causing premium increases is the $165
billion in new taxes on plans, medical devices, and drugs that
will be passed on to consumers. In addition, the Affordable
Care Act includes price controls, regulations, and mandates
that will also lead to huge premium spikes. In my home state of
Michigan, some folks will see their premiums go up between 35
to 65 percent.
These statistics are not just projections on a sheet of
paper. They have significant consequences as millions of
American workers will see lower wages and less take home pay
because of the law.
My hope is that the president and Congress can work
together to avert the real harm the law is having on employers
and workers across this nation before it is too late. I would
like to thank the witnesses for their time and expertise today.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. I thank the chairman for yielding. I thank the
chairman of the subcommittee for calling this hearing.
We have all heard, of course, that provisions of the
Affordable Care Act are not going to take place until January
2014. But, honestly, employers and companies are already
feeling the effects of this disastrous law. The affordability--
patient protection afford--accountability--I can't even say it;
``affordability'' doesn't belong in the title. But it has a
direct and indirect effect on employers and employees.
Individuals who will not only be affected directly by new
taxes, but also indirectly as employers are forced to lower
wages and decrease hiring in order to compensate for the new
taxes that employers face. The law includes a tax intended to
encourage employers to provide health insurance to their
employees. Instead of encouraging growth, this tax creates a
disincentive for employers to grow their workforce.
Not only does the law tax employers more if they hire
additional employees, but the law gives employers an outlet, a
safety valve, to drop coverage for their employees by providing
premium subsidies to individuals in the exchanges.
At a time this country is beginning to find relief from the
severe recession and its high unemployment, now is not the time
to discourage economic growth. Instead of expanding coverage
and lowering costs, the President's health care law has pushed
greater costs onto the backs of consumers, forcing those who
are not responsible to bear the effects of higher costs.
Mr. Chairman, I just can't help but observe this past
weekend when I sat down with my accountant with a shoe box full
of receipts to do any income taxes, he pointed out to me on the
W-2 form a new line which has not existed before in which the
employer's contribution to an employee's health insurance now
appears. That begs the question, why is that there? At some
point, that line is going to be taxed. Right now, it is there
as sort of an innocent bystander. But, trust me, the IRS will
not sit still long before that is added to the tax burden,
which only increases the cost of delivering care in this
country.
Thank the chairman for the recognition. I yield back my
time.
Mr. Pitts. Chair thanks the gentleman. And now recognize
the ranking member of the full committee, Mr. Waxman, for 5
minutes for opening statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman. Today's hearing is
entitled ``Obamacare and Jobs.'' It is a topic that has been
the focus of an endless stream of campaign ads, press releases,
and talking points ever since the passage of the Affordable
Care Act in 2010. Given this topic's prominence in the
Republican echo chamber, and this subcommittee's hearings on it
in the last Congress, it is understandable if members
experience some deja vu during today's hearing.
We will hear some dire predictions that we have been
hearing for 3 years about this supposedly nefarious piece of
legislation. And just as before, these claims will be what
every independent fact checker has called them: Whoppers,
false, and political gamesmanship. Since the passage of the
Affordable Care Act, we have added 6 million private sector
jobs. That is 3 years of continuous job growth.
Throughout this period of growth, businesses have known
what reforms look like. They have had time to plan and to
account for new rules and consumer protections. And despite the
dire warnings about this job-killing law and the troubling
statements some businesses have made in anonymous surveys, we
have seen steady job growth and we have seen health costs rise
at historically low levels.
Republicans expect us to believe all of this is happening
in spite of health reform rather than because of it. And that
is their right, to say it, but it is not credible. I hope the
Republicans will heed Speaker Boehner's advice to accept health
reform as the law of the land. I hope that they will start
looking at the empirical evidence rather than the Tea Party
rhetoric.
Democratic witness today, Dr. Linda Blumberg, has looked at
the empirical evidence. She, like the Congressional Budget
Office, or I should say the nonpartisan Congressional Budget
Office, has crunched the numbers and determined that the
Affordable Care Act does not raise costs on employers, will not
cause job losses, and will not lead to a decline in employer
sponsored health coverage. But I fear that the reason we are
here today is not to discuss what is really in the Affordable
Care Act or to have a good-faith discussion about ways to
improve upon it in the future, or to make sure that it
succeeds.
Rather, the goal is to amplify the voices of a small
minority who believe that the discriminatory, dysfunctional
system we have had before was working fine. My Republican
friends think that we should double down on the same
deregulatory approach to health insurance that led to ever
higher costs, tens of millions of more uninsured, and did
nothing to control health care costs.
I don't believe that is the way forward. Because of health
reform, insurers will no longer be able to exclude consumers
from coverage based on preexisting conditions or gouge them for
40-percent profit margins or charge them premiums 10 times as
high as their neighbors because of a preexisting condition,
their age, their gender, or for any other reason.
Because of health reforms, small businesses are able to get
tax credits to help pay for coverage, and they will be able to
pool their purchasing power, like bigger businesses, to keep
their costs low and decrease the risks that one sick employee
will dramatically raise their costs. Because of health reform,
workers will have the security of knowing that they can get
quality affordable coverage, even if they change jobs, or they
employer doesn't offer it.
Because of health reform, businesses will have a healthier,
more productive workforce. These are real steps forward. It is
interesting to take note of the Republican budget that was just
presented to the world yesterday. You know what they did? They
took all the savings in the Affordable Care Act that they
complained about and kept them. But they took all the benefits
of the Affordable Care Act and repealed them. That is what they
would like to do to this country. I think that we ought to note
that as we have this hearing, which is just for politics, just
as their budget is just for politics. But it is the same
politics that was rejected by the American people in the last
election. Accept the Supreme Court decision, accept the
election results, work together as Americans to make sure that
we can successfully cover all Americans for health insurers and
not see them treated so poorly as we have had in the health
care system over all the time up to the present. Thank you, Mr.
Chairman.
Mr. Pitts. Chair thanks the gentleman.
We have one panel today. And I will introduce them at this
time. Three witnesses. Ms. Diana Furchtgott-Roth, Senior Fellow
to the Manhattan Institute. Dr. Linda Blumberg, Senior Fellow
at the Urban Institute. And Mr. Tom Boucher, owner and CEO of
Great New Hampshire Restaurants, Inc. He is testifying on
behalf of the National Restaurant Association.
You will each be given 5 minutes to summarize your
testimony. Your written testimony will be entered into the
record.
Ms. Furchtgott-Roth, you are recognized for 5 minutes for
your opening statement.
STATEMENTS OF DIANA FURCHTGOTT-ROTH, SENIOR FELLOW, MANHATTAN
INSTITUTE; TOM BOUCHER, OWNER AND CHIEF EXECUTIVE OFFICER,
GREAT NEW HAMPSHIRE RESTAURANTS, INC., TESTIFYING ON BEHALF OF
THE NATIONAL RESTAURANT ASSOCIATION; AND LINDA J. BLUMBERG,
SENIOR FELLOW, THE URBAN INSTITUTE
STATEMENT OF DIANA FURCHTGOTT-ROTH
Ms. Furchtgott-Roth. Thank you very much. Thank you very
much for inviting me to testify today.
As we have heard, the Affordable Care Act is going to raise
the cost of employment when fully implemented. Companies with
50 or more workers will be required to offer a generous health
insurance package. The penalty raises significantly the cost of
employing full-time workers, especially low-skilled workers,
because the penalty is a higher proportion of their
compensation than for highly paid workers.
So the $2,000 penalty amounts to 10.9 percent of average
annual earnings in the food and beverage industry and 9.3
percent in retail trade. This is in addition to the employers'
cost of Social Security and Medicare. So whereas economic
models might show that the cost does not have an effect on the
overall amount of hiring, it does have effect on specific parts
of the employment spectrum, namely, low-skilled workers. To
look at the effects of the requirements to offer health
insurance, I suggest to the honorable members of the committee
the following thought experiment. What if employers were
required to pay the cost of food, clothing, or housing for
their employees? These are admittedly far more important than
health insurance. Well, they would hire with employees with
more skills, they would reduce the cash wage to compensate.
This is what we are going to see in the same scale for
employees with the Affordable Care Act.
So I heard today from the honorable members that the
Affordable Care Act doesn't raise costs and they don't see
where it raised costs. Well, here's why it does. First of all,
it requires an overly generous plan, a plan offered in the
exchange has to have no copayments for routine care, mandatory
drug abuse coverage, mandatory mental health coverage. And low-
cost plans, catastrophic health plans, where you are just
insured against routine--where you are just insured against
large expenditures, such as falling off your bicycle in traffic
or catching cancer or having a heart attack, those kinds of
plans are not allowed. But those kinds of plans are less
expensive than the other plans.
Another reason it raises costs is the structure of
guaranteed issue. Under the Supreme Court decision, you could
pay a tax and legally not get health insurance. Tax is $95 the
first year, 2014; about $350 the second year; 690 the third
year. That is much smaller than the cost of buying health
insurance. So anyone who is young and healthy is going to just
legally pay the tax, not get health insurance. So the pool of
sick people who are insured is going to get sicker and sicker.
So we are going to get that more sick people in the pool of
insured. That is going to raise costs. These people who are
uninsured who pay the tax are then going to go to emergency
rooms. So people will still be going to emergency rooms. There
is also a large loophole in the bill that is again going to
require people to go to emergency rooms. If you get affordable
care under the act, if your employer offers you affordable
care, you are required to take it. So say you are married, you
have a family, your employer offers you affordable health care.
But he is only required to offer you affordable care for a
single person, not for a family. You are required to take that.
So you have a wife and three children, and you are low income.
The wife and three children cannot get subsidies on the
exchanges. They are not required to be insured by the employer
either. So these people, the families of individuals who are
insured by the employer are going to be going to the emergency
rooms because they won't qualify for subsidies.
What we have here in the bill is a bill that gives people
an incentive to hire high-skilled workers. Because if you hire
a high-skilled worker and you pay them, say, average wage above
$50,000 a year or so, you take the cost of the health care plan
out of their wage, they get a lower cash wage. So as an
employer, you are left basically where you are before. But low-
skilled workers, you are incentivized to hire part-time, under
30 hours a week. If you are a small business, you are
incentivized not to grow more than 50 workers because then you
get a penalty. You are incentivized to hire capital for labor,
as we see these self-scanning machines in drug stores, and we
see that people who take money when you go out of parking lots
are no longer there, you just put your credit card in the
machine.
So the economy might do fine, as Dr. Blumberg is going to
say. But low-skilled workers are going to lose out. And the
costs of health care in the United States are going to rise
because of the incentives that I just described. Thank you very
much for giving me the opportunity to testify, and I would be
glad to answer any questions afterwards.
[The prepared statement of Ms. Furchtgott-Roth follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Pitts. Chair thanks the gentlelady, and now recognizes
Dr. Blumberg for 5 minutes for opening statement.
STATEMENT OF LINDA J. BLUMBERG
Ms. Blumberg. Mr. Chairman, Ranking Member Pallone, and
members of the committee.
I appreciate the opportunity to testify before you today on
the impact of the Affordable Care Act on American businesses
and workers. The views that I express are my own and should not
be attributed to the Urban Institute or its sponsors. My
testimony draws on my own and my colleagues' analyses of the
ACA, much of it relying on the Urban Institute's health
insurance policy simulation model, a micro-simulation model
that incorporates the best economic behavioral research to
estimate individual and employer responses to the specific
provisions of the law.
Our analysis shows that if the Affordable Care Act had been
implemented in 2012, employer-sponsored coverage would have
increased by over 4 million people. In small, midsized, and
large firms alike, more workers and families would have had
private health insurance. The largest relative coverage
increase, about 6.3 percent, would have occurred among workers
in small firms with 100 or fewer employees. The 2.7 percent
increase in individuals covered by employer plans in total
would have cost employers the equivalent of .0003 percent of
total wages. For businesses in general, employer premium
spending for per person insured would not be affected by the
law, remaining constant at about $3,650. But for small
employers, premium spending per person would decline by about 4
percent.
For small businesses with 100 or fewer workers, our
analysis shows that on average, employers choosing to offer
coverage would find average costs per person insured reduced by
7.3 percent, and spending for the group as a whole reduced by
1.4 percent. The reductions reflect efficiencies in the
insurance market and tax credits that offset premium costs for
the smallest employers with the lowest wage workers.
The law leaves the cost per person insured virtually
unchanged for large businesses with more than 1,000 employees.
These employers already cover the vast majority of their
employees, will continue to do so, and will retain the
flexibility to define their own benefits. Coverage increases,
largely due to somewhat higher employee enrollment rates, would
increase total spending by large businesses by about 4 percent.
Only midsize businesses with 101 to 1,000 employees as a group
experience an increase in costs per person insured reflecting
penalties on as many as 5 percent of these employers who are
not currently providing coverage to their workers.
Expanded enrollment, however, is the primary factor
contributing to an increase in overall spending. Aggregate
employer spending on health, taking into account the increase
in the number of covered lives and new assessments, would
increase by roughly 2 percent.
In short, contrary to concerns that the ACA will increase
costs and reduce employer-sponsored coverage, the law will have
a negligible impact on total employer-sponsored coverage and
costs and make small businesses, for whom coverage expands the
most, financially better off. An increase in employer costs
equal to a small fraction of a percent of total wages could
simply not have large implications for the overall level of
employment. Plus the increase in health care spending under
reform will expand employment in the health sectors largely, if
not completely offsetting any small employment effects in other
sectors.
In addition, Lisa Dubay and colleagues, consistent with
analysis by Kolstad and Kowalski, find that there is no
evidence that the similar comprehensive reforms implemented in
Massachusetts in 2006 had a negative effect on employment in
that State. In fact, Dubay, et al., finding hold up, even when
looking specifically at the most vulnerable employers, the
smallest firms and those in the retail trade and accommodation
and food service industries.
Most employers potentially facing additional costs do have
counterbalancing effects that should largely offset these.
First, the best empirical economic literature finds that most,
if not all of the contributions that employers make to the cost
of their health insurance, are passed back to workers over time
in the form of lower wages than they would have had in the
absence of health benefits. This will be the case whether the
employers' costs come as premium contributions or assessments
paid as a consequence of not offering coverage. Most workers
will value having access to employer-sponsored insurance, and
evidence shows that they are willing to trade off a portion of
their wages to obtain those benefits. Second, employers of low-
wage workers can benefit from the expansion of Medicaid
eligibility, which will provide comprehensive, low, or no-cost
coverage to the lowest income workers, with no penalty to the
employers for their participation.
Third, more comprehensive information and easier price
comparisons in the small group market could well lead to
increased price competition, making employers and their workers
more effective shoppers and pressuring plans to lower costs.
Many State-based exchanges are already exploring defined
contribution approaches for their small group exchanges in
order to provide employees with plan choice, largely absent in
small group today, while still providing employers the ability
to limit their contributions to the costs of coverage. The
bottom line is this is a very complicated set of interactions.
But all of our research indicates that the total effects of the
ACA on employers and employment will be quite small.
Thank you very much. And I am happy to answer any questions
you might have.
[The prepared statement of Ms. Blumberg follows:]
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Mr. Pitts. Chair thanks the gentlelady. And now recognizes
Mr. Boucher, 5 minutes for an opening statement.
STATEMENT OF TOM BOUCHER
Mr. Boucher. Thank you, Chairman Pitts, Ranking Member
Pallone, and members of the committee. I appreciate this
opportunity to testify on behalf of the National Restaurant
Association. I am Tom Boucher, an independent restaurateur and
owner and CEO of Great New Hampshire Restaurants, Incorporated.
My business partners and I operate eight restaurants, doing
business as T-Bones Great American Eatery, Cactus Jack's Great
West Grill, and The Copper Door Restaurant. Like many people in
our industry, my first job in our company was as a server.
Over the years, I worked my way up in the organization as a
dining room manager, a head kitchen manager, and general
manager. In 1995, I became a partner, and in 2004 chief
executive officer. Our core business practice is to make
decisions that equally benefit our guests, employees, and
company. We call it our three-legged-stool approach to success.
A high priority is to ensure that we take care of our 503
employees to the best of our ability. As a mature company, we
have many veteran and long-term employees who perpetuate our
culture and core values.
Over the years, it is our employee benefits, including
health care, that have helped us recruit and retain the best
people to contribute to our success. The food service industry
is extremely diverse. Every operator will face a host of
difficult decisions based on health care laws requirements. My
partners and I have spent countless hours considering how to
comply with the law, with a focus on maintaining employees'
health care coverage. We have made changes since the law's
enactment that we hope will help us better prepare for this
transition.
For example, we offer benefits to our salaried full-time
employees and hourly employees who work 30 hours a week.
Currently, of our 242 hourly full-time employees eligible to
enroll in our plan today, only 45 percent accept our coverage.
We have found it challenging to predict how many of the
remaining 55 percent will accept our offer of coverage in light
of the individual requirement that begins January 1, 2014.
For instance, we can't determine how many of our young
workforce will choose to pay the individual mandate tax penalty
instead of accepting our offer of coverage in 2014, 2015, and
beyond. The future coverage take-up rate is hard to predict,
given many factors, but it could mean a significant increase in
the costs employers may struggle to absorb when offering
coverage.
This is merely one example of the uncertainty and
challenges resulting from the law. Our team's best estimate is
that 75 percent of the hourly full-time employees eligible
today but are not accepting our offer of coverage today will do
so in 2014. Assuming plan costs were to remain the same, which
they likely will not, such an increase in the employee take-up
rate of our plan would increase our company's health care costs
from $500,000 a year to $700,000 a year, representing a 40
percent increase.
An industry that already operates on extremely low profit
margins, these types of increased costs cannot be easily
absorbed or paid for by merely raising menu prices.
While there are numerous aspects of the law that are
complex, and my colleagues in our industry will struggle to
implement, another that will impact my company is the
requirement that businesses with 200 or more full-time
employees automatically enroll their new and current full-time
workers in their lowest cost plan unless they affirmatively opt
out of coverage. This requirement changes the relationship that
we have with our employees, especially those that may have
health care from a spouse or parent. If that employee does not
opt out of coverage, I am forced to enroll them on their 91st
day of employment. This creates several problems for me. I do
not like deducting premium contributions from my employees'
paychecks without their authorization, especially if it leads
to duplicative coverage. This reduced paycheck could create
financial hardship on the employee. Moreover, it will lead to
more administrative work and cost on my end as I have to remove
them from the plan. Congress should eliminate this provision.
There has been a lot of recent attention about the law's
definition of full-time employment as 30 hours a week. The
restaurant industry is not a 9:00 to 5:00, 5-day a week
operation, we are an industry that requires flexible schedules
and work weeks. By redefining full-time employment at 30 hours,
employers are going to have to make a decision about how many
hours their employees work and an unintended consequence of the
law could be reduced hours, especially for employees that are
just above the 30-hour threshold. As you can probably tell, I
made a business decision to not reduce any of my employees'
hours. However, this is something that everyone in the industry
is going to be closely examining as they better understand the
impact of the law on their business.
The National Restaurant Association and its members are
hopeful that policymakers will remain open to constructive
revisions to the health care law that will mitigate its effects
on our Nation's job creating business. We look forward to
working with Congress as we address these challenges. Thank you
for the opportunity to testify today on the health care law
impact, on our restaurant and food service industry, and the
challenging environment it will cause for job creation and
growth. And I will take questions and thank you for the
opportunity.
[The prepared statement of Mr. Boucher follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Pitts. Chair thanks the witnesses for their opening
statements. And now we will begin questioning by the members.
And I will begin questioning, recognize myself for 5 minutes
for that question--for that purpose.
Ms. Furchtgott-Roth, when PPACA was enacted, the then-
Speaker of the House, Nancy Pelosi, claimed that the health
care law would create 4 million jobs and almost 400,000 jobs
immediately. However, your testimony underscores that PPACA
will do the exact opposite and hurt job creation. Job creators
face major incentives to reduce hiring and shift employees to
part-time work to reduce the damage of the law's employer tax
penalty. Given your expertise and your experience as the former
chief economist at the U.S. Department of Labor, does Former
Speaker Nancy Pelosi's claim bear any resemblance to reality?
Ms. Furchtgott-Roth. I don't think that the Health Care Act
is going to create 4 million jobs on net. It might--it is
obviously going to create jobs in insurance and hospital
administration. Apparently, it is going to create many, many
jobs in the IRS. Because the IRS is going to have to evaluate
whether individuals have paid the right taxes and penalties and
how much subsidy they are entitled to, because anyone under 400
percent of the poverty line gets a subsidy. But it is also
going to cost low-wage jobs. As Dr. Blumberg says, with high-
wage jobs, employers are just going to subtract the costs of
the insurance from the wage. But this means less cash wages.
So people are going to do--be able to, say, go out to eat
at Mr. Boucher's restaurants less often. That is going to cost
jobs. So it is primarily going to have a decrease in low-
skilled jobs in the economy and probably other kinds too.
Mr. Pitts. Now, this claim seems particularly specious
since PPACA included over 20 new taxes which amount to over $1
trillion over 10 years. One of the most economically damaging
taxes is the 2.3 percent excise tax on medical devices. Studies
have shown that the device taxes cost thousands of people their
jobs, and cost the economy billions of dollars in lost economic
impact.
Now, you personally studied and coauthored a paper on this
issue. Could you elaborate on your findings on this one tax
alone, how it will affect jobs?
Ms. Furchtgott-Roth. Yes. We are the only country putting
the 2.3 percent excise tax on medical devices. And many medical
device manufacturers export overseas. Many of them also have
other plans overseas. So the incentive is when the tax is
imposed here, what they would do is move production offshore to
deal, certainly, this their offshore clients. Because they
wouldn't move it offshore to import it in here because they
would still face the tax.
So I calculate that if 10 percent of production moved
offshore, which I think is reasonable, the lost jobs would be
in the range of 43,000 to 64,000; if 20 percent of
manufacturing moved offshore, there would be a loss of 84,000
jobs to 105,000 jobs; if 30 percent moved offshore, there would
be a lost employment range of 125,000 to 146,000.
Mr. Pitts. All right. Thank you. Mr. Boucher, your
testimony indicated that the President's health care law will
add major costs for your budget. Three parts to this question:
Can you explain how this cost increase affects your ability to
invest capital and new investments--new restaurants, create new
jobs? Explain how the law's regulations and uncertainty have
forced you to spend more money on human resources to comply
with the law? And your ability to run your business and create
jobs?
Mr. Boucher. Sure. You know, I have spent at a minimum 100
hours this year with my human resource person just trying to
figure out the details of this law. And even most recently, we
constructed a survey to send out to our staff to understand
what their intentions might be, based on what they know of this
law right now. That was a task that took some time itself. The
response level was very low because they don't understand
what's happening. So we had to resurvey them individually,
person by person, with our general managers actually spending
time with them to do that survey. So these are all times that
are not normally spent by our staff or by myself. So that, in
and of itself, has been an enormous task.
As far as the future growth of our company, that added
$200,000 is a real number that will not allow me to spend on
capital improvements, build new restaurants. And as a matter of
fact, we opted not to open another restaurant this year because
we knew that this was coming and we wanted to see how it was
going to play out truly before we made a commitment that we
didn't have the cash to do it.
Mr. Pitts. Gentlemen, my time is up. Recognize the ranking
member, 5 minutes for questioning.
Mr. Pallone. Thank you, Mr. Chairman. I wanted to ask Dr.
Blumberg, obviously our Republican opponents of the Affordable
Care Act make these claims that the law kills jobs. They argue
that requiring employers to offer health insurance and to
improve employee benefits will increase the costs of labor. And
I know this is simply not true. In fact, the ACA is helping to
create millions of jobs. Since the President signed the bill
into law, the U.S. Has added 6 million private sector jobs,
this includes 750,000 jobs in the health care industry, which
so many opponents of the law would be crushed--they say it is
going to be crushed with job-killing regulations.
The restaurant industry, which we hear from today, has
added more than 800,000 jobs in that same time period. And
independent fact checkers have examined the claim that the ACA
kills jobs and call it false and a whopper and have rated it
with three Pinocchios.
So, Dr. Blumberg, can you explain whether the ACA is a job
killer? And can you give us some perspective on the other
factors that we should consider when looking at the law's
impact on job growth?
Ms. Blumberg. Sure. The empirical evidence is quite
consistent that the Affordable Care Act is not a job killer.
That what we have looked at over time repeatedly with doing
comprehensive health care reform, all of the macroeconomic
models indicate that when you invest additional funds in health
care that some of--yes, some dollars are shifted from other
products into the consumption of health care. But because
health care is, by its nature, a locally-produced good, and
when others are buying things that are coming from other
countries, that what happens is that some of that money that
shifted to health care from other sectors actually can create a
positive impact on jobs locally as a consequence of how health
care is, by its nature, purchased.
So while health care reform is not expected to have
enormous positive job impacts, it is expected to have small net
positive impacts.
And, in fact, when you look at the impacts on small
employers, who are most disadvantaged by the health care system
today, there is very significant positive implications for them
in terms of cost reductions and assistance in their ability to
be competitive in purchasing labor with larger firms. So all of
this on net, in addition to the fact that the change in costs
in total to employers is very small. As I noted earlier,
relative to total compensation, we can't have big effects when
the change in compensation is that tiny.
Mr. Pallone. All right. Now, prior to the ACA, only half of
the States had the legal authority to reject a proposed
insurance premium increase that was deemed excessive or
unwarranted. But the ACA provides States with 250 million in
health insurance premium review grants over 5 years to help
States improve their rate review process and hold insurers
responsible.
The ACA also establishes a new medical loss ratio
requirement to require insurers to spend 80 to 85 percent of
premium dollars on benefits. Consumers have already received
over $1 billion in rebates from insurance companies that failed
to meet this important new standard.
Together, these provisions have already saved consumers
over $2 billion, and the number of double-digit premium
increases has fallen dramatically. In March 2012, CBO projected
that premiums are estimated to be 8 percent lower by 2021 than
originally estimated. And this is an especially important
finding because of all the ACA does to make sure consumers
have, you know, overall, more valuable quality insurance.
So, Doctor, just talk a little about how policies like rate
review and limiting excessive insurance company administrative
costs benefit businesses and consumers.
Ms. Blumberg. The medical loss ratio changes that you
talked about moving to across the board minimums of 80 percent
in a small group and the non-group markets in particular are
very significant changes. The medical loss ratios in large
group coverage were already reasonably high. So the law doesn't
have nearly as much impact on them. But we have looked very
carefully at medical loss ratios prior to the implementation in
reform by State. And found that, first of all, there is
dramatic variation across States, with some States having the
vast majority of enrollment in the small group and non-group
market in plans that have lower medical loss ratios than the
law required. And so the impact on them is going to be very
substantial in terms of lowering premiums.
Those plans are--those carriers are going to have to
restructure and are already in the process of restructuring
their cost structure in order to be more efficient in terms of
their administrative costs and the way that they market their
plans. And, in addition, the exchanges will help with that in
terms of doing more centralized marketing for coverage and
lowering those costs.
In addition, we have had a great deal of experience going
to a number of States to talk to them about their experiences
in implementing the Affordable Care Act so far. And one thing
stands out on this topic that we--conversations we had with
State regulators, insurance regulators across the country who
noted to us that what was amazing was as soon as the medical
loss ratio--or the medical loss ratios and the rate review
rules came in, and the rate review rule indicates that there
has to be clear evidence of a reason for increasing rates more
than 10 percent; otherwise, they are prohibited. And what these
regulators told us, as soon as the law went into effect,
suddenly all the carriers were clustering, instead of having
much higher increases that they were requesting, they were all
requesting them at 9.9 percent.
Mr. Pitts. Time has expired.
Ms. Blumberg. And so this was evidence from the regulators'
perspective that the law was already having a significant
effect, even in the early years of implementation.
Mr. Pallone. Thank you.
Mr. Pitts. Chair thanks the gentleman. Now recognize the
ranking member, Dr. Burgess, 5 minutes for questions.
Mr. Burgess. Thank you, Mr. Chairman.
Mr. Boucher, I am so glad you are here on this panel. I
know it must be tough for you. I know that because every Friday
night I go to my pizza restaurant, a Domino's on Southwest
Parkway in Lewisville, Texas. And I get an earful from the
owner who just, like you, doesn't understand how in the world
they are going to comply with all of the things that are coming
their way and coming pretty fast.
Staff printed off for me the 21-page application that an
employee will have to fill out in order to go into the
exchange. I mean, it is no wonder that when you polled your
employees about what they think about this, they take one look
at something like this and say, ``I'm going fishing, I'm not
going to think about it right now.''
But let me ask you, you heard Dr. Blumberg's responses to
some questions. Let me just ask you, do you think the
Affordable Care Act is a job killer?
Mr. Boucher. It absolutely can be.
Mr. Burgess. It hasn't been in your case, hasn't it?
Mr. Boucher. In this particular year, it was, because we
didn't actively pursue opening a restaurant. We did open one in
2011. However, that was before the elections. And, quite
honestly, we waited to see what was going what was going to
happen with the elections for this year. So in this case, we
opted not to.
Mr. Burgess. You are not alone in that election stuff.
Does the Affordable Care Act reduce your insurance costs?
Mr. Boucher. Well, as it stands right now, it is going to
increase it because of the amount of people that are going to
come on our plan. It is not going to reduce the existing plan,
because every year our insurance rates have gone up. What is
going to happen next year, I can only assume they are going to
go up, based on historical data. But certainly from what I
testified earlier that the projected amount, and this is a real
number, we did surveys, individually, that 75 percent of our
uninsured right now will come on. Our plan, it is going to
increase. It is going to increase our health insurance costs.
$200,000 is a big, big number for us to try and find a way how
we are going to pay for that.
Mr. Burgess. Let me ask you this. I mean, you are a
representative of the Restaurant Association; is that correct?
Mr. Boucher. Yes. I am on the board.
Mr. Burgess. Do you have any experience dealing with cost
and coverage for the State of Massachusetts after the
implementation of their health reform?
Mr. Boucher. No, I don't. I just--even though we are States
right next door to each other, I just don't have enough
information about what exactly their plan is.
Mr. Burgess. Fair enough. We might work on trying to find
that out.
Ms. Furchtgott-Roth, let me ask you a question.
You talked about the, really, I think what I would refer to
as entry-level jobs, people who are just starting in the
workforce.
Ms. Furchtgott-Roth. Right.
Mr. Burgess. They might find those jobs to be diminished as
a result of the Affordable Care Act. Is that not correct? Did I
infer correctly from your testimony?
Ms. Furchtgott-Roth. They will find that. And they are
already finding that. We hear that 6 million jobs have been
created since the Affordable Health Care Act was passed. It is
about 4 percent of total payroll jobs. Our unemployment rate is
7.7 percent. Our labor force participation rate is at 63.5,
which is the same as September 1981, the beginning of the
decade, when millions of women moved into the market, before
the Reagan revolution.
Our employment is shrinking. In normal recovery, as
economic growth expands, then employment also expands, labor
force participation rate goes up. Our labor force participation
rates have been going down and shrinking. Unemployment rates
for teens are about 25 percent, unemployment rates for African-
American teens are 43 percent. Unemployment rates for low-
skilled workers are about 11 or 12 percent. These are the
people who are hurt by putting a mandate on employers. The
other people are, as Dr. Blumberg says, they take it out of
their wage. Well, there's also effects to having less cash
wages. If people are paying more for their health insurance,
they have less cash wages to spend, and they can't go Mr.
Boucher's restaurant.
Mr. Burgess. Have you had a chance to look at this
application for employees to apply for health insurance in the
exchanges?
Ms. Furchtgott-Roth. I have not. But even a 2- or 3-page
application would be daunting to me; I can't imagine what a 20-
page application would be.
Mr. Burgess. Correct. To someone who is just starting in
the workforce who has had no experience with this type of thing
in the past.
I think someone brought up about constructive revisions to
the Affordable Care Act. Do you have any thoughts on
constructive revisions? I mean, in other words, we are sitting
here now less than, what, 6 months away or 6 months away now
from the implementation where people are supposed to be able to
go online, live, and register for health insurance in the
exchange, starting October 1st. Do you have a sense that this
can all be accomplished in that time? Or should we be looking
at something that would perhaps postpone by a little bit this
exchange activity?
Ms. Furchtgott-Roth. I think we should definitely postpone
it. HHS is behind in issuing regulations in helping set up
exchanges. I would say that there are a number of things you
could do. First of all, allow any plan to be listed on the
exchange. Right now, only a qualified benefit plan can be
listed on the exchange. Those are very large, generous
expensive plans, no copayments, all these different mandates
like mental health coverage, drug abuse coverage, contraceptive
coverage, et cetera. Why not allow catastrophic health plans to
be listed for everybody? Right now, it is just for 30 and
under. What if everybody could buy a catastrophic health plan?
I mean, that would make health insurance much less expensive
right then.
Then also, the grandfathering provisions for employers. Mr.
Pallone said that employers would continue to offer their
coverage and that they continue offering coverage. Well, it is
grandfathered only under certain circumstances. You make any
little change in the plan, it is not grandfathered anymore. So
why not extend grandfathering and just say employers can
continue to offer whatever plans they want.
And, third, I don't think that employers should have to pay
for employees' health coverage, just as they don't have to pay
for their food, they don't have to pay for their housing, they
don't have to pay for their clothing. If we want to do this,
let's have a more general tax on everyone so we don't
disadvantage hiring.
Mr. Burgess. Thank you, Mr. Chairman.
Mr. Pitts. Chair thanks the gentleman. Now recognize the
ranking member emeritus, Mr. Dingell, for 5 minutes for
questions.
Mr. Dingell. Thank you for your courtesy, and I commend you
for the hearing. I hope this hearing will be successful in
establishing ways to improve and see to it that the Obamacare
legislation becomes an effective support for our society and
for employment. I want to commend our panel for being with us
today. And I want to observe that it is very important action
for this Congress to recognize that the people have spoken, the
Congress has voted, the decision of the Supreme Court, and the
voice of the voters in the last campaign have all been heard in
support of the legislation we discussed today. My questions are
to Dr. Blumberg, and they will require only a yes-or-no answer.
Doctor, the intent of the Affordable Care Act is improving
the quality of health care delivered in our health care system
as well as expanding the access to affordable health coverage
for individuals and small businesses. This is done, in part, by
offering subsidies for individuals to purchase health coverage
and tax credits to small employers who opt to provide such
coverage.
In 2014 and 2015, small employers with 50 or fewer
employers will be eligible for the tax credits, and after 2015,
those with 100 or fewer employees will be eligible for the tax
credit. Is this correct? Yes or no.
Ms. Blumberg. Not quite.
Mr. Dingell. Now, next question. The IRS has notified more
than 4 million businesses that they will be eligible for this
tax credit. Is that correct?
Ms. Blumberg. I believe that is correct, yes.
Mr. Dingell. Now, Doctor, would you agree that these tax
credits make it more affordable for small business to offer
health coverage to their employees? Yes or no?
Ms. Blumberg. Yes.
Mr. Dingell. Is that a consensus?
Ms. Blumberg. It is.
Mr. Dingell. Now, Doctor, some of this hearing today will
be directed at proving that ACA will increase costs and result
in lost coverage for employees. But you have found differently
in your research. In your coverage simulation, which included
penalties and tax credits in ACA, you found that employer-
sponsored coverage did increase, and the largest coverage
increase occurred among employees from businesses with 100 or
fewer employees. Is this correct?
Ms. Blumberg. Yes, it is.
Mr. Dingell. Doctor, with the increase in employer-
sponsored coverage, 2 percent, what was the cost in terms of
wages to employers? Can you give me some comment on that? I
believe the answer is that this is going to only constitute
about .003 percent of total wages. Is that correct?
Ms. Blumberg. It was .0003 percent.
Mr. Dingell. Now, this seems to be a relatively small cost
to an employer. Would you agree?
Ms. Blumberg. Yes, I would.
Mr. Dingell. Do you think that such relative small costs
would have significant or negative impact on employment?
Ms. Blumberg. No.
Mr. Dingell. A pollster, I think, would find this to be
within the margin of error. Is that right?
Ms. Blumberg. Yes, it would.
Mr. Dingell. And most scientific or credentialed research
would also find this to be within the margin of error. Is that
correct?
Ms. Blumberg. I agree.
Mr. Dingell. Now, if then millions of small businesses will
be receiving tax credits to help them purchase affordable
coverage and the cost of an increase in employer-sponsored
coverage is relatively small, do you believe that small
businesses will be financially better off under the Affordable
Care Act? Yes or no?
Ms. Blumberg. Yes.
Mr. Dingell. They don't have a nod button; you have got to
say yes or no.
Ms. Blumberg. Yes.
Mr. Dingell. Dr. Blumberg, I thank you for your assistance
to the committee.
Mr. Chairman, I just want to make this observation: The
Congress has fallen to a place that I think all of us find to
be very distressing. We are known for gridlock, for inaction,
and for ineffectiveness. And the public generally has an
attitude towards the Congress that is somewhere below bill
collectors and just slightly above child molesters. I think
that working together to resolve the questions that we have, to
solve the budget concerns, to make Affordable Care Act is a
laudable goal.
I know my colleagues want to do it. I hope that this
hearing will have as its purpose the idea that we are going to
do that, and that we are going to work together on this
committee to see to it that we don't just have carping and
criticism but, in fact, that we do have steps taken by this
committee that will make this a program which will be good for
this country. We are the only nation in the world which doesn't
have--the only major industrialized nation which doesn't have a
program of this kind. So I look forward to working with you in
a spirit of remarkable goodwill to accomplish that purpose.
Thank you.
Mr. Pitts. Chair thanks the gentleman and now recognizes
the gentleman from Texas, Mr. Hall, 5 minutes for questions.
Mr. Hall. Well, thank you, Mr. Chairman.
Mr. Boucher, you told us of your growth and the steps you
took to reach, I guess, the top or reach where you are, and I
admire you for that, and understand your hesitation to gamble
on an additional facility after the election. I think I know
what you were saying there, and I agree with you on that.
And the chair covered some of the complexity of the Act on
your business now, but I want to ask you about your business as
you started it and go back in the restaurant business and lay
out some strategic goals for the success and growth that you
had then. How do you think this obstacle would have affected
your business when you were getting started as opposed to now
that you are well established, or now that we are in what the
chair called a sluggish economy?
Mr. Boucher. I mean, we likely would not be where we are
today. Being where I have been in this position as the CEO
since 2004, it has become more and more and more difficult to
operate business because of legislation such as this that it is
creating hardship that we hadn't seen in the past. And I know
for a fact that we would not have opened the number of
restaurants that we have opened had this been in place say, you
know, 6 years ago.
Mr. Hall. And do you think that the law's definition of
full-time employee comports with how most businesses operate
today?
Mr. Boucher. Well, no, and----
Mr. Hall. Prior to the Health Care Act was, I think, 30
hours was the typical cutoff point for the part-time employees
versus full-time employees.
Mr. Boucher. I think it is--the definition of full-time is
not really clear because the definition of full-time, when you
calculate overtime, is 40 hours a week. So the definition of 30
hours a week really doesn't make a lot of sense when you
compare to that type of thought process.
Different restaurants will categorize it differently, and I
think, you know, I am an exception where I categorize it, but
just like the restaurant industry, it is a very diverse
industry and business owners in this industry will categorize
it differently.
Mr. Hall. Ms. Furchtgott-Roth and Dr. Blumberg, do you have
a different opinion of the answers that Mr. Boucher gave us or
any comment you want to make on it? I have about 2 minutes
left.
Ms. Furchtgott-Roth. I think it is important to look at the
difference between the cost of health care as an average cost
of the average wage, as a fraction of the average wage which is
very well a small fraction of the average wage, and the cost of
a health policy to an employer as a percent of a particular
wage. So the fraction of a percent is a fraction of a percent
overall, but it is 9 to 11 percent of the wage in low-cost
occupations such as retail and food.
And so whereas to an average employee it might not make so
much difference, it is very important to low-skilled workers,
it is very important that they be able to get their foot on the
first wrung of the career ladder. Health insurance policies are
going to be very expensive. In March 2012, CBO estimated that
for a family of four, a health insurance policy was going to
cost $20,000 a year in 2016.
Ms. Blumberg. I do have a different perspective. The
situation that we need to keep in mind is comparing to where we
are today, and one of the things that has been clear to large
employers for a long time is that health care costs of employ-
--of their employees have absorbed the costs associated with
covering dependents who were employed by medium-sized and
smaller firms for many years.
And so what we are--the situation here when the
requirements, the employer requirements become more consistent
across employer sizes over 50 is that it basically levels the
playing field across employers.
The other thing to keep in mind is that there are
demonstrated savings from our analysis for small employers, and
there are about twice as many workers in the labor force work
for small employers than do for the medium-sized firms, and so
there are some distributional issues that occur when playing
fields are leveled and individuals and firms that have been
disadvantaged in the past are put on more equal footing with
their other counterparts, but overall it should have positive
implications for the----
Mr. Hall. And I thank you. And I yield back.
Mr. Pitts. The chair thanks the gentleman. The chair now
recognizes the gentleman from North Carolina, Mr. Butterfield 5
minutes for questions.
Mr. Butterfield. Thank you very much, Mr. Chairman, and
thank the witnesses for their testimony today.
You know, Mr. Chairman, when I received the notice of this
subcommittee hearing a few days ago, I saw that the title of
the hearing was ``Obamacare's Impact on Jobs,'' and quite
frankly, I thought we were going to be talking about a positive
impact on jobs because the evidence seems to me to be
indisputable. There have been 6 million private sector jobs
added since the signing of the Affordable Care Act. 750,000 of
those jobs have been right in the health care sector, and
800,000 of those jobs have been in the restaurant industry, and
so, quite frankly, I thought we were going to be talking about
the positive impact on jobs.
I am just having difficulty, Mr. Chairman, understanding
how one can, with a straight face, suggest that the Affordable
Care Act is in fact killing jobs. That is absolutely not the
case. It just seems to me that having a healthy and happy
workforce must be a net positive for businesses, and so I want
to continue this conversation and learn more, but I don't see
how the Affordable Care Act is killing jobs. In my estimation,
we are creating jobs.
Let me direct my attention to Ms. Roth. Thank you for your
testimony. A few minutes ago, Dr. Blumberg, when she began her
testimony, she--and I wrote it down, she said that her words
should not be attributed to the Urban Institute. Is that what
you said, Dr. Blumberg? Those were your individual words?
Ms. Blumberg. Yes.
Mr. Butterfield. So let me ask you, Ms. Roth, should your
words be attributed to the Urban Institute or are these your
words?
Ms. Furchtgott-Roth. I work for the Manhattan Institute.
Mr. Butterfield. I am sorry, the Manhattan Institute.
Ms. Furchtgott-Roth. And these are my words.
Mr. Butterfield. So we should not attribute these words at
all to the Manhattan Institute?
Ms. Furchtgott-Roth. Right. All the individual scholars
speak on their own behalf. The Manhattan Institute has not even
seen my testimony.
Mr. Butterfield. But you are on the payroll of the
Manhattan Institute?
Ms. Furchtgott-Roth. That is correct.
Mr. Butterfield. All right. I am interested to know where
the funding for the Manhattan Institute comes from. Can you
tell us the source of your funding?
Ms. Furchtgott-Roth. I have no idea of the source of my
funding.
Mr. Butterfield. You don't know how the Manhattan Institute
is funded?
Ms. Furchtgott-Roth. No. I mean, I don't have to go out and
get grants. They pay me a salary. I don't have anything to do
with funding.
Mr. Butterfield. What is the budget of the Manhattan
Institute; do you know that?
Ms. Furchtgott-Roth. I do not have that number, but I can
get that for you. I am sorry.
Mr. Butterfield. All right. Do you know if by any chance
any political organizations or any political operatives
contribute to the Manhattan Institute?
Ms. Furchtgott-Roth. I don't know the answer to that
question.
Mr. Butterfield. All right. Let me now direct the next
question to Dr. Boucher. Thank you so much for your testimony.
I am a little confused, Mr. Boucher. You mention in one part of
your testimony that this could really increase your company
expenses by 5- to $700,000 if you were to add hourly employees?
Mr. Boucher. No, it would increase it from 500- to 700,000.
Mr. Butterfield. Oh, so, I was going to try to ask about
the 200,000. I see what you are saying.
Mr. Boucher. Right.
Mr. Butterfield. So it will increase from 500,000 to
700,000.
Mr. Boucher. Right.
Mr. Butterfield. Now, this is not the Restaurant
Association. This is your company?
Mr. Boucher. That is right.
Mr. Butterfield. And your company, I believe, is the Great
New Hampshire Restaurants, Incorporated.
Mr. Boucher. Right.
Mr. Butterfield. What percentage? I heard the .0003 figure
a moment ago. What percentage of your gross sales would that
represent?
Mr. Boucher. I believe it was on not gross sales.
Mr. Butterfield. But if you had to spend an extra $200,000
to provide coverage to your hourly employees, you are saying
that would----
Mr. Boucher. I would have to do the calculation in my head.
Mr. Butterfield. But it would be less than one-tenth of 1
percent, I suppose.
Mr. Boucher. No.
Mr. Butterfield. Yes. Give me--what are your gross sales?
Mr. Boucher. We are doing somewhere around 28 million, so
if you do the math.
Mr. Butterfield. And of course that is gross sales. I mean,
you have a lot of overhead, and so we figure maybe a 15 percent
bottom line, and so----
Mr. Boucher. How much?
Mr. Butterfield. Maybe a 15 percent bottom line?
Mr. Boucher. No.
Mr. Butterfield. It is not that much. You wish. You wish it
was.
Mr. Boucher. You are not even close, sir.
Mr. Butterfield. All right. But notwithstanding, a $200,000
increase in contribution to help your employees would not be a
significant amount of money in comparison to your overall
operation?
Mr. Boucher. Sir, our bottom line is 9 percent.
Mr. Butterfield. All right.
Mr. Boucher. Then we still have to pay taxes, then we still
have to do our capital improvements, which is depreciation, and
then we have to pay our business loans. At the end of that, I
am left with about 4 cents of every dollar that I take in. So
that 200,000 represents another penny off that 4 cents. Now,
that is significant.
Mr. Butterfield. You have hourly employees and then you
have the higher executive employees within the company. Do you
now provide insurance to any of your hourly employees?
Mr. Boucher. Yes.
Mr. Butterfield. All right. But not all of them?
Mr. Boucher. We offer it to every single hourly employee,
and as I testified, about 45 percent--55 percent choose not to
take the coverage.
Mr. Butterfield. So that would be 30 hours or more?
Mr. Boucher. Correct.
Mr. Butterfield. All right. Mr. Chairman, I am out of time.
Thank you. I yield back.
Mr. Pitts. The chair thanks the gentleman and now
recognizes the gentleman from Illinois, Mr. Shimkus, 5 minutes
for questions.
Mr. Shimkus. Thank you, Mr. Chairman. I think my colleague,
who just spoke, it brings to the point, and we had it in my
subcommittee, when we invite people to testify, we shouldn't
impugn their comments based upon who they are employed by. And
I only say this because this was raised in my subcommittee. We
want to thank you all for being here and appreciate your
testimony.
Having said that, the--you are from the Manhattan
Institute, and Dr. Blumberg, you work for the Urban Institute,
so you are not employers. You get a check. You sign the back of
the check, correct?
Ms. Furchtgott-Roth. Right.
Mr. Shimkus. You get a check for your work?
Ms. Blumberg. Correct.
Mr. Shimkus. So there is only one employer here on our
panel, and that is you, Mr. Boucher; is that correct?
Mr. Boucher. Yes.
Mr. Shimkus. So you sign the front of the check.
Mr. Boucher. That is correct.
Mr. Shimkus. So you are the expert on how rules,
regulations, and taxes affect your business and the people you
would like to hire, and the people you hire are the people you
would like to keep under employ, and is that correct?
Mr. Boucher. Yes.
Mr. Shimkus. So you are the expert.
Mr. Boucher. I am the expert in my business for sure.
Mr. Shimkus. Thank you. And I guess the other thing that
kind of rankled me was this debate about gross and net. That is
a big difference, and in this Bill the medical device tax is a
tax on gross, not counting the net, not taking out the expenses
of producing a good. It is a gross tax across the board; is
that correct?
Ms. Furchtgott-Roth. Yes, that is correct. That is a
definition of----
Mr. Shimkus. And that is why it is so damaging for our
jobs?
Ms. Furchtgott-Roth. Right.
Mr. Shimkus. Is that correct?
Ms. Furchtgott-Roth. That is right, yes.
Mr. Shimkus. No one else has a tax in this sector in the
world on gross.
Ms. Furchtgott-Roth. No other country has singled out the
medical device industry for a special tax, correct.
Mr. Shimkus. And Dr. Blumberg, don't you think a gross tax
on a good that only this country has that other countries may
produce might be a disincentive in the competitive market?
Ms. Blumberg. I would say that there is already a
disconnect in the medical industries in terms of what is being
charged and----
Mr. Shimkus. Let's stay on the point on the gross versus
the net tax. Does that not raise the cost of a good?
Ms. Blumberg. Well, the costs are already higher in the
U.S. plus the firms charge us more than----
Mr. Shimkus. Will the gross calculation raise the cost of a
good versus a competitor, everything else being equal?
Ms. Blumberg. True.
Mr. Shimkus. Of course. Of course it would.
So, Doctor--Ms. Furchtgott-Roth, you mentioned job possible
losses in the medical device industry, did you not?
Ms. Furchtgott-Roth. Yes.
Mr. Shimkus. In your testimony. And they are and they could
and they already are going to be large; is that correct?
Ms. Furchtgott-Roth. Right.
Mr. Shimkus. So that is why part of this hearing is
important, and if we want to fix parts of the bill, the medical
device tax would be one way that we could fix it to create
jobs.
Ms. Furchtgott-Roth. I would definitely recommend repealing
that tax, yes, absolutely.
Mr. Shimkus. Thank you.
Ms. Furchtgott-Roth. And I also question the fact that you-
all seem to think that the labor market is healthy and 6
million jobs are being created. Well, the unemployment rate is
still 7.7 percent, including discouraged workers, it is 14.3
percent. The youth unemployment rate is 13 percent, and these
are people who have student loans and they can't get jobs. The
teen unemployment rate is 25 percent. This is not a healthy
labor market.
Mr. Shimkus. Yes. I mean that brings----
Ms. Furchtgott-Roth. And saying that 6 million jobs are
being created as though that proves that our labor market is
healthy, well, we might have created many, many more without
the Affordable Care Act and our employment rate might be lower.
Mr. Shimkus. And that is part of the debate about even
youth employment, entry-level jobs, where can they get part-
time employment to bus tables, or we even have a debate about
raising the minimum wage. Isn't that a disincentive, Mr.
Boucher, on hiring high school kids?
Mr. Boucher. What particularly?
Mr. Shimkus. Either/or? You could talk about increasing the
minimum wage. You could talk about these rules and regulations,
these forms in respect to job creation.
Mr. Boucher. Any regulation that mandates that I operate my
business in a particular manner without me having the choice to
do what I think is best for my business is damaging because I
am not going to be able to give wage increases to, say, cooks
because I have to give it somewhere else, and that is because
of a mandate, so----
Mr. Shimkus. And I will end on this. My time is up, and I
do think that there is--as we raise the cost of employment
through health care coverage, there is a result, and I think,
Dr. Blumberg, in your opening statement, you said there could
be a reduction or a slower increase in that wage for that
individual consumer. So there are effects, and we just need to
have this debate and I appreciate you all being here. Yield
back my time.
Mr. Pitts. Thank you, gentlemen. And I now recognize the
gentleman from Texas, Mr. Green, 5 minutes for questions.
Mr. Green. Thank you, Mr. Chairman. One of the key design
features of the Affordable Care Act is the way it builds on our
existing health insurance system to fill in gaps and make
improvements rather than making more radical and disruptive
change. This is especially true in the employer-based insurance
market. Both prior to and after the Affordable Care Act, the
majority of the Americans receive health care through their
employers, but we also know in the last three decades, the
percentage of employers covering their employees for lots of
reasons has gone down.
And so, but the Affordable Care Act builds on it. People
are going to be protected from the worst insurance abuses. They
will have access to quality insurance through a fair,
individual marketplace and if they change jobs or do not want
their employer coverage, but the overall employer-based system
is still going to be strong. There have been a host of scare
tactics used suggesting employers will fire thousands of
workers or drop coverage en masse in response to health reform.
And I know particularly the restaurant industry, minimum wage
is a big issue, and over the years, so--and I know every time
we increase minimum wage, there is concern about losing
employees or that you can't afford it, similar with health
care.
Two of the most heavily cited examples are the Westgate
Resorts and Darden Restaurant Group which completely reversed
their course. Darden employed thousands of people across the
country, and it indicated they were planning to limit employee
hours to avoid providing health coverage, but Darden reversed
course and said it would not limit the hours or drop coverage
following an outcry from both its employees an its customers.
The same with Westgate Resorts. The CEO warned its
employees of mass layoff if President Obama won re-election.
Instead he gave them a 5 percent pay increase.
I have talked with restaurant owners in my area in Houston,
and one of them is a long-time friend, actually a Republican,
told me he costed it out and he owns a number of restaurant
locations, so he is pretty large, and he said it is not what he
was concerned about. In fact, he said it is going to give him
some options to offer to his employees.
In fact, Mr. Chairman, let me say that we have heard a lot
today from supposed burdens of health reform on businesses and
I want to talk for a moment about the benefits and new
opportunities that health care provides small business.
Mike Brey is the owner of a Hobby Works, a hobby and toy
store he owned for more than 20 years. Mike has always offered
health insurance to employees because it is a great way to
attract and retain good employees, but before the Affordable
Care Act, Mike's health premiums had tripled, and my experience
in the private sector, small business, 13 employees, every year
we had to negotiate out our rates because we would sign a 3-
year contract, and they would raise our rates after the first
year and second year thinking we wouldn't go out, but we
negotiated every year.
Before the Affordable Care Act, his premiums tripled. He
began to see his employees putting off necessary preventative
care for themselves and children. In 2014, when Mike and his
employees will have more choice of their quality health
insurance and competition and cost containment and health
reform will begin to drive down cost. Mike says because of the
ACA, he finally has hope, and I quote, Spiraling escalating
cost and depreciating the quality of coverage might end.
And I would like to submit, Mr. Chairman, ask unanimous
consent to submit Mr. Brey's full statement for the record from
the small business majority.
Mr. Pitts. Without objection, so ordered.
[The prepared statement of Mr. Brey follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Green. Dr. Blumberg, you have gone in depth of
empirical research on employer, health insurance and labor
market. Do you think that threats or frightening projections
are justified, or do you think most employers around the
country should continue to offer coverage and support to their
workforce just as Darden, Westgate and Mr. Brey did at Hobby
Works?
Ms. Blumberg. We do not expect there to be a significant
change in the rate of offer, although we expect to see an
increase among small employers in offering as a consequence of
the exchanges. And the truth is, is that there is a great deal
of misinformation out there, and when you talk to employers,
give them the facts about the Affordable Care Act, they are
often relieved relative to what they have heard, but
ultimately, employers, as we have seen in many different
circumstances, ultimately have to respond to market forces
trying to attract labor and stay competitive with others who
are hiring, and that is really what drives their decisions, not
the fear and the anxiety that comes before something is
actually in place.
Mr. Green. I have one of the highest districts in the
country of people who work that don't get insurance through
their employers. Before the Act, employers are dropping
coverage, and again, I have an example of that. But after the
Act, if employers make that decision to drop coverage, won't
workers have better options in the individual market than they
had before the reform?
Ms. Blumberg. That is absolutely true. The nongroup market
is highly dysfunctional in virtually every State, except one in
the country, and the improvements in the nongroup--operation of
a nongroup market for consumers will be a big boom for those
without offers.
Mr. Green. Well, even in Texas, even though our State won't
have a State exchange, the law requires HHS to set up an
exchange. For those employers who decide to drop it, their
employees will have that option, whereas, before the Affordable
Care Act, they didn't have anything.
Ms. Blumberg. That is correct.
Mr. Green. Thank you.
Mr. Pitts. The chair thanks the gentleman. Now recognizes
the gentleman from Louisiana, Dr. Cassidy, 5 minutes for
questions.
Mr. Cassidy. Thank you.
Dr. Blumberg, I got to tell you, when I speak to small
employers, I mean, it is just so interesting because you walk
in, they are not making a big deal about it, they just say we
are going to stay at 49 employees. And they don't make a big
deal about it, and you just say, well, why, and then they, oh,
now that you ask, it is so because once we get to 50, we are
hit with a penalty.
If you will, if we have 49 employees and whatever we do for
insurance we do, but once we go to 50, we have to pay $40,000
in penalties for that 50th employee so that person's worth has
to be their salary plus $40,000. And I am struck that you don't
think this will have a negative impact upon small businesses
hiring.
Ms. Blumberg. Well, I will explain why. Number 1, it
shouldn't be a $40,000 penalty because they pay on--the only
time an employer pays a penalty at all is if at least one of
their workers goes into the nongroup exchange and qualifies for
a subsidy because of not having affordable coverage. So it is
not automatic that----
Mr. Cassidy. But at that point, if they do, then they get
credit for 30 employees and it is the 20 that are left that
they are 2K per person penalty, correct?
Ms. Blumberg. That is correct, if that is the way that----
Mr. Cassidy. But that wouldn't inhibit somebody from going
to 49, because they tell me it does. So, are their irrational
or----
Ms. Blumberg. I am happy to respond. I think that you are
correct that if an employer is looking to move from 49 to only
50 employees in the long term, that they are unlikely to make
the decision to add that next worker unless the value that that
worker brings to the firm is going to compensate for any
additional cost.
Mr. Cassidy. So that will be their salary plus 40K?
Ms. Blumberg. Let me finish, please. However, that is not
the way that employers generally make decisions about hiring.
When they are growing, they are growing because they see a
long-term expansion in profit that would swamp the----
Mr. Cassidy. I know you are saying that, but can I go on
because we have a limited time, and I tell you the employers I
talk to, they are actually factoring it in.
Secondly, I am struck, when I speak to employers, they are
decreasing the number of employees who are full-time down to
part-time, and I am struck that Mr. Butterfield says we created
more jobs. According to the Bureau of Labor Statistics, we
created a lot of part-time jobs, but we actually have 200,000
fewer full-time. There is, I think, 212,000 fewer full-time
jobs in the last statistics, and there is 372,000 more part-
time jobs, which to me is consistent with what I am reading and
hearing that people are converting full-time employees to 30
hours or less.
Now, I grant you we have more employment, but it is more
employment with fewer benefits. How would you respond to that?
Ms. Blumberg. Well, in any recovery, there is going to be
an expansion of part-time jobs, and I haven't seen the
specifics on how many of these jobs are full-time versus part-
time, but you would expect there to be an increase in both
part-time and full-time.
Mr. Cassidy. But there is actually a decrease in full-time.
There is decrease by 212,000 in full-time jobs in the last
Bureau of Labor Statis---Labor whatever.
Ms. Blumberg. From the prior period?
Mr. Cassidy. From the prior period.
Ms. Blumberg. First of all, the full reforms that would--if
anything was going to have an impact on part-time status, those
reforms are not in place at the present time. And the
complexity of the economy and the dynamics that have been going
on with regard to the recession and the recovery from the
recession are so large and complex compared to the costs
associated with the Affordable Care Act that it would be
impossible to attribute those changes----
Mr. Cassidy. So even though Mr. Green gave some high
profile cases of people converting to part-time, they are
embarrassed, whatever, intimidated not to do so, but we know
that is the tip of the iceberg and far more have actually gone
ahead and done so. We are not going to attribute it to what we
are being told is the attribution, but rather, we are to assume
that the answers are too complex for us to understand?
Ms. Blumberg. No. I am saying that complexity of what has
been going on with the economy because of the issues related to
the financial services district and decisions that were made
there with regard to deregulation and other concerns are much
more overriding in terms of what has been going on in the
economy than the terms of the Affordable Care Act.
Mr. Cassidy. The Federal Reserve recently had a report from
all their districts, employers in several districts citing the
unknown effects of the Affordable Care Act is reasons for
planned layoffs and reluctance to hire more staff. There, they
seem to put a point on it.
Ms. Blumberg. I think that those were very isolated reports
on anecdotal evidence and we don't see any implications of the
Affordable Care Act for significant changes in employment over
time. So, anecdotal evidence can be frightening, and I
appreciate that, but they also----
Mr. Cassidy. This is Federal Reserve. They are not Drudge
Reports----
Ms. Blumberg [continuing]. Market prices.
Mr. Cassidy [continuing]. They are Federal Reserve, so
presumably, they would vet a little bit and try and put it in
context.
Ms. Blumberg. At this point I looked at that report. There
was no data behind that. I do believe that they were
conversations with particular employers, and I do understand
that there is misinformation and anxiety that is being provoked
in employers at this point prior to implementation of the full
reforms.
But as I noted earlier, employers are interested in making
profit, they are interested in pursuing labor and hiring the
right types of workers. In order to get the kinds of workers
they want, they have got to compete with other employers and so
they have to provide them with the benefits and compensation--
--
Mr. Cassidy. So just because we are out of time, we have to
yield back. I will point out that also there is a CBO report
that shows those who are most vulnerable are low-wage workers.
Their elasticity of employment is the greatest. I grant you the
CEO or the solar engineer is going to have a job. It is going
to be the low wage earner who is going to be most vulnerable,
and that is per CBO, but I yield back. I am out of time.
Mr. Pitts. The chair thanks the gentleman. And now
recognize the gentlelady from the Virgin Islands, Dr.
Christensen 5 minutes for questions.
Mrs. Christensen. Thank you, Mr. Chairman.
Ms. Roth, your testimony--you make a number of assertions
that really seem to run counterto the facts supported by
independent sources like the Bureau of Labor Statistics as well
as CBO about the impact of the ACA job creation.
For example, the restaurant industry which you claim and
Mr. Boucher suggests would likely drop coverage and downsize
their employees as a result of health care reform, of the law,
actually has added more than 800,000 jobs since the passage of
the Affordable Care Act. And as we heard from Dr. Blumberg, you
would expect some to be part-time, some to be full-time, but
800,000 new jobs.
But my question relates to one particular threat posed by--
that you pose to health care reform in your testimony that I
found particularly interesting. You wrote that because of
health care reform, businesses have an incentive to become more
automated or machinery intensive, and your examples are the
fast food restaurants might serve precooked rather than freshly
cooked food or that DVD rental stores might close in favor of
automated DVD rental machines, or the convenience stores might
start allowing for self-checkout. These dangers that you cite
as a part of Obamacare are particularly interesting because
they have really been occurring for a very long time.
Automation and increasing use of technology are enormous
seismic shift in our global economy. Is it really your
contention that these trends would not be occurring if health
care reform were repealed?
Ms. Furchtgott-Roth. Well, thanks for that excellent
question. My contention is that more employers will choose to
substitute capital for labor as labor becomes more expensive,
and of course, our economy has been continually getting more
mechanized. What I was saying is that these trends would be
faster.
Also, with the 800,000 jobs added to the fast food and
restaurant industry, there might be even more of them added
without the Health Care Act. But I think more importantly, the
incentives to choose part-time workers over full-time workers
will mean that actually there will be more employees in the
restaurant and retail and other low wage sectors, because
employers will have an incentive to keep them to fewer than 30
hours a week because if it is fewer than 30, they won't have to
pay a penalty, so it makes sense for companies to share.
Mrs. Christensen. Yes. But my question is really about
tying it to the increasing use of technology, which is
happening at a really fast speed, not only here, but across the
country, and so, you know, there are a lot of wild predictions
of the impacts of health care reform, but I think examples that
were used in your testimony are really beyond explanation.
We have a global economy in which every other advanced
country has some form of universal health care, and they are
experiencing the same dramatic technological advances that are
happening every day, and to blame Obamacare because Netflix is
popular and Blockbusters closing just defies belief.
As other people have pointed out, some of the assertions
that are made about job losses from Obamacare are really over
the top, but I wanted to use the rest of my time for Dr.
Blumberg, if I might. Marcellus Owens----
Ms. Furchtgott-Roth. Am I allowed to respond?
Mrs. Christensen. No, I need to use my time.
He was 11 years old when he stood next to President Obama
when he signed the Affordable Care Act into law, and his
mother's poor health has cost her a job, her health insurance.
She is a person with a pre-existing condition and she
eventually died, and that is an example of what happens every
day in our country, especially to minorities and people living
in rural communities, and it not only costs lives, maybe as
many as 100,000 are what is reported and it costs the country
an excess of over $80 billion a year by some reports.
So, it is an example of just why health care reform is so
important. Uncompensated care costs to providers such as
hospitals and community health centers will flourish if the
numbers of uninsured rise, and more people will use emergency
rooms, they will become more overcrowded, hospitals will be
bearing more of unpaid care.
Could you please just elaborate for us, Dr. Blumberg, on
how detrimental uninsurance is for individual families and for
our country overall?
Ms. Blumberg. Sure. The uninsured--or the research evidence
is very clear on this, that the uninsured receive less medical
care and they receive less timely care and they have worse
health outcomes, and in fact, the risk of death with a given
medical condition controlling for health status appears to be
about 25 percent higher for the uninsured than for those who
are insured.
We have seen, from the experience with comprehensive health
care reform similar to that of the Affordable Care Act in
Massachusetts, that since its implementation, individuals have
had greater access to care, they have had lower rates of not
being able to afford care, and that that has stayed
consistently increasing even throughout the recession period.
In addition, the lack of insurance, as you know, provides a
very substantial financial burden on many families, and this
also decreases their use of care and causes many bankruptcies.
Mrs. Christensen. Thank you. Thank you, Mr. Chairman.
Mr. Pitts. Thank you. And the chair recognizes the
gentleman from Kentucky, Mr. Guthrie, for 5 minutes for
questions at this time.
Mr. Guthrie. Thank you, Mr. Chairman.
Ms. Furchtgott-Roth, you were going to respond to Dr.
Christensen. I was interested in what you had to say. If you
would just take a couple of seconds or half a minute what you
were going to respond back, I would like to.
Ms. Furchtgott-Roth. OK. Well, thank you very much.
Well, as the cost of labor gets higher and we had the
minimum wage start to go up from $5.15 an hour in 2007 and
gradually rise, as the cost of labor steadily gets more
expensive, employers have an incentive to substitute machines
for labor. This MIT professor called Alberto Alesina who has
written in great detail about that, I would be happy to provide
any of you with any of the papers, show--he compared Europe and
the United States, showing how high cost of labor in Europe
resulted in more capital intensity there in the production.
Mr. Guthrie. Thank you.
And Mr. Boucher, somebody said earlier that you couldn't
say with a straight face that jobs had been either on hold or
some way because of the President's health care bill, but you--
I think your face was straight, and I am not sure if I know
what a straight face is or not, when I looked, but I looked.
But you did make a decision not to open a restaurant because of
the uncertainty affiliated with the health care; is that true?
Mr. Boucher. That is correct, and the key word being
``uncertainty.'' That was--and it still exists right now with
regard to a fair amount of the rules that are not real clear
right now. There is still a slot of uncertainty.
Mr. Guthrie. And that is what you hear. I mean, I hear that
quite a bit. I know it is anecdotal, and I appreciate research
and appreciate that, but on Friday, we were in our districts
and I was working at a call to go see a gentleman who just went
to a business owner, that just had gone to a seminar. He had
got his group together with their insurance agents and the
anxiety was not settled with him, and he was really concerned
about decisions he was going to make in his business, the part-
time work and so forth. Those are the real issues.
I know we are talking about 6 million new jobs in the labor
force, and we are grateful to have 6 million new jobs, but you
look at labor force participation, you look at the underlying
part of it, and even last month, when the new jobs--I think it
was 170,000 new jobs or something, but they say, we need to
make 250,000 to keep up, so I don't think any--even though we
are glad we are not going the other direction like we were, I
don't think anybody is saying that we have a robust economy
moving forward, and I don't think you can just point out one
thing, and say it is this health care bill, and I think it is a
conglomeration of a lot of things that are going on to create
uncertainty. But I certainly think, and I do know and it is
anecdotal, but it is everybody I see that is in business are
just concerned about--even people who offer good plans of what
is going to be an essential benefits plan, what are the rules
going to be and how they are going to have to treat those, and
so it is a real concern that businesses have, and this just
isn't a us get together and try to point out different things.
This is what we hear when we go home. You hear concerns
about we are not even thinking about--I mean, I walked,
somebody says, well, if the rebate comes back from the health
insurance company to my employee because of the medical loss
ratio, do I get that? Does it come to me? Does it come to the
employee? I paid 80 percent of the premium. Do I get that back?
Well, we got to sort that out.
Then the question, next question was, well, is it going to
be chargeable to this year's wages or next year wages, do I
have to go do another W-2? So there are just all these things
that are out there that really that maybe in the future will
be, obviously, will be settled and people will get--if it is
the law of the land, then we will figure out how to make it
work, but you can't say it is not affecting people's business
decisions today, I don't think. And I can say that with a
straight face.
Mr. Boucher. And if I may, you know, I am considered
someone who is knowledgeable on this topic, and I still don't
know nearly what I need to know, and I have fellow
restaurateurs calling me asking me, so, what are you going to
do? And my answer to them is I am not sure yet, and they are
relying on me to help them kind of walk through this, and
truly, I am not exactly sure what we are going to do yet.
Mr. Guthrie. Because the other concern being in the
restaurant business, you have three restaurants and each
restaurant has 20 employees. Then you got to decide, do I keep
the third restaurant? Or if you have two restaurant, do you
open a third? If you have three, do you close one. I mean,
those are real concerns out there, and it is not, as some
people have said that we are sitting here just trying to do
political points.
My family is in business, we offer health insurance and
pretty good health insurance actually, and we are in that
midsize employer category, and I guess, Dr. Blumberg, you
talked about the change in compensation would be tiny. I think
I wrote that in a quote. Doesn't it really depend on the level
of skill of your employee? The people were trying to--there is
a book called ``Chutes and Ladders,'' it was interesting about
getting people into--it was a fast food restaurant study, the
ones who showed up for work, came to work every day, they
studied him over a course of time, and they are all managers. I
think that is how you said you started, managers in
restaurants.
And so the question is, if you are low skilled, and those
are the people I work with and deal with, how do you get them
into the workforce if you make them too expensive to bring to
the workforce? Do you think that will have an effect?
Ms. Blumberg. I do take that into account. One of things
that is important to remember is that for very low wage
workers, the Medicaid expansion provides very comprehensive no-
cost coverage to those individuals for the states that are
choosing to participate, and those individuals, those workers,
when they participate in Medicaid, they incur no penalties on
the employers as a consequence.
In addition, while the midsize employers are obviously a
concern, we know that most of--there is about twice as many
workers in the small employer group than in the midsized
employer group, and they are significantly more likely to have
lower wage, those workers, and as a consequence of the small
employers being consistently low, they will continue to be less
likely to offer them their larger counterparts for a number of
reasons. But the nongroup market and its financial assistance
for the modest income who are above Medicaid eligibility is
going to be a huge boon for low-income workers and small firms
as a consequence of reform.
Mr. Guthrie. Thank you. Yield back.
Mr. Pitts. Gentleman 's time has expired. Chair recognizes
the gentleman from Maryland, Mr. Sarbanes, for 5 minutes for
questions.
Mr. Sarbanes. Thank you, Mr. Chairman.
Before I turn to the panel, I just wanted to caution. I had
heard this discussion a moment ago about repealing the medical
device tax, and I do want to point out that Congressman Ryan's
budget plan includes the revenue from that tax in his proposal,
so it is a little bit like that game ``Pick-up Sticks'' where
you throw them down, they are all tangled and you start pulling
sticks out of the thing, the whole thing will collapse, and we
need to make sure that that and other things related to the
budget proposal are in the record.
Now, Mr. Boucher, just real quick, you said in response to
a question, you made a decision not to open another restaurant.
When was that decision made?
Mr. Boucher. In July of last year as we were heading
towards the elections.
Mr. Sarbanes. Right. I want to follow up on something that
Dr. Blumberg said. I think it is a terrific point, and that is,
the ultimate fate of the ACA was in question really until this
election was over. It was kind of a three-part drama. We had
the passage of the bill, which was highly contested, then we
had a judicial challenge to it. The Supreme Court removed that
piece of uncertainty, and then we had a referendum in effect on
whether it should go into effect, and that was the election,
and it is now the law of the land, as Speaker Boehner has
indicated.
There are a lot of people, and I would imagine you were
among them and many of your colleagues, who were sort of saying
to themselves, until I know whether this is actually going to
be the law and implemented, why am I going to spend a lot of
time trying to figure it out? And so there was good reason why
many, many people remained uninformed about the details of
implementing this.
Now, I think, you have got people that are very eager to
know how it is going to be implemented. You indicated, Dr.
Blumberg, that as you talked to small business people, they are
exhibiting a tremendous amount of relief in many instances when
they understand what is, in fact, required as against a lot of
the misinformation that was put out, which gets further
distorted in the midst of a highly charged political campaign,
of course. We end up with sloganeering instead of real
attention to what the regulations would require.
So I think that is going to be a make a difference now as
small business people and others, frankly, come to the table
and try to understand better what we were trying to achieve.
Now, a lot of what we are trying to achieve was to address
the situation as small business people in this country who are
dealing with stratospheric health care costs, having to make
these tough decisions affecting their work force, and much of
what we designed was meant to address that anxiety, specific
anxiety of small businesses. And I say that because if we
determine over time that there are certain things that we need
to go in and tweak and fix and address to make sure that the
concerns of small businesses are met, we are going to do that
because that was largely the original motivation behind many of
our investing so heavily and putting a lot of the political
capital behind the ACA.
I remember a statistic that small businesses, on average,
are paying somewhere between 18 and 22 percent more in premiums
for the same exact benefit packages than large employers
because they didn't have the benefit of pooling. I imagine that
is going to be addressed, and you see that playing out in your
models; is that correct?
Ms. Blumberg. That is correct. It is both the lack of
pooling that has been in place for small employers so that the
health status of even one of their workers or dependents can
have a very dramatic effect on their average premium, plus the
fact that they were charged considerably higher administrative
costs for purchasing coverage than were their larger
counterparts, plus the fact that they tend to employ lower wage
workers, and as a consequence, there is less flexibility in
terms of adjusting wages versus benefits.
Mr. Sarbanes. Right. So we have good expectation that that
can be addressed over time.
The other thing is, I recall another statistic that the
cost shifting that went on, because you have people showing up
in an emergency room, that cost had to be borne some place and
it was going to be borne by those who did have health insurance
to the tune potentially, in some instances, of $1,000 per
person in terms of increased premium.
Now, I don't know if it was a thousand in certain instances
and not others, but there was an extra premium being put in
there because of the cost shifting; isn't that correct?
Ms. Blumberg. Depending upon the market power of the
hospitals, yes. There is some potential for cost shifting.
There are a lot of those uncompensated care costs are paid
through State and local governments that will have some relief
and should lead to lower taxes.
Mr. Sarbanes. So I guess I am going to run out of time
here, but if there is an uptake of 75 percent of the 45 percent
that currently have not uptake your offer, if 75 percent will
do, and I recognize it represents a cost for your business, but
that is less people that are going to show up in an emergency
room and result in cost shifting, it is a burden on your
business and others, and the point is, over the long term, the
trajectory where we were headed for small businesses and their
costs was going like this. I think with ACA, it is going to
still be going up for awhile like this but it is going to start
going like this eventually, and we are going to get the benefit
of this reform, and that is going to be a significant benefit
for small businesses in this country. I yield back.
Mr. Pitts. Gentleman's time has expired. The chair now
recognizes the gentlelady from North Carolina, Mrs. Ellmers for
5 minutes for questions.
Mrs. Ellmers. Ms. Roth, I have a--going back to the medical
device tax, I have a question for you. You know, the
administration and other supporters argue that there will be a
``windfall'' from the increase from newly insured patients as a
result of ACA and the tax will be offset.
Based on your analysis, do you believe that there will be a
windfall for medical device companies or will the tax hurt
device startups, capital investment and job creation?
Ms. Furchtgott-Roth. So, I think that it will hurt medical
device companies because quite a lot of their products are
exploited overseas, and they also have foreign plants, so they
will probably shift the production of the export into their
foreign plants.
First, and also, I don't really see as much of a decline in
the uninsured as Dr. Blumberg and others seem to think, because
with the Supreme Court's decision, it was legal to pay a tax of
$95 in 2014, about 315 in 2015, about 690 in 2016, and then you
don't have to buy insurance. Well, CBO says the cost of a
premium for a family of four is 20,000; for a single person, it
is about 12,000. A lot of people are just going to pay the tax,
which is legal, according to the Supreme Court.
Mrs. Ellmers. Right.
Ms. Furchtgott-Roth. And then go uninsured. They will then
continue to get their care from community health centers or
emergency rooms, and then when they get sick, then they can
sign up for insurance because right now, if you are sick, you
can't write--you can't sign up for insurance. You have to be--
because of the pre-existing condition.
Mrs. Ellmers. Right.
Ms. Furchtgott-Roth. You are insured already, but under the
new law, anyone can sign up at any time.
Mrs. Ellmers. At any time.
Ms. Furchtgott-Roth. It is completely rational to stay
uninsured until you are sick.
Mrs. Ellmers. Sure.
Ms. Furchtgott-Roth. And then the pool of insured is going
to get sicker and sicker. The price is going to go up. Every
time the price goes up, it will be more worthwhile for someone
to pay the tax instead of getting the insurance.
Mrs. Ellmers. Versus the insurance. Thank you so much for
your testimony. Thank you to the entire panel. This is very
helpful.
Dr. Blumberg, I do have some questions for you. You know,
you had just mentioned that the study shows that, you know,
putting patients on Medicaid, that that is actually a much
better situation, and I actually have a study that is
completely the opposite.
In 2010, the University of Virginia released a landmark
study on patients who have had surgery, and it is in stark
contrast to what you--the testimony you just gave, and I would
ask the chairman if we would be able to submit that study for
the purposes of this subcommittee.
Mr. Pitts. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mrs. Ellmers. Great. Thank you. And I won't get into the
details of it, but basically, it is startling to know that if
you are on Medicaid, you actually have a 13 percent higher
chance of dying than if you are uninsured, according to this
study, and actually double the amount if--versus someone who is
insured. So it is an interesting thing. And also the cost of
health care actually increases because you are--if you are on
Medicaid, your health care stay in the hospital would actually
be 42 percent longer than if you had insurance.
So, that being said, you had given your testimony about
your study, and I am--I would like to submit mine. But I also,
you know, to this point about anecdotal discussions that are
being had by employers, you know, I have these discussions with
my constituents every day, and they are so concerned about the
cost of doing business and the ability to provide jobs in the
future as a result of the Affordable Care Act.
I have one particular constituent, Mr. Gerald Kivit who,
you know, he produces church furniture, the old-fashioned way,
and his business, it has been a family-owned business for over
55 years. Five years ago he had 150 to 200 employees. He is now
down to 46 employees and that is as a result of the economy.
That obviously is not a result of Obamacare, but let's look at
the facts.
You know, the issue of, you know, adding employees, the
economy is going to turn around at some point and he is going
to want to hire employees. How can he go beyond that 49th
employee? And that is his question. If he were here today, he
would ask you directly, you know, he said--he has asked me how
can I, you know, afford this when my bottom line already is in
the negative? So if Mr. Kivit were here today, how would you
describe to him what you have been saying, which is that the
Affordable Care Act is actually going to help small businesses?
Ms. Blumberg. I would like to respond to that, and I would
also like to mention that it is not true that an individual can
buy insurance coverage at any time regardless of their health
status because there are open enrollment periods in the
Affordable Care Act, so people can only buy at certain times of
the year; otherwise, they will not be able to enroll.
In addition, with regard to the Virginia study, there has
been a great deal of experimental research done by rather--with
economists at Harvard University who have looked specifically
at experimental data from the implementation of public coverage
in Oregon and shown that in a very short period of time, there
was actually very positive health status effects for those that
were randomly enrolled in the expansion of public coverage
there relative to those who are remaining uninsured.
So I just want to say that the analysis that you are
referring to, I haven't seen specifically, but it is
inconsistent with all of the other economic research and health
that I have seen on that topic.
Mrs. Ellmers. We will make sure that you get that study as
well.
Ms. Blumberg. That will be great.
Mrs. Ellmers. Thank you. And to, you know, again, if I were
Mr. Kivit, what would you say as far as, you know, how is this
going to help him to be able to provide health care for his--
continue to provide health care for his employees?
Ms. Blumberg. Well, right now it is going to save him a
considerable amount of money potentially and help his workers
obtain health insurance coverage even if he doesn't offer
coverage today. If he does offer, he is going to have new
opportunities to offer coverage in the insurance exchange if he
wants to; otherwise, he can continue to offer coverage outside
the exchange as he may or may not do today, depending upon his
situation.
If he doesn't offer and his workers need--would like to
obtain coverage, don't get it through a spouse, they can then
go into the nongroup exchange. There is no penalty assessed on
him. They can get financial support if they need it to buy
coverage, so those are----
Mr. Pitts. The lady's time has expired. The chair
recognizes the gentleman from Florida, Mr. Bilirakis, 5 minutes
for questions.
Mr. Bilirakis. Thank you, Mr. Chairman. Appreciate it very
much.
Ms. Roth, recently a major Florida employer announced that
they were dropping health care coverage for part-time workers
because the health care law effectively outlawed the low
premium limited coverage plans that were offered to their
employees.
I am concerned that this law is making coverage more
expensive for Florida and causing premiums to increase an
average of 61 percent according to actuarial studies. Could you
elaborate on the provisions of the ACA that will raise the cost
of coverage for small employers and other individuals that
might stay in?
Ms. Furchtgott-Roth. So one element that is going to raise
the cost of coverage is requiring a very large generous plan
rather than the plans that the employer you mentioned had
before, so those are not going to be permitted, so that is one
thing that raised the cost of coverage.
Another thing that raised the cost of coverage is being
able to sign up at--I shouldn't have said any time--at any open
enrollment period because that means that you can go without
insurance, you can pay the tax legally, and then you can sign
up at the next open enrollment period, and in the meantime, go
to hospital emergency rooms.
A third thing is just the big--a new administrative cost of
providing health insurance with a mandatory electronic record,
all the administrators, all the new IRS officials who are going
to have to calculate what kind of penalties people are going to
pay; also, the subsidies which reach up to 400 percent of the
poverty line. When you go to exchange the amount you pay, it is
going to depend on how much you earn. Again, this is a very big
administrative burden.
The tax credits for small business, those phase out. That
is not for all small business. It phases out between 10 and 25
workers, so you get the most tax credit if you have 10 workers,
declining to 25. You employ 26 workers, you don't get a tax
credit. It also declines if your average wage is between 25,000
and 50,000, so it will steadily decline from 25- to 50,000. If
you pay an average wage of 50,000, you don't get the tax
credit, even if you have over 10 workers.
So, all these different things increase the cost of health
care. I would say the Number 1 is mandating a large generous
plan and completely disallowing the smaller plans where people
shop around and so they pay more attention to their health
expenditures.
Mr. Bilirakis. Thank you. Mr. Boucher, do you feel HHS has
been forthcoming with the guidance on how to implement the
health care law, the provisions of the health care law? If not,
has this made it very difficult, of course, for you and others
in the industry to manage?
Mr. Boucher. Well, I think they have in some cases, but
there is still a lot of uncertainty with regard to many of the
rules. You know, there is a laundry list of items that I am
still not clear on how it is going to affect our business, or
even our employees, and we are anxious to hear how it is going
to be defined so that we can plan and strategize for our future
because right now the Association is trying to work and find
solutions that work for both parties, but we need some answers
that work.
Mr. Bilirakis. Thank you. Again, last question for Mr.
Boucher. Has navigating the ACA regulations forced you to incur
any additional costs?
Mr. Boucher. Well, as I stated earlier, I personally have
spent and my human resource person has spent in upwards of 100
hours just filtering through all of this, and I anticipate it
to continue not at that pace because we are up to speed pretty
good now, but there is still a fair amount of work to do once
these rules continue to work out.
And then ongoing, the administrative efforts that we are
going to need to track and enroll employees if the auto
enrollment stays as it is at 90 days, which, you know, we are
opposed to, that, that is going to be an extremely difficult
process for us. And even right now, looking back to try and
determine the look-back period, we are having to deal with two
different sets of data because we switched payroll companies at
the end of the year. So we are trying to meld one payroll
company's data with this year's payroll company data, they
don't really talk to each other that great, and neither one of
them has a great system in place right now for helping us to
track that looking forward.
So, I feel like we are behind schedule here, and I
personally would appreciate some relief in some fashion so that
we are not subject to some kind of penalty because either the
payroll companies aren't up to speed or the rules haven't been
defined yet, and that is really the crux of the uncertainty
that we are facing.
Mr. Bilirakis. Thank you, Mr. Chairman, I yield back.
Mr. Pitts. Chair thanks the gentleman. And now recognize
the gentleman from Virginia, Mr. Griffith, for 5 minutes for
questions.
Mr. Griffith. Thank you, Mr. Chairman. I have heard
numerous people here today say that this probably shouldn't
have a big impact on jobs. I have even heard some folks say
they thought when they heard the title of the hearing was
``Health Care Act and Jobs,'' they thought it was going to be,
you know, something positive. I am here to tell you that is
just not the case. I am proud to represent the Commonwealth of
Virginia. Served in the General Assembly there for 17 years.
Virginia, which would be closer to a big business than a
smaller business, has made the decision, both the House and the
Senate at the request of the Governor, have limited part-time
hours for State employees.
Now, it still sits on Governor's desk and has not yet been
signed into law. But since he requested it, I doubt he is going
to amend it out. And so we are facing a situation where 7,000
workers in Virginia are going to find that their hours are
being cut. A trend of a friend, it has been reported to me that
a friend of a friend is now looking for new work. She had been
working for the Department of Health. But with the cutback in
the hours, she has got to find something else in order to take
care of her family.
These are the real impacts. This is the real impact on
jobs. And it is just not the Commonwealth of Virginia alone.
And I don't know about other States. But in my district, the
town of Wytheville--now, it is not a big town, and I am sure it
is not nearly the 7,000 people who are affected Statewide, but
the town of Wytheville is also considering cutting back on
their part-time hours. And in an editorial, and I think they
said it very, very well, in an editorial that ran on the
Tricities.com site, which usually means it is either the Wythe
paper, or more likely, the Bristol Herald Courier, they said
that, ``Consider these cuts in referencing the fact that the
town of Wytheville.'' And Councilman Hunley said, ``It would be
cost prohibitive to provide all the town's part-time employees
with health insurance. So they are cutting their hours back.''
And then they reference the Commonwealth of Virginia and they
said, ``Consider that these cuts are coming from entities with
no profit motive, no corporate board demanding rightsizing, no
shareholders screaming for costs to be held down, and no
customers who can take their business elsewhere. Then ask
yourself what the average business, which does not face those
extra demands, is going to do.''
Well, I will tell you that what I hear from numerous small-
and medium-sized businesses, what they are going to do is that
they are also going to cut the hours of their part-time
workers. And in some cases, and I will ask you this, Mr.
Boucher, I know you haven't done it, but if you are not hearing
from lots of your colleagues that they are, in fact, shutting
down stores in advance, knowing that if they have a store--now,
it is not all the PPACA or Obamacare, but as one of the
restaurant chains in my area's CEO told me, he said, we are not
going to shut all our stores down. It is going to make life
harder. But in those stores that are marginal stores, we are
going to shut down. And I don't know if that was the only
factor, but I did notice about 6 months ago, an announcement
that one of his stores in area that is probably a marginal area
had, in fact, shut down.
Are you already seeing in the industry--I know you didn't
do it--but are you seeing in the industry that folks are
eliminating those stores that may be in the black but are just
barely in the black, and the cost of this additional cost to
them with their part-time employees will hurt and, therefore,
they are just going ahead and making the decision to shutter
the doors.
Mr. Boucher. You know I can't speculate on what other
restaurateurs are doing. But I will tell you that there are
different business models for different levels of dining. You
know, fine dining has different business model than fast food
than casual. And as I stated earlier to the gentleman that our
end of the day is $0.04 of every dollar. If there are
restaurants that are $0.01 on every dollar this----
Mr. Griffith. You can see under certain business models--
because I have limited time--you can see under certain business
models that this might very well affect those entry-level
workers and folks working in the restaurant industry. Am I
correct?
Mr. Boucher. There are restaurants that are right on that
tipping edge that could be pushed over.
Mr. Griffith. And let me say this, in Virginia, the vast
majority, although I referenced somebody at the Department of
Health, the vast majority of these employees actually work in
our 23, 2-year community college systems. And one of those
community colleges spokesmen was quoted as saying that one of
the big detriments that they have from the State taking this
action as a result of the PPACA, that they are going to lose an
asset. And I quote, Josh Meyer, spokesman for Virginia Western
Community College, ``One of the great advantages of community
colleges, like Virginia Western, is that we can agilely adapt
the training and educational needs of the region. Our adjunct
faculty gives us the flexibility to create new courses as the
need arises. This new policy will limit the hours that such
faculty can teach.'' He wrote that in an email to the
newspaper. And, obviously, if you need to gear up for some new
area, and you don't have the personnel to do it, you are
actually going to impact the ability to retrain folks who need
jobs. Am I correct?
Mr. Boucher. That is correct.
Mr. Griffith. I thank you and yield back my time, Mr.
Chairman.
Mr. Pitts. Chair thanks the gentleman. That concludes our
first round of questions. We will go to one follow-up per side.
And chair recognizes Mr. Pallone for 5 minutes for follow-up.
Mr. Pallone. Thank you, Mr. Chairman.
As we hold this hearing today, I have mentioned that our
colleagues on the Budget Committee are debating the House
Republicans' latest budget. The Republican budget repeals
coverage provisions of the ACA and will leave 27 million
additional Americans uninsured. It will roll back all of the
consumer protections the law has put in place, allowing
insurers to discriminate on the basis of preexisting
conditions, charge women more than men for the same insurance,
et cetera. And it turns Medicaid into a block grant.
So I just wanted to ask Dr. Blumberg, much of the
discussion today has been around the changes the ACA represents
for our Nation's businesses. But I wonder if you can help give
us some perspective here. If the ACA were repealed and Medicaid
faced significant cuts that Chairman Ryan envisions, are the
millions of Americans who lost health coverage likely to have
affordable coverage options in the private market? And then
secondly, what would the loss of benefits associated with these
cuts do to the economic and physical well-being of these
Americans.
Ms. Blumberg. There would be very dramatic, negative
effects of repeal and block granting Medicaid. Not only on
middle-income Americans who are looking forward to the relief
that the Affordable Care Act could provide them, but most
especially on low-income Americans who really don't have other
options. Very relatively small percentage of people even in
profit, adults in poverty today are eligible for public
insurance coverage. They don't have the financial wherewithal
to be able to purchase coverage. In addition, a signet to the
financial implications for the low-income and modest-income
population, repealing would also have very negative
implications for those that have poor health status, who are
highly disadvantaged and being able to obtain health insurance
coverage today if they don't have access to an employer-base
offer of coverage.
So they would have--they would basically set us back to all
of the problems that we have experienced in the past. The block
granting is another issue. Because the way that that block
grant is designed is that to give a particular amount of money
to each State to diagnose their Medicaid costs. But the Federal
dollars would not grow over time at the same rate at which
medical expenses increase. So not only are you losing all the
potential cost containment implications of the Affordable Care
Act, but you are also then putting State budgets at a serious
disadvantage relative to where they are today in order to
provide coverage for the low-income population that they do
currently have eligible.
And so over time, they either have to cut substantially
back on the benefits, cut substantially back on eligibility for
the benefits that they have been providing. And this can have
very damaging--or to spend a significant amount more money of
their own budgets in order to keep coverage where it is today,
which it is often not feasible at the State level. So there
would be a lot of negative ramifications, both for individuals
and for State government as a consequence of doing--taking
those steps.
With regard to the implications for the economy in general
of repeal, as we talked about, there is often at least small
net employment gains as a consequence of investing more in
health care, which is a locally produced and purchased good,
and so those would be eradicated as well.
Mr. Pallone. Now, I know the ACA includes an employer
responsibility requirement that encourages employers with more
than 50 employees to offer affordable coverage. And then there
is a penalty if an employer chooses not to offer coverage.
However, 96 percent of small businesses in the U.S. have fewer
than 50 employees and are therefore exempt from the
requirement, and the firms that will be subject to the
requirement, more than 95 percent already provide health
insurance.
So just talk a little bit--there is not much time here--
about some of the economic benefits of the ACA for small
businesses.
Ms. Blumberg. Well, particularly for small businesses, they
are hugely disadvantaged today by not being able to buy, as you
referred earlier, to not being able to buy employer-based
coverage for their workers at the same price as do their larger
counterparts. This is because the administrative costs that
carriers charge the smaller groups are much higher because they
are selling small group by small group and they are doing
medical underwriting, they had been doing medical underwriting
of those policies, will continue to do that until January 1st,
2014.
All of those considerations increase administrative costs
significantly for those small employers, which would be
decreased substantially under the Affordable Care Act. So
lowering administrative costs would be a very significant
change because that is a big burden on small employers today,
one of the reasons they are less likely to offer. In addition,
they tend to employ a lot of low-wage workers compared to their
larger firm counterparts. And that means that under the
Affordable Care Act those that don't offer their workers will
be able to have access, guaranteed access to affordable
coverage through the non-group exchanges, which they don't have
today. And that makes it easier for them to hire workers in the
small group market. In addition, right now, the small employers
are disadvantaged because by their nature of being small they--
the average risk for them that they are bearing in terms of
looking at a price for health insurance can be extremely
variable. So----
Mr. Pitts. Gentleman's time has expired.
Chair recognizes the vice chairman of the subcommittee, Dr.
Burgess, 5 minutes for follow-up question.
Mr. Burgess. Thank you, Mr. Chairman. I do appreciate the
panel being here today. I know it has been a long morning. Just
a couple of things I would like to kind of close the loop on.
Mr. Sarbanes mentioned the issue of cost shifting and why it
was so important to get the Affordable Care Act done because
all this cost shifting that is going on by the free riders of
the system, people show up in emergency rooms who don't have
insurance. But, in fact, really look at the cost shifting that
is going on, it is happening in the Federal programs. Right
now, we have real difficulty in the State of Texas because a
lot of providers are not opening their doors to Medicare or
Medicaid patients. Why is that? Because the Federal
reimbursement is lower than what that it is on the private
side. What happens then is the private side, private insurance
or self-paid patients end up making up the difference.
I have got to tell you one of the most frustrating mornings
I have spent in the last 2 years was the morning, the second
morning of oral arguments over at the Supreme Court. I was
fortunate enough to be there. And listening to the Solicitor
General base his entire case on the fact that, well, you got
people who are showing up at the emergency rooms without health
care coverage, and this cost shifting is costing all of us a
bundle. Wait a minute. The patient who is covered by Medicaid--
we are going to expand that by a bunch; I don't know how much,
but 16, 20 million people with full implementation of the
Affordable Care Act in a year's time. If they can't get a
doctor's appointment, then they are not going to a clinic, what
are they going to do? They are going to show up in the
emergency room, because that is what they have always done. And
that cost shifting will still occur. Because the government's
reimbursement for Medicare and Medicaid is less than the cost
of delivering the care, the cost shifting continues, and if
anything, we are doubling down on that.
This is not to disparage the person who is covered under
Medicaid, but to disparage the agency that is responsible for
the oversight of this. And for heaven sakes, this committee,
the best we could do if we want to extend coverage to more
Americans, we sit here in this committee, the best we can do is
to expand a program that is 45 years old that was intended to
be a safety net program back in 1965. Ranking member was
chairman at that time. I just submit that there were better
ways, but we never bothered, we never bothered to even ask.
So I had to get that off my chest. Mr. Sarbanes said it was
cost shifting that was costing the program. Well, cost shifting
may be costing the program. It is not free rider, it is not the
27-year old who would rather buy a basketball than an insurance
policy. The problem is the expansion, the vast expansion of
Medicaid is going to make this problem a great deal worse.
Let me just ask you a question, Dr. Blumberg. And it is a
relatively simple question. I think Ms. Furchtgott-Roth touched
on the subject that some dependent coverage is going to go away
as a consequence of the requirements under the Affordable Care
Act. Is that a fact?
Ms. Blumberg. There should not be a decrease in dependent
coverage. It is----
Mr. Burgess. Let me stop you there. Ms. Furchtgott-Roth,
you suggested that there would be. Will there be a decrease in
dependent coverage under the Affordable Care Act?
Ms. Furchtgott-Roth. Employers are required to offer an
affordable policy, affordable for a single person. So say you
have somebody who earns more, is ineligible for Medicaid. Say,
someone who earns $30,000 a year or $40,000 a year who has a
wife and three children. His employer offers him affordable
single coverage. Under the law, he is required to take that
affordable single coverage. Also under----
Mr. Burgess. Now, that is an important point. So he is
required, he or she is require to take that coverage.
Ms. Furchtgott-Roth. Cannot turn it down. Right. Exactly.
And his wife and children then are not allowed to get
subsidized coverage on the exchange. Because he is getting
affordable single coverage from his employer.
Mr. Burgess. I have got to tell you----
Ms. Furchtgott-Roth. They can buy coverage on the exchange,
but it has to be at full price. They don't qualify for the
subsidies for people making 400,000--under 400 percent of the
poverty line. This is a very serious problem----
Mr. Burgess. Serious.
Ms. Furchtgott-Roth [continuing]. Dealt with in the
discussions. Because, originally, employers were required to
provide affordable coverage for families, not just for singles.
Mr. Burgess. Here is the deal. The Fort Worth Star
Telegram, in the middle of January, headline of ``500,000
Children to Lose Health Care Under the Affordable Care Act.'' I
mean, that is a big deal. Can you imagine if a Republican
president pushed through a law that kicked 500,000 children off
their health insurance? I mean, we would be hearing screaming
from the mountaintops if that had occurred under a Republican
administration. I don't know why it barely rated a news story.
Now, the good news for those uninsured children, I think the
Internal Revenue Service, under the Department of Treasury has
promulgated rules where those children will not be fined for
not having health insurance that they then lost because of the
Affordable Care Act. Is that your understanding as well?
Ms. Furchtgott-Roth. I just don't know the answer to that
question. There was a headline about it, an editorial in The
New York Times last August, the editorial was entitled ``A
Glitch in the Health Care System.''
Mr. Burgess. Mr. Chairman, there are a lot of glitches in
the health care system as we have heard this morning. I hope
this committee continues its due diligence to, not just to
expose these problems, but we need to work on solutions. I
mean, after all, we can argue about the political stuff. But
Mr. Boucher has got to deal with it on a very real, personal
basis. He is not a think tank, he is not a public employee like
we are. He is out there grinding it out every day, trying to
battle the forces and to make it all work and to provide for
his employees. We shouldn't make the landscape harder for him,
we should try to empower him.
Thank you, Mr. Chairman. I will yield back my time.
Mr. Pitts. Chair thanks the gentleman.
That concludes our questions for the panel. I would like to
thank the witnesses for their testimony, for their answers. I
remind members that they have 10 business days to submit
questions for the record, and I ask the witnesses to respond to
the questions promptly.
Members should submit their questions by the close of
business on Wednesday, March 27th.
Excellent testimony, excellent hearing. Thank you very
much. Without objection, the subcommittee is adjourned.
[Whereupon, at 11:31 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Phil Gingrey
I believe today's hearing couldn't be more timely. The
coming wave of regulations that businesses will be forced to
confront due to Obamacare provisions is already influencing the
decision for businesses to hire new employees. As our country
continues to show lackluster job growth, it is essential to
focus on how this law forces companies to delay hiring workers
and reduce employee compensation.
This week, I spoke with a coalition of small business
owners from the 11th Congressional District to learn how
President Obama's health care law has affected the day-to-day
operations of their companies. Across the board, they expressed
frustration with its new rules and ``moving target''
regulations, the increase in health care costs, and the
uncertainty the law has created. ``We're afraid to grow,'' said
one business owner. ``The lack of information is creating fear,
and it's not good for the economy.''
You see Mr. Chairman; this law is already having a direct
impact on hiring decisions in my district. Even though most of
these provisions will not take effect until 2014, job creators
and employees in Georgia and nationwide are already feeling the
pain. If we really want to put America back to work, we need to
lift these onerous provisions on our small businesses.
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