[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
UNAFFORDABLE: IMPACT OF OBAMACARE ON AMERICANS' HEALTH INSURANCE
PREMIUMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MARCH 15, 2013
__________
Serial No. 113-17
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
______
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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. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 4
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 5
Hon. Phil Gingrey, a Representative in Congress from the State of
Georgia, opening statement..................................... 6
Hon. Lois Capps, a Representative in Congress from the State of
California, opening statement.................................. 7
Witnesses
Douglas Holtz-Eakin, Former Director, Congressional Budget Office 9
Prepared statement........................................... 11
Wendell Potter, Senior Analyst, The Center for Public Integrity.. 18
Prepared statement........................................... 20
Christopher Carlson, Actuarial Principal, Oliver Wyman........... 29
Prepared statement........................................... 31
Submitted Material
Study entitled, ``Why the ACA's Limits on Age-Rating Will Not
Cause `Rate Shock': Distributional Implications of Limited Age
Bands in Nongroup Health Insurance,'' March 2013, Urban
Institute, submitted by Mr. Pallone............................ 79
Article entitled ``Analysis: Mass. individual health premiums
highest in nation,'' August 9, 2011, Boston Herald, submitted
by Mr. Burgess................................................. 90
UNAFFORDABLE: IMPACT OF OBAMACARE ON AMERICANS' HEALTH INSURANCE
PREMIUMS
----------
FRIDAY, MARCH 15, 2013
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9 a.m., in room
2123, Rayburn House Office Building, Hon. Joseph R. Pitts
(chairman of the subcommittee) presiding.
Present: Representatives Pitts, Burgess, Hall, Whitfield,
Shimkus, Murphy, Blackburn, Gingrey, Lance, Cassidy, Guthrie,
Griffith, Bilirakis, Ellmers, Pallone, Engel, Capps, Green,
Butterfield, Barrow, Christensen, Sarbanes, Waxman (ex
officio).
Staff Present: Clay Alspach, Chief Counsel, Health; Matt
Bravo, Professional Staff Member; Paul Edattel, Professional
Staff Member, Health; Steve Ferrara, Health Fellow; Julie Goon,
Health Policy Advisor; Debbee Hancock, Press Secretary; Carly
McWilliams, Legislative Clerk; Katie Novaria, Legislative
Clerk; Monica Popp, Professional Staff Member, Health; Andrew
Powaleny, Deputy Press Secretary; Chris Sarley, Policy
Coordinator, Environment and Economy; Heidi Stirrup, Health
Policy Coordinator; Jeff Baran, Minority Senior Counsel; Alli
Corr, Minority Policy Analyst; Elizabeth Letter, Minority
Assistant Press Secretary; Karen Nelson, Minority Deputy
Committee Staff Director for Health; Roger Sherman, Minority
Chief Counsel; 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
recognizes himself for 5 minutes for an opening statement.
During the 2008 campaign and run-up to passage of The
Affordable Care Act in March of 2010, President Obama
repeatedly promised the American people that their healthcare
premiums would go down by an average of $2,500 before the end
of his first term in office. Unfortunately, he broke that
promise. In fact, Americans' premiums have already risen by
more than $3,000, and the expensive part of the ACA hasn't even
been implemented yet.
It is basic common sense that if you require individuals to
buy a one-size-fits-all government-mandated health plan that
covers everything, rather than allowing individuals to pick the
plan that best fits their needs, choice will be limited, and
premiums will rise. When Obamacare adds mandatory benefits,
regulations like guaranteed issue and community rating, and new
taxes and fees on insurance plans, premiums will only grow more
unaffordable for Americans, so unaffordable, in fact, that the
authors of the law decided the only way to get people to buy
health coverage was to force them to buy it or face a fine from
the IRS.
Now, my friends on the other side of the aisle will point
out that the ACA includes subsidies to help individuals buy
these more expensive health plans, and they are correct. More
than $1 trillion in subsidies is available for this purpose.
However, households earning as little as $46,000 will be
ineligible for premium assistance. Even after receiving
subsidies, Americans earning as little as $25,000 will still
pay more for their health insurance than they would if the ACA
had not been enacted.
Making low-income and everyday Americans pay more for
private health coverage is not health reform. It is making
their life harder at a time when our fellow citizens face
sluggish economic growth, slow job creation and little
disposable income.
I recommend to all of you a report released last week by
Energy and Commerce majority staff entitled ``The Price of
Obamacare's Broken Promises: Young Adults and Middle-Class
Families Set to Endure Higher Premiums and Unaffordable
Coverage.'' The report compiles data from over 30 studies and
analyses that examine the effect of Obamacare provisions on
healthcare premiums in the individual and small-group market.
It also includes a State-by-State analysis of estimated
increases in individual market premiums that can be directly
attributed to Obamacare.
My home State of Pennsylvania can expect to see premiums in
the individual market rise about 39 percent. States such as
Arizona, Arkansas, Georgia, Idaho, Indiana, Iowa, Kentucky,
Missouri, Ohio, Oklahoma, Tennessee, Wisconsin and Wyoming
could see individual market premiums rise as much as 100
percent or higher due to the Affordable Care Act.
The increases for young adults in the individual market are
much higher. One analysis estimates that 80 percent of young
Americans earning over $16,000 will pay more for their coverage
once the law is fully implemented than they pay today. And we
don't have to rely merely on estimates of what is going to
happen to premiums; many of the provisions of Obamacare, such
as an individual mandate, guaranteed issue and community
rating, have been tried before. Premiums skyrocketed, choice
was limited, and these Obamacare-style reforms made it harder
to find affordable coverage.
In today's economy, American families simply cannot afford
to pay higher out-of-pocket health costs than they would if
Obamacare had never been enacted. Our young people, many of
whom cannot find jobs, cannot afford triple-digit increases in
their health premiums. A central promise of the an Affordable
Care Act is that health care would be more affordable under the
law. For many middle-class families and young adults, that
turns out to be a broken promise.
I look forward to hearing from our witnesses today. I am
interested in what their research shows will happen to premiums
when Obamacare is fully implemented in 2014.
Thank you.
[The prepared statement of Mr. Pitts follows:]
Prepared statement of Hon. Joseph R. Pitts
During 2008 and the run up to passage of the Affordable
Care Act (ACA) in March 2010, President Obama repeatedly
promised the American people that their health care premiums
would go down by anaverage of $2,500 before the end of his
first term in office.
He broke that promise.
In fact, Americans' premiums have already risen by more
than $3,000, and the expensive part of the ACA hasn't even been
implemented yet.
It is basic common sense that if you require individuals to
buy a one-size fits all, government-mandated health plan that
covers everything, rather than allowing individuals to pick the
plan that best fits their needs, choice will be limited and
premiums will rise.
When Obamacare adds mandatory benefits, regulations like
guaranteed issue and community rating and new taxes and fees on
insurance plans, premiums will only grow more unaffordable for
Americans.
So unaffordable in fact that the authors of the law decided
the only way to get people to buy health coverage was to force
them to buy it or face a fine from the IRS.
Now, my friends on the other side of the aisle will point
out that the ACA includes subsidies to help individuals buy
these more expensive health plans. And they are correct. More
than $1 trillion in subsidies is available for this purpose.
However, households earning as little as $46,000 will be
ineligible for premium assistance. Even after receiving
subsidies, Americans earning as little as $25,000 will still
pay more for their health insurance than they would if the ACA
had not been enacted.
Making low-income and everyday Americans pay more for
private health coverage is not health reform. It's making their
life harder at a time when our fellow citizens face sluggish
economic growth, slow jobcreation, and little disposable
income.
I recommend to all of you a report released last week by
Energy and Commerce Majority Staff, entitled ``The Price Of
Obamacare's Broken Promises: Young Adults and Middle Class
Families Set to EndureHigher Premiums and Unaffordable
Coverage.''
The report compiles data from over 30 studies and analyses
that examine the effect of Obamacare provisions on health care
premiums in the individual and small group market.
It also includes a state-by-state analysis of estimated
increases in individual market premiums that can be directly
attributed to Obamacare.
My home state of Pennsylvania can expect to see premiums in
the individual market rise about 39 percent.
States such as Arizona, Arkansas, Georgia, Idaho, Indiana,
Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Wisconsin,
and Wyoming could see individual market premiums rise as much
as 100 percentor higher, due to the Affordable Care Act.
The increases for young adults in the individual market are
much higher.
One analysis estimates that 80 percent of young Americans
earning over $16,000 will pay more for their coverage once the
law is fully implemented than they pay today.
And we don't have to rely merely on estimates of what is
going to happen to premiums.
Many of the provisions of Obamacare, such as an individual
mandate, guaranteed issue, and community rating have been tried
before. Premiums skyrocketed, choice was limited, and these
Obamacare style reforms made it harder to find affordable
coverage
In today's economy, American families simply cannot afford
to pay higher out-of-pocket health costs than they would if
Obamacare had never been enacted.
Our young people, many of whom cannot find jobs, cannot
afford triple digit increases in their health premiums.
A central promise of the Affordable Care Act is that health
care would be more affordable under the law.
For many middle class families and young adults, that turns
out to be a broken promise.
I look forward to hearing from our witnesses today. I'm
interested in what their research shows will happen to premiums
when Obamacare is fully implemented in 2014.
# # #
Mr. Pitts. I yield the balance of my time to--is Dr.
Gingrey here?
Anyone seeking 1 minute? If not, I yield back the balance
of my time, and at this point the chair recognizes the ranking
member of the full committee Mr. Waxman for 5 minutes for an
opening statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman, and I thank Mrs. Capps
for letting me go ahead of her and making my opening statement.
My Republican friends want to ignore the broken healthcare
system we had before the Affordable Care Act. They want to
ignore the tens of millions of Americans who will finally have
access to affordable care coverage in 2014. And they want to
ignore the fact that for the overwhelming majority of
Americans, health reform will result in much more affordable
coverage. I think ignoring these facts is an exercise in
willful ignorance.
In the world before the Affordable Care Act, nearly 50
million Americans have been uninsured. Millions have been
losing coverage every year. Millions more were excluded from
coverage because of insurance company discrimination, and
lacking coverage was a life-threatening condition. While tens
of millions of Americans suffered in this broken market, a tiny
segment of the population was able to purchase cut-rate, low-
quality coverage. When insurance companies have to provide real
coverage to every American, this small group of people will no
longer benefit from insurance companies' rampant
discrimination.
Republicans and their allies in the insurance industry have
taken deeply flawed studies of this issue and tried to argue
that health reform will drive up everyone's premiums. Well,
that is a false claim, and I think it is irresponsible. The
claims are false because they are based on studies that ignore
key pieces of the health-reform legislation.
Under the Affordable Care Act, consumers will be able to
purchase far more valuable and dependable coverage, and there
will be limits on the overall out-of-pocket spending that
insurance companies can demand. Ignoring these reforms gives a
deeply misleading picture of the true cost of coverage. For
young people in particular, the subsidies in the Affordable
Care Act, the law's new catastrophic plan, and the ability to
stay on a parent's plan until age 26 will all help keep costs
low. Studies that ignore these factors do not reflect reality.
The reality is that the vast majority of Americans will see
their premiums stay stable or decline dramatically in 2014.
Prior to reform Americans could be locked out of coverage
entirely based on a preexisting condition. They were routinely
asked to pay 5 or even 10 times more than their neighbors for
coverage because of their age, their gender or their health
status. For these millions of people, the reforms in the
Affordable Care Act will bring costs down dramatically. That is
the true story of how premiums will change under the Affordable
Care Act.
We all know how important it is that every American sign up
for health insurance. They will have this opportunity at the
beginning of next year. It has been documented again and again
that people who go uninsured are more likely to get sicker and
to die younger than people with insurance. We need to be
encouraging our constituents to get covered, not scaring them
off with warnings about government-run health care and a
radical spike in premiums.
It is past time that we in Congress work together to help
smoothly implement this law. I hope that after this hearing we
can move beyond political messaging to carry out the real work
that the people sent us here to do. Certainly we ought to
exercise our oversight, but oversight is looking at what is
happening and trying to change the situation to make the laws
work, not to still complain about the laws that you fought
against and lost.
This law has been adopted by the Congress and signed by the
President, it has been reaffirmed by the Supreme Court of the
United States, and, more importantly, the people's votes in
this last election reelected President Obama and Democrats to
continue to support this legislation.
I don't think the majority in this House ought to see its
job to continue to relitigate the legislative fight. Let us
learn from realities as they will now unfold and try to make
things better for everybody.
I yield back my time.
Mr. Pitts. The chair thanks the gentleman and now
recognizes the vice chairman of the subcommittee Dr. Burgess
for 5 minutes for an opening statement.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. Thank you, Mr. Chairman.
Of course, listening to the ranking member does remind me
of everything that has happened over the past 3 years' time,
and, yes, I will admit guilty as charged to having opposed bad
policy at every turn. But isn't it interesting as we sit here
this morning on the eve of the third year of the signing of
this bill into law that the greatest obstacle to its
implementation is actually the administration itself?
Why do I say that? Well, first off, when the law was
crafted, it was special interests down at the White House who
actually wrote the law, the insurance companies, the
pharmaceutical companies. Where were the Governors? Why weren't
they involved? Governors have a big footprint in their States
as far as healthcare delivery is involved. Why were they not
consulted?
Of course, you had the game of hide-the-ball. Gary Cohen
all but admitted it when he came to our committee a few weeks
ago--a few months ago and said the administration did not want
to put out the rules about the essential health benefit until
after the election because they didn't want to distract people.
Well, Governors needed to know that information. That is why
none of them signed up for the State exchanges.
Then finally to get someone from the administration in here
to our committee to do the proper oversight of the
implementation, I just do not understand why it is so hard.
But to the business at hand this morning, we have all
talked about how the Affordable Care Act was supposed to
decrease health insurance premiums. I am going to tell you, in
health care you don't get something for nothing. There is
always a cost, and someone always pays it.
The Congressional Budget Office and organizations on both
side of the dais have predicting drastic increases in insurance
premiums for the coming years. The Congressional Budget Office
predicted average premiums will rise 27 to 30 percent because
of the Affordable Care Act. And we don't just have to rely on
their projections. History demonstrates the negative impact of
such insurance provisions. The 1990s saw huge premium increases
after enacting policies that we now know as guaranteed issue
and community rating.
When the Federal Government subjects health insurers to
price controls, excess regulations and mandated coverage
requirements, insurers must make up for the added costs,
because, unlike the Federal Government, health insurers cannot
run perpetual deficits, so they turn to their ratepayers to
provide the additional funds. Those with the highest uninsured
and unemployment rates in the Nation, individuals under the age
of 40, will see their premiums increase the most, 40 to 200
percent according to some estimates.
The Congressional Budget Office and a wide range of experts
have warned us from the beginning of the impending rate shock,
yet Congress has failed to act. Today we will see another way
the President's Affordable Care Act is anything but affordable
for all Americans.
I would now like to yield the balance of the time to Dr.
Gingrey.
OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Gingrey. I thank the gentleman for yielding, and I
thank the chairman for calling this hearing today.
I commend the committee for again looking at how Obamacare
will impact our country's health care. Earlier this week we
heard how various provisions raised the cost to do business.
Today we will now hear how it raises costs on individuals
looking to purchase insurance.
The economic downturn and slow recovery has hit young
Americans particularly hard. The unemployment rate for young
individuals has risen higher than the national average. If a
20-something is lucky enough to have a job, he or she is likely
to be underemployed with little prospect for advancement. Many
are left with the inability to obtain health insurance through
an employer, his or her parents or Medicaid.
The grim reality has left young people with few affordable
options when it comes to healthcare coverage. In fact, more
than 5 million Americans in their twenties are presently
without health insurance. Five million Americans in their
twenties are presently without health insurance.
The age-band compression in President Obama's health law
will exacerbate this problem. And I ask you, Mr. Chairman, if
our goal was to improve the rate of individuals who have
insurance in this country, why on Earth would we deliberately
make it more expensive to obtain? The fact is that a 27-year-
old earning as little as $33,500 a year will see her premiums
jump nearly $800 next year.
We need to implement real reforms and bring healthcare
costs under control. We need to lower costs for young healthy
adults, not force them to subsidize costs for the older and
more established Americans who can better afford.
Mr. Chairman, finding a way to lower healthcare costs for
young people is not a partisan issue; it is a patient issue. We
must continue to work together to ensure a healthier future for
all Americans, and I look forward to working with this
committee to repeal this discriminatory provision of age
banding, and I will do that with the LIBERTY Act, and I ask for
bipartisan support in cosponsoring my LIBERTY Act. It does just
that.
Thank you, and I yield back.
Mr. Pitts. The chair thanks the gentleman and now
recognizes the gentlelady from California Mrs. Capps for 5
minutes for an opening statement.
OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mrs. Capps. Thank you, Mr. Chairman, and I welcome our
witnesses for appearing today and look forward to your
testimony.
Today we are rushing to fit in yet another hearing on
Obamacare, citing fuzzy figures and speculation, and ignoring
the context of the failings of our previous healthcare system
and the opportunities that we now have, thanks to Obamacare.
Now we have the opportunity to work together on this committee
to make sure that the ACA is implemented correctly.
I am sensitive to the fact that this law changes the
landscape of health care, and that is the point. Our previous
system was fundamentally flawed, as this committee found in
detail on numerous hearings. It was a system that allowed
insurers to routinely deny coverage for even the most minor
preexisting conditions like previous injuries, pregnancy, or
even hay fever. It was a system that would drop coverage when
families needed it most, or imposed arbitrary lifetime coverage
limits, leaving families who thought they had coverage in
serious medical debt worrying about how to pay the bills more
than how to get better. And it was a system that allowed
insurers to discriminate against the elderly and against women,
charging them dramatically different rates or refusing to cover
them at all, even when the vast majority of those plans offered
no substantial special benefits even such as basic maternity
care.
It seems like we have already forgotten just how
dysfunctional our previous system was for millions of Americans
who were denied any coverage, whether it was affordable or not.
So I am hopeful that both sides will use this opportunity today
to highlight the vast consumer protections that help affordable
healthcare coverage become a reality for millions of Americans.
Now, starting in just a few months, health insurance
companies cannot any longer deny coverage or refuse renewal if
you happen to get sick, and, thanks to the law, they have to
actually use your premiums to provide health care or give it
back. These rebates have already reached 13 million Americans.
And women will no longer be legally discriminated against and
charged more for their premiums just because they are a woman.
The title of today's hearing implies health insurance
premiums are somehow only now a problem, conveniently ignoring
the fact that premiums have been rapidly increasing for many
years. Yes, in the prereform market premiums were held down
artificially low for some policyholders, but that came at the
expense of people having no real coverage at all when the
unexpected medical bills arrived and at the expense of millions
of Americans being excluded from any coverage at all. So
looking only at premiums is shortsighted and misleading.
Moreover, premium costs are far from the full story. Low
premiums are an illusion that routinely mask high deductibles
and cost-sharing amounts that are just as significant if not
more costly than the premiums themselves. New out-of-pocket
maximums will limit total spending, and consumers are now
guaranteed a minimum set of benefits like preventive benefits
without cost sharing, which means that plans are now more
valuable. These plans now value and support our health and
wellness instead of just waiting for us to get sick, and
premium tax credits, reducing cost sharing and provisions
directed specifically for young adults will help keep insurance
affordable.
On top of all these benefits, the facts are simple: The ACA
has not caused widespread premium increases. The vast majority
of consumers will see continued premium stability, and millions
will see lower total costs right away.
So I hope today we can keep the issue in perspective and
don't simply resort to the scare tactics that have become so
commonplace. I believe we should continue to move forward with
reform. The millions of Americans who have been waiting for
health insurance cannot afford for us to go backward.
Since I have a minute remaining, I will just remind the
previous speaker Dr. Gingrey that now under the coverage of the
ACA, young people under 26 can stay on their parents' plan, and
many thousands of them have already been taking advantage of
that basic coverage within the ACA.
I yield back the balance of my time.
Mr. Burgess [presiding]. The gentlelady yields back.
I would like now to introduce today's witnesses. We are
very happy to have with us this morning a very erudite and
experienced panel. Dr. Douglas Holtz-Eakin is the former
Director of the Congressional Budget Office and serves as the
president of the American Action Forum. Mr. Wendell Potter is a
senior analyst at the Center for Public Integrity. Christopher
Carlson is an actuarial principal for Oliver Wyman.
Dr. Holtz-Eakin, you are recognized for 5 minutes for the
purpose of an opening statement.
STATEMENTS OF DOUGLAS HOLTZ-EAKIN, FORMER DIRECTOR,
CONGRESSIONAL BUDGET OFFICE; WENDELL POTTER, SENIOR ANALYST,
THE CENTER FOR PUBLIC INTEGRITY; AND CHRISTOPHER CARLSON,
ACTUARIAL PRINCIPAL, OLIVER WYMAN
STATEMENT OF DOUGLAS HOLTZ-EAKIN
Mr. Holtz-Eakin. Chairman Burgess, Congresswoman Capps and
members of the committee, thank you for the chance to be here
today. I do have a written testimony that I have submitted. Let
me just make three points briefly, and then I look forward to
your questions.
Point number one is that there are provisions of the
Affordable Care Act that would lead one to believe that it
would have an upward impact on premiums; and that, point number
two, in order to see the magnitudes involved, we have actually
undertaken some survey research and asked insurers what their
actuaries are telling them about the implications for those in
individual and small-employer markets; and then finally, given
the evidence that there will be upward pressure on a large
number of premiums, what are the implications of that more
broadly for the Affordable Care Act and for the Federal budget.
And I want to talk a little bit about each of those.
First, the provisions, I think, the committee is quite
familiar with. There is the combination of guaranteed issue;
the inability to exclude on the basis of preexisting
conditions; community rating, which excludes rating on the
basis of health status or gender, and limits age-rating bands
to a 3-to-1 ration; the new essential health benefits, a
minimum benefit package that must be adhered to; and then the
overall mandate for individuals' employers to provide coverage
and to carry coverage for the individuals.
Those provisions, plus some others in the Affordable Care
Act, the basic coverage itself will increase demand for medical
services, raise pressure on prices from providers across the
Nation and thus on the underlying trend of cost care growth,
and a whole series of taxes that are included in the Affordable
Care Act which will be embedded into the premium structure and
raise premiums as well.
If you take all of those, no individual one is particularly
novel. We have seen some of this, as the chairman mentioned in
his opening statement, in the States, but the experience there
is not one that would lead you to think that there is going to
be downward or stable premium pressures. Instead, the
experience has been one of upward premium pressures where these
have been tried in the past.
That is all either history or conjecture, and we have done
modeling, and others have as well, but we thought the useful
thing would be to go find out. So in the testimony I submitted
are the results of a survey. That survey was sent to large
insurers in the United States. The insurers were asked to fill
out very specific questions about individuals; a young healthy
individual in six particular States and markets, Chicago,
Illinois; Phoenix, Arizona; Atlanta, Georgia; Austin, Texas;
Milwaukee, Wisconsin; and also for older, less healthy
individuals in either the individual market; and then we did
the same exercise for the small-group market.
The insurers who were asked to fill this out covered the
vast majority of covered lives in the United States. So while I
don't represent this as some sort of representative sample of
the insured population, this is a good indicator of what is
going on out there.
I won't belabor every single number in the results, but in
the tables we find that if you look at the younger and
healthier workers across those markets, the average premium
increase is going to be about 149 percent. And, as has been
noted, not every premium is guaranteed to go up. Some of those
provisions will, in fact, subsidize older, sicker workers, and
we see modest reductions in their premiums. Our estimate is 26
percent. In the individual market you get even bigger impacts,
a 189 percent increase for the young, healthy workers; less
modest redistributions, small downward, 18 percent, in the
premiums for the older and sicker workers.
So I think that tells us that the basic intuition about the
structure of the Affordable Care Act is playing out in the
market. We are going to have a combination of legislative
provisions plus market pressures that will lead to higher
premiums for certainly the plurality of the insured, who are
the young and healthy, once the act is fully implemented in
2014.
And I guess I would say that there are a couple of
implications for that. Implication number one is the question
about individual take-up. The law relies heavily on a tax
penalty to enforce the individual mandate to carry insurance.
Given the sharp increases in premiums and the basic calculus
that individuals can do, will they, in fact, take up the
insurance and enter the risk pool, or will they remain outside
of it and pay the tax penalty? If so, the experience will be
much like the States, who had guaranteed issue, and community
rating and sharp premium increases.
For employers the sharp premium increases increase a second
piece of the calculus which says, you know, we are not going to
provide the coverage. We will instead send our employees off to
the exchanges to get insurance. And to the extent that that
takes place, we will see the Congressional Budget Office
estimates of the cost of the Affordable Care Act to be lower
bounds. Instead, larger exchange take-up will lead to expanded
budget costs, and the higher premiums will increase the subsidy
per person, exacerbating the overall budgetary impact of the
Affordable Care Act.
So I think this is an important issue, and I am privileged
to have the chance to be here today, and look forward to
answering your questions.
[The prepared statement of Mr. Holtz-Eakin follows:]
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Mr. Burgess. The gentleman yields back his time.
Mr. Potter, you are recognized for 5 minutes for the
purpose of an opening statement.
STATEMENT OF WENDELL POTTER
Mr. Potter. Thank you, Mr. Chairman and members of the
subcommittee. It is a honor to be here today.
If I may, I would like to begin with an apology to the
family of Leslie Elder. Leslie died an untimely death at age 83
last summer, uninsured and facing foreclosure. I owe her family
an apology because Leslie might be alive today had it not been
for the work that I used to do. You see, I helped create the
same kind of deceptive PR campaigns that are being waged today
to weaken the consumer protections in the Affordable Care Act.
The campaigns I helped create intentionally misled the
American people and their elected officials into believing that
the reform of our health insurance system would do more harm
than good. Among the tactics we used was hiring consulting
firms and think tanks to conduct studies and surveys using
questionable methodology and disclosing only the findings that
could be useful talking points. These campaigns helped maintain
an unacceptable status quo in which too many Americans have had
to declare bankruptcy, lose their homes, and, like Leslie
Elder, die much too young.
Leslie's daughter believes her mother would be alive today
if she had been able to get health insurance. No company was
willing to sell her an affordable policy because of her age,
her gender and ultimately her serious but treatable illness.
There have been an untold number of Leslie Elders who have
died prematurely because of insurance company practices that
the Affordable Care Act thankfully is ending. The latest scare
campaign has insurance companies professing concern about young
adults, but what they really worry about is no longer being
able to cherry-pick the youngest and healthiest. In most States
today insurance companies are able to charge older people like
Leslie 5, 6, or even 10 times more for the same coverage they
gladly will sell to younger, healthier people. In some States
there is no limit at all.
One of the reasons we are here today is the Affordable Care
Act prohibits insurers from charging older people more than
three times as much as they charge young adults. This new age-
rating band foils attempts by insurance companies to deny
coverage to people they want to avoid, people like Leslie
Elder.
Of course, the current coordinated attack on the law fails
to consider many important factors, and, as a result, the
studies being cited in this campaign intentionally mislead the
public. Here are some factors that the insurance industry is
not talking about, but that a recent and unbiased Urban
Institute analysis confirmed.
Only a small percentage of young adults will be affected,
while many people at the other end of the age band will see
enormous benefits that allow them to stay covered and maintain
their health. There are many serious deficiencies in today's
coverage, especially in the low-value, minimal-benefit coverage
that is being marketed to young people. Banning junk insurance
policies, those that are offered even by the biggest companies,
while maintaining access to low-cost policies will mean that
Americans will be able to purchase real coverage that protects
them from financial ruin if they happen to fall ill.
Discriminatory practices have for years priced many people
out of the market, allowing for artificially low premiums for
others. And finally, premium tax credits will soon be available
that will dramatically reduce costs for many consumers.
In fact, coverage under the Affordable Care Act will be
more affordable for the vast majority of young people because
of the Medicaid expansion, the premium tax credits for low- to
moderate-income earners, and the ability of young people to
remain on their parents' policies until age 26 if they don't
have jobs with health benefits. Adults under 30 will also be
able to purchase catastrophic coverage with lower premiums and
higher deductibles. Keep in mind that millions of young adults
who have employment-based coverage will not be affected at all.
The title of today's hearing is Unaffordable: Impact of
Obamacare on Americans' Health Insurance Premiums. The title
implies that before the Affordable Care Act came along,
premiums were stable, but now are on the verge of skyrocketing
because of the reform law. Nothing could be further from the
truth. But my former colleagues in the insurance industry are
hoping that you will either have amnesia or turn a blind eye to
the fact that premiums truly were skyrocketing before the
Affordable Care Act.
The average family premium increased an astonishing 131
percent between 1999 and 2009. That is more than three times
worker wages, four times general inflation, and considerably
faster than overall medical inflation.
I ask Congress not to buy into the insurance industry's PR
campaign. The vast majority of young adults will benefit from
the law. Many for the first time will able be able to get
decent, affordable coverage that will enable them to stay
healthy without fear of financial ruin.
Mr. Chairman and members of the committee, many of your
constituents have been counting the days until January 1, 2014,
when insurance companies will no longer be able to deny them
coverage or charge them far more than their family budgets can
handle. Please do not dash their hopes. If you change the
Affordable Care Act to enable insurance companies to meet
profit goals--and that is what is really going on here, helping
them to meet profit goals--then the results will be tragic, and
many of your constituents will continue to be at risk of dying
prematurely like Leslie Elder.
Thank you.
[The prepared statement of Mr. Potter follows:]
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Mr. Burgess. The gentleman's time has expired.
The chair recognizes Mr. Carlson for 5 minutes for purposes
of an opening statement.
STATEMENT OF CHRISTOPHER CARLSON
Mr. Carlson. Mr. Chairman and members of the subcommittee,
thank you for this opportunity to testify on the impact of the
Affordable Care Act on health insurance premium rates. My
testimony will focus on two topics that I and the other
actuaries at Oliver Wyman have studied extensively: first, the
estimates we have developed on the increase in premiums that
will be required to fund the health insurer taxes beginning in
2014; and, second, the analysis that we performed to measure
the impact of the 3-to-1 age rating limitation of the ACA on
nongroup policies.
Regarding the first topic, Oliver Wyman has researched
extensively the impact of the health insurer taxes. We and
others, including the CBO, believe that these fees will be
passed through directly to policyholders in the form of higher
premiums. Overall we anticipate that these taxes will increase
premiums by between 1.9 and 2.3 percent in 2014, increasing to
between 2.8 and 3.7 percent in 2018.
For the second topic, Kurt Giesa and I coauthored a article
published in the American Academy of Actuaries magazine. The
purpose of this article was to assess the impacts of age-rating
limitations required by the ACA. Currently in most States
health insurance premium rates are allowed to vary by a ratio
of at least 5 to 1 based on the age of the individual. This is
relative to actual costs, which may vary by as much as 6 or 7
to 1 based on age alone. Therefore, health insurers must
compress the rates at the high and low ends to maintain the
correct ratio of premiums based on age.
There are certain things that our report says, and there
are other things that our report does not say. To be clear, our
report assumes that the average overall impact of age-rating
compression is a zero-sum game. Certain policyholders, those at
the youngest ages, will pay more. Certain policyholders, those
at the oldest ages, will pay less. But in the aggregate for all
policyholders, premiums collected with and without age-rating
compression will be the same.
We do not say in our report that the premiums for everyone
in the individual market will increase by 40 percent, as has
been quoted. In fact, we expect that most people will see a
decrease in the amount of premiums they pay, primarily due to
the premium subsidies offered through the ACA.
Our report is intended to measure the impact of age-rating
compression; however, we also make an assumption to the impact
of all other provisions of the ACA. Specifically the CBO
provided an analysis of the health insurance premiums under the
ACA in a letter to Senator Evan Bayh in 2009. In it the CBO
estimated that nongroup premiums would increase by 10 to 13
percent relative to current law. This amount represents
increases due to factors such as the actuarial value of
benefits, competitive factors and the enrollment of uninsureds.
For our analysis we assumed that the impact of these other
factors would be at the low end of this range or 10 percent.
Our report illustrates the impact on premiums for those
individuals that are not eligible for the subsidies. What our
report shows is that for individuals in the lowest age bracket,
ages 21 to 29, premiums would increase by 42 percent due to age
rating and other factors, or 29 percent due to age-rating
compression alone. Further, individuals at ages 30 to 39 would
see an increase of 31 percent, or 19 percent due to age-rating
compression only. At the other end, individuals at ages 60 to
64 would see their premiums increase by 1 percent for all
factors, or decrease by 8 percent due to the age-rating
compression.
There are several factors that should be considered when
understanding the results in our report. First, our purpose was
to illustrate one of the unintended consequences of the ACA.
While most individuals will see their premiums decrease as a
result of the premium subsidies available on the exchanges,
there are certain individuals, primarily those under the age of
40 and that are not eligible for any premium subsidies, whose
premiums may increase substantially due to the limitations on
the age rating.
Second, individuals under the age of 30 have an alternative
to purchasing at premium rates that are affected by the age-
rating compression. They may purchase a catastrophic policy,
which, under the rules set by the Department of Health and
Human Services, may have a rating factor that adjusts the
premium to reflect the expected demographics of the enrollees.
However, this severely limits the options available to younger
individuals in selecting a policy.
Mr. Chairman, again I thank you for the opportunity to
speak, and I look forward to answering any questions.
[The prepared statement of Mr. Carlson follows:]
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Mr. Burgess. The gentleman yields back.
We will now proceed to questions. I recognize myself first
for 5 minutes for the purpose of questions.
Mr. Carlson, let us stay with you. We have all seen the
stories in the newspapers warning of premium increases as a
result of the Affordable Care Act. The Associated Press
reported that premiums could more than double in some markets
and States. We are asking you here today as an actuary, and we
want to know about several provisions of the law and whether
you believe that they will generally increase or decrease
premiums. Do they make life better or worse?
I have got limited time, so I was hoping for one-word
answers here. Premiums higher or lower, life better or worse.
Your choice on how you respond. But provisions such as
guaranteed issue.
Mr. Carlson. Yes, it will increase premiums. You know, it
will certainly make life better for some, but from the
perspective of the premiums, yes, it will increase premiums.
Mr. Burgess. Coverage for rehabilitative services.
Mr. Carlson. Yes, it will increase premiums.
Mr. Burgess. Coverage for habilitative services.
Mr. Carlson. Yes, it will increase premiums.
Mr. Burgess. Coverage for oral and vision care.
Mr. Carlson. Yes.
Mr. Burgess. Limitations on cost sharing.
Mr. Carlson. Yes, it will increase premiums.
Mr. Burgess. Limitations on out-of-pocket maximums.
Mr. Carlson. Yes, it will increase premiums.
Mr. Burgess. Coverage for emergency services at in-network
cost-sharing levels with limitations on things like
preauthorization.
Mr. Carlson. Yes, it will increase premiums.
Mr. Burgess. Requirements related to annual limits.
Mr. Carlson. Yes.
Mr. Burgess. Requirements related to lifetime limits.
Mr. Carlson. Yes.
Mr. Burgess. Federal and State exchange administrative
fees.
Mr. Carlson. It may increase premiums.
Mr. Burgess. Medical device tax.
Mr. Carlson. Yes.
Mr. Burgess. Health insurance tax fee.
Mr. Carlson. Yes.
Mr. Burgess. And, you mentioned this in your testimony. I
mean, I guess the assumption of the people who were writing
this was that things like the medical device tax and the health
insurance fee, those dollars would be taken from the chief
executives of the company. But that is not the way the world
works, is it? Those monies are actually collected from the
ratepayers ultimately; are they not?
Mr. Carlson. Yes, they are. I mean, if you increase the
benefits, the premiums will go up, and if you increase costs to
the insurers, those will have to be funded somehow.
Mr. Burgess. Well, let us look at, you know, proponents of
the Affordable Care Act say the premiums spike as a result of
these Affordable Care Act provisions will be offset by
subsidies. You mention that in your testimony. Let us set aside
for a moment the question of whether it makes sense to borrow
$2 trillion from foreign nations to pay for a new entitlement
when current Medicare and Medicaid programs are in trouble. Let
us also set aside that lowering healthcare costs, according to
some on the other side of the dais, means placing expensive
regulations on what Americans must buy and offsetting some of
the costs for people with dollars, and all of that comes from
the taxpayers. Your study addressed this claim. At what income
level are some younger Americans expected to start paying more
as a result of the healthcare law?
Mr. Carlson. Well, our study looks at the age-rating
compression, and individuals who are under the age of 30 who
are at a Federal poverty level of 225 percent, which is roughly
about $25,000, they will pay higher premiums as a result of the
age-rating compression.
Mr. Burgess. So that is sort of the break point for an
individual is $25,000?
Mr. Carlson. Yes. Yes. And anyone above that level, their
premiums will be affected by the age rating.
Mr. Burgess. Very well.
Dr. Holtz-Eakin, some supporters of the Affordable Care Act
argue that the law's most expensive requirements will only fall
on the individual market. I remember the discussions in this
room when leading up to it, it seemed like our whole focus
should be on people in the individual and small-group market,
but it looks likes we made things tougher for them; does it
not?
Mr. Holtz-Eakin. Certainly these premium increases are
going to be dramatic in the individual market for healthy
individuals. Certainly.
Mr. Burgess. We also heard from Ranking Member Waxman when
he was giving his opening statement about the number of people
who fall in the category of preexisting condition and can't get
insurance. Now, in the large-group market, that was really much
less of a problem; was it not?
Mr. Holtz-Eakin. The HIPAA provisions were intended to
solve that problem years ago.
Mr. Burgess. So when he gives a figure of tens of millions
of people who are unable to get insurance for a preexisting
condition, that number is probably a little bit overstated; is
it not?
Mr. Holtz-Eakin. Some of the high-end dramatic ones simply
are beyond the realm of possibility.
Mr. Burgess. We know this, that it was a problem in the
small-group and individual markets, and some States have risk
pools and reinsurance to provide help there. The Federal
Government set up a new program. I remember looking at these
numbers right before the Supreme Court ruled, because I thought
the Supreme Court was going to rule differently, as Mr. Waxman
pointed out, and I thought we needed to be able to start
talking about what happens to those folks who are in the
Federal preexisting pool, and the number was startlingly small.
It was not that they are not important people, but it was
65,000, nowhere near the tens of millions that have been talked
about during the rhetoric. Is that a fair statement to make?
Mr. Holtz-Eakin. Certainly that is a fair statement. I
mean, as you know, I spent a lot of time looking at the high-
risk pool design, and we didn't see anything like the take-up
that was claimed.
Mr. Burgess. Very well. My time is expired. I recognize the
ranking member of the subcommittee, Mrs. Capps from California.
Mrs. Capps. Thank you, Mr. Chairman.
Mr. Carlson, the chairman asked you if the provisions in
the ACA make life better or worse, and your first answer was
that, yes, that guarantee issue will make life better for many
people. I just want to make sure that was clear for the record.
Thank you, Mr. Potter, for your powerful story about Leslie
Elder. As you know, your fellow witnesses today have produced
faulty studies that ignore specific and key policies in the
Affordable Care Act which actually do help lower costs for all
Americans, young and old. But the key thing they ignore is that
the vast majority of this Nation will benefit from an end to
insurance company discrimination.
A report by the National Women's Law Center detailed the
pervasive discrimination women currently face in today's
insurance market. The report revealed that the same health
insurance policy can cost a woman 30, 50, even 85 percent more
than a man of the same age, even if maternity care is not
covered, which is in itself discriminatory. These higher
premiums can have a significant impact on their budget, women's
budgets, costing a 40-year-old woman as much as $1,250 more
each year than a man of the same age getting the exact same
coverage. And let us not forget women have often been denied
all coverage just because they have a previous existing
condition, such as pregnancy, or having had a C-section, or
being victims of domestic violence.
The Affordable Care Act ends these abuses by implementing
landmark new protections for women and banning discrimination
by insurance companies on the basis of gender or preexisting
conditions.
Mr. Potter, can you tell us about the way insurance
companies approached covering women, both young and old, prior
to reform? You are knowledgeable on that topic.
Mr. Potter. I certainly can, and the approach was to
discriminate against women and people because of their age.
What is important to keep in mind is that as we talk about
community rating in this country, that is how health insurance
began. Virtually all of the Blue Cross plans initially were--
their plans were based on community rating, which meant that
everyone, regardless of age or gender or health status, paid
the same amount. That changed when large insurance companies
began to come into the market and see that they could cherry-
pick the youngest and the healthiest and make a substantial
amount of money. That is what has happened, and as a
consequence of that, even the Blue Cross plans had to change
the way they did business.
As a result, over the years we have got a system that
really discriminates, especially against people as they age and
against women. You are exactly right. And they do this because
when you are segmenting the population that way, and you are
often charging some people so much that they don't buy
insurance, and that is why we have 50 million people in this
country without coverage right now, and that helps their
profits. When you have people who are discriminated against,
and they simply can't afford the policies because they happen
to be born with a preexisting condition called being female,
then they can make a lot of money.
Mrs. Capps. What do you think we can expect to happen to
women's premiums after the ACA really kicks in?
Mr. Potter. They will go down. Insurance companies will no
longer be able to single them out and say, just because you are
a woman, you have to pay more than your brother or some other
person who is of similar age, but just happens to have been
born male.
Mrs. Capps. And do you expect this fall in premiums will be
limited to women, or are there men and children, other issues
will also be covered in the same way in the ACA?
Mr. Potter. Absolutely. Virtually everyone; in fact, I do
think everyone will benefit from the Affordable Care Act and
get some relief from price gouging.
Keep in mind, too, it is important as we are talking about
the individual market, we are talking about 14 million people.
There are 315 million people in this country. That means we are
talking about a population that is slightly more than 4 percent
of the total population. And of that 4 percent, most of the
people in that individual market will stand to benefit, become
able to get coverage through the expansion of the Medicaid
program, through the tax credits or subsidies for low-income
earners, and for relief at the other end of the spectrum for
people who have been charged up to 10 times or more for
coverage in the past to the point that many of them can't buy
coverage. But at least we are talking about a very small
segment of the population to begin with.
Mrs. Capps. Thank you very much, and I yield back the
balance of my time.
Mr. Burgess. The gentlelady yields back.
The gentleman from Texas Mr. Hall is recognized for 5
minutes for questions.
Mr. Hall. Thank you, Mr. Chairman.
Mr. Holtz-Eakin, beginning in 2014, the Affordable Care
Act, the Obama act, imposes a new tax on health insurance of at
least $100 billion. That is an accurate figure; is it not?
Mr. Holtz-Eakin. Yes, sir.
Mr. Hall. I think that our committee got that from the
Joint Tax Committee, so we can live with that figure. That is
good to go with. Probably none of the three here deny that
figure.
Mr. Holtz-Eakin. In fact, one of the unprecedented features
of that tax is that it demands that a fixed amount of revenue
be raised regardless of the circumstances in the industry. So
$8 billion in 2014 no matter what.
Mr. Hall. And the tax begins at $8 billion in 2014 and
rises to $14.3 billion in 2018, and thereafter it increases
annually based on a premium growth.
I think we are all aware that the tax is going to fall on
all individuals and businesses that purchase healthcare
insurance. Maybe less well known or less well admitted by the
writers of this act is that the tax law hits seniors enrolled
in the Medicare Advantage plans, State Medicaid programs and
Medicaid health plans serving low-income families. Right?
Mr. Holtz-Eakin. That is correct, sir.
Mr. Hall. Can you explain for the committee what kind of
impact beneficiaries enrolled in the private Medicare and
Medicaid plans can expect to encounter after the tax is fully
phased in?
Mr. Holtz-Eakin. If you look at the structure of the tax, I
think there is broad agreement that the tax itself will end up
being embedded into premiums; that insurers will have to
recover that cost, and the way to do so is to raise premiums.
A unique feature of the tax is that it is not deductible
for purposes of paying corporation income taxes, something that
I have never seen before in the tax law. So if you are not a
tax-exempt insurer, if you have to pay a dollar of premium tax
and you raise your premiums by a dollar to do it, you will
still come up short because you have to pay tax on that dollar
as well. So you have to raise premiums by more than a dollar,
actually $1.54, to cover that provision. That is a lot of
upward pressure on premiums. Not everyone will be subject to
that, so you start to see shuffling in coverage, shuffling in
lines of business. The Medicare Advantage plans, the managed
Medicaids are going to be subject to the same thing. That means
disruption in provider networks, higher premiums across the
board.
Mr. Hall. I thank you for that.
I didn't hear you say Medicaid programs. How will the tax
impact State Medicaid programs? Our Governor was in town
yesterday and discussed with the Republican Members----
Mr. Holtz-Eakin. It is exactly the same. All these lines of
insurance are subject to this, and all will see premium
pressures as a result.
Mr. Hall. Then the ``yes'' answers that were extracted
earlier by the chairman were based on services that increase or
become more expensive, and either of those situations are what
you glean from reading the act itself?
Mr. Holtz-Eakin. I mean, the tax is a cost that businesses
have to cover for, if I understand the question right.
Mr. Hall. Thank you. I yield back my time.
Mr. Burgess. The gentleman yields back.
The chair recognizes the gentleman from Texas Mr. Green for
5 minutes for questions.
Mr. Green. Thank you, Mr. Chairman. And this is not
directed at you, but I guess I am frustrated, because I have
been on this committee since 1977, and the Affordable Care Act
was passed 3 years ago and upheld by the Supreme Court, and
last session all we did was try and repeal it, and that is not
going to happen. It won't pass the Senate. Yet every hearing
this week we have had is to talk about how bad it is.
I would hope our committee would sometime get to the point
where, OK, let us see what we can do to fix it. Instead of just
making political points, we can actually pass legislation. I
think that is what everybody in the country would like us to
do.
But in this panel is a good example. You know, we have some
great witnesses, and I have heard them before on some cases.
But, you know, the Affordable Care Act is the law, and there
are things in it I would like to change, and I know everybody
on the committee would, but we are not going to repeal because
it is not going to happen, at least for 4 years. So that is the
frustration.
Let us make it work. And there are some things that are
really successful, and we really won't know until next year on
the success of it and when we see some of the requirements go
in.
There was a report released yesterday by my colleagues, my
Republican colleagues, on prediction of premium increases under
the Affordable Care Act, and the Republican report ignores the
fact that over 90 percent of insured Americans have employer or
public coverage, which is Medicaid or Medicare. And even an
unbiased observer, including the CBO, has said that 240 million
people will not see their premiums increase under the ACA.
Second, the American Action Forum study totally ignores the
effect of premium tax credits. These credits will go directly
to the cost of coverage, immediately lowering premiums each
month, and the CBO has estimated the majority of the
individuals getting coverage in the exchanges would receive
subsidies. And it is deeply misleading to ignore the impact of
those on affected premiums.
Let me get to my questions now. Mr. Potter, is it accurate
to compare a low-premium plan in today's market with the type
of quality coverage that will available under the Affordable
Care Act?
Mr. Potter. No, not at all, because a lot of the policies
that are sold to people, and often people enroll in these
unwittingly, are plans with very, very limited benefits or very
high deductibles, and people often find out when it is too late
that they are woefully underinsured.
And one of the objectives of the Affordable Care Act is to
make sure that people are getting value for what they buy, and
that will be something that we will see as a result of full
implementation of the law. We will no longer see people who are
in junk policies, because they will be a thing of the past.
Mr. Green. Well, I have a district, and one of the highest
in the country, at least the 2000 census--we haven't seen the
numbers from the 2010 census--of people who work, and yet they
don't have insurance through their employers. It is a very
urban area in Houston, an industrialized area. And for decades,
outside of their job opportunities, the next thing they ask
once they get a job is, what kind of health care can I get? And
some employers offer very good health care. Some offer, as you
said, very limited amounts with high deductibles. Now, those
are cheaper in premiums, but they also don't really establish
what we hope in our healthcare world is a medical home where
people feel comfortable going to instead of, even with a high
deductible, are still going to show up at our emergency rooms
because they don't have the coverage that will cover them.
I know you worked in the insurance industry for a long
time. Just out of curiosity, did the industry ever support
outside research to help generate its public relations and
drive its public policy agenda?
Mr. Potter. The insurance industry spends a considerable
amount of their premium dollars on various public relations and
lobbying efforts, but not so much on research that is all that
reliable. The research is intended to make a point.
You know, it is not necessary for anyone's premiums to go
up, we need to understand that, because we are talking about
changing the way these companies will do business. There will
not be quite as much need, maybe not nearly as much need, for
underwriting.
McKenzie & Company did a study of health care costs around
the world in 2008, and it showed in the U.S., of the
administrative expenses of insurance companies, by far the
largest component of that are marketing and underwriting
expenses. And that is just not going to be all that necessary,
because you are not going to be needing to use all of those
resources.
Mr. Green. I am almost out of time. Again, having served in
the Texas Legislature and trying to deal with the uninsured, it
was almost impossible. We created high-risk plans, but the only
people that went to them were high risk. And the State wouldn't
put any money in, so nobody could afford the coverage. So one
of the best reforms in the Affordable Care Act is the 80
percent requirement that they have to pay out in medical
benefits. I know physicians like that, hospitals like that,
because they actually know that they are going to receive the
payments.
Mr. Chairman, I know I am out of time, and I appreciate
your patience.
Mr. Burgess. The gentleman yields back.
The chair recognizes the gentleman from Illinois Mr.
Shimkus, 5 minutes for questions.
Mr. Shimkus. Thank you, Mr. Chairman, and I know my friend
from Texas is still in the room. I would just like to remind
him that we had not one hearing on this healthcare law before
it was passed on the floor. There was not one.
Then number two I will say, as ranking member of the Health
Subcommittee, the remaining part of that year, every week I
asked for the chairman of the Health Subcommittee to have
hearings on how this law would be implemented, and we were
never offered one.
So what we are trying to do now is at least--is the whole
``we got to pass the bill before we know what is in it.'' Now
we are trying to figure out what is in it, and that is what
these hearings are part of.
Everybody is going to get a chance to ask our witnesses,
and we are going to be able to make our points about the
benefits and the disadvantages. But don't trash the system that
legislators need to do, which is our oversight role in this
body.
So I wouldn't respond forcefully except for I was the
ranking member of the Health Subcommittee when this law got
passed. Nathan Deal was--when the law was passed, Nathan left
to run for Governor. I assumed that role, and for the final
part of that Congress, every week I asked for a hearing on this
piece of legislation, and every week it was denied.
Mr. Green. Would the gentleman yield?
Mr. Shimkus. I would be happy to yield.
Mr. Green. Well, you understand how it feels to be in the
minority.
Mr. Shimkus. I definitely do.
Mr. Green. My quote was--and you remember we had literally
hours and hours, including very late markups on the bill. Now,
having said that, we should have had follow-up hearings on the
implementation.
Mr. Shimkus. Just reclaiming my time, the bill that was
passed was the Senate bill, without hearings, without movement
through the committee. It was picked up from the Senate and
passed on the floor.
Mr. Green. Would the gentleman yield?
Mr. Shimkus. I am just telling you the facts.
Mr. Green. And again, I agree that that happened. The
problem is that we didn't have an alternative. Believe me, the
majority, no matter who is in the majority, does that same
thing.
Mr. Shimkus. Reclaiming my time, it was the Speaker at that
time who said the American people, we have to pass the bill
before we know what is in it.
Mr. Green. That wasn't my----
Mr. Shimkus. All we are trying to do now is to find out
what is in this piece of legislation, so I applaud this series
because it is not even rolled out. It is not in full
implementation yet. So that is--I mean, again, that is what we
are trying to do. And I wanted to ask just Mr. Potter, and it
is kind of key to this last comment about 80 percent, you know,
has to go to services in the plan and part of that debate was
an analysis about how much administration planned that our
Medicare system funds during the debate. Do you know what that
percentage is of the overhead cost is the bureaucracy of
Medicare?
Mr. Potter. Well, the medical loss ratio, the equivalent of
that in the Medicare program is considerably lower.
Mr. Shimkus. Do you know what that percentage is?
Mr. Potter. I have heard that the administrative expense is
about 3 percent in the Medicare program.
Mr. Shimkus. And that is the numbers that I used. That is
the numbers my friends on the other side used.
Now, can you tell me which health insurance plan the
private sector of the market or the government run market is
actually unsound and going broke?
Mr. Potter. I think the current commercial system is
absolutely unsustainable.
Mr. Shimkus. OK. The question is, Medicare or the private
health insurance market, which one is going broke?
Mr. Potter. I don't know, sir.
Mr. Shimkus. OK. Let me ask Mr. Carlson. Do you have an
idea?
Mr. Carlson. Well, I certainly think that the commercial
market is not going broke, and that is why they have actuaries
to make----
Mr. Shimkus. Right. And we haven't asked you that is why
they have actuaries to make sure they don't go broke.
Dr. Holtz-Eakin.
Mr. Holtz-Eakin. The government has actuaries but it is
still going broke, sir.
Mr. Shimkus. And that is really this part of this fight we
are having in Washington and how we can actually reform the
entitlement programs so that we are not in a $16 trillion debt.
Obamacare makes the program even worse because it creates a new
entitlement that is not funded that makes actuarially, sir, Mr.
Potter, our Nation less sound today, next year and in the
foreseeable future.
I yield back my time.
Mr. Burgess. The gentleman yields back. The chair
recognizes Mr. Sarbanes of Maryland 5 minutes for purposes of
questions, sir.
Mr. Sarbanes. Thank you, Mr. Chairman.
Dr. Holtz-Eakin, do you think the Affordable Care Act can
work?
Mr. Holtz-Eakin. I am sorry, sir?
Mr. Sarbanes. Do you think the Affordable Care Act can
work?
Mr. Holtz-Eakin. I am skeptical, to be honest, sir.
Mr. Sarbanes. OK. Mr. Carlson, do you think it can work?
Mr. Carlson. I think there are things within the law that
could be changed, but you know, I can't comment overall whether
it is going to work and----
Mr. Sarbanes. It could work.
Mr. Carlson. It certainly could work but it may not work.
Mr. Sarbanes. Americans could make it work.
Mr. Carlson. Potentially, right.
Mr. Sarbanes. How would you define work?
Mr. Potter, do you think it can work?
Mr. Potter. I do. I think it can work. I think that we
will--as you bring more people into coverage, you make a big
difference and you begin to end some of the cost shifting that
is so problematic in this country, and that contributes to all
of us paying more in insurance premiums as a consequence.
Mr. Sarbanes. Do you think the system we had before was
workable over time?
Mr. Potter. Not at all, not at all workable, nor was it
sustainable either. You cannot keep raising premiums, as I
said. They increased 131 percent between 1999 and 2009. You
can't keep doing that and you can't--and at the same time
insurance companies were shifting more of the cost of care from
them and from employers to employees and dependents. You can't
keep doing that and expect that that system is sustainable. It
is simply not.
Mr. Sarbanes. What I am concerned about is there are--we
can all agree that there is going to be some increases for some
portion of the population as a result of implementation of
this, but we are talking about increases within that individual
market for younger healthier people who are more in a position
to afford those increases than their peers might be because if
their peers can't afford it, they are going to be able to take
advantage of these Affordable Care credits, these tax credits
when they go into the exchanges, so you are talking about a
relatively small number of people who may experience, and I
think arguably in an affordable way, an increase in their
premiums, but based on that, we keep getting this phrase of a
rate shock and so forth being bandied about, and I am trying to
figure out why that is happening. Like, what is afoot with it?
So if the industry is the one that is putting out this rate
shock narrative when in fact there is going to be good
stability for the great majority of consumers out there and
actually reduce premiums for many, if the industry is doing it,
subscribing to this narrative, I can only surmise that they are
doing it because they are getting ready or setting the table
for some potential rate gouging.
Now, if the industry is not intending to do that, and I
will give them the benefit of the doubt for the moment that
they don't want to rate gouge, that they do just want to
present the straight story on it, then what is really happening
is that long time critics of the Affordable Care Act are
putting that narrative out as a way of just fear mongering
about the Act generally.
Do you, Mr. Potter, you have been there, you have been
inside that, that mindset. What is going on here? Why are we
getting this sort of rate shock narrative being pushed out to
Americans right now? What do you think that is all about?
Mr. Potter. Well, insurance companies spend a lot of money
trying to influence public opinion to influence public policy,
and that is what is going on is to create an impression of
something that is not reality and is not likely to be reality.
Keep in mind, too, that these may be, the increases we are
talking about may be what they would like to get and they would
be able to get in the absence of the Affordable Care Act, but
we have--there are provisions in the law that will require
reviews of excessive rate increases, and----
Mr. Sarbanes. Thank goodness for that.
Mr. Potter. Yes. So, just because they say they want to do
this or plan to do this doesn't mean they are going to be able
to do this.
Mr. Sarbanes. So, at the end of the day, it is a completely
nonconstructive exercise.
Mr. Potter. It is.
Mr. Sarbanes. The key is nothing to do this, to put that
narrative out. It just puts people on edge and it is going to
make it harder for us to make this thing work, and it can work
if we put our heads behind it.
Mr. Potter. You are right. And keep in mind again, we are
talking, as you noted, about a very small segment of the
population. But the intent here when you talk about rate shock,
which is a crock, if you ask me, is nothing more than to try to
get the impression that we are talking about the whole
population, and it is not that at all. It is a small percentage
of the population.
Mr. Sarbanes. Rate shock is a crock. Thank you. I
appreciate that.
Mr. Burgess. Gentleman's time has expired.
Chair recognizes the gentleman from Louisiana, Dr. Cassidy.
Mr. Cassidy. OK, Mr. Potter, if rate shock is a crock, why
does Massachusetts, which has the beta version of Obamacare,
which has exchanges, nonprofit insurance companies; i.e., no
marketing apparently and no need to do actuarial testing and
has MLR requirements, they have the highest small business
premiums in the Nation? Now, it doesn't make sense to me that
if the beta version is giving us this, that there won't be a
rate shock.
Mr. Potter. Massachusetts is a great State. It is a
prosperous State. It also has some of the best medical
facilities in the country. Health care in Massachusetts is
expensive. It is much more expensive in Massachusetts than in
many other States.
Mr. Cassidy. So you don't draw a connection between the
fact that they have Mass Health and the fact that they have
higher premiums is just a function of the providers charging
more.
Mr. Potter. Providers have always charged more in
Massachusetts, so that is----
Mr. Cassidy. They have had a rate of growth that exceeds
the rest of the Nation since putting in Mass Health, I think
that is what it is called, so again, it is your position,
though, that there is nothing inherent. They have got nonprofit
insurance companies, et cetera, that there is nothing inherent
in the plan that contributes to the upward pressure.
Mr. Potter. I think that in the plan, the things that are
in the Affordable Care Act to mitigate the cost increases, you
are not going to see necessarily, as I said, a lot of cost
increases in this country.
Mr. Cassidy. Well, I guess we have to agree to disagree
because Mass Health seems to belie what you are saying.
Secondly, you spoke negatively of the plans that people
would afford, suggesting that they are basically catastrophic,
and let me just hold up the Kaiser Family Foundation, and
Kaiser is kind of all in for Obamacare, but it points out that
the average small business or the average business has an 80
percent actuarial value. We know from McKenzie that about a 30
percent of businesses will dump their employees into the
individual market. I mean, that is according to the McKenzie
survey, and so then they will probably choose the bronze plan.
And the Kaiser Family Foundation study shows that these people
will go from something of higher actuarial value to something
of lower actuarial value and that deductibles in the employer
plans are about $1,900, but their deductibles, their out-of-
pocket will be as much as 6,000 and higher for a family in the
exchange.
And they compare the bronze level plan, Kaiser Family
Foundation does, with that of a catastrophic policy. So I guess
if your position is the catastrophic policy is no good and yet
people will most likely be on a bronze level plan with the
catastrophic-type coverage, are you indicting the bronze level
plan?
Mr. Potter. Not at all. The catastrophic plan, while not as
generous and will have higher deductibles, you are right, than
the other plans. It still will be far better than a lot of the
policies that are being marketed in this country. I have met
people----
Mr. Cassidy. But again----
Mr. Potter. Congressman, I have met people who are $50,000
a year families, policies with $50,000 annual deductibles. They
pray every night they don't get sick.
Mr. Cassidy. So the nice thing about an HHA plan currently
is that you can actually prefund on a tax preferred basis, and
you actually have that to meet your front-end cost. Under the
bronze plan, there are actually deductibles and copays that
will have to be hit up to $4,000 before you get complete
coverage. There is no first dollar coverage. I suppose the
employer could elect to go to an HHA. The current rules are
prejudiced against that. I think that we are hearing a mixed
message from what you are saying and what the facts are.
Dr. Holtz-Eakin, at a later time you can tell me why your
name is hyphenated, but that is OK.
Mr. Holtz-Eakin. It is a long story. Maybe another time.
Mr. Cassidy. Listen, let's assume that what our colleagues
say on the other side of the aisle, which I actually agree
with, as long as President Obama is President we are not going
to repeal Obamacare. I mean, he has got too much invested. What
could we do--if it is the law of the land, what could we do to
bring premiums down.
Mr. Holtz-Eakin. Certainly the pressures and premiums come
from the underlying growth in health care costs, and I think
there is now a bipartisan consensus that nothing has really
been done to break that trend. There is the layer that comes
from taxes and mandates to raise those premiums, and one could
modify those as well, and then the rest of the plan is just
large amount of puts and takes because, you know, some people
will do better and worse because they are going to redistribute
from one group to another.
Mr. Cassidy. Let me ask you----
Mr. Holtz-Eakin. And that is that----
Mr. Cassidy. I think empirical data shows that consumer-
driven health care have lowered cost.
Mr. Holtz-Eakin. Sure.
Mr. Cassidy. Would you agree that if we could more
encourage consumer driven health care that we would have the
same trend we have been having that that this is lowering cost
if that could continue under the ACA?
Mr. Holtz-Eakin. Allowing people greater choice for plans
that match their needs and provides some competitive pressure
has always worked.
Mr. Cassidy. OK.
Mr. Chairman, I yield back.
Mr. Burgess. Gentleman yields back his time.
The chair recognizes Dr. Christensen 5 minutes for purposes
of questions.
Mrs. Christensen. Thank you, Mr. Chairman. And while we all
agree that we could work to build on what the Affordable Care
Act needs to strengthen Medicare, I just want to make it clear
for the record that Medicare is not going broke. Costs have
grown by less than 2 percent over the past 3 years and private
insurance costs have really always grown much faster than that.
Let me see if I can get two questions in. The Affordable
Care Act takes a number of steps to ensure that Americans have
access to quality affordable coverage, that it is there when
they need it, and these new protections has been discussed with
me and you, Mr. Potter and Mr. Green, offers stark contrast to
some of the junk insurance that is on the market today, some of
which is in my district, unfortunately.
All the plans sold in the exchange will have an actuarial
value of 60, 70, 80, or 90 percent, and plans will have to cost
essential--cover essential health benefits and also offer
preventive care with no cost sharing. So these requirements
will significantly increase the value of insurance coverage for
millions of Americans. The cap on out-of-pocket spending
guarantees that individuals with serious health needs will
never again face endlessly increasing cost sharing. In order to
receive needed care, the end of lifetime limits on coverage and
the phase out of annual limits ensure that coverage remains
intact even if an individual's health care needs increase
dramatically in a given year or as the individual grows older.
So, Mr. Potter, all of these seem to me like common sense
elements of quality insurance. So can you tell us why, in your
experience, the insurance companies you used to work for are
opposed to these reforms?
Mr. Potter. They make a great deal of money selling
policies that are inadequate, and if you are selling policies
you don't have to pay very much out in claims, that goes right
to the bottom line, and you are able to increase your profit
margins, and why----
Mrs. Christensen. And I guess that is why they are not
going broke either.
Mr. Potter. That is why they are not going broke and they
are able to maintain their profit margins because of pressure
from Wall Street they do these things, but they--and they have
invested quite a lot of money, some of the biggest companies
buying smaller companies that specialize in limited benefit
plans that can almost guarantee that someone is going to be
underinsured if they get sick.
Leslie Elder didn't plan to get breast cancer. My son
didn't plan to break his hand last year and find, because he is
in a high deductible plan, that he is paying a lot of money out
of pocket. He, by the way, before the Affordable Care Act was
passed, was told--he was in the individual market--that his
policy was going to be increasing 66 percent unless he switched
policies and go into a policy that had a deductible that is 10
times what he had been paying.
So, again, we--hindsight is a lot clearer than looking
ahead. We know what has been happening and the price gouging
that has been going on, and really we are talking about profits
here.
Mrs. Christensen. So when the insurance companies say they
want to offer choice and provide new low cost options, you are
talking about these junk things----
Mr. Potter. That is exactly right.
Mrs. Christensen [continuing]. That are being sold on the
market for big profits.
For consumers young and healthy enough to be able to afford
coverage in the individual market prior to reform, the coverage
they had was really only an illusion. Insurance raised rates,
high cost sharing disappeared when the consumers really needed
them, and we saw this in many of the hearings that we had
leading up to health care reform, of which there were many.
A recent analysis found that the premiums in the individual
market are so unstable that 80 percent of plans raise premiums
above the price consumers were quoted when they applied for the
coverage. This so-called affordable option that my Republican
friends think existed before health reform are really unstable
and unreliable. It is also wrong to call today's low premium
plans affordable because of all of the other charges that hit
consumers as soon as they actually need the insurance.
And these plans set hard annual and lifetime limits on the
amount of care coverage which leaves consumers completely in
the lurch if they ever have a serious medical need as the
person you spoke about.
So, Mr. Potter, the studies my Republican friends are
relying on today are focusing on comparing low premium plans
available to day to premiums and plans that will be available
under the Affordable Care Act. Would these premiums likely have
stayed stable and provided real coverage if a person got sick?
Mr. Potter. Not in the old world. Not in today's world.
They would not have remained stable. We have seen premium
increases over the years, and they would continue.
Mrs. Christensen. So, this is just another reason that
comparing past premiums in the individual market to future
premiums makes no sense. My Republican friends ignore the
subsidies available to consumers, they ignore the key limits on
cost sharing when they compare real quality coverage to the
bait-and-switch insurance available today.
So, thank you for your answers, and thank you, Mr.
Chairman. I yield back.
Mr. Burgess. Gentlelady yields back.
The chair recognizes the gentleman from New Jersey, Mr.
Lance, 5 minutes for the purposes of questions.
Mr. Lance. Thank you, Mr. Chairman, and good morning to the
panel.
To you, Mr. Potter, I am concerned about pre-existing
conditions, as I know you are from your testimony, and I think
we should work together regarding that issue.
The Centers for Medicare and Medicaid Services recently
announced that they were no longer accepting applications for
the pre-existing condition program created by the health care
law and I think that this is a challenge that we have to work
together to solve. I think this could lead to countless
chronically ill Americans, including the vast majority of the
rare disease community from not receiving treatments, and I
have the honor of chairing with Congressman Crowley of Queens
in New York City the Rare Disease Caucus, and recently our
leadership here in the House on the Republican side, Speaker
Boehner, Majority Leader Cantor, Whip McCarthy, Conference
Chair McMorris Rodgers, who serves on this committee, Chairman
Upton, Chairman Pitts, and Dr. Burgess sent a letter to the
President regarding the fact that the Centers for Medicare and
Medicaid Services announced that they were no longer accepting
applications for the pre-existing conditions program.
I am wondering what your thoughts might be as we move
forward to try to address this issue together since one of the
promises of the Health Care Act was that this program would be
put in place and that we would have solved this problem but
clearly we need to do more work on the area.
Mr. Potter. When you are segmenting--pardon me. When you
are segmenting people with pre-existing conditions into high
risk pools, by their very nature they are going to have people
who are sicker and who will have higher medical cost, and one
of the reasons why it is important to move to at least a
modified community rating approach to providing health coverage
is that you can broaden the risk for everyone.
Keep in mind that people who are sick, who have pre-
existing conditions and might look to get coverage through a
high risk pool often may not be able to work. They may not have
the ability to buy into a high risk pool. One of the reasons
why maybe we haven't seen as much uptake in the high risk pools
in the States is because the premiums are expensive and the
people who are sick and who need them just often simply can't
afford to buy them. So we do need to make sure that people who
have pre-existing conditions are taken care of.
We are all in this together. I think that if we can look
beyond our own current circumstances, we might realize that a
friend of ours or a brother or a daughter or a son might have a
pre-existing condition and have need for medical care, so we
have got to look beyond our own current situation sometimes.
Mr. Lance. The $5 billion program created by PPACA was
intended to help individuals with pre-existing conditions
through January 1st of next year, and as I understand it,
despite lower than expected enrollment, CMS announced it would
no longer enroll individuals, and it seems to me this is a
reminder, and there have been several, that the cost of PPACA
are significantly understated, and those who may need help are
no longer going to be able to enroll in the program.
Mr. Potter. It is possible, but also there is not a great
deal of awareness, I don't think, of coverage that is available
or the high risk pools. Leslie Elder, as CNN reported,
conceivably could have been enrolled in a high risk pool in
Florida, but she and her husband just simply were not aware of
the existence of it, so at the end of her life, conceivably she
died after the Affordable Care Act was passed and she might
have been able to have enrolled in a plan that they could have
afforded but it just wasn't something that was available or
they were aware of its existence.
Mr. Lance. It might have been available, but from your
perspective, she was not aware that it was available.
Mr. Potter. That is what was reported and her husband said
he was not aware of it as well. I talked to him just recently
and he wasn't aware that it could have been available to them.
So these are not--you know, States don't necessarily have large
marketing budgets like insurance companies do.
Mr. Lance. I think we have to work on this issue together,
and I am sorry that PPACA has not reached its promise in this
regard, particularly regarding the rare disease community of
great interest to me since I chair that caucus with Congressman
Crowley of the neighboring State of New York, and I think we
have to work together and do a better job, and I think that was
the intent of the leadership position in the letter written by
Speaker Boehner and our other leadership to the President as we
try to solve this issue together.
Thank you, Mr. Chairman.
Mr. Burgess. The gentleman yields back.
The chair recognizes the gentleman from Georgia, Dr.
Gingrey, 5 minutes for questions, sir.
Mr. Gingrey. Mr. Chairman, think you. I want to reflect
back just for a minute on the line of questioning between Mr.
Sarbanes from Maryland and also Mr. Cassidy from Louisiana with
Mr. Potter, and I think, Mr. Potter, I am going to paraphrase
this a little bit but the quote being rate shock claims are a
crock. I wonder how he feels about the President's claims about
the effects of sequester as he went around the country several
weeks before sequester went into effect and indeed closing the
White House tours for our families and young people who are
coming to the Nation's capital to see the people's House and
have an opportunity during upcoming spring break.
That being said, I am going to direct my first remarks to
Dr. Holtz-Eakin. Dr. Holtz-Eakin, as a former Director of the
Congressional Budget Office, you are well aware of how
legislative decisions are scored and how they affect our
economy. Your current organization, American Action Forum,
released a survey which found that for a 27-year-old in
Atlanta, where I hang out, the age band compression to a 3-to-1
rating would result in a 27 percent increase in premiums. Now,
these are young people above the age of 27, by the way. Ms.
Capps earlier stated that I was ignoring the fact that young
people up to the age of 26, many of them are on their parents
health insurance policy, but we are talking about people that
are beyond that. 27 percent increase in premiums.
These individuals, as you are aware, Dr. Holtz-Eakin, face
uncertain job prospects and record education debt. Many of
them, of course, stayed in school because they couldn't find a
job and they continued on Stafford loan program and, you know,
building up more and more education debt, hoping at the end of
that time to be able to find a job.
Well, the penalty for not purchasing insurance next year
will be $95, and many of these 27-year-olds, 28-year-olds
haven't found a job yet. In some cases, a 27-year-old making
only $33,500 a year will see premiums increase roughly $800.
So, Dr. Holtz-Eakin, in your opinion, will young people be more
likely to purchase expensive health insurance or pay the
relatively low fine next year?
Mr. Holtz-Eakin. Well, thanks for your question. If I could
at the outset, can I just for the record make it clear that
this survey was entirely my idea. Mr. Potter insinuated that
all such studies are bought by insurance companies. We thought
it up, we designed it, we requested the information because of
our longstanding interest in this legislation, and the results
were delivered in a blind fashion. I have no idea who
responded, and the aggregate data were released by us as a
matter of public information.
What the data say are pretty clear that if these rate
increases take place in markets, it will be cheaper to pay the
penalties than to purchase the insurance.
Mr. Gingrey. Thank you, Dr. Holtz-Eakin.
Mr. Carlson, I am aware that you have decades of experience
as a health care actuary. In fact, without you, insurance
companies would go broke. In your opinion, if these young
people that Dr. Holtz-Eakin referenced failed to purchase
health insurance, how would premiums react for the rest of the
population if fewer and fewer of these young people, beyond the
age of 26, particularly, stay out of the market?
Mr. Carlson. Well, even with the current age rate and
limitations in most States, which is 5-to-1, there is a bit of
a subsidy going from the younger generation to the older
generation, so we would expect that their--if those younger
individuals do not enroll, if their premium rates are higher
than what they are willing to pay, there would be an impact of
increase in the rates for the rest of the industry.
Mr. Gingrey. Well, let me interrupt you for just a second
and thank you for that answer. I have been chiefly concerned
about the effects of the age band compression provisions on
these young people we are talking about, and as you know, the
3-to-1 rating does not reflect the true difference in cost of
care. You are an actuary. Right now, 42 States have age rating
bans of 5-to-1 or more.
Do you think that a federally directed age band is the best
way to direct costs or should the States themselves be allowed
the option to make actuarially accurate age band laws, and I
say that because I feel very strongly that the States should be
able to do that, and that is what this bill, the Liberty Act,
Letting Insurance Benefit Everyone Regardless of Their Youth is
the acronym to--if the States don't go and deal with this, then
the default should be 5-to-1.
If you--Mr. Chairman, if you will bear with me and let the
gentleman answer that question.
Mr. Carlson. I can't comment specifically on the policy of
whether we should allow States to set their own limitations,
but I will say that if States are allowed to use the 5-to-1 age
rate and as many of them do now, you know, the results of our
study would be in effect reversed to say that the rates for the
younger individuals would be significantly less.
Mr. Gingrey. And Mr. Chairman, this is a bipartisan bill. I
would like to again urge my colleagues to sign on to it. It
solves the problem, and I yield back.
Mr. Burgess. The gentleman's time has expired.
The chair recognizes the gentleman from North Carolina, Mr.
Butterfield, 5 minutes for questions, sir.
Mr. Butterfield. Thank you very much, Mr. Chairman, and
thank the three witnesses for their testimony today. Today we
have another hearing, ``Impact of Obamacare on America's Health
Insurance Premiums.''
The title makes a lot of sense, Mr. Chairman, if we are
talking about how Obamacare brings down the affordable premiums
that millions of Americans faced before the Affordable Care
Act, but trying to sell us the story that banning insurance
company discrimination and creating a free and fair marketplace
will raise premiums, that is just wrong.
Now, let's just take a look at a story that will not be
uncommon in my district or most districts across the country.
Let's say a 35-year-old single man who doesn't smoke and is
just above the poverty line, making about $12,000, that is
1,000 bucks a month, $12,000 a year, he doesn't have much
savings and any medical bills would put him in real trouble.
Before Obamacare, that constituent could have gone online
and found a plan from a big insurance company that cost him
$1,400 a year and had a $10,000 deductible and he would have to
pay 30 percent coinsurance on every dollar of medical care he
received.
But now let's look at the options after Obamacare. If the
Governor of my State had been wise enough to expand Medicaid
and the legislature wise enough to expand Medicaid, the
constituent would have had the option of Medicaid, but on the
exchange, the constituent will get a tax credit to keep his
premiums at about 2 percent of his income, which means he will
pay $250 a year instead of the $1,400 he would pay for the
current plan. He would also be eligible for cost sharing
subsidies that will cut his out-of-pocket spending to around
$2,000.
So what does that mean? Instead of paying more than $1,400
in premiums, a $10,000 deductible and 30 percent of all costs,
the constituent will see his premiums drop to about $250 a year
and he will have a real quality insurance that caps his out-of-
pocket spending around $2,000.
Now, that is a real savings. And so that is my lead up to
my question, Mr. Potter. Let me ask you about this. This
constituent that I have been using as a hypothetical will be
paying a lot less for coverage under Obamacare, but even if
another plan out there offered lower premiums, would it really
offer dependable coverage of the way plans will under the
Affordable Care Act?
Mr. Potter. The Affordable Care Act is really important to
make sure that people are getting, again, value more than they
are today. I mean, we need to, as we are looking at this, to
understand that when we are talking about the cost of
insurance, we also--and the cost of care, we have to go beyond
just looking at the cost of premiums, too. We have to look at
what people's obligations are to pay out of pocket, and so
there are limitations in the law that would make these $50,000
family deductible plans a thing of the past.
And you are right about your individual that you are using
as an example, that that individual would be paying less. And
also, frankly, most of the people in this that we are talking
about, the young people will also be getting benefits and not
be facing these increases unless, for some reason, insurance
companies decide and can get away with the price gouging that
they seem to be intending to get away with, but most young
people will get--either they will be eligible for the Medicaid
program or subsidies because most of these folks have
relatively lower income.
Another thing to keep in mind, too, is that young people
don't necessarily want to be uninsured. Many of them don't have
coverage now because they haven't been able to afford it. This
law will enable many of those people to come into coverage for
the first time, so they will be able to get coverage. It is not
that they want to remain naked as they say in the insurance
industry or consider themselves young invincibles necessarily.
They want to get coverage, and I can also say, guarantee you
this, the insurance companies will be spending a lot of money
marketing to attract young people. That is where you will see,
when the advertising starts, that is a target market they are
going to go after to make sure that they sign up for policies.
Mr. Butterfield. So not only does this guy save money on
front end, he saves money on back end with co-pays and all of
the other stuff.
Mr. Potter. That is correct.
Mr. Butterfield. Well, thank you, and thank all of three of
you.
I yield back, Mr. Chairman.
Mr. Burgess. The gentleman yields back.
The chair recognizes Mr. Griffith from Virginia 5 minutes
for questions.
Mr. Griffith. Thank you, Mr. Chairman.
In keeping with what Mr. Shimkus said in regard to, you
know, we are trying to figure out, since we didn't have
hearings before, trying to figure out now where the problems
are and where we can fix things. I have been brought to my
attention by a constituent at a Farm Bureau dinner that his
daughter had a serious problem and it was brought on in part by
Obamacare.
She is living at home and is a full-time student, but
because she is an industrious young lady, she is also a full-
time employee. So she is carrying a full load in college, she
is paying for her own way, she is a full-time employee, and
because of that she is not eligible to stay on her parent's
insurance because there is insurance offered through her
employment, which she would be able to stay on her parent's
insurance as a part of the family plan at no cost to herself
because they are already paying for mom, dad and other
siblings, but it will cost her, and I don't remember the exact
dollar amount, but I recall it being in excess of several
hundred dollars per person, or excuse me, per this young lady,
it is going to cost her per month and is of great expense to
her, and so I guess I would ask you, Mr. Carlson, have you
heard of similar incidences where, you know, the best
intentions of the Obamacare or PPACA plan have actually led to,
in this case, this young lady having to spend a lot more money
in order to be insured because she is out working hard, going
to school and living at home?
Mr. Carlson. Well, I am not aware of any specific
instances, but what you are describing there certainly is a
case that would sound like it makes sense to me and is
possible.
Mr. Griffith. Yes. And you know, we are just trying to
figure out where the problems are, and one of the real
concerns, and I will turn to you, Mr. Holtz-Eakin, is--and Mr.
Lance referenced it earlier. The Washington Post recently
reported that they are not being--a lot of these folks with
pre-existing medical problems are going to be blocked from the
program that was designed to help them, and particularly the
Post story highlighted the plight of a 60-year-old Virginia
woman who wished to only be known as Joyce who is battling
Stage IV breast cancer, and because she didn't know earlier
that the plan was available for pre-existing conditions and a
high risk or high expense, she was trying to fill her paperwork
out when she discovered that there was a new deadline that had
been applied, and, you know, the question is, are we making
promises we can't fulfill when we say we are going to cover
everybody, and then this lady at the time was swinging in the
balance, they don't know whether she got her application in in
time or not, but the Postarticle says they were going to stop
taking new applications no later than March 2nd, and I contrast
that with the fact that the House Republicans had a plan at the
time of the passage of this bill that would fully fund high
risk pools to ensure Americans got the treatment that they
needed.
Now, I guess my question is, if we don't have the money
currently to take care of these high risk individuals with pre-
existing conditions, such as this lady who wished to be known
as Joyce, do you believe that we should divert funding from
other parts of the so-called Affordable Care Act towards these
high risk pools that offset the cost of coverage for
chronically ill so that we can actually address the real
problems that have been existed in our health care system?
Mr. Holtz-Eakin. I certainly believe that this story, while
tragic, is hardly a surprise. From the beginning I have been
concerned about the design of the high risk pools. There were
incentives for people to go uninsured, believe it or not,
before they could be eligible to come in these pools. They
operated side by side with State pools that were often much
better designed and got better enrollment, and now they have
stopped enrollments entirely. So, obviously there needs to be
both a redesign in the criteria for eligibility in the way that
the pools are offered, but also the funding, and getting
funding out of elsewhere in this law I think would be a
sensible thing to do.
Mr. Griffith. And also, I would have to say that if this
funding mechanism didn't work as it was promised to work and it
that didn't have the ability to follow through because they are
running out of funding, we also saw the long-term care
insurance didn't work exactly the way they thought it was going
to. They never got it off the ground because of that, which I
appreciate pulling the plug when it wasn't going to work.
Doesn't that call into question for both you and for just the
average human being that if two high profile parts of the plan
didn't fit in the model that they said it was going to fit,
that the entire PPACA plan is probably going to cost us a lot
more money than what the American people were told when it was
passed?
Mr. Holtz-Eakin. I think that is right. I mean, there are
two perspectives on that. The first is the notion of fulfilling
the promise of affordable care, and here the fundamental
problem has not changed. Americans spend not quite 20 cents out
of every national dollar on health care, the Affordable Care
Act defines affordable as 10 percent of your income, which
means, by definition, not all of us can have affordable health
care, and the only way to get people under 10 percent is to
raise someone else's cost up perhaps a lot, and that is done
through a variety of taxes, mandates, premium increases, and
the law will never add up for everybody in the United States.
It cannot.
The budgetary costs are extraordinary, and my fear is that
it will vastly outstrip the resources that have been devoted to
it, particularly if employers follow their incentives and put
many more people in the exchanges and higher premiums than we
anticipated.
Mr. Griffith. Thank you, Mr. Chairman. I yield back.
Mr. Burgess. Gentleman's time has expired.
The chair recognizes the gentleman from New York, Mr.
Engel, for 5 minutes for questions, sir.
Mr. Engel. Thank you very much, Mr. Chairman, and thank you
for holding today's hearing, Mrs. Capps as well.
Mr. Potter's testimony is an excellent reminder of the
terrible practices routinely employed by the private health
insurance industry prior to the passage of the Affordable Care
Act. Denying children with pre-existing conditions health
insurance policies, canceling coverage for people once they
became ill, applying lifetime limits to care, these practices
were commonplace in the individual insurance marketplace before
we passed the law.
There were terms we legislators have all used countless
times over the last several years, but Mr. Potter's testimony
which I read, reminds us these things were done to people. Our
constituents, they needed health care and they were denied and
some of them died because of it.
Their stories are a sad reminder. It is unacceptable to
return to the status quo of the private health insurance
industry by repealing the Affordable Care Act, and I wanted to
say that before I asked my question.
Now, let me ask this. Private insurance companies have been
interested less in insuring those who might actually need care,
instead have worked hard to insure the healthiest and least
likely to incur major medical expenses and that is why I
supported a public option in the Affordable Care Act, but
unfortunately we weren't able to get it through, but for my way
of thinking, we wanted to ensure that those who were ill or one
of the estimated 129 million Americans with pre-existing
conditions, that they have health care coverage.
In the absence of a public option, I am very pleased that
the strict consumer protection found in this law will be fully
implemented by next year. So, Mr. Potter, as someone who has
worked in the health insurance industry, do you believe any of
the consumer protections, including the age rating requirements
as outlined by the ACA, should be changed?
Mr. Potter. I do not. They are very important consumer
protections and they need to stay in place. They need to be
implemented. The insurance companies can accommodate. The law
will change the culture of the insurance business for the
better.
One of the objectives of the Affordable Care Act is to try
to get us to a fairer system. The United States certainly has
some of the best health care facilities in the world, some of
the best doctors in the world. I don't think anyone would
dispute that. The problem we have is access to those great
facilities and those good doctors. We have one of the most
inequitable health care systems on the planet. We rank below
Bangladesh when it comes to fairness.
So we need to change that. That is one of the objectives
here, and end some of these discriminatory practices that have
been prevalent in the industry for many, many years that have
led to situations in which people, when they get sick, just
can't get coverage, and that could be every one of us in this
room or someone we know. We need to keep that in mind.
Mr. Engel. Thank you. Let me also say that I am glad that
the ACA included rate review requirements for those companies
looking to raise their rates by more than 10 percent. I think
it is worth noting that since the rate review provisions went
into effect, the proportion of proposed rate increases, over 10
percent declined from 75 percent in 2010, to 34 percent in
2012, to less than 15 percent so far in 2013. And I am also
pleased that the law established clear medical loss ratio, MLR
requirements which have resulted in $1.1 billion being returned
to 13 million Americans.
So, let me ask you, Mr. Potter, I believe the combination
of these two provisions are helpful for health premium pricing
transparency. Are there additional steps that Congress should
take to better ensure significant portion of patients' premium
dollars being used to in medical care and not PR campaigns like
the ones you discuss in your written testimony?
Mr. Potter. I think even more transparency is in order. It
is a very good start but to be able to know how these companies
spend our premium dollars. Pardon me. When the individual
mandate becomes effective, we are going to be, as you said, we
don't have the option of enrolling in a public option. We will
have to be buying coverage from private insurance companies. We
ought to know a heck of a lot more about how those companies
are spending our premium dollars, so even greater transparency,
in my view, greater granularity about where our premium dollars
are going would be something I think that this committee might
want to look into.
Mr. Engel. Well, thank you very much, and let me say in
conclusion that status quo of health insurance plans before the
ACA, as far as I am concerned, was unacceptable, and therefore,
I think when we analyze any impact on premiums, it should a
true apples-to-apples comparison fully taking into
consideration the quality and comprehensive nature of plans as
well as taking into account the availability of subsidies for
those making below 400 percent of the Federal poverty level.
I thank you, Mr. Chairman. I yield back.
Mr. Burgess. The gentleman's time has expired.
The chair recognizes the gentlewoman from North Carolina,
Mrs. Ellmers, 5 minutes for questions.
Mrs. Ellmers. Thank you, Mr. Chairman. And thank you to our
panel.
Mr. Potter, my line of questioning is for you. Are you a
health care professional?
Mr. Potter. I have been. I am not now.
Mrs. Ellmers. You were. What was your level? What was your
title?
Mr. Potter. I was vice president of corporate
communications for CIGNA Corporation. Before that I was with
Humana.
Mrs. Ellmers. Are you a physician?
Mr. Potter. No, ma'am.
Mrs. Ellmers. Are you a nurse?
Mr. Potter. I am not.
Mrs. Ellmers. OK. So you don't--actually, you have not
earned a degree in any type of health care profession?
Mrs. Ellmers. That is correct.
Mrs. Ellmers. OK. Well, I am a nurse, OK, I have been for
over 21 years. And I want to go to your example, Ms. Leslie
Elder, because I, too, have a mother and--had a mother, my
mother died at age 73. How old was Mrs. Elder when she died?
Mr. Potter. Sixty-three.
Mrs. Ellmers. She was 63. And you had mentioned that she
had a treatable--chronic but treatable condition and then I
think later you mentioned that she had breast cancer.
Mr. Potter. She did.
Mrs. Ellmers. And that she had died of breast cancer.
Mr. Potter. She died of Hodgkin's lymphoma, as I recall.
Mrs. Ellmers. So she had cancer, a form of cancer.
Mr. Potter. That is correct.
Mrs. Ellmers. Now, I am assuming that she had gotten a
diagnosis. She didn't have health care insurance prior to this
point?
Mr. Potter. What happened is her husband is a small--was a
small business person. He owned an auto repair business.
Mrs. Ellmers. Did she have--yes or no, did she have health
care insurance at the time of her diagnosis?
Mr. Potter. She did when she was first diagnosed, but after
she was--after her initial treatment, the insurance companies
raised their rates on the policy, so they had drop to it.
Mrs. Ellmers. I had the opportunity very recently to
actually visit the cancer center in my hometown of Dunn, North
Carolina, and I actually had this very conversation with them.
They are doing excellent work.
And one of the things that I wanted to clarify was that
what happens with someone who gets a diagnosis of cancer if
they are not insured, you know, where does that go and unable
to work. And, you know, oddly enough, Medicare disability is
something that they can receive.
Now, you mentioned also high risk pools and that they--that
she and her husband were not aware of that; is that correct?
Mr. Potter. That is correct.
Mrs. Ellmers. And you also mentioned that this was
something that she was receiving treatment. Now, it is curious
to me as to how she could have been receiving treatment and yet
not know about high risk pools and also not know about the
possibility of being put on Medicare.
Mr. Potter. The high risk pool was eligible for her toward
the end of her life. She was diagnosed with breast cancer
earlier.
Mrs. Ellmers. OK. When was she diagnosed with breast
cancer?
Mr. Potter. I don't know the exact year. I think it was
around 2002 or something like that.
Mrs. Ellmers. And she died?
Mr. Potter. She died last summer.
Mrs. Ellmers. OK. So she actually had--I mean, she--her--
she lives----
Mr. Potter. She had a pre-existing condition, that is
right, and that is why their premiums went up so much that they
had to drop it because they couldn't afford it.
Mrs. Ellmers. But the availability to get coverage after
that was there.
Mr. Potter. Ultimately it was.
Mrs. Ellmers. And they did not take part in it.
Mr. Potter. They didn't know about it, that is correct.
Mrs. Ellmers. They didn't know because the health care
providers did not--I mean, you know, we have discharge
planners, we have social services, we have physicians, we have
nurses that are giving treatment. I have a hard time believing
that this was all taking place and that they did not understand
this.
Mr. Potter. Well, Congresswoman, I would suggest you might
talk to Mr. Elder and ask him these questions. I don't know,
but I am told----
Mrs. Ellmers. And you mentioned the daughter and that the
daughter said, and if I can quote you, that if she felt that if
Obamacare had been in place, that her mother would not have
died; is that correct?
Mr. Potter. That is correct.
Mrs. Ellmers. Do you have a mother?
Mr. Potter. I certainly do, and she is 88 years old.
Mrs. Ellmers. And you would like to see her live a good
long life, wouldn't you?
Mr. Potter. And she has. I have been very blessed.
Mrs. Ellmers. And that is a blessing. And again, my mother
died at age 73, unfortunately. She had Alzheimer's, but she
also received very good care, excellent care because she had
very good coverage. She was also on Medicare, but she still
died, and that is a loss, and I understand that Ms. Elders'
family is experiencing a loss as well, but I find it curious
that you used her as an example of why Obamacare would be such
a good plan to be put in place and that somehow this would have
saved her. Is that not what you are claiming?
Mr. Potter. The point of telling her story was to point, if
you look at the written testimony, that they were priced out of
being able to offer coverage.
Mrs. Ellmers. But there was other coverage that--in fact,
and that is understandable. But those of us in health care----
Mr. Potter. Not during most of the time that was available
to her.
Mrs. Ellmers [continuing]. Understand that these are forms
that have needed to be put in place for a long time and we are
ready to work on those things for health care solutions;
however, there was other availability there, so I just----
Mr. Potter. Not during most of the time.
Mrs. Ellmers. I am not quite sure I am understanding.
Mr. Potter. Not during most of the time, Congresswoman.
Mrs. Ellmers. Not Medicare?
Mr. Potter. I can give, if you would like, I can tell you
more about their situation so you can get----
Mrs. Ellmers. Well, no, I don't think we need to do that,
and my time has expired, but I find your testimony
disingenuous. Thank you, sir.
Mr. Burgess. And the gentlelady yields back.
And the chair recognizes the ranking member of the
subcommittee, Mr. Pallone, 5 minutes for questions.
Mr. Pallone. Thank you, Mr. Chairman. My questions are of
Mr. Potter. Insurance warn that if they are allowed to charge
seniors only three times more for coverage than they charge
younger people rather than five or six or 10 times more, they
will substantially increase premiums on young people, and the
Urban Institute recently completed an in-depth analysis of age
rating in the ACA and determined these insured claims to be
unfounded.
I was going to ask unanimous consent if we could enter into
the record this study, Mr. Chairman, by the Urban Institute,
which I gave you there.
Mr. Burgess. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Pallone. Thank you. So, anyway, this Urban Institute
compared the likely results of allowing insurers to charge
older Americans five times more for coverage rather than only
three times more and found that it would, quote, have very
little impact on out-of-pocket rates paid by the youngest non-
group purchasers once subsidies are taken into account. And the
study found that premiums would stay stable for young people
because the ACA provides unique coverage options that
specifically benefit young Americans. The law provides for a
low cost catastrophic health plan that is available only to
people under 30 and it requires that it insures, allow adult
children to stay on their parents' plan until age 26, a policy
that has already extended coverage to more than 3 million young
people, and most important in this study was the fact that
young people are some of the most likely to benefit from the
ACA's Medicaid expansion and premium tax credits.
So, Mr. Potter, were young people served well by the
insurance products on the market before reform, or will they be
better off because of the ACA's new reforms and consumer
protections? And then I would ask if insurers get their ways
and change the age rating band, do you think they will stop
there or will they push for other changes?
Mr. Potter. Young people were not well served, have not
been well served and were not before the Affordable Care Act
was passed. They have not, obviously, had the benefit of
getting subsidies or tax credits or the ability to enroll in
Medicaid because of, you know, the way that the programs are
structured right now. So they are going to be much more
advantaged as a result of the full implementation of the law
than they have in the past. They will be able to get coverage
that is affordable and it is decent. A lot of the policies that
insurance companies market to young adults are limited benefit
plans or plans with very high deductibles. Young people are not
immune from getting seriously ill or injured, so many of them
find themselves, if they bought these policies, at great risk
of themselves having to file for bankruptcy and their lives
being ruined as a consequence.
Mr. Pallone. Let me ask you another question. The health
insurance marketplaces that will come online in a few months
time are a key new tool to help consumers and small businesses
shop for coverage. They finally make it easy to compare plans,
you know, apples to apples, so consumers can purchase
dependable quality coverage. Plans will be forced to compete on
price and quality, they provide one-stop shop, reduce
transaction costs, increase transparencies. The CBO estimates
that these factors alone will drive premiums down 7 to 10
percent and there is a potential for much more savings.
I know my Republicans friends like to talk about how the
application for premium tax credits will be too long and
complicated, but have they looked at insurance company
paperwork recently? The ACA eliminates the fine print loopholes
that insurers would hide in their 100-page contracts and said
it guarantees quality coverage and requires plans to provide a
four-page plain language summary of benefits and coverage.
So, Mr. Potter, when you worked in the insurance industry,
would you say the industry was transparent and consumer
friendly, and what do you think reforms like those in the new
health insurance marketplaces will do to consumer costs?
Mr. Potter. Insurance companies were anything but
transparent and forthcoming in the information that they were
providing to prospective customers. There was nothing like what
has to be available now. You can now make some apples-to-apples
comparisons among policies. You could not do that, and you
hardly could be able to decipher information except the slick
marketing materials you would get from insurance companies, but
now, as you noted, they have to have summaries that are----
Mr. Pallone. When you say now, you mean with the ACA?
Mr. Potter. With the ACA, that is right.
Mr. Pallone. You know, I mean, look, my own experience, you
know, I understand what you are saying, and I really want to
emphasize that, you know, part of what the ACA is trying to
accomplish is to basically make it easier, you know, with the
exchanges that you can actually figure out what is going on.
Mr. Potter. You can.
Mr. Pallone. And simplify it. And if you want to just
comment on that again.
Mr. Potter. You can be a much better informed consumer now
than you ever had been in the past by coverage from insurance
companies because they do have to be more transparent, they
have to give you some understanding or better understanding of
exactly what they will cover and what you might be having to
expect in terms of out-of-pocket expenses if you enroll in one
plan versus another.
And you can do that online. In fact, you can get that kind
of information now because that kind of transparency was
required as of the first of this year. So, again, I said
earlier that these changes are going to be changing the culture
of insurance companies in the industry and for the better, and
one of the ways that it is changing these in the culture is
through this greater transparency, which by the way, the
insurance industry fought. They did not want to do this because
they have benefited significantly over the years from keeping
us in the dark.
Mr. Burgess. OK.
Mr. Potter. They were buying things that weren't
necessarily to our best advantage.
Mr. Pallone. Thank you. Thank you, Mr. Chairman.
Mr. Burgess. We have a lot of members who are ready to
question before votes, so the gentleman from Florida, Mr.
Bilirakis, 5 minutes for questions, please.
Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it
very much, and I thank the panel for their testimony today.
Mr. Carlson, as we discussed earlier, how the $100 billion,
at least $100 billion tax on health insurance will drive
premiums higher, and I know that you have analyzed the tax's
cumulative impact in depth. Can you explain what it means when
you say that the Affordable Care Act constructed this tax to be
non-deductible and why is it a non-standard treatment of taxes?
Mr. Carlson. Well, in very simple terms, the tax is not
considered an expense in the, you know, in an income statement,
so it won't be charged against the company until, you know,
after their taxes are taken out of their income or what the
profitability is. So, in effect, that means that not only do
they have to fund the tax, but they also need to fund an
additional amount to reflect the taxes that they will have to
pay on that. So, you know, as Dr. Holtz-Eakin said earlier, you
know, you have to collect $1.50 in premium in order to pay the
dollar of the insurer fees.
Mr. Bilirakis. Thank you. Again, Mr. Holtz-Eakin and Mr.
Carlson, the tax on health insurance is one of many factors
that will cause premiums to rise. I think we have established
that there is a real threat that small employers will be forced
to terminate employee coverage and send their workers to the
exchange subsidized coverage.
What will the repercussions be if this happens, and if both
of you can give me an answer, I would appreciate it.
Mr. Holtz-Eakin. Well, certainly, if you do the arithmetic
for any employer whose employees are under 3 percent of the
Federal poverty line, it is a no-brainer to stop offering
insurance, send individuals to the exchanges. You can give them
a raise. They can use the after tax raise and subsidies to buy
better insurance than you could offer them. You can pay a
penalty on top of that and still make more money.
And so there are overwhelming economic incentives for a
vast numberof employees then after the exchanges. The
implications of that, I think, are pretty straightforward.
Number one, the Federal budget cost is going to be radically
higher than it has been estimated to date.
Number two, if in fact we see the premiums increase at the
same time, those subsidies will increase per person, so again
we get a second hit on the budget cost. This will change the
provider networks that many of these individuals will be
accessing so they will get disruptions in their care, and the
labor market turmoil, I think, will be substantial, and we are
beginning to see that with the large number of employers who
are moving people to part-time status instead of full-time in
order to accommodate the mandate. It is just one of the many
potential labor market manifestations of the big implications
of this law.
Mr. Bilirakis. Thank you. Mr. Carlson?
Mr. Carlson. Yes. And I will just add the $8 billion that
starts in 2014, it is a fixed number. So if the pool of fully
insured premiums that that amount is charged against goes down,
in effect the rate will go up. So if you look at our study we
have a high estimate and a low estimate, and the high estimate
for the percentage is based on the assumption that employers,
especially in the small group market, will drop their coverage
and put their employees out into buying in an exchange or other
alternatives. So we relied upon industry studies which in fact
said that is a possibility going forward. So the more employers
that drop their coverage from the fully insured market, the
more likely it is that that premium rate increase will continue
to go up further.
Mr. Bilirakis. Thank you. Mr. Chairman, I yield back. I
appreciate it.
Mr. Burgess. The gentleman yields back.
The chair recognizes the gentlelady from Tennessee, Mrs.
Blackburn, for 5 minutes for questions, please.
Mrs. Blackburn. Thank you, Mr. Chairman, and thank you for
being with us today. We appreciate this.
Mr. Potter, I want to be sure I understood you right. You
said that we were charging people so much for health insurance
that they couldn't afford to buy it before. You made that as a
statement that took place before Obamacare. People were being
charged so much that they couldn't afford to buy health
insurance.
Did I understand you right on that?
Mr. Potter. You are right, Congresswoman.
Mrs. Blackburn. Let me ask you this then. I have some stats
from people in my district of how their health insurance
premiums have gone up since the passage of Obamacare, and I
want to just read through these. I have a car dealership down
in Fayetteville. They dropped coverage because the increase was
so much. An insulation company with 36 employees in Nashville,
they dropped it due a multiple year large rate increase and
administrative burdens on their plan. A consulting firm with
two employees, a 56 percent rate increase in 2013, and that
followed a 15 percent in 2012. A restaurant over in
Springfield, employees no longer allowed to work more than 29
hours a week. That is a jobs program for you, isn't it?
An auto parts company over in La Vergne, they had had a
management carve-out, but let's see, a 30 percent increase last
year, not going to be able to offer coverage to everyone that
works 30 hours or more a week. I mean the list goes on and on.
We have got a flooring company with 30 employees, a 21 percent
increase, and a law firm with three employees, a 16 percent
increase this year, 38.5 percent last year. A physician's
office, seven employees, a 21 percent increase. A commercial
printing company, 25 percent increase. A manufacturer with six
employees, a 25 percent increase. A construction company with
nine employees, 15 percent increase this year followed on top
of a 42.5 percent increase last year. Oh, here is a private
school with 68 employees, a 17 percent increase, and a retail
flooring store with five employees, they had a 123.27 percent
increase that is taking place next month.
Sir, what do you tell these employers who are trying to do
the right thing? You thought health insurance was expensive
before, but what do you tell them now, it is exorbitant?
Mr. Potter. I might tell them the story of Jim and Leslie
Elder, and I don't think it is disingenuous.
Mrs. Blackburn. No, we are not going to go there. You have
sat there and told that story over and over and over. And I
have great compassion----
Mr. Potter. Because it is an important story. And I am from
the Great State of Tennessee and my mother gave----
Mrs. Blackburn. No, sir, it is my time and we are not going
to tell it again. I have great compassion for anyone whole
loses a parent through such a situation. I have just lost my
father and I understand what people go through. But I have got
to tell you something right now, I think that what we have to
do is look at what is happening to these insurance costs.
And here is one I have got. You know, these are all in my
district. These are real live numbers that are coming back in.
I can tell you something right now. Have you ever heard of
TennCare?
Mr. Potter. I have.
Mrs. Blackburn. OK. We had that in Tennessee and you know
what happened there, don't you? It was a disaster. It was such
a disaster that a Tennessee Governor, a Democrat Governor, had
to go in and completely reshape the program.
And let me ask you this. Have you ever heard of any, is
there any public option health care program that you can point
me to that actually saved money and increased access?
Mr. Potter. Public option? We don't have any public options
in this country.
Mrs. Blackburn. Oh, that is not what you call TennCare. It
was a test case for Hillary Clinton's health care. Well then,
let me ask you this about guaranteed issue. Right here, I have
got in '93 a 30-year-old woman in New York had an average
premium, let's see, of $1,800 a month. New York passed
guaranteed issue and community rating, and guess what that
premium went to? $3,240. So you go from $1,800 to $3,240. That
is a $1,400 a year increase after you insert government
control. So if we don't have public option, then have you ever
seen a government-run health care system that has increased
outcomes, decreased costs and increased access?
Mr. Potter. Many systems around the world have done a much
better job of increasing access and controlling costs.
Mrs. Blackburn. My time is about up. Mr. Holtz-Eakin, are
there any examples you can point to there that have lived up to
promises?
Mr. Holtz-Eakin. There are no U.S. examples of that type,
ma'am.
Mrs. Blackburn. Mr. Carlson?
Mr. Carlson. I have none.
Mrs. Blackburn. You have none. I yield back.
Mr. Burgess. The gentleman's lady time has expired.
The chair recognizes the gentleman from Kentucky, Mr.
Guthrie, 5 minutes for your questions, please, sir.
Mr. Guthrie. Thank you very much. I thank the panel for
being here. I would like to build on what some of my colleagues
have talked about today and deep concerns over the rising cost
of health insurance.
The President when he was pushing the health care law said
it would reduce premiums on a family of four by $2,500, and we
have now seen it has increased by 3,000 per year and the most
expensive portions of the law haven't been put into place, has
not gone into effect yet, I should say.
I come from Kentucky and in the early 1990s we actually
were trying to be, before Tennessee, to try to set the
standard. In the 1990s our entire insurance market collapsed in
Kentucky. We attempted a guaranteed issue, guaranteed
portability, modified community rating. Immediately like half
our insurance providers left. We were down to one. We had to go
back and redo the whole law just to get--individuals were
completely wiped out of the market. Most companies went self-
insured just so they could provide health insurance to their
employees who couldn't afford it. They had to be in the ERISA
category instead of the other category. And I would like to
think that Kentucky just wasn't isolated. I think we just heard
from Tennessee's example and one from New York that my friend
brought up.
Dr. Holtz-Eakin, Kentucky, Tennessee, are they the only
examples?
Mr. Holtz-Eakin. There are numerous other examples, the
State of New York, the State of New Jersey. You can go around
the country and look at Kentucky, Vermont, Washington State,
all of whom experimented with this and had big premium
problems, and in some cases, such as Kentucky, reversed course,
having gone through it.
Mr. Guthrie. We had to. You couldn't get insurance. None
would even offer it, much less pay the price that it cost. So
we have been there and it didn't work, and now we are trying to
do this on a Federal level. And I believe even Jerry Brown, the
Governor of California in his state of the budget, so it is not
a Republican sitting here trying to say this is an issue. Jerry
Brown, I don't think anybody would call him a Republican or a
conservative, said in his state of the budget that large rate
increases in individual markets are likely, and that is when he
put in when he accounted for his budget.
So the way groups will react to the market is something,
Dr. Holtz-Eakin, that I am interested in. There is an Oliver
Wyman study from 2009 that highlights some significant red
flags about the impact of the health care law, and one of the
few things is as the prices rise, obviously less healthy people
have to maintain coverage and they are least likely to drop
coverage even if they absorb the cost because they are less
healthy. So then healthy individuals are least likely.
I used to say that the only person, a healthy young person
over 26 that will have insurance in America, are people who
just want to abide by the law because there is no financial
incentive to do it because you have guaranteed issue. Then it
changed. The law was rewritten by the Supreme Court, as you
know, so you are not even violating the by not violating health
insurance, you are paying a tax in lieu of health insurance. So
there is no penalty any more. That was changed by the Roberts
court.
But I don't see how premiums won't spiral. The whole
concept, Dr. Holtz-Eakin, and I will give you the remainder to
talk on this, is you bring young people into the market by
mandating coverage and by younger healthier people in the
market it brings down the premiums for everybody. You are
sharing the risk. But then there is not a financial incentive
at all or even a health incentive because of the guaranteed
issue for a young person to enter the market. And they are not
even mandated to do any more. They can pay a tax in lieu of
going into the market. So can you just comment on how that is
going to affect premiums, this premium spiral I am getting at.
Mr. Holtz-Eakin. This is a serious issue. The whole notion
is that you have a base level of premium cost that comes from
the cost of health care and there is no way to change that with
the insurance provisions. And then you want to have a large
risk pool to take that national health care bill and distribute
it across people. The experience in States has been one in
which the combination of guaranteed issue-community rating
caused the healthy to opt out, and in some cases it led to
insurance state pool death spirals, the continuing higher
premiums, people leave. And that has been the concern about the
construct in the Affordable Care Act.
Massachusetts has a--that is a similar design and it has
now been widely noted that costs have continued to go up there
and we are now seeing individuals hop in and out of coverage.
The mandate is not working, and I am worried about this.
Mr. Guthrie. Mr. Potter, do you see the construct of the
law, the premium spiral, you don't see this as a threat? The
construct of the law for young people to buy health insurance,
the incentive is not there for them to buy health insurance. Do
you think young people are going to opt out of the market and
the premiums are going to go up? You don't think that is a real
concern?
Mr. Potter. I think what the real experience is we can
speculate, but I think that, as we said before, young people
will benefit from being able to get subsidies. They want to
have coverage. I think most people will be wanting to enroll in
a benefit plan.
Mr. Guthrie. With guaranteed issue?
Mr. Potter. If there is guaranteed issue and a requirement
to purchase. The thing that you have to keep in mind is that in
some of the States you talked about, if you have guaranteed
issue without any kind of a mandate, which is why the
Affordable Care Act was developed as it was----
Mr. Guthrie. But the mandate, you can pay a small tax in
lieu of paying a premium.
Mr. Potter. We can argue as to whether or not it is an
enforceable or a large enough mandate.
Mr. Guthrie. If it is not enforceable, they are not going
to be in the system. That is the point.
Mr. Potter. Again, I will say most people want to be
covered. It is not that they want to go without----
Mr. Guthrie. As prices rise and they can get it when they
need it, why would you pay for it if you can get it when you
need it, as prices rise.
Mr. Potter. Because you don't know when you going to need
it. I might get sick tomorrow or my son might. My son is not an
idiot. He will want to have coverage because he knows that he
might get injured. I think most young people realize that they
are not bulletproof. They will be getting coverage because they
know things like that happen to people.
Mr. Burgess. The gentleman's time has expired. I appreciate
the attendance of everyone who has been at this subcommittee.
It has been a good attendance. The ranking member and I will
offer one last question to the panel. I recognize the gentleman
from New Jersey for 5 minutes.
Mr. Pallone. Thank you, Chairman.
My colleague asked if we know of any public health care
system that improved outcomes and controlled costs, and I will
certainly give you one, and that is Medicare. It has lower
administrative costs than private insurance and it provides
great coverage, in my opinion.
But I wanted to ask Mr. Potter a question. Opponents of
guaranteed issue have tried to compare the ACA's guaranteed
issue requirement to previous State experiments of guaranteed
issue and I think this is very misleading. The ACA contains
significant premium subsidies and responsibility requirements
for individuals and employers. By expanding the pool of who
gets covered, the costs increases that critics have tried to
associate with the ACA disappear.
Massachusetts health reform is probably an appropriate
example. In 2006 when it enacted its comprehensive health
reform, Massachusetts already had guaranteed issue in place.
When the State enacted health reform similar to the ACA,
premiums in the State's individual market fell by 40 percent
while they rose by 14 percent nationwide.
So, Mr. Potter, requiring that insurance companies provide
coverage to all who apply represents a big change to these
companies' business models, isn't that correct?
Mr. Potter. That is absolutely correct. Most of them these
days, their business models are based on underwriting and being
able to try to cherry pick and exclude as many people from
coverage as possible.
Mr. Pallone. So do you think there is any comparison
between the rise in premiums in States that required guaranteed
issue in the nineties and the comprehensive nationwide reforms
representing by the ACA?
Mr. Potter. What the ACA does, Congressman, is taking an
approach that is different from what some of the other States
took and made the circumstances in those States different from
what they will be with the implementation of the Affordable
Care Act.
Mr. Pallone. Do you want to just elaborate on that a little
more?
Mr. Potter. Again, if you have a mandate without--I mean if
you have guaranteed issue without incentives to purchase
insurance or without a requirement, then there will be people
who will opt out, and that does increase the cost of coverage,
and that is why the Affordable Care Act was constructed as it
is, to make sure that more people will have that incentive to
purchase insurance.
Mr. Pallone. Let me ask you one more thing. Opponents of
the ACA are attempting to spread fear that the law is going to
increase costs for millions of Americans. However, the CBO and
other analysis have shown that this notion of market-wide
premium increases is simply a myth. First of all, 95 percent of
the insured population in this country has either public
coverage or employer insurance, and that is over 240 million
people. Every objective analyst agrees that employer coverage
will not become significantly more costly under health reform
and a recent study found that increased employer costs
associated with health reform were equal to.0003 percent of
wages, which is simply too small to legitimately lead to large
premium increases. Even the faulty Republican studies discussed
today agree that only a subset of that remaining 5 percent of
the market even has the potential to see a premium increase
under health reform.
So, Mr. Potter, you worked on messaging and public
relations at insurance companies. Does it surprise you that
this attention and fear mongering is occurring over such a
small segment of the marketplace and was the individual market
before reform a profitable sector for insurance companies?
Mr. Potter. It doesn't surprise me at all, because it is
just a continuation of the same kind of tactics they have used
a lot and that I have written about quite a bit. So what they
want to do is create an impression of something that is bigger
than it is or even will exist and it might not. So it is
exactly what they have done in the past. And the marketplace
will change significantly, these companies will change a great
deal as well as a result of this, and I think we will be seeing
that coverage will become more affordable.
Your point is very well taken, too. It doesn't apply. The
vast majority of people in this country, if they get coverage
through the workplace or through a public program, will not see
the--they are not in the individual market, so the effects will
be very limited.
Mr. Pallone. All right. Thank you. Thank you, Mr. Chairman.
Mr. Burgess. The gentleman yields back his time.
Mr. Carlson, you are the numbers guy, so very quickly, in
your experience has there been any industry where the industry
has been force-fed Federal dollars that results in lower costs
to consumers at the other end?
Mr. Carlson. Not that I am aware of.
Mr. Burgess. Student loans come to mind, don't they, and
then some of the problems with the bubble in the housing
industry. Force feeding Federal dollars into an industry
actually can be quite deleterious, although it seems like it is
a compassionate and good thing to do.
Mr. Potter, I just have to say I am so grateful that the
gentlelady from North Carolina posed the questions to you that
she did. I must say I was reading the testimony last night and
I thought this just doesn't sound like reality. I practiced
medicine for almost 28 years, Parkland Hospital, Texas Medical
Center, over 20 years in private practice in North Dallas. I
cannot--I mean, you are an insurance company. If an insurance
company leaves a patient, the doctor, the cancer center, those
people don't just turn people away. You may think they do, but
they don't. We took care of patients every day who had no
realistic means of ever paying their bill. Even if it wasn't
altruism involved, there is always the threat of medical
liability for abandoning a patient. A family might bring a
cause of action.
So I just have been wracking my brain to think of a
comparable clinical situation that I encountered in almost 30
years, and there is not one. Ms. Ellmers is exactly right. The
cancer centers that I know, they would never turn away a
patient. They would find a way to work with them, maybe find a
program at the medical school in the center of the State, maybe
find a facility like M.D. Anderson Hospital to participate. But
you wouldn't just say well, I am so sorry about your financial
situation, I hope things work out for you. In reality that just
does not happen.
Now, I will say this. You worked for CIGNA. In the late
1990s CIGNA, I think all of the large insurance companies were
involved in what were called black box edits; slow pay, no pay,
down coding of bundling and lowering reimbursement rates to
physicians. The insurance industry during the nineties, I am
glad that they are not that way anymore, but they were
responsible for some serious stresses on the system, certainly
from the perspective of a provider.
In fact, providers, really we could do them a great favor
if we would say when you take care of a person who is in this
situation where you are not going to be paid, we will allow you
a credit towards your taxable income. And those will have to be
negotiated rates, but I think there are ways to deal with the
problem. There is always going to need to be safety nets.
Safety nets are important.
Dr. Holtz-Eakin, this $16.5 trillion debt, that is not just
a theory, that is an application, right? And what happens when
the music stops? What happens when the administration goes down
to the Bureau of Public Debt to peddle paper on a Tuesday at
noon and nobody shows up to buy?
Mr. Holtz-Eakin. It is not something you want to
contemplate, Congressman.
Mr. Burgess. Right. The interest rates begin to go upward,
and they can go upward in a quite dramatic way. You and I will
be inconvenienced. It will cost us more to buy a car or buy a
house. People who depend on social safety nets, they are going
to be clobbered when that day happens. So it is important when
we talk about things in terms of Federal spending and debt, it
is not just an esoteric, it is reality that people, no one of
us, the President, no one in the Senate, no one in the House of
Representatives knows when that day of reckoning is going to
occur.
The President came and talked to House Members earlier this
week and he said I don't think you all should worry about it so
much. That is going to be way in the future. I don't know. I
don't have the same confidence that the President has that he
can continue to run trillion dollar deficits every year for
another 4 years and there is no effect on the larger economy
and there is no effect on the dollar being the reserve currency
of the world. I think there is going to be an effect.
But I find this hearing fascinating because we are perched
on the brink of the final rollout of the Affordable Care Act.
It is something that is very difficult to contemplate. I don't
think HHS is ready by any stretch of the imagination. You talk
about people who are left in the lurch. I think you are going
to have a lot of people who go to sign up on their 21 page
application on October 2nd or 3rd and find that the system is
not ready for them, the system does not work. You can only get
one chance to make a first impression.
I wish the agency would be more forthcoming to come to this
committee and talk to us about where they are in the
construction of the informatics piece, in the development of
the Federal exchanges that are going to have to take place
because 26 Governors say we don't trust the administration
enough to set up a State exchange.
I thank everyone for their forbearance during this hearing.
I think it has been a good and informative hearing.
I have a unanimous consent request, Mr. Ranking member, to
insert an article from the Boston Herald into the record. The
headline is ``Mass. individual health premiums highest in the
Nation.''
[The information appears at the conclusion of the hearing.]
Mr. Burgess. I remind members 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 Monday, April 1st, and that
is no joke.
Without objection, the subcommittee is adjourned.
[Whereupon, at 11:25 a.m., the subcommittee was adjourned.]
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