[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
           THE UNINSURED AND AFFORDABLE HEALTH CARE COVERAGE
=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION
                               __________

                           FEBRUARY 28, 2002
                               __________

                           Serial No. 107-98
                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________





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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)











                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Donnelly, Hon. Thomas R., Jr., Board Member, Coalition for 
      Affordable Health Care Coverage............................    85
    Feder, Judith, Dean of Public Policy, Georgetown University..    90
    Grealy, Mary R., President, Healthcare Leadership Council....    33
    Kellermann, Arthur L., Co-Chair of the Committee on the Study 
      of the Consequences of Uninsurance, Institute of Medicine..    27
    Posada, Robert de, President, The Latino Coalition...........    80
    Rowland, Diane, Executive Vice President, Henry J. Kaiser 
      Family Foundation..........................................    39
    Turner, Grace-Marie, President, Galen Institute, Inc.........    72
    Weil, Alan, Center Director, Assessing the New Federalism, 
      The Urban Institute........................................    98
Material submitted for the record by:
    Donnelly, Hon. Thomas R., Jr., Board Member, Coalition for 
      Affordable Health Care Coverage, responses for the record..   107
    Feder, Judith, Dean of Public Policy, Georgetown University, 
      responses for the record...................................   112
    Grealy, Mary R., President, Healthcare Leadership Council, 
      responses for the record...................................   114
    Kellermann, Arthur L., Co-Chair of the Committee on the Study 
      of the Consequences of Uninsurance, Institute of Medicine, 
      responses for the record...................................   117
    Posada, Robert de, President, The Latino Coalition, responses 
      for the record.............................................   121
    Rowland, Diane, Executive Vice President, Henry J. Kaiser 
      Family Foundation, responses for the record................   118
    Turner, Grace-Marie, President, Galen Institute, Inc., 
      responses for the record...................................   123

                                 (iii)

  








           THE UNINSURED AND AFFORDABLE HEALTH CARE COVERAGE

                              ----------                              


                      THURSDAY, FEBRUARY 28, 2002

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 334, Cannon House Office Building, Hon. Michael Bilirakis 
(chairman) presiding.
    Members present: Representatives Bilirakis, Burr, 
Whitfield. Ganske, Wilson, Bryant, Waxman, Strickland, Capps, 
Towns, Wynn, Green, and Dingell (ex officio).
    Staff present: Nandan Kenkeremath, majority counsel; Yong 
Choe, legislative clerk; and Amy Hall, minority professional 
staff member.
    Mr. Bilirakis. I call this hearing to order. I would like 
to welcome our witnesses and our audience to this important 
hearing on the uninsured. And first I would like to thank the 
Veterans Affairs Committee for allowing us to use this hearing 
room while our main hearing room, the Energy and Commerce 
Hearing Room, as you know is being renovated.
    And I am proud to be a member of the leadership of both 
committees. Before we begin today, I would like to take a 
moment to offer my thoughts and prayers to Dr. John Eisenberg 
and his family.
    As many of you know, Dr. Eisenberg is the Director of the 
Agency for Health Care Research Equality. I know that Ranking 
Member Brown and I, as well as all members of this committee, 
have worked with Dr. Eisenberg over the hears in his role of 
AHRQ, as a founding commissioner of the Physician Payment 
Review Commission, one of the precursors as you know of MEDPAC.
    And as principal Deputy Assistant Heath Secretary for 
Health. John's contribution to government and to health 
services research has been of immeasurable value, and did not 
go unnoticed when President Bush decided to retain his 
expertise during his administration.
    For some time now Dr. Eisenberg has been bravely battling a 
brain tumor, while continuing to lead AHRQ with the same 
dedication and passion for which he has always been known.
    He continues to be one of the top government experts in 
quality, appropriateness, and effectiveness of health care 
services, and I know that I speak for myself, for Chairman 
Tauzin, and all members of this committee when I say their 
thoughts and prayers are with John, his family, and his AHRQ 
family during this very difficult time.
    While the number of uninsured individuals in America has 
remained at an unacceptably high level, despite a strong 
economy and record levels of employment, the Census Bureau 
estimates that last year over 38 million people went the whole 
year without health insurance.
    Although this figure does represent an improvement from the 
43.4 million Americans that lacked coverage in 1997, there is 
still real concern with the fact that rising health care costs 
and the recent economic downturn could and probably will 
increase the number of uninsured.
    In the past, we have acted to create systems that expand 
health coverage. We have a system that allows employers to 
offer health benefits to employees without counting these 
benefits as income.
    Medicare and Medicaid, and S-CHIP, represents substantial 
public investments in providing health coverage to our Nation's 
most needy. federally funded community health centers provide 
health care to individuals without regard to their ability to 
pay.
    State governments have implemented innovative programs, 
such as high risk pools, to help with the problem of the 
uninsured. Despite these successes the plain fact is that we 
must do more.
    I believe that it is safe to say that no one solution will 
completely solve this problem. In order to significantly reduce 
the number of uninsured, we must look at innovative and 
flexible solutions that will increase access to health care.
    The President has proposed $89 billion over 10 years as a 
refundable--and I underline that--refundable tax credit for the 
purchase of health insurance. One of the most attractive 
components of this benefit is that it is completely portable, 
and would be in the hands of the individual to use in a manner 
that best suits their family.
    I believe that it is important for Congress to examine this 
proposal, and certainly not to turn away from it, but to 
examine the proposal, and refine it where needed. But it no 
doubt demonstrates--and I feel very strongly about this, it 
does demonstrate the administration's commitment to addressing 
the problem of the uninsured.
    The President's budget also recognizes the important role 
of the health care safety net. The budget proposal would allow 
States to use an estimated $3.2 billion in unspent S-CHIP funds 
to expand S-CHIP, and Medicaid, by enrolling more low income 
children and their parents.
    The administration's proposal also proposes $1.5 billion 
for community health centers, something that is very warm to my 
heart, which is a $114 million increase over last year's 
funding level.
    And last the budget request proposes expanding the medical 
savings account and flexible spending account programs. These 
are real solutions that we should explore, and they can make a 
real difference in reducing the number of uninsured in America.
    But--and I do again emphasize--for the benefit of all of my 
colleagues up here, not completely solving the problem by any 
means, but as has happened in the past, hopefully a partial 
fix, which will go toward at least reducing the number of 
uninsured.
    This year, Congress has a tremendous opportunity, 
particularly with the President's interests, to improve the 
quality and availability of health care for all Americans. Our 
challenge is to enact legislation that will expand access to 
care for a significant number of Americans in a fiscally 
responsible manner.
    And again I would like to thank our witnesses for being 
here today, and I look forward to their testimony. And I know 
would yield to Mr. Brown.
    [The prepared statement of Hon. Michael Bilirakis follows:]
Prepared Statement of Hon. Michael Bilirakis, Chairman, Subcommittee on 
                                 Health
    Good morning, I now call this hearing to order. I'd like to welcome 
our witnesses and our audience to this important hearing on the 
uninsured. First, I would like to thank the Veterans Affairs Committee 
for allowing us to use their hearing room while our main Energy and 
Commerce Committee hearing room is being renovated. I'm proud to be a 
member of the leadership of both these important Committees.
    Before we begin today, I'd like to take a moment to offer my 
thoughts and prayers to Dr. John Eisenberg and his family. As many of 
you know, Dr. Eisenberg is the Director of the Agency for Healthcare 
Research and Quality (AHRQ). I know Ranking Member Brown and myself, as 
well as the Members of this Committee, have worked with Dr. Eisenberg 
over the years in his role at AHRQ, as a founding Commissioner of the 
Physician Payment Review Commission (one of the precursors of MedPAC), 
and as Principal Deputy Assistant Secretary for Health. John's 
contribution to government and to health services research has been of 
immeasurable value, and did not go unnoticed when President Bush 
decided to retain John's expertise during his Administration.
    For some time now, Dr. Eisenberg has been bravely battling a brain 
tumor while continuing to lead AHRQ with the same dedication and 
passion for which he has always been known. He continues to be one of 
the top government experts in quality, appropriateness, and 
effectiveness of health care services. I know I speak for myself, 
Chairman Tauzin, and all the Members of this Committee when I say that 
our thoughts and prayers are with John, his family and his AHRQ family 
during this difficult time.
    The number of uninsured individuals in America has remained at an 
unacceptably high level, despite a strong economy and record levels of 
employment. The Census Bureau estimates that last year over 38 million 
people went the whole year without health insurance. Although this 
figure represents an improvement from the 43.4 million Americans that 
lacked coverage in 1997, there is still real concern with the fact that 
rising health care costs and the recent economic downturn could 
increase the number of uninsured.
    In the past we have acted to create systems that expand health 
coverage. We have a system that allows employers to offer health 
benefits to employees without counting these benefits as income. 
Medicare, Medicaid and S-CHIP represent substantial public investments 
in providing health coverage to our Nation's most needy. Federally 
funded Community Health Centers provide health care to individuals 
without regard to their ability to pay. State governments have 
implemented innovative programs, such as high risk pools, to help with 
the problem of the uninsured. Despite these successes, the plain fact 
is that we must do more.
    I believe it is safe to say that no one solution will completely 
solve this problem. In order to significantly reduce the number of 
uninsured, we must look at innovative and flexible solutions that will 
increase access to health care. The President has proposed $89 Billion 
over ten years as a refundable tax credit for the purchase of health 
insurance. One of the most attractive components of this benefit is 
that it is completely portable and would be in the hands of the 
individual to use in a manner that best suits their family. I believe 
it is important for Congress to examine this proposal and refine it 
where needed, but it no doubt demonstrates the Administrations 
commitment to addressing the problem of the uninsured.
    The President's budget also recognizes the important role of the 
health care safety net. The budget proposal would allow States to use 
an estimated $3.2 Billion in unspent S-CHIP funds to expand S-CHIP and 
Medicaid by enrolling more low-income children and their parents. The 
Administration's proposal also proposes $1.5 Billion for Community 
Health Centers, which is a $114 million dollar increase over last years 
funding level. Lastly, the budget request proposes expanding the 
medical savings account and flexible spending account programs. These 
are real solutions that we should explore, and they can make a real 
difference in reducing the number of uninsured in America.
    This year, Congress has a tremendous opportunity to improve the 
quality and availability of health care for all Americans. Our 
challenge is to enact legislation that will expand access to care for a 
significant number of Americans in a fiscally responsible manner. 
Again, I would like to thank our witnesses for being here today and I 
look forward to their testimony.

    Mr. Brown. I thank you, Mr. Chairman. I want to echo the 
Chairman's remarks, first, about John Eisenberg. As a 
physician, a teacher, a researcher, and a leader in the health 
care policy area, John has dedicated himself to making our 
health care system more responsive, and more efficient, and 
more inclusive.
    I was fortunate to work closely with John during the 
reauthorization of HRQ a couple of years ago, and know that one 
of this personal priorities has been to ensure the independence 
and the scientific integrity of the Agency's products.
    He has fought hard in his career to deliver objective, 
timely, and scientifically valid research, in what can 
sometimes be a politically supercharged environment. And that 
endeavor, as in so many others, John has been wholly 
successful.
    I want to thank him for his contribution and my thoughts 
and prayers are with him during his illness and with his 
family.
    I want to thank the witnesses for joining us this morning, 
especially considering the hearing room in which we sit, and 
what this committee in Congress that normally sits in this 
room, with Mr. Bilirakis and others, has done in the area of 
Veterans Administration health.
    And when you look very quantifiably at results, at medical 
errors, at outcomes, the VA is performing these days an untold 
story, but one to celebrate. The VA is performing these days 
according to quantifiable outcome results better than the 
private health care system in many, many ways in this country.
    And from that I think we could learn something. There was 
an interesting op ed in the Cleveland Plain Dealer the other 
day. Tom Brizatis, an writer for the Plain Dealer, was arguing 
for a single payer system. It is not to be confused as 
opponents often do with the government run health care system, 
where the government actually provides care.
    Single payer means that the financing of health care is 
centralized, which puts an end to the gaps and the 
inconsistencies that inevitably arise when you have a patchwork 
of private and public financing mechanisms.
    Implementing such a system would save about a $100 billion 
in administrative costs out of the U.S. health care system, 
dollars that could be used to actually provide care. We know 
that the administrative costs of Medicare, which is a single 
payer system by and large, that the administrative costs are 
less than 2 percent.
    And the administrative costs of private insurance are five 
times that, eight times that, ten times that, depending on the 
kind of individual or group plan. More importantly under single 
payer, insurance could function like insurance.
    Everyone would pay into the pool, and everyone would know 
that should they become ill that their costs would be covered. 
Individuals with health conditions wouldn't be shunned off as 
we do now into high risk pools, and they would not be denied 
insurance or face coverage, exclusions, and gaps because they 
actually had the occasion to fall ill.
    Small businesses wouldn't be forced to drop coverage 
because their premiums spike upward when one employee gets 
sick.
    People in the individual insurance market would not face an 
impossible tradeoff, unaffordable premiums, or deductibles so 
high that health are remains out of reach with or without 
insurance.
    Steelworkers in my district, for example, and throughout 
the U.S., wouldn't be left without health insurance when their 
companies go under, or are sold, or declare bankruptcy, as well 
LTV, and RTI, and others have recently.
    Economic downturns would not automatically under single 
payer swell the ranks of the uninsured. I am not minimizing the 
potential pitfalls associated with single payer. The public 
sector, the private sector, consumers, would have to work 
closely to ensure high quality care and promote continued 
medical innovation.
    We could work through those issues. I am not as optimistic 
as my friend, Jim McDermott, who is quoted in that op ed that I 
cited earlier. He believes that the U.S. will see beyond the 
stigma, recognizing that anything short of a single payer 
system is just another temporary quick fix.
    My guess is that the word, the term, single payer, sends 
chills down the spine of my colleagues on the other side of the 
aisle, not to mention probably several of our witnesses.
    I think we are going to keep filling holes, unfortunately 
just keep filling holes in this institution, our health care 
system, for some time.
    But if we are left with incremental solutions, let's 
establish some ground rules. I will start with the most obvious 
one. Let's not spend money on a proposal that ultimately 
reduces access to coverage. My concern about MSAs and 
association plans, is that by skimming healthier individuals 
and groups into separate risk pools, these approaches could 
increase premiums for everyone else.
    What happens when premiums increase? So does the number of 
uninsured. While we are at it, let's not encourage the 
proliferation of high deductible plans. When an individual 
faces a high deductible, what kind of care do they avoid?
    They avoid, of course, routine and preventive care. Do we 
really want to discourage the use of routine and preventive 
care and what that means to costs, and what that means to human 
health. Strike Two for MSAs.
    Let's not spend money on a proposal that creates a two-
tiered system; one for healthy people, and one for sick people. 
Insurance is supposed to be there when you get sick, not until 
you get sick.
    While current high risk pools of filled the gap for some 
individuals, premiums are exceptionally high and participation 
is relatively low for the very risk that the risk pool is not 
balanced.
    Again, for insurance to remain stable and to remain 
affordable, you have to buy in when you are healthy as 
protection in the event that you get sick. Taken to its 
extreme, the risk pool says that you would relegate all of 
those who might become ill into one pool, and all of those who 
definitely won't become ill into another.
    All of us would be in the high risk pool. That's why all of 
us need insurance, and that's why those of us who are fortunate 
enough to stay healthy can't abandon those who become ill. 
Tomorrow your luck might change. Let's not spend money on a 
proposal that is not well targeted.
    My concern with tax credits is to help low income families 
who comprise the bulk of the uninsured, these credits would 
have to be huge. I checked out premiums in the individual 
markets in my home State of Ohio.
    Unless you want a plan with a $5,000 deductible, the 
premiums are outrageous, upwards of $10,000 per year per family 
in some cases. I understand the administrative load on a 
typical insurance policy in the individual market--and keep in 
mind what I said about Medicare--are 2 percent administrative 
costs.
    The administrative load on a typical insurance policy in 
the individual market can be as high as 40 percent. Is that the 
best way to spend limited Federal dollars? We would get more 
bang for our buck by expanding existing public programs like 
Medicaid, like S-CHIP, like Medicare.
    My colleague, Mr. Stark and I, have introduced legislation 
that would enable uninsured individuals 55 to 64 to buy into 
Medicare. That is the fastest growing segment of the uninsured 
population, and the segment with the greatest risk for 
catastrophic health event.
    I have joined Mr. Dingell and Mr. Pallone, and others on 
this subcommittee on legislation that provides States 
additional funding so they can get low income parents and other 
groups into Medicaid and S-CHIP.
    We should look seriously at both of those proposals. I want 
to talk about one more principle, which is the most important 
of all, and that is let's not expand coverage by taking away 
from current Medicaid beneficiaries.
    We are the world's wealthiest Nation, and we don't need to 
make deals with the devil. As the committee with jurisdiction 
over Medicaid, we have a responsibility to ensure that the 
beneficiaries of that program are receiving the benefits to 
which they are entitled.
    Those beneficiaries remember Medicaid. They live in 
poverty. Many are disabled severely and most are children. I am 
concerned that the administration is promoting tradeoffs 
through the HIFA waiver process that could easily undercut 
access to care for current Medicaid beneficiaries. I will wrap 
up, Mr. Chairman.
    Some States have asked for waiver authorities to impose 
significant cost sharing, even enrollment fees, on very low 
income beneficiaries, using the savings to offer coverage to 
higher income individuals.
    Imagine charging more for the poor so we can offer more 
benefits to higher income people. I hope, Mr. Chairman, because 
this committee has a responsibility to Medicaid beneficiaries, 
that we can work together on a bipartisan basis to monitor the 
HIFA waiver process and take action to ensure that current 
beneficiaries maintain access to the coverage that they have 
now and absolutely need. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Sherrod Brown follows:]
Prepared Statement of Hon. Sherrod Brown, a Representative in Congress 
                         from the State of Ohio
    Thank you, Mr. Chairman.
    First I want to echo the Chairman's comments about John Eisenberg. 
As a physician, a reseacher, and a leader in the health care policy 
arena, John has dedicated himself to making our health care system more 
responsive, more efficient, and more inclusive.
    I was fortunate to work closely with John during the 
reauthorization of AHRQ, and I know that one of his personal priorities 
has been to ensure the independence and scientific integrity of the 
agency's products. He has fought hard to deliver objective, timely, and 
scientifically valid research in what can sometimes be a politically 
charged environment.
    In that endeavor, as in so many others, John has been wholly 
successful. I want to commend and thank him for his contribution. My 
thoughts and prayers are with John and his family.
    I want to thank our witnesses for joining us this morning.
    There was an interesting op-ed in the Cleveland Plain Dealer on 
Sunday. Tom Brazaitis was arguing for a single-payer system.
    That's not to be confused, as it often is, with a government-run 
health care system, where the government actually provides care.
    A single payer system means that the financing of health care is 
centrallized, which puts an end to the gaps and inconsistencies that 
inevitably arise when you have a patchwork of public and private 
financing mechanisms.
    Implementing such a system could cut about $100 billion in 
administrative costs out of the US health care system, dollars that 
could be used to actually provide care.
    More importantly, under a single payer system, insurance could 
function like insurance again. Everyone would pay into the pool, and 
everyone would know that, should they become ill, their costs would be 
covered.
    Individuals with health conditions wouldn't be shunted off into 
high risk pools, and they wouldn't be denied insurance or face coverage 
exclusions because they had the audacity to actually fall ill.
    Small businesses wouldn't be forced to drop coverage because their 
premiums spike upward when one employee becomes sick.
    People in the individual insurance market would not face an 
impossible trade-off, unaffordable premiums or a deductible so high 
that health care remains out-of-reach with or without insurance.
    Steelworkers in my district and throughout the US would not be left 
without health insurance when their companies go under or are sold. 
Economic downturns wouldn't swell the ranks of the uninsured.
    I'm not minimizing the potential pitfalls associated with single 
payer systems.
    The public sector, the private sector, and consumers would have to 
work closely together to ensure high quality care and promote continued 
medical innovation.
    We could work through those issues. But I'm not as optimistic as my 
friend, Jim McDermott, who is quoted in the op-ed. He believes the US 
will see beyond the stigma and recognize that anything short of a 
single payer system is a temporary fix.
    My guess is that the word ``single-payer'' sends chills down the 
spine of my colleagues on the other side of the aisle, not to mention 
several of our witnesses.
    I think we're going to keep filling holes for awhile yet. So, if 
we're left with incremental solutions, let's establish some ground 
rules.
    I'll start with the most obvious one: Let's not spend money on a 
proposal that ultimately reduces access to coverage.
    My concern about MSAs and association plans is that, by skimming 
healthier individuals and groups into separate risk pools, these 
approaches could increase premiums for everyone else.
    What happens when premiums increase? So does the number of 
uninsured.
    While we're at it, let's not encourage the proliferation of high 
deductible plans. When an individual faces a high deductible, what kind 
of care do you think they avoid? Routine and preventive services. Do we 
really want to discourage the use of routine and preventive services?
    Strike two for MSAs.
    Let's not spend money on a proposal that creates a two-tiered 
system, one for healthy people and one for sick people. Insurance is 
supposed to be there when you get sick, not until you get sick.
    While current high risk pools have filled a gap for some 
individuals, premiums are exceptionally high and participation is 
relatively low, for the very reason that the risk pool is not balanced. 
Again, for insurance to remain stable and affordable, you have to buy 
in when you're healthy as protection in the event you get sick.
    Taken to its extreme, the risk pool concept says you would relegate 
all those who might become ill into one pool, and all those who 
definitely won't become ill into another. All of us would be in the 
high risk pool. That's why all of us need insurance, and that's why 
those of us who are fortunate enough to stay healthy cannot abandon 
those who become ill. Tomorrow your luck could change.
    Let's not spend money on a proposal that is not well targeted.
    My concern with tax credits is that to help the low income families 
who comprise the bulk of the uninsured, these credits would have to be 
huge. I checked out premiums in the individual market in Ohio.
    Unless you want a plan with a $5,000 deductible, the premiums are 
outrageous. Upwards of $10,000 per year in some cases. I understand the 
administrative load on a typical insurance policy in the individual 
market can be as high as 40%.
    Is that the best way to spend limited federal dollars?
    We would get more bang for our buck by expanding existing public 
programs like Medicaid, SCHIP, and Medicare.
    My colleague Mr. Stark and I have introduced legislation that would 
enable uninsured individuals in the 55-65 age group to buy into 
Medicare. That's the fastest growing segment of the uninsured 
population, and the segment at the greatest risk for a catastrophic 
health event.
    I've also joined Mr. Dingell and others on this subcommittee on 
legislation that would provide states additional funding so they can 
get low income parents and other groups into Medicaid and SCHIP.
    I think we should look seriously at both proposals.
    I want to offer one more principle, and it is the most important of 
them all: let's not expand coverage by taking away care from current 
Medicaid beneficiaries.
    We are the wealthiest nation in the world. We don't need to make 
deals with the devil.
    As the committee with jurisdiction over the Medicaid program, we 
have a responsibility to ensure that the beneficiaries of that program 
are receiving the benefits to which they are entitled.
    Remember, these beneficiaries live in poverty. Many are severely 
disabled, most are children.
    I am concerned that the Administration is promoting tradeoffs 
through the ``HIFFA'' waiver process that could easily undercut access 
to care for current Medicaid beneficiaries.
    Some states have asked for waiver authority to impose significant 
cost sharing, even ``enrollment fees,'' on very low income 
beneficiaries, using the savings to offer coverage to higher income 
individuals.
    Think that through: is there that much difference between imposing 
cost sharing on a person with no resources, and abandoning that 
individual altogether? At what point are we breaking our promise?
    This subcommittee has a responsibility to Medicaid beneficiaries. 
We cannot ignore any action, administrative or legislative, that 
jeopardizes their access to care.
    Mr. Chairman, I hope we can work together on a bipartisan basis to 
monitor the HIFFA waiver process and take action if necessary to ensure 
that current beneficiaries maintain access to the coverage they so 
clearly need.
    Thank you, Mr. Chairman.

    Mr. Bilirakis. All right. I thank the Chairman for his 
remarks.
    Mr. Bryant.
    Mr. Bryant. I want to thank the Chairman for holding this 
hearing, and I know that is almost a tradition up here. We 
always start out by thanking the Chairman for having this 
hearing.
    But I especially mean this today because I don't think that 
anyone disagrees with the problem out there being so many 
people that are uninsured, and you focusing on this, and how to 
reach some realistic solutions to this problem, and bringing in 
the talented people and experts that you have brought in today, 
I think certainly will help us along that way.
    And particularly as we move into a situation with the 
economy where we realistically, even though we have seen a 
decline, a slight decline over the last year in uninsureds, we 
likely will see an increase unfortunately.
    And I like your idea, too, that we remain open to all 
opportunities out there, whether they be from the 
administration, or Mr. Brown, and others, that we look at all 
possibilities.
    And it may not be one comprehensive plan. It may be a 
series of different ideas that we are able to reduce this 
number of uninsureds. Before I go too much further in this, I 
want to also join in with my colleagues that have spoken so far 
in recognizing John Eisenberg.
    I met John--he is a Tennessean by the way, and that's what 
I think makes him extra special. Were he still in Tennessee, I 
would probably be his Congressman, and I actually met him the 
day that this situation occurred with him.
    We were at the conference together in Florida, the health 
care conference, and I met him that morning. And immediately--
he still had a little bit of that southern accent, and so I 
picked up on that very quickly, and liked he right away.
    And we talked, and actually I was on the tennis court next 
to him when he went down at that unfortunate time. And so I 
followed him and got to know his wife, Dee Dee, and we share, 
all of us share, that love for tennis that we have, and we are 
really all pulling for him.
    And I know that this is a difficult time for him, and I am 
not sure what all was said before I arrived here, but I just 
wanted to add the fact that I have grown to know him and his 
reputation, and the fact that he has been so committed to his 
work here.
    And I want to add my thanks, along with those others that 
have spoken, and our best wishes as a committee for his 
continued health and recovery.
    And back to the issue at hand. I want to apologize for 
being late. Like so many Members, every Member in Congress, we 
are bouncing around between hearings all the time, and I was at 
the TRED Act before I came over here, but this is where my 
heart is.
    I really have an interest in this, and want to see us come 
to some conclusions here. My State of Tennessee has a waiver, 
and we are operating under a program called TIN Care, and Tenn 
care is--we have added--we probably provide health coverage to 
more people than any other State in the country on a per capita 
basis. I think we are No. 1.
    Almost 1 in 4 in Tennessee, and so about 24. something 
percent of our folks are on Tenn Care, and it is breaking our 
back financially. And I am not sure that we want a whole lot 
more dropped on us if you start talking about expanding the 
Medicaid, and things like that, that would impact us.
    And I am sure that other States are the same way. It is 
kind of an unfunded mandate to some extent, and we have to be 
careful as we look at going down those types of roads to get 
there.
    I can just tell you again that Tenn Care is really 
financially strapping our case right now to the point that we 
are considering some ways to raise revenue that we have never 
thought about in the past, including an income tax. We are one 
of the few States that still does not have an income tax, State 
income tax.
    But I will tell you, too, also that we talk a lot about 
prescription drugs here, and how are we going to make those 
available, not just to senior citizens, which certainly need 
prescription drug benefits, but to others out there.
    I mean, it is not just the older folks that are paying high 
costs for their drugs, and absolutely, the best answer--well, 
not the only, but the best answer to this is that we provide 
health insurance that would incorporate a prescription drug 
benefit.
    We provide better access somehow to coverage which would 
help solve that problem of prescription drugs. I think the way 
to do this, and I would agree with my Chairman, would be 
incentives out there, and all these different issues that we 
have talked about, all these different programs.
    I see them in a more positive light than some on this 
committee do. I think there are real opportunities out there to 
do some good. And I also today want to hear from the 
witnesses--and I know that it is probably part or some of your 
testimony, and I will close with this--this issue of 
uninsurable pools.
    Now, I come out of a defense law practice where I 
represented insurance companies, and I know that in most States 
they have at the insurance level of automobile casualty an 
uninsurable pool.
    I mean, these are the folks that can't get insurance. They 
have a bad record. Now, they have the ability to limit the 
amount of coverage, and do other things that can allow them to 
do it. But if you write car insurance in Tennessee, you have to 
be a part of that pool, and take your assigned number.
    I don't know how that would work with health insurance. It 
is not the same thing. Obviously, you can't limit your 
liability very effectively, but I would be interested in 
hearing how other States handle these uninsurable pools, and 
with that, I again thank you, and yield back the balance of my 
time.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Dingell.
    Mr. Dingell. I want to thank the Chairman and the others 
for making it possible for us to hear from the fine witness 
panel that we have today. Years ago, Congress passed the 
Medicare program as a response to the appalling lack of health 
insurance among the elderly.
    Today it is the most popular and successful health 
insurance program in the country. It guarantees virtually every 
senior citizen affordable health care coverage. Millions of 
other Americans, however, do not enjoy a similar guarantee.
    I think they should, and so in every Congress I have 
introduced H.R. 16, a bill that will provide meaningful health 
care coverage for all Americans. An incremental solution to 
provide health care insurance to more Americans must be 
designed carefully so that the current fabric of health care 
coverage is not undone.
    This means protecting existing employer-sponsored coverage 
from erosion, and ensuring that those with public insurance can 
continue to count on that coverage being both adequate and 
affordable.
    On the latter point the health insurance flexibility and 
accountable HIFA waivers initiated by this administration cause 
me great concern, and I do not believe will meet the test of 
the light of the day, because the waivers erode coverage for 
the poorest, most vulnerable Americans, in order to finance 
coverage for higher income individuals.
    That makes no sense, I suspect, except to those in the 
higher income brackets, because where the need lies is with 
those who have the least, and usually also have the greatest 
needs.
    No solution then can be successful unless it adequately 
addresses the needs of low income families, even the healthiest 
of whom are unlikely to be able to afford adequate health 
coverage on their own, and the needs of those with severe 
health conditions, even the wealthiest of whom may find no 
coverage available, due to exclusions and restrictions on 
coverage in the private insurance market.
    In the current budget context, we may prefer to undertake 
incremental coverage expansions rather than comprehensive 
universal reform. If that is one of the tests we must meet, 
then so be it.
    But our response should be wise. Therefore, it is 
particularly important that the efforts to help the uninsured 
focus on solutions that will get us the most bang for the buck.
    Some, improperly designed, spend billions of precious 
taxpayer dollars on subsidies to those who are already insured, 
or to insurance companies. There are a number of bipartisan 
bills on both the House and Senate side that would target 
coverage to the uninsured without eroding existing coverage and 
misdirecting Federal funds.
    While these approaches, such as the Family Care Act of 
2001, the Family Opportunity Act, the Legal Immigrant 
Children's Health Improvement Act, would not provide coverage 
to every single one of 40 million uninsured Americans, they 
would make substantial progress by extending coverage to some 
of the most vulnerable groups of our uninsured people, and 
would in that process use taxpayers dollars wisely and well.
    Finally, lack of insurance coverage is not the only health 
care problem Americans are facing. Many Americans currently 
insured find their coverage lacking some of the basic 
protections that make health insurance meaningful: access to 
specialty care; and access to emergency care; and access to 
independent external appeals procedures to resolve disputes; 
care provided according to good medical practices and reliable 
accounting principles; and a mechanism to assure that these 
mechanisms and protections are enforceable. We need then to 
pass a meaningful patient's bill of rights to provide these 
basic protections.
    I am still hopeful that we will, and I look forward to 
working with all who will assist me in that undertaking. I look 
forward also to hearing from our expert witnesses on options to 
promote meaningful health care coverage for more Americans.
    I hope that this committee and the Congress will soon move 
forward on the issue, and I thank you for your courtesy to me, 
Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Today the Health Subcommittee is discussing an issue that is of 
great importance to me: providing health care coverage for the 
uninsured. I thank the majority for holding a hearing on this crucial 
topic and I look forward to hearing from our expert witnesses.
    What motivated Congress to propose the Medicare program nearly half 
a century ago was an appalling lack of health insurance among the 
elderly. Today Medicare is the most popular and most successful health 
insurance program in the country, guaranteeing virtually every senior 
citizen affordable health care coverage. But millions of other 
Americans do not enjoy a similar guarantee. I think they should, so in 
every Congress I have introduced H.R. 16, a bill that would provide 
meaningful health care coverage to all Americans.
    Any incremental solution to provide health insurance to more 
Americans must be designed carefully so that the current fabric of 
health care coverage is not undone. This means both protecting existing 
employer-sponsored coverage from erosion and ensuring that those with 
public insurance can continue to count on that coverage being adequate 
and affordable. On the latter point, the ``Health Insurance Flexibility 
and Accountability'' (HIFA) waivers initiated by the Bush 
Administration cause me great concern, because these waivers erode 
coverage for the poorest, most vulnerable Americans in order to finance 
coverage for higher-income individuals. That makes no sense.
    No solution can be successful unless it adequately addresses the 
needs of low-income families, even the healthiest of whom are unlikely 
to be able to afford adequate health coverage on their own, and the 
needs of those with severe health conditions, even the wealthiest of 
whom may find no coverage available or exclusions and restrictions on 
coverage in the private insurance market.
    In the current budget context, we may prefer to undertake 
incremental coverage expansions rather than comprehensive, universal 
reform. Therefore, it is particularly important that efforts to help 
the uninsured focus on solutions that get us the most ``bang for the 
buck.'' Some improperly designed approaches spend billions of precious 
taxpayer dollars on subsidies to those who are already insured.
    There are a number of bipartisan bills in both the House and Senate 
that would target coverage to the uninsured without eroding existing 
coverage and misdirecting federal funds. While these approaches, such 
as the FamilyCare Act of 2001, the Family Opportunity Act, and the 
Legal Immigrant Children's Health Improvement Act, would not provide 
coverage to every single one of the 40 million uninsured Americans, 
they would make substantial progress by extending coverage to some of 
the most vulnerable groups of uninsured people, and would use taxpayer 
dollars wisely.
    Finally, lack of insurance coverage is not the only health care 
problem Americans are facing. Many Americans who are currently insured 
find their coverage lacking some of the basic protections that make 
health insurance meaningful: access to specialty care; access to 
emergency care; an independent external appeals procedure to resolve 
disputes; care provided according to good medical practice; reliable 
accounting principles; and a mechanism to ensure that these protections 
are enforceable. We need to pass a meaningful Patients' Bill of Rights 
to provide these basic protections, and I am still hopeful that we 
will.
    I look forward to hearing from our expert witnesses on options to 
promote meaningful health care coverage for more Americans. I hope that 
our Committee, and the Congress, will soon move forward on this issue.

    Mr. Bilirakis. Thank you, and the Chair now recognizes the 
gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you very much, and 
obviously this is a very complex issue that we are dealing 
with, but I can't think of a more important issue for this 
hearing to focus on.
    I know in the State of Kentucky, I'm sure like many other 
States, this is one of the major problems facing people who are 
uninsured. We are really in a dilemma, because if your income 
is X-dollars and below, then you are covered by Medicaid.
    If you are a senior citizen, then you are covered by 
Medicare. And, of course, we want to expand that to include a 
prescription drug benefit.
    But we have lots of people whose employer does not provide 
health insurance, or they run their own business. And while 
they are paying payroll tax that helps support Medicare and 
Medicaid, they cannot afford to buy health insurance for their 
own families.
    And that's why I am anxious to hear from these experts 
today to help us come up with a plan, and develop a plan, in 
which we can provide meaningful health care coverage. We have 
talked about this, and we have talked about this, and we 
continue to talk about this.
    But I think it is imperative that we take some action. Now, 
we have expanded the coverage for young children under the 
Medicaid program, and under the CHIPS program, and we have 
increased funding for the community health centers that 
provides health care to anybody who wants to come in and 
receive it.
    But community health centers are certainly not available 
everywhere, and I agree that we certainly want to place 
emphasis on those on Medicaid, as well as those on Medicare, 
but we also need to start emphasizing those people who are 
paying payroll tax, but cannot afford to pay health coverage 
for themselves.
    Now, in Kentucky, 6 or 7 years ago, mandates were placed on 
companies that sold health insurance in Kentucky, and every 
insurance company left Kentucky with the exception of one.
    And as a result rates skyrocketed, and more people became 
uninsured than before those mandates went into effect. So I 
think we have to move very carefully and explore any option 
that is out there, but I do think it is imperative that we 
start taking some action to try to solve this problem, and I 
yield back the balance of my time.
    Mr. Bilirakis. I thank you, and the Chair recognizes the 
gentleman from New Jersey for his opening statement, Mr. 
Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. Let me say right at 
the beginning that I believe in universal health care, and I 
think that the government has an obligation to provide health 
insurance for everyone.
    I realize that is not a position that we can obtain a 
majority for in the Congress, in either House probably, but I 
think ultimately that should be the goal. The problem that we 
have had in the last few years is since the demise I guess of 
the Clinton health care proposal is that the number of 
uninsured continue to rise until we in Congress started to take 
some steps, like the Children's Health Insurance Program, that 
would try in a sort of case-by-case or area-by-area situation 
to reach out to those large groups of uninsured.
    And once we put the S-CHIP program in place, and within the 
last few years until this recession, we started to see a 
stabilization of the numbers of uninsured, and I guess at about 
40 million.
    But with the recession, and with September 11, those 
numbers now are rising again. So I think it is important to 
have this hearing today. The concern that I have with regard to 
displaced workers, and workers that lost their jobs or have an 
inability to find jobs because of the recession, is that we 
just really haven't dealt with their problem effectively.
    The economic stimulus package, which of course has never 
been passed, should have included COBRA extension, and should 
include expansion of Medicaid to deal with the problem of 
displaced workers, and so far that hasn't occurred.
    But beyond that a lot of the workers out there are not 
eligible for COBRA, and so an extension does no necessarily 
help them. We need to look at innovative ways to deal with 
their problems, whether it is expansion of Medicaid or some 
other suggestions, some of which have been made today.
    The other problem is that the States face a real crisis 
with Medicaid. My own State of New Jersey is in a terrible 
situation. We have a budget deficit that we have to make up, 
and it is about 12 percent of our budget.
    And when our Governor was down here a few weeks ago, he 
explained that a big part of that is Medicaid costs. If he 
could deal with Medicaid costs in an effective way with Federal 
help, he could probably cut back on half of the deficit that he 
now faces.
    My problem with the President's proposal is that he 
announced essentially in the State of the Union his budget, and 
that he is addressing this problem primarily through tax 
credits, $1,000 or $2,000.
    I just don't think that those are going to work. If they 
are designed to deal with people who don't have health 
insurance, and the idea is that they are going to go out in the 
individual market and buy health insurance, we all know--Mr. 
Brown mentioned the costs are way up.
    A thousand dollars or $2,000 for couples is just not going 
to cut it. You are not going to be able to buy that insurance. 
All you are doing with the President's tax credit is probably 
helping people that already have insurance, and not the problem 
that we are trying to address today with the uninsured.
    I think that we need to--if we are going to take this 
approach of just dealing with one sector at a time, rather than 
dealing with universal health care, then I think we have to 
address the problem of the uninsured essentially with 
government programs.
    An expansion of the CHIP program to cover the adults has 
been mentioned, and expansion of Medicaid, and having the near-
elderly, which is another large group, be able to buy into 
Medicare, perhaps with some sort of subsidy on a sliding scale.
    These are the types of things that need to be done, and I 
am afraid--and I will be partisan now in saying this--that I 
don't see much effort on the part of the President, or even the 
Republican leadership, to move in that direction.
    They seem to be fixated on the Republican side, and these 
free-market approaches, and the tax credits, which are not 
going to solve the problem of the uninsured.
    And I would simply ask that my colleagues on the other side 
of the aisle, let's be a little less ideological. I am sure 
that we are going to hear today about the problems. I think if 
we are a little less ideological, and we get together behind 
government programs that maybe go back to the States, like S-
CHIP, and expansion of S-CHIP, this is the way this is going to 
go to make a difference right now for people that don't have 
health insurance.
    And we just have to keep in mind that people are suffering. 
When I go out and I have my forums, and I had a few the last 
few weeks, this is the major issue. It is this, and it is 
prescription drugs.
    And we just can't sit around here for another year until 
the end of this session and pretend that this problem is going 
to go away. It's not and it is getting worse. Thank you, Mr. 
Chairman.
    Mr. Bilirakis. Thank you, and the Chair recognizes the 
gentleman from Iowa, Dr. Ganske, for his opening statement.
    Mr. Ganske. Thank you, Mr. Chairman. We have about 40 
million uninsured, and that is the usual figure that is given, 
in this country. Here are some quick ideas that I have just 
jotted down on how we can help.
    No. 1, we need to get the economy moving. When there is a 
recession, people lose their health insurance coverage. It is 
hard for people to get jobs, and if you don't get jobs, you 
don't get benefits from your employers. We should extend the 
health care benefits to those who have lost their jobs in this 
recession.
    No. 2. We need to get those who already qualify for 
existing programs enrolled. There are many, many States that 
put up impediments to enrolling the uninsured. My own home 
State of Iowa is an example of this. You have to re-up every 
month for Medicaid.
    Other States have 25 or 30 page forms you fill out, and 
other States may have one office every 200 miles on the second 
floor.
    No. 3. We need to get signed into law the Ganske-Dingell 
Patient's Bill of Rights, because there are some very good 
access provisions in that bill. For instance, the expansion of 
medical savings accounts, tax deductibility for the self-
employed, 100 percent; tax credit for uninsured small 
employers; private foundation grants to purchasing co-ops.
    There are all sorts of things in that bill. I think it 
would help.
    No. 4, the money that the States are receiving for the 
tobacco settlement should be used for health care.
    It is being siphoned off for other uses. Iowa is one of the 
few States in the country that is devoting 100 percent, or at 
least nearly 100 percent of the tobacco money, to health care. 
Other States are using it for many other different purposes.
    No. 5. The Governors are asking for ways to deal with the 
high cost of prescription drugs in their Medicaid programs. We 
need to address that issue.
    No. 6. We need to address the issue of the high cost of 
prescription drugs, and why this country is paying a premium, 
the citizens in this country, and basically subsidizing the 
rest of the world.
    We passed a reimportation bill by huge bipartisan 
majorities in both the House and the Senate. It has not been 
implemented and we should do so. There are many, many ways that 
we can address this.
    I am glad that the Chairman is dealing with and has called 
for this hearing, and I look forward to reviewing the testimony 
of our witnesses, and thank you for coming.
    Mr. Bilirakis. Thank you.
    The Chair recognizes the gentlelady from California, Ms. 
Capps, for her opening statement.
    Ms. Capps. Thank you, Mr. Chairman. I appreciate the 
decision to hold this hearing and the witnesses who will 
testify. As was just said by my colleague, Mr. Ganske, nearly 
one-seventh of all Americans, somewhere around 40 million 
people, cannot get access to routine health care because they 
lack health insurance.
    They either cannot afford insurance, or are not insurable 
for some medical reason, and this is a terrible problem for our 
country. These people are being forced to gamble with their 
health and with their livelihoods. They have to bet that they 
will stay healthy and not require health care.
    Each day they wonder if this is the day that their luck 
will run out, and is the day that they, or a dependent loved 
one, contract a terrible disease. Will today be the day that 
they or their family are stricken by something that will fill 
their life with pain and bankrupt them.
    These people should not have to face such fears without the 
security that insurance can provide. And beyond the potential 
suffering of individuals and families, this is a problem that 
is very costly for the American public as a whole.
    Today as we are so preoccupied, and rightly so, with 
national security, this is a national security issue. It is 
easy for many Americans who are insured to think that this is 
not their problem, but it is. Because the uninsured cannot 
easily get routine care, they end up in the emergency rooms for 
more severe and more costly conditions. But since they cannot 
pay for their care, the taxpayers and other patients will pay 
for them, and it will cost more than if the government or some 
insurance program had helped the uninsured in the first place.
    This simply does not make any sense. We need to find a 
better way to help the uninsured. These are not deadbeats. They 
are not people trying to take advantage of the system. They are 
hardworking people, whose employers cannot or will not help 
them.
    They are good Americans who have been laid off because of 
the economy and cannot pay premiums, deductibles, or co-
payments. They are men and women who are taking care of a 
family on their own, and need health insurance. They deserve 
our help.
    For many of us, these are numbers, and staggering numbers. 
But for me, who spent two decades as a school nurse, they are 
faces, because school nurses spend a disproportionate amount of 
their time finding solutions, or helping families cope with 
problems because they can't find insurance.
    When you can call the parent of a sick child who has 
insurance, it makes your job really easy, but I came face-to-
face and worked on a daily basis with those parents, anguished, 
and who struggled to find access to health care for the dearest 
possessions they owned.
    And they felt ashamed and defeated when they could not do 
such. Some have suggested that we can solve this problem with 
tax credits for health care, but this would be a very expensive 
approach and frankly I am doubtful that credits would go very 
far.
    A credit of $1,000 or even $3,000 for a family would not 
even cover the average premium, and does nothing for 
deductibles or cost-sharing, meaning that most of the uninsured 
still would not be able to afford coverage.
    Now, there is a proposal to expand the State high risk 
pools, but this might create insurance ghettos of the sickest 
and poorest, making it even more expensive to provide them with 
health coverage.
    The administration wants to give the States more 
flexibility to expand their Medicaid and S-CHIP programs to 
include more people. Some innovative changes might be worth 
looking at, but there is a real possibility that the States 
would provide questionable coverage for the poor by reducing 
benefits or imposing increased cost-sharing on those who are 
even poorer.
    This would undermine the point of such an effort. Some of 
my colleagues on this side of the aisle suggest that we might 
better address the problem by enabling more people to access 
Medicaid and CHIP benefits as they are now.
    My colleagues, Mr. Dingell, and Mr Waxman, in particular 
have championed this approach, and I have been proud to support 
their efforts. In this time of budgetary limits and competing 
national priorities it is important that we make sure that 
Federal dollars are spent wisely.
    We need to make sure that we do not throw money away on 
approaches, as has been mentioned already, that will not work. 
Instead, we need to make sure that resources are focused on 
legitimate proposals with positive outcomes.
    So I look forward to hearing the witnesses perspectives on 
these proposals, and the issue as a whole. Their expertise will 
be useful in making these judgments, and enacting solutions. I 
think this committee needs to listen very carefully, and make a 
truly informed decision to address this problem.
    So I am glad, Mr. Chairman, that you have called this 
hearing, and I look forward to working with you on it. I yield 
back my time.
    [The prepared statement of Hon. Lois Capps follows:]
  Prepared Statement of Hon. Lois Capps, a Representative in Congress 
                      from the State of California
    Thank you Mr. Chairman. I appreciate your decision to hold this 
hearing.
    Nearly \1/7\th of all Americans, somewhere around 40 million 
people, cannot get access to routine health care because they lack 
health insurance.
    They either cannot afford insurance or are not insurable for some 
medical reason. This is a terrible problem for our country.
    These people are being forced to gamble with their health and with 
their livelihoods. They have to bet that they will stay healthy and not 
require health care.
    Each day, they wonder if today is the day that their luck will run 
out. Is today the day that they or a dependent loved one contract a 
terrible disease? Will today be the day that they or their family are 
stricken by something that will fill their life with pain and bankrupt 
them? These people should not have to face these fears without the 
security that insurance can provide.
    And beyond the potential suffering of individuals and families, 
this is a problem that is very costly for the American public as a 
whole.
    It is easy for many Americans who are insured to think that this is 
not their problem. But it is. Because the uninsured cannot easily get 
routine care, they end up in the emergency rooms for more severe and 
more costly conditions.
    But since they cannot pay for their care, the taxpayers and other 
patients will pay for them. And it will cost more than if the 
government had helped the uninsured in the first place.
    This simply does not make sense. We need to find a better way to 
help the uninsured. These are not deadbeats. They are not people trying 
to take advantage of the system.
    They are hardworking people whose employers cannot or will not help 
them. They are good Americans who have been laid off because of the 
economy and cannot pay premiums, deductibles, or copayments. They are 
men and women who are taking care of a family on their own and need 
health insurance. They deserve our help.
    Some have suggested that we can solve this problem with tax credits 
for health care. But this would be a very expensive approach, and 
frankly I am doubtful that the credits would go very far.
    A credit of $1000, or $3000 for a family, would not even cover the 
average premium and does nothing for deductibles or cost sharing, 
meaning that most of the uninsured would still not be to afford 
coverage.
    Another proposal is to expand the state high-risk pools. But this 
might create insurance ghettos of the sickest and poorest, making it 
even more expensive to provide them with health coverage.
    The Administration wants to give the states more flexibility to 
expand their Medicaid and S-CHIP programs to include more people. Some 
innovative changes might be worth looking at. But there is a real 
possibility that the states would provide questionable coverage for the 
poor by reducing benefits or imposing increased cost sharing on those 
who are even poorer. This would undermine the point of such an effort.
    Some of my colleagues on this side of the aisle suggest that we 
might better address this problem by enabling more people to access 
Medicaid and SCHIP benefits as they are now. My colleagues, Mr. Dingell 
and Mr. Waxman in particular, have championed this approach, and I have 
been proud to support their efforts.
    In this time of budgetary limits and competing national priorities 
it is important that we make sure that federal dollars are spent 
wisely. We need to make sure we do not throw money away on approaches 
that will not work. Instead we need to make sure resources are focused 
on legitimate proposals with positive outcomes.
    So I look forward to hearing the witnesses' perspectives on these 
proposals and the issue as a whole. Their expertise will be useful in 
making these judgements and enacting solutions.
    I think this committee needs to listen carefully and make a truly 
informed decision to address this problem.
    So I am glad that you have called this hearing today Mr. Chairman, 
and I look forward to working with you on it.

    Mr. Bilirakis. Thank you. The Chair recognizes the 
gentlelady from New Mexico, Ms. Wilson.
    Ms. Wilson. Thank you, Mr. Chairman. I know that we have a 
vote pending, and I will keep my remarks short. By most 
estimates, New Mexico leads the Nation in uninsured citizens. 
In the year 2000, 24 percent of New Mexicans did not have 
health insurance, compared to a national average of 14 percent.
    It is a huge problem, and it has only gotten worse in the 
last few years. For a poor State like New Mexico, I think it is 
highly unlikely that we will be able to solve this problem 
ourselves without some help from the Federal Government.
    And I also don't believe that there is a single bullet 
solution. I suspect that there will be a pattern of things that 
we may be able to put together at the State level, and from the 
private sector, from the Federal Government, to reduce the 
number of people who are uninsured, and need health insurance.
    The most common reasons for a lack of coverage are costs or 
unavailability, but what really strikes me is the number of 
people who have a job that offers health care who decline that 
health care, often because of costs.
    Of the about 42 million people who are uninsured, 16.7 
million, or 40 percent, are families with an employer offeror 
of insurance, but the insurance was declined. In addition, 17.3 
million people are in families connected with the work force, 
but have received no offer of insurance.
    In other words, they work for a business, a small business 
employer, or self-employed, and they don't have health 
insurance coverage offered to them. So really a little bit over 
80 percent of the uninsured are in families connected with the 
work force.
    These are in many cases the working poor. I think there is 
a tremendous opportunity to improve our employer-based system, 
as well as to improve the safety net systems that help those 
who cannot make it just on their own to provide health care for 
their families.
    I very much thank the Chairman for holding this hearing, 
and giving us an opportunity to look at a variety of different 
solutions, and how they might work together, because as I say, 
I don't think there is one answer to this problem. Thank you, 
Mr. Chairman.
    Mr. Bilirakis. And I thank you.
    We are in a vote, and about halfway through that, and we 
have at least one more vote after that, or two votes, and so I 
am wondering if the gentleman from Ohio, Mr. Strickland, would 
you like to move forward, or would you like to come back?
    Mr. Strickland. I think I would like to give my statement.
    Mr. Bilirakis. Well, let's go ahead and recognize you for 
your statement.
    Mr. Strickland. Mr. Chairman, I attended a funeral 
recently, a funeral of a young woman by the name of Patsy 
Haines, and I have talked about Patsy before this committee 
over the months.
    She had chronic leukemia, and she was in need of a bone 
marrow transport, and her insurance company refused to pay for 
that transplant, and finally we got her qualified under 
Medicare, 2 years after her surgery should have been performed.
    She received her surgery, and a few days later died, and I 
wonder as I sit here would Patsy Haines be alive today if she 
had received this surgery when her physician first said she 
needed it.
    And I point out this issue of Patsy Haines because I think 
we need to remember that we are talking about real people, and 
it is shameful that in this country today we do not have a 
patient's bill of rights which protects people like Patsy 
Haines and her family from the mistreatment they receive from 
insurance companies, who are more concerned with the bottom 
line than with patient care.
    Mr. Chairman, the majority of the uninsured today are a 
part of working families who do not have access to employer 
sponsored insurance benefits, or whose benefits are inexpensive 
and provide only bare bones coverage.
    Furthermore, about 10 million children are uninsured, and 
that is particularly tragic since so much of a child's 
pediatric health care is crucial to ensuring that he or she can 
live a healthy adult life.
    The State Children's Health Insurance Program does much to 
reduce the number of uninsured kids, providing important basic 
and cost effective health care to millions.
    However, the program has gaps that include not providing 
for pre-natal care for expectant mothers, or ensuring that 
children are not forced to wait until coverage is provided.
    It is for these reasons that I have introduced H.R. 3729, 
the Start Healthy, Stay Healthy, Act. This bipartisan bill 
seeks to expand the S-CHIP program by giving States incentives 
to cover pre-natal care for pregnant women, increasing the 
eligibility age through the age of 20, and prohibiting waiting 
periods for pregnant women, and reducing administrative 
barriers to the program.
    It also provides coverage to any pregnant woman, regardless 
of her age, if she meets the income guidelines. But regardless 
of what approach that we take to reducing the ranks of the 
uninsured, I hope that we do not simply attempt to placate 
those who are calling for action by offering an inadequate 
benefit that fails to address the real problem of a lack of a 
comprehensive health care service.
    Such an approach would not only hurt the currently 
uninsured beneficiaries by giving them something that they 
cannot really use, it could devastate our current employer-
based system of health insurance coverage.
    We must make a strong commitment if we are going to provide 
benefits that will truly help those who are currently without 
ready access to health care. And in closing I would just like 
to associate myself with remarks of Representative Pallone.
    The real answer is a comprehensive, complete, universal 
health care system in this country that does not let American 
citizens like Patsy Haines or some 10 million children go 
without the health care that they need. And I yield back the 
balance of my time.
    Mr. Bilirakis. I thank the gentleman. We have one vote, and 
Mr. Green tells me that he can get his statement in very 
quickly. So, the gentleman from Texas is recognized.
    Mr. Green. Thank you, Mr. Chairman. I would like to put my 
total statement in, but let me reiterate what Ms. Wilson said 
from New Mexico, and myself from Texas; the uninsured is a 
serious problem, particularly with the Latino community.
    Even though Latinos only comprise 12 percent of the United 
States population, they have one quarter of the uninsured. Like 
my colleagues, I support the Family Care Act sponsored by our 
Ranking Member, John Dingell, to expand Medicaid and S-CHIP 
coverage, low income adults, and a particular project that we 
have been working on, and I appreciate the help of the chairman 
of our subcommittee on the Community Access Program, the CAP 
Program, to make grants, and how we can make the current system 
work more efficiently.
    And we have had some success with that over the last 2 
years, and we have the authorization bill, H.R. 3450, and I 
appreciate any support on that. My last concern before we go 
vote is that last August the Department of HHS provided 
administrative guidance to help States expand the number of 
individuals eligible for Medicaid or S-CHIP coverage.
    It sounded really good, but the problem is that it had to 
be budget neutral, and it is hard to expand some of these 
programs and make it budget neutral, because you are trying to 
serve more folks.
    But, again, Mr. Chairman, I thank you for letting me talk 
as fast as I could coming from Texas.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Thank you Mr. Chairman for holding a hearing today on what is one 
of the most pressing issues this subcommittee will consider--how best 
to expand health care coverage to uninsured Americans.
    More than 39 million Americans do not have health insurance. With 
the downturn in the economy, this number is expected to increase 
significantly.
    The uninsured are hard working Americans. Eighty percent of the 
uninsured come from working families.
    Not surprisingly, though, these individuals are working in low-
earning jobs. Nearly two-thirds of the uninsured are individuals who 
make less than 200% of the federal poverty level.
    While all Americans are struggling to find affordable health 
insurance, minorities are much more likely to be uninsured. For 
example, Latinos comprise only 12 percent of the U.S. population, but 
nearly one quarter of the uninsured.
    The problem of the uninsured is serious in Texas, where 4 million 
individuals, or 26.8 percent of our non-elderly population, are without 
health insurance.
    Mr. Chairman, uninsured adults are far more likely than the insured 
to postpone or forgo health care altogether and are less able to afford 
prescription drugs or follow through with recommended treatments.
    According to one report, nearly 40% of uninsured adults skip a 
recommended medical test or treatment, and 20% say they have needed but 
did not received care for a serious problem in the past year.
    Because the uninsured don't have access to primary or preventive 
health care, they are more likely to be hospitalized for avoidable 
health problems such as hypertension and diabetes.
    Our nation's health care safety net is in dire need of repair.
    I am a strong supporter of legislation such as the Family Care Act, 
sponsored by Ranking Member Dingell, which would expand Medicaid and S-
CHIP coverage to low-income adults.
    I also support efforts to double the funding for our core safety-
net providers, such as Community Health Centers, public hospitals, and 
state departments of health, and private hospitals.
    These providers have been working together in cities and towns all 
over the country, developing community-based programs to address the 
problem of the uninsured.
    These coalitions use funding through the Community Access Program 
(CAP) demonstration project to identify ways to better tend to the 
uninsured.
    Funding under CAP can be used to support a variety of projects to 
improve access for all levels of care for the uninsured and under-
insured.
    Each community designs a program that best addresses the needs of 
its uninsured and under insured and its providers.
    I am a strong supporter of this program, having seen how well it 
has worked in my hometown of Houston, Texas.
    Their project aims to improve the interagency communication and 
referral infrastructure of major health care systems in the city, which 
will improve their ability to provide preventive, primary and emergency 
clinical health services in an integrated and coordinated manner.
    Mr. Chairman, the CAP demonstration project has worked well in more 
than 75 communities across the country. We should fully authorize this 
program so that more communities can develop plans that will help us 
provide health care to all Americans.
    I have introduced legislation, the Community Access to Health Care 
Act, which has seventy-six bipartisan cosponsors, several of whom are 
members of this committee.
    I know we have worked with your office to see this program included 
in H.R. 3450, and I appreciate your efforts in that regard. I hope we 
can see movement of this bill so that we can authorize this important 
program.
    Mr. Chairman, I'd like to shift gears for a moment now to discuss 
another important issue, one that I have serious concerns about.
    Last August, the Department of Health and Human Services (HHS) 
provided administrative guidance to help states expand the number of 
individuals eligible for Medicaid or S-CHIP coverage.
    On the surface this sounds like a good idea, and something I would 
support.
    Unfortunately, the Administration's requirement that these 
expansions be ``budget neutral'' poses a serious problem for current 
Medicaid populations.
    Some of the pending waivers would cut benefits for current Medicaid 
enrollees in order to expand the program to other populations. This is 
a classic example of robbing Peter to pay Paul.
    The problem is that current Medicaid enrollees are THE most 
vulnerable populations in our country.
    Medicaid serves low income seniors, children, and the disabled. 
These are individuals who rely on Medicaid to get essential, critical 
health care.
    I have grave concerns that these waivers could cause harm to the 
very people Medicaid was designed to serve.
    I also doubt that we can truly expand these programs without 
providing commensurate increases in funding.
    Finally, I am disturbed that the Secretary will be able to 
negotiate these waivers without any public comment or input.
    This proposal leaves Medicaid enrollees without a seat at the 
bargaining table, without a say, and without representation. That is 
not what this country was founded on.
    Mr. Chairman, this is obviously a complex issue, and I look forward 
to hearing from our witnesses about these issues and others.
    Thank you, and I yield back the balance of my time.

    Mr. Bilirakis. Well, we have another offer from Mr. Towns, 
who is also going to talk very fast also and get his statement 
in before the vote.
    Mr. Towns. Mr. Chair, I would like to ask that my statement 
be entered in the record.
    Mr. Bilirakis. Granted.
    Mr. Towns. I hope that this hearing will encourage the 
Congress to act in a positive way. This is a shame that we have 
allowed this to occur in this country, and I am hoping that we 
would take some action and take it real soon, because they have 
over 40 million people who are uninsured. So, Mr. Chairman, I 
yield back.
    [The prepared statement of Hon. Ed Towns follows:]
Prepared Statement of Hon. Ed Towns, a Representative in Congress from 
                         the State of New York
    Chairman Bilirakis. Thank you for holding this very important 
hearing today. The United States has one of the best health care 
systems in the world in terms of access and health care choices. The 
majority of the U.S. population receives health care coverage through 
employment-based plans. However there is a growing population of more 
than 40 million uninsured Americans. Most uninsured Americans are 
minorities, low to moderate incomes level, adults between the ages of 
18-24 and worker's who are not offered or can not afford insurance 
through the work place. As a result, their ability to take advantage of 
our advanced medical systems is limited the emergency room because of 
lack their of health insurance.
    The U.S. Census Bureau conducted a survey in March 2001. The survey 
found that one out of seven Americans went without health insurance for 
the entire calendar year of 2000. Yet, over half of all uninsured 
people were full-time, workers or their dependents. In addition, more 
than 25 percent of those who worked less than full-time, or who were 
not employed for the full year, were without coverage.
    The issue of the uninsured is not only an individual issue but also 
one that impacts small businesses. Many small businesses are unable to 
provide employee coverage because small group health insurance coverage 
is too costly for most businesses and lacks the ability to design 
affordable health care packages.
    I have addressed many issues that the witnesses will make 
recommendations on today, but I would also like to bring to this 
committee's attention a specific ethnic group's uninsured plight. Once 
again, using the information from the U.S. Census, the largest 
uninsured group in the U.S. are people of Hispanic origin. The data 
shows that Hispanics have the highest percentage of working uninsured 
people. Many Hispanics like my constituents, are unable to secure 
health insurance because low wages, employment migration or insurance 
are not offered.
    Hopefully, today's hearing will begin to provoke the needed action 
in Congress to formulate legislation on this critical issue. I look 
forward to hearing from today's witnesses.

    Mr. Bilirakis. Thank you.
    [Additional statements submitted for the record follow:]
  Prepared Statement of Hon. Fred Upton, a Representative in Congress 
                       from the State of Michigan
    Mr. Chairman, thank you for holding today's hearing on the 
uninsured and alternatives for addressing this serious gap in our 
nation's health care system. Nearly ten percent of Michiganders have no 
health insurance, and nationally, 14 percent of our population is 
without coverage.
    As Members of Congress responsive to our constituents, every day we 
see in letters and in our casework the often very poignant faces behind 
these statistics. Recently, for example, I heard from a family member 
of a 60-year-old widow suffering from congestive heart failure. She had 
no private health insurance, and because she had a small piece of 
rental property, she did not qualify for Medicaid. She already owed 
bills from prior hospitalizations, and because she could not pay these 
in full, she was refusing to seek further health care. In increasing 
desperation, her family went from agency to agency, but found no help 
for her. While we were able to provide some help and hope for her, how 
many more individuals and families are going through similarly 
desperate experiences?
    A nation's greatness is measured not only in the might of its 
armies or the size of its economy. It is measured as well, and perhaps 
in the end most significantly, in its care for those who most need a 
helping hand--the sick, the disabled, and the less fortunate. I believe 
that most people in this nation believe that access to affordable basic 
health care is a fundamental human right and that individuals and 
families should not be denied care because they cannot afford to pay 
for that care.
    And there are practical reasons, as well, that we must tackle the 
problem of the uninsured. The uninsured population's overall health 
status may be lower, and individuals' overall productivity may be 
lower. The uninsured are less likely to receive basic health care 
services than insured individuals, and as a result are more likely to 
seek care in costly emergency room settings. We all pay for these costs 
in terms of higher premiums and greater demands on publicly funded 
programs. At some point, we create a vicious cycle--higher premiums 
push insurance out of the reach of increasing numbers of individuals, 
employees, and employers.
    Mr. Chairman, we have a proud tradition in this Subcommittee of 
expanding access to health care and health care coverage through our 
nation's community health centers, the National Health Service Corps, 
Medicaid, Medicare, and the State Children's Health Program. In this 
Congress, I want us to continue this tradition by working together on 
bipartisan ways to extend health care coverage to the nearly 40 million 
Americans--most of whom are in working families--who have no health 
insurance coverage.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman.
    We are confronted with many different variables in trying to 
understand the plight of the uninsured in this country.
    Factors like employment status, industry sectors, age, family, 
race, income, and geography all play a role in whether or not an 
individual may have health insurance.
    So much of what we face in my home state of Wyoming, in terms of 
the uninsured, comes down to our rural status.
    Wyoming has roughly 480,000 people, and 100,000 square miles of 
rugged terrain.
    Access to medical care and facilities is limited, and folks often 
travel hundreds of miles across the state, in adverse climate 
conditions, just to see a doctor.
    In 2000, Wyoming had roughly 70,000 people under the age of 65 who 
were uninsured. Competition among health insurers in the state is 
scarce as there are only 3 main companies that control the lion's share 
of the market.
    Without competition, health insurers have no incentive to keep 
premiums down, which in turn leads to an increase in the number of 
uninsured.
    Wyoming does not have an adequate population size to bring in new 
health insurers, and I believe that is the case with the majority of 
rural states. Another issue we face with the uninsured in Wyoming is 
our large small business contingency.
    My state has nearly 15,000 businesses with under 100 employees 
each, and the majority of those businesses do not offer health 
insurance to their employees because it is too expensive, and choices 
are limited.
    In fact, I was alarmed to learn that 60 percent of small businesses 
nationwide do not offer health insurance to their employees. That is 
very substantial considering the small business community represents 
99.7 percent of all employers.
    It stands to reason that if we can help small businesses gain 
access to health insurance, this could be a giant step toward vastly 
reducing the number of uninsured in this country.
    I also believe tax incentives could induce greater competition in 
the health care market, which could then encourage insurers to come 
into remote areas of the country.
    Again, getting our hands around this whole issue is very 
challenging because of the many variables. However, bit by bit, we can 
incorporate real, positive changes that can help the private health 
insurance industry function more efficiently.
    Thank you. I yield back my time.
                                 ______
                                 
Prepared Statement of Hon. Robert L. Ehrlich, Jr., a Representative in 
                  Congress from the State of Maryland
    Mr. Chairman, thank you for holding this important hearing today on 
one of the most significant public health problems in the United 
States: nearly one out of seven Americans today, or almost 40 million 
people, are without health insurance. In Maryland, there are 
approximately 750,000 citizens who are uninsured.
    What's left to the uninsured is a health care safety net of 
inpatient and ambulatory health care providers that are legally 
obligated to provide care for those who cannot afford to pay for it. 
This safety net includes public and private nonprofit hospitals (often 
teaching hospitals), public health departments, and community health 
clinics (CHCs), including federally qualified health centers (FQHCs). 
In Maryland, due to the unique nature of health care delivery, our 
critical care hospitals' Emergency Rooms have taken on the role of 
being de facto primary care providers. As you can imagine, this system 
is neither cost effective for hospitals nor desirable for patients 
long-term.
    Clearly, steps Congress can take to assist the employer-based 
health system as well as reduce the number of uninsured are critical to 
the health of our citizens. I am pleased to consider President Bush's 
Fiscal Year 2003 budget, which includes a refundable tax credit for 
health insurance for individuals under age 65. For low-income 
taxpayers, the credit would equal 90% of the premium and would be 
decreased for higher incomes; the credit would be phased out at $30,000 
for individuals and at $60,000 for families. The amount of the credit 
is limited to $1,000 for an adult covered by a policy and $500 for each 
child, up to two children. The Administration's tax credit proposal may 
allow 6 million or more Americans who would otherwise be uninsured to 
gain coverage.
    Mr. Chairman, I agree with the President that tax incentives 
greatly assist people with the cost of insurance--and will increase the 
number of insured Americans. For the past two Congresses, I have joined 
Congressman John Cooksey (R-LA), a physician, and Majority Leader Dick 
Armey (R-TX) to introduce the Patient Access, Choice, and Equity (PACE) 
Act. H.R. 2250 uses the tax code to give the subsidy directly to the 
individual to reduce the number of uninsured, improve choice, 
portability, eliminate tax inequity, and increase efficiency in our 
health care coverage system. On our subcommittee, Congressmen Bryant 
(R-TN) and Shadegg (R-AZ) as well as Congresswoman Cubin (R-WY) and 
Chairman Tauzin are also original cosponsors of the PACE Act, which I 
encourage my colleagues to consider to help expand access to health 
insurance.
    Mr. Chairman, thank your holding this important hearing. I look 
forward to hearing from our witnesses to discuss steps we may take to 
increase the number of Americans with health insurance.
                                 ______
                                 
 Prepared Statement of Hon. Chairman W.J. ``Billy'' Tauzin, Chairman, 
                    Committee on Energy and Commerce
    Thank you Mr. Chairman: I want to commend you for holding this 
important hearing. The problem of the approximately 40 million 
uninsured in America has been a persistent one. For a few years, the 
strong economy and low health care cost inflation seemed to make a dent 
in the problem of the uninsured with the overall number lowered by as 
many as 3 million. Now I fear that rising health care costs and a 
weaker economy jeopardize these gains. Employers and particularly small 
businesses face increasing pressures, which make provision of health 
insurance benefits difficult. Public programs like Medicaid and SCHIP 
are also under pressure as Governors must face tightening budgets and 
falling State revenues.
    A strong and growing economy is the engine that allows us to make 
progress on social problems like access to affordable health care. 
Mandates that increase private sector health care costs and policies 
which do not promote economic growth can leave us helpless to address 
other issues. At this time, and always, we must temper our desire to 
spend more resources with our need to enact smart policies. We need 
smart policy to address those who are left in the gaps between public 
programs, like Medicaid and SCHIP, and those who have health benefits 
through their employers or the individual market.
    WHO ARE THE UNINSURED? These are people generally above the 
official poverty level, and sometimes several times above that level. 
Nonetheless, they have difficulty finding low-cost affordable health 
insurance. As a result, this group experiences reduced access to care. 
They are also more likely to delay seeking care. Often the uninsured 
must receive their health care services in a more costly emergency room 
setting. Providers of health care, especially hospitals, but also 
physicians, are often uncompensated for the care that they provide to 
uninsured individuals, and may seek to shift the cost of that care to 
other private and public payers.
    The President has provided thoughtful leadership on this subject 
which deserves our support. He has proposed a refundable tax credit, 
which would be available to anyone under 65 without employer-sponsored 
or public insurance. The President's proposal provides up to $1,000 for 
a single person and up to $3,000 for a family with two or more 
children. For lower-income Americans, the proposed health insurance 
credit generally covers more than half of the premium the purchaser 
would face, and almost always covers more than a third of the premium. 
In addition, those workers who lose their jobs and health insurance 
would still be able to take advantage of this credit regardless of 
whether or not COBRA continuation coverage was available to them. This 
is particularly important to those part-time and seasonal workers 
because they would be able to retain the coverage they purchase with 
the tax credit even if their jobs change. The Administration estimates 
at least 6 million uninsured Americans would gain health coverage under 
this proposal.
    This policy emphasizes a number of values and marries smart policy 
with additional resources. These values include individual choice of 
insurance plans, portability, strengthening of the private sector 
insurance mechanisms, and accountability. Changes to Medicaid often 
require passage of further state law provisions which can take time and 
involve extended bureaucracy. The President's proposal, on the other 
hand, can be implemented quickly. There is much to commend it. I know 
it won't solve all the problems of the uninsured but it would make a 
difference to millions.
    I think we can also learn from the history of state initiatives 
over the past few years. We have seen experiment in mandates which 
undermine the integrity of the insurance market. Clearly, we need to 
learn from the mistakes of several states and avoid pernicious mandates 
and focus more of our attention on how we can improve the individual 
market through market reforms. One such idea that our Committee has 
focused on is the promotion of high-risk pools. In the recently passed 
stimulus bill, we set aside $100 million expressly for that purpose. 
Our legislation provides states which currently do not have high-risk 
pools with seed money to start new programs. Additionally, that bill 
give states matching funds if they are willing to cap the premium 
amounts that individuals pay in the pool to 150% of the average policy 
rate. I am not going to say that the consolidation of individual tax 
credit, along with vibrant high-risk pools, is the answer to the 
problem of the uninsured. But it is certainly a good start.
    Our Committee will be working on additional legislation in the 
future to ensure that some key reforms in the insurance market are 
implemented. Reforms such as finding a new, more stable revenue source 
for the States, so they can offer high-quality, affordable coverage; 
and policies that may allow more families to take advantage of SCHIP if 
they utilize private health insurance. Families should not be forced 
into public programs against their will. The private insurance market 
works. We should apply it in our effort to solve this critical problem.
    Finally, I want to emphasize that these initiatives should not be 
partisan. Let me stress: we would be using considerable public 
resources to help address an important issue; that is a far cry from 
where both parties stood on this issue over the past few years.
    There is much to be done, and I am pleased our President is showing 
leadership on ideas that focus on individual choice. I look forward to 
hearing from today's witnesses on this important topic.
                                 ______
                                 
    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California
    I just want to make a brief comment today.
    First, I am glad, of course, that this Subcommittee is focusing 
once again on the serious problem we have in this country of some 40 
million people who are uninsured. We all know this problem is severe. 
We all know it has existed for years and years, and we have failed to 
address it adequately. We all know that it is inexcusable for a country 
like ours to allow this problem to persist.
    And yet, over and over again, we have failed to take action. That 
has to change.
    This shouldn't be about ideology. This shouldn't be about 
partisanship. This should be about devising a system that works, and 
getting people the coverage they need.
    It is our responsibility to act. But it is also our responsibility 
to pass a program that will work:
    That means we have to have a plan that doesn't only reduce the 
number of uninsured but that also assures that people who really need 
medical services are included in the ranks of people who get coverage. 
If what we do results in coverage that is affordable only for the young 
and healthy who are unlikely to need much service, but leaves behind 
people who are less healthy, people who have medical conditions, people 
who are older--then we will have taken a step in exactly the wrong 
direction.
    I fear a system of individual tax credits will do exactly that. It 
can never work without radical reform of the individual health 
insurance market. And that means not only guaranteed issue and no 
preexisting condition requirements, it also means that the rates for 
the coverage must be affordable. That means affordable for people who 
have medical problems. That part is always the missing piece in this 
debate. Surely we should have learned that lesson from our experience 
with the Health Insurance Portability Act (HIPA)
    We also have to be sure that what we do does not result in a 
deterioration of the coverage that is already out there. Anything that 
results in employers dropping the group coverage that is already there 
will not only move us backward, it risks undermining the very core of 
our existing coverage system.
    Finally, I would just note that we do know that there are programs 
out there that can work. Medicaid is certainly one. I am proud to note 
that this year, as a result of the legislation we passed in the late 
80s, we now will have every child below poverty covered in the Medicaid 
program. Many said then that could not be done. But it has been, one 
year at a time. And it has provided a base for the expansions that have 
occurred with the CHIP program.
    This is significant progress, and we should build on it.
    I look forward to hearing from our witnesses today, and to working 
with my colleagues on both sides of the aisle to bring real health 
insurance coverage to the millions of Americans who are uninsured 
today.
                                 ______
                                 
 Prepared Statement of Hon. Bart Stupak, a Representative in Congress 
                       from the State of Michigan
    Mr. Chairman, thank you for holding this important hearing today. 
The ongoing issue of America's uninsured is of paramount importance.
    To our credit, we have had extraordinary success in getting people 
insured with Medicare and the Children's Health Insurance Program or 
CHIPs.
    Very few senior citizens are uninsured--about 1 percent, or 
420,000. The quality of this coverage is a subject for another hearing.
    By September 30, 2002 all children under 18 will be required to be 
covered under Medicaid, up to 100% of the federal poverty level.
    The majority of uninsured--approximately 32 million--are those 
Americans between 19 and 65.
    We currently have approximately 43 million uninsured, about 15% of 
the total population.
    This number is growing daily.
    Last week during President's Day recess I toured my district.
    Not a day went past that I did not have a constituent coming up to 
me to voice their concern over the high rate of health insurance 
premiums, in some cases up to 50% over the past two years.
    The Administration proposes a tax credit to help cover the 
uninsured.
    Let's say this credit is for $3000 per family.
    Let's say a person can actually qualify for this credit, and wait a 
year for his tax return to be credited for this amount.
    Most programs you can use this credit on cost about $7300, with a 
deductible of $1000.
    This means the family receiving this voucher has to pay out of 
pocket $4300 per year, with higher optional coverage for prescription 
drugs, pre-existing health conditions, etc.
    Because the majority of the uninsured are from low-income families, 
do we really think this approach is really going to work?
    Mr. Chairman, if you think we have an uninsured problem now, wait 
until the insurance premiums go up even further.
    I have to ask--is it time to institute government price controls on 
insurance premiums for health insurance?
    Thank you, and I yield back the balance of my time.
                                 ______
                                 
 Prepared Statement of Hon. Eliot Engel, a Representative in Congress 
                       from the State of New York
    Mr. Chairman, thank you for holding this hearing on the uninsured. 
It is certainly an issue that we in Congress need to address. I hope 
this Committee will take a good hard look at the problem and work to 
improve this terrible situation.
    I find it ludicrous that almost 40 million Americans currently have 
no health insurance whatsoever. We cannot allow this situation to 
continue. The President has included $29 billion over 10 years in his 
budget proposal for tax credits for low-income individuals to help 
purchase private health insurance. While I welcome efforts to assist 
the uninsured, this approach is simply inadequate and misguided. In 
fact, the President's Economic Report estimated that the tax credit 
would help only 6 million individuals obtain coverage, leaving more 
than 34 million people out in the cold. Other estimates suggest that 
the tax credit will reach far fewer uninsured individuals than the 
President's estimate of 6 million. I am concerned that the tax credit 
will simply assist those already with insurance and do little for the 
ranks of the uninsured. I believe it is clear that the tax credit is 
far from a solution and will absorb much needed resources with little, 
if any, benefit.
    There are a number of current programs in our health care safety 
net that are in need of additional funding. I think that short of a 
comprehensive fix to the problem, we should bolster those existing 
programs and not simply patch another hole in what is clearly a broken 
system. The CHIP program, for instance, has been a tremendous success 
in New York, and we would welcome the opportunity to expand services if 
additional funding were available. However, estimates suggest that, due 
to decreased funding, about 900,000 people will lose their CHIP 
eligibility between 2003 and 2006. CHIP is a proven success, however, 
it is unclear if the proposed tax credit will provide any benefit to 
the uninsured whatsoever. Furthermore, states are going to face severe 
budget constraints due to the economic downturn. As a result, Medicaid 
and CHIP beneficiaries may experience a reduction of benefits or 
increased out-of-pocket expenses, forcing many to the ranks of the 
uninsured.
    Mr. Chairman, as we move forward to address the problem of the 
uninsured I hope that we will consider other options than the 
President's tax credit. I look forward to the testimony from our 
panelists and hope we work in a bi-partisan effort to help all 
uninsured Americans.

    Mr. Bilirakis. We have a vote, and so we will adjourn and 
return for those statements from the witnesses.
    [Brief recess.]
    Mr. Bilirakis. The hearing will come to order. The first 
panel consists of Dr. Arthur L. Kellermann, Co-Chair of the 
Committee on the Study of the Consequences of Unisurance, with 
the Institute of Medicine; Ms. Mary R. Grealy, President of the 
Healthcare Leadership Council; and Dr. Diane Rowland, Executive 
Vice President of the Henry J. Kaiser Family Foundation.
    As you know, your written statements are a part of the 
record. We would hope that you compliment them orally. I will 
turn the clock on to 5 minutes, and I would appreciate it if 
you would try to keep it as close to that as you can, and if 
you can't, we will certainly let you finish up.
    Let's see. Dr. Kellermann, why don't we just start off with 
you, sir.

 STATEMENTS OF ARTHUR L. KELLERMANN, CO-CHAIR OF THE COMMITTEE 
 ON THE STUDY OF THE CONSEQUENCES OF UNINSURANCE, INSTITUTE OF 
  MEDICINE; MARY R. GREALY, PRESIDENT, HEALTHCARE LEADERSHIP 
COUNCIL; AND DIANE ROWLAND, EXECUTIVE VICE PRESIDENT, HENRY J. 
                    KAISER FAMILY FOUNDATION

    Mr. Kellermann. Thank you, Mr. Chairman. Before I start, I 
do want to thank you and all your colleagues about your kind 
words about John Eisenberg. John is an old friend of mind, and 
a fellow Tennessean, a mentor who played a pivotal role in my 
career, and he really has dedicated his life to the health of 
all Americans.
    And personally it meant a great deal to me to hear you say 
what you said.
    Mr. Bilirakis. I hope that his ears are ringing this 
morning. They should be, but we are all very sincere in our 
thoughts for the doctor.
    Mr. Kellermann. My name is Arthur Kellermann, and I am a 
practicing emergency physician, and I chair the Department of 
Emergency Medicine at the Emory University School of Medicine, 
and I currently serve as co-chair of the Committee on the 
Consequences of Uninsurance for the Institute of Medicine.
    Two years ago the IOM Council identified the issue of 
uninsured Americans as a priority for a major analytic 
initiative. The Robert Wood Johnson Foundation asked the IOM to 
conduct an extended study of the consequences of uninsurance, 
not only for individuals and their families, but for the Nation 
as a whole.
    I am here today to discuss our committee's initial 
findings. They are presented in our introductory report, 
Coverage Matters, Insurance and Health Care, which was released 
this past October.
    Five additional reports will follow over the next 2 years. 
The number of Americans without health insurance dipped 
slightly in 1999 and 2000, but the overall trend for the last 
25 years has been one of steady growth.
    The trend has been upward in good times, as well as bad, 
and it has persisted, despite incremental reforms. Now, much of 
the information that our committee synthesized in coverage 
matters is known within health policy circles, but it is not 
well understood by the American public.
    Here is some of the misconceptions our report attempts to 
dispel. Myth Number 1. People without health insurance get the 
medical care they need. In reality, studies show that the 
uninsured are less likely to see a doctor, receive fewer 
preventive services, and are less likely to identify a regular 
source of medical care.
    Myth Number 2. Most people without health insurance are 
young, healthy adults. The reality is that while it is true 
that young adults are more likely than persons of other ages to 
be uninsured, it is largely because they are ineligible for 
workplace health insurance.
    Many are too new in their job, or they work in businesses 
that don't provide insurance to their employees. Only 4 percent 
of all workers, age 18 to 44, about 3 million people, are 
uninsured because they decline available workplace health 
insurance. And most who do, do it because they can't afford 
their share of the premium.
    And Myth 3, most of the uninsured don't work, or live in 
families where no one works. As members of the committee have 
already observed, over 80 percent of uninsured children and 
adults under the age of 65 live and work in families. Even 
members of families with two full-time wage earners have almost 
a one in ten chance of being uninsured.
    Myth 4. Recent immigration has been a major source of the 
increase in the uninsured population. The reality is that over 
a recent 4 year period more than 80 percent of the growth in 
the size of the uninsured population consisted of United States 
citizens.
    Recent immigrants, those who have been in this country for 
6 years or less, comprise only 6 percent of the uninsured 
population. Now, folks who can't get insurance through their 
workplace, or lose their coverage as a result of losing their 
job, have two options for obtaining coverage.
    They can purchase an individual policy or attempt to 
qualify for public insurance, such as Medicaid. Individual 
policies have gotten so expensive that they are out of reach 
for many people, particularly those with low paying jobs.
    The full premium for an employment-based package for a 
family, the same cost-based by an ex-employee who tries to 
avail themselves of COBRA coverage, averages now more than 
$7,000 a year.
    Since the median income of an American family in 2000 was 
just under $41,000 and the incomes of those without insurance 
are much lower, it is no wonder that people can't afford to pay 
that kind of premium.
    If private insurance is unavailable or unaffordable, the 
only alternative for most people is public insurance, such as 
Medicaid. Unfortunately, strict eligibility requirements, and 
complex enrollment procedures, make Medicaid difficult to 
obtain and even harder to keep.
    Coverage under Medicaid lasts on average about 5 months. At 
the end of any given year, approximately two-thirds of people 
who are insured by Medicaid at the start of the year are no 
longer covered.
    In closing, I would like to emphasize four key points. 
First, the rising cost of health care, and therefore the rising 
cost of health insurance, is outpacing the purchasing power of 
many employers, as well as consumers.
    Unless health care is made more affordable, this trend will 
continue until it becomes unsustainable. Two, while health 
insurance is a voluntary matter in the United States, many 
people are involuntarily shut out of the system.
    Eighty percent of the uninsured are members of working 
families. These are the folks who wait on our tables, fix our 
cars, service consultants to business and start small 
businesses of their own.
    I know this because I take care of them in my emergency 
room. They show up there in serious or even life-threatening 
condition, with problems that could have been readily treated 
at an earlier point in time if they had had access to care.
    And even after my ER colleagues stabilized them, we often 
can't get them follow-up medical care to manage that condition 
and keep them out of the hospital. It just makes no sense.
    Third, having health insurance is not a permanent state of 
affairs. In any given year, millions of Americans move in or 
out of the population of uninsured. As the events of the last 6 
months have demonstrated, none of us under 65 can assume that 
we will always have health insurance, no matter what happens.
    My own brother learned this 3 months ago when he lost his 
health insurance. Finally, people without health insurance do 
go without needed medical care, including doctors' visits and 
medications, far more often than people with coverage.
    The health consequences of the lack of insurance are the 
focus of our second IOM report, which is due out this May. I 
commend the committee for holding this hearing, and for 
attempting to come to grips with this problem. I will look 
forward to answering your questions.
    [The prepared statement of Arthur L. Kellermann follows:]
      Prepared Statement of Arthur L. Kellermann, Co-Chair of the 
   Consequences of Uninsurance Committee, Institute of Medicine/The 
 National Academies and Chair, Department of Emergency Medicine, Emory 
  University School of Medicine, Director, Center for Injury Control, 
           Rollins School of Public Health, Emory University
    Good morning, Mr. Chairman and members of the Subcommittee. My name 
is Arthur Kellermann. I am Chair of the Department of Emergency 
Medicine, Emory University School of Medicine and Director of the 
Center for Injury Control, Rollins School of Public Health, Emory 
University. I serve as Co-Chair of the Committee on the Consequences of 
Uninsurance of the Institute of Medicine. The IOM is part of the 
National Academies, originally chartered as the National Academy of 
Sciences by Congress in 1863 to advise the government on matters of 
science and technology.
    Two years ago the IOM Council identified the issue of the large and 
growing population of uninsured Americans as a priority for a major 
analytic initiative. The Robert Wood Johnson Foundation shared this 
interest and asked the IOM to conduct an extended study of significant 
consequences of uninsurance. The study will also identify strategies to 
address these consequences. I am here today to discuss our Committee's 
initial findings. They are presented in our introductory report, 
Coverage Matters: Insurance and Health Care, which was released this 
past October. Our Committee will issue five more reports between May of 
this year and September 2003. They will explore the impact of a lack of 
health insurance, not only for individuals and their families, but for 
our local communities and American society in general.
    The tragic events of last fall have refocused Americans' attention 
on our shared personal concerns, our collective fate, and our well-
being as a nation. Health insurance, the principal mechanism by which 
we finance health care in the United States, is critical to ensuring 
the financial security of American families as well as their access to 
needed health care. Once again our nation faces a growing population of 
uninsured Americans after a brief stabilization in the number of 
uninsured. These circumstances deserve our thoughtful consideration 
even--perhaps especially--in these exceptional times.
    The past 25 years have seen a growing number of uninsured. This 
trend has held despite incremental reforms in the regulation of private 
health insurance such as COBRA and HIPAA that have increased 
opportunities for maintaining coverage (if one already has it). This 
trend has held despite substantial expansions in Medicaid eligibility, 
beginning in the late 1980s and continuing through the enactment of the 
Children's Health Insurance Program in 1997. Although the number of 
Americans without health insurance dipped slightly in 1999 and again in 
2000, after several years of an exceptionally vigorous economy in the 
mid-to-late 1990s, by the fall of last year (after Coverage Matters 
went to press) it was clear that the economy was softening. This 
economic downturn, coupled with rising health care costs and insurance 
premiums and stagnant or declining state tax revenues, has already 
established that the longer-term trend of growth in the numbers of 
uninsured Americans will continue.
    What does this 25-year trend mean? The Committee's report, Coverage 
Matters, documents

 the persistence of the problem of uninsurance, regardless of 
        whether the economy is weak or strong,
 the inherent instability of insurance coverage for all but the 
        elderly in the United States, stemming both from the structure 
        of our employment-based health system and from the conditions 
        of eligibility for coverage under programs like Medicaid and 
        SCHIP, and
 the reduced access to health care of Americans who lack health 
        insurance.
    Each of these findings has important implications for the Congress, 
for state legislatures, and for others as they design public policies 
to address the issue of affordable health care for the uninsured.
    While much of the information that the Committee has synthesized in 
Coverage Matters is known within health policy circles, it is not 
widely understood by the American public. In fact, much of what 
Americans think they know about the uninsured is wrong. 
Misunderstandings about the causes and consequences of uninsurance have 
impeded the formulation of effective public policies to solve the 
problem. Our Committee recognizes that one of its principal tasks must 
be to broaden and deepen the American public's understanding of issues 
related to health insurance and the lack or loss of it.
    Coverage Matters addresses some of the most persistent myths about 
the uninsured and the implications of lacking coverage. We have tried 
to answer the ``Who, what, where, and why'' of this issue in order to 
replace misinformation with good information. Consider the following 
examples, drawn from public opinion polls and focus group research:
    Myth: ``People without health insurance get the medical care they 
need.''
    Reality: In any given year, the uninsured are much more likely to 
lack needed medical care. They are less likely to see a doctor, receive 
fewer preventive services such as blood pressure checks, mammograms and 
screening for colorectal cancer, and are less likely to have a regular 
source of medical care. As will be further documented in our next 
report, routine health care, particularly for those with chronic 
conditions such as diabetes and high blood pressure, can result in 
improved quality of life, prevent long-term disability and lead to 
longer life. Health insurance is a critical link in obtaining such 
care.
    Myth: ``Most people without health insurance are young, healthy 
adults who decline coverage offered in the workplace because they feel 
they don't need it.''
    Reality: Young adults are more likely than persons of other ages to 
be uninsured largely because they are ineligible for workplace health 
insurance--many are too new in their jobs, or they work for a business 
that does not provide health insurance coverage to its employees. Only 
4 percent of all workers ages 18-44, or about 3 million people, are 
uninsured because they declined available workplace health insurance. 
Many of these do so because they can't afford their share of the 
premium. Nearly four times as many workers in the same age group, 
approximately 11 million people, are uninsured because their employer 
does not offer health insurance, and they cannot afford to purchase 
insurance elsewhere. Purchasing coverage outside of work is not an 
option for many, because individually purchased insurance policies are 
frequently expensive, often exclude preexisting conditions, or are 
simply unavailable.
    Myth: ``Most of the uninsured don't work, or live in families where 
no one works.''
    Reality: More than eighty percent of uninsured children and adults 
under the age of 65 live in working families. While working improves 
the chances that both the worker and his or her family will be insured, 
it is not a guarantee. Even members of families with two full-time wage 
earners have almost a one-in-ten chance of being uninsured.
    Myth: ``Recent immigration has been a major source of the increase 
in the uninsured population.''
    Reality: Between 1994 and 1998, over 80 percent of the growth in 
the size of the uninsured population consisted of U.S. citizens. Recent 
immigrants (those who have resided in the U.S. for fewer than 6 years) 
are about three times as likely as members of the general population to 
be uninsured, but they comprise only about 6 percent of the uninsured 
population.
    In the remainder of my testimony, I would like to fill in the 
picture of Americans most vulnerable to being uninsured and expand on 
the factors that contribute to this.
    In the United States, health insurance is a voluntary matter, yet 
many people do not choose to be uninsured. There is no guarantee for 
most people under the age of 65 years that they are eligible for or 
able to afford health insurance.
    Almost seven out of every ten Americans under age 65 are covered by 
employment-based health insurance, either through their job or through 
the job of a parent or their spouse. Three-fourths of U.S. workers are 
offered health insurance by their employers, and 83 percent of those 
who are offered health insurance accept the offer of coverage. About 18 
million Americans live in families whose head works for a company--
often a small one--that does not offer health insurance.
    People who cannot get insurance through the workplace and who are 
under age 65, too young to qualify for Medicare, have two potential 
options to secure coverage--purchase an individual policy or attempt to 
qualify for public insurance, primarily Medicaid. These two options 
account for 21 percent of all coverage among persons under age 65.
    Individual coverage is expensive and may be priced out of reach for 
many people, particularly those who are in poor health. The full 
premium for employment-based coverage for a family--which is the cost 
faced by former employees who might avail themselves of COBRA 
coverage--now averages more than $7,000 per year. Individual policies 
are either more expensive than these group plans, less extensive in 
their benefits, or both. As noted in our report, the median family 
income in 2000 was just under $41,000, and the incomes of most of those 
without health insurance was much lower than that--two-thirds of 
uninsured Americans live in families with incomes below 200 percent of 
the federal poverty level, about $34,000 for a family of four in 2000.
    For individuals and families, the expense of insurance premiums and 
competing demands on their income are the main reasons why some workers 
decline employment-based insurance. Workers who accept an employer's 
offer of subsidized health insurance typically pay between one-quarter 
and one-third of the total cost of the premium for family coverage. In 
addition, they may pay substantial deductibles, co-payments, and even 
pay out of pocket for the costs of health services that are not covered 
by their health plan. Among lower-income families, those earning less 
than 200 percent of the federal policy level, health-related expenses 
may easily consume 10 percent or more of their annual income.
    It isn't easy to foot the bill for health insurance, given its high 
cost. Employers' willingness to subsidize coverage is strongly 
influenced by the scarcity or availability of workers, insurance 
underwriting practices, the cost of health care, and the patchwork of 
public policies that encourage (or discourage) firms to offer insurance 
as a benefit.
    The kind of job a person holds, and where they live, are strongly 
related to their chances of having health insurance. Full-time, full-
year employment offers families the best chances of having health 
insurance, as does an annual income above 200 percent of the federal 
poverty level. The employment mix and strength of the economy, along 
with eligibility and benefits for public programs like Medicaid and 
SCHIP, vary across states and geographic regions, with the result that 
opportunities for obtaining any kind of health insurance coverage and 
the risk of being uninsured also vary regionally. Roughly a quarter of 
the populations of Florida, Texas, Arizona, New Mexico and California 
are uninsured, while less than 12 percent of the populations of Rhode 
Island, Pennsylvania, Minnesota, Iowa, Nebraska and Hawaii lack 
coverage. These disparities in rates of insurance coverage reflect very 
different challenges facing individual states, employers, and the 
federal government in addressing the persistent problem of uninsurance 
across the nation.
    Many find the opportunities for public coverage too limited. The 
combination of strict eligibility requirements and enrollment 
procedures makes public coverage difficult to obtain and even harder to 
keep. The median length of time that someone under the age of 65 keeps 
Medicaid coverage is about 5 months. At the end of any given year, 
about two-thirds of the people who were insured by Medicaid at the 
start of the year have lost their coverage for any number of reasons.
    There are as many ways to lose health insurance as there are to 
gain it. These include an increase in insurance premiums or a change in 
terms, loss of a job or a drop in personal income, new terms of 
employment, a change in health or in marital status, reaching 
adulthood, or a change in public policy. For some, being uninsured is a 
long-term or recurrent state of affairs. The median amount of time 
without insurance is between 5 and 6 months. However, uninsured persons 
living in low-income families and those with less education on average 
experience longer periods without insurance.
    Non-Hispanic whites make up about half of all uninsured persons. 
African Americans, however, are twice as likely as non-Hispanic whites 
to be uninsured, and Hispanics are three times as likely as non-
Hispanic whites to be uninsured. Foreign-born U.S. residents are three 
times as likely to be uninsured as people born in this country. Among 
the foreign born, non-citizens are more than twice as likely to lack 
coverage as naturalized citizens.
    The greater likelihood of being uninsured among racial and ethnic 
minorities and recent immigrants reflects, on average, their lower 
rates of employment-based coverage, which primarily reflects fewer 
offers of employment-based coverage, rather than lower take-up rates. 
Minority groups and recent immigrants also have, on average, lower 
family incomes than non-Hispanic whites and U.S.-born residents, which 
is associated both with employment that does not carry an offer of 
health insurance and a lesser ability to afford an employer's offer of 
coverage.
    In closing, I want to emphasize several points:

 Since the mid 1970s, the rising cost of health care, and 
        therefore the cost of health insurance, has outpaced the 
        purchasing power of many employers and consumers. Some of the 
        most recent economic data released since Coverage Matters was 
        completed shows a resumption of double-digit inflation in 
        health care costs, contributing to a growing gap in 
        affordability. This gap between costs and purchasing power, 
        probably more than any other factor, has fueled the steady 
        growth in the ranks of the uninsured. Unless health insurance 
        becomes more affordable, this trend is expected to continue.
 While health insurance is a voluntary matter in the United 
        States, many people are involuntarily excluded from the system. 
        Among those excluded, the poor and members of certain minority 
        groups are disproportionately represented. However, the 
        uninsured include members of all racial and ethnic groups, 
        persons who live in rural as well as urban settings, and wage 
        earners from a wide variety of occupations. More than 80 
        percent of the uninsured are members of working families. They 
        wait on tables, fix cars, serve as consultants to businesses, 
        and start businesses of their own. They contribute in countless 
        ways to the U.S. economy and our society's well-being.
 Having health insurance is not a permanent state of affairs. 
        Many life transitions can result in the gain or loss of health 
        insurance. In any given year, millions of Americans move into 
        (or out of) the ranks of the uninsured. As the job layoffs over 
        the past 6 months have vividly demonstrated, few of us under 
        the age of 65 can assume that we will always have health 
        insurance, no matter what happens.
 Finally, people without health insurance go without needed 
        care, including doctors' visits and medications, far more often 
        than do people with coverage.
    Thank you for inviting me to present the work of the IOM and the 
Committee on the Consequences of Uninsurance. I would be happy to 
answer any questions that you may have about the Committee or our 
report.

    Mr. Bilirakis. Ms. Grealy.

                   STATEMENT OF MARY R. GREALY

    Ms. Grealy. Mr. Chairman, Congressman Brown, and members of 
the subcommittee, I want to thank you for the opportunity to 
testify today, and I also want to applaud you for the attention 
that you are devoting to the most important health care issue 
facing our Nation.
    I testify today on behalf of the members of the Health Care 
Leadership Council, chief executives of the Nation's leading 
health care companies and institutions, representing all 
sectors of health care; from hospitals, to physician groups, 
health plans, pharmaceutical manufacturers, medical device 
manufacturers, just to name a few of our rather eclectic 
membership.
    Last summer the members of the Health Care Leadership 
Council initiated a nationwide campaign called Health Access 
America. And they are devoting their energy and resources to 
the challenge presented by the nearly 40 million uninsured 
Americans.
    As part of our Health Access America Campaign, we are 
conducting research to better understand the varying needs and 
circumstances of the people who make up the uninsured 
population.
    We are using the internet and our HLC website to link 
people with health coverage and safety net programs in their 
States. We are seeking out innovative local and regional 
programs across the country that are successfully making health 
care coverage more accessible for working families and for 
small business owners.
    Programs like the Wayne County, Michigan Healthy Choice 
Initiative in Congressman Dingell's district, and we are also 
talking to the people who are uninsured. People from all over 
the country, like Lisa Crowley, a single mother, and self-
employed construction worker, from Fort Wayne, Indiana.
    Ms. Crowley reached out to us because she works hard, long 
hours, but she can't obtain insurance to pay for the medication 
that she needs for her dangerous hypertension condition.
    Lisa Crowley and millions of others like her are the focus 
of the uninsured. They are the faces that we see when we now 
know who are the uninsured. Are research as you have heard time 
and again now, and it has really become part of the lexicon of 
describing the uninsured, that 8 out of 10 of the uninsured are 
in working families.
    America's working class uninsured are to a large degree 
people who work for small businesses, and these small 
businesses want to offer coverage, but they can't make it 
happen with their tight operating margins.
    They are people also who receive an offer of insurance from 
their employer, but they are not taking that offer because they 
can't afford the premium. Sometimes they can for themselves, 
but they can't afford the family coverage for their families.
    The HLC believes that successfully addressing this 
challenge will require a mix of public and private solutions. 
It is not a question of public versus private. That is a false 
choice.
    There is not a single solution that will solve this 
problem. We must be flexible and address the challenges of the 
uninsured in a variety of ways with all the tools available. I 
have addressed some of these possible solutions in detailing my 
written testimony, but let me touch briefly on just a few.
    If our goal is to significantly reduce the uninsured as 
quickly and as efficiently as possible, then we need to focus 
on the workplace, where the vast majority of the uninsured can 
be found.
    It makes enormous sense to utilize a prefunded advanceable, 
refundable tax subsidy that could be advanced to the individual 
and used immediately for their monthly premiums.
    The combination of a refundable tax subsidy, the lower cost 
of group health insurance, and the natural outreach 
opportunities that exist in the employment setting create a 
very promising environment for expanding coverage to many more 
Americans.
    We have found in programs like Healthy Choice in Wayne 
County, Michigan, the Focus Program in San Diego, and FAMIS in 
the State of Virginia, that a relatively small helping hand can 
bridge that premium gap between what an employer is able to 
subsidize, and what an employee is able to pay.
    We also need to examine the most effective role for our 
public programs like Medicaid and the State Children's Health 
Insurance Program. These programs are extremely valuable in 
providing health care to citizens with very low incomes. When 
we discuss these programs though, we have to do it in the 
context of current State budget situations and restraints.
    According to the National Conference of State Legislatures, 
28 States will consider cutting their Medicaid benefit packages 
this year. Most States have balanced budget requirements, and 
given that fact that Medicaid and S-CHIP represent the largest 
line items in most of these State budgets, Governors will have 
little choice but to take that direction when looking for 
savings.
    Given this environment, a logical approach would be to use 
those Medicaid and those S-CHIP dollars to supplement employer 
health benefit contributions. The administration has launched a 
demonstration initiative, HIPAA, and that encourages this 
direction.
    It makes good sense in terms of stretching those limited 
health care dollars. Mr. Chairman, the high number of uninsured 
Americans is a problem that has perplexed our Nation for far 
too long.
    I believe though that we are seeing an unprecedented 
determination to find and achieve solutions. Members of this 
committee have introduced and co-sponsored legislation that 
would make health insurance more accessible.
    And the President has included in his budget more than $90 
billion that would among other things provide a refundable, 
advanceable health tax credit to help families purchase health 
insurance.
    The Health Care Leadership Council appreciates and applauds 
all of your ongoing efforts to help the Lisa Crowleys of the 
country to solve this most pressing and serious health care 
issue.
    We look forward to working with Congress, and working with 
the White House on a variety of approaches that will be 
required to get more Americans health insurance coverage. Thank 
you.
    [The prepared statement of Mary R. Grealy follows:]
Prepared Statement of Mary R. Grealy, President, Healthcare Leadership 
                                Council
    Mr. Chairman, Congressman Brown, and members of the subcommittee. I 
am Mary Grealy, President of the Healthcare Leadership Council. On 
behalf of the members of the HLC, I would like to thank you for 
focusing today's hearing on the very important issue of uninsured 
Americans. I welcome and appreciate this opportunity to discuss the 
views of HLC members.
    The Healthcare Leadership Council (HLC) is a coalition of chief 
executives of the nation's leading health care companies and 
organizations, representing all sectors of health care. Our members are 
committed to advancing a market-based health care system that values 
innovation and provides affordable, high-quality care.
    The HLC believes there is no greater health care priority in this 
nation than the approximate 40 million individuals who are without 
health care coverage. The health consequences experienced by those 
without health insurance are well documented. People without coverage 
tend to get sick more often because they do not receive the preventive 
and diagnostic care that so many of us take for granted. They miss more 
time on the job. They are absent from school more frequently, and 
statistics tell us they will die too early.
    In addition, our nation as a whole is affected when such a large 
segment of our population is uninsured. Our productivity suffers, and 
our health providers absorb a tremendous economic strain caused by 
uncompensated care. Hospitals alone are absorbing over $19 billion per 
year in care provided to those who do not have adequate coverage.
    Concern regarding this issue is increasing, and the greater 
attention being given to the uninsured is both welcomed and necessary. 
The President and the Congress, including this subcommittee, should be 
highly commended for their recent efforts to initiate action on behalf 
of uninsured Americans. As well, a number of private organizations have 
begun devoting tremendous energy to this issue and should also be 
commended.
    I would like to particularly applaud the members of this committee 
who have introduced and co-sponsored legislation that would make health 
insurance coverage more accessible to greater numbers of Americans.
    In passing the economic stimulus bill this month, the House of 
Representatives highlighted the need to find ways to ensure that laid 
off workers do not join the ranks of the uninsured. We support 
provisions in that bill which would give those losing coverage a number 
of options for extending their health care benefits or obtaining new 
benefits. In particular, we support efforts to help hard-to-insure 
individuals by providing funding for state high risk pools.
    The members of the HLC also support the President's inclusion of 
more than $90 billion in his recent budget to begin mapping the way to 
coverage for a significant number of the uninsured. The majority of 
this funding would provide a refundable health tax credit that could be 
advanced to families to help them purchase insurance plans in the non-
group insurance market. The HLC believes this is an important step 
toward providing easier access to health care coverage for the millions 
of working Americans who are without it.
    It is our goal to work with the Administration and Congress to 
encourage the development and expansion of this proposal. This 
initiative, as well as the Administration's proposals to increase 
funding for community health centers, to assist hard-to-insure families 
and individuals in purchasing coverage from state risk pools, and to 
maximize use of existing State Children's Health Insurance Program (S-
CHIP) funds, exemplifies the Administration's resolve to strip away the 
diverse array of barriers that keep people uninsured.
    It is critical to point out that there is no single answer, no one 
policy solution that will address the needs of more than 40 million 
uninsured Americans. Taking on this issue requires flexibility and a 
mix of targeted public and private solutions.
    The HLC supports a three-pronged approach to reduce the number of 
uninsured Americans: (1) refundable tax incentives to encourage the 
purchase of insurance, including employer-offered coverage; (2) 
improvements to the current Medicaid program and S-CHIP, including 
improved outreach to enroll those currently eligible and the 
flexibility to use program dollars to expand private coverage; and (3) 
increased efforts to facilitate awareness of the importance and 
availability of health insurance, especially among the nation's small 
businesses.
    The members of HLC are committed to this effort--to raising 
awareness of the national problem of the uninsured and advancing 
solutions to put health coverage within the reach of uninsured 
Americans. Last year, we formed the national Health Access America 
campaign because we believe that all Americans should have access to 
today's modern medical miracles and life-enhancing technologies and 
treatments.
    Under this campaign, HLC members have pledged their leadership, 
energies and resources to help solve the nation's uninsured crisis. We 
are spotlighting local and regional programs throughout the country 
that are developing successful, innovative approaches to help provide 
coverage. We are using our Web page to provide uninsured Americans with 
one-click access to information about coverage and safety net programs 
in their states. We are conducting research studies on the most 
effective ways to address this crisis. And, we are talking to people 
who don't have health coverage, listening to their stories and telling 
them to a wider audience to underscore the cost that will continue to 
be paid if we don't solve this problem.
    Our work in highlighting model programs throughout the country that 
promote health coverage and access has been particularly valuable. We 
spotlight these programs with the HLC ``Honor Roll for Coverage'' 
award. In 2000, we presented awards to the Wayne County, Michigan 
HealthChoice program as well as the FOCUS program in San Diego. Both of 
these programs provide subsidies to help small businesses and their 
employees afford health insurance. In 2001, we recognized Virginia's 
exemplary waiver program that allows S-CHIP funds to be used to help 
expand employer health coverage, and South Carolina's Commun-I-Care 
program, which provides care, health care services and products to 
individuals who are not eligible for public assistance or employer-
based insurance.
    This year, HLC will present its Honor Roll Award to a new program 
in Sacramento County, California, called SACAdvantage. Modeled after 
the San Diego FOCUS program, SACAdvantage will work with small 
employers to increase access to coverage for their employees.
    We believe these and similar state and local programs, small 
business and association purchasing pools, and other creative ways to 
encourage health care coverage merit national attention. There are a 
number of different causes that lead to millions of people being 
without health insurance, and each of these local programs has analyzed 
the unique needs and potential solutions for their uninsured 
populations.
    These initiatives are not only providing coverage for a growing 
number of individuals, families and small businesses, but they are 
providing us with a critical road map leading toward workable solutions 
that may encourage small employers and individuals to participate in 
coverage programs. For example, Wayne County's HealthChoice program, 
found that it was difficult to entice businesses to participate as long 
as subsidies to those businesses were less than one-third of their 
insurance premium costs. The premium formula that eventually made the 
program a success was one-third paid by the employer, one-third paid by 
the employee, and one-third subsidized by the county government.
    In addition, these small employers received the benefit of the 
pooling arrangement created by the county, which offered a negotiated 
price as well as a subsidy. This mirrors some of the advantages enjoyed 
by large employers and other types of purchasing pool arrangements.
    Finally, in an effort to increase awareness about the importance of 
health care coverage, HLC has worked with Congresswoman Wilson on the 
introduction of H.Con.R. 271, The Importance of Health Care Coverage 
Month, and securing bipartisan cosponsors for that resolution. 
Concurrently, our grassroots organization is coordinating events around 
the country with cosponsors of the resolution to help educate 
individuals and small business of the importance and availability of 
health care coverage.
    I would now like to share with the Committee information from 
several research projects that we have undertaken at HLC. These studies 
are helping us to better understand the characteristics of the 
uninsured and potential solutions to the significant challenges before 
us.
Characteristics of the Uninsured
    Four out of every five uninsured persons are in families with at 
least one employed family member. This is the dominant picture of the 
uninsured--hard-working people who are not offered or cannot afford 
health insurance. Of the 33 million uninsured in working families, 13 
million are in families where an offer of insurance from an employer is 
turned down, usually because the family cannot afford it. Twenty 
million of the uninsured in working households are not offered employer 
insurance.
    It is not surprising that affordability is the most significant of 
the various barriers to having health coverage. A recent analysis 
commissioned by HLC shows that 16 percent of those in families with 
incomes under the federal poverty level with an offer of insurance are 
uninsured, compared to six percent of those in families with incomes 
over three times the poverty level.
    Cost is a barrier to insurance enrollment for low-income workers 
and their dependents, in part because their share of premiums consumes 
a higher percentage of their income than is the case for workers with 
higher incomes. Also, workers in middle and upper-income brackets tend 
to work for employers who subsidize a larger portion of their health 
insurance premiums, whereas low-wage firms offer a smaller subsidy to 
their employees.
    These characteristics suggest that pre-funded, refundable tax 
incentives to lower income workers could serve to bridge the premium 
gap that exists between what an employer and employee are each able to 
contribute toward a health insurance policy. Such tax incentives could 
encourage many employers not now offering coverage to do so, and also 
will aid those workers who are not offered health insurance by their 
employers.
Limitations of S-CHIP and Medicaid
    S-CHIP and Medicaid have proven extremely valuable for providing 
health care to very low income populations, and must play a role in the 
package of solutions that will reduce America's uninsured population.
    However, evidence suggests that we are reaching the limits of 
effectiveness in reducing the number of uninsured through these 
programs, as they currently function. Only about half of the 
individuals currently eligible for Medicaid and S-CHIP actually 
participate in the programs, suggesting that eligibility alone--without 
considerable investment to remove existing barriers to participation--
does not and will not efficiently increase the number of people 
receiving coverage.
    A number of reasons have been cited for low participation in these 
programs, including the fact that participation rates in means-tested 
public insurance programs decline as incomes rise. A large number of 
those electing not to participate are families with higher income 
levels who were offered public insurance upon the inception of S-CHIP.
    This pattern of lower participation among higher income persons is 
also evident in other government health care subsidy programs, 
including the Qualified Medicare Beneficiaries (QMBs) and Specified 
Low-Income Medicare Beneficiaries (SLMBs) programs. Forty-five percent 
of QMBs who have incomes at or below 100 percent of poverty do not 
participate in the QMB program. Among SLMBs, who have slightly higher 
incomes than QMBs at 100 to 120 percent of poverty, 84 percent of those 
eligible fail to participate. Obviously, substantial outreach is 
necessary to overcome barriers to participation, such as the stigma 
many associate with public programs.
    Any discussion of expanding S-CHIP or Medicaid eligibility must 
also take into consideration the deteriorating fiscal health of many of 
our states. Medicaid and S-CHIP account for the largest line item in 
most state budgets. And, unlike the federal government, virtually all 
of the states do not have the option of deficit spending, meaning that 
budget cuts will have to occur. The National Conference of State 
Legislature's annual Health Priorities Survey for 2002 found that 28 
states will consider cutting Medicaid benefit packages this year. At 
the recent Governor's meeting in Washington, several state chief 
executives made it clear that Medicaid spending is one of the greatest 
problems they face.
    This challenging environment requires innovative approaches. For 
example, using S-CHIP funds to supplement employer premium 
contributions, as the Administration's new Health Insurance Flexibility 
and Accountability (HIFA) Demonstration Initiative waiver encourages, 
is a logical way to stretch scarce health care dollars. Virginia's 
FAMIS program, which I mentioned previously, is one of the first 
programs in the nation to combine its S-CHIP funding with employer-
offered coverage. This program is now enrolling thousands of uninsured 
children into their parents' health plans in the work place.
    This idea should be examined closely by other states as well as the 
Federal government. Many eligible individuals in the higher income 
categories of Medicaid and S-CHIP, as well as income categories under 
consideration for Medicaid and S-CHIP expansions, are connected to the 
workforce through at least one family member. Therefore, solutions 
involving ways to supplement employer insurance may be highly effective 
in increasing coverage rates for these populations, providing coverage 
without the stigma of government dependence. There are steps that must 
be taken, though, to make this approach work better. There are 
administrative complexities within the Medicaid and S-CHIP programs 
that discourage states from opting to coordinate with employer health 
plans. HHS currently does not have the authority to eliminate all of 
these barriers. Congress must address them legislatively. The HLC would 
appreciate the opportunity to work with this committee to help identify 
and overcome these obstacles.
Targeted, Refundable Tax Incentives
    HLC members are committed to forging a health care system 
characterized by innovation and constantly improving quality. Choice, 
which drives competition, is essential to such a system. Health 
coverage tax credits have the potential for providing consumers with a 
great amount of flexibility for choosing health coverage options that 
best suit their needs. They also can act as a stimulus to create new 
and wider coverage choices in the marketplace.
    The HLC believes tax credits should be refundable for persons with 
little or no tax liability, and they should be paid in advance so that 
individuals with limited or no savings can take advantage of them to 
pay monthly premiums before the end of the tax year. Risk adjusting tax 
credits for those with chronic diseases and other health conditions, as 
well as facilitating the development of state high risk pools toward 
which credits can be applied, can also help to ensure that the majority 
of the uninsured are served by this approach.
    While we are pleased to see proposals moving forward to use tax 
credits to address the needs of individuals who do not have an offer of 
employer insurance, it is our hope that these proposals will be 
expanded to include others in the workplace who face health coverage 
challenges. The HLC's strong advocacy for tax incentives to subsidize 
the purchase of employer-offered insurance stems from the compelling 
fact that over 80 percent of the uninsured are connected to the 
workforce. The combination of a refundable tax subsidy, the lower cost 
of group health insurance and the natural outreach opportunities within 
an employment setting creates the most promising environment for 
increasing coverage for families and individuals.
Assessing Cost and Value of Tax Incentives
    Our tax code provides tremendous benefits to those who receive 
their health insurance through their place of employment. Health 
insurance premiums paid by the employer are not counted as taxable 
income to the employee. However, this tax exclusion has less value for 
low-income workers than for their better-paid counterparts.
    For families with income levels between 200 to 300 percent of the 
federal poverty level ($35,000 to $53,000 for a family of four), the 
tax exclusion for employer-paid health insurance is worth only about 
$661. For families between 300 and 400 percent of poverty, the 
exclusion has a value of about $801. Thus, a refundable tax credit of 
$2,000 to $3,000 per family, the most commonly discussed level, would 
be particularly valuable for low-income workers, including those who 
are offered insurance by their employers.
    The cost of tax incentive proposals, as with any proposals to 
reduce the number of uninsured, presents a financial challenge to 
policy makers. The cost of legislation, of course, must be determined 
before legislation is acted upon, and the price tags have been notably 
high. This is particularly true for proposals that allow tax incentives 
to be used for workers who already have an offer of insurance from an 
employer. This is, in part, due to the fact that the Joint Tax 
Committee, on whom Congress must rely for determining the cost of tax 
legislation before it is passed, incorporates assumptions that many 
workers already receiving employer-based insurance will be ``bought 
out'' with federal dollars and current employer subsidies will cease.
    A look at the real world of employer benefits leads to a different 
conclusion. The extent to which employers will reduce their 
contributions toward health insurance for employees when a subsidy such 
as a tax credit is offered can be discerned by looking at economic 
studies examining actual experiences with other types of wage 
subsidies. In two such studies examined by HLC (Katz, 1996 and Witte 
et. al, 1998), general wage subsidies and child care subsidies from the 
government did not reduce overall employee benefit spending by 
employers.
    Additionally, we can project expected employer behavior if tax 
credits are focused exclusively toward lower-income employees. It is 
highly unlikely that an employer would discriminate by reducing premium 
contributions for low-income workers receiving a tax subsidy, while 
maintaining current contributions for higher-income workers not 
eligible for the subsidy.
    We would recommend that policymakers utilize these real world 
examples and fair assumptions regarding marketplace behavior in 
determining the likely impact of new tax incentive policies.
Phasing in a Tax Credit Approach
    All Americans deserve access to affordable health coverage. 
However, current budget constraints may require us to move in 
incremental steps toward that goal. For example, targeting tax credits 
toward populations less likely to already have coverage, such as low-
income families or workers in small businesses, can help to reduce the 
cost of such an approach while still reaching many currently-uninsured 
persons. The HLC is modeling a number of targeted tax incentive 
policies and we would be happy to share our findings with the 
committee.
    Another segment of the population that should receive high priority 
in targeting tax incentives includes dependents of lower-income workers 
not eligible for S-CHIP or Medicaid. Small and medium sized businesses 
offering health insurance to their employees contribute, on average, 48 
percent of the premium amount for employees, but only 24 percent for 
their dependents. Not surprisingly, in many cases, workers acquire 
insurance for themselves, but cannot afford it for their family 
members. In designing targeted tax incentive policies for the 
uninsured, we should strive to assist all members of working families.
Conclusion
    Mr. Chairman, the Healthcare Leadership Council appreciates your 
efforts on the uninsured over this past year, and applauds you and your 
colleagues for your ongoing work to find ways to solve this nation's 
most pressing health care issue. The uninsured must be our national 
health care priority for 2002. This multi-faceted problem will require 
a variety of public and private approaches and we look forward to 
working with you and the Administration to develop constructive 
solutions.

    Mr. Bilirakis. Thank you, Ms. Grealy.
    Dr. Rowland.

                   STATEMENT OF DIANE ROWLAND

    Ms. Rowland. Thank you, Mr. Chairman, Mr. Brown, and 
members of the subcommittee for this opportunity to testify 
today on how to extend coverage to our Nation's uninsured. At 
last count in 2000, 38.4 million Americans were uninsured; 9.2 
million children, and 29.2 million adults.
    The profile of the uninsured as you have heard today is a 
consistent one. They are predominantly low income working 
families. Two-thirds have income below 200 percent of poverty, 
and income of less than $30,000 for a family of three.
    And, yes, 8 in 10 are from families with one or more 
workers. Most are uninsured in fact because they do not obtain 
coverage in the workplace. Only 60 percent of workers earning 
less than $7 per hour have coverage through their own or a 
spouse's job, compared to 96 percent of workers earning at 
least $15 an your.
    Low wage workers are 10 times as likely to not be offered 
coverage in the workplace as higher wage workers. In fact, low 
wage employment equals lack of health benefits. When coverage 
is offered in the workplace the cost is often beyond the reach 
of low income workers.
    In 2001, the average employer premium for family coverage 
was $7,000 and the employee's share of that premium was 26 
percent, or $1,800 a year. For a low wage worker earning 
$15,000 a year, the premium share equals 12 percent of that 
individual's family income.
    Most would consider that an unaffordable price, even to 
obtain health coverage. The non-group market offers no bargains 
for low wage workers. Cheap policies with high deductibles 
afford little protection.
    Better policies are too costly, but still often exclude 
health conditions, limit benefits, require substantial co-
payments, and adjusted high premiums for those with health 
problems.
    Public programs, most notably Medicaid and CHIP, do help 
fill in the gaps, especially for children. Today, 21 million 
children, 1 in 5 American children, rely on Medicaid for 
coverage, and another 4 million have been assisted by CHIP.
    Medicaid and CHIP provide coverage for primary care, 
preventive services, immunizations, and pre-natal care, without 
financial barriers. They are not just catastrophic health 
insurance plans.
    But public coverage has been broadened primarily for 
children, and leaves millions of low income adults behind, and 
34 percent of low income women and 41 percent of low income men 
are uninsured.
    Medicaid's reach for these adults is extremely limited. 
Income levels for eligibility of parents in most States remains 
substantially below that of the levels that Congress has 
mandated for children; well below poverty in 33 States.
    Low income childless adults, who constitute one-half of the 
low income uninsured population, are excluded from Medicaid 
coverage unless disabled, no matter how poor. Clearly, 
broadening coverage to parents and extending Medicaid to 
childless adults at low incomes would be important steps in 
addressing the low income uninsured.
    Without public expansions, the poorest among the uninsured, 
and the most chronically uninsured, are likely to remain 
without coverage. But strategies to address the uninsured must 
recognize the need economic realities.
    As we sit here today, the situation has grown bleaker since 
the 2000 snapshot. The recent economic downturn and the return 
of double-digit inflation and health care costs now places 
health insurance coverage for working families in jeopardy, 
both from loss of employer sponsored coverage, and limits on 
the availability and scope of Medicaid due to State physical 
constraints.
    We face the prospect of seeing coverage erode, not expand, 
for millions of Americans. The combination of rising health 
care costs and State fiscal constraints, puts the low income 
population relying on Medicaid and CHIP at particular risk.
    We must be careful to not strip benefits and impose 
additional cost sharing burdens on America's poorest population 
in order to provide minimal expansions to other groups. This 
will worsen, not improve, health insurance coverage, and 
undermine much of the progress that has been made in recent 
years.
    Maintaining the gains in public coverage over the last 
decade, especially for children, may in fact require additional 
Federal financing assistance to the States in return for a 
commitment to maintain coverage for the existing low income 
population.
    Health insurance matters for the millions of Americans who 
lack coverage. It influences when and whether they get 
necessary medical care, the financial burdens that they face in 
obtaining care, and ultimately their health and health 
outcomes.
    Extending coverage to the millions of Americans without 
health insurance and securing coverage for those who have it 
today, is both an important policy and health objective for 
this Nation.
    I look forward to working with the committee to help 
achieve these objectives for our Nation. Thank you very much.
    [The prepared statement of Diane Rowland follows:]
  Prepared Statement of Diane Rowland, Executive Vice President, The 
                   Henry J. Kaiser Family Foundation
    Thank you for the opportunity to offer testimony this morning on 
the critical issue of how to extend health coverage to our nation's 
over 38 million uninsured. I am Diane Rowland, Executive Vice President 
of the Henry J. Kaiser Family Foundation and Executive Director of the 
Kaiser Commission on Medicaid and the Uninsured. The national bi-
partisan commission serves as a policy institute and forum for 
analyzing health care coverage and access for low-income populations 
and assessing options for reform.
    Combined with notable expansion in coverage, especially through 
public coverage of low-income children, the strong economy and 
sustained economic growth over the last decade helped to bring about 
the first decline in the number of uninsured in over a decade. However, 
the downturn in our economy, coupled with increased pressure on state 
budgets and rising health care costs, now place that progress in 
jeopardy. My testimony today will focus on the characteristics of the 
uninsured population, the factors that contribute to their lack of 
insurance, and the challenge of broadening coverage in the current 
fiscal environment.
The Uninsured Population
    Today, two out of three nonelderly Americans receive their health 
insurance coverage through an employer-sponsored health plan offered 
through the workplace. However, for millions of working families such 
coverage is either not offered or is financially out of reach. Medicaid 
and the State Children's Health Insurance Program (CHIP) help fill in 
the gaps for some of the lowest income people, but this publicly 
sponsored coverage is directed primarily at children and varies in 
availability across the states. While 20 percent of children are 
covered by Medicaid or CHIP, only 6 percent of adults are covered, 
resulting in a greater likelihood of being uninsured for adults (Figure 
1). Of the 38.4 million Americans who were uninsured in 2000, 9.2 
million were children and 29.3 million were adults. While young adults 
ages 19 through 24 have the highest rate of uninsurance of any age 
group, they represent only 17 percent of the uninsured population (see 
Table 1).
    Low-income individuals are disproportionately represented among the 
uninsured. Because poor and near-poor families have a greater chance of 
being uninsured, nearly two-thirds (64%) of the uninsured come from 
low-income families earning less than 200 percent of the poverty level 
(Figures 2). [In 2002, an income of $27,476 per year places a family of 
three at 200% of poverty.] Over a third (36%) of the uninsured come 
from families living below the poverty level.
    The likelihood of being uninsured decreases substantially as income 
rises (Figure 3). Over a third (36%) of the poor and 26 percent of the 
near-poor are uninsured in contrast to 6 percent of people with incomes 
at or above 300 percent of poverty, or roughly $41,000 a year for a 
family of three. Employer-sponsored coverage is extremely limited for 
the low-income population; only 18 percent of the poor and 47 percent 
of the near-poor receive coverage through their employer. Medicaid 
helps to offset the lower levels of private insurance for over a third 
(37%) of the poor and 17 percent of the near-poor. The near-poor run a 
high risk of being uninsured because with their higher incomes they are 
less likely to be eligible for Medicaid than the poor, but also less 
likely than higher income families to have access to employer sponsored 
health insurance.
    This confluence of factors relating to the characteristics of the 
uninsured places low-income adults at the center of the issue. In 2000, 
47% of the 38.4 million uninsured Americans were low-income adults--16 
percent parents of low-income children and 31 percent low-income adults 
without children (Figure 4). The higher level of uninsurance among low-
income adults reflects both the lack of insurance coverage in many low 
wage workplaces and the exclusion of coverage for childless adults in 
most Medicaid programs. Medicaid coverage, and the availability of 
federal matching funds to states for coverage, has historically not 
been available for childless non-disabled adults, no matter how poor. 
Assuring coverage for this group, as well as the parents of low-income 
children who are now largely eligible for public coverage, poses the 
next challenge in coverage expansions.
Limits to Private Insurance
    While most Americans rely on employer-sponsored coverage to provide 
group insurance coverage for themselves and their families, many 
working families fall outside the scope of workplace coverage. Eight in 
ten of the uninsured come from working families--72 percent come from 
families where at least one person works full-time outside the home and 
another 11 percent come from families with part-time employment. Among 
the low-income uninsured, 58 percent of the poor and 96 percent of the 
near-poor are working or have workers in their families.
    Most uninsured workers (over 70%), and consequently their 
dependents, are not offered job-based health coverage, either through 
their own or a family member's job. Lack of access to employer-
sponsored coverage is particularly a problem for low-wage workers 
(Figure 5). Only 60 percent of low-wage workers (those earning less 
than $7 per hour) have access to job-based coverage through their own 
or a family member's job, compared to 96 percent of high-wage workers 
(those earning at least $15 per hour). For 40 percent of low-wage 
workers, in contrast to only 4 percent of high-wage workers, health 
benefits were not offered.
    The likelihood of being offered coverage in the workplace depends 
largely on where one works, including the size, industry, and wage 
level of the firm. Most large firms offer coverage, but many smaller 
firms do not. Small firms face particular challenges in offering their 
employees coverage due to high turnover rates and small risk pools, 
which may lead to high premiums for group coverage. Low wage workers 
often work in small businesses, particularly in retail and service 
industries where health insurance is not widely offered as a fringe 
benefit. Low wage workers who are ``typical'' employees in a firm are 
also less likely to be offered coverage: surveys and research have 
shown that the more low wage workers an employer has, the less likely 
they are to offer health coverage.
    When health insurance is offered in the workplace, most employees 
opt for coverage even though the share of the premium borne by the 
employee can be substantial, especially for low-wage workers. In 2001, 
the average annual family premium for employer sponsored group coverage 
was $7,053 (Figure 6). The worker's contribution to that premium was, 
on average, 26 percent, or $1,801 for the year. For a full-year, full-
time worker earning $7 an hour, the employee share of premiums 
represents 12 percent of the family's $14,500 annual income. However, 
for many low wage workers, the employer covers less than half of the 
premium, making the cost of coverage even more unaffordable. As a 
result, even when coverage is offered, many low wage workers are unable 
to finance their share of the premiums.
    If health insurance coverage is not available through a group 
policy from an employer, families are hard pressed to be able to find 
and pay for a policy in the individual insurance market. Most directly 
purchased policies are expensive and have more limited benefits and 
more out-of-pocket costs than group coverage plans. Moreover, the cost 
of these policies is based on age and health risk, and any preexisting 
health conditions are generally excluded from coverage. For the average 
low-income family, a $6,000 family policy in the individual market 
would consume a quarter or more of their income, provide only limited 
protection, and could exclude coverage for any family members with 
health problems.
    The limits of employer-sponsored and privately purchased health 
insurance leave millions of low-income children and adults at risk for 
being uninsured. While on average 16 percent of nonelderly people are 
without insurance today, uninsured rates vary widely across the 
country, reflecting the economic environment and employment structure 
in different states. States with more agriculture and small business 
and retail industry and less manufacturing have higher rates of 
uninsurance. From 1999 to 2000, 17 states and the District of Columbia 
had 16 percent or more of their nonelderly population uninsured (Figure 
7).
Public Coverage for the Low Income Population
    The lack of employer-sponsored coverage leaves millions of low-
income families without private coverage; for many, Medicaid, and most 
recently CHIP for low-income children, helps to fill the gap. Medicaid 
now covers one in five of America's children, providing health 
insurance coverage with limited cost sharing and comprehensive benefits 
to 21 million low-income children and 8 million low-income parents. 
CHIP has extended coverage to another 4 million children.
    Together, Medicaid and CHIP already play a strong role in reducing 
uninsured rates among low-income children, with over half (52%) of poor 
children and nearly a third (30%) of near-poor children now receiving 
coverage through these programs. With the decoupling of Medicaid and 
welfare as part of welfare reform in 1996 and the enactment of CHIP in 
1997, states have substantially expanded the income limits to extend 
eligibility to millions of poor and near poor uninsured children. By 
2002, 39 states and the District of Columbia had raised their income 
eligibility levels to at least 200 percent of poverty (Figure 8).
    However, the potential to cover almost all uninsured low-income 
children will only be realized if steps are taken to make enrollment 
easier for the eligible population. Often, eligible children remain 
uninsured because their parents are not aware of the coverage available 
or find the hurdles to establish eligibility and enroll too cumbersome. 
Long application forms with extensive questions on work history, 
assets, and personal information, coupled with use of welfare offices 
and personnel for processing enrollment, have discouraged many 
applicants from initiating or completing the process. The steps that 
states are now taking to simplify enrollment and reduce the burden of 
enrolling on families are essential to make public coverage work 
effectively for low-income working families.
    While much more progress can be made in improving how Medicaid 
works for children, Medicaid's current reach among low-income families 
is compromised by limitations in coverage of parents of eligible 
children. Medicaid originally covered low-income families by including 
both children and parents receiving welfare assistance. However, over 
time, as eligibility expansions focused on children and pregnant women, 
coverage of parents lagged behind, often remaining at state welfare 
levels. As a result, millions of low-income children have gained 
eligibility while their parents, unless pregnant or disabled, remain 
uninsured. In addition, many families who are eligible for Medicaid but 
not enrolled lost coverage in the wake of welfare reform, as confusion 
and computer systems problems erroneously dropped many from Medicaid 
coverage when they left cash assistance. Moreover, welfare reform also 
restricted public coverage for many immigrants.
    Nearly one-third of low-income parents are uninsured, and of these 
5.3 million uninsured parents, less than a third (31%) are potentially 
eligible for Medicaid but not enrolled. The bulk of uninsured parents 
(69%) do not currently qualify for Medicaid coverage because their 
limited income or assets make them ineligible under the stringent 
eligibility standards for adults. One of the key strategies for 
improving coverage of the low-income population is to raise parents' 
eligibility levels to those of their children to achieve coverage for 
the whole family. This step would not only cover more low-income 
adults, it would also provide an additional incentive to parents to 
enroll their children.
    While welfare reform contributed to increasing the number of low-
income uninsured parents, the changes enacted along with the welfare 
legislation under Section 1931 of the Social Security Act also offered 
states new opportunities to substantially expand family coverage. 
States were granted greater flexibility in family composition rules and 
the counting of income and resources, enabling them to extend coverage 
to single- and two-parent households and more low-income, working 
parents. Using either this new authority or Section 1115 waivers from 
the Secretary of Health and Human Services, 18 states now provide some 
Medicaid coverage to parents up to and above 100 percent of the poverty 
level (Figure 9). However, in 15 states, coverage for parents remains 
at or below 50 percent of poverty.
    The most glaring omission in Medicaid coverage, however, is the 
exclusion of coverage for low-income childless adults. Nearly half of 
the uninsured low-income population falls outside Medicaid's reach 
because they are adults without children. Low-income adults without 
children have the highest rates of lack of insurance--45 percent of 
poor and 35 percent of near-poor childless adults are uninsured. Unless 
they become totally and permanently disabled and can qualify for 
disability assistance under the Supplemental Security Income cash 
assistance program, they are generally ineligible for Medicaid. Eight 
states have used Medicaid waivers to provide Medicaid to low-income 
childless adults, but coverage remains limited.
    Clearly, Medicaid plays a crucial role as an insurer of low-income 
children and adults, but coverage for the low-income population remains 
limited by restrictive eligibility and policies and procedures that 
have carried over from Medicaid's welfare heritage. Converting Medicaid 
from a welfare assistance program to a health insurer for low-income 
people and building on Medicaid and CHIP offer an opportunity to bring 
broader-based coverage to the low-income population and fill the gaps 
left by employer-based coverage.
Health Coverage in the New Economy
    Extending coverage through employer-sponsored and public coverage 
faces additional challenges as our weaker economy puts new stress on 
the system. In recent years, the thriving economy helped to moderate 
growth of the uninsured population as employers used health care 
benefits as a way to attract and retain workers in a competitive 
market. At the same time, states expanded Medicaid and CHIP coverage of 
children. The economic downturn now places health insurance coverage 
for working families in jeopardy from both loss of employer-sponsored 
coverage and limits on the availability and scope of Medicaid as a 
fallback.
    Both employer-sponsored coverage and Medicaid(and, as a result, the 
number of uninsured(are sensitive to economic conditions. In times of 
recession, employer-sponsored coverage declines, and while Medicaid 
absorbs some of the loss in coverage, many more people go uninsured. It 
is estimated that for every 100 workers added to the unemployment 
rolls, 85 people will join the ranks of the uninsured. When our 
national unemployment rate rose from 4.0% in December 2000 to 5.8% in 
December 2001, we estimate that the number of uninsured increased by 
2.2 million (Figure 10).
    In addition, the changing economy also poses other threats to 
coverage for workers. Employers who began to offer coverage to lure 
workers in a tight labor market are likely to cut back on those offers. 
Employees' hours may be cut back, making them ineligible for health 
benefits as part-time workers. As employers face shrinking profits, 
they may also look to health insurance as a way to cut costs, either by 
cutting eligibility for some workers, cutting back benefits, or passing 
a larger share of the cost of insurance on to employees.
    All of these scenarios are made even more likely by the fact that 
the cost of employer-sponsored coverage is rising again after several 
years of decline (Figure 11). Our recent survey of employer-sponsored 
health benefits found that from 2000 to 2001, premium costs increased 
on average 11 percent. However, even more troubling, most employers, 
especially large employers who are most likely to offer coverage, 
reported it was likely that these increased costs would be passed along 
to their employees by increasing their premium share or reducing plan 
benefits. For workers with marginal incomes, such actions could make 
maintaining coverage for themselves and their families unaffordable.
    Just as the slowdown in the economy could bring a return to the 
erosion in job-based coverage, the weakened economy and the return of 
rising health costs could severely compromise public coverage for the 
low-income population. Declining tax revenues and growing budgetary 
concerns will undoubtedly drive many states to reduce Medicaid spending 
and limit expansions of coverage to new populations if additional state 
spending is required.
    During difficult economic times, Medicaid programs get caught in 
the crossfire between the need for increased coverage and spending and 
the erosion of state revenues and constraints on state budgets. Rising 
unemployment drives Medicaid enrollment upward. Using Congressional 
Budget Office estimates of Medicaid enrollment in 2002, simulations by 
the Urban Institute predict Medicaid enrollment for children and non-
elderly adults at 44.7 million when unemployment is at 4.5%, but rising 
to 47.9 million if unemployment rises to 6.5%, assuming no other 
changes than those directly attributable to increases in unemployment 
(Figure 12). Such increases in Medicaid enrollment have fiscal 
implications for federal and state Medicaid spending.
    Open-ended federal matching funds through Medicaid allow spending 
to increase automatically in response to higher enrollment levels, but 
states must provide matching funds to avail themselves of the federal 
assistance. Reduced state revenues are now placing severe strains on 
many state budgets. The strong economic growth during the mid- to late-
1990s allowed states to build up significant balances, but at the end 
of 2000 states began to see their tax collections fall and their 
spending exceed expectations. Many states had to dip deeply into their 
year-end balances to cope with budget pressures. By the end of December 
2001, 39 states were reporting budget shortfalls for fiscal year 2002.
    The return of health care cost escalation, as reflected both in 
employer premiums and rising Medicaid payments, makes both maintaining 
and expanding coverage more difficult. Cost increases in the private 
market put pressure on Medicaid programs to keep pace as a major 
purchaser of care. In order to maintain access to care for its 
beneficiaries, Medicaid programs are being pushed to raise payment 
rates for health plans and providers and pay for the escalating cost of 
prescription drugs. In a recent survey, state Medicaid officials 
reported that the top reasons for Medicaid expenditure growth in FY2001 
were pharmacy costs (48 states); provider rate increases (31 states); 
enrollment increases from eligibility expansions and growth of the 
disabled population (27 states), and increased costs for long-term care 
(24 states) (Figure 13). Given Medicaid's role as a provider of health 
and long-term care services for the nation's sickest and most 
disadvantaged populations, these cost pressures are only likely to grow 
over time.
    The challenge for states and their Medicaid programs is how to meet 
the growing demand for coverage when fiscal resources are constrained. 
Some states are trying to hold the line and not reduce funding this 
year, but others have already initiated budget reduction actions for 
fiscal 2002. States are considering, and some have implemented, 
reductions in provider payments, eligibility and/or benefits; capping 
enrollment in the SCHIP program; or putting planned expansions on hold. 
Others are planning to use the new waiver authority (the Health 
Insurance Flexibility and Accountability Demonstration Initiative, or 
HIFA) to alter eligibility and benefits under Medicaid to address 
budget problems.
    State budgetary problems coupled with the pressure to restrain 
health care spending portend difficult times ahead for health coverage 
of the low-income population. As health care costs rise, there will be 
increased pressure on states to cut back on spending and reduce 
services and/or coverage. If states respond to their difficult fiscal 
situations by cutting Medicaid in the months ahead, it will not only 
make it more difficult for newly unemployed workers to secure coverage, 
but could also reduce coverage for those currently enrolled. 
Limitations in public coverage would further exacerbate our nation's 
uninsured problem.
Conclusion
    While the profile of the uninsured population and the factors 
contributing to their lack of coverage remain the same as in earlier 
years, the prospects for reducing the number of uninsured Americans 
have dimmed in light of the changes in our economy. Given the recent 
economic downturn and the renewed growth in health care costs, it 
appears we are facing the potential of seeing health care coverage 
erode, not expand, for millions on Americans.
    Health care is expensive--beyond the reach of most American 
families to purchase on their own. As health costs grow and the 
premiums for insurance rise, health coverage through the workplace is 
likely to become less available and more unaffordable for working 
families. Clearly, efforts to control health care spending and make 
coverage more affordable for employers and employees alike is an 
essential part of any strategy to maintain and broaden coverage over 
the long term.
    Rising health costs and state fiscal constraints put the low-income 
population relying on Medicaid and CHIP particularly at risk. 
Maintaining the gains in public coverage over the last decade, 
especially for children, may require additional federal financing 
assistance to the states in return for a commitment to maintain 
coverage at current levels. Increasing the federal matching rate for 
Medicaid for low-income children and families would both provide 
additional resources to states to maintain coverage and even provide an 
incentive to states to extend coverage. Supplementing and retaining 
CHIP dollars would also help stabilize coverage for low-income children 
in the short-run.
    I commend the Committee for its efforts to highlight the plight of 
the 38 million Americans without health insurance coverage and to look 
at options that could help address this growing problem. I look forward 
to working with the Committee to meet the challenge of making health 
care coverage a reality for all Americans.
    Thank you for the opportunity to testify today. I welcome any 
questions.
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    Mr. Bilirakis. Thank you very much, Dr. Rowland. Well, the 
Chair recognizes himself. Dr. Kellermann, you state that the 
combination of strict eligibility requirements and enrollment 
procedures make public coverage--well, you have given us some 
staggering facts I might add, but make public coverage 
difficult to obtain, and even harder to keep.
    And then you go on and state that the medium length of time 
for someone under the age of 65 that keeps Medicaid coverage is 
about half-a-year, 5 months, 6 months, whatever.
    And at the end of any given year, about two-thirds of the 
people who were insured by Medicaid at the start of the year 
have loss their coverage for any number of reasons. Those are 
all staggering facts, and it seems to me that before we can 
complete our work in terms of whatever it is that we might 
ultimately decide might be the solution, we are going to have 
to really look into these facts.
    I wonder if you can elaborate a little bit on why all of 
these things might take place.
    Mr. Kellermann. Our report gives a fairly detailed 
breakdown of these issues. I think the theme in my mind is that 
our system is just incredibly complex, and it is complex in a 
way that changes and evolves almost in a month to month or year 
to year basis.
    It is as if we have a target that we want people to hit, 
but we move it whenever we can just to make sure that they 
miss, whether it is an uninsured family trying to qualify for 
Medicaid, or it an ER doctor trying to fill out the paperwork 
properly to get paid for the care they have given.
    Or any of the other issues in the system, and regardless of 
the direction we go in, I think we have to understand that 
systems have to be simple and understandable if our true goal 
is to ensure that we get medical care to people who need it.
    And complexity alone, independent of financing and other 
issues, is a tremendous obstacle to getting people insured, and 
keeping people insured.
    Ms. Rowland. Mr. Chairman, if I could add that much of the 
work that the committee has done around children and around 
improving the retention of children in both Medicaid and CHIP 
has been an incredible step in the right direction from the 
studies that Dr. Kellermann was stating.
    We now help to keep children enrolled throughout the course 
of a year, and have tremendously simplified the enrollment, and 
I think the committee should be quite pleased with the progress 
that has been made in most States at improving the enrollment 
process for both Medicaid and CHIP at your direction.
    Mr. Bilirakis. Are you saying then that we should possibly 
hitch-hike upon the S-CHIP program as a partial solution?
    Ms. Rowland. Well, Medicaid has certainly already begun to 
hitch-hike on the S-CHIP program, in terms of coverage of 
children, and I think the ground has been laid in many States 
for really improving the way enrollment is handled and 
participation is maintained. But we still have a ways to go 
clearly.
    Ms. Grealy. Well, Mr. Chairman, I think there is a way that 
we could also reduce that complexity for employers and those 
States that are using this new demonstration authority to 
leverage those State dollars and help purchase coverage for the 
parents, as well as the children, through the employer.
    So it is a way that we can leverage the dollars, but the 
employer certainly could be helped, as well as the 
beneficiaries of these programs, by making it much less complex 
for them being able to do that coverage.
    Mr. Bilirakis. Well, let me--and I wold like to get back 
into that if my time doesn't run out, but let me ask--I am sure 
that you are all familiar with the President's plan. We don't 
really have all of the details yet.
    He calls it a refundable tax credit approach, and I would 
like to look at it more as a voucher if you will, or a 
certificate, or something like that. Maybe not even call it a 
tax credit quite frankly.
    How do you feel--if that were to talk place, how would you 
feel this might work, and would it work, and to what degree 
might it work?
    Mr. Grealy. I will start. I think the key here is 
flexibility. That it is something that could be used in a 
variety of settings. If one is able to find something in the 
marketplace where those products are available, my guess is 
that every time we make modifications in the tax code, we see 
the market develop and respond to those new incentives.
    But another approach would be, and as we heard Diane 
comment, that families are having trouble bridging that premium 
gap. For low income workers, if they are paying $1,800 out of 
their paycheck, that is a big amount.
    If we could take that tax credit and allow them to use it 
to offset their premium costs for that private coverage through 
their employer, that would be something that would be extremely 
useful.
    So I think again being flexible in using this tax subsidy, 
voucher, whatever you want to call it, in a variety of ways 
would really be key here.
    Mr. Bilirakis. Anyone else in that regard?
    Ms. Rowland. Clearly, one of the issues with a voucher or a 
tax credit is where you can utilize that credit. And one of the 
concerns about a credit that must go into the non-group market 
is that it is very difficult to purchase reasonable coverage, 
especially for low income people unless the voucher is 
tremendously generous.
    And so I think the key issue there is what is the 
generosity of the voucher, and where can you utilize it. What 
you gain from public coverage is that the State is then 
responsible for linking you up to coverage, and when you get 
with a voucher is the individual has to look into where they 
can it in the market.
    Mr. Bilirakis. Dr. Kellermann.
    Mr. Kellermann. I think commenting on a specific policy is 
beyond the scope of at least the first IOM report. Our second 
report will look a bit at different features of the impact of 
uninsurance on people's health.
    Two of the major benefits of health insurance are 
catastrophic coverage in the event that you wrap your car 
around a phone pole or have a heart attack. The other is 
encouraging access to preventive care and primary care.
    So I think whatever solution we do, I hope will include a 
mechanism that will encourage people to get medical care early 
and appropriately so that I will see fewer of those patients in 
the emergency room with a costly condition.
    Mr. Bilirakis. All right. My time has expired. Mr. Brown, 
to inquire.
    Mr. Brown. Thank you, Mr. Chairman. I thank all three of 
you on the panel. Ms. Rowland, you talked about people in low 
wage jobs are obviously much less likely to have insurance in 
your response to the Chairman about the vouchers or tax 
credits.
    We hear talk about insurance, and we hear talk about 
coverage. Would you make the distinction, Ms. Rowland, on what 
that means when we all brag about, well, maybe with tax credits 
we can give insurance to people. What does that really mean in 
contrast to coverage?
    Ms. Rowland. Well, I think that really is highlighted by 
the comment just made by Dr. Kellerman; that what I think of as 
health insurance coverage is access to primary care, to 
preventive services, to immunizations, to pre-natal care, as 
well as coverage for more intensive hospitalization, 
chemotherapy, and other services.
    So it is really assistance at gaining access to the whole 
range of health care services. What I think about in terms of 
insurance coverage is that often we end up more looking at kind 
of covering after the initial primary care is paid for out of 
pocket.
    So I think a policy in which there is a $1,000 deductible 
before the policy begins to cover any services is not going to 
promote the kind of access to primary care and preventive 
services that we feel are so important, especially for the low 
income population.
    Mr. Brown. I would like to switch to Medicaid for a moment. 
Ms. Rowland, you talked about the health insurance flexibility 
waivers. Proponents suggest that the waivers allow flexibility, 
more flexibility with respect to cost sharing for optional 
Medicaid groups.
    They also say that proponents also say that they give 
States flexibility with respect to optional benefits. Would you 
describe what some of those options are, and what that means, 
and what some of those optional groups are, and what some of 
those optional benefits are?
    And would you also in this same answer talk about what Utah 
did, and what Michigan is considering doing?
    Ms. Rowland. Well, the Medicaid statute obviously has 
requirements in the Federal statute on what populations and 
services States must cover. And then it gives States the option 
to receive Federal matching funds for other groups of 
individuals and other services.
    So the optional groups are those for which Federal matching 
is available, but there is no Federal statute requiring 
coverage. Children up to the poverty level are now mandatory 
covered by Medicaid because Federal statute requires all States 
to cover them People who, for example, are medically needy, and 
have large medical expenses, and spend down to Medicaid 
coverage, are optional because they are offered at the option 
of the State.
    Or even the parent of a child at 50 percent of poverty is 
optional because the State is not required to cover parents of 
Medicaid eligible children. So the concept of optional really 
depends on whether the State has elected to cover them or not.
    Most of them we would consider to still be among the 
poorest part of our population, and in need of the same kind of 
services as the mandated populations. The kinds of benefits 
that are optional include most of the long term care spending 
for the elderly, for example, under Medicaid.
    So when States are looking at these waivers, the dollars 
that they spend are mostly on optional groups for optional 
services, but this means for elderly and disabled people 
getting their long term care services.
    And when they look at this waiver, the waiver requires 
budget neutrality. They can't spend any more money on Medicaid 
to expand coverage than they would in the absence of the 
waiver.
    So there are going to have to be real tradeoffs within the 
program of how you stretch benefits for one group of poor 
people to cover additional groups of low income people. And 
that is one of the concerns that has come up around the Utah 
waiver, where people at 50 percent of poverty, who are parents, 
who are optional groups, earning probably around $8,000 for a 
family of three, are being asked to pay up front a $50 
enrollment fee to get coverage, would have a $100 deductible 
before they could get hospital care, and would have substantial 
cost sharing.
    And the question is whether that kind of coverage is really 
going to provide them to the kind of health services that we 
have previously talked about, and whether that is a good way to 
finance a minimal expansion of coverage to other populations.
    Mr. Brown. In Michigan?
    Ms. Rowland. I am not familiar with the Michigan program.
    Mr. Brown. We on this committee a couple of 3 years ago 
passed the Breast and Cervical Cancer Treatment Act as you 
remember. We had done the program several years before for the 
screening.
    What does the waiver policy mean for those groups--the 
disabled and the people that have, say, breast cancer, cervical 
cancer, low income women--that are eligible for those programs?
    What does the waiver policy mean for Medicaid and CHIP 
beneficiaries there? Well, I think the key in the waiver policy 
is that no new money is put on the table. So it means that any 
expansion of services has to take place within the same dollar 
levels as the State is currently spending.
    So you need to reduce benefits for some groups in order to 
have available dollars to expand coverage to other groups, 
groups like those being treated for cervical and breast cancer, 
and the disabled are among the most expensive, because they use 
the most health services on Medicaid's roles.
    That's where the dollars are that you can really try and 
cut back on in order to finance additional care. So I think 
what the waivers mean is we will be covering a few new people 
at the expense of some of the sick and low income people on the 
program.
    Mr. Brown. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentlemen. Mr. Burr to inquire.
    Mr. Burr. I thank the Chair and I thank our witnesses 
today. I just have one question and I will get all three of you 
to address it. If the Federal Government were to raise the 
minimum wage, and let's say just for simplicity sake $1 an 
hour, what would your position be if we gave employers the 
option of providing it in pay or in similar health benefits? 
Let me start with you, Ms. Rowland.
    Ms. Rowland. Well, I think raising the minimum wage and 
giving the employers the choice would do very little to 
alleviate our uninsured problem, because the minimum wage 
workers are the ones in which insurance is not offered 
generally now.
    And I think that most workers obviously think that getting 
health insurance is important, but the minimum wage workers 
don't have that coverage.
    Mr. Burr. Maybe you misunderstood. If an employer chose 
rather than to pass the $1 on in a wage increase, and to use 
that if it were a 40 hour week, $2,080, in-turn to purchase an 
insurance policy for that employee or partially for the family 
under a group negotiated plan, which would for the first time 
provide insurance coverage to the minimum wage worker, what 
would your position be?
    Should an employer have that option if in fact they chose 
to do that?
    Ms. Rowland. Well, I would certainly think employers should 
be encouraged in every way to offer health insurance coverage, 
though I still think raising the minimum wage may be a more 
effective way for low income families to go than getting the 
health insurance coverage partially supported by their 
employer.
    Mr. Burr. Your belief would be that the individual would 
take that dollar and would use it for health care?
    Ms. Rowland. I believe the individual at a minimum wage 
level would probably take that dollar and use it for living 
expenses, which could include health care, but might not.
    Mr. Burr. But health care would be down the list?
    Ms. Rowland. Generally, I think for the lowest wage people, 
there are other demands on their family budget before they get 
to affording health care.
    Mr. Burr. Thank you. Ms. Grealy.
    Ms. Grealy. I think anything we can do to help those small 
employers offer health insurance is a good thing, and if that 
is an option that would be presented, I think that would be a 
very positive thing.
    Again, I just keep coming back to flexibility. But also 
sort of referring back to Congressman Brown's comments about 
the Medicaid program, and how stretched they are, and how they 
are shifting benefits and dollars around.
    How can we best leverage those limited dollars? I think 
what you are talking about with the minimum wage, what would be 
the best way to use those dollars. With the Medicaid program, 
is there some way we can leverage. And what those employers who 
do offer insurance, or those that would like to offer 
insurance, and use our limited dollars and add those employer 
dollars.
    Because employers are willing to put a lot of money on the 
table for health are, and they aren't doing it. So I think any 
way we an aid them in enhancing that would be a very positive 
thing.
    Mr. Burr. Doctor.
    Mr. Kellermann. Again, our committee has spoken 
specifically about policy options. I will tell you as a doctor 
and as a brother, my brother is living on top of a mountain in 
East Tennessee.
    He is 2 months behind on his mortgage, and he doesn't know 
how he is going to buy his groceries next week. You ask him if 
he can make a little extra money on a minimum wage job, and he 
is going to probably opt for groceries and the mortgage before 
he opts for insurance. Anything is better than nothing. So I 
would encourage you and your fellow members to struggle with 
the issue, but I think we are going to have to really analyze 
those choices in a very careful way before we lay policies out 
for folks.
    Mr. Burr. Well, let me just add as a commentary for any of 
us to determine arbitrarily what any individual needs to meet 
their living expenses really is to guess what their living 
expenses are.
    And if they rent, or they own, or wherever they are. The 
question that I was really trying to get in is how important is 
it that we provide a health care benefit, and that we find a 
mechanism to get coverage to individuals?
    And when we talk about a dollar increase or an increase in 
the minimum wage, there is a real opportunity--it may not be 
the employee's first choice, and we may all agree that the 
minimum wage level should be higher than where it is.
    But if the objective is to provide coverage, do we have a 
mechanism through employers, and based upon their group plans, 
where they negotiate more extensive coverage with less money, 
and money that we have mandated that they put on the table.
    And I think it is something that we all need to think 
about, because it is a mechanism for some percentage of those 
individuals out there today that are uninsured, and I have yet 
to hear a plan where we wipe out the uninsured population in 
America with one silver bullet.
    This will take a number of initiatives, and this may be one 
of them, and I hope that you will put some thought to it. Thank 
you, Mr. Chairman.
    Mr. Bilirakis. Would the gentleman yield?
    Mr. Burr. I would be happy to.
    Mr. Bilirakis. I appreciate that. Are there advantages to 
covering the uninsured through employer programs, versus the S-
CHIP and Medicaid programs, public programs?
    Ms. Grealy. Well, I think we have heard several reasons as 
to why that might be the better approach. Let's look at what 
the likely benefit package is going to be in an employer-based 
insurance market.
    It probably is going to have those preventive services that 
Dr. Kellermann feels is so important. And it is probably likely 
to be more stable. It is something that is going to last for a 
year, and not something that you have to qualify for every 
month.
    So I think there are definitely advantages, and we also 
find that as income rises, there is less participation in some 
of the public programs, whether it be Medicaid, S-CHIPS, SLIMB, 
QUIMB, or whatever.
    So if we are looking at expanding those programs, we might 
want to take a look at is there some way we can help employers 
offer medical coverage.
    Mr. Bilirakis. Dr. Kellermann, do you agree?
    Mr. Kellermann. Well, one of the complexities that I think 
we have, particularly when we are dealing with small 
businesses--and I come from a small business family--is that 
the very economic times when folks need health insurance the 
most is when small businesses are least able to afford it, and 
have more workers than they have positions to offer.
    And so they don't need health insurance as a benefit to 
attract them. So there is some real--the problem with the 
system right now is when we need it to work the best, it 
typically works the poorest. And it is a real challenge for 
small businesses, as well as for workers.
    Mr. Bilirakis. But you agree that if that challenge were 
somehow met that there would be advantages to go that route?
    Mr. Kellermann. Well, the devil is in the somehow, but I 
think if we can work together, and there is a feasible way to 
make it happen, anything we can do to make it--I will take any 
improvement that we can get on the short term.
    On the long term, I think we have to look at a 25 year 
trend, and realize that we have to understand this very 
fundamental level, and not making decisions itself is going to 
create enormous problems.
    Mr. Bilirakis. Dr. Rowland, very briefly.
    Ms. Rowland. I think we really need to look at combination 
strategies, and for the very lowest income population, and 
especially for those with severe disability who now rely on 
Medicaid, I think the public program approach is very important 
and should be maintained.
    But obviously as one goes up the income spectrum, one needs 
to deal more with the employer-based system and try and shore 
that up. The saddest fact to me is that in the best economy we 
have had with the lowest health insurance premiums, we made so 
little progress in getting a higher pick-up rate in the 
employer-based system.
    And I think that really shows that in harder economic times 
that the lower end of the income spectrum, always public 
programs will be an important safety net.
    Mr. Bilirakis. Thank you. Mr. Strickland, to inquire.
    Mr. Strickland. Thank you, Mr. Chairman. Ms. Rowland, you 
made a good point there; in the best of economic times. We went 
in the wrong direction of having more of our citizens insured; 
isn't that correct?
    Ms. Rowland. We did make a little modest progress in the 
best of economic times in-part because of the expanded public 
coverage under the S-CHIP program, and along with Medicaid and 
in-part because there was an increase in employer offerings, 
and people at the higher incomes did get some health insurance 
through the employers.
    But it was a modest dip in light of a very robust economy 
and low premiums.
    Mr. Strickland. So are you telling me that in terms of raw 
numbers there were fewer people uninsured 5 years ago than 
there are now?
    Ms. Rowland. In 1999 and 2000, we saw the first dip in a 
decade in the number of uninsured, but it was about a million 
to 2 million dip.
    We are now expecting because of the decline in the economy 
that the next snapshot that we take will show a rise of maybe 2 
or 3 million more uninsured just over the course of this year. 
Obviously, the Census numbers always lag behind the economic 
reality of today.
    Mr. Strickland. Thank you. Ms. Rowland, one way to measure 
the success or failure of any policy to cover the uninsured is 
to look at how it addresses the needs of those with above 
average health risks, like the disabled and the chronically 
ill.
    And I think that is especially the case when we think of 
giving someone voucher to go out and look for insurance. Now, I 
know the Kaiser Foundation, and in particular the Commission on 
Medicaid and the Uninsured, has done work on the issue of the 
disabled and their insurance coverage.
    Could you please provide us some background about who the 
disabled or the chronically ill are, and what their particular 
health are needs may be?
    Ms. Rowland. Well, the Medicaid disability population is 
one that generally qualifies for supplemental security income, 
cash assistance, from the Federal Government, along with having 
severe enough disabilities to make them permanently and totally 
disabled.
    They include the developmentally disabled, people with 
mental retardation, children with spinal bifida and other 
special health care needs, and people with HIV and AIDS.
    So the disability population within Medicaid is a very high 
risk population, one that virtually no private insurer would 
want to see enter upon their roles.
    That population is among the most expensive on the Medicaid 
program. They consume 80 percent of all the prescription drug 
spending under Medicaid today, and have very high acute care 
costs, and very high long term care costs.
    In addition, among Medicaid's more disabled populations, 
they take care of 5 million of low income Medicare 
beneficiaries who count on Medicaid to provide drugs, long term 
care, and other issues to supplement Medicare.
    So the most expensive, the 73 percent of the dollars spent 
in Medicaid, go for the disabled and the elderly, as opposed to 
the children, who make up 51 percent of the beneficiaries, but 
only about 15 percent of the expenditures.
    Mr. Strickland. What success do you think these individuals 
would have if they were provided with a voucher and asked to go 
out into the market and find coverage?
    Ms. Rowland. I don't think they could find any coverage 
that would be both affordable, and that would also cover the 
kinds of services that Medicaid overs, because here Medicaid is 
not an insurance policy.
    It is really a coverage policy, providing not only acute 
care, hospital, and physician services, but rehab services, 
institutional care for the mentally retarded. And I think that 
is where we have to be very clear about what the Medicaid 
program is.
    It is not a health insurance program for low income 
families. It is a complex set of multiple services for the 
elderly, the disabled, including long term care, mental health 
services, and other benefits, generally not available through 
any private health insurance plan.
    Mr. Strickland. The disabled community has recently 
successfully supported Medicaid expansion. For example, the 
Ticket to Work Act, which Congress passed in 1999, which allows 
the working disabled to buy into or continue Medicaid coverage 
as their income increased.
    Also, the Family Opportunity Act, which we hope will pass 
this year, would allow disabled children to receive coverage 
through Medicaid. Could you talk about why the Medicaid program 
is so successful in providing coverage for this population?
    Ms. Rowland. Well, because the Medicaid program has to 
provide coverage for this population that it does. The 
employers of these individuals are reluctant to hire them if 
they think they are going to be adding this disabled person 
into their employer risk pool, because it will influence the 
premiums that they as an employer have to pay.
    So one of the things that the Ticket to Work Act really 
does is helps make those individuals employable because their 
health insurance costs and coverage are still provided by the 
Medicaid program.
    So again that is Medicaid's role as a safety net, 
compensating and making public or private insurance through the 
employer not become unduly expensive because of the hire of a 
severely disabled individual.
    Mr. Strickland. So the Medicaid program--and I think this 
is important for us to understand. The Medicaid program does 
not discriminate against people on the basis of their illness 
like the individual market discriminates. Is that a correct 
statement?
    Ms. Rowland. No, the Medicaid program is set up to cover 
the sickest and the illest people in our society who cannot 
otherwise get coverage elsewhere. You might remember years ago 
that this committee dealt with a young woman named Katie 
Beckett, who was hospitalized with a severe respiratory 
illness, and on a respirator, and unable to be released from 
the hospital.
    Private insurance wouldn't cover her, or let her go home, 
and her mother successfully argued for Medicaid waivers, where 
Medicaid now covers such individuals, and allows them to return 
home.
    And one of the success stories of Katie Beckett is that she 
has now graduated from college instead of living in an 
institution for her whole life thanks to the kinds of coverage 
Medicaid gives.
    Mr. Strickland. Thank god for Medicaid. Thank you.
    Mr. Bilirakis. The gentleman's time has expired. The 
gentleman from Kentucky, Mr. Whitfield, to inquire.
    Mr. Whitfield. Dr. Kellermann, you had indicated that you 
were going to have five more studies coming out; is that 
correct?
    Mr. Kellermann. Yes, sir.
    Mr. Whitfield. And will one of those studies go into more 
detail on options available to expand?
    Mr. Kellermann. It will. The second report in May is going 
to deal with the individual health consequences of uninsurance. 
The third will examine children and families. The fourth--and 
very important one--is going to look at the effect of large 
numbers of uninsured on ERs, trauma centers, and public 
institutions that care for everyone.
    The fifth report is going to look at how much are we 
paying, and how are we paying for the uninsured. And the final 
report will examine what private business, communities, State 
governments, and the Federal Government are doing that may 
offer us some insights into effective strategies.
    I don't suggest you wait to deal with this problem, but 
that is the basic sequence the committee has mapped out for its 
work.
    Mr. Whitfield. You are the Chairman of the Emergency 
Medicine Department at Emory University; is that correct?
    Mr. Kellermann. Yes, sir.
    Mr. Whitfield. Let me give you a hypothetical. If a person 
comes into the emergency room at Emory University Hospital, and 
they have been in a car accident, and they do not have any 
insurance whatsoever, you treat them; is that correct?
    Mr. Kellermann. Yes, sir. We treat them both as a matter of 
ethics, and also as a matter of Federal law. The only health 
care in America to which every American is legally entitled is 
care in an emergency department.
    Mr. Whitfield. Okay. When you finish at the emergency room 
and if they need hospitalization, what do you do?
    Mr. Kellermann. We hospitalize them, and we eat that cost, 
and that has implications for everybody in the country.
    Mr. Whitfield. And how much was that cost last year? Do you 
have any idea?
    Mr. Kellermann. Well, it would be more accurate to say for 
Grady Hospital, which is Atlanta's only level one trauma 
center, 60 percent of my patients at Grady are uninsured.
    Grady carries tens of millions of dollars in unreimbursed 
costs every year, and at the same time State and Federal 
funding are being dwindled every year. So there are issues here 
not only of access of care for the uninsured, but everyone in 
the country involved in these sorts of issues.
    Mr. Whitfield. And obviously those costs raises the costs 
of health care for everyone, too?
    Mr. Kellermann. Absolutely. Every time somebody talks about 
emergency department care being so expensive, they forget that 
we give out enormous amounts of, quote, free care, although we 
know it is not free, because we are the only place that people 
are legally entitled to go to.
    And when you have to go to get medical care, we are the one 
place where we have got to take you in. The problem we have 
today is that this is a system that everyone takes for granted, 
and assumes that I can always go to the ER if I have chest 
pain, or I have a bad headache, or I am injured.
    But as hospitals have gotten whittled and whittled, and 
have cut back on beds, and closed, and cut back on staff, we 
now have not only in public and teaching hospitals, but private 
hospitals as well, emergency rooms full of seriously ill and 
injured patients who can't get upstairs because there are no 
vacant beds.
    Mr. Whitfield. Well, I might also add at this point that 
you are very familiar with Medicaid Dish payments, and of 
course there is a cap on that right now, and we are trying to 
raise that cap to make more money available for those hospitals 
that are dealing with Medicaid patients.
    Mr. Kellermann. Yes, sir.
    Mr. Whitfield. And receiving a disproportionate share of 
payments.
    Mr. Kellermann. If that doesn't happen, we could be in a 
world of hurt.
    Mr. Whitfield. Right. And as you mentioned, people come to 
an emergency room--and it doesn't make any difference whether 
they have been in an accident. Many people come because they 
have a headache, or they have chest pains, or any number of 
things, and they will come, because they don't have any other 
place to go; is that correct?
    Mr. Kellermann. They don't know where else to go, and they 
often don't have any where else to go.
    Mr. Whitfield. Now, all of you are familiar with these 
community health centers; is that correct?
    Mr. Kellermann. Yes, sir.
    Mr. Whitfield. And I noticed that the President is 
increasing the amount of money for community health centers, 
which raises the whole question in my mind that most people are 
saying--which is probably correct, that the only way that you 
are going to solve this problem is you are going to have to 
have a fragmented approach.
    I mean, you have the public health system, Medicaid, 
Medicare, and then they say that 80 percent of the uninsured 
come from working families, or in working families. So 
obviously anything that we could do to assist employers be able 
to afford health insurance, or even sole proprietors, would be 
something worth exploring. But another option would be to 
simply expand community health centers so they would be 
available to everyone. Now do any of you advocate that or----
    Mr. Kellermann. Providing people access to care that can 
provide preventive and primary care is important, and I know in 
our report that we observed that currently community health 
centers only provide access to about 3.5 of the some 39 to 40 
million uninsured. So there is a major gap there.
    Mr. Whitfield. Right. Absolutely.
    Ms. Grealy. Mr. Whitfield, I think we definitely want to 
get insurance coverage for me, but the community health 
coverage do form an important part of the safety net. And until 
we can get as most coverage and insurances that we would like 
to see, I think it is important to have that resource available 
for people to access.
    Mr. Whitfield. Right. Now, Dr. Rowland, you had mentioned 
that Medicaid is not a health insurance program, but the effect 
is the same isn't it? I provides--I mean, do you feel that the 
Medicaid Program is adequate?
    Ms. Rowland. Well, the Medicaid program is more than a 
health insurance program was really what I was trying to say. 
That it provides far more than access to basic primary care.
    With regard to your community health centers, too, I think 
that they provide a very important source of access for primary 
and preventive care, but they really don't help with the 
hospitalization and some of the follow-up care that Dr. 
Kellermann mentioned.
    And certainly there are lots of rural uninsured people who 
really have no access to the kind of services that a community 
health center would provide. So the problem is that they can't 
be everywhere for a very disparate uninsured population.
    Mr. Whitfield. Well, we have a community health center in 
my district, and which is very rural district, and if you had 
the primary preventive care covered in some way, and then you 
had insurance for hospitalization, that probably would 
significantly reduce health insurance I am assuming.
    If I may ask one other question. Ms. Grealy, you had 
mentioned in your testimony something about a program in San 
Diego, and one in Sacramento, California that they are now 
looking at as well. Could you elaborate on this little bit?
    Ms. Grealy. Well, these are modeled after the FAMIS program 
and actually the Wayne County, Michigan as well. And the idea 
here is that we know that there are employers out there that 
are offering health insurance or their employees.
    And we also know that there are other small businesses that 
would like to do it. And in studying these programs, what we 
found is that if the employer could get help with about one-
third of the premium from some program, whether it be Medicaid, 
S-CHIP, a local government that is willing to do it, and if the 
employee could come up with about a third of the premium, then 
that small business employer could come up with the other 
third.
    And that's what I mean when we talk about how can we 
leverage these limited dollars in the best way. So we now see 
under the S-CHIP, and Medicaid waiver demonstration 
authorities, more and more localities are looking at these 
programs as a way to work with the employers.
    And instead of bringing the parents on to Medicaid, what 
they are trying to do is bring the whole family into the 
private employer based coverage.
    Mr. Bilirakis. The gentleman's time has expired. Mr. Green 
to inquire.
    Mr. Green. Thank you, Mr. Chairman, and I would like to 
thank our panel, and even the next panel, because this is such 
an important hearing on our uninsured. Dr. Rowland and Dr. 
Kellermann, let me ask my first question.
    The Iowa IOM study points out that national immigrants are 
a small part of the overall population, although it is growing 
nationally, but in some States like Texas, and my colleague, 
Ms. Wilson, from New Mexico, mentioned that there are a high 
number of immigrants. Do you agree with that?
    Mr. Kellermann. Yes.
    Mr. Green. These immigrants are likely to work in jobs 
where they aren't offered or cannot afford the coverage, and as 
you know, they also don't qualify for the public coverage 
because the States are banned from covering legal illegal 
immigrants under the Medicaid and CHIP.
    And it seems that lifting this ban and giving the States 
the option to cover illegal immigrants would be one small, yet 
helpful, step, and particularly with the States with high 
immigrant populations. Would you comment on that, on lifting 
that ban on legal immigrants?
    Ms. Rowland. Well, certainly that ban has been one of the 
contributing factors to the very high rates of uninsurance in 
those States, and also to the problems faced by a large part of 
the immigrant community.
    I think it would be very helpful to lift those bans so that 
we could provide health care access to them through the 
Medicaid program, and through the S-CHIP program. It would 
certainly be a great benefit to the States with the largest 
immigrant population.
    But there is a lot of other States that are now seeing a 
large growth in the number of immigrants, and they are seeing 
similar problems.
    Mr. Green. Dr. Kellermann.
    Mr. Kellermann. I would encourage all of you if you want to 
get a window into both the complexities and at times the 
absurdity of the situation, is when you go back to your 
district, call up one of your mission critical hospitals, 
public teaching, or community, and spend a couple of hours in 
the emergency room and see who comes in, and talk to them.
    I know that in Arizona that a colleague of mine has pointed 
out that with the immigrant population there that they have 
very limited or no access to care. Their answer is that they go 
to the emergency room.
    And they have Ers in Arizona that are dialysising patients 
three times a week when they come to the emergency room. They 
are legally obligated, mandated to do that, with no provision 
to pay for that care.
    So that gets passed on to everyone else. We should not only 
be worried today about access to care for 40 million Americans. 
We need to be worried about the fact that the most critical 
elements of our health care system are collapsing under the 
strain of the burden of care, and the care for 280 million 
Americans is being jeopardized.
    So we have to be smart, as well as compassionate, and I 
think anything that can provide care in the most efficient and 
timely manner for the people that we know are going to end up 
taking care of anyway is going to make more sense in the long 
run.
    Mr. Green. And that is true not just for immigrant 
populations, and just as you said, the uninsured show up at the 
emergency rooms, because I have seen it in Houston, and our 
emergency rooms there, and frankly even for profit hospitals.
    Ms. Rowland, in your testimony you said that 2 out of 3 of 
the non-elderly receive insurance through employer sponsored 
insurance?
    Ms. Rowland. Yes.
    Mr. Green. I keep hearing in the last couple of years a 
proposal to--there is a goal of eliminating employer-based 
insurance in our country. It seems by like maybe a small 
minority, but I hear it on Talk Radio and things like that.
    When you have two-thirds of our non-elderly receive 
insurance through employer-sponsored insurance, is that really 
rational?
    Ms. Rowland. Well, I think having two-thirds of our 
population get coverage through employer-based coverage means 
if we wanted to address the uninsured that we should not 
unravel what we have before we find new solutions for those 
that don't have it.
    And which is why I think looking at maintaining and 
stabilizing the coverage through public programs, as well as 
trying to shore up what is available in the employer-based 
system today are important strategies.
    Moving people out of employers and refinancing the whole 
system is going to be extremely disruptive, and I think will 
both increase the number of uninsured in the process, not 
decrease it.
    Mr. Green. Thank you. Both in the testimony of this panel, 
as well as the next panel, the $1,000 tax credit is talked 
about as something that would be beneficial, and I think the 
goal of my colleagues on at least this side of the aisle was 
universal coverage, and we realize that we can't get to that.
    And so we have to take the good in the system we have, 
where two-thirds are covered by employers, and take care of 
that third in the uninsured and immigrant. So we are actually 
nickel and diming to get to that uniform or universal coverage 
in different ways.
    And so that's why CHIP was created, and that's why we are 
looking at expanding CHIP, we hope, and so I know that we have 
a lot of estimates on what the private sector can offer, and I 
know in the next panel there is--in the testimony there is a 
cost that is given for an on-line insurance of $159 per month 
per person.
    And about $1,900 a year, and Dr. Kellermann, in your 
testimony you say that it is about $7,000 a year. And $1,900 a 
year for a family plan and yours is about $7,000, and the next 
panel will talk about that. Why do we have that disparity?
    Is that $1,900 a $5,000 deductible or something like that?
    Mr. Kellermann. I wouldn't know. I would have to ask. I 
would say show me the policy and what are the terms. How large 
are the co-payments, and what services am I entitled to 
receive, to know.
    I mean, we can buy very cheap cars or very expensive cars. 
The devil is in the details. I would have to know what 
specifically was being offered in that plan to know whether it 
is value or not.
    Mr. Kellermann. And I guess what worries me is that we can 
find a low quote, but it would be a high deductible, and for 
trying to get the uninsured who are either moderate or poor, 
they are not going to have $5,000 or $10,000 to pay before they 
even go into a hospital anyway.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Bilirakis. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. Let me address this 
panel, and I am not sure anyone has any direct expertise on 
this, but you probably have opinions on both panels about what 
I alluded to in my opening statement about what I call the 
uninsurable, and not just the uninsurable, the high risk.
    And I tried to compare it to automobile insurance, and 
again there is a much different environment there. I don't 
think there is any way that you could limit your exposure 
there, and I am still talking about bringing insurance 
companies in to this type of thing.
    And if you write in that State, you have to insure health 
insurance for this and take your share. But I think the more 
traditional approach on high risk is the State pool. And I am 
wondering if any of you had experience with that, and how much 
the State has.
    Because obviously if your pool is high risk, and even if 
they pay a premium in excess of the normal premium, and if they 
pay high rates, I can't imagine that would still be sufficient 
with such a high risk pool to cover, that that would be 
sufficient money to cover the expenses of the high risk 
population in that pool.
    So I guess the State stands behind it. Does anyone have any 
experience or is that a loser in terms of huge amounts of 
money, or is that a reasonable solution to some of this higher 
uninsured problem, or uninsurable problem. High risk.
    Ms. Grealy. I would say it is part of the solution, and I 
think that is what we have to keep coming back to when we are 
talking about the $1,000 tax credit. That may not be the answer 
for everyone.
    But there may well be a segment of the population that does 
have the income to purchase that type of policy. So, let's put 
that aside and address your high risk pools. We are hearing 
from the States that again if they can get some help from the 
Federal Government, and I believe there is some funding within 
the President's budget proposal, that that is a mechanism that 
can address some of the problems.
    And that that is probably a better way to go than trying to 
do the guaranteed issue, which we saw did result in either 
insurers leaving a particular locality, or resulting in very 
high insurance premiums.
    So you are exactly right. Getting the State and perhaps the 
Federal Government to some extent to stand behind and fund that 
risk pool. Again, it is not the solution, but it certainly is 
part of the solution.
    Mr. Bryant. The insurance companies you find will if forced 
to do that, they will leave the State?
    Ms. Grealy. On the guaranteed issue, yes. You must write a 
policy for absolutely everyone.
    Ms. Rowland. There has been some limited experience in some 
of the States with high risk pools that they haven't been very 
highly utilized, and have not really emerged as a major 
strategy.
    I think one of the concerns though that you would want to 
have is whether you are taking all of the high risk people out 
of the general insurance pool. That would make insurance fairly 
cheap for everyone else, but it would put tremendous costs in 
that high risk pool.
    And so I would be quite concerned that you would be sort of 
tiering our health care to where we have the highest and most 
expensive people in a pool that will be extremely difficult to 
finance.
    Because what helps us finance insurance today is having the 
sick in the same pool as the healthy to spread the cost over 
the whole population.
    Mr. Bryant. But my experience though is that some companies 
aren't going to write those uninsurable high risk people.
    Ms. Grealy. That's right. I think you do need a safety 
valve mechanism to deal there as long as you don't have 
guaranteed issue.
    Mr. Bryant. Dr. Kellermann, do you have a comment?
    Mr. Kellermann. I am sure our committee is going to look at 
that in detail in its final report, but in fairness to the 
process, I would rather have my co-chair come back and give you 
that information once we have had a chance to really go through 
it in a very methodical way.
    Mr. Bryant. I am intrigued by the issue that was mentioned 
earlier, and I think it was either Mr. Whitfield or Mr. Green's 
questioning about the exclusion in Federal law about legal 
immigrants being treated in the community hospitals.
    And so obviously they are all ending up in the emergency 
rooms, and there is no limitation under COBRA provisions. You 
have to, no matter who walks in--legal, illegal, whatever--you 
have to treat that person or be subject to the law?
    Mr. Kellermann. Yes, sir. We have to treat that person and 
there is absolutely no mechanism to pay for that care. It is a 
totally unfunded mandate. Completely.
    Ms. Grealy. It is about $19 billion a year for hospitals at 
this point in uncompensated care. And that is a very hidden 
cost, and one that I don't think we focus on enough. Someone is 
paying for that, and so if we could address and get coverage 
for a broader population, it certainly would reduced that 
burden.
    Mr. Kellermann. The other half of that issue that I am very 
personally quite concerned about as an emergency physician or 
as hospitals have cut back on beds, and we have a shortage of 
nurses, we can't get sick and injured patients, insured or 
uninsured, out of the ER and up into the hospital.
    I held this up a moment earlier. This was an issue of the 
U.S. News and World Report earlier this fall that is titled, 
``Crisis In the E.R. Turnaways and Huge Delays are a Sure Fire 
Receipt for Disaster. What You Can Do.'' I want to point out 
that the issue date for this was September 10, and nothing has 
happened to change this reality with the increasing potential 
now for mass casualty events.
    So as an emergency physician, irrespective of my role in 
the committee, I am deeply concerned about access to emergency 
care for everyone in this country, insured or uninsured today.
    Mr. Bryant. Well, I thank the panel and yield back my time.
    Mr. Bilirakis. And that is the September 10 issue?
    Mr. Kellermann. Of U.S. News and World Report.
    Mr. Bilirakis. I just wanted to get that into the record. 
Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman. There is a lot of talk 
about insurance and standard of care, and my first question is 
do you believe that Medicaid is the appropriate standard for 
coverage or care, and that if we talk insurance, we ought to be 
talking about policies that address that standard of care?
    Ms. Rowland. I think there are various standards of care. I 
think what we talked about a little today is that the Medicaid 
population is in fact a very diverse population, including some 
very highly disabled individuals, as well as the elderly.
    And so the benefit package in Medicaid is very broad to 
take care of individuals at that level who would not get 
coverage. But I think the basic protections in Medicaid, and 
the coverage for the low income populations are in fact a 
standard that we should hold for looking at further expansions 
of coverage, or insurance coverage for the low income. Basic 
benefits and low cost sharing.
    Mr. Wynn. Then should we be talking about insurance 
policies that provide that standard of care as a policy matter?
    Ms. Rowland. I think we should look at insurance policies 
to be comprehensive and to promote primary and preventive care, 
as well as hospitalization and other care.
    So I think it is important that we not just provide 
catastrophic care with high deductibles.
    Ms. Grealy. I think it is important that we have a variety 
of options. Probably a great model to look at is the Federal 
Employees Health Benefit Plan, where the individual makes the 
decision about what type of cost sharing that they might want 
to do.
    We have a vast array and variety, and so I think it is hard 
to say we would want a kind of one size fits all package for 
any extension.
    Mr. Wynn. Well, I was speaking in terms of if we are paying 
for it, and we are subsidizing it. The Federal Employees Health 
Benefits Package has been described as a Cadillac of health 
insurance plans.
    I am not sure in the worlds of Mr. Kellermann we can afford 
the most expensive car. Let me ask another question. On the 
benefits side, there is a question of whether or not children 
can get, for example, dental care.
    In an insurance package that is being touted as accessible 
to the uninsured, what are the consequences of that if you are 
talking about insurance policies that don't provide dental care 
for young people?
    Ms. Rowland. Well, certainly under the Medicaid program 
children, especially those covered mandatorily because of the 
early periodic screening and diagnosis, and treatment program, 
or better know as EPSDT, are guaranteed that for anything they 
are diagnosed for that they should be treated, and which would 
include dental care.
    So that that has been a very comprehensive package for 
children. So when children talk about the Medicaid benefit 
package, they are talking about providing any health care 
service that a child needs, subject to virtually no cost 
sharing for those under the poverty level.
    What I think is harder is when you start looking at the 
sort of expanding coverage to adults, and at higher income 
levels what should be in those benefit packages. So that we 
really need to look at what level can cost sharing be 
introduced and not be an impediment.
    And at what level should some of these additional benefits, 
like dental care, be included in what is a standard health 
insurance plan.
    Mr. Wynn. Do you have a recommendation?
    Ms. Rowland. Well, I certainly think for the case of 
children, especially low income children, dental care has 
proven to be as important a part of their health care services 
as basically medical care.
    And mental health services, which are often excluded from 
some of the private health insurance plans, are also a critical 
part of the benefit package for many of Medicaids.
    Mr. Wynn. So if we are designing a program----
    Ms. Rowland. I think Dr. Kellermann has a comment here, 
too.
    Mr. Wynn. I just wanted to pose this as a question. So we 
are talking about insuring people in private health insurance, 
your argument, and don't let me state it for you, but it seems 
to be that it ought to include dental care. Is that a fair 
summation of where you are?
    Ms. Rowland. I think for the low income population, 
especially dental care, is very important.
    Mr. Kellermann. And you made the comment about Cadillac 
care. I would only respond and say that if the car is a beater 
and you have to spend a lot of money every week to keep it on 
the road, that's not necessarily a bargain either.
    I will never forget a woman I took care of several years 
ago who came in, a working mother who came in with a massive 
stroke, and I learned as we were trying to save her life that 
she had stopped taking her blood pressure medication because 
she felt that she needed to pay the money to buy food for her 
kids.
    We spent more money in a unsuccessful attempt to save her 
life in the space of 2 hours in one of the leading academic 
medical centers in the country than it would have cost to have 
taken care of her blood pressure and kept her working for the 
next 25 years. That is no bargain, for her or for us.
    Mr. Wynn. Okay. I think that is a good point. This issue of 
deductibility. Is there a level at which deductibility becomes 
a problem and where is that?
    Ms. Rowland. Well, the question there is at what income 
does the individual start. So that if I am earning $50,000 a 
year, for me a $100 deductible is not probably a problem.
    But if I am earning $15,000 a year, and I have three 
children to feed, and housing to pay for, a $100 deductible is 
really a financial barrier that I would think twice about going 
to get medical care before I paid for the food or other things 
for my children.
    So I think the issue really is that for someone who is 
relatively young, and relatively healthy, insurance policies 
with higher deductibles are probably okay, because they don't 
assume they are going to get sick.
    But we never know when we are going to get sick, and for 
those at the lowest incomes we don't want people to defer care 
because they can't afford to access early primary care.
    Ms. Grealy. But I think that Diane makes a very important 
point here, and I think that we need to not look only at the 
individual, in terms of their income. But if we are looking to 
expand private coverage, we also need to look at what can the 
employers do.
    And we don't want to put it out of their reach, as well as 
out of their employee's reach. So I think we really have to be 
again flexible, and not try to mandate that this is the only 
way to go, and that is the only way you are going to get the 
subsidy.
    Mr. Wynn. If we are talking about subsidizing employers in 
order to expand an employer-based program, what would we have 
to do on an average to enable them to provide care without 
deductibles being a barrier, and that would include a 
sufficiently comprehensive benefit package to cover dental 
care?
    Ms. Rowland. Well, I think the problem is that you have a 
lot of employers who don't offer coverage today, and many of 
them would argue that unless you almost fully subsidize the 
cost of the insurance premium that they are not going to be 
able to offer coverage.
    And what we know from studies we do of employer coverage, 
is that the average group payment rate today in the country for 
a policy for a family is $7,000 and for an individual, it is 
$3,000.
    So it is going to cost a lot of money to subsidize 
employers directly for providing them insurance. And then we 
get back into what strategy works most effectively. Some 
partial subsidies to employers, combined with subsidies to 
individuals, combined with expansions of public programs.
    And that is why we are in such a mix of options, because 
the cost of any one option is substantial.
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Bilirakis. It is a question that if we had had a second 
round, and we are not going to have one, that I wanted to 
really go into. I would like to excuse this panel, but to first 
of all ask you if you would be willing--I know that you would 
be--to respond in writing to questions that the committee staff 
will send to you.
    But I am particularly concerned about the question that Mr. 
Wynn went into, the fact that--and I believe it was Ms. Grealy 
that said that 8 out of 10 of the uninsured aren't working 
families. What can we do.
    I mean, it seems like that that is something that we can 
maybe grab a hold of and it certainly would go a long, long way 
toward maybe solving the overall problem. So I would love to 
hear from you all in writing any answers that you may have, and 
what do you suggest that we might be able to do to try to get 
to all of those people or a substantial number of them at least 
covered by their employers.
    And so having said that, unless there is anything further, 
we will excuse you and thank you with much gratitude, as you 
have helped an awful lot. The Chair now calls the second panel 
forward.
    And they are Ms. Grace Marie Turner, President, of the 
Galen Institute; Mr. Robert de Posada, President of the Latino 
Coalition; The Honorable Thomas R. Donnelly, Junior, Board 
Member, of the Coalition of Affordable Health Care Coverage; 
Ms. Judy Feder, Dean of Public Policy, Georgetown University; 
and Mr. Alan Weil, Center Director, Assessing the New 
federalism, with The Urban Institute.
    Thank you, ladies and gentlemen, for your willingness to be 
here. We apologize for the break that we had to take because of 
the vote, a very important vote. And again your written 
statement is a part of the record, and we would hope that what 
you would do is sort of compliment it if you would, orally. And 
we will start out with Ms. Turner, President of the Galen 
Institute. Ms. Turner, please proceed.

 STATEMENTS OF GRACE-MARIE TURNER, PRESIDENT, GALEN INSTITUTE, 
 INC.; ROBERT de POSADA, PRESIDENT, THE LATINO COALITION; HON. 
THOMAS R. DONNELLY, JR., BOARD MEMBER, COALITION FOR AFFORDABLE 
  HEALTH CARE COVERAGE; JUDITH FEDER, DEAN OF PUBLIC POLICY, 
    GEORGETOWN UNIVERSITY; AND ALAN WEIL, CENTER DIRECTOR, 
       ASSESSING THE NEW FEDERALISM, THE URBAN INSTITUTE

    Ms. Turner. Thank you, Mr. Chairman, and members of the 
committee for inviting me to testify today. My name is Grace-
Marie Turner, and I am President of the Galen Institute, a not-
for-profit organization that focuses on health policy.
    The problems of the uninsured are serious and a continuing 
concern to us as they are to this committee as you demonstrate 
once again in holding this hearing today. Thank you.
    I would like to begin with a brief overview of who the 
uninsured are, and why getting health insurance is so difficult 
for them. I am encouraged that some new options are being 
considered to provide help.
    As we have heard the uninsured are primarily minorities, 
especially hispanics, young adults, workers who are not offered 
or can't afford to buy health insurance at work for themselves 
or their families, and workers who are between jobs.
    The Census Bureau finds that the uninsured are most likely 
to be in families earning less than $25,000 a year, to be self-
employed, and working in small companies. The likelihood of 
someone having health insurance is closely tied to income, and 
to whether or not their job provides health insurance.
    Only one-third of those earning under 200 percent of 
poverty have coverage at work, while three-quarters of those 
with incomes above that level get insurance through their jobs.
    Most of the uninsured make too much to qualify for public 
programs, and they don't have higher paying jobs that provide 
coverage. They have fallen through the cracks of the current 
system.
    Several options are being discussed to help them. One is 
expansion of Medicaid. But State and Medicaid budgets are 
stressed to the limit, and threatening higher taxes, benefit 
cuts, or cuts in other programs.
    Adding millions to the working Americans to Medicaid roles 
appears neither politically nor financially feasible in this 
climate. For example, New Mexico has the highest uninsured rate 
in the country, yet the State is about $50 million short in 
being able to provide coverage next year just for those who are 
currently on Medicaid.
    What about mandates in insurance regulations? Forcing an 
employer to provide health coverage, especially now, would 
cause many marginal businesses to lay off workers and even go 
under.
    Insurance regulations also would likely backfire. A recent 
study by E-Health Insurance shows that States with community 
rating and guaranteed issue laws had premium prices that were 2 
or 3 times higher than States that did not employ these market 
reforms.
    Another option is to provide tangible support through a 
fundable, sensible tax credits. President Bush has proposed 
health credits of up to $1,000 for individuals, $3,000 for 
families, and the credits phaseout, ending in income levels of 
$30,000 for individuals and $60,000 for families.
    These credits would likely be target to those who are most 
likely to be uninsured and least likely to have job based 
coverage. The credits would be refundable so that people would 
get the same amount of money, no matter how much they owed in 
taxes.
    The President's plan also would be advanceable, meaning 
that people would get the subsidy up front. The White House 
estimates that under its proposal that 6 million of the 
uninsured would get coverage.
    The uninsured are getting a bad break from the tax code 
now, and tax credits would help to level that playing field. 
Workers can get their health insurance tax free as long as 
their employer writes the check for the premium.
    That means that an executive earning $100,000 gets a $2,600 
tax break for health insurance at work, while a waiter serving 
her lunch, and making $1,500 a year, gets $79 a year in tax 
help for the subsidies.
    This is clearly a system we would have designed if we were 
starting from scratch. A study by respected Wharton School 
economist Mark Pauly says that a refundable tax credit would 
provide a powerful incentive for the uninsured to purchase 
coverage.
    One of his studies showed that up to two-thirds of the 
uninsured would buy coverage if they received a subsidy worth 
just half the value of a good policy. Pauly also found that the 
individual market is stronger than it is reputed to be.
    Achieving universal coverage would require a mosaic of 
solutions as we have discussed all morning. Tax credits are not 
the answer for everyone. Older, sicker citizens may find that 
they still cannot afford or get coverage and safety net 
programs will continue to be important.
    But the fact that credits won't work for some people 
doesn't seem to me justification for not extending this 
meaningful help to millions of Americans who would benefit. 
Others are concerned that tax credits would damage the 
employment based system by draining younger, healthier, workers 
from their pool.
    However, I would argue that most of those who have coverage 
at work receive a more generous subsidy than the credits would 
offer, and they would opt to stay where they are.
    The administration estimates that only 15 percent of tax 
credit users would previously have had employer coverage. 
Finally, almost any plan you create would have some crowd-out. 
The question is do you want more people moving into government 
programs or private health insurance.
    In every other sector of the economy, competition forces 
prices down, and quality up, and the health insurance market 
would be no different. If you were to provide tax credits for 
the uninsured or vouchers, the market place would respond by 
making more affordable, more diverse, more appropriate health 
insurance available so that people could be deciding what 
coverage works for them and their families.
    That would strengthen the health insurance market place and 
provide citizens with more coverage and more choices. Most 
importantly, tax credits tell hard working Americans who are 
left out of the current system that they count, too. Thank you 
for the opportunity to present this testimony, and I would look 
forward to your questions.
    [The prepared statement of Grace-Marie Turner follows:]
  Prepared Statement of Grace-Marie Turner, President, Galen Institute
Introduction
    Thank you Mr. Chairman and members of the committee for inviting me 
to provide testimony today on the important issue of ``The Uninsured 
and Affordable Health Coverage.'' My name is Grace-Marie Turner, and I 
am president of the Galen Institute, a not-for-profit research and 
educational organization that focuses on health policy.
    The problems of the uninsured are of serious and continuing concern 
to this committee, and I commend you for holding this hearing to keep 
the spotlight on the importance of action to address the needs of a 
population that is as large as it is diverse. I am encouraged that some 
new options are being considered to provide them with help and look 
forward to discussing them with you today.
    In my testimony today, I would like to present a very brief 
overview of who the uninsured are and explain some of the key reasons 
that obtaining health insurance is so difficult for them. I will 
briefly explore several of the options under consideration to extend 
health coverage to the uninsured. And finally, I will describe why I 
believe that providing refundable tax credits for the uninsured is the 
best solution to extend meaningful, viable help to millions of 
uninsured Americans.
Who are the uninsured?
    More than 38 million Americans were uninsured at the last official 
count, but the number surely has risen during the current recession. 
While the numbers change, the profile of the uninsured remains quite 
constant.
    The uninsured are primarily: 1) minorities, especially Hispanics; 
2) lower and lower-middle income Americans; 3) young adults between 
ages 18 and 24; 4) workers or dependents of workers who are not offered 
or cannot afford to purchase health insurance through the workplace; 
and 5) workers who are between jobs.
    The Census Bureau finds that the uninsured are most likely to be in 
families with annual incomes of less than $25,000, to be self-employed 
or employees of small companies, and/or to work in service-industry 
jobs, such as hotels and retail stores.
    The Commonwealth Fund, a respected health coverage research 
organization, conducted a survey between April 27 and July 29, 2001, 
and confirmed that family income is one of the strongest predictors of 
being uninsured.1 The Commonwealth Fund 2001 Health 
Insurance Survey found that 75 percent of the uninsured had annual 
incomes below $35,000, while only two percent had incomes of $60,000 or 
more.
---------------------------------------------------------------------------
    \1\ Lisa Duchon, et al. Security Matters: How Instability in Health 
Insurance Puts U.S. Workers At Risk. Findings from the Commonwealth 
Fund 2001 Health Insurance Survey. New York. December, 2001.
---------------------------------------------------------------------------
    The likelihood of someone having health insurance is closely tied 
not only to higher income but also to whether the worker's job provides 
health insurance. Only 36 percent of those under age 65 with incomes 
below 200 percent of the federal poverty level have employment-based 
insurance coverage, while 77 percent of those above do.2
---------------------------------------------------------------------------
    \2\ White House Council of Economic Advisors. Health Insurance Tax 
Credits. February 14, 2002.
---------------------------------------------------------------------------
    The uninsured are overwhelmingly working Americans. The Kaiser 
Commission reported that more than 80 percent of those who are 
uninsured either are working themselves or live in families headed by a 
person in the workforce, 3 a finding confirmed by Paul 
Fronstin of the Employee Benefit Research Institute.
---------------------------------------------------------------------------
    \3\ Kaiser Commission on Medicaid and the Uninsured. Health 
Insurance Coverage in America. 1999 Data Update. Washington, D.C., 
December, 2000.
---------------------------------------------------------------------------
    More than half (52%) of employees working in firms with fewer than 
100 workers and with earnings of under $20,000 were not offered or were 
ineligible for employer-sponsored health plans.4
---------------------------------------------------------------------------
    \4\ Lisa Duchon, et al. Listening to Workers. Findings from 
Commonwealth Fund 1999 National Survey of Workers' Health Insurance. 
New York, January, 2000.
---------------------------------------------------------------------------
    Small businesses with fewer than 50 workers account for 94.7 
percent of businesses in the United States and employ more than 40 
percent of the workforce.5 Forty percent of these small 
businesses do not offer health insurance coverage to their 
workers.6 A key reason is the high cost of health insurance 
and the fact that small firms lack the advantages of large companies in 
designing and purchasing affordable health care packages.
---------------------------------------------------------------------------
    \5\ U.S. Bureau of the Census. 1998 County Business Pattern Data, 
Table 2.
    \6\ Larry Levitt et al., Employer Health Benefits: 1999 Annual 
Survey, Henry J. Kaiser Family Foundation and Health Research and 
Educational Trust, 1999.
---------------------------------------------------------------------------
    One-quarter of uninsured workers are self-employed.7 
While Congress has enacted legislation that will provide full tax 
deductibility of health insurance for the self-employed as of next 
year, a tax deduction is worth only as much as the individual's tax 
bracket. If someone is in the 15 percent tax bracket, even full 
deductibility means just a 15 percent reduction in price. For many, 
this is simply not enough of a price break for them to afford coverage.
---------------------------------------------------------------------------
    \7\ Duchon, et al. Listening to Workers. The Commonwealth Fund.
---------------------------------------------------------------------------
    Minorities are also disproportionately likely to be uninsured. 
Hispanics are more likely to be employed in blue collar jobs which are 
much less likely to provide health insurance coverage, but whatever 
their income, Hispanics are less likely to be offered job-based health 
coverage than non-Hispanic whites.8
---------------------------------------------------------------------------
    \8\ Claudia Schur and Jacob Feldman, Running in Place: How job 
characteristics, immigrant status, and family structure keep Hispanics 
Uninsured, The Commonwealth Fund. May 2001.
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Profiles of the uninsured
    For most of those who are uninsured, obtaining health insurance 
through the traditional channel of the workplace is not an option. For 
example:
    1) An Hispanic woman who works two jobs to feed and house her 
family is likely to fall through the cracks of the U.S. ``system'' of 
health coverage. She makes too much to qualify for Medicaid, is not 
offered health insurance through either of her jobs, and cannot afford 
to purchase health insurance on her own and still meet her other 
responsibilities to pay for housing, clothing, transportation, and food 
for her children.
    2) Lower and lower-middle income adults, such as a cab driver 
making $25,000 a year, are unlikely to qualify for any public or 
private health insurance. The cab driver is often much more worried 
about a major car accident or family illness that not only would 
destroy his livelihood but also his finances to pay for medical care. 
But he cannot afford to purchase insurance for himself or his family 
and still meet his other obligations.
    3) College students and young adults working at their first job 
often do not place health insurance as a top financial priority and 
often go without.
    4) A man working as a mechanic at an automobile garage or a waiter 
at a restaurant is unlikely to be offered health insurance through his 
job. The owners of the business are so busy trying to run the business 
and keep it afloat that organizing and paying for health insurance are 
too difficult and expensive. As a result, as much as the owners may 
want to provide health insurance, they simply can't afford it.
    5) Finally, a worker who has lost his job generally loses health 
coverage in the process. A federal program instituted as part COBRA 
(Consolidated Omnibus Budget Reconciliation Act) allows workers who 
have left their job-based coverage to continue their insurance by 
paying 102% of the premium. This coverage is generally very expensive, 
and only 19% of eligible employees continue COBRA coverage.9 
While the workers may get another job in a few months, the four or five 
months between jobs also means that he and his family likely will have 
no health insurance during that time.
---------------------------------------------------------------------------
    \9\ Becca Mader. ``Few ex-employees choose COBRA: But those who do 
are heavy users, study finds.'' The Business Journal, November 2, 2001.
---------------------------------------------------------------------------
What is life like for the uninsured?
    The uninsured are more likely to wait to get the medical care they 
need, putting off tests and treatment until illnesses are at more 
advanced stages. They are more likely to face difficulties in paying 
for the care they do get. And they live in constant fear that they or 
their children will have an illness or accident and that the family 
will not be able to afford needed medical care.10
---------------------------------------------------------------------------
    \10\ Connecticut Department of Public Health, Office of Policy, 
Planning, and Evaluation, Looking toward 2000: State Health Assessment, 
available at http://www.state.ct.us/dph/OPPE/sha99/
uninsured__and__underinsured__popul.htm
---------------------------------------------------------------------------
    Unfortunately, those who do not get their health insurance through 
the workplace or who do not qualify for government programs have few 
options in obtaining coverage. Either they purchase health insurance on 
their own, most often with after tax dollars that make the policy even 
more expensive, or they take the risk of going without.
    One of the leading causes of bankruptcies in the United States is 
medical bills.11 Being without health insurance is not only 
a problem for 38 million Americans and counting, but also for society 
as a whole. Those who do not have predictable access to medical 
treatment often wait until an illness becomes acute before seeking 
treatment. Not only is the cost of treatment then generally higher, but 
also at least part of the cost is more likely to be borne by the 
taxpayer through any of the various channels hospitals and doctors are 
compensated and through higher premiums for those with private 
insurance. Most importantly, the person may suffer long-term 
consequences of going without needed medical treatment.
---------------------------------------------------------------------------
    \11\ Ian Domowitz and Robert Sartain. Determinants of the Consumer 
Bankruptcy Decision. National Bureau of Economic Research. 1997.
---------------------------------------------------------------------------
    Economic pressures on these families and on society would be 
reduced if the uninsured were protected by providing options for them 
to obtain affordable health coverage.
Medicaid expansion, more regulation, or employer mandates?
    Several options are being discussed:
    Public program expansion: Many policy makers are recommending 
expanding coverage to the uninsured through Medicaid and S-CHIP. But 
the costs of public programs, especially Medicaid, already are 
consuming up to a third of state government budgets, threatening higher 
taxes, benefit cuts, or reduced spending on other state 
programs.12 State Medicaid budgets are stressed to the 
limit, and adding millions of working Americans to their rolls appears 
neither politically nor financially feasible.
---------------------------------------------------------------------------
    \12\ Vernon Smith, and Eileen Ellis, Medicaid Budgets Under Stress: 
Survey Findings for State Fiscal Years 2000, 2001, and 2002. Kaiser 
Commission on Medicaid and the Uninsured. October 2001.
---------------------------------------------------------------------------
    For example, New Mexico has the highest uninsured rate in the 
country, yet the state is $50 billion short in being able to finance 
Medicaid for current recipients in the upcoming fiscal year.
    The nation's governors were in Washington just this week pleading 
with Washington to help them with their skyrocketing Medicaid expenses.
    Expanding Medicaid to millions more working Americans would mean 
restricting care to those currently on the program, especially the poor 
and elderly, or further reducing payments to providers. Already, the 
program pays doctors so little that many physicians say they lose money 
when they treat Medicaid patients.
    Low Medicaid payment rates in many states already are compromising 
access to care for those who have Medicaid coverage. For example, the 
California HealthCare Foundation, an independent philanthropic 
organization, surveyed almost 1,700 physicians in the state's largest 
urban counties, and found that only 55 percent of primary-care 
physicians said they treated Medi-Cal--California Medicaid--
patients.13
---------------------------------------------------------------------------
    \13\ Tony Fong, ``Nearly half of physicians shun Medi-Cal,'' San 
Diego Union-Tribune, February 15, 2002.
---------------------------------------------------------------------------
    Medicaid recipients often wind up waiting in long lines in hospital 
emergency rooms to receive even routine care. This drives up costs of 
this entitlement program even higher.
    Employer mandate: Many small employers want very much to provide 
health insurance for their employees, but they are especially 
vulnerable to the rising cost of health insurance. Nationwide, more 
than 200,000 Americans lose their coverage every time the cost of 
health insurance rises by one percent, according to the Congressional 
Budget Office. It is almost always small businesses operating closest 
to the margin that are forced out of the market first. Forcing 
employers to offer insurance is not a viable option for many marginal 
businesses that are struggling just to survive, much less to provide 
health insurance with costs rising at double-digit rates.
    Insurance regulations: Evidence has shown that trying to force 
employers or health insurers to provide coverage through mandates and 
regulation creates a series of unintended consequences. In 1998, the 
Galen Institute produced a study based upon GAO studies that 
highlighted this problem. Our results showed that 16 states that had 
been most aggressive in regulating their health insurance markets 
through guaranteed issue, community rating, and other directives, had 
uninsured rates that rose eight times faster than the 34 states that 
were less regulatory.14
---------------------------------------------------------------------------
    \14\ Melinda Schriver and Grace-Marie Arnett. Uninsured Rates Rise 
Dramatically in States With Strictest Health Insurance Regulations. The 
Heritage Foundation. 1998.
---------------------------------------------------------------------------
    A very recent study by the on-line health insurance brokerage, e-
HealthInsurance, showed also that states that employ community rating 
and guaranteed issue had premium prices that were two or three times 
higher than states that did not employ this type of insurance market 
``reform.'' 15 While there are likely other factors 
involved, the average single monthly premium in New York, for example, 
is $266. California, which does not employ community rating and 
guarantee issue, has an average monthly premium of $143.16
---------------------------------------------------------------------------
    \15\ Statement of Vip Patel, Founder and Chairman, 
eHealthinsurance, Inc., Sunnyvale, California. Testimony before the 
House Committee on Ways and Means Hearing on Health Care Tax Credits to 
Decrease the Number of Uninsured. February 13, 2002.
    \16\ eHealthInsurance, Inc. The Cost and Benefits of Individual 
Health Insurance Plans. January 2002.
---------------------------------------------------------------------------
Another option: Equalize the subsidies
    Another policy option is to provide the uninsured with tangible 
financial support through refundable, advanceable tax credits to help 
them purchase private health insurance.
    The U.S. tax code provides a generous tax benefit to workers if 
their employer purchases health coverage for them. This system of 
protecting job-based health coverage from taxation has provided a 
powerful incentive for workers to get their health coverage at work. 
But the tax benefits are skewed to favor higher-income individuals and 
to provide much less help to those with lower incomes. Millions of 
workers simply are being left behind by this system. Tax credits would 
provide meaningful help to millions of uninsured families to obtain 
coverage.
    The employment-based system in the United States that serves 
approximately 175 million workers, dependents, and retirees is not an 
option for many uninsured workers. Providing tax credits would be a 
small step to begin to give them subsidies much like those who have 
job-based coverage so they can obtain their own health insurance.
    President Bush has proposed a set of incentives for the uninsured 
with ``health credits'' of up to $1,000 for individuals and $3,000 for 
families. He proposes phasing out the credits on a sliding income 
scale, with subsidies ending at $30,000 for individuals and $60,000 for 
families.
    This system of tax credits would be targeted to those who are most 
likely to be uninsured and least likely to have the option of 
employment-based health insurance.
    The Council of Economic Advisers' February 14, 2002, white paper on 
Health Insurance Credits provides additional details on how the 
administration's credit would be structured and administered and the 
anticipated market response.
    The idea of providing health credits has tri-partisan backing with 
bills introduced by House Majority Leader Dick Armey (R-TX) and Ways 
and Means Chairman Bill Thomas (R-CA), and in the Senate by Sen. John 
Breaux (D-LA), Sen. James Jeffords (I-VT), and Sen. Bill Frist (R-TN), 
among others.
    Under virtually all of the proposals, the credits would be 
refundable if taxpayers owed few or no taxes. Many, including the 
president's, would also provide ``advanceable'' tax credits--meaning 
people wouldn't have to wait until they file their taxes to get the 
subsidy.
How the current tax preference works
    The main reason that health insurance is so tightly tied to the 
workplace in the United States is the highly favorable tax treatment it 
receives. The system of providing health insurance through the 
workplace in the United States dates to early in the 20th century.
    The tax benefit to workers is provided in the form of a tax 
exclusion. That means that the full value of the health insurance 
policy is ``excluded'' from the worker's income before federal, state, 
and payroll taxes are calculated. As a result, the value of the health 
insurance policy and the generous tax break for health insurance are 
invisible to the employee.
    What workers often don't realize is that their health insurance 
actually is part of their full compensation package--a form of non-cash 
(and non-taxable) wages. The tax code explicitly allows the non-wage 
income they receive in the form of health insurance to be free from 
taxation.
    But workers may receive this tax-favored benefit only if their 
employers write the checks for the premiums. Because of this invisible 
tax benefit, the value of the health insurance policy, the tax benefit 
employees receive, and the cost in forgone wages are largely invisible 
to workers.
    In 1999, tax subsidies for job-based health insurance were worth 
$130 billion.17 But it is a very regressive subsidy, 
favoring the rich over the poor. A taxpayer earning $100,000 a year or 
more gets an annual subsidy worth $2,638 while one earning $15,000 gets 
only $79 a year in assistance toward the purchase of health insurance.
---------------------------------------------------------------------------
    \17\ John Sheils, Paul Hogan, Randall Haught. Health Insurance and 
Taxes: The Impact of Proposed Changes in Current Federal Policy. 
National Coalition on Health Care 1999.
---------------------------------------------------------------------------
    What that means is that the executive with a high-paying job gets a 
generous tax subsidy for health insurance from the taxpayer while the 
waiter serving her lunch gets little or no help in purchasing health 
insurance.
    Clearly, this is not a system we would have designed if we were 
starting from scratch. Instead, it has evolved as a relic of World War 
II wage and price controls.
An increasingly mobile society
    In our increasingly mobile society, millions of Americans are 
constantly moving from one job to another and, for the fortunate ones, 
from one job-based health plan to another. But this job mobility is 
another reason that so many people lose their health insurance when 
they lose or change jobs.
    According to the U.S. Bureau of Labor Statistics, 13 million 
workers change their employment status in a typical month.18 
On average, that means 13 million Americans leave home or school to 
enter the labor force, exit the labor force without looking for new 
work, find new work after a spell of unemployment or search for work 
after they quit or are dismissed or laid off--every month.
---------------------------------------------------------------------------
    \18\ Michael M. Weinstein, ``Economic Scene: Cream in Labor 
Market's Churn.'' The New York Times, July 22, 1999.
---------------------------------------------------------------------------
    Tax credits would provide these workers with more stability by 
giving them subsidies for health insurance that they could keep.
The impact
    Wharton economist Mark Pauly, et al, (2001) find that a refundable 
tax credit would provide a powerful incentive for the uninsured to 
purchase health coverage. One study showed that 48 to 66 percent of the 
uninsured would buy coverage if they received a subsidy worth half of 
the value of the policy. And the uptake rate increases as the subsidy 
rises: 74 percent of the uninsured would buy a policy if they received 
a credit worth 75 percent of the premium cost.19
---------------------------------------------------------------------------
    \19\ Mark Pauly, and Bradley Herring. ``Expanding Coverage Via Tax 
Credits: Trade-offs and Outcomes,'' Health Affairs, Jan-Feb, 2001.
---------------------------------------------------------------------------
    Pauly, et al, also have studied the market for individual health 
insurance. They found that the individual market ``appears to be 
improving, in both administrative costs and protection against high 
premiums associated with high risk.'' 20
---------------------------------------------------------------------------
    \20\ Mark Pauly, Allison Percy, and Bradley Herring. ``Individual 
Versus Job-Based Health Insurance: Weighing the Pros and Cons,'' Health 
Affairs, Nov/Dec, 1999.
---------------------------------------------------------------------------
    Validating their research, eHealthInsurance, the on-line health 
insurance brokerage, recently pulled a sample of 20,000 individual 
policies sold from its database of customers. The company found that 
the average individual policy cost $159 a month and the average premium 
for individual and family policies purchased through the company ranged 
from $1,200 to $1,900 a year per person. Eighty-seven percent of 
policies purchased by individuals can be considered ``comprehensive.'' 
21
---------------------------------------------------------------------------
    \21\ Statement of Vip Patel in testimony before the House Committee 
on Ways and Means. February 13, 2002.
---------------------------------------------------------------------------
    The Health Policy Consensus Group, composed of experts from many 
market-based think tanks and academic institutions, developed a vision 
statement explaining why we believe that tax credits would be 
beneficial.22 Here are some highlights of the statement:
---------------------------------------------------------------------------
    \22\ The Health Policy Consensus Group. A Vision for Consumer-
Driven Health Care Reform. The Galen Institute 1999.
---------------------------------------------------------------------------
          Every American should be able to obtain needed medical care. 
        Reforming the tax treatment of health insurance is central to 
        achieving this goal.
          Congress could begin by providing a new set of incentives for 
        people who do not have health insurance. These incentives 
        should be properly structured to create an opportunity to 
        purchase coverage in an open and competitive market.
          We recommend providing credits or other comparable fixed 
        incentives, explicitly determined by legislation, to assist 
        people in obtaining private health insurance.
          The size of the incentives will depend on how much taxpayer 
        money lawmakers deem to be available. It can be structured in 
        different ways.
        Options
          Credits or other fixed incentives could be used to purchase 
        private group or individual health coverage. If credits are 
        provided, they could be refundable.
          The size of the credit or alternate financial incentive could 
        be adjusted to reflect risk or need, or it could be used to buy 
        into a high-risk pool. These adjustments should be made while 
        minimizing their effect on marginal tax rates.
          To expand access to coverage, states could relax mandated 
        benefit laws for insurance purchased with federal assistance, 
        thus allowing a broader range of more affordable insurance 
        products.
        Benefits of this approach
          Millions of Americans not eligible for the current tax 
        subsidy would receive help in purchasing health insurance.
          Assistance can be targeted to those who do not have health 
        insurance.
          It can be targeted to those in specific age, income, or other 
        categories which legislators deem most worthy of the 
        assistance.
          It gives individuals more choice as to where they obtain 
        health insurance.
          It allows individuals the opportunity to select the kind of 
        health coverage that best suits their needs.
          It helps to minimize distortions in the marketplace.
          It is more equitable across income groups.
          It is available whether an individual's insurance is 
        organized through employment-based groups or elsewhere. The 
        role of employers in assisting employees to obtain health 
        insurance could be maintained by each employer, if the company 
        so desired.23
---------------------------------------------------------------------------
    \23\ For further information, see. Empowering Health Care Consumers 
through Tax Reform, Grace-Marie Arnett, ed, University of Michigan 
Press, 1999.
---------------------------------------------------------------------------
Application and benefits
    Tax credits for the purchase of private health insurance would 
provide today's uninsured workers and their families with financial 
help in purchasing coverage to begin to equalize the subsidies that 
employees with job-based insurance receive.
    Some have proposed only allowing the credits to be used for job-
based coverage. But for too many of the uninsured, this would continue 
to shut them out of the system. Allowing the credit to be used only for 
job-based insurance would mean that it would be of little or no use to 
an estimated 20 million Americans for whom job based coverage is simply 
not an option.
    If the tax credit approach is to be successful, it is imperative 
that those eligible be allowed to use the credits to purchase insurance 
outside the workplace--such as through church groups, professional or 
trade associations, labor unions, or other groups that citizens trust 
to negotiate in their best interest.
    Offering tax credits to the uninsured is an important solution for 
many reasons.
    First, by giving people tax credits, they can choose the health 
plan that best suits their needs and the needs of their families.
    Second, tax credits are portable. Because the subsidies for health 
insurance are not tied to the workplace, people can keep their health 
insurance even if they lose their jobs or don't have the option of job-
based coverage.
    Third, this army of newly empowered consumers will inject renewed 
energy into the fragile market for privately purchased health 
insurance. This market has been suffocated by state insurance 
regulations and mandates that have made individual and small group 
health insurance policies prohibitively expensive in many states and 
have driven many insurers out of the market. Tax credits would improve 
the market for private health insurance by giving consumers and 
insurers an incentive to strengthen the market for private health 
insurance.
    Fourth, the cost of the insurance would be visible, and consumers 
would be more motivated to shop for the best coverage for the money, 
reversing the current trend for workers with job-based coverage to 
demand more and more insurance coverage because the full cost of the 
policy and the services they consume is hidden from them.
    But most importantly, tax credits tell these hardworking Americans 
who are left out of the current system that they count, too.
A step in the right direction
    As this committee, this Congress, and this country have learned, 
achieving universal coverage will require a mosaic of solutions. Tax 
credits for the uninsured will create a new system of subsidies that 
would be the best way, I believe, to reach millions of people who are 
falling through the cracks of the current system. But they are not an 
answer for everyone. Older, sicker citizens may find that they still 
cannot afford or get coverage, even with the credits, and safety net 
programs will continue to be an important part of the solution.
    But the fact that credits will not work for some people does not 
seem to me to be justification for not extending this meaningful help 
to millions of Americans who would benefit.
    Others are concerned that tax credits would damage the employment-
based system by draining younger, healthier workers from their pools. 
However, I would argue that most of those who have employment-based 
coverage receive a more generous subsidy than the credit, and they 
would opt to stay where they are. Also, many employers who offer health 
insurance feel strongly their obligation to their employees and would 
find ways to encourage them to stay with the company plan. And if many 
of the newly insured purchasing coverage with the tax credit are indeed 
healthier, their expenses are likely to be lower, and they will help 
reduce premiums for everyone in the pool.
    Finally, the health insurance market is showing its ability to 
respond to changing demands by creating new options, like 
eHealthInsurance, for the uninsured to obtain affordable coverage on 
their own. If billions of dollars in subsidies were available to 
millions more workers, the market would be transformed to provide many 
more options than are available today.
    In every other sector of the economy, competition forces prices 
down and quality up, and health insurance is no different.24 
If the federal government were to provide tax credits for the 
uninsured, the marketplace would respond by making more affordable, 
more diverse, more appropriate health insurance available. That would 
strengthen the health insurance market and would provide citizens with 
more choices for coverage. If state governments were to provide 
complementary tax incentives, they could expand health coverage to even 
more uninsured citizens.
---------------------------------------------------------------------------
    \24\ Hixson, Jesse. Six-Questions Everyone Should Ask about Health 
System Reform: An Application of Basic Economics, Galen Institute, 
March, 2002.
---------------------------------------------------------------------------
    Refundable tax credits would encourage the marketplace to be more 
responsive to their demands. Further, it takes an important step toward 
a system that provides health coverage for all and which still provides 
the freedom for the health care industry to innovate so it can continue 
to provide the world's best medical care.
    Thank you for the opportunity to present this testimony. I would be 
happy to answer any questions you may have and to provide additional 
information.

    Mr. Bilirakis. Thank you very much, Ms. Turner. Let's see. 
Mr. Robert de Posada, President of the Latino Coalition.
    Mr. Posada, please proceed.

                  STATEMENT OF ROBERT DE POSADA

    Mr. Posada. Thank you, Mr. Chairman, and thank you, Mr. 
Brown, and members of the committee, my name is Robert de 
Posada, and I am the President of the Latino Coalition, which 
was created in 1995 to address those issues that directly 
affect the well-being of hispanics in the U.S.
    Some of our members include the Inner-American College of 
Physicians and Surgeons, and the Hispanic Business Roundtable, 
among others. When it comes to health insurance according to 
the U.S. Census Bureau, the highest uninsured rate in the U.S. 
is among people of hispanic origin.
    Over one-third of hispanics were uninsured, compared to 
only 12 percent for non-hispanic whites. Foreign born 
immigrants are even worse, with more than half without health 
insurance.
    The main reason why so many hispanics do not have health 
insurance is that generally they have lower incomes and they 
work for smaller firms than in the service industry. Employment 
and income levels are the leading indicators of health 
insurance coverage in this country, and the lower the income, 
the more likely that the worker will not have coverage.
    We have held health care conferences all around the country 
to try to figure out what can we do to address this crisis, and 
we have come to the conclusion that no one has all the answers 
like everybody has said here.
    It will take several different ideas, which together if 
enacted, will help address this crisis. However, we strongly 
believe that we must focus our resources on the working poor. 
We call them the too poor, but not poor enough; too poor to 
afford health insurance, yet not poor enough to qualify for 
Medicaid.
    And these are predominantly low income workers who do not 
have access to health insurance through their employer. That's 
why we strongly believe that the most important issue that this 
Congress can take at this session is to pass a refundable tax 
credit to help workers who do not get insurance from their 
jobs.
    And adding additional provisions to help reduce prices and 
promote a real outreach to undeserved communities. But as Mark 
Twain said, get your facts first, and then you can distort them 
as you please.
    Instead of trying to make good ideas even better, opponents 
of a refundable tax credit will just say about anything to 
shoot this idea down. The fact is that in most of the concerns 
addressed by these opponents are already addressed by the 
leading tax credit legislation sponsored by Congressman Armey 
and Congressman Lipinski.
    For instance, tightened policies won't reach low income 
workers. Most hispanic groups in this country or around the 
country, including the League of United Latin Americans, have 
come to the conclusion that the past expansions of Medicaid and 
CHIP did little to reduce the number of uninsured hispanics.
    The fact is that these programs have failed to reach the 
undeserved and uninsured in our communities. Even during boon 
economic times there has been no real incentive for State 
workers to go out to these undeserved communities to expand 
these programs.
    And we know because we have been there at the State level 
fighting these cuts in services to Medicaid even during this 
boon economic period. We believe the tax credit will help 
address the situation because with a well crafted refundable 
tax credit, most insurance companies will develop special 
products to reach out to these new markets as potentially new 
clients.
    Also, something like the Shadegg-Lipinski bill from last 
year, which established individual membership associations, 
would allow community-based groups, churches, and other 
associations to offer mandates of free health insurance 
coverage to their friends and members.
    And having community-based organizations and churches 
directly involved in the outreach process will be the most 
effective way to reach out to low income and undeserved 
families.
    Tax credits offer too few dollars. Well, a quick surge into 
some of the health insurance costs in the District of some of 
the members here today shows that people can find health 
insurance for a married couple with two children for less than 
the amount available in the tax credit.
    Let me give you an example. In Leery, Ohio, for $1,800, you 
can get a PPO with a $1,000 deductible. In L.A., for $2,600, 
you can get a PPO with a $500 deductible.
    In Springdale, Maryland, for $2,300, with a $1,000 
deductible, and the list goes on for insurance available for 
the amount of the credit. To go even further, the individual 
members of the association would help low income workers pull 
together and get mandate free insurance at much lower prices.
    And next these employers will decide to drop their coverage 
offering. Well, in our conversation with small business owners 
from across the country, we do not expect this massive drop 
out.
    However, we do believe that any kind of tax credit 
legislation should include provisions to make sure that this 
doesn't happen. There has been talk about including provisions 
that employers who drop health insurance for their employees 
will lose their health insurance deduction retroactively to the 
date that the tax credit becomes available, and maybe this is 
the answer.
    I believe that a well-crafted bill that is refundable will 
be a great boost to addressing this crisis. There is not a 
single magic bullet that will solve this crisis. It will take 
several different approaches, and we hope that rather than 
shooting down ideas, we can work together to implement tax 
credits, strengthen access to Medicaid and CHIP, promote 
pooling among individuals and associations, expand our 
community health centers, and make sure that we encourage more 
businesses to offer health insurance for their workers.
    We are ready to help this committee achieving these goals 
and thank you very much for inviting me here again and for your 
commitment to this issue.
    [The prepared statement of Robert de Posada follows:]
 Prepared Statement of Robert Garcia de Posada, President, The Latino 
                               Coalition
    My name is Robert Garcia de Posada and I am the President of The 
Latino Coalition. The Latino Coalition was established in 1995 to 
address policy issues that directly affect the well-being of Hispanics 
in the U.S. The Coalition's agenda is to develop and promote policies 
that will enhance overall business, economic and social development of 
Hispanics.
    When it comes to health insurance, according to the U.S. Census 
Bureau, the highest uninsured rate in the U.S. is among people of 
Hispanic origin. Over one third, or 34.2% of Hispanics were uninsured 
compared with only 12% for non-Hispanic whites. U.S. Hispanics also 
have the largest percentage of the working uninsured at 37.9% compared 
to only 14.9% for non-Hispanic whites. Foreign-born immigrants were 
even worse off with more than half without health insurance. According 
to the Commonwealth Fund, in small- to medium-sized companies with 
fewer than 100 workers, 63 percent of white workers have health 
benefits compared with 38 percent of Hispanic workers.
    There is a strong relationship between un-insurance and the kind of 
employment a person has. The reason is simple: Most Americans get their 
health insurance through their place of work. Moreover, in getting 
their health insurance through the workplace, they are also eligible to 
get large and, under current law, unlimited federal tax breaks for the 
purchase of health insurance. There is no such tax relief for workers 
who get health insurance outside the workplace or for workers and their 
families who cannot get employer-based health insurance.
    Today, 65 percent of the uninsured are in working families where 
the breadwinner works full time. Because Hispanic workers are heavily 
concentrated in the service industry and in small businesses--working 
for firms that do not or cannot offer them health insurance coverage--
they are disproportionately found outside of the normal channels of 
health insurance in the United States.
    People who are working should not be discriminated against by the 
federal tax code in their purchase of health insurance simply because 
they buy a policy outside of their place of employment. There is a 
better policy. The best option to expand health insurance for Hispanic 
workers is to give them direct tax relief, either in the form of tax 
credits, if they are paying taxes, or vouchers--in effect, refundable 
tax credits--if they do not have taxable income. This will establish 
equity in the tax code and the health insurance market, reduce the need 
for these families to depend on government insurance programs like 
Medicaid or other forms of public assistance, expand health insurance 
coverage, and mainstream millions of uninsured Hispanic workers into 
America's private insurance market.
    The health insurance market in the United States is uniquely job 
based. All Americans, both employers and employees, get tax relief if 
and only if they get their health insurance coverage through their 
place of employment. If the employer offers health insurance, the 
employer gets unlimited tax relief in the form of a tax deduction as 
part of the cost of doing business. Likewise, under this arrangement, 
employees also get unlimited tax relief for purchasing health insurance 
through their employer. But, instead of a tax deduction, an employee 
gets what is technically called a ``tax exclusion'' on the value of the 
job's health benefits. If an employee does not get his health insurance 
through the place of work, he gets little or no tax relief; indeed, the 
federal tax code punishes workers who buy health insurance outside the 
workplace by making that worker buy health benefits with after-tax 
dollars. For most workers, this cost is a huge disincentive for 
obtaining health insurance on their own.
    The main reasons so many Hispanics do not have health insurance are 
they generally have lower incomes and they work for smaller firms. 
Employment and income level are the leading indicators of health 
insurance coverage in this country. The lower the income, the more 
likely a worker will not have coverage. If they are working 
independently or with a firm that does not provide health insurance, 
they simply do not have coverage because they cannot afford it. Small 
firms with fewer than 25 employees are the least likely to provide 
employment-based health insurance. Based on the 1990 Census, odds are 
that Hispanic workers--with a per capita income of only $10,773 and a 
solid majority employed by small businesses, particularly the service 
industry--will not be offered health insurance at the workplace and 
will not be able to afford it on their own.
    If a worker is employed by a large corporation, the chances are 
that both the benefits package and the tax benefits are very generous. 
However, if a worker is middle- or low-income and is employed by a 
smaller company, the tax benefits are less generous. Low-skilled 
workers often do not work for large companies or command a wage that 
enables them to buy health insurance, and they get little if any 
government assistance in purchasing it. If a worker decides to purchase 
individual policies, they will soon realize it is prohibitively 
expensive. This is the problem facing America's working poor.1At The 
Latino Coalition, we strongly support policies to promote equality and 
equity between employer-based health insurance coverage and consumer-
based coverage. We are here to call on Congress to end the 
discrimination that exists against people who buy health insurance 
outside the place of business.
    Most Americans are personally familiar with such cases. But, for 
purposes of illustration, consider Martha Sanchez, a single mother of 
two in Miami. Martha works as a receptionist for a small law firm, 
earning approximately $10 per hour. Her employer does not provide 
health insurance, and she cannot afford to buy an individual health 
insurance policy.
    This is the case for many Hispanic workers. They are not poor 
enough to qualify for Medicaid, but are too poor to afford private 
health insurance. In addition, there is a high degree of mobility in 
the Hispanic workforce. And, as noted, the current system of 
employment-based health insurance is simply leaving too many working 
people who have families and are willing to work without affordable 
insurance.
    There is another angle to all of this, one that never crossed our 
minds until we read the results of a recent study commissioned by 
Consejo de Latinos Unidos. This study found that public and private 
hospitals are taking advantage of self-paying uninsured Latinos 
throughout the Greater Los Angeles area. After a careful analysis of 
their hospital bills, the study found that these uninsured group was 
being charged almost five times the amount that hospitals would charge 
health maintenance organizations (HMO). When you read the testimonials 
and the findings of this study, you truly understand why groups like 
our have focused most of our efforts in trying to address the uninsured 
crisis in this country, and particularly in the Latino community.
    So what can Congress do to help someone like Ms. Sanchez get health 
insurance?
    First, enhance tax incentives for individuals without access to 
employer-sponsored coverage. You can enact refundable tax credits or 
vouchers to help low-income workers purchase health insurance. In order 
to make these tax credits truly accessible to low-income workers and 
small businesses, we believe that these tax breaks could be blended 
into the withholding system. In other words, allow the worker to 
withhold the cost of health insurance from the payroll tax, in order to 
afford insurance. We should also offer employers the authority to pay 
this premium if they wish. We salute President Bush and the bipartisan 
group of senators and representatives who have signed on to support 
refundable tax credits for the uninsured. This is without a doubt the 
most important initiative that Congress can undertake if they seriously 
want to improve access to affordable health insurance.
    Second, Congress should support the President's initiative to 
expand our Community Health Centers. These centers are in many cases 
the first line of defense for many uninsured Latinos across the 
country. However, while we expand the network of community health 
centers, we should also develop a stronger public education campaign to 
promote the existence of these centers, particularly in underserved 
communities.
    Third, Congress can equalize the tax laws so that associations and 
community-based organizations have the same tax breaks as large 
businesses, when they provide health insurance. This would promote a 
more community-based insurance system that would have a better 
understanding of the community they serve. Don't forget that health 
patterns in our population are not the same. For instance, in the U.S. 
Hispanic community, there is an instance of diabetes, three times the 
level of the population at large. Having organizations and doctors who 
understand these differences are critical to provide cost-effective 
services to their customers.
    Last year we strongly supported the bipartisan efforts of 
Congressmen Lipinski and Shadegg to permit Individual Membership 
Associations to offer mandate-free health insurance (H.R. 4119). This 
effort would allow community-based groups, churches and advocacy 
organizations to offer individual health insurance to its members. This 
legislations required that these IMAs offer at least two health 
insurance choices to its members, including one that is mandate-free. 
According to the Council for Affordable Health Insurance, we can expect 
a reduction in price of approximately 20-25% with this initiative. But 
aside from the reduction in cost, what makes this plan so attractive is 
the ability of community-based groups and churches to reach out to 
underserved communities in a much more effective way than current 
government health programs.
    Fourth, Congress should eliminate the obstacles to pooling. This 
will help promote more affordable, accessible and accountable coverage 
for consumers. The Latino Coalition strongly supports Association 
Health Plans, as a way to reduce the cost of health insurance and offer 
small business a mechanism to pool together to increase their 
bargaining power.
    Fifth, Congress should allocate additional funds for Medicaid 
programs in states that have been disproportionately affected by the 
current recession. We salute the efforts by Congressmen Brown and King 
to increase Medicaid spending. We would encourage Representatives Brown 
and King to include provisions in their bill to guarantee that doctors 
have the necessary flexibility to take the best care of their Medicaid 
patients, particularly in the area of prescription drugs.
    However, we oppose current legislative efforts to expand Medicaid 
as a main tool to address the uninsured crisis. For the past three 
years, The Latino Coalition has been battling severe cuts in Medicaid 
services at State legislatures across the country. At a time when most 
states are gutting the services available to Medicaid patients, it 
would not be financially responsible to add millions of new patients 
into this program. This would make the program less stable financially 
and would force more severe restrictions on much needed services for 
our most vulnerable citizens.
    Sixth, Policymakers must make health insurance affordable for 
people who can't qualify for health insurance because they have a 
preexisting condition. The Latino Coalition believes sick people cannot 
be left out of the world's greatest health care system and must have 
access to affordable health insurance.
    Yet, there are only two ways to provide coverage to uninsurable 
individuals: (1) guaranteed issue or (2) health insurance safety nets. 
One works, the other doesn't.

 Guaranteed issue. Guaranteed issue means that anyone can get 
        health insurance at anytime regardless of their health 
        condition. This means that people can actually wait until they 
        are sick before they buy health insurance, giving people an 
        incentive to opt out of the health insurance pool. When people 
        opt out and are guaranteed coverage at any point, rates 
        escalate in an actuarial death spiral. This is what happened in 
        New Jersey after the state legislature enacted guaranteed 
        issue. According to the New Jersey Department of Insurance, 
        family rates for a $500 deductible plan now range from $3,170 a 
        month to $17,550 a month!
      Guaranteed issue has not succeeded in making rates affordable for 
        families, especially those who need access to our health care 
        system.
 High Risk Pools. Health Insurance Safety Nets, or high risk 
        pools as some refer to them, are the best and most affordable 
        way to provide coverage for individuals who are otherwise 
        uninsurable. A Health Insurance Safety Net is a special state-
        based, privately funded comprehensive health insurance plan. 
        Currently, 29 states have safety net plans, and approximately 
        127,000 people were covered by these plans last year. The way 
        they work is pretty simple: The enrollees pay a premium, and 
        these premiums are usually capped so the enrollee has price 
        protection. To help fund the safety net plan, the state usually 
        assesses insurance companies based on the amount of business 
        they conduct in that state.
      On February 14, Republicans and Democrats voted to send $120 
        million to the states to help existing safety nets plans and to 
        establish one in those states that currently do not have one. 
        The Latino Coalition supports that initiative and applauds 
        those members of Congress who voted to help sick people get 
        affordable health insurance.
    Seventh, Congress can promote changes in our tax laws to help low-
income workers and small businesses have access to affordable heath 
insurance. For example,

 Small businesses could get a tax credit that could be phased-
        in beginning with the smallest firms of fewer than 10 
        employees;
 Individual purchasers of health insurance and the self-
        employed should be able to fully deduct the cost of premiums;
 Employee contributions for health insurance should not be 
        considered taxable income: and,
 Tax credits should be made available for risk pools sponsored 
        by the private industry.
    Finally, we cannot ignore the fact that reducing regulatory burden 
and government mandates, reforming liability laws, and promoting 
personal responsibility are also key components of any solution to this 
problem.
    Access to affordable heath insurance is a problem that 
disproportionately affects the U.S. Hispanic community. The Latino 
Coalition strongly commends this committee for addressing this issue, 
and we look forward to working with you to break down the barriers and 
build the necessary bridges to improve the access to affordable health 
coverage for the uninsured.
    Thank you.

    Mr. Bilirakis. Thank you very much, sir.
    Mr. Donnelly, please proceed.

            STATEMENT OF HON. THOMAS R. DONNELLY, JR.

    Mr. Donnelly. Mr. Chairman, and Congressman Brown, thank 
you very much for the opportunity to be with you. I hope that 
my voice holds out today, but thank god for microphones.
    I also want to associate myself with your remarks regarding 
Dr. Eisenberg, a dear friend, and someone with whom we have 
worked on patient safety. We thank you for this opportunity to 
show with you today our ideas about solutions for the growing 
problem of the uninsured.
    The Coalition for Affordable Health Coverage is a broad 
based group that came together because of a strong common 
desire to address the issue of the uninsured. Our members 
include physician groups, like the AMA, business groups, the 
insurance carriers, and insurance brokers, consumer groups, and 
others who believe that affordability of coverage is a basic 
component of access to health care.
    The focus of my testimony today will be on why we believe 
that the implementation of market oriented efforts, including 
tax credits, will make health insurance more accessible and 
more affordable to a significant portion of the uninsured.
    Mr. Chairman, we start from the premise that it is critical 
for as many as possible of the uninsured to be covered for 
their health care. We are convinced that this is best 
accomplished by enhanced access to the private health insurance 
marketplace.
    In the private marketplace, individuals and families can 
evaluate their variety of options available to them and decide 
what is best for their personal and unique needs. Additionally, 
without increased private sector payments for health care, the 
cost of both health care and health insurance will continue to 
escalate.
    If we increase public payment for health services by 
relying on Medicaid expansion as the primary solution for the 
uninsured, costs shifting to the private sector will only 
continue to push the cost of private coverage higher.
    Further, new private sector options for the uninsured would 
encourage more healthy individuals to apply for coverage, and 
which will lower health insurance costs for everyone.
    One of the solutions that will help the uninsured who pay 
income taxes, afford private health insurance coverage, is 
increased deductibility for health insurance premiums.
    Therefore, other individuals who have no tax liability, the 
refundable, advanceable tax credit we have discussed will 
provide better assistance with monthly health insurance 
premiums when they are due, and directly to the insurance 
companies.
    It will also reduce adverse selection to COBRA, and State 
continuation plans by providing funding so that all terminating 
employees would have the incentive to continue coverage, and 
not just those with serious health conditions.
    Now, opponents of insurance tax credits claim that current 
health credit proposals provide too little cost assistance 
relative to the premium. I am reminded of Mr. Green's comments, 
and I would love to engage you on that when the time comes.
    Research reveals, however, that a credit in the range of 
$1,000 for individuals, and $2,000 to $3,000 for families 
contained in several of the bipartisan proposals in the House 
and in the Senate, provide significant financial assistance 
toward the purchase of private health insurance coverage 
without creating an incentive for employers to stop providing 
coverage for their employees.
    Their exists a robust individual market that offers a 
variety of policy coverage options in many States, and most 
people can find a policy suitable for their needs. Contrary to 
the analysis that accompanied it, a recent Kaiser Family 
Foundation report actually showed that 6 out of 7 individuals 
in less than perfect health were able to obtain health 
insurance in every one of the geographic markets tested.
    Further analysis of the markets compared in the Kaiser 
study reveals that costs for the policies in more highly 
regulated States with guaranteed issue requirements and 
community rating were significantly higher than in other States 
for most of the Kaiser applicants.
    Additionally, experience at the State level with guaranteed 
issue and community rating reveals that several States that had 
previously mandated guaranteed issue in the individual market 
have since repealed it.
    I believe that Mr. Whitfield spoke about Kentucky, and now 
provide access to health insurance for people with serious or 
chronic health conditions through high risk pools.
    These States found that the cost and availability of health 
insurance coverage in the individual market was severely 
restricted by guaranteed issue requirements.
    A refundable health insurance tax credit would help 
eligible individuals afford the cost of health insurance 
coverage in high risk pools in the same way it would be used 
for those to purchase coverage through regular individual 
health insurance markets.
    So for this reason, we are very encouraged by the recent 
action of the House to provide Federal funding to help States 
with costs associated with high risk pools. Funding of this 
type should be a high priority for Congress to ensure that 
everyone has access to health insurance coverage, and will 
provide much more stability for existing health insurance 
markets than costly new guaranteed issue requirements.
    Mr. Chairman, I should also mention that a number of 
members of our coalition are very concerned about the large 
number of uninsured people who have access to employer 
sponsored coverage, but are unable to afford their share of the 
employer sponsored premiums.
    A health insurance tax credit designed to be used either to 
buy coverage in the individual health insurance markets, or to 
help a low income employee pay his or her share of the premiums 
would address this concern.
    To keep the issue in perspective, we should remember that 
individuals without employer sponsored health insurance 
currently must purchase coverage in the individual health 
market entirely on their own.
    This is particularly hard for low-income employees who may 
have to decide between health insurance and groceries, and tax 
credits should be considered a base from which to build on the 
financing of health insurance coverage.
    It is not designed to take away the role of the employer in 
the financing of health insurance coverage, or to replace 
personal responsibility. The Coalition of Affordable Health 
Coverage believes that it will take these and other creative 
solutions to achieve affordable health insurance coverage for 
uninsured Americans.
    We are pleased that the Congress and the administration are 
aggressively addressing the problem of the uninsured and 
believe it is important to take action now on this very 
important issue. Congress should not go home having done 
nothing because it decided to wait until it could do 
everything.
    I appreciate this opportunity to testify, and I would be 
delighted to answer any of your questions.
    [The prepared statement of Hon. Thomas R. Donnelly, Jr. 
follows:]
 Prepared Statement of Hon. Thomas R. Donnelly, Jr., Representing The 
                Coalition for Affordable Health Coverage
    Mr. Chairman, Congressman Brown, and distinguished members of the 
committee, we thank you for this opportunity to share with you today 
our ideas about solutions for the growing problem of the uninsured. The 
Coalition for Affordable Health Coverage is a broad-based coalition 
that came together because of a strong common desire to address the 
issue of the uninsured by increasing access to private sector health 
insurance options. Our members include physician groups, business 
groups, insurance carriers, insurance brokers, consumer groups and 
others who believe that affordability of coverage is the most basic 
component of access to health care. We believe this Committee, and this 
Congress, have a unique opportunity to take action to significantly 
reduce the number of the uninsured, and we hope to serve as a resource 
to you in your efforts to do so.
    The members of our Coalition believe, as has been expertly 
demonstrated, that the number of Americans lacking health insurance is 
simply too high. As has also been demonstrated, these Americans are 
often uninsured for different reasons. Consequently, our members 
believe that a variety of approaches will be necessary in order to 
address these different causes. The focus of my testimony today will be 
on why we believe, based on how the marketplace works and the 
characteristics of those who are uninsured, that the implementation of 
tax credits and other market-oriented efforts will make health 
insurance more accessible and affordable to a significant portion of 
the uninsured.
    Mr. Chairman, we start from the premise that it is critical for as 
many as possible of the uninsured to be provided with access to the 
private health insurance marketplace. The private marketplace allows 
individuals and families to evaluate the variety of options available 
to them and decide what is best for their personal and unique needs. 
Additionally, without increased private sector payment for health care, 
the cost of both health care and health insurance will continue to 
escalate. Providers faced with increasing numbers of Medicaid patients 
must address the issue of losses from low Medicaid reimbursements, and 
they do this by cost shifting to private payers. If we rely on Medicaid 
expansion as the primary solution for decreasing the number of 
uninsured, we will increase the percentage of public payment for health 
services. The cost shifting that occurs as a result will only push the 
cost of private coverage higher, and eventually will drive some 
providers out of business. Bringing newly insured people into the 
system through the private sector greatly reduces cost shifting. 
Further, private sector options for the uninsured will encourage 
healthy individuals to apply for coverage, which will decrease the 
losses experienced by health insurance pools in both the group and 
individual health insurance markets. This will lower health insurance 
costs for everyone that is insured.
    Over half of the 40 million uninsured Americans are the working 
poor or near poor. These workers may work one or more part time jobs 
but not enough hours at any one job to qualify for health insurance 
benefits, or they may be seasonal or temporary and move from one 
employer to another. Still other low or moderate wage workers work for 
employers who don't offer coverage at all, regardless of employment 
status. Some have access to an employer-sponsored plan, but are unable 
to afford their share of the premium, or have employer-paid coverage 
for themselves but are unable to afford dependent coverage for their 
families. The problem in all of these situations boils down to one 
thing--affordability. Although individual or group coverage may be 
available, it is beyond their reach due to their inability to pay for 
it.
    One of the solutions that will help the uninsured pay for private 
health insurance coverage is increased deductibility of health plan 
premiums. Increasing health insurance premium deductibility for people 
who owe income taxes puts coverage for those who don't have employer 
based coverage available on the same par with those who obtain their 
coverage through an employer-sponsored plan. However, deductibility 
does nothing for the many working poor who have no or very low tax 
liability.
    People with no tax liability don't benefit from a deduction because 
they don't owe taxes to start with, and more important, because a 
deduction is only available at the end of the year. Financial 
assistance that is only available at the end of the year is of no value 
to the low-income uninsured because without advance payment, they are 
unable to pay their monthly premiums when they are due. They can't wait 
a year to be reimbursed, so they remain uninsured.
    For these individuals, a refundable, advanceable tax credit would 
provide assistance with health insurance premiums monthly, when their 
premiums are due. This type of credit, advanced monthly and 
administered through the insurance company, would be available when 
needed and would be difficult to abuse, since the insurance company 
would certify that coverage was purchased. It would also reduce adverse 
selection in COBRA and state continuation plans by providing funding so 
that all terminating employees would have the incentive to continue 
coverage, not just those with serious health conditions.
    Opponents of health insurance tax credits claim that current health 
credit proposals such as the one proposed by the Bush administration 
provide too little cost assistance relative to the premium. Research 
reveals, however, that a credit in the range of $1,000 for individuals 
and $2,000-$3,000 for families provides significant financial 
assistance towards the purchase of private health insurance coverage 
without creating an incentive for employers to stop providing coverage 
for their employees.1
---------------------------------------------------------------------------
    \1\ To get an idea what is available in the individual health 
insurance market, see ``Individual Health Insurance Coverage Options 
Across the United States,'' March 2001, National Association of Health 
Underwriters, or ``The Cost and Benefits of Individual Health Insurance 
Plans'' eHealthInsurance.com.
---------------------------------------------------------------------------
    The individual market offers a variety of policy coverage options 
in many states for individuals who don't have access to employer-
sponsored coverage. Policies are available in a wide range of 
deductibles and plan types, and most people can find a policy suitable 
for their needs. Contrary to the analysis that accompanied it, a recent 
Kaiser Family Foundation report showed that six out of seven 
individuals in less than perfect health were able to obtain health 
insurance in every one of the geographic markets tested.
    Further analysis of the markets compared in the Kaiser study 
reveals some interesting facts that should be carefully considered if 
any new market mandates such as guaranteed issue accompany financial 
assistance for the uninsured. Costs for policies in more highly 
regulated states with guaranteed issue requirements and community 
rating were significantly higher than in other states for most of the 
Kaiser applicants.
    Additionally, experience at the state level with guaranteed issue 
and community rating reveals that several states 2 that had 
previously mandated guaranteed issue on the individual market have 
since repealed it and now provide access to health insurance for people 
with serious or chronic health conditions through high-risk pools. 
These states found that the cost and availability of health insurance 
coverage in the individual market was severely restricted by guaranteed 
issue requirements. For example, Washington State's guaranteed issue 
requirements resulted in such a high level of losses that all 
individual health insurance carriers in the state left the market. New 
Hampshire barely avoided this same fate by repealing their guaranteed 
issue coverage during their last state legislative session and 
instituting a high risk pool for individuals with serious or chronic 
health conditions.
---------------------------------------------------------------------------
    \2\ Kentucky, Washington, and New Hampshire
---------------------------------------------------------------------------
    Twenty-eight states now have high-risk pools to provide access to 
health insurance if a person does not qualify for coverage based on his 
or her medical history. Many of these states also use their high-risk 
pools to provide access to health insurance coverage for HIPAA eligible 
individuals. Other states use mechanisms such open enrollment or a 
special category of guaranteed coverage through one or more carriers to 
ensure that coverage is available. High-risk pools provide the most 
affordable alternative for high-risk individuals who don't have access 
to employer-sponsored coverage.
    A refundable health insurance tax credit could help eligible high-
risk individuals afford the cost of health insurance coverage in high-
risk pools in the same way it would be used for those who purchase 
coverage through the regular individual health insurance market. States 
without high-risk pools should be encouraged and provided with 
incentives to develop programs to ensure that coverage is available for 
high-risk individuals. For this reason, we're very encouraged by the 
recent action of the House to provide funding to help states with the 
costs associated with high-risk pools. Funding of this type should be a 
high priority for Congress to ensure that everyone has access to health 
insurance coverage, and provides much more stability for existing 
health insurance markets than costly new guaranteed issue requirements.
    It is important in this analysis to include a discussion of health 
insurance tax credits that could be used in an employer-sponsored plan. 
A number of members of our coalition are very concerned about the 
twenty percent of the uninsured who have access to employer sponsored 
coverage but are unable to afford their share of employer-sponsored 
premiums. A health insurance tax credit designed to be used either to 
buy coverage in the individual health insurance market or to help a 
low-income employee pay his or her share of premiums would address this 
concern. Allowing low-income employees to supplement their employer's 
contributions with a refundable tax credit would allow families to be 
insured together, which many employees prefer, and would provide the 
funds necessary to allow them to come up with ``their share'' of health 
insurance premiums. It would also address concerns from the business 
community over declining participation in their plans, and would 
empower individuals to select their own place of purchase, rather than 
having it imposed on them by the government.
    One final note relative to the adequacy of current health insurance 
tax credit proposals is that individuals without employer-sponsored 
health insurance currently must purchase coverage in the individual 
health insurance market entirely on their own. This is particularly 
hard for low-income employees, who may have to choose between health 
insurance and groceries. Even employees who have employer-sponsored 
coverage available may not be able to participate because they can't 
afford their share of the premiums. A health tax credit should be 
considered a base from which to build on the financing of health 
insurance coverage. It is not designed to take away the role of the 
employer in the financing of health insurance coverage, or to replace 
personal responsibility.
    A third part of the umbrella of solutions for the uninsured is the 
more flexible use of Medicaid and Children's Health Insurance dollars 
in private sector plans. We are greatly encouraged by the development 
of the new HIFA waivers, and have observed a high level of activity at 
the state level concerning new applications for these waivers. Used 
appropriately, we foresee the ability of many currently uninsured 
individuals and their children to be insured under one employer plan or 
through other private sector options using already available budget 
dollars.
    The Coalition for Affordable Health Coverage believes that it will 
take these and other creative solutions to achieve affordable health 
insurance coverage for uninsured Americans. We are pleased that 
Congress and the Administration are aggressively addressing the problem 
of the uninsured, and believe it is important to take action now on 
this very important issue. Congress should not go home having done 
nothing because it decided to wait until it could do everything.
    I appreciate this opportunity to testify today and would be happy 
to answer any questions the committee may have.

    Mr. Bilirakis. Thank you very much, Mr. Donnelly.
    Ms. Feder.

                    STATEMENT OF JUDITH FEDER

    Ms. Feder. Thank you, Mr. Chairman. Mr. Chairman, and 
members of the committee, it is a pleasure to be with you today 
to discuss this critical issue of expanding health insurance 
coverage.
    Tax credits and public program expansions are the 
alternative strategies currently on the table for addressing 
this problem. My testimony addresses a number of the issues 
that arise with respect to both tax credits and public 
programs.
    But I want to focus your attention on the results of some 
work that is in progress for the Kaiser Family Foundation that 
compares the impact of the two approaches. If you have the 
testimony, then focusing on the charts at the end will help you 
follow my remarks.
    I want to focus in particular on two strategies that we 
have talked about a lot already this morning, two particular 
policies. One is a refundable tax credit for non-group coverage 
for $1,000 for individuals, and $2,000 for families.
    And the other is a Medicaid or CHIP expansion to parents 
and any currently ineligible children with incomes up to twice 
the Federal poverty level, about $39,000 for a family of three.
    Under this option, the States would be required to extend 
coverage to the maximum eligibility level. I want to talk to 
you about the impacts of those two policies, and if you are 
following the figures, you can see in the first one that it 
shows pretty much the bottom line in terms of impact of the two 
policies, the number of people who get benefits, and the number 
of individuals who are newly insured.
    The tax credit provides benefits to a very large number of 
people, about 10.6 million people, but its impact on new 
insurance coverage is far smaller, about 1.6 million people. 
And let me clarify just so you will understand different 
numbers, I am talking about the people who are covered at a 
point in time, just as we talk about 40 million uninsured.
    This is the same kind of number as that 40 million, and it 
is different from the number of people who gain coverage over a 
year, which is what the administration is reporting with 
respect to its proposal. So 1.6 million people with gaining 
insurance coverage on net with the tax credit approach.
    By contrast the public program expansion to parents would 
reach a smaller number of recipients, 5.4 million people, but 
would have a bigger impact on the number of people who newly 
have insurance, 3.8 million people, as compared with 1.6 
million under the tax credit.
    If you look at the next chart, it tells us something about 
the people who have benefits, who gain benefits under these two 
approaches.
    Looking first at income in figure two, about 30 percent of 
the people who get the tax credit have incomes above twice the 
Federal poverty level; whereas, all the public program benefits 
are targeted to people with incomes in this range.
    An even greater contrast is apparent in Figure Number 3, 
which shows that 70 percent, the vast majority of the tax 
credit recipients, already have health insurance. Only a 
minority of the recipients are uninsured.
    By contrast under the public program the results are 
flipped; 70 percent of the public program recipients are 
uninsured before a program goes into effect. Figure 4 looks at 
and compares these two program approaches in terms of impact 
from another perspective.
    The share of the uninsured population that receives 
benefits from the new program. The tax program makes a lot of 
people eligible, close to 40 million people. Whereas, the 
public program expansion on parents is focused on parents and 
low income parents, and it reaches or is estimated to make 
about 7.6 million people newly eligible.
    However, a far larger portion of the eligible uninsured 
population participates in the public program expansion than in 
the tax credit, and these estimates are based on experience to 
date both with respect to tax credits, and public programs.
    Over half of the parents who are the target of the public 
program expansion participate. Whereas, with the tax credit, we 
see only 8 percent of the newly eligible population 
participating.
    That reflects the fact that the tax credit with its limited 
dollars is as some people have described it offering a 10 foot 
rope to people in a 40 foot hole.
    By reaching a larger proportion of a smaller pool of 
eligibles the public program expansion benefits a larger number 
of previously uninsured individuals than does the tax credit; 
3.8 million people, versus 3 million people.
    But when you examine these policies, you can't look just at 
the people who get the new benefit and get coverage. You have 
to look also at whether some people lose coverage as a result 
of a new policy.
    And experience tells us that if we equalize or expand tax 
preferences beyond the work place to equalize tax treatment 
inside and outside work, employers are likely to respond by 
dropping coverage.
    And the employees who lose coverage as a result will take 
advantage of credits and buy coverage, but some of them won't. 
Indeed, tax credits are likely to disrupt coverage, and we can 
see the results of that on figure five.
    Although the tax credit provides subsidies to an estimated 
3 million previously uninsured people, an estimated 1.4 million 
people with employer coverage are likely to lose coverage as 
employers drop that coverage and individuals find themselves 
unable to afford picking up a new policy.
    I have focused this testimony on the numbers of people 
covered, but there are also differences in the benefits that 
people would received under the two approaches, and the kinds 
of people who would receive benefits.
    Because of the way the non-group insurance market works, 
the recipients or beneficiaries of tax credits will be 
disproportionately young and healthy, and their coverage will 
not protect them from significant out of pocket costs.
    Under the public program expansion, newly covered parents 
and their children will be covered, regardless of age or health 
status, and consistent with existing Medicaid and CHIP rules, 
will face little or at higher incomes constrain out of pocket 
obligations.
    So, in sum, although the two policies appear to be 
addressing the same problem, they have very different 
consequences. Tax credits reach a lot of people, but most of 
them are not uninsured.
    For the uninsured who are the minority of recipients, they 
provide quite a modest benefit to the disproportionately young 
and healthy, many of whom are not low income, and they cause 
people to lose insurance from their employers at the same time 
they are seeking to expand coverage.
    The sole purpose of a public program is to expand coverage, 
and it concentrates a comprehensive benefit on a narrowly 
defined population, the vast majority of whom are uninsured.
    If the Nation's goal is to expand meaningful coverage for 
those who need it the most and are least able to pay, the top 
priority must be the expansion of a public program, which is 
far more effective in targeting resources from the tax credit 
approach. Thank you very much, Mr. Chairman.
    [The prepared statement of Judith Feder follows:]
 Prepared Statement of Judith Feder, Dean of Public Policy, Georgetown 
                               University
    Mr. Chairman, members of the Committee, it is a pleasure to appear 
before you today to discuss the critical issue of expanding health 
insurance coverage. Sadly, the 1990s demonstrated that prosperity is 
insufficient to prevent millions of Americans from being uninsured and 
therefore at risk of lacking access to health care when they need it. 
And, with economic recession, millions more are at risk as the loss of 
jobs carries with it the loss of health insurance. There is no doubt 
that policy interventions are needed to assure that people--especially 
people with low and modest incomes--have access to affordable, adequate 
health insurance coverage.
    There is considerable bipartisan agreement on the desirability of 
public subsidies targeted to low and moderate income people to achieve 
this goal. However, there is considerable disagreement on the form that 
subsidies should take. Some advocate reliance on tax credits for the 
purchase of private insurance, while others promote the extension of 
publicly-sponsored or publicly-purchased health insurance coverage 
(Medicaid or the State Children's Health Insurance Program or SCHIP).
    Analysis tells us that the choice of policy mechanism makes an 
enormous difference to the policy outcome--in particular, how many and 
what kinds of people get covered and what kind of coverage they get. 
Key questions that must be asked of any health insurance initiative 
are:

 Will its resources be effectively targeted to people who lack 
        health insurance, especially those who can least afford to 
        purchase coverage on their own?
 Will its coverage be adequate to assure affordable health 
        care?
 Will it disrupt adequate coverage that people already have?
    Analysis building on past experience allows us to estimate the 
likely answers to these questions for future policy. Our analysis shows 
that public program expansions are far more effective than proposals 
that rely on tax policy in expanding meaningful coverage to those who 
need it most, without disrupting coverage that is currently in place.
Differences in Policy Instruments
    The appeal of reliance on tax policy to expand coverage appears to 
be the potential to provide benefits with minimal government 
involvement. However, three factors call this strategy into question.
    Tax policy is not designed to reach low income people. About half 
the people without health insurance do not file an income tax return or 
owe any income taxes. As a result, most tax-based proposals would make 
tax credits refundable, that is, available without regard to tax 
liability. The Earned Income Tax Credit (EITC) is a refundable tax 
credit that has been enormously successful in enhancing income for the 
working poor. However, it is harder to support the purchase of health 
insurance than to boost income. Tax credits, including the EITC, are 
typically taken as refunds--money the taxpayer gets back at the end of 
the year. To buy health insurance, people with limited incomes need the 
cash in advance. Further, they need to know they can keep the money, 
even if their income changes. ``Advanceability'' and ``non-
reconciliation'' of subsidies and incomes would require substantial 
departures from current tax policies, which aim at ensuring the 
accuracy and efficiency of the tax system. Such mechanisms are 
uncertain and untested in their ability to finance health insurance 
coverage for a low and modest income population. Promises to modify tax 
practices to support the purchase of health insurance are therefore 
subject to question.
    Tax-based proposals rely on a problematic insurance market. Tax 
credit proposals aim to enable individuals to choose health insurance 
plans in the private market. Since 70 percent of the uninsured 
population lacks access to employer coverage, most of the uninsured are 
expected to turn to the non-group insurance market as a source of 
coverage. But that market is riddled with problems. To avoid adverse 
selection--that is, the purchase of insurance by those most likely to 
use health care, insurers use practices to avoid enrolling people 
likely to use services. Except in a few states with a broad range of 
consumer protections, insurers can deny people access; exclude coverage 
for services, conditions, body parts, or body systems; and charge 
premiums that vary with health status. Such practices not only apply to 
people with serious medical diagnoses, like cancer or AIDS; they also 
apply to people with seemingly modest health care needs, related, for 
example, to allergies. And, even for those who do get insurance, 
benefits in the non-group market can be quite limited. Policies may 
exclude maternity benefits and mental health care or limit drug 
coverage. Equally important they may include significant deductibles or 
benefit caps. Limited benefits mean limited access to care for low and 
modest income people.
    To mitigate these problems, some have proposed allowing credits to 
be used in states' high risk pools. However, these measures are 
unlikely to be very effective in assuring affordable access to adequate 
coverage. Despite more than a decade of experience, nationwide only 
about 100,000 people are enrolled in 29 state high risk pools--one 
quarter of them in Minnesota. These pools aim to provide access to 
coverage at subsidized rates for people unable to gain access to 
nongroup market. But rates are well above the standard rate in the non-
group market and vary with age, and enrollment may be capped, limiting 
access. In addition, states try to keep costs under control by 
excluding coverage for pre-existing conditions and limiting benefits. 
Even with a modest tax credit, the costs to individuals of 
participation in a high risk pool would remain high and its benefits 
limited.
    Tax credits typically offer too few dollars to make coverage 
affordable. The value of the most frequently proposed tax credit falls 
far short of the average cost of health insurance. Offering individuals 
a $1000 credit for a policy that costs, on average, $2500 (or offering 
a family a $2000 or $3000 credit for a policy that costs $7000) has 
been described as extending a 10 foot rope to people trapped in a 40 
foot hole. The lower a person's income, the less able that individual 
is to make up the difference between the credit and the cost of the 
policy. And the difference will likely be greater, the older the 
applicant or in the presence of pre-existing conditions. Limited dollar 
credits will favor access to insurance not only for people with income 
to add to the credits, but also to younger, healthier individuals 
(while they are young and healthy). Limited dollars will also be 
attractive to individuals who are already purchasing nongroup insurance 
(and some who are paying substantial out-of-pocket premiums for 
employer-sponsored insurance)--providing them financial relief but not 
new coverage.
    Some have argued that access to insurance with a credit should not 
be measured based on prices in the current market; rather, they argue, 
the availability of a tax credit would encourage individuals to seek 
lower priced policies, closer to the value of the credit. If that were 
true, more people might obtain ``coverage'' with tax credits. But the 
benefits associated with that coverage would be substantially more 
limited than those now provided. A policy priced at half the premium 
now typically charged would entail a $2800, rather than a $300, 
deductible; substantially higher cost-sharing on covered services, and 
an out-of-pocket maximum set at $5000 rather than $3000. Lower premiums 
may enable more people to buy coverage but that coverage will buy them 
substantially less health care.
    Tax credits are an ineffective mechanism for the low and modest 
income uninsured. If we truly wish to provide meaningful health 
insurance coverage to uninsured people with low and modest incomes, we 
must choose a mechanism that determines eligibility and provides a 
subsidy in advance, makes that subsidy sufficient to support the full 
(or close to full) cost of insurance, and provides comprehensive 
benefits and limited (if any) out-of-pocket costs. Public programs 
satisfy these conditions and have a proven track record. Given the 
limitations to tax credits and the insurance market, even some 
proponents of tax credits for higher income populations recognize that 
a public program is better than using the tax system to reach the low 
income uninsured.
    Public programs provide the appropriate base for coverage 
expansions. Medicaid's 35-year history of providing health insurance to 
segments of the low income population has established both 
administrative and legal structures that protect beneficiaries' rights 
to benefits and health care. Perhaps most important, Medicaid extends 
an adequate subsidy for an adequate product--that is, a subsidy for the 
full cost of comprehensive insurance to people with limited incomes. In 
addition, it has an administrative apparatus in place in every state to 
determine eligibility for subsidies in advance and to facilitate 
enrollment in health insurance plans. Medicaid has contracts in place 
with providers and managed care plans (indeed, Medicaid programs are 
public managers of private markets) and have established mechanisms for 
collecting and matching funds from the federal government.
    Although recent attention has focused on barriers to participation 
in public programs, a decade ago attention centered on the speed of 
Medicaid enrollment expansions in response to changes in federal law--
from 19.2 million people in 1989 to 26.7 million people in 1992. And 
this year Medicaid eligibility will extend to poor (and some near-poor) 
children in all 50 states, the culmination of policies phased in over a 
decade. A decade ago, such an achievement seemed difficult to imagine 
and likely to engender powerful resistance in the states. But today, 
it's the reality. In addition, in the last few years,states have also 
responded to the availability of SCHIP to dramatically expand their 
income eligibility standards for children. Recession and fiscal 
pressure on states endanger past achievements and make expansions 
difficult. Federal dollars and federal standards will be required to 
achieve national goals.
Differences in Policy Impacts
    Work conducted for the Kaiser Family Foundation Project on 
Incremental Reform allows us to examine the likely impact of 
alternative mechanisms to expand coverage. That work analyzes a range 
of tax policies and public program expansions and models their effects. 
The modeling work draws on past experience to develop assumptions about 
how behavior will change in response to a new benefit. These 
assumptions then guide a simulation of the policy's impact. The 
assumptions used in this analysis have been created by researchers at 
the Urban Institute (for public program expansions) and the 
Massachusetts Institute of Technology and National Bureau of Economic 
Research (for tax policies), with actuarial support from the Actuarial 
Research Corporation.
    A focus on two proposals that closely resemble those most 
prominently discussed allows us to compare the way two approaches with 
respect to the fundamental goal: the ability to target resources to the 
low and modest income uninsured population without disrupting existing 
coverage.The two proposals are:

 A refundable tax credit for non-group coverage, providing 
        $1000 to individuals and $2000 to families. Full subsidies 
        would apply to individuals with incomes below $15,000 (families 
        with incomes below $30,000) and would phase out as income 
        rises, reaching zero for individuals with incomes of $30,000 
        (families with incomes of $60,000).
 A Medicaid/SCHIP expansion to parents (and any currently 
        ineligible children) with incomes up to 200 percent of the 
        federal poverty level (about $30,000 for a family of three). 
        Benefits and cost-sharing would follow SCHIP rules (negligible 
        for people with incomes up to 150% of the federal poverty 
        level; capped at 5% of income for families with incomes between 
        150% and 200% of the federal poverty level). States would be 
        required to extend eligibility to the maximum allowed under the 
        policy as a condition for receipt of any federal funds under 
        Medicaid or SCHIP.
    Figures 1-5 illustrate the impacts of these two proposals. Figure 1 
presents the bottom line: the number of people who receive benefits 
from each proposal and the net number of newly insured under the two 
different proposals. The tax credit provides benefits to almost twice 
as many people as the public program expansion to parents (10.6 million 
vs. 5.4 million). However, the impact of the two policies on the number 
of newly insured people is reversed. The public program increases the 
number of people who have insurance more than twice as much as the tax 
credit (3.8 million vs. 1.6 million). Underneath these ``bottom-line'' 
differences are considerable differences in the way the two programs 
operate.
    Who receives benefits under the two approaches? Looking first at 
income (Figure 2), about thirty percent of the tax credit benefit 
recipients have incomes above twice the federal poverty level. By 
contrast, all the public program's benefits are target to people with 
incomes below that level. Looking next at insurance coverage (Figure 
3), 70 percent of the tax credit recipients already have health 
insurance. Only a minority of recipients are uninsured. By contrast, 70 
percent of the public program recipients are without health insurance 
coverage.
    Figure 4 examines targeting from another perspective--the share of 
the uninsured population that receives benefits from the new program. 
The tax program makes a far larger uninsured population eligible for 
benefits than does the public expansion to parents (38.3 million vs. 
7.6 million people). (The differences are due both to higher income 
eligibility standards in the tax credit and to the public program's 
focus on parents and their children.) However, a far larger portion of 
the eligible uninsured population participates in the public program 
expansion than participates in the tax credit. Over half (58%) of the 
parents who are the target of the public program participate, as 
compared with 8 percent of those eligible for the tax credit. By 
reaching a larger proportion of a smaller pool of eligibles, the public 
program expansion benefits a larger number of previously uninsured 
individuals (parents and children) than does the tax credit (3.8 
million vs. 3.0 million).
    However, the impact of a new policy is not limited to those who 
benefit from it. At the same time some people gain insurance from a new 
policy, others may lose insurance. Experience indicates that tax 
policies that reduce the advantage to employer-sponsored over nongroup 
insurance lead some employers to discontinue their coverage. Some 
employees whose coverage has been dropped will take advantage of the 
new tax credit and remain covered. But others will not. By contrast, a 
narrowly targeted public program, especially one targeted only to 
parents, effects only a small proportion of the workforce and, most 
likely, only some workers in a firm. In addition, employers are likely 
to be somewhat responsive to employees' reluctance to shift from 
private to public insurance. A narrowly targeted public program is 
therefore is unlikely to lead employers to drop coverage.
    Figure 5 zeroes in on the different ways in which the two policies 
affect the insured and uninsured populations. Although the tax credit 
provides subsidies to an estimated 3.0 million previously uninsured 
people, an estimated 1.4 million people with employer coverage are 
likely to lose coverage as employers decide to drop their coverage 
offerings. The net increase in the number of people with insurance is 
therefore 1.6 million under the tax credit proposal, compared to 3.8 
million under the public program expansion.
    Finally, as described above, the 1.6 million people newly covered 
by the tax credit will likely be different people, receiving different 
coverage, than the 3.8 million people covered by the public program 
expansion to parents. People newly insured by the tax credit will be 
disproportionately young and healthy, and their coverage will not 
protect them from significant out-of-pocket costs. Under the public 
program expansion, newly covered parents (and their children) will be 
covered regardless of their age or health status and, consistent with 
existing Medicaid and SCHIP practices, will face little(or at higher 
incomes, constrained) out-of-pocket obligations.
Policy Conclusions
    Although seemingly addressing the same problem, two different 
policy mechanisms can have very different impacts. Tax credits reach a 
large number of people, but most of them are not uninsured. Indeed, 
only a small proportion of the uninsured population--disproportionately 
young and healthy--are likely to participate in the new program and 
those who do will receive only modest benefits. And, at the same time 
it expands coverage, the pursuit of tax equity actually undermines 
coverage already in existence. As a result some of its coverage gains 
are offset by coverage offsets. In large part, this outcome reflects 
the fact that tax credits are not simply aimed at expanding coverage; 
they also aim at greater tax equity--that is, equalizing tax 
preferences wherever health insurance is purchased.
    The sole purpose of a public program is to expand coverage. It 
concentrates a comprehensive benefit on a narrowly defined population, 
the vast majority of whom are uninsured. If the nation's primary goal 
is to expand meaningful coverage for those who need it the most, the 
public program is by far the more effective mechanism.
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    Mr. Bilirakis. Thank you, Ms. Feder.
    Mr. Weil.

                     STATEMENT OF ALAN WEIL

    Mr. Weil. Mr. Chairman, and members of the subcommittee, I 
appreciate the opportunity to present testimony to you today. 
My name is Alan Weil, and I direct the Assessing the New 
federalism project at The Urban Institute.
    Despite an emerging consensus that public subsidies must be 
provided to assist the almost 40 million Americans who lack 
health insurance, disagree remains over the form of this 
assistance.
    In my testimony, I argue that the evidence suggests that 
building upon existing public programs such as the State 
Children's Health Insurance Program, S-CHIP, or Medicaid, holds 
far more promise for improving health insurance coverage than 
tax credits do.
    Tax credits suffer from five problems; problems of 
availability, adequacy, amount, administration, and 
accountability.
    The most serious problem with tax credits is that of 
availability. Most tax credit proposals are designed to 
encourage people to purchase coverage in the individual health 
insurance market. Insurers in this market often deny coverage 
to those with any identifiable health problems.
    When coverage is offered, rates are many times higher for 
older adults than for those who are younger. Only a minority of 
States have regulations that limit these practices, and thus 
regardless of the size of the tax credit, health insurance 
simply will not be available to those who most need it.
    The second problem with tax credits is adequacy. A tax 
credit of $1,000 for an individual, and up to $3,000 for a 
family does not cover even half of the cost of the typical 
health insurance plan.
    Few families of modest means can or will pay the balance 
with their own funds. Therefore, tax credit users will 
primarily end up in plans with deductibles that run in the 
thousands of dollars, with many excluded services, where 
significant limitations on coverage.
    These limited benefit packages will leave families in 
exactly the position they find themselves in today, deferring 
needed care because of costs, at risk of bankruptcy if they get 
sick, and placing a tremendous financial burden of 
uncompensated care on the entire health care system.
    The third problem with tax credits is that of the amount. 
Tax credits suffer from the Goldilocks fallacy. No amount is 
just right. Everyone agrees a tax credit that is too small will 
not increase insurance coverage at all.
    But a tax credit large enough to help a substantial number 
of people obtain health insurance is also going to be large 
enough to draw a substantial number of people out of the 
employer market.
    This will raise premiums for small businesses, and shift 
costs from the private sector to the taxpayer. A similar cost 
shift much less frequently discussed would occur on the 
boundary between tax credits and existing public coverage for 
the very poor.
    With dramatic regional variation in health insurance prices 
around the country, it is impossible to set a single tax credit 
amount that strikes a balance between helping no one and 
undermining the existing health insurance system.
    The fourth problem with tax credits is that of 
administration, and at a minimum a tax credit must be 
refundable and advanceable if it is to help a working family 
purchase coverage.
    Unfortunately, even with these provisions, many families 
will be unable of the credit, failure to take advantage of it, 
or not take it in advance when they need it because they will 
worry that they have to pay the government back at the end of 
the year.
    The fifth problem with tax credits is that of 
accountability. People in the individual insurance market are 
on their own if their coverage is cut, their premiums rise, or 
there is a dispute over their benefits.
    Consumer outcry among those denied coverage or who feel 
that they have been mistreated by their health plan, will 
create immense pressure for the Federal Government to act. But 
Federal action in the individual health insurance market will 
intrude upon existing State control, prompting a destructive 
battle over principles of federalism.
    Now existing public programs do have their limitations, and 
I am familiar with them as I used to direct the Colorado 
Medicaid Agency. But these programs also have a track record. 
They provide real comprehensive, cost effective, stable 
coverage.
    They target spending on those most in need, and they 
minimize incentives for the private sector to drop coverage. At 
a time when the Nation faces tight fiscal constraints and 
growing numbers of uninsured, it is essential that limited 
resources be spent where they will be most effective.
    Tax credits are unlikely to improve the availability of 
meaningful health insurance. They run a substantial risk of 
damaging existing coverage. I think it is very important to 
note that all of the arguments about what tax credits can do 
come out of models and assumptions, some of them very well 
constructed, very defensible.
    But this is a test, and this is an experiment, and this is 
a gamble, and is not building on systems that we already know 
how they work, and what their weaknesses are, and how to 
improve them.
    By contrast, just last year States were posed to make 
substantial progress on the issue of health insurance until 
fiscal circumstances took a sharp turn for the worse. Federal 
assistance that revives the State and local creativity that we 
observed just a year ago would have a real immediate payoff in 
how many Americans have health insurance.
    It seems to me that this is the more productive and more 
targeted direction to go. So I thank you for your interest in 
this issue, and I welcome any questions that you may have.
    [The prepared statement of Alan Weil follows:]
     Prepared Statement of Alan Weil, Director, Assessing the New 
                    Federalism, The Urban Institute
    Mr. Chairman, members of the committee, I appreciate the 
opportunity to appear before you today to discuss ways to expand health 
insurance coverage. My name is Alan Weil and I direct the Assessing the 
New Federalism project at the Urban Institute, a 36-year-old non-
profit, non-partisan research institute here in Washington, D.C. Before 
coming to the Urban Institute I was executive director of the Colorado 
Department of Health Care Policy and Financing, which is the state 
Medicaid agency.
    There is an emerging consensus that public subsidies must be 
provided to assist the 40 million Americans who lack health insurance. 
The disagreement that remains centers around the form of those 
subsidies. Some advocate tax credits, while others advocate expanding 
existing public programs such as the State Children's Health Insurance 
Program (SCHIP) or Medicaid.
    In my testimony today I will argue that the latter approach--
building upon existing public programs--holds far more promise for 
improving health insurance coverage. The case for tax credits rests 
entirely on theory and ignores the practical difficulties of providing 
meaningful coverage in a complex, varied health care system. Existing 
public programs also have limitations, but they have a 35 year track 
record of providing comprehensive, cost-effective and stable coverage 
to those in need.
    Tax credits suffer from five problems--problems of availability, 
adequacy, amount, administration and accountability.
    The most serious problem with tax credits is that of availability. 
Most tax credit proposals are designed to encourage people to purchase 
coverage in the individual health insurance market. Insurers in this 
market routinely deny coverage to those with any identifiable health 
problems. When coverage is offered, rates are many times higher for 
older adults than for those who are younger. Administrative costs 
routinely exceed 30 percent. These insurance practices are 
understandable--they are the only way companies can make money 
operating in a market where they take on the substantial risk 
associated with enrolling people with high health care needs. Yet, only 
a minority of states have adopted regulations to limit these and other 
practices. Thus, regardless of the size of the tax credit, health 
insurance simply will not be available to those who most need it.
    The second problem with tax credits is that of adequacy. The size 
of the credit--$1000 for an individual and $2000 or $3000 for a family 
in most proposals--does not even cover half the cost of the typical 
health insurance plan. Analysts agree that few families of modest means 
can or will pay the balance with their own funds. Tax credit users will 
primarily end up in plans with deductibles that run in the thousands of 
dollars, with many excluded services, or significant limitations on 
coverage. These limited benefit packages will leave families in exactly 
the position they find themselves today: deferring needed care because 
of cost, at risk of bankruptcy if they get sick, and placing a 
tremendous financial burden of uncompensated care on the entire health 
care system. In addition, all experiments attempted to date show the 
same thing: most Americans, and particularly those of limited financial 
means, are simply not interested in bare bones coverage.
    The third problem with tax credits is that of the amount. Tax 
credits suffer from the Goldilocks fallacy: no tax credit amount is 
just right. Everyone agrees a tax credit that is too small will not 
increase insurance coverage at all. However, a tax credit large enough 
to help a substantial number of people obtain health insurance is also 
large enough to draw a substantial number of people out of the employer 
market, thereby raising premiums for small businesses and shifting 
costs from the private sector to the taxpayer. A similar cost shift 
would occur on the boundary between tax credits and public coverage for 
the very poor. Since a fixed dollar tax credit has health insurance 
purchasing power that varies by a factor of more than five to one 
depending upon where a person lives, it is impossible to set a credit 
amount that strikes some theoretically correct balance between helping 
no one and undermining the existing health insurance system.
    Models that estimate how many people will take advantage of a tax 
credit, how many will drop existing coverage, and how many previously 
uninsured will gain coverage are very sensitive to the assumptions they 
use. It is very risky to use positive results from one model to justify 
a multi-billion dollar expenditure on tax credits.
    The fourth problem with tax credits is that of administration. At a 
minimum, a tax credit must be refundable and paid in advance if it is 
to help a working family purchase coverage. Unfortunately, even with 
these provisions many families will be unaware of the credit, fail to 
take advantage of it, or not take it in advance because they will worry 
they will have to pay the government back if they receive a small wage 
increase during the year. The existing Earned Income Tax Credit 
provides important evidence. Very few families claim the credit in 
advance even though it is available. In addition, low-income Hispanic 
parents--a group disproportionately likely to be uninsured--are less 
likely to know about the EITC than other low-income parents, and, even 
those who do know about it are less likely to have received the credit.
    The fifth problem with tax credits is that of accountability. Most 
people rely upon their employer or a public agency to provide them 
information about their health plan, assist with problems, and monitor 
the quality of coverage. But people in the individual market are on 
their own. If their coverage is cut, their premiums rise, or there is a 
dispute over their benefits, they must fend for themselves. If the 
federal government is providing financial incentives to purchase 
coverage, they will expect plans to be available. Consumer outcry among 
those who are denied coverage or who feel mistreated by their health 
plan will create immense pressure for the federal government to act, 
but if it does so it will step into an area of long-standing state 
control, prompting a destructive battle over federalism.
    Existing public programs have their limitations, but they also have 
a 35 year track record. They provide real, comprehensive, cost-
effective stable coverage. They target spending on those most in need, 
and they minimize incentives for the private sector to drop coverage. 
Public programs have gone through a positive transformation in recent 
years. They have simplified applications and enrollment processes, 
crafted new market-based benefit packages, improved education about 
coverage options, and have been tackling old problems like how to 
assure access to critical services like dental and mental health care.
    At a time when the nation faces tight fiscal constraints and 
growing numbers of uninsured, it is essential that limited resources be 
spent where they will be most effective. If the goal is to reduce the 
number of people without health insurance, spending money on tax 
credits is a huge gamble paid for with taxpayer funds. By contrast, 
states were poised to make substantial progress on the issue of health 
insurance until fiscal circumstances recently took a sharp turn for the 
worse. Even a modest expenditure of federal funds could revive the 
state and local creativity we observed just a year ago. This would be 
an expenditure based upon a track record, not a theory and a computer 
model.

    Mr. Bilirakis. Thank you, Mr. Weil. Well, there is great 
interest in this issue, and you all have worked awfully, 
awfully hard.
    And I am not up here to defend the President's proposal. I 
would like to say that I feel that I am open-minded, and I 
think new and good ideas are always something that we should 
not attack before we have had a real good analysis of them.
    We should study most anything to see if it will work. But 
it is important that we have our facts right. Ms. Feder, taking 
a look at your charts, they tell a story, and I guess I want to 
make sure that we are comparing apples with apples. On one 
hand, you have a tax credit, and I hate like hell to keep 
referring to a tax credit, and so I would rather say vouchers.
    Because that is really what it comes down to, all right? 
But I will go ahead and use it because the question is worded 
that way. A tax credit proposal and then on the one side you 
would mandate coverage for parents of children up to 200 
percent of the Federal poverty level.
    So you are making comparisons, but are those comparisons 
taking into consideration the same dollars, the same costs?
    Ms. Feder. I am glad you raised that, Mr. Bilirakis, 
because the comparison that we do show, shows you that you 
essentially get what you pay for in coverage, and if you cover 
more people, you essentially spend more money.
    And the analysis therefore shows to cover the 3.8 million 
that the public program reaches, costs significantly more than 
to cover the 1.6 million that is in the tax----
    Mr. Bilirakis. But you don't reflect that in your charts or 
anywhere in here?
    Ms. Feder. We do it in the overall analysis. I apologize. I 
would be happy to include it.
    Mr. Bilirakis. What does it cost?
    Ms. Feder. My recollection is that roughly the Federal cost 
or the total cost, Federal and State, for the expansion to 200 
percent of poverty, was in the neighborhood of $11 billion, and 
the cost of the tax credit reaching the 1.6 million people was 
in the neighborhood of between $4 and $5 billion on an annual 
basis.
    Mr. Bilirakis. So you are talking about 2 to 3 times 
higher?
    Ms. Feder. But the cost per individual was essentially the 
same. So it is all a question of how much coverage you wish to 
provide. In addition to that, you would want to look at what 
you were buying with the coverage, and under the public program 
expansion, you are buying the uninsured individuals a 
comprehensive benefit.
    Under the tax credit the analysis shows that the lion's 
share of what you are spending is going to the already insured, 
and you provide the uninsured the minority, or uninsured, a 
very modest benefit.
    Mr. Bilirakis. Well, so you keep emphasizing that you would 
be making it available to the already insured. So what you 
are--are you basically saying that the employer would then drop 
coverage?
    Ms. Feder. I am saying two things. The recipients who 
already have insurance are two kinds. Many of them are people 
who already have the non-group insurance, and who get financial 
relief when you give them a credit, but not new insurance 
coverage.
    An additional portion of them are people who moved from the 
employer coverage and take advantage of the tax credit outside. 
In addition to those are people who lose coverage because their 
employer drops and they find themselves unable or offsetting 
those, and are people who actually lose coverage as a result of 
the change.
    Mr. Bilirakis. Ms. Turner, I think you are chomping at the 
bit to respond to all of that.
    Ms. Turner. Well, Mr. Chairman, there was a conference 
yesterday to give a lot of economists and health policy experts 
an opportunity to look into detail at the paper that Ms. Feder 
and her colleagues have produced.
    And there was a great deal of discussion about the 
assumptions that are behind the cost estimates that they have 
created, and Mark McConna from the White House used an analogy 
that if you are in fact--that if you have two economists in a 
whole, and they both try to figure out how to get out, and one 
of them assumes a shovel and the other assumes a ladder.
    So assumptions are of their own creation, but there was 
some concern about some of the assumptions that would perhaps 
put tax credits in a different light than the Medicaid 
expansion.
    For example, their model estimates that a family of four 
would face a premium of $10,000 for health insurance, and not 
surprisingly they do assume then that you only have an 8 
percent of the people who would be eligible for a tax credit 
actually taking up the policy.
    So that is one way you could look at the world, but the 
Council of Economic Advisors has done a separate study and 
shown that a family could get a policy for $3,300. You could 
assume $5,000. You could assume $7,000. Another issue that they 
assumed----
    Mr. Bilirakis. Mr. de Posada, I think you mention--and 
forgive me for interrupting you--that you have done some 
research, and you have determined that there are policies. Are 
these good policies, or are they policies?
    Mr. Posada. Well, these are policies that do not have the 
$10,000 deductible that we are talking about here or the 
premium costs. And we are talking about $1,000 deductibles, 
PPOs.
    I mean, obviously they are not going to be Cadillac plans. 
They are not going to be offering enormous amounts of benefits. 
But at least there is something there, and one of the big 
things that we have seen in our community is that concern that 
you are going to have an accident, and you are going to be 
financially ruined for the rest of your live because of that.
    And I think this is a great opportunity to at least take 
care of that concern.
    Mr. Bilirakis. Ms. Turner, I cut you off. Please, would you 
finish up whatever it is that you want.
    Ms. Turner. Just briefly, Mr. Chairman. I think it is also 
important to note that the model of the tax credit that was put 
into this model is not the President's plan. It is a $2,000 per 
family and not $3,000 for a family.
    And also they assume, and I am just very interested in this 
assumption, that with a tax credit that employers would drop--3 
million people would lose their current employment-based 
coverage that already have it.
    And they assume that with a Medicaid expansion that no one 
loses employment based coverage, and that really changes the 
bottom line arithmetic of who is going to get coverage, versus 
various plans.
    So one of the suggestions at this coverage was that we need 
to integrate into one better set of assumptions how you get a 
better comparison.
    Mr. Bilirakis. Yes, thank you. My time is up. I just hope 
that we don't--we want to do something to help people who need 
some help, and if what we are looking for is perfection, we 
just are not going to get it, and that is what we have done 
with the Patient's Bill of Rights business, and that sort of 
thing.
    I mean, would it not be better to have if in fact the need 
was there, and some people question that. But the point is that 
if the need was there, wouldn't it be better to have something 
that is less perfect, but at least something that is a force?
    We had a bill a few years ago that had so many co-sponsors 
that we cutoff the co-sponsorship if you will recall. I hate to 
put it this way because my name is on it, but the Roll and 
Bilirakis bill, and how many people would have been helped now?
    I am talking about quite a few years ago, and who would 
have been helped now if that plan had gone into effect, and the 
majority of the Congress was all for it. We had to cutoff co-
sponsorships, but the leadership would not allow it to come on 
to the floor.
    But let's be a little sensible here, and let's do 
something, even though it isn't perfect. Mr. Brown to inquire.
    Mr. Brown. Thank you, Mr. Chairman. In my 9 years in this 
committee, I have found Dr. Feder's assumptions, and her logic, 
and her intellectual honesty to always be unblemished.
    So you seemed a bit impatient as two other witnesses were 
talking. So go to it, Dr. Feder.
    Ms. Feder. Thank you, Mr. Brown. I would indeed prefer to 
state the assumptions myself rather than have them stated for 
me. Ms. Turner is quite correct that there was a conference 
that we had yesterday, because we are interested in getting 
input in the analysis we have done.
    There was a lot of discussion about the assumptions, and 
the White House economist from the CEA was quite challenging of 
the assumptions, and raised a number of questions.
    And the analyst who developed the assumptions and did the 
modeling from MIT and the Urban Institute responded, and the 
assumptions were not quite as Ms. Turner described them.
    The assumptions are based when we talk about the premium 
that people look at to go shopping with their tax credit, and 
the assumption is that the price of the policy is what the 
price is in the current market for non-group insurance.
    We also looked at what behavior would be if people shopped 
for a policy that cost half that, but provided half the value 
in benefits. So there was not an assumption of looking at a 
$10,000 policy except to the extent that a $10,000 premium 
would apply in the market.
    The model really looks at the prices that actually exist in 
the marketplace today. And I am sure that you will want to 
discuss further those prices are far higher for many people 
than the low price that we sometimes hear quoted, and it is 
available on the internet for that rare healthy young 
individual.
    So the assumptions are really quite consistent with the 
literature, the economics literature, and indeed that was 
acknowledged by participants from other institutions, other 
recognized institutions, and indeed as someone else observed, 
the underlying assumptions are very similar in the work that 
has been done in some areas by the Council of Economic Advisors 
and by us.
    And as I said, the numbers actually are not very far off 
when you present them in a consistent fashion.
    Mr. Brown. Okay. Thank you. Let me ask a little about the 
private insurance market. Do insurers require the private 
insurance market in most States to offer any specific set of 
benefits?
    Ms. Feder. No, insurers typically offer--well, there are 
actually mandates in terms of--in some States as to what 
insurance has to offer, and that applies in some cases. But the 
insurance, the nature of the policy that any individual can get 
can vary tremendously.
    Insurers have tremendous freedom in terms of what kinds of 
benefits they will cover.
    Mr. Brown. Are they required to cover all conditions?
    Ms. Feder. No, they are not required to cover all 
conditions, and indeed, many policies actually explicitly 
exclude conditions, and body parts, and body systems, from 
coverage.
    Mr. Brown. They clearly are not required to charge the same 
price?
    Ms. Feder. Absolutely not.
    Mr. Brown. Are insurers in the individual market required 
to offer a policy to anyone who wants one?
    Ms. Feder. No, indeed they are not. There are very few 
States or some States that have guaranteed issue requirements, 
but because they can charge people any premium they wish to 
charge, that really does not make it in Dr. Weil's view that it 
really does not make it accessible or available.
    Mr. Brown. So describe to me what types of people who are 
eligible for the President's tax credit? What types of people 
who are eligible would have difficulty in the individual 
insurance market?
    Ms. Feder. It is very interesting to ask that because 
colleagues of mine did a study recently on the kinds or the 
people who shop for coverage in the non-group market and have 
some difficulties or they found difficulties in getting it.
    A 24 year old waitress with hay fever; a family with two 36 
year old parents, a 10 year old daughter, and a 12 year old son 
with asthma, and recurring ear infections; a 48 year old who 
had breast cancer 7 years ago; and a 62 year old man who 
smoked, in addition to a couple of other sample applicants.
    And they found that the waitress with hay fever was faced 
with or did receive offers, but most of those offers excluded 
her coverage for hay fever, and some of those offers excluded 
coverage for her entire respiratory system.
    And with the young boy with asthma, there were policies 
that refused to cover the child altogether, and I am 
particularly sensitive to this one because I have a son with 
asthma.
    And if you had not covered his respiratory system in his 
insurance, and you did not have the income that I am fortunate 
to have, he would have been in an emergency room or without 
treatment on numerous occasions.
    These are examples, and I can go on with these cases, but 
we find that we are not just talking about people with serious 
high risk conditions, who find themselves unable to find 
affordable and adequate coverage in the non-group market.
    Indeed, I would not want myself or my son to have to go 
shopping in that market giving health existing conditions.
    Mr. Brown. Okay. We have two entitlements here. We have the 
tax credit if enacted that entitlement, or we have the Medicaid 
entitlement. The tax credit provides various kinds of 
insurance, various levels of coverage, various prices, is not 
available to many.
    Medicaid provides for a standard set of broad coverage. 
Where does the government get its best bang for the buck here?
    Ms. Feder. Well, I don't think there is a moment's 
question. I think the priority in new dollars has got to go to 
people who don't have insurance, and to the people who are 
least able to buy it on their own.
    And to be spending money on people who already have 
insurance, rather than those who don't seems to me an 
inefficient and inexcusable use of our current resources. We 
can celebrate this year the accomplishment that all over the 
Nation, in 50 States, all poor children are covered as a result 
of Medicaid requirements that were enacted over a decade ago.
    And at that time there was a lot of concern that this was 
not possible, and that it was beyond the resources of States, 
and that we would never reach that goal. Now, it did take us 
better than a decade to achieve it, and that is unfortunate.
    But all those poor children can count on a federally 
guaranteed entitlement program to provide them a comprehensive 
set of benefits, and as someone said earlier, god bless 
Medicaid.
    Mr. Brown. Thank you.
    Mr. Bilirakis. I was a little concerned. I used the word 
staggering facts that Dr. Kellermann shared with us regarding 
Medicaid, and the movement in and out of Medicaid, the 
revolving nature of Medicaid and what not, and for what seemed 
to be a lack of stability.
    And we have to ask these questions of ourselves, but would 
not something, whether it be--whatever you might want to call 
it, but some sort of tax certificate to help people to get out 
there and choose whatever it is that they would want and result 
in more stability.
    But on the other hand, you also raised the point of the 
uninsurability of some people; the child with asthma and that 
sort of thing. So that is what makes this job almost 
impossible.
    Well, I think it is a little easier as a result of your 
testimony. But anyway, we appreciate your time here, and again 
as you know, and many of you have testified--Dr. Feder and 
others have testified here before--you know that we will have 
written questions of you, and we would hope that you would 
respond in a timely fashion.
    We are going to do the best that we can. We are tousling 
with prescription drugs for Medicare recipients right now that 
is kind of a top priority, but uninsured is also up there, and 
in an election hear like this, particularly with the war on 
terrorism taking place, it places additional burdens on us, but 
we are going to do the best that we can. Thank you very much.
    Also, here are members who would wish to submit their 
opening statements, and without objection, that will always be 
the case. Thank you very much, and in addition to materials.
    [Whereupon, at 1:24 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
                                                       May 10, 2002
The Honorable Michael Bilirakis
Chairman
Committee on Energy and Commerce
Subcommittee on Health
Washington, DC 20515
    Dear Mr. Chairman: Thank you for your letter of April 30, 2002 and 
for the opportunity to testify before the Subcommittee on Health on 
February 28, 2002.
    Per your request, I have prepared answers to the follow-up 
questions submitted by Members on the problems to access affordable 
health care coverage. Again, thank you for this opportunity and if I 
can be of any further assistance, please do not hesitate to contact me.
            Sincerely,
                                    Thomas R. Donnelly, Jr.
                                                Member of the Board
          Responses from The Honorable Thomas R. Donnelly, Jr.
    1) Some states have repealed guaranteed issue requirements and put 
in high-risk pools instead. For example, Kentucky, Washington, Idaho 
and New Hampshire previously had guaranteed issue but have since 
repealed the mandate and provide (or plan to provide) access to health 
insurance for the ``hard to insure'' individuals through high-risk 
pools.
    Kentucky's 1995 reforms that included guaranteed issue laws led to 
an exodus of 40 private insurance carriers from the state, leaving only 
one plan behind. In 1998, the state revised its reforms and established 
a new guaranteed access program in attempt to lure companies back to 
the individual market. The attempt proved to be insufficient in 
encouraging market competition so additional changes were made in April 
2000 to allow medical underwriting in the individual market and the 
establishment of Kentucky Access, a new high-risk pool.
    In the case of Washington, individual market reforms in 1993 that 
included guarantee issue, standardized plans and rating restrictions 
resulted in such a high level of losses that by 1999, all individual 
health insurance carriers in the state left the market. Major reform 
legislation was passed in March 2000 to restore competition and 
participation by insurers and to establish a high-risk pool for those 
who are ``hard to insure.''
    Both Idaho and New Hampshire faced similar results from their 
guarantee issue regulations that led state legislature in 2000 and 
2001, respectively, to revise their laws and establish high risk pools.
    2) The Health Insurance Flexibility and Accountability (HIFA) 
demonstration initiative strongly encourages states to think creatively 
about how Medicaid and Children's Health Insurance Program funding can 
be used to maintain and encourage coverage in the group health plan 
market. The new options available under this waiver will allow working 
families to be insured together. Employees will be able to take 
advantage of employer sponsored coverage and use dollars available 
through the HIFA waivers to help them pay for family coverage in their 
employer's plan. Many families who previously shunned Medicaid and CHIP 
programs due to the stigma associated with the Medicaid program will be 
more receptive to participating in coverage in an employer setting.
    A summary of specific state options under the HIFA program produced 
by the National Association of Health Underwriters is attached.
    3) In response to Ms. Feders' study and overall analysis in 
comparison with the tax credit proposal, the choice is clearly between 
consumer choice and government control. Ultimately, the tax credit 
proposal, rather than state expansion of public programs, empowers 
individuals to select their own place of purchase rather than having 
that place of purchase imposed on them by the government. Hewitt 
Associates LLC consumer study reports that 87% of participating 
employees felt they understood ``fairly or very well'' how to choose 
the best health plans for their needs (although employers speculated 
only 61% employees had confidence in such a decision). The data 
suggests that consumers are more capable of making their own decisions 
about their health care needs that employers assume.
    Ms. Feder's analysis is based on numerous assumptions including:

e) Substantial employer dropping of coverage is assumed for the tax 
        credits.
f) A higher cost of insurance than is estimated by the Council of 
        Economic Advisors or currently provided by groups like e-
        HealthInsurance.
g) Very low take-up rate for the tax credit and high take-up rate for 
        the Medicaid expansion
    In response to these assumptions, I would highlight the following:
    a) In his testimony before the House Ways and Means Committee on 
February 13, Mark McClellan stated: ``The impact of tax credits on 
employer health insurance coverage would be minimal, and the majority 
of individuals taking up the proposed health credit would be those who 
were either previously uninsured or previously covered in the non-
employer insurance market.'' In addition, no empirical data suggests 
that tax credits for individuals will inevitably lead to drastic 
reduction of participation in employer-sponsored plans. The reality 
remains that 1) About 80% of uninsured workers are not offered health 
insurance by their employers; 2) Only 36% of people under age 65 with 
income below 200% of FPL have employer-sponsored insurance, while 77% 
of those above do. Also, it should be noted that of all employees 
offered employer-sponsored coverage, 5% don't accept and that 5% make 
up the 20% of uninsured population. Twenty percent of the uninsured 
have access to employer-sponsored coverage but are unable to afford 
their share of employer-sponsored premiums.
    b) Higher cost quotes of private insurance often result from 
looking at the smaller segments of the uninsured population, the 
elderly and the unhealthy. U.S. Census Bureau reports that 12.6% of the 
uninsured population are between the ages of 45 to 64. Stated another 
way, 88% of the uninsured are 44 years of age or younger. Not that this 
segment of the population is any less significant but focusing on the 
exceptions will paralyze any progress on the issue.
    The same can be said for the unhealthy uninsured or those unable to 
receive coverage in the individual market due to preexisting health 
conditions. Although several estimates have been made on the size of 
this population, only 5% of uninsured population (1.5% of U.S. 
population) is chronically ``uninsurable'' according to Communicating 
for Agriculture's ``Comprehensive Health Insurance for High-Risk 
Individuals'' and other studies.
    National Association of Health Underwriters offered its own 
analysis of what is available in the individual market for the 
unhealthy or those who are ``hard to insure'' in response to a study 
conducted by Kaiser Family Foundation (see attached). For the six 
hypothetical cases who represented ``less than perfect health,'' All 6 
out of 6 unhealthy individuals (not including the individual diagnosed 
with AIDS), were able to obtain health insurance in every one of 8 
geographic markets tested (health insurance companies approved 75% of 
these total submitted applications).
    c) Ms. Feder claims that tax credits are inefficient since they 
extend to all people in an eligible income category regardless of their 
current insurance status. We would agree that it is true that there 
will be some individuals who will be eligible for the tax credit who 
are currently insured. These individuals have exercised personal 
responsibility and made sacrifices in order to provide health insurance 
for their families, in spite of their low incomes. Regardless of the 
``inefficiency'' of extending a tax credit to these already insured 
individuals, it would seem quite unfair to penalize them for doing the 
right thing if they are otherwise eligible for the credit.
    Ms. Feder claims that public programs have a higher take-up rate 
among previously uninsured individuals, and are therefore more 
efficient. However, this take-up rate is based on a smaller eligibility 
category that only includes those who were previously uninsured, versus 
the tax credit where eligibility is based on income level and not 
insurance status. In reality, the tax credit reaches more people, 
including those who are already struggling to provide coverage to their 
families. It helps people who need help the most, based on their income 
level.
    Contrary to Ms. Feder's assertions, the odds of employers 
discontinuing their coverage if a tax credit program were enacted are 
small. The tax credit is after all a means tested proposal. It is 
highly unlikely that all of an employers employees would be eligible 
for the tax credit, and although employers are allowed to discriminate 
in their financial contributions by class, a class made up only of 
those employees eligible for the tax credit would not fit within 
allowable guidelines. Employers offer health insurance to recruit and 
retain good employees, and they will continue to do so. A properly 
structured tax credit can help an employer's low income employees pay 
for their share of coverage, particularly family coverage, and this 
greater participation by employees would actually improve employer 
health plan loss ratios. Ms. Feder's presumptions do not reflect market 
realities, current law, or typical actions by employers.
   cost and availability of health insurance for people with chronic 
                           health conditions
    Considerable misunderstandings exist about the cost and 
availability of health insurance for those with chronic health 
conditions. While available evidence is limited and should be improved, 
those with chronic conditions by and large do have access to affordable 
health insurance coverage.
    The vast majority of Americans receive their health coverage 
through their employer, and the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) provides that all employer groups 
guarantee access to health insurance coverage without regard to health 
status. For individuals who obtain coverage through the individual 
health insurance market, a wide variety of options have been 
implemented at the state level to ensure access to coverage.
Background on Chronic Conditions and Health Insurance
 The term ``chronic condition'' can be interpreted widely or 
        narrowly. Many studies label anyone who takes medication 
        regularly (such as allergy medicine or anti-depressants) as 
        chronically ill, regardless of how those conditions affect 
        insurance availability, premiums, or the expected cost of 
        health care. About 60 million working-age people have a chronic 
        condition under the broadest definition, which includes just 
        about any condition that may influence medical care use in any 
        way 1. Yet this does not mean that they cannot get 
        health insurance or that their health insurance or their total 
        health care costs will always be significantly higher as a 
        result.
---------------------------------------------------------------------------
    \1\ Community Tracking Study Household Survey
---------------------------------------------------------------------------
 Many programs exist to help those who have serious chronic 
        conditions get affordable health insurance in the individual 
        market. For example, many states have high-risk pools for 
        people who don't qualify for coverage in the regular individual 
        health insurance market. These pools have caps set on premiums 
        averaging about 150% of the individual market average rate. In 
        addition to the premiums paid by pool participants, these pools 
        are normally subsidized by assessments to insurance carriers 
        and state funds from a variety of sources.2
---------------------------------------------------------------------------
    \2\ Comparison of State Level High Risk Pools, National Association 
of Health Underwriters, January 2002.
---------------------------------------------------------------------------
    In June of 2001, Kaiser Family Foundation issued a report on the 
availability of coverage for people in less than perfect health. NAHU 
participated in the research for this project and can vouch for the 
accuracy of the objective data included in the study.
    NAHU would not, however, have reached the same conclusions based on 
the analysis of the underwriting and pricing information collected.
Kaiser Study 3
---------------------------------------------------------------------------
    \3\ Pollitz, Sorian, and Thomas, How Accessible is Individual 
Health Insurance for Consumers in Less than perfect Health?, Kaiser 
Family Foundation, June, 2001.
---------------------------------------------------------------------------
Data
 Seven fictional applicants sought individual health insurance 
        policies in eight different geographic areas. The applicants 
        had different ages, family structures, health conditions, etc.
 Quotes for $500 deductible, $20 office visit co-pay plans were 
        solicited. Offers, prices, and restrictions were recorded.
Kaiser's Interpretation
 The Kaiser report emphasized that applicants with chronic 
        conditions were often rejected by at least one insurance 
        company in the region, and often received offers with 
        surcharges (``rate-ups'') or exclusion of certain conditions 
        (``riders''). The HIV positive applicant failed to receive 
        offers in any market.
On further analysis . . .
 The conclusion that affordable health care is not available to 
        persons with chronic conditions is not a complete picture of 
        the way health care coverage works. In the Kaiser study, all 
        but one of the fictitious applicants (with the exception of the 
        HIV positive patient) received at least one offer in each 
        market, and the vast majority of offers were affordable and not 
        restrictive. These offers are shown in more detail in the 
        appendix.
 The ``rate-up'' seen in many offers was often only 25%, and 
        was often applied to a lower base premium than the premium 
        offered to healthy persons in the market. For example, the 
        applicant who had situational depression received a clean offer 
        with a $276 premium, but an offer with a 20% premium increase 
        (and no benefit limits) that was $279--only $3 higher. Both of 
        these offers without exclusions were less costly than some of 
        the offers that included benefit limitations.
 Not all applicants who had ``riders'' would face much higher 
        costs. For example, in Florida, the allergy sufferer received 
        only offers with limits on coverage for her allergies. But her 
        lowest offer was a monthly premium of $111, and the monthly 
        cost of the specific medications and shots that were excluded 
        would average only $31, for an effective maximum monthly cost 
        of $142--much lower than the average premium reported of $257. 
        In Arizona, she received no offers without restrictions, but 
        received an offer excluding her allergy treatment for only $66. 
        Again, with an estimated cost for medications and allergy shots 
        averaging $31 per month, her total monthly outlay would have 
        been $97.
 In the relatively rare cases where coverage exclusions or 
        rate-ups are substantial, high-risk pools and state ``insurers 
        of last resort'' provide an alternate source of coverage. The 
        California and Florida high-risk pools cited in the original 
        Kaiser analysis are two of the worst-performing pools, due to 
        lack of adequate funding for many years. As a result, these two 
        pools are much less functional than their counterparts in other 
        states. High- risk pools in states that use an insurance 
        carrier assessment mechanism to offset losses of the pool are 
        able to provide affordable coverage for many otherwise 
        uninsurable individuals. In addition, other state mechanisms to 
        guarantee access, such as ``carriers of last resort'' provide 
        additional options. For example, the individual who suffered 
        from allergies in the Kaiser study received no ``clean'' offers 
        in Virginia, and had an average monthly premium (with riders) 
        of $118. But the same individual could have elected a policy 
        with no riders through the guaranteed issuer of last resort in 
        Virginia (Trigon) for $104. Furthermore, the HIV positive 
        applicant could receive insurance through a high-risk pool or 
        carrier of last resort (with no benefit restrictions) in 6 of 
        the 8 states examined, 4 of which had premiums under $300. The 
        clear conclusion is that adequately-funded high-risk pools can 
        and do provide affordable coverage for persons with even the 
        most serious chronic conditions.
 It should be noted that individuals and families who lose 
        employer coverage with at least 18 months of creditable 
        coverage have a guaranteed right to purchase coverage in the 
        individual market in all 50 states, providing they meet HIPAA 
        eligibility provisions. In addition, employees leaving groups 
        of more than 20 employees have the right to continue coverage 
        under the federal COBRA law, and many states provide state 
        continuation options for individuals leaving employers with 
        less than 20 employees.
 An examination of states that do not use underwriting but 
        instead have imposed guaranteed-issue and community rating 
        requirements in their non-group insurance markets, show that 
        almost all of the applicants would have faced vastly higher 
        health insurance costs. For example, the applicant with high 
        blood pressure could get monthly premiums without benefit 
        restrictions that ranged from $244 to $805 in the 8 different 
        markets studied. But in New Jersey, a state with guaranteed 
        issue and community rating, his monthly premium would be 
        $1,801.
    Finally, a very important purchasing consideration for low-income 
individuals who purchase in the individual market is affordability of 
any size premium. Individuals and families who purchase in the 
individual health insurance market do not have the luxury of a 
financial contribution by an employer. Regardless of their income or 
health status, these individuals must purchase individual health 
insurance coverage entirely on their own. For this reason, NAHU 
strongly supports refundable tax credits to make the cost of coverage 
more affordable, especially for low-income individuals.
     appendix: details on health insurance offers received by all 
                 hypothetical applicants in all markets
    The Kaiser study examined the insurance offers received by six 
hypothetical applicants in eight geographic areas (IL, TX, IA, CA, FL, 
VA, AZ, IN). (Costs are expressed below as the best offer for monthly 
premiums.)

 For comparison, each of the single applicants would have faced 
        the following (higher) rates in three guaranteed issue and 
        community rated states: in NJ, $1,801; in NY $364; in ME, $516.
Alice: 24 years old, allergies
 Received offers with no restrictions in 5/8 markets (IL, TX, 
        IA, CA, and IN), with an average monthly premium of $100.
 Received an offer with an exclusion for certain allergy 
        treatments of $111 in FL. Adding her estimated monthly out of 
        pocket costs for Allegra and allergy shots yields an effective 
        monthly cost of $142.
 Virginia's guaranteed issuer Trigon would have issued a policy 
        of $104 with only a $300 deductible (or $93 with a $750 
        deductible) and no benefit restrictions.
Bob: 36 years old, previous knee surgery
 Received offers with no restrictions in 8/8 markets, averaging 
        $134.
 Received significantly cheaper offers that excluded the knee 
        in several states (for example, $69 instead of $154 in VA, $111 
        instead of $335 in FL). Given that no further treatment on the 
        knee is anticipated, these offers might be preferable.
Crane Family: Family of 4, son with asthma
 Received offers of family coverage without restriction in 4/8 
        markets (IL, CA, AZ, and IN), averaging $352.
 In 3 of the remaining states (IA, TX, and VA), if the family 
        purchased coverage except for the son (without restrictions) 
        and added coverage for the son through either the state high 
        risk pool or carrier of last resort, the family's total average 
        premium would be $512.
 The premium for the family was $497 in FL, but it excluded the 
        son's asthma. The FL high-risk pool is one of the few high-risk 
        pools that are currently closed.
 These rates generally compare very favorably to the coverage 
        available in guaranteed-issue states: monthly premium in NJ, 
        $3273; in NY $947; in ME, $1,900.
Denise: 48 years old, previous breast cancer
 Received offers with no restrictions in 8/8 markets, averaging 
        $226.
Emily: 56 years old, situational depression
 Received offers with no restrictions in 8/8 markets, averaging 
        $253.
Frank: 62 years old, high blood pressure, smoker, overweight
 Received offers with no restrictions in all 8/8 markets, 
        averaging $514.
Greg: 36 years old, HIV positive
 Received no offers in individual market.
 Virtually all individual market insurers in the United States 
        consider HIV+ status to be an uninsurable medical condition.
 Would be able to purchase insurance through high-risk pools or 
        a carrier of last resort in all states except FL and AZ, with 
        an average cost of $330. (The VA plan had a higher deductible, 
        although a lower deductible plan was also available. The CA 
        policy had annual and lifetime limits, and has a waiting list.)
      private sector health insurance options using public funding
Background
    The Bush Administration has developed a new initiative to provide 
health insurance to low income individuals and families. The Health 
Insurance Flexibility and Accountability (HIFA) demonstration 
initiative strongly encourages private health insurance options 
targeted to people with incomes below 200 percent of the federal 
poverty level (FPL). Private health insurance options include both 
group health plan coverage and individual health insurance coverage. 
The HIFA initiative uses current Medicaid and SCHIP resources under a 
Section 1115 waiver, and therefore does not require new budget 
allocations.
Eligibility, Benefits and Cost Sharing
    The new initiative does not limit the upper income eligibility 
level, but does focus on individuals with family incomes below 200 
percent of the federal poverty level. States requesting eligibility 
above 200 percent of the federal poverty level must demonstrate that 
their state already has high coverage rates in this range and that 
covering individuals above 200 percent of the federal poverty level 
will not induce those who already have private health insurance 
coverage to drop it. States are encouraged to think creatively about 
how Medicaid and Children's Health Insurance Program funding can be 
used to maintain and encourage coverage in the group health plan 
market.
    Benefit requirements differ depending on the population to be 
covered. The benefits are targeted at the following populations:

 (Mandatory populations: groups which must be covered by 
        Medicaid, such as children under age six and pregnant women up 
        to 133 percent of the federal poverty level.
 (Optional populations: groups that could be covered under 
        Medicaid or the Children's Health Insurance Program, whether or 
        not the state has actually elected to do this. Family income 
        eligibility for these groups is greater than the mandatory 
        population income levels. They include children already 
        enrolled in the Children's Health Insurance Program, children 
        who are or could be covered by Medicaid at incomes greater than 
        the mandatory income levels, and parents covered by Medicaid.
 (Expansion populations: groups not eligible for Medicaid or 
        SCHIP unless provided coverage through a section 1115 waiver 
        authority, such as non-disabled adults without children.
    The HIFA waiver does not allow reduction of benefits for mandatory 
populations, or vulnerable populations such as pregnant mothers or 
children with special needs. States will have new flexibility under the 
HIFA initiative to modify current benefit packages for optional 
populations under both Medicaid and SCHIP to allow all optional 
populations to be covered by one of the benefit packages available 
under the Children's Health Insurance Program, including:

 The benefit package for the HMO that has the largest 
        commercial enrollment in the state, or;
 The Blue Cross/Blue Shield PPO option for federal employees, 
        or;
 A health benefits coverage plan that is offered and available 
        to state employees, or;
 A benefit package that is actuarily equivalent to one of those 
        above, or;
 A package approved by the Secretary.
    Benefits packages for optional populations must include inpatient 
and outpatient hospital services, physicians surgical and medical 
services, lab and x-ray services, well-baby and well-child care, 
including age appropriate immunizations.
    States will have even greater flexibility in designing the benefit 
package for expansion populations. The benefit package for expansion 
populations must include a basic primary care package, which means 
health care services customarily provided by or through a general 
practitioner, family physician, internal medicine physician, 
obstetrician/gynecologist, or pediatrician. States may establish limits 
on the types of providers and the types of services, subject to 
approval by the Secretary of Health and Human Services. Benefits must 
be comprehensive enough to be consistent with the HIFA goal of 
increasing the number of individuals in the state with health insurance 
coverage. The Secretary will permit flexibility in both the definitions 
of benefits and cost sharing for optional and expansion populations in 
support of increased use of private group health plan assistance 
programs, and will not be required to meet a specific cost 
effectiveness test for premium assistance programs that promise to 
decrease the number of uninsured under 200 percent of the federal 
poverty level.
    Cost sharing for mandatory populations will continue to be limited 
to nominal amounts. States will be provided new flexibility to define 
cost sharing for optional Medicaid populations and expansion 
populations; however, cost sharing for optional children may not exceed 
5% of the family's income. In cases where the entire family is covered, 
this 5% guideline does not need to apply to cost sharing that can't be 
attributed to individual family members, such as a family premium. 
However, the 5 percent limit does apply to cost sharing attributable to 
children, such as copayments for children's visits to physicians.
NAHUs Position
    The new HIFA waiver is an opportunity for states to develop private 
sector health insurance options using currently available public 
funding. The new flexibility in benefits, cost sharing and the use of 
private plans is unprecedented. We strongly support the use of this 
waiver to decrease the number of uninsured individuals and families in 
the United States.
                                 ______
                                 
Responses for the Record of Judith Feder, Ph.D., Dean of Public Policy, 
                         Georgetown University
    Question 1: In your written testimony, are you using the 
President's refundable tax credit proposal as a basis for comparison or 
a proposal created by researchers at the Urban Institute? Have the 
researchers at the Urban Institute specifically researched a refundable 
, advanceable tax credit?
    Answer 1: The tax credit proposal in my testimony is similar, 
though not identical to the President's proposal. As noted in the 
testimony, it is a refundable tax credit for non-group-coverage, 
providing $1000 to individuals and $2000 to families. Full subsidies 
would apply to individuals with incomes below $15,000 (families with 
incomes below $30,000) and would phase out as income rises, reaching 
zero for individuals with incomes of $30,000 (families with incomes of 
$60,000). The likely impact of this proposal was estimated by Jonathon 
Gruber of the Massachusetts Institute of Technology and National Bureau 
of Economic Research, with actuarial support from the Actuarial 
Research Corporation. The estimates did assume that the tax credit was 
advanceable.
    Question 2: Is it correct that you assume that 1.4 million people 
will drop employer provided coverage to receive a tax credit to be used 
in the individual market, but you also assume zero people will drop 
employer coverage to receive virtually free insurance under an 
expansion of SCHIP?
    Answer 2: No. Looking first at tax credits, 3.9 million people are 
estimated to lose employer coverage--a combination of people who 
themselves choose to shift from employer coverage to purchasing 
coverage in the individual market and of people whose employers drop 
coverage. Among those whose employers drop coverage, an estimated 1.4 
million people are estimated as not likely to purchase insurance on 
their own, even in the presence of the credit. Hence, they lose 
insurance. (Figure 3 in my testimony shows the 2.5 million people who 
previously had employer coverage and are estimated to be using the 
credit to purchase in the individual market. Figure 5 shows the 1.4 
million people whose employers drop coverage and who lose insurance 
altogether because they are estimated as unlikely to take up the tax 
credit to purchase insurance in the individual market.)
    Looking at the public program expansion to parents, 1.1 million 
people are estimated to lose employer coverage (Figure 3 in my 
testimony). However, all of these people are individuals who themselves 
choose to shift from employer coverage to the individual market when 
offered the tax credit. Employers are estimated as unlikely to drop 
coverage under a policy that targets a new benefit to so narrow a 
segment of workers as low income parents. Since employers are unlikely 
to drop, no individuals lose coverage without shifting to an 
alternative. (Hence the 0 losing insurance in Figure 5.)
    Question 3: In your testimony, you assume a take-up rate of 8 
percent for the tax credit program but a 58 percent take-up rate for 
the Medicaid expansion. Can you please elaborate on this?
    Answer 3: Estimates of take-up are not arbitrarily assumed. Rather 
they are a function of differences in subsidy structure and people's 
likely responses to those structures, based on experience. As shown in 
Figure 3 in my testimony, an estimated 38.3 million previously 
uninsured individuals would be eligible for the tax credit. For the 
vast majority of these individuals, the tax credit is structured to 
provide only a partial subsidy for the cost of insurance. The 
literature on individuals' responses to subsidies indicates that 
limited subsidies lead to limited participation. Our analysis--which 
reflects experience with the way people's financial circumstances, the 
price of insurance, and the value of a subsidy affect choices--finds 
that 3 million people (8 percent of eligible uninsured people) would 
take up the tax credit.
    The public program expansion is structured as a full subsidy for 
the cost of insurance for people with incomes under 150 percent of the 
federal poverty level (limited premiums are charged for people with 
higher incomes up to 200 percent of the federal poverty level). In 
other words, the expansion makes insurance free for people in this 
income category, where most of the estimated participation occurs. 
Participation estimates reflect past experience with take-up for 
Medicaid.
    Question 4: Could state budgets afford the Medicaid expansion as 
set out in the study? Do any Governors support the proposal you are 
presenting? How much would the proposal cost States?
    Answer 4: The proposal our study examined was similar to a 
legislative proposal that would extend Medicaid or SCHIP coverage to 
parents (and any currently ineligible children) with incomes up to 200 
percent of the federal poverty level. We estimated its total annual 
costs, federal and state, as $11.3 billion. Our analysis assumed that 
states would be required to extend eligibility to the maximum, as a 
condition for receipt of any Medicaid and SCHIP funds. But we did not 
assume a distribution of state and federal obligations; that split 
would be up to policymakers and, indeed, the costs could be borne fully 
by the federal government. If split at the current SCHIP matching rate, 
the federal share would be $7.9 billion and the state share, $3.4 
billion.
    The public expansion's total cost of $11.3 billion would increase 
the number of people with insurance by 3.8 million, at a cost per net 
newly insured individual of $2974. That compares to an estimate of $4.5 
billion to increase the number of people with insurance by 1.6 under 
the tax credit--a cost per net newly insured individual of $2757. The 
difference in the two proposals' total costs is almost entirely a 
function of how much they accomplish in expanding coverage.
    Question 5: Your proposal does not appear to cover childless 
individuals or couples. Is this correct and do you know how many people 
fall into this category?
    Answer 5: My testimony focused on options similar to the most 
prominent legislative proposals. That meant comparing a broadly 
targeted tax credit proposal, for which take-up is found to be modest, 
to a narrowly targeted proposal, for which take-up is likely to be 
substantial. When the disruption of employer coverage associated with 
the broader proposal is taken into account, the broadly-targeted tax 
credit is found to increase coverage less than the public expansion 
that is narrowly targeted to parents.
    In the Kaiser Family Foundation study on which my testimony is 
based, however, we analyzed two broader public proposals--specifically, 
a mandatory expansion of Medicaid or SCHIP to cover all individuals 
with incomes below 100 percent and 200 percent of the federal poverty 
level. Our estimates indicated that the first proposal would increase 
the number of insured individuals by 5 million people; the second, by 
10 million people. The annual total costs (federal and state) are 
estimated at $16.2 billion and $34.1 billion, respectively.
    Speaking for myself, I would welcome legislative action to 
eliminate the current restrictions in our public programs that leave 
adults other than parents of dependent children without an insurance 
safety net in most of the country. I advocate a change in policy to 
make public insurance available to all low income individuals, whether 
or not they are parents of dependent children.
                                 ______
                                 
                              Healthcare Leadership Council
                                                       May 10, 2002
The Honorable Michael Bilirakis
Chairman
House Committee on Energy and Commerce
Subcommittee on Health
United States House of Representatives
Washington, D.C. 20515
    Dear Mr. Chairman: As requested in your April 30, 2002 letter, 
attached are my responses to the questions submitted for the record, 
following the February 28th hearing on access to affordable health care 
coverage.
    Thank you for the opportunity to testify before the Subcommittee. 
Please do not hesitate to contact me or my staff if you need additional 
information.
            Sincerely,
                                             Mary R. Grealy
                                                          President
attachment
              Questions and Answers for the Hearing Record
    Question 1. In your written testimony, you mention that a large 
percentage of the uninsured are dependents of workers--and while the 
workers may be able to afford coverage for themselves, they cannot 
afford the higher premium for family coverage. Can you elaborate on 
this portion of the uninsured and perhaps suggest some solutions?
    HLC Answer: Small and medium sized businesses offering health 
insurance to their employees contribute, on average, 48 percent of the 
premium amount for employees, but only 24 percent for their dependents. 
As a result, children in these families are uninsured more often than 
the actual worker is.
    Some of these uninsured dependents are eligible for, but not 
enrolled in, the State Children's Health Insurance Program (S-CHIP). 
States are working hard to find ways to reach out to these un-enrolled 
eligible children through schools, clinics, etc. Including employers of 
low-income workers in these outreach activities could be very useful.
    Special tax incentives for dependent coverage could be a wise 
choice for targeting federal funds toward this population of the 
uninsured. A potential solution is for states or the federal government 
to design a refundable tax subsidy targeted toward making up the 
difference between this 24% and 48% employer contribution.
    Another cost-effective option to reduce the number of uninsured 
among the employed population is allowing S-CHIP funds to be used by 
parents of eligible children to purchase coverage for them through 
their employer. One reason employers with mostly low-wage workers often 
do not offer employee health insurance is because their employees 
cannot afford to pay a share of the premium. Aid from the S-CHIP 
program could encourage more employers to offer family coverage as well 
as more employees to buy into employer insurance. Currently, due to 
displacement concerns, some states are reluctant to allow the funding 
to be used in this way. However, recent studies have demonstrated that 
this concern is unwarranted. Nonetheless, appropriate safeguards could 
be implemented to avoid significantly replacing private dollars with 
public dollars.
    Question 2. HLC has recognized several state and local programs 
that have found ways to help small employers and individuals obtain 
coverage and care. What can we learn from these programs and do you 
think these programs can be built upon to eventually cover a 
significant number of the uninsured?
    HLC Answer: There are a number of things we can learn from these 
programs. Designing tax subsidies to attract both employer and employee 
purchase of insurance requires careful study of subsidy level, 
administrative complexity and other factors necessary to reach a 
threshold that would result in the choice to participate. We have found 
that community-sponsored programs around the country that are expanding 
insurance coverage in their local areas can serve as models of 
reference for these thresholds.
    An insurance program developed in Wayne County, Michigan, for small 
businesses found that it was difficult to entice these businesses to 
participate by subsidizing less than one-third of the premium. The 
premium formula that eventually got this program off the ground was 
one-third paid by the employer, one-third paid by the employee, and 
one-third subsidized by the county.
    The stability of the subsidy also appeared to be important to the 
success of the program--indicating that the subsidy should operate as a 
guaranteed percentage of the premium rather than a fixed dollar. 
Applying observations such as these in designing a tax incentive plan 
to reduce the number of uninsured could greatly increase that plan's 
potential for success. With added federal support that leverages 
funding from private and other public sources, substantial opportunity 
exists to replicate these experiences around the country.
    Several of these local programs have found that marketing methods 
were key to successful enrollment. They found that education outreach 
for small businesses and individuals, not unlike the S-CHIP program, 
was a very necessary component that needed to be part of the original 
planning process of the program. They also found that it was important 
that any marketing efforts did not have the appearance of government 
intervention.
    In any case, tax incentives would give more small employers the 
proper incentive to provide coverage and the incentive for employees to 
accept coverage for themselves and their dependents. This would result 
in more Americans being insured, lower overall health care costs, and 
ultimately more affordable coverage for small businesses.
    Question 3. Many consider the S-CHIP program to be very successful 
in helping the uninsured--why not just expand it to cover the low-
income uninsured children and adults who are not already eligible?
    HLC Answer: The HLC believes the S-CHIP program is very valuable 
for its intended purpose--children of low income families. We do, 
however, believe that increased flexibility in the S-CHIP program would 
help increase it's intended enrollment. Tax incentives would be more 
desirable for as much of the population as possible because they would 
offer choice and flexibility and would instill competition and 
innovation in the health system.
    Furthermore, evidence suggests that we are reaching the limits of 
effectiveness in reducing the number of uninsured through the S-CHIP 
and Medicaid programs. Only about half of individuals currently 
eligible for Medicaid and S-CHIP actually participate. A number of 
reasons have been cited for low participation rates including the fact 
that participation rates of means-tested public insurance programs 
decline as incomes rise. A large number of those not participating are 
those with incomes too high for Medicaid eligibility, but low enough to 
qualify for S-CHIP. Families with incomes just above the poverty level 
are often working full time and are more reluctant to receive their 
health care through a public program. This pattern of lower 
participation among higher income persons is also evident in other 
government health care subsidy programs, including the Qualified 
Medicare Beneficiaries (QMBS) and Specified Low-Income Medicare 
Beneficiaries (SLMBs) programs. Researchers have concluded that 
substantial outreach is necessary to overcome barriers to 
participation, such as the possible stigma associated with public 
programs.
    These data suggest that eligibility alone, without considerable 
investment to remove existing barriers to participation, will not 
efficiently increase insurance coverage. Many eligible individuals in 
the higher income categories of Medicaid and S-CHIP, as well as income 
categories under consideration for Medicaid and S-CHIP expansions, are 
connected to the workforce. Therefore, solutions involving employer 
insurance may be more effective in increasing coverage rates for these 
populations.
    Question 4: After having an opportunity to review Ms. Feder's 
written testimony in which she compares a basic tax credit proposal to 
Medicaid expansion could you please comment on her study and overall 
analysis?
    HLC Answer: HLC takes issue with Ms. Feder's characterization of 
both the tax credit proposals under consideration as well as the impact 
of further expansion of public health programs to address the problem 
of the uninsured.
    Specifically, Ms. Feder's criticism of tax credit proposals makes 
apples to oranges comparisons that do not reflect the facts of the 
proposals under consideration in Congress. She states in her testimony 
that a significant problem with tax credits is that low income 
uninsured persons need funds available in advance of purchasing 
insurance and cannot wait until they file a tax return to receive the 
funds. However, the tax credit proposal put forth by the Bush 
Administration, like others introduced in Congress, is advanceable to 
beneficiaries because it is based on their previous year's tax return. 
This allows beneficiaries to receive the value of the credit in real 
time and also ensures that they will not be held accountable for any 
overpayment made by the government at the end of the year due to 
changing tax circumstances.
    Ms. Feder claims that tax credits will not be of significant value 
to entice persons to purchase private health coverage. She then cites 
studies that compare the impact of expansions of public programs versus 
tax credits to make her point that expanding Medicaid and S-CHIP have a 
greater impact on reaching the uninsured. Again, this comparison is not 
relevant to tax credit proposals being considered today.
    In the hypothetical example presented in Ms. Feder's written 
testimony, she compares a nonrefundable tax credit with Medicaid and S-
CHIP expansion. Most tax credit proposals under consideration in 
Congress, as well as the Administration's proposal, promote refundable 
tax credits--that is, those who have no tax liability due to their low 
income, will still receive the full benefit of the credit in the form 
of an insurance voucher. Thus, the conclusions she draws regarding the 
impact of this proposal on the number of uninsured completely ignores 
the significant number of uninsured who have no income tax liability 
and therefore would benefit from a refundable tax credit.
    Question 5: The analysis Ms. Feder presented at the hearing is 
based on numerous assumptions. This includes: Substantial employer 
dropping of coverage is assumed for the tax credits. Ms. Feder assumes 
a higher cost of insurance than is estimated by the Council of Economic 
Advisors or currently provided by groups like e-Health. The study 
assumes a very low take-up rate for the tax credit and a high take-up 
rate for the Medicaid expansion. Could you please comment on Ms. 
Feder's assumptions?
    HLC Answer: The criticism that employers may drop health coverage 
if you provide subsidies to the uninsured applies regardless of whether 
you provide these subsidies through tax credits or through expansions 
in public programs. The key issue is how you design the program. The 
amount of ``crowd-out,'' as it is called, of employer-provided coverage 
is minimized if the subsidy provided by the government is less generous 
than the subsidy provided by the employer. If a low-income individual 
was offered job-based health insurance and was also eligible to receive 
a tax credit, the value of that tax credit would have to be greater 
than the employer contribution to that employees health coverage, 
including the tax benefits associated with that coverage, as well as 
the additional tax the employee would pay on the salary they may 
receive in lieu of health coverage. In addition, most tax credit 
proposals are capped at a certain amount whereas the tax exclusion for 
employer-provided coverage is open-ended, and therefore potentially 
more generous.
    An additional design feature that will reduce employers dropping 
coverage is means-testing tax credits. An employer is not likely to 
drop coverage only for low-income workers eligible for the credit, 
while maintaining coverage for higher income employees.
    The second assumption made by Ms. Feder related to the cost of 
individual health insurance policies includes many variables she does 
not address in her written testimony. Individual health insurance 
premiums can vary significantly based on the state in which you live in 
and the type of policy purchased. States with numerous mandated benefit 
laws and onerous insurance regulations have higher cost insurance. In 
addition, there is wide variance in premiums depending on the level and 
type of coverage an individual chooses. First-dollar indemnity coverage 
can cost significantly more than a plan with a high deductible and 
managed care features. Recently, the National Association of Health 
Insurance Underwriters (NAHU) challenged a Kaiser Family Foundation 
report by researching and publishing affordable insurance rates for 
comprehensive health insurance policies for a set of hypothetical 
insurance customers seeking insurance in the individual market. Several 
of these hypothetical customers had pre-existing, chronic health 
conditions.
    Finally, the assumption that take-up rates for Medicaid coverage 
would be greater than tax credits is questionable. As already noted, 
the hypothetical example given by Ms. Feder does not match current tax 
credit proposals under consideration. In addition, the spending level 
for her Medicaid expansion proposal is much higher than the spending 
level for her tax credit example. If her hypothetical example were to 
compare advanceable, refundable tax credits of equal value as her 
Medicaid expansions, we believe her example would yield different 
results.
    Because health insurance tax credits are largely untested, it is 
hard to estimate their true impact on meeting the needs of the 
uninsured. The values of the tax credit approach are that they offer 
beneficiaries choice and flexibility in benefits and levels of 
coverage; they provide beneficiaries access to the quality and 
efficiencies of the private sector health delivery system; they do not 
carry the same stigma that public programs often have for working 
families; and they provide a means of offering tax equity to low-income 
Americans who do not receive tax-favored employer-based health 
insurance.
    Contrast this with public programs such as Medicaid and S-CHIP. 
Only about half of the individuals currently eligible for Medicaid and 
S-CHIP actually participate in the programs, suggesting that 
eligibility alone--without considerable investment to remove existing 
barriers to participation--does not and will not efficiently increase 
the number of people receiving coverage. In addition, expansions of 
these programs require legislative action by all 50 states, many of 
which are currently experiencing severe funding shortfalls in their 
Medicaid budgets.
                                 ______
                                 
               Committee on the Consequences of Uninsurance
                                                        May 9, 2002
The Honorable Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515-6115
    Dear Chairman Bilirakis: Thank you for the opportunity to provide 
additional information to the Subcommittee. This responds to your 
letter of April 30, in which you asked the following:
    1. In your written testimony, you state that employers' willingness 
to subsidize coverage is strongly influenced by the scarcity or 
availability of workers, the cost of health care, and the patchwork of 
public policies that encourage (or discourage) firms to offer insurance 
as a benefit. Does the IOM plan on reviewing the regulatory burdens on 
access to private health insurance and evaluate how this impacts the 
cost of premiums?
    2. According to your written testimony, you state that the 
combination of strict eligibility requirements and enrollment 
procedures make public coverage difficult to obtain and even harder to 
keep. You note that the median length of time that someone under the 
age of 65 keeps Medicaid coverage is about 5 months. At the end of any 
given year, about two-thirds of the people who were insured by Medicaid 
at the start of the year have lost their coverage for any number of 
reasons. These are staggering facts. Can you please elaborate on this 
situation? Furthermore, Diane Rowland stated that recent legislation 
may have made improvements to this situation. Does IOM have any facts 
indicating changes in the status of this problem?
    In response to the first question, the IOM Committee on the 
Consequences of Uninsurance is charged with assessing and documenting 
personal and societal health and economic effects of the lack of health 
insurance in a series of six reports. The Committee's first report, 
Coverage Matters, which was the basis of my testimony to the 
Subcommittee on Health, surveyed a variety of factors that affect 
employers' willingness to offer health insurance. The final report that 
the Committee will issue in the fall of 2003 will identify strategies 
and models for addressing the problems of uninsurance and, in preparing 
this final report, will give further consideration to the obstacles to 
and potential for expanding employment-based health insurance. Although 
the work on this final report is not very far along at this point, I 
doubt that our Committee will be able to quantify with sufficient 
precision the impact of current federal and state health insurance 
regulations on premium costs. I expect that we will, however, be able 
to identify some regulatory policies that are more conducive to 
employment-sponsored plans than others.
    In response to the second question, regarding the short tenure and 
instability of Medicaid coverage for many enrollees, Coverage Matters 
and my testimony relied on several analyses of the Census Bureau's 
Survey of Income and Program Participation (SIPP) panel data between 
1990 and 1995, which followed participants over 28- to 33-month 
periods. These studies include:
    ``Dynamics of Economic Well-Being: Program Participation, 1993 to 
1995. Who Gets Assistance?'' Jan Tin and Charita Castro. Current 
Population Reports P70-77, issued September 2001. Washington, DC: U.S. 
Census Bureau. Median duration on Medicaid, <18 years = 4.3 months; 18-
64 years = 5.2 months.
    ``Single Women and the Dynamics of Medicaid.'' Pamela Farley Short 
and Vicki A. Freedman. HSR:Health Services Research 33:5 (December 
1998, Part 1); pp. 1309-1336. 1990-1992, single women 19-44 newly 
covered by Medicaid, duration on Medicaid: <1 year = 54%; <2 years = 
69%.
    ``Can Medicaid Managed Care Provide Continuity of Care to New 
Medicaid Enrollees? An Analysis of Tenure on Medicaid.'' Olveen 
Carrasquillo, David U. Himmelstein, Steffie Woolhandler, and David Bor. 
American Journal of Public Health 88:3 (March 1998); pp. 464-466. 1991-
1993, new Medicaid enrollees of all ages, duration on Medicaid: < 1 
year =62%; < 28 months = 74%.
    One recent additional source of information about the stability and 
change in health insurance status that the Committee did not have 
available earlier is based on the 1996 Medical Expenditure Panel Survey 
(MEPS). Because the MEPS analysis is not limited to Medicaid enrollees 
and because the SIPP reports on Medicaid participants enrolled only 
after the survey began, it is difficult to know the extent to which 
this later MEPS analysis represents a lengthening of the average 
Medicaid enrollment period, although it does appear to be lengthening 
somewhat.
    MEPS Research Findings #18, AHRQ Publication No. 02-0006 (December 
2001), reports the percentage of persons under age 65 with some form of 
public health insurance (including both Medicare and Medicaid) during 
1996 who had that coverage for the entire year. Overall, 75 percent of 
public program enrollees were enrolled the entire year. Seventy-five 
percent of children under 18 enrolled in public programs (largely 
Medicaid) remained covered for the entire year. Among adults, however, 
the fraction of those maintaining coverage for the full year ranged 
from 62 percent for adults 18-24 to 85 percent for adults 55-64. 
Although the proportions covered by Medicare and Medicaid, 
respectively, are not given in this report, a larger proportion of 
publicly insured older adults have Medicare coverage (due to permanent 
disability) than is the case for younger publicly insured adults who 
are much less likely to be disabled.
    Dr. Rowland is correct, that federal Medicaid and SCHIP policy 
encourages states to simplify program enrollment and re-enrollment 
procedures and lengthen enrollment periods from one or three months to 
initial enrollment periods as long as a year. Many states have done 
this. However, as several witnesses at the hearing pointed out, states 
are also facing budget shortfalls that mitigate against expansive 
Medicaid and SCHIP policies, and it remains to be seen whether states 
will sustain the enrollment reforms that they initiated following the 
enactment of SCHIP. Our IOM Committee continues to follow and will 
report on the latest information available about the duration of public 
program coverage.
    Once again, thank you for the opportunity to testify and to expand 
upon my remarks here. Please do not hesitate to contact me if you would 
like further information.
            Sincerely,
                         Arthur L. Kellermann, M.D., M.P.H.
                                             IOM Committee Co-Chair
cc: Mary Sue Coleman, Ph.D.
    IOM Committee Co-Chair
                                 ______
                                 
                      The Henry J. Kaiser Family Foundation
                                                       May 10, 2002
Hon. Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
United States House of Representatives
Room 2125, Rayburn House Office Building
Washington, DC 20515-6115
    Dear Chairman Bilirakis: Thank you again for the opportunity to 
testify before the Subcommittee on Health on February 28, 2002 
regarding ``The Uninsured and Affordable Health Care Coverage.'' I 
received the follow-up questions and am submitting the following 
information for the record.
    1. Premium Increases: In your written testimony, you discuss the 
impact of a weakening economy and rising health care costs. You note 
that from 2000 to 2001, premium costs increased on average 11%. Do you 
know what the premium increase has been for premiums sold to small 
businesses and on the individual market respectively?
    As stated in my testimony, health insurance premiums are beginning 
to rise more rapidly than in previous years: according to our 2001 
annual survey of Employer Health Benefits, from 2000 to 2001, they rose 
on average 11%, the highest increase since 1992. The greatest increase 
in premium costs was among small firms. All small firms (those with 
between 3 and 199 workers) experienced increases of 12.5%, and the 
smallest firms (those with between 3 and 9 workers) saw premiums 
increase 16.5%. Differences between premium increases among small and 
large firms were consistent across plan type (conventional, HMO, PPO, 
and POS).
    While firms faced a wide range of premium increases around the 
average increase, firms with fewer than 200 workers experienced 
disproportionately high increases. More than a third (35%) of these 
small firms saw premiums increase more than 15%, compared to only 17% 
of larger firms. For nearly a fifth of small firms, premiums rose more 
than 20%.
    In our recent National Survey of Small Businesses, which surveyed 
employers with between 3 and 24 workers, we were able to obtain 
additional information on the impact of rising premiums for small 
firms. Sixty-six percent of small business owners say they are 
dissatisfied with the cost of health care and health insurance. Many 
small businesses also indicate that future premium increases of 10% may 
lead them to reduce the scope of benefits offered (36%), increase the 
amount that employees pay for insurance (50%), or drop coverage 
altogether (17%).
    The March 2002 survey of small and independent business owners by 
the National Federation of Independent Business (NFIB) Education 
Foundation (Monthly Report, April 2002) also indicates that small 
businesses are concerned about the cost of health insurance premiums. 
This survey reports that the cost and availability of health insurance 
is now tied with taxes as the single most important problem facing 
small businesses. Nineteen percent of owners cited this issue as the 
major problem, up from 8% one year ago.
    Additional detail on health care costs faced by employers and small 
businesses' views on rising costs can be found in our 2001 Kaiser/HRET 
Annual Survey of Employer Health Benefits and our April 2002 National 
Survey of Small Businesses, respectively. Both of these publications 
can be found on our website, www.kff.org.
    We unfortunately do not have information on premium trends in the 
individual market. In general, policies in this market are highly 
variable and depend on an individual's circumstance and location, and 
we have not attempted to collect aggregate data on premium costs or 
their changes over time.
    2. Length of Time with Medicaid Coverage. According to Dr. 
Kellerman's written testimony, he states that the combination of strict 
eligibility requirements and enrollment procedures make public coverage 
difficult to obtain and even harder to keep. He notes that the median 
length of time that someone under the age of 65 keeps Medicaid coverage 
is about 5 months. At the end of any given year, about two-thirds of 
the people who were insured by Medicaid at the start of the year have 
lost their coverage for any number of reasons. What information do you 
have concerning the median length of time someone keeps Medicaid 
coverage?
    While it is likely that some beneficiaries now served by the 
Medicaid program gain and lose coverage over a short period of time, 
the data on Medicaid tenure cited in Dr. Kellerman's testimony does not 
reflect the current configuration and operation of the Medicaid 
program, especially in its role as a health insurer for low-income 
children.
    The statistics cited above rely on studies of transitions on and 
off Medicaid that draw from data collected in the early 1990s. 
Specifically, the main study I believe Dr. Kellermann cites in his 
testimony (Carrasquillo, et al.) used a longitudinal survey conducted 
from 1991 to 1993. While informative of the experience of beneficiaries 
in the early 1990s, it is misleading to extrapolate these findings to 
describe current dynamics of Medicaid coverage.
    As I stated at the hearing, the most significant reason such 
findings are no longer accurate is because the Medicaid eligibility and 
re-certification processes have changed significantly in recent years, 
particularly for children. Following welfare reform in 1996 and the 
implementation of the State Children's Health Insurance Program (CHIP) 
in 1997, states began to reach out to families eligible for Medicaid 
coverage and ease barriers to enrollment and re-determination for both 
CHIP and Medicaid. Several states have raised income eligibility levels 
and/or begun to disregard certain types of income in determining 
eligibility. This helps promote stability of coverage, as minor 
fluctuations in income are not as likely to result in lost eligibility. 
Furthermore, states have also implemented 12-month continuous 
eligibility (17 states), which allows beneficiaries to be covered 
despite small income fluctuations; lengthened periods between re-
certification (42 states); and simplified the re-certification process 
by eliminating the need for interviews and documentation (48 states). 
While studies have not yet specifically examined their effect, these 
improvements in the re-certification process are likely to have 
positively impacted the length of time that families retain their 
coverage.
    Another reason for caution in interpreting studies of Medicaid 
tenure stems from the fact that the different populations that Medicaid 
serves move on and off coverage in very different ways. For example, 
the experience of women--who, at the time many studies of this topic 
were conducted, largely qualified based on pregnancy or receipt of cash 
assistance--is likely to be very different from that of other 
populations covered by the program. Medicaid coverage of pregnant 
women, which ends 60 days postpartum, is by design short-term coverage; 
pregnant women who reported being covered by Medicaid at one point in a 
survey were likely ineligible for coverage at consecutive points in a 
survey that examines several years of coverage. Further, income 
eligibility levels for non-pregnant women are most often based on the 
exceedingly low income standards for cash assistance. As a result, 
small fluctuations in earnings undermine Medicaid eligibility for this 
population. As one study points out, in states with higher income 
eligibility levels, single women retained Medicaid coverage longer 
(Short and Freedman, 1998).
    In contrast, Medicaid coverage of other groups is more stable. 
Children on Medicaid are covered at higher income levels and are less 
likely to lose coverage due to fluctuations in family earnings. In 
addition, the elderly and disabled on Medicaid (who account for over a 
quarter of all beneficiaries) are unlikely to experience changes in 
income or categorical eligibility (that is, they will not cease to be 
aged or disabled) and corresponding changes in Medicaid coverage. 
Elderly and disabled beneficiaries who live on fixed incomes and 
receive institutional care are least likely to experience disruptions 
in their Medicaid coverage. These important differences in the dynamics 
of coverage are lost when all groups are examined together in a single 
median value.
    Finally, though the potential of beneficiaries ``churning'' on and 
off Medicaid is an important policy issue, it is important to recognize 
that this problem is largely related to the nature of the program. 
Coverage under means tested programs--particularly those with low 
income thresholds--will by design fluctuate as people's incomes rise 
and fall and change their eligibility status. For low-income 
individuals, especially those who work in the service industry (as many 
do), income often varies from month to month or season to season. For 
many of these people, Medicaid serves as a safety net when they 
temporarily find themselves with no other source of coverage. 
Especially in a weak economy, Medicaid fills in gaps in health 
insurance for those who lose employment and look to public programs for 
assistance until they return to the workforce; as we would hope, these 
transitions, and the corresponding Medicaid spells, are often short. As 
income eligibility levels are increased, however, Medicaid coverage can 
develop from a temporary safety net to a reliable source of insurance 
for low-income Americans.
    In essence, your question--and the difficulty in answering it--
points out a significant gap in the data we have on health coverage of 
the low-income population: we do not have current, accurate information 
on the median length of time that someone keeps Medicaid coverage. Most 
recent sources of information use point-in-time estimates of coverage, 
rather than longitudinal examinations of coverage dynamics over time. 
Urban Institute analysis of one year of data showed that in a given 
year (1998), beneficiaries were enrolled for an average of almost 9+ 
months; however, aged and disabled beneficiaries were covered for an 
average of 11 months in a year. Given its limited one-year time frame, 
this data underestimates the duration of coverage, as many will have 
enrollment that commenced before the year began or continues beyond the 
year end. A new statistical reporting system that is being implemented 
by the Centers for Medicare & Medicaid Services (the Medicaid 
Statistical Information System, or MSIS) may help provide better 
information on Medicaid tenure in the future, but data from this system 
has only recently become available and analyses are not yet complete.
    I hope that this information is useful to the Committee as it 
considers options for extending health insurance coverage to the 
nations 39 million uninsured. Please do not hesitate to contact me if 
you need any additional follow-up information. Thank you.
            Sincerely,
                                          Diane Rowland    
Executive Vice President, The Henry J. Kaiser Family Foundation    
     Executive Director, The Kaiser Commission on Medicaid and the 
                                                          Uninsured
                                 ______
                                 
Responses for the Record of Robert G. de Posada, President, The Latino 
                               Coalition
    Ms. Feder states in her testimony that tax credits typically offer 
too few dollars to make coverage affordable. Could you comment on this?
    In most states, the tax credit would be sufficient. According to 
ehealth
insurance.com (the nation's largest internet health insurance agency), 
out of 20,000 approved single and family applications 15,000 fall 
within 75-100% of proposed tax credit. Of course, even federal workers 
have to contribute something to the cost of their health insurance.
    But with this kind of support from the Federal Government, insurers 
that have ignored this market will have a strong incentive to design 
programs to meet this new group of potential customers. Currently, 
there is no reason why health insurance companies would target the 
individual market of low-income workers, simply because they do not 
have the income to purchase a health insurance plan. However, when they 
figure out that millions of households will have access to $3,000 a 
year, you can rest sure that plans, similar to what Aetna and other 
health insurance companies designed two years ago for this market, but 
were not able to find enough consumers, will find many new customers.
    However, we strongly recommend that additional efforts to help 
reduce the cost of health insurance be included in legislation dealing 
with tax credits. For example, individual association plans, as 
proposed by Congressman Lipinski (D-IL) to allow community based 
organizations and churches to offer a variety of health insurance plans 
to its members, of which at least one would bypass burdensome state 
regulations, would clearly help reduce the cost of health insurance. 
This would also serve as a great vehicle to reach out to underserved 
communities. We also support Association Health plans to help our small 
business owners get access to more affordable health insurance for 
their employees.
    Why do you think that the uninsured rate is so high among the U.S. 
Hispanic population?
    It's mostly a matter of the source of employment. Most Hispanics 
work for small businesses and in the service industry. These employers, 
in most cases do not or cannot afford to offer health insurance to 
their workers. There is also the fact that in many cases there is very 
a very high mobility in the workforce. We have interviewed many 
employers in the service industry who indicate that many of their 
workers move from job to job quite frequently, therefore it does not 
make sense for them to offer insurance to workers that will be with 
them for a couple of months. Also, in the last few years, the effects 
of guaranteed issue and community rating/modified community rating have 
made health insurance more unaffordable for small employers and for 
individuals.
    It is an economic obstacle combined with the fact that most 
insurers have not targeted the low-income workers market. So if you 
cannot afford health insurance and you do not have easy access to it, 
you will most likely be uninsured. Also, you cannot ignore the cultural 
behavior. In many cases, low-income and undereducated immigrant workers 
who are not used to a health insurance system in their country of 
origin, are used to going to hospitals or clinics when they get sick.
    As you know, the President's tax credit proposal provides a 
refundable tax credit of up to $3,000 for a family with two or more 
children. Please comment on the utility of such an approach.
    Currently, employer-provided health insurance is tax-free, and that 
amounts to about a $133 billion tax break for employer-provided 
insurance. Meanwhile, individuals who don't have access to employer-
provided health insurance get no tax break if they buy health 
insurance.
    These workers, in most cases low-income workers, have to pay for 
insurance with after-tax dollars. This discrimination forces many 
individuals to go without coverage. Providing uninsured families $3,000 
each year tax-free to buy health insurance levels the playing field and 
would provide an opportunity for many individuals to buy health 
insurance. Why should the government provide a tax-break for Bill 
Gates, and then ignore a waitress, or the guy painting your house, or 
the young men picking grapes on the fields? It's a matter or fairness 
and treating people equally.
    According to Fiscal Associates, 60% of the eligible population 
would buy health insurance if they were given this opportunity. And 
this refundable tax credits will help low income workers get health 
insurance for their families. Our survey data show overwhelming support 
in the Hispanic community for this approach.
    After having an opportunity to review Ms. Feder's written 
testimony, in which she compares a basic tax credit proposal to 
Medicaid expansion, could you please comment on her study and overall 
analysis?
    I think her model is flawed. Ms. Feder is clearly committed to a 
single payer system, government-run health system, and has a very 
negative opinion of the private-system. If I were to focus a testimony 
on the most radical and far-fetched possibilities and assumptions, I 
would also come to the same conclusions. I do however, find interesting 
that most of those who want to expand the Medicaid program for 
everyone, have a good private plan taking care of them and their 
families.
    Ms. Feder works under the assumption that it will be impossible for 
a family to buy health insurance under $8,000 a year. She uses a 
national average for a full-fledge insurance plan to base her 
conclusions. However, the fact is that states with guaranteed issue and 
community ratings have such high premiums that drive the national 
average to unthinkable levels. You cannot tell me with a straight face 
that a basic health insurance plan in Albuquerque, New Mexico and one 
in New York City are comparable.
    Our research shows this is not accurate. According to 
ehealthinsurance.com (the nation's largest internet health insurance 
agency), out of 20,000 approved single and family applications 15,000 
fall within 75-100% of proposed tax credit.
    The purpose of the refundable tax credit proposal is to have a 
basic plan that would help these families have the peace of mind that 
they will be covered in case they need it. If she wants to offer these 
families a full-range ``Cadillac'' plan, the price will obviously 
increase dramatically. She also argues that families will be required 
to pay a deductible and this will not encourage parents to seek 
preventive care for their children. This is completely absurd. Even 
federal workers have a deductible in their plan, and yet these parents 
do not sacrifice the health of their children. Why would low-income 
workers be any different?
    She also argues that employers will drop their coverage and the 
only ones who would benefit from this proposal would be employees who 
are currently employed. The fact is that there should be provisions 
attached to this legislation to make sure this doesn't happen and to 
penalize any employer who drops health insurance coverage in order to 
qualify for this kind of proposal. Congressman Lipinski has offered 
legislation which could serve as a model to make sure that employers do 
not drop their insurance.
    From a financial point of view, anyone analyzing the current 
financial chaos that Medicaid has created in most state budgets, would 
realize that doubling or tripling the number of people covered by the 
Medicaid program would create havoc in most states. Currently, most 
states are severely restricting access to services and medications in 
order to control costs. Can you imagine the consequences of 
significantly expanding this mess?
    Finally, if Ms. Feder is such a fan of Medicaid, we should invite 
her to drop her employer-provided health insurance plan, go to the 
welfare office, sign up for Medicaid, tell her friends she is on 
Medicaid, and then describe Medicaid for us. My guess is that she will 
not be happy, so why is she advocating that others join Medicaid.
    The analysis Ms. Feder presented at the hearing is based on 
numerous assumptions. This includes: 1) substantial employer dropping 
of coverage is assumed for the tax credits; 2) Ms. Feder assumes a 
higher cost of insurance than is estimate by the Council of Economic 
Advisors or currently provided by groups like e-health; 3) the study 
assumes a very low take-up rate for the tax credit nd a high take-up 
rate for the Medicaid expansion. Could you please comment on Ms. 
Feder's assumptions?
    (See answer to question number 4.)
    We have conducted forums in seven states focusing on improving 
access to affordable health insurance and quality health care. We have 
found that across the board, Hispanic leaders and their organizations 
feel that the expansion of Medicaid and ChIP programs are not the best 
solution. A wide range of groups like the League of United Latin 
American Citizens, the Hispanic Business Roundtable, the Mexican 
Benefits Committee, Carrolla Medical Management, the Interamerican 
College of Physicians and Surgeons, and AZTEC Resources, among many 
others, have come to the conclusion that tax credits will be more 
effective to reduce the number of uninsured than the expansion of 
Medicaid.
    Even most liberal-leaning Hispanic health organizations have 
actively criticized the expansion proposals. These programs have very 
low rates of enrollment among Hispanic families. So why should we 
believe that there will be a high take-up rate among Hispanics? Also, 
according to a nationwide survey of U.S. Hispanics conducted in May 
2001, Hispanics prefer private health insurance over a government 
program by 65 to 24%.
    At the same time, we strongly believe that Federal and state 
authorities should work diligently to simplify the process to qualify 
and enroll in Medicaid and ChIP. This would also be an important part 
of addressing the uninsured crisis in our community. We are convinced 
that the tax credits, the increase of community health centers, the 
simplification of the application process for Medicaid and ChIP, and 
the enactment of key legislation to promote pooling and bypass 
excessive regulations, will go a long way to significantly reducing the 
uninsured crisis.
                                 ______
                                 
                                            Galen Institute
                                                       May 15, 2002
The Honorable Michael Bilirakis
Chairman, Health Subcommittee
Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, DC 20015
    Dear Mr. Chairman: Thank you for your letter regarding my testimony 
before your committee on February 28, 2002, on ``The Uninsured and 
Affordable Health Coverage.'' I also appreciate the opportunity to 
provide answers to the follow-up questions you asked in your April 30, 
2002, letter, as follows:
    1. After having an opportunity to review Ms. Feder's written 
testimony, in which she compares a basic tax credit proposal to 
Medicaid expansion, could you please comment on her study and overall 
analysis?
    Dr. Feder presented findings from a preliminary study she co-
authored for the Kaiser Family Foundation that showed that tax credits 
would be much less efficient in reaching the uninsured than targeted 
Medicaid expansion.
    During the questioning session, I pointed out that a number of 
economists have questioned the assumptions upon which the Kaiser study 
was based and from which its conclusions are derived, thereby raising 
questions about the validity of the comparison. For example, when 
analyzing the tax credit proposal, the study's authors made these and 
other key assumptions that influenced the study's findings:
          Cost of insurance: The Kaiser study assumed that ``for the 
        typical uninsured family the cost of a nongroup policy is 
        estimated to be roughly $10,000.''
          Crowd out: The authors assume that there would be little if 
        any net crowd out of employment-based coverage with the 
        targeted Medicaid expansion, but much more crowd out of 
        employment-based coverage with a tax credit.
    I feel the assumptions made and the conclusions drawn in the Kaiser 
study unfairly represented the impact of refundable tax credit 
proposals for the uninsured. The assumptions, which I describe below in 
greater detail, are not a fair characterization of how tax credits 
would work in the real world. Only with a fair comparison of tax 
credits vs. Medicaid expansion can policy-makers determine which is the 
best course of action. I believe that such an analysis would show tax 
credits to be the most effective and efficient way to address the 
problem of the uninsured in America.
    2. The analysis Ms. Feder presented at the hearing is based on 
numerous assumptions. This includes:

 Substantial employer dropping of coverage is assumed for the 
        tax credits.
 Ms. Feder assumes a higher cost of insurance than is estimated 
        by the Council of Economic Advisors or currently provided by 
        groups like e-Health.
 The study assumes a very low take-up rate for the tax credit 
        and a high take-up rate for the Medicaid expansion.
    Could you please comment on Ms. Feder's assumptions?
    Regarding the likelihood of employers dropping coverage if tax 
credits were enacted, also referred to as ``crowd out'': The study 
described by Dr. Feder (Attachment 1, Fig. 11) concludes that there 
would be significantly more crowd out with tax credits and little or no 
net crowd out under Medicaid.
    A co-author of the paper with Dr. Feder, Professor Jonathan Gruber 
of the Massachusetts Institute of Technology, has done important 
published work on crowd out in the past that seems to dispute the 
conclusions in this latest paper. For example, he wrote with David 
Cutler a paper for the Quarterly Journal of Economics in May of 1996 
entitled ``Does Public Insurance Crowd Out Private Insurance?'' The 
abstract says: ``We estimated that between 48 percent and 75 percent of 
the increase in Medicaid coverage was associated with a reduction in 
private insurance coverage.'' That would be significantly more crowd 
out than the current paper reflects. And this was for expansion of 
Medicaid for children and pregnant women with lower incomes, who would 
be much less likely to have any private health insurance to crowd out 
than in the current study.
    And also regarding their estimates of the loss of employment-based 
coverage under the tax credit proposal: In an article, ``Tax Subsidies 
for Health Insurance: Costs and Benefits,'' in Health Affairs in 
January/February, 2000, Gruber and Larry Levitt analyzed a health 
insurance tax credit that phased out at much higher income levels than 
the one currently being proposed--at income levels up to $100,000 for 
families and $60,000 for individuals--where people are much more likely 
to have health insurance. Yet in that paper, Gruber assumed that only 
5.4 million people would lose employer coverage--just one million more 
than in the current study which has much lower income thresholds. And 
only 0.2 million became uninsured as a result of firms dropping company 
coverage--far fewer than in their current Kaiser study.
    It is useful to ask what an employer likely would do if a 
refundable tax credit were enacted. If an employer decides that his or 
her employees would be better or at least as well off with the credit 
and therefore decides to drop the existing company coverage, the 
employees would need to be assured that their costs under the tax 
credit plan would be about the same as the costs under the old employer 
plan. Otherwise, the employer would find it very difficult to drop 
coverage without risking harming employee morale and eventually losing 
workers to other companies that do provide health insurance.
    And if the net costs to the employee were the same, wouldn't they 
be just about as likely to take up coverage under the new proposal?
    Regarding the assumption about the cost of a policy: In testimony 
prepared by Professor Gruber for Ways and Means Committee hearings on 
February 13, 2002, he wrote, ``For a 40 year old male in excellent 
health, the average cost of nongroup insurance is roughly $2000 per 
year. But these costs rise dramatically with age and poor health 
status. Indeed, in my data, for the typical uninsured family the cost 
of a nongroup policy is estimated to be roughly $10,000. My estimates 
assume that individuals and families who purchase nongroup insurance 
will pay these average market prices for that insurance.'' (Attachment 
2)
    Dr. Gruber did calculate the cost and uptake for less expensive 
policies as part of the study but did not use these calculations in 
reaching conclusions about the relative value of tax credits in 
comparison with Medicaid expansion.
    According to Professor Mark Pauly of the Wharton School, most 
uninsured people are in good to excellent health, and for them the 
premium for quite comprehensive coverage would be in the neighborhood 
of $6,000-$7,000. However, when one includes the minority of the 
uninsured who are in poor or fair health who would be quoted a higher 
premium and calculates the average premium for them, it could be about 
$10,000. Still, the great majority of the uninsured would face the much 
lower premium.
    A study by the President's Council of Economic Advisors showed 
health insurance to be much more affordable than Kaiser assumed. The 
average price in their survey for a policy for a family of four was 
$3,287 for comprehensive coverage. The CEA survey used a higher 
deductible, which many people would choose in order to have affordable 
coverage, especially to provide protection against major medical 
expenses.
    Interestingly, Kaiser itself concluded (depicted in Attachment 1, 
Fig. 13) that individuals who are ``healthier than average'' and 
``disproportionately young'' are most likely to participate in the tax 
credit plan. While I would disagree with this theory, it further 
suggests that Kaiser's $10,000 estimated average cost of a family 
policy is too high and therefore skews the results of the study by 
putting tax credits at a disadvantage.
    Numerous other studies have shown health insurance to be much more 
affordable than the Kaiser study represents. For example, 
eHealthInsurance, the on-line health insurance brokerage, says that at 
least 84 percent of the policies it sells not only are comprehensive 
but affordable, averaging $1,200 to $1,500 per person per year.
    Much of the discussion during the hearing centered on the cost of 
health insurance and whether or not a $1,000/$3,000 credit (as in the 
Bush administration's tax credit plan) would be sufficient for 
individuals and families to purchase at least some form of health 
insurance. eHealth Insurance's study found the tax credits proposed by 
President Bush would have covered the full cost of the policy for more 
than half of the 20,000 policies randomly selected for its study 
sample.
    I am also including a chart produced by Dr. Robert Helms of the 
American Enterprise Institute that shows the actual range in a study by 
the White House Council of Economic Advisors of the cost of health 
insurance (Attachment 3). The vertical lines show the highest and 
lowest cost of health insurance in each category, and the diamond 
points shows the median cost. I believe that this shows that the cost 
of health insurance can be much more affordable than the high cost used 
in the Kaiser study.
    Regarding take-up rate: The Kaiser study also concluded that only 8 
percent of the eligible uninsured population would participate in the 
tax credit program (Attachment 4). That would not be surprising if all 
of the uninsured were faced with a $10,000 a year family policy. But a 
less expensive--and more realistically priced policy--likely would draw 
much more participation.
    In his own research, Dr. Pauly found that 48 to 66 percent of the 
uninsured would buy insurance if they were to receive a tax credit 
worth half of the value of the policy, while three-quarters would buy 
coverage if they received a credit worth 75 percent of the premium 
cost.
    If the cost of the policy were assumed to be less than $10,000, the 
uptake would have been larger and tax credits would have fared better 
in the comparison.
    Thank you for giving me the opportunity to provide additional 
information. Please let me know any way I can be of help to you or to 
the committee in the future.
            Sincerely,
                                         Grace-Marie Turner
                                                          President
Attachments:

1. Excerpts from the Kaiser Family Foundation study, Expanding Coverage 
        for the Uninsured: What Difference Do Different Strategies 
        Make?
2. Excerpt from testimony by Dr. Jonathan Gruber presented to the Ways 
        and Means Committee February 13, 2002.
3. Chart produced by Dr. Robert Helms of the American Enterprise 
        Institute showing the range and median costs of health 
        insurance based upon data from the Council of Economic 
        Advisers.
4. Excerpt from testimony by Dr. Judith Feder presented to the House 
        Energy and Commerce Subcommittee on Health February 28, 2002.
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