[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS ACCESS TO HEALTH CARE
=======================================================================
FIELD HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
ROCKFORD, IL, APRIL 4, 2002
__________
Serial No. 107-51
__________
Printed for the use of the Committee on Small Business
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________________________________________________________________________
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on April 4, 2002.................................... 1
WITNESSES
Holoka, Mike, Attorney at Law, Rockford, Illinois................ 5
Kobler, Bill, OSF Medical Group, Rockford, Illinois.............. 7
Bartmann, Phillip, Owner & President, Radicom, Inc., McHenry,
Illinois....................................................... 9
Brauns, Ryan, Senior V.P. of Consulting, Rockford Consulting and
Brokerage...................................................... 10
McCarty, Mick, Blue Cross/Blue Shield of Illinois................ 13
Levin, Ryan, V.P. of Product Development & Risk Management,
Destiny Health Insurance....................................... 25
Jensen, Amy, Director, Federal Public Policy, National Federation
of Independent Businesses...................................... 28
Reljic, Boro, Vice President of Government Affairs, Illinois
Manufacturers' Association..................................... 30
Woodbury, Vondie, Director, Muskegon Community Health Project.... 31
Lund, Johanna, Chairwoman, Rockford Health Council............... 34
APPENDIX
Opening statements:
Manzullo, Hon. Donald........................................ 46
Prepared statements:
Holoka, Mike................................................. 47
Kobler, Bill................................................. 48
Bartmann, Phillip............................................ 50
Brauns, Ryan................................................. 56
McCarty, Mick................................................ 64
Levin, Ryan.................................................. 67
Jensen, Amy.................................................. 78
Reljic, Boro................................................. 86
Woodbury, Vondie............................................. 89
Lund, Johanna................................................ 92
Additional Information:
Submission by Joesph Hagenbruch, DMD......................... 96
FIELD HEARING ON SMALL BUSINESS ACCESS TO HEALTH CARE
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THURSDAY, APRIL 4, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., at Rock
Valley College, Technology Center, Room 117, 3301 N. Mulford
Road, Rockford, Illinois, Donald A. Manzullo, presiding.
Chairman Manzullo. I am going to call this Small Business
Committee to order.
As people find their way into the room here, let me just
give the order of procedure on it. We do not have the lights
here, but we would like you to limit your testimony to five
minutes, and if you see me going like this, you have got about
30 seconds, and if you go over too much, then you will hear
that. [Laughter.]
We are having two panels of witnesses. We have got four
members of Congress here. I have got to be in Chicago later
this afternoon. Everybody has to run, including the witnesses.
We will be joined shortly by Congressman Kirk, who is on
his way from the Northfield area.
Exorbitant health care costs are one of the greatest
expenses small businesses and the self-employed incur as they
struggle to provide coverage for their employees. As Congress
continues to examine our nation's health care problems, we need
to remember that 60 percent of the estimated 43 million
uninsured are small business owners, their employees and
families.
Small business owners are unable to absorb the spiraling
health care costs and find themselves priced out of the health
insurance market. Many owners are faced with the choice of
staying in business or providing their employees with
insurance.
I personally know of a small business owner who pays over
$700 a month for himself and his wife and has a $5,000
deductible to insure both of them. Both of them are seriously
considering selling their business, going to work in another
business just for the opportunity to receive health care
benefits.
Our current health care system does not provide equal
access to affordable, quality health insurance for small
businesses. One of the reasons small businesses cannot afford
health coverage for employees is that they are unable to
achieve the economies of scale and purchasing power of larger
corporations and unions.
Small businesses suffer from unequal treatment. What they
want most is a level playing field when it comes to the
delivery of health care.
Large corporations use their purchasing power of thousands
of employees to offer affordable health insurance to their
workers. Small business owners, on the other hand, have to find
their insurance on an individual basis. It makes it extremely
difficult and expensive to find affordable health coverage.
I cannot help but wonder why insurance companies cannot
offer affordable health care to small businesses. Why must
insurance companies charge the most to those least able to pay
these inflated prices?
I am heartened to see President Bush issue a plan for
helping small businesses prosper in our country. The President
is aware of the health care access and affordability problems
facing small businesses, and his plan includes concrete steps
to increase health security for employees of small businesses.
His agenda calls for an association of health plans to be
available for associations that want to provide health coverage
for their members, similar to what labor unions are doing. It
calls for a permanent extension of medical savings accounts,
including a significant reduction of the required deductible
for these health accounts.
Congress needs to insure that there are many different
health insurance options for small business owners to utilize.
We need to help our businesses attract and keep employees, and
nothing helps more than the ability to provide health
insurance.
I look forward to the testimony of the witnesses here this
morning, and I want to particularly thank those that have
traveled long distances to be with us here today.
I will then yield to Congressman Jerry Weller, who came up
last night to be with us this morning. Congressman Weller, do
you have any opening remarks?
[Mr. Manzullo's statement may be found in appendix.]
Mr. Weller. Well, thank you, Mr. Chairman. I have just
brief remarks.
First, I want to commend you for conducting this hearing on
an issue of great importance. You know, 99.7 percent of all
employers are what we classify as small business, and small
business provides over one half the jobs provided for in
America.
So when you look at who has health insurance, who does not
have health insurance, the vast majority of the 43 million
Americans today who do not have health insurance are either the
entrepreneurs themselves or the employees and their families of
those who are involved or work for small business.
So clearly health care is a major concern for small
business. That's why I believe your hearing by your committee
today is so important. I commend you for your leadership.
But I also, Mr. Chairman, want to commend Chairman Manzullo
for your leadership on efforts to expand medical savings
accounts, efforts to give 100 percent deductibility for the
self-employed for health insurance cost, to expand the
opportunities for nursing home or long-term care insurance with
full 100 percent deductibility for that, and also commend you
for your leadership on establishing an association of health
care plans, AHPs, as well as the refundable tax credit proposal
we're currently debating in the Congress.
You have been a leader on this effort, and I welcome the
opportunity to be part of your hearing today.
Chairman Manzullo. Thank you, Congressman Weller.
Both Congressmen Weller and Ryan are members of the Ways
and Means Committee, which is the committee that has
jurisdiction over about 95 percent of health care issues.
Members of the Commerce Committee might have said I misquoted
on that, but the guys that write the checks are the ones that
write the law. [Laughter.]
I would now yield to Congressman Ryan from the State of
Wisconsin.
Mr. Ryan. Wisconsin.
Chairman Manzullo. Did I say Mississippi?
Mr. Ryan. It is a little hilly up there.
First of all, Chairman Manzullo, I would like to thank you
for inviting me to come down here. For those of you who do not
know, my name is Paul Ryan. I represent the First Congressional
District in Wisconsin, which is everything basically above
here.
I have Green County, Rock County, Walworth County, Kenosha
County and Racine County. That is the area that borders much of
the Illinois state line, and so this is only about a half hour
drive from my home town of Janesville. So I really appreciate
the invitation.
Like most of us here, I believe that the current employer-
based health care system has done a relatively good job of
meeting the needs of workers and businesses alike. However,
this system and workers' and businesses' budgets have
experienced increasing strain due to the rising cost of health
care coverage.
And I cannot tell you how many times I have traveled
throughout the First Congressional District in Wisconsin where
I hear comments from small business owners and local government
entities who say, ``We wish we could hire more people, but we
cannot because the cost of health care is just too great.''
So at a time when we are trying to get people back to work,
now that we are presumably coming off of a recession, the cost
of health insurance is becoming an even greater issue in terms
of the issue of employment.
In Southeastern Wisconsin, like in Illinois, we have seen
our manufacturing base erode, leaving behind many unemployed
workers, and what has been the godsend have been small
businesses. The engine of economic growth in Wisconsin and, I
think, much of Illinois and throughout the country has been
small businesses, and that's why I've watched your work at the
Small Business Committee.
I simply want to add my comments to those of Congressman
Weller in commending you, Chairman Manzullo, for really doing
the yeoman's work in growing the advocacy of small businesses
in Congress. You have really been very out front on small
business issues, such as deductibility for health insurance,
the 100 percent deductibility.
You have really done a lot of great work in that area, but
one thing that I just wanted to bring to your attention is that
the federal government from my perspective can play two crucial
roles in encouraging the establishment and growth of small
businesses and ensuring that business owners are able to offer
their new employees health care benefits.
First, the federal government can make it easier for
entrepreneurs to start new businesses in the first place--and
that is the work of the Small Business Committee that you have
championed--by lowering taxes and reducing the cost of
regulation on businesses so that entrepreneurs have the
resources and the capital they need to sell their ideas and
products and build productive businesses.
But the second way the federal government can actually help
businesses is to lower the cost of health care so that
employer-sponsored insurance is affordable and available.
In the Ways and Means Committee, where Congressman Weller
and I work, we have heard a lot of testimony, and we have a lot
of hearings on this issue. One of the recent testimonies we
have received that I thought was fairly interesting was from
Dr. Stuart Butler, a Ph.D. economist from the Heritage
Foundation who recently made some interesting, eye-opening
observations.
The first observation he made was about the high rate of
uninsurance among employees of small businesses. The Kaiser
Foundation estimates that only 55 percent of firms with ten or
fewer employees offered health care insurance. This is compared
to 99 percent of large businesses that offer insurance. He
cited Congressional Budget Office data that found overhead
costs of providing health insurance for businesses with fewer
than ten employees can be over 30 percent of the premium cost,
as opposed to just 12 percent for companies with more than 500
employees.
He also pointed out that while jobs these days seem to be
transferable, health care is not transferable. This is because
the tax code helps employers pay for insurance, but does little
to help individuals who, for one reason or another, are forced
to purchase their own insurance.
Basically if you lose your job, you lose your health
insurance. And that is essentially how it works today. So we
often hear this in Wisconsin, as I am sure you do here in
Illinois, and it is no wonder that, according to the National
Federation of Independent Business, 23 percent of small
business owners in Wisconsin have experienced a 26 to 50
percent increase in their health care premiums in 2001 alone,
26 to 50 percent increase in their health care premiums for
small businesses in Wisconsin last year alone.
So this is an issue that is in dire need of reform. I think
you have identified some great productive ideas, like
association health plans which help produce buying pools so
small businesses can team together to get bulk purchasing rates
through ERISA plans.
I think we have a range of witnesses who probably have
different perspectives on this issue, but also the President
has really taken a leadership role in this. He came to Congress
and presented a budget with a health care refundable tax credit
for individuals to buy health insurance, to expand the
Association Health Plans.
And so now the time is right for action. Congress is
engaged; your committee is engaged. And I think we have a
President who is taking this issue very seriously. So I am very
interested in hearing the witnesses today, and I appreciate you
having us down here for this.
Thank you.
Chairman Manzullo. I appreciate your opening statement.
The Small Business Committee is having a hearing in
Washington next week that deals with the Health Care Finance
Administration, HCFA. It is Chapter 4 of what we call HCFA
horror days.
HCFA is the organization that enters into agreements with
over 50 medical providers and spends its time torturing medical
providers, making absolutely incredible mistakes and actually
driving up the cost of health care. We will be getting into
that later on.
I get excited about these issues, especially when we can
look at a government agency that can streamline and make things
a lot cheaper.
Our first witness is Mike Holoka. Mike is an attorney in
town, and we look forward to your testimony.
STATEMENT OF MIKE HOLOKA, ESQ., ROCKFORD, IL
Mr. Holoka. Thank you, Congressman Manzullo, Congressmen.
My name is Mike Holoka. I am an attorney in Rockford, as
Congressman Manzullo has already stated. I am married to a
physician. I have a 12 year old daughter.
We had a traditional medical plan for many, many years.
Chairman Manzullo. Hang on just a second.
Congressman Kirk, why don't you come up here? Did you have
an opening statement?
Mr. Kirk. I did not.
Chairman Manzullo. Okay. Well, then why don't you have a
seat, and, Mike, continue.
Mr. Holoka. Sure.
Chairman Manzullo. We will start the clock all over again.
Why don't you just introduce yourself?
Mr. Kirk. It is Mark Kirk from the 10th Congressional
District of Illinois, representing the suburbs along Lake
Michigan.
Chairman Manzullo. Okay. Can you tell us what are your
committees?
Mr. Kirk. And we are on the Budget, Armed Services, and
Transportation Committees.
Chairman Manzullo. A busy guy. We just introduced our first
witness, Mike Holoka.
Mike, start all over again.
Mr. Holoka. Okay.
Chairman Manzullo. We know what your name is.
Mr. Kirk. And I am working on traffic tie-up problems on I-
90. [Laughter.]
Chairman Manzullo. He is on the right committee, a
transportation issue.
Then what are you doing here, Congressman? [Laughter.]
Mr. Holoka. That is a problem that will never be solved
maybe, but good luck.
I am Mike Holoka. I am an attorney here in Rockford. I am
married to a physician. I have a 12 year old daughter.
We had a traditional medical plan for many, many years with
Guardian Insurance, and we ran the plan through my practice
because I am a sole practitioner. I have one employee. It was a
lot more effective to run it through my practice instead of my
wife's.
When we first started with the Guardian, we were probably
at a premium of $4,000 to $5,000 a year. In about 1996, our
premium had jumped up to somewhere near $8,200, and by the year
2000, our premium was $21,000 a year for Guardian traditional
insurance.
Chairman Manzullo. For how many?
Mr. Holoka. Just for the family, just for the family. No
employees. Okay?
And we had no claims. So there was no reason to see this
kind of rise.
Okay. Realizing that we could not afford to continue with
this kind of a program, we started considering picking up a
catastrophic insurance policy and self-insuring for like
$25,000 or $50,000. The premium on that probably would have
been somewhere in the area of $7,500 a year.
And we could not understand why the insurance companies
were continuing to raise premiums at the rate they were because
I knew physicians were being paid less. So I could not figure
out what the problem was, why this cost was increasing.
But to solve our problem, one day my wife received a fax in
her office, and it said something about an MSA. I had never
heard of an MSA, medical savings account program. And I read
over the plan, and I said this is impossible. This is too good
to be true. They really cannot have this kind of program. It
makes too much sense.
And some of the main features of the plan were we could
pick up a deductible between $3,100 and $4,800 a year, which
included all of us, not an individual deductible, with the
opportunity to save up to about 75 percent of our deductible in
something called the medical savings account. So we were able
to put that money away which would grow or be invested in
basically a favored tax status, you know, deferred taxation on
that account.
So with the deductible we chose, $3,100, we could put about
$2,300 a year into this account, and this, of course, could
always be used for our deductible, pay our deductible or
however we wanted to use it, or we did not have to use it at
all. Okay?
The best part of the plan though was that you did not have
this large premium, this $21,000 and going up into space. Who
knows where it was going to end?
Our premium ended up being about $3,600 a year, and that
was only because my wife was still on the maternity program. If
we would not have had maternity, it probably would have gone
down to almost half of that.
So it was amazing to me that we heard so little about an
MSA insurance program like this, particularly in view of this
insurance crisis and the way it was affecting small business,
you know, on top of the way it was affecting the country.
So when I attended a small businessman's breakfast with
Congressman Manzullo, I had the opportunity to explain how an
MSA program worked to all of the people at that breakfast
meeting, and to my amazement, it seemed that nobody had really
heard about an MSA program, and going around the table, they
were all like me and said, you know, ``What is this? I don't
believe this exists. You know, how do we do this? How do we get
this thing put together?'' And there were probably, I guess, 25
businesses represented at that breakfast meeting.
So it is my understanding there are any number of variables
the way an MSA program works as far as the premium goes. You
choose your deductible so that you can, in effect, choose how
much of a premium you are going to pay.
One quote I received last year was for a $4,500 deductible.
It was less than the $2,500 premium for my family, and that
included dental if we wanted it for less than $1,000 a year.
It is not difficult to see how vital an MSA program is for
small business when you consider the cost of what a traditional
plan is.
Chairman Manzullo. You are at five minutes, Mike.
Mr. Holoka. Okay. Let me just wrap up real quickly then.
So we are extremely pleased with this plan. We cannot
believe all of the benefits we have. We are very happy with it.
We think it should not only be extended to small business, but
to everybody in the country.
And one of the features of an MSA is you can also continue
it past 65, which means you do not impact Medicare, and if you
started, say, at age 20 saving a couple thousand dollars a year
in an MSA account, you could have a couple hundred thousand
dollars or better by the time you reached age 65, all of which
would also help the government in terms of managing health care
as well.
Thank you.
[Mr. Holoka's statement may be found in appendix.]
Chairman Manzullo. Thank you, Mike.
Mr. Holoka. You are welcome.
Chairman Manzullo. Our next witness is Dr. Bill Kobler who
is with the OSF Medical Group in Rockford.
We look forward to your testimony, Dr. Kobler.
STATEMENT OF BILL KOBLER, M.D., OSF MEDICAL GROUP, ROCKFORD, IL
Dr. Kobler. Thank you, Chairman Manzullo and Congressmen.
I am pleased to be here to be able to present a little bit
of the medical perspective on the rising cost of health care,
which is obviously a logical contributor among many other
factors to the rising cost of health care insurance. I can't
really talk about what the cost of health care insurance is for
me, although I do remember when I was last self-employed, and
that is nine years ago now, I was spending $500 a month for
family coverage at that time, and I cannot imagine what itwould
be now under different circumstances.
The problem is obviously very complex, multi-faceted, but I
hope I can at least give some insight into the problems we face
as health care providers and perhaps give you some of the
reasons why I think that health care costs are going up with
this insight maybe there are some ideas as to what we can do to
help control those costs.
A recent article in the New York Times in January stated
that the government reports that in 2000, national health
spending shot up 6.9 percent to $1.3 trillion, the largest one
year increase since 1993. And they said that hospital and drug
costs were the main factors in the last increase.
Growth in health care spending has outpaced the 6.5 percent
growth of the economy as a whole. Health care accounts now for
13.2 percent of the nation's total output, up from 13.1 percent
in 1999 and 12 percent in 1990.
As a physician, I could argue that that is not a high
enough percentage, but I think I will leave that alone for the
time being.
What are some of the factors leading to these cost
increases? An old problem that at least we as physicians, in
deference to my associate sitting next to me, that is again
rearing its ugly head in professional liability suites In the
1970s there was a crisis for physicians when all of the major
professional liability insurers in Illinois pulled out of the
market. We have now seen that again happen in this state, with
St. Paul no longer writing coverage, and I am not sure that is
not even nationally, and CNA has pulled out of that market as
well.
Ken O'Bramowitz of the Carlysle Group states the rising
cost of malpractice coverage is becoming the most important
factors driving inflation for physician services. Many
hospitals' insurers are not only increasing premiums, but are
also reducing amounts of coverage and raising deductibles.
A Chicago Hospital in 2000 paid the St. Paul Companies $1
million for $40 million in coverage, with a deductible of $15
million. In 2001, for that same policy, the premium was raised
to $1.8 million and cut the coverage to $10 million and doubled
the deductible. So they are almost paying more than what they
are getting back.
Insurers say that the increases are due to large awards by
juries and large settlements. Some research suggests that the
average jury award rose to almost $3.5 million in 1999, up from
just under $2 million in 1993. And according to the Liability
Monitor in Chicago, professional liability premiums are rising
at an average annual rate of 30 percent.
The costs of this are obviously one factor, but there is
another factor. Because of the increased risk of liability and
the cost of insurance, physicians are practicing medicine more
defensively. That means we are doing more tests. We are doing
more procedures and things that we see would limit our risks.
Another item is the explosion in the availability of very
good but very expensive prescription drugs. This is a serious
problem for all recipients of health care.
The proposal to provide these drugs under the Medicare
program is a wonderful concept, but frightening when one pauses
to consider the source of the funds for this population who
consume a very large percentage of pharmaceuticals.
Medicare, managed care and other private insurance plans
have cut drug benefits in the last few years. They state that
the average senior spends about $500 annually for medication,
plus hundreds or even thousands more for private insurance
policies to cover some of the cost of these prescriptions.
I saw a patient just the other day who in the year 2000
paid $7,000 for her medications.
There are a number of other factors I would like to briefly
list which also I feel are driving up health care costs. The
people of this country have an insatiable appetite for health
care services. They are bombarded with story after story of
medical miracles, advertising of prescription pharmaceuticals,
promises of unlimited access to health care made by the managed
care companies. Yet there's very little incentive for them to
utilize these services wisely.
There's an overwhelming burden of government regulation
which is choking the medical profession in its attempts to
provide care. Many of you know the alphabet soup as well as I,
but the provisions of COBRA, CLIA, HEQIA, EMTALA, HCFA, now
affectionately known as CMS, are burying us in needless paper
work and documentation.
We attempt to follow the regulations at the risk of
prosecution, fines, and imprisonment under a system so complex
that it is impossible to meet all of its requirements. And now
we will soon face the absolutely terror provoking HIPAA
statutes within the next year.
We are facing a serious shortage of well trained nurses.
Medical school costs are becoming so large as to discourage our
best and brightest from applying to medical school, knowing
that they will face declining incomes and loss of respect for
the time they spend and dedication they demonstrate in their
career choice as physicians.
As a doctor, my job is to investigate problems and try to
solve them. It would be easy to become discouraged, but
medicine is still the most rewarding of professions, one worthy
of fighting for and defending. I am pleased to see this forum
attempting to understand the problems of medicine and its
availability to small businesses. After all, physician
practices have traditionally been counted among the ranks of
small business over the years.
If we can work together keeping the patient as the center
of our focus, I am confident we will find a solution to our
problems.
Thank you for listening to my testimony.
[Mr. Kobler's statement may be found in appendix.]
Chairman Manzullo. Thank you for your testimony, Dr.
Kobler.
Our next witness is Phil Bartmann. Phil is the owner and
President of Radicom, Incorporated in McHenry, Illinois, coming
over to see us this morning.
Mr. Bartmann. Thank you for inviting me.
Chairman Manzullo. We look forward to your testimony.
STATEMENT OF PHILLIP BARTMANN, PRESIDENT, RADICOM, INC.,
McHENRY, IL
Mr. Bartmann. Thank you very much for inviting me.
As the Chairman said, I own Radicom, Incorporated in
McHenry, Illinois, about 60 miles east of here. We have been in
business since 1963.
We presently do employ 28 employees in three locations, two
in the McHenry area and one in Appleton, Wisconsin. We are in
the telecommunications business. Our employees range in age
from 20 to their mid-60s and earn wages from 15,000 to $60,000
or more. Some of my employees have been with me for over 20
years.
We have always provided medical insurance for our
employees, and the cost has always been covered by the company.
We have a $250 deductible plan, and the company covers that
deductible.
We recently--as a matter of fact, March 1st was the
anniversary date of our health insurance. Our monthly cost for
the same number of people went from $8,000 a month to $15,000 a
month. Our health care for the coming 12 months will be
$171,000. In 1997, we were paying $36,500.
The increase has been dramatic. Our per employee cost in
1997 for an individual was $2,433. This year it will be $6,128.
We are not contemplating asking our employees to help.
Right now we charge them a token $10 a week so that those who
may not need the insurance or are covered by their spouse will
opt to not because you can see for a few dollars we can save a
lot of dollars. And we have a few people, mostly spouses who do
not take our insurance.
I am the chairman of the board of the McHenry County
Economic Development Corporation, and we get to share horror
stories. One that I heard just the other day, one of our very
active members, she owns a custom woodworking company called
Phoenix Woodworking, Woodstock. She had nine employees at the
beginning of the week and now she has ten. She called me
yesterday.
She has been getting six month increases. She just started
providing insurance two years ago. She just received a 24
percent increase in health costs and six months ago she got a
19 percent increase.
It is totally out of control. We are fighting with this.
This came as such a shock, this dramatic increase. We are
fighting with ways to try and solve it. It goes right to the
bottom line. We are a very competitive business. We cannot ask
our customers to absorb it all, although they are the only ones
to do it, them or the employees.
We are fighting very hard to see that we can protect both
contingencies, that both will not suffer.
The proposal that Mr. Manzullo's committee has on the table
to us, not being experts, but it seems like it would be a very
viable option whereby a number of small businesses or any size
business could join together and hopefully save money on health
care costs.
That is what I have for my testimony. Thank you very much
for listening.
[Mr. Bartmann's statement may be found in appendix.]
Chairman Manzullo. Thank you, Phil. I appreciate it very
much.
Our next witness is Ryan Brauns. Ryan is the Senior Vice
President of Rockford Consulting and Brokerage.
Ryan, I look forward to your testimony.
STATEMENT OF RYAN BRAUNS, SENIOR VICE PRESIDENT OF CONSULTING,
ROCKFORD CONSULTING AND BROKERAGE
Mr. Brauns. Thank you.
Good morning, Chairman Manzullo and Congressman Weller,
Congressman Kirk, Congressman Ryan.
Rockford Consulting and Brokerage is a firm specializing in
employee benefits.
Chairman Manzullo. Ryan, would you keep your voice up? I do
not think they are hearing all of it.
Mr. Brauns. Sure. The firm I represent specializes in
employee benefits, specifically strategic plan design, fund
analysis, employee communications, and regulatory compliance.
Members of the firm have collectively worked with hundreds of
employer groups ranging in side from two wives to 60,000
employees, solving many complex cases, and we appreciate the
opportunity to present our comments this morning regarding the
health insurance industry, the vital role of the insurance
broker, and the powerful engine of consumerism.
To begin, the words of Dickens actually came to mind when I
was writing this testimony. ``It was the best of times. It was
the worst of times. It was the Age of Wisdom, and it was the
Age of Foolishness.''
Although no one is speaking French today, we are definitely
fighting a battle. With the finest health care system man has
yet devised, thousands of people from all over the world
traveling to our system every year, other countries desperately
trying to copy what we have, we threaten our own wondrous
creation.
So where are we today? There are several possible points of
insertion into a discussion about the status quo, the state of
managed care, the outstanding quality of modern medicine, or
the need for structural change that will yield behavioral
change. I'd like to take a look today at, frankly, government
regulation.
Business is the conduit to health insurance for Americans.
Depending on whose study you see, the breakdown is usually
something close to the table we have in the written testimony
which shows about 64 percent, maybe 70 percent of Americans
have health insurance through their employer. Yet business has
been awash in a sea of government regulation.
One of the other witnesses enumerated a few: COBRA, OBRA,
ADEA, ADA, ERISA, the Public Health Act, HEFRA, DEFRA, Tax
Reform Act of 1984, not the least of which is the Internal
Revenue Code, including Sections 162, 264, 79, 101, 61, 83. I
could go on, just to identify a few.
I offer that not to be ridiculous, but to make the point
that business is not just a wash. We are actually drowning in
this regulation, and to be sure, much of these rules involve
needed reforms and have done quite a bit of good. However, many
have unintended consequences.
In fact, some foisted some severe unintended consequences
on the system. One such law mentioned here a moment ago was
HIPAA, formerly known as Kennedy-Kassebaum or the Health
Insurance Portability and Accountability Act. It was created
with the best of spirit in mind, to provide greater access to
insurance. Yet it really had the opposite overall effect.
You see, it was not created in a vacuum. The law was
applied to an already complex and difficult legal structure.
There was little room for the private sector health care market
to absorb this new burden. The market becomes more efficient,
cannot clear, moves farther away from the equilibrium we want.
In turn, costs are going up and social good is going down.
HIPAA passed in 1996. It really took effect the next year,
beginning to propagate throughout the market. I don't think
it's a coincidence that following the passage of HIPAA we had a
concomitant rise in premiums, as well as a several million
person increase into the ranks of the uninsured.
The guarantee issue portion of the law moves us closer to
national health care and single payer model, and it actually
created more uninsured persons. I give you the example of the
State of Kentucky or Washington and New Jersey, where they
actually put into effect guarantee issue.
Once that went into effect in Kentucky, many of the private
health insurers who were writing individual health policies
pulled out. Premiums went up by 60 percent, and we had more
uninsured.
HIPAA stifles innovation and is foreclosing on solutions.
Because the law makes bright line delineation between employee
sponsored plans and individual plans, there is little chance to
develop hybrid plans involving employer and employee
contributions, particularly in the mode of defined
contribution, which we heard so much about.
The greater the role of government in this market, the
greater the chance for harmful rent seeking and sub optimal
behavior as the players devote resources to look for loopholes.
They stop profit seeking. The market becomes inefficient. It
leads to more dissatisfaction.
What HIPAA has shown us, even though it had fine
intentions, and some of the law is certainly very good, it did
have unintended consequences, and it gives us a positive
correlation between regulation and increases in uninsured.
The insurance market is not easy to shop in for the small
employer. The cost of information is high, and onerous
regulations providing friction.
Chairman Manzullo. Ryan, you are at your five minutes.
Conclude shortly.
Mr. Brauns. Excellent. [Laughter.]
The last thing I would like to tell you about is
consumerism. Consumerism is a very powerful engine, and I want
to give you just a few statistics. In 1991, the drug industry
spent $55 million on direct to consumer advertising. Now they
are spending over $2 billion on direct to consumer advertising.
It is a very powerful engine.
Lastly, I urge you to let Adam Smith's invisible hand guide
this market. If we reduce the cost of information, eliminate
the friction cost by onerous regulation, the markets will
clear. We will have economies of scale. Equilibria will be
achieved, and satisfaction will be high.
So when you go back to Washington, when you are in the well
and you are addressing your fellow members on behalf of the
nation, I hope your clarion call will be choice. It will be
competition, and it will be consumerism.
Thank you very much for the opportunity, and I look forward
to your questions.
[Mr. Brauns' statement may be found in appendix.]
Chairman Manzullo. Thank you, Ryan, for your testimony.
Our next witness is Mick McCarty, and Mick is with Blue
Cross/Blue Shield of Illinois.
I look forward to your testimony.
STATEMENT OF MICK McCARTY, BLUE CROSS/BLUE SHIELD OF ILLINOIS
Mr. McCarty. Good morning. Thank you, Chairman Manzullo and
distinguished members of Congress.
Let me first of all start off by just explaining a little
bit how Blue Cross/Blue Shield approaches the small group
market. Today what we do is instead of having each small group
stand alone, we pool all of these small groups into aggregates
so that we have hundreds of thousands of employees in a pool,
and that allows us to spread the risk out among these hundreds
of thousands, spread the costs out among these hundreds of
thousands.
We are able to provide the same level of discounts to a
group of two that we are able to give to our largest customers.
We also offer benefit flexibility to the smallest of groups
so that an employee could choose whether he wants to
participate in a PPO, whether he wants to participate in an
HMO, or whether he would like to participate in one of our MSA
compatible type of programs.
So that is the approach we are taking now. Now, we have
actually devised programs specifically for small businesses in
rural areas. We recently lost another program to offer to
groups in the 50 employee to 150 employee segments that is
another small group type of product again.
So we are very focused on that small group segment, but
there is only so much we can do in the face of rising costs and
other factors, and I would like to spend a few minutes talking
about those.
We all know that medical costs are going up. Some of it is
inevitable. It is kind of a fact of life, but there are cost
pressures that government can access. Congress and the general
assembly must carefully examine any new mandated balancing the
benefits of those mandates with the costs that are associated
with them.
These costs fall hardest on the small employer groups. Back
in 1965, there were eight health care mandates that we had to
follow nationally. Today there's over 1,000, and they all did
good things for many people, but they carried a cost. Small
employers bear the burden of that cost significantly.
Another suggestion that should be considered is the use of
subsidies to help small employers, whether they come from
federal or local, statewide combination. These subsidies add
dollars to the equation, and that is a good thing. But the
subsidies need to be significant enough to encourage the
employers to participate. Otherwise we have seen that the
employers do not necessarily participate without significant
subsidies.
I know that there is a lot of talk, and Congress is
considering association health plans. These merit talk and
discussion and perusal, but there are some issues that need to
be discussed and understood about them.
First of all, the proposed legislation would actually
undermine many of the state reforms that have already been put
in place to protect small employer groups. A Congressional
Budget Office analysis actually came out and said that with the
implementation of association health plans, we could see prices
rise, particularly for small employer groups, in four out of
five cases.
The GAO also came out with a study that supported that.
There is a long history of concern about the associations
that exist today similar to the association of health plans
called MEWAs, and so there is a concern a little bit about
making sure that if the association health plans are in the
offing, that they are done right with the appropriate
regulation.
Finally, the CBO would estimate that with the
implementation of association health plans, you would only
expect to see about a 1.3 percent increase in coverage. So
while the thought is good and the appropriate structure might
be good, we need to make sure that it is going to be successful
and bring more people into the equation.
Another concern is the so-called patient rights
legislation. Again, what that does is add costs, particularly
the small employer groups. In Springfield, the Illinois State
Medical Association is pushing legislation that would severely
limit health plans by Blue Cross and Blue Shield's ability to
catch and to fix abuse, particularly claims abuse.
At the same time, this legislation is going to add billions
to the administrative cost, again, with no benefit to the
patient. Again, this cost is passed on to employer groups,
particularly small ones.
But enough of the negative approach or the things that I
wanted to talk about there. There are some good things that can
be done.
First of all, Governor Ryan and HHS and Secretary Thompson
have worked together closely on several initiatives. One will
allow the states to expand Kid Care to the families of eligible
children. We heartily support this. We think this is extremely
successful, and the results so far have been very favorable.
While I mentioned earlier the subsidies can be good, but
the level of subsidy needs to be significant to really draw
employers in, I do want to encourage tax credits for small
employers for their low income workers. I also encourage you to
press for acceleration of that full tax deductibility for the
self-employed. I know that it is staggered out a number of
years, and I know you worked hard and diligently to try to
accelerate that. I continue to encourage that.
Expansion of medical savings account. I think it is a
worthy experiment. Right now it is capped, and it is limited to
a certain amount of people in the segment in the market, but I
would certainly suggest expanding that.
A number of bills in the House, McCain-Schumer and its
companion in the House, Brown-Emerson. That would have a
favorable impact on the entry of generic drugs in the
marketplace.
One thing that I found extremely interesting is that a
focus group study found out that small employer groups do not
understand insurance. They do not know all of the time that it
is tax deductible and that there are implications to them by
providing it to their employees.
I would encourage a broad based approach to informing and
educating small employers about what their options are in a
community and what type of tax implications they can enjoy by
offering their employees employee benefits.
Chairman Manzullo. Five minutes, Mick.
Mr. McCarty. I will wrap it up.
Defined contribution approaches, I think they also merit
some review. We have not seen a lot of employers pushing
towards that right now. They still think it is something that
could bring consumerism back into the equation, and at the
federal level, Congress is struggling with several key issues
affecting the small group market
And all I want to do is encourage whatever legislation and
mandates are created, that they encourage people to get into
the pool, encouraging high risk, low risk, everybody into the
pool, and that will help us stabilize premiums going forward.
These are difficult times. I commend the committee for your
effort to focus attention on the impact on health care costs to
small businesses, and as we have for more than six decades in
Illinois, Blue Cross and Blue Shield stand ready to help in any
way.
Thank you.
[Mr. McCarty's statement may be found in appendix.]
Chairman Manzullo. Thank you for your testimony.
Members of Congress will also be limited to five minutes.
As the committee chairman, let me exercise my prerogative and
go first.
I would ask you, Mr. McCarty, in your opening statement,
you say essentially that Blue Cross/Blue Shield is already
community writing for business pools?
Mr. McCarty. Yes. What we do is we have established these
pools, and there are a number of factors that go into the
rating on this particular group, but for the most part, what we
are trying to do is take the lowest and the highest risks,
squeeze them down into a narrow focus so that rates are
somewhat stabilized.
The problem with doing that, Congressman, is that the
better risks, as we try to squeeze everything in that community
to a narrow focus, the better risks will look for rates
elsewhere, where someone is not necessarily community or pool
rating like we do.
Chairman Manzullo. So does that mean that if you insure a
corporation of 1,000 employees, that will be the same rate as
insuring Mr. Bartmann's 23 employees?
Mr. McCarty. Actually, no. The pool is going to generate a
rate based upon the experience of hundreds of thousands of
people. And that will set a rate.
And some of this is already legislated in what we can do by
the State of Illinois.
A group of 1,000, their rates are going to be determined
strictly on their own experience. So it could be higher than
this other pool with hundreds of thousands of people.
Chairman Manzullo. Let's face it. Do you know of any large
corporation that has higher rates than an employer with 23
employees with the same plan, the same coverage?
Mr. McCarty. I do not know of any. I am not saying that it
does not exist. I would have to actually review that.
Chairman Manzullo. Well, I would submit to you that the
larger the pool, the bigger the corporation, the cheaper the
rates are. As a member of Congress, I have Blue Cross/Blue
Shield, and I think all of us here, you know, we have the same
plan that Phil does with Blue Cross/Blue Shield.
But when you say that you are doing these business pools,
is this lowering the rates of the people in those pools?
Mr. McCarty. It is keeping the rates lower than if we did
not create the pools.
Chairman Manzullo. But when you go to an individual
employer or--I am sorry--when you go to a corporation, you
insure that whole group, but you are not asking for any
increased premiums based upon preexisting illnesses; is that
correct?
Mr. McCarty. When we insure a large group.
Chairman Manzullo. That is correct.
Mr. McCarty. The risks are evaluated, and preexisting
conditions are considered in their experience, absolutely.
Chairman Manzullo. They are considered, but the potential
insureds are not asked for any previous medical conditions;
isn't that correct?
Mr. McCarty. That is correct.
Chairman Manzullo. But if you went to Phil Bartmann, you
would have to ask those questions of those 23.
Mr. McCarty. That is correct.
Chairman Manzullo. So then it is really not a pool.
Mr. McCarty. It is a pool in the sense that we are trying
to drive everybody into a narrower focus. Not everybody is
going to have the same rate, exactly correct, Congressman.
Chairman Manzullo. Perhaps I do not understand the narrow
focus on it, but to me a small business pool would be to take
every small business person and say we are going to take all of
their rates and treat you the same as ABC Corporation. We are
not going to look at any preexisting maladies. We are not going
to increase your rates based upon the fact that somebody, that
one employee out of 23 had a heart attack this past year or a
bout with cancer.
That would be a true pool.
Mr. McCarty. That is where our origins actually started,
Congressman. That is where we began as Blue Cross and Blue
Shield. As other insurance companies got into the marketplace,
particularly the for-profits, they began trying to sap out the
better risks.
So today where we are at is we are trying to maintain a
community rating as closely as we can, but what happens is the
better risks are lured away by other entities, other health
plans that have a different approach to this marketplace.
Chairman Manzullo. Such as?
Mr. McCarty. Other types of insurance companies?
Chairman Manzullo. Yes.
Mr. McCarty. I do not want to be indicting here, but any
type of for-profit company is going to be looking to maximize
profits as opposed to something else.
Chairman Manzullo. I understand.
Phil, did you look at Blue Cross/Blue Shield?
Mr. Bartmann. They are one of them we looked at last year.
Chairman Manzullo. What type of rates were you quoted for
23 employees? Do you remember?
Mr. Bartmann. I do not remember, but they were not in the
final three, two or three.
Chairman Manzullo. Okay.
Mr. Bartmann. We had United Health Care and Nipon were the
two finalists, I know, last year, and we ended up with Nipon.
Chairman Manzullo. Okay. Mike, on the medical savings
accounts, you went ahead and developed your own form. Is that
what you did because nobody offered that product?
Mr. Holoka. Well, the product was actually offered by a
couple of insurance companies. Fortis is one. Unicare is
another one, and I cannot tell you all of the carriers who
would provide it.
And there is a company that essentially gives us the
information and the quote rates and everything, and then we go
through them. They are like a brokerage firm.
Chairman Manzullo. Okay.
Mr. Holoka. And that is how we discovered this and were
quite pleased with it and quite surprised.
Chairman Manzullo. So a person could just call up one of
those insurance companies, and they would have a package to set
up the MSA.
Mr. Holoka. That should, but you might have to go through a
broker to get that. You may have to go through an insurance
broker, you know, who writes the insurance and charges, you
know, a small premium for that as well.
Chairman Manzullo. Okay.
Mr. Holoka. I do not know whether you could write directly
to the company or not and get that information.
Chairman Manzullo. But you had to draw up your own plan
because you were the first, one of the first?
Mr. Holoka. No, the plan, as I understand it, by statute is
limited to 750,000 businesses.
Chairman Manzullo. Right.
Mr. Holoka. Okay, and I do not know how many had already
taken advantage of it. Maybe 25,000 or so. There were not a
great number of companies that had taken advantage of it. And,
in fact, I had to go through, I think, four or five brokerage
houses to figure out who actually would set up these MSA
accounts, and Merrill Lynch in this area turned out to be the
brokerage firm that was----
Chairman Manzullo. Financial house.
Mr. Holoka. Yes, financial house where you could actually
set up an MSA account. Some of the other brokerage firms like
A.G. Edwards, for example, they did not have the ability to
even set up an MSA account. So there was no way you could
deposit money.
Chairman Manzullo. Ryan, does your company offer access to
an MSA account?
Mr. Brauns. We do. And I would like to echo something Mick
said, which is that many small employers do not understand the
options that are available to them. There are things like MSA
accounts that are out there, either qualified MSAs or even
nonqualified MSAs, which gets into the consumerism idea.
What we like to see is people who are very interested in
accruing personal health accounts, like the President spoke
about, on a use it or keep it model so that they are
financially engaged and they take more responsibility when it
comes to the decision making process.
But if I could answer a question you asked of Mick, we have
many clients, all ranges of employee size, numbers of
employees. We have routinely had 25 and 30 life employer groups
that have had much lower premiums per single, per family than a
100 or 200 or 300 life case. Now, by and large you would think
the larger case is going to be a little bit less expensive, and
oftentimes it is, but that does not mean that there is not a 25
life group that may have a $150 single rate and only a $310
family rate, and you might have a four or 500 life group that
could be double that.
So that 25 life group with the good rate is not going to be
interested in joining a pool. They want to keep their good
rate.
That is our concern about pools as I represent clients.
They are afraid that they are going to get pushed into a pool
with a lot of risk that is worse than theirs.
Chairman Manzullo. But you would agree that the larger
pool, the larger numbers of potentially insured, the lower the
premiums are going to be.
Mr. Brauns. Possibly and usually. The question I have
though is how do you keep the groups, and this is what we are
waiting to see in the industry; how do you keep those employer
groups in the plan? What happens when you get the pool going
and one of these employer groups says, ``You know, we are all
very healthy. We can get a cheaper rate outside. We want to
exit``?
So what is left is by and large a sicker group, and over
time it could start to spiral. We have had several association
plans here in Illinois collapse in the last few years. A large
school association just collapsed this last year, 250 school
districts, for that very reason. The good risk exits, and the
bad risk stays.
Chairman Manzullo. Congressman Weller.
Mr. Weller. Well, thank you, Mr. Chairman.
And let me first commend your panel. This has been a very
informative presentation. I know we have a second panel. So I
look forward to hearing that as well.
But let me, since we are limited on time, direct my
questions. First I want to direct my questions to the two
business owners on the panel, and the experiment with the
medical savings accounts, Mr. Holoka, one of the arguments for
medical savings accounts, and Dr. Kobler brought up this issue,
is they help control over utilization. People, you know, take
advantage of health care benefits maybe more than they really
need to, and of course, that drives up cost.
And I was wondering from your experiment with medical
savings accounts how medical savings accounts, the incentives
involved in medical savings accounts will affect over
utilization.
Mr. Holoka. Well, I agree that there is utilization when
you are not having to pay anything for medical care. When you
have a deductible, of course, you are paying the first dollars
out of that deductible. So, for example, we had a $3,100
deductible for the first year we were in the MSA program. We
probably spent about $2,800 of that.
Now, I did not sit there though and calculate whether or
not we should go to the doctor, you know, or whether or not we
should have a physical or something of that nature based on how
much of that deductible was left, nor did I say, ``Let's go
ahead and spend some more money so we pass the deductible and
then the insurance company can pick up the rest.''
So I really think that is more of an individual situation.
Obviously, I guess you could plan it in such a way that if you
needed surgery, you could use up the deductible and then go and
have your surgery that year and make sure the surgery was
picked up. I guess we can all be calculating or even very good
stewards of our money in that way.
But I do not think that is much of a risk. You see, the
thing about small business people is that they are survivors.
And really, you know, with all respect to Congress and everyone
else, if we approach these problems like a business where it
was actually our money on the line, and I thinkCongressman
Manzullo does that very well; if the entire Congress would do that,
then I think we would solve these problems, but we do not tend to do
that.
We tend to see this unlimited amount of money, this
unlimited amount of corporations out here that just can afford
to spend money willy-nilly, and that is why we are driving up
health care costs.
I am sure the doctors here would testify that the paper
work that they have to go through is just unduly burdensome. At
this point it is almost impossible to keep up with. And on top
of that, the paper work actually can cause you to become a
criminal in this country.
Why if you make a mistake on a HCFA form, why is a doctor
going to jail and losing his business? Because that has
happened to a number of doctors in this country.
Mr. Weller. And I would like to direct a follow-up question
to Dr. Kobler.
I would note, based on Mr. Holoka's comments, that the Ways
and Means Committee, after we return after this break that we
are currently on, we plan to take up Medicare modernization,
legislation that Nancy Johns, the Chairman of the Health Care
Subcommittee of Ways and Means is moving and which she has
taken the lead on, which is designed hopefully to provide for
some real regulatory relief, address the reimbursement issues,
as well as provide prescription drug coverage as a component of
Medicare.
That is her goal, and of course, she will be leading that
charge when we resume later this month.
Sticking with the subject of MSAs, Doctor, what has been
your experience with patients who participate who have MSA
coverage?
Dr. Kobler. Well, I am not sure that I have had enough
patients in town that actually are insured by MSA, at least not
that I am aware of when I look at the route slip as they come
in. Most of them have the traditional managed care companies
that we have here locally, as well as the national firms.
State medical society, the AMA are all on record as saying
that MSAs are probably a very good thing and probably should be
expanded.
We have a physician in Illinois down south who eats,
drinks, and sleeps MSAs. I get E-mails from him all the time
about it, and I really think that, you know, the points that
Mr. Holoka made as well. I think it does make you look a little
bit more at how you are spending your health care dollars.
I guess the potential concern that I have as a physician,
especially in primary care where we practice a lot of
prevention is to be sure that people are not going to try to
save that money and not do some of the things that they should
do preventatively, and we would hope that they would be good
stewards of those dollars that way as well.
I think that is one of the potential weaknesses of that,
but I am not sure. I have not seen the statistics to suggest
that that is a problem at this point in time.
Mr. Weller. Okay. I assume I have a little bit of time
left, Mr. Chairman. Am I about out of time.
Chairman Manzullo. You are about out of time. Two more
minutes.
Mr. Weller. Two more minutes. Okay.
Let me direct my last question to Mr. Brauns. You are an
advocate of choice and opportunity and consumerism, I believe,
from the comments that you made, and you are an advocate of the
refundable tax credit proposal, which Chairman Bill Thomas has
been an advocate of in the Ways and Means Committee and others.
Included in the earlier versions of the Economic Security
and Stimulus Package that we passed out at the House of
Representatives, the refundable tax credit that helped laid off
workers covering up to 60 percent of their premiums as a way to
help insure they had continued health care coverage while they
were unemployed until they went back to the work place where
they had health coverage.
From your perspective in marketing insurance coverage,
health care products to your customers, how would your business
market to this refundable tax credit approach? If I am a worker
and I have this refundable tax credit, it is a new thing for
me. I do not really know what to do with it. How would you
market it and explain it to them and show them how it would
work?
Mr. Brauns. I think, number one, it would be very well
received. I know there is tremendous pressure that is building
up in this system, and we all know that. A lot of it would
depend, I think, on what the actual structure of that is.
Would it be a voucher that they could take? It is going to
come every month or is it going to be handled through the
payroll deduction system that goes against their FICA and
whatnot? Are the employers taking care of that? Are they going
to get this voucher and then be able to go out to the
individual health insurance market and then go to that
insurance company and say, ``I have got this voucher now and I
can afford to pay these premiums''?
Some of it depends upon how that is actually going to be
structured, but we would be very excited to be able to market a
product like that, and I think it would be very well received.
You know, by and large, most employers are very
paternalistic. Most employers want to take care of their
people, and they are looking for any way they can to increase
benefit and find ways that they could give more money to
employees to help them buy more insurance.
Employers, I do have to tell you though, there is so much
pressure in the system. They would like to get out of being an
insurance company. If there was some way that they could do
that paternalistically, if they knew this product is a defined
contribution, and it has not taken off yet because defined
contribution has created this huge individual health insurance
market, and particularly in the State of Illinois, you cannot
go to, say, Blue Cross and get a guarantee issue health
insurance policy for one person.
If you could, the rates would obviously be expensive, but
you may have a lot of employers saying, ``Take your voucher and
go do that.''
And then the employer would be able to provide 401(k)
matches, more life insurance, more disability, more vacation
days, other things that the employer would like to do for the
employee.
Chairman Manzullo. Congressman Ryan.
Mr. Ryan. Thank you, Chairman Manzullo.
I would like to talk to Mr. McCarty and Mr. Brauns about
the AHPs and about pooling, and I would like to nail down a
definition of pools.
I understand that it is in the best interest or in the
self-interest of a state Blue Cross/Blue Shield to oppose
association health plans because those are ERISA plans that
move beyond state borders. But I'd like to nail down this
definition of a pool because we are throwing this word around
so much.
When you say you are pooling your small business individual
rates in the State of Illinois in Blue Cross/Blue Shield, you
are pooling that after you saw the coverage within your own
insurance structure; is that correct?
Mr. McCarty. Yes.
Mr. Ryan. So it is not a pool you are going out into the
marketplace saying, ``Here, Mr. Bartmann. We have a pool for
you.'' You are just marketing it as a Blue Cross plan for his
business, correct?
Mr. McCarty. When we market to a small group, we are
marketing individually to him. The rates are set up on his
demographics. Some risk factors do go into that.
Mr. Ryan. And you see if there is a heart attack in his
business or if there are preexisting conditions in his firm,
something like that, correct?
Mr. McCarty. Yes.
Mr. Ryan. Okay. So the pool of the association health plan
that we are talking about is a little bit different than that
kind of pool concept. So I just want to make sure that we are
not saying that these are the same things.
The association health plan pool is a national pool, an
ERISA plan which goes through state borders much like any
Fortune 500 company will have for their employees.
You know, General Motors, which has a plant up in
Janesville, has a huge ERISA plan for all of their hundreds of
thousands of employees, and that crosses state borders. They do
not have preexisting conditions. They do not have demographic
questionnaire studies, and they benefit from very good
insurance packages, very low rates, and rates much, much lower
than rates for a small business.
So the goal of pools, as echoed by the President in
Wisconsin in February and which we talked about in the Ways and
Means Committee, is to give small businesses access to those
same kinds of economies of scale, for those same kinds of
benefits that an ERISA pool provides, just like the Fortune 500
company gets.
Would you like to comment on that?
Mr. McCarty. Just to clarify our position is not to oppose
association health plans. Our position is that they need to be
structured appropriately so that, number one, they do not
undermine existing legislation to existing states. That is
number one.
And number two, that they are regulated appropriately
enough so that the mistakes that have happened with prior
association type plans do not happen again.
And, number three, that as we venture into this, it is also
structured correctly to bring more people into the pool, into--
--
Mr. Ryan. Adverse selection.
Mr. McCarty. Yes, because otherwise you get a modest
enrollment, it does not catch on, and it winds up having
selection issues which causes, again, a burden for particularly
small employers.
Mr. Ryan. That is a compelling point. I think the adverse
selection point that, Ryan, you mentioned is a very compelling
point, but if you compare that to the status quo, we have a 60
percent uninsured rate for small businesses right now. That is
not acceptable, and that is under a state-by-state regulated
environment.
So the status quo obviously is why we are having this
hearing, because that is unacceptable.
Mr. McCarty. Sure.
Mr. Ryan. But I think if you look at the adverse selection
studies that when you apply adverse selection studies to ERISA
pools, you do not have adverse selection nearly to the extent
that has been suggested with state insurance pools because
adverse selection goes away with association health plans
because they are able to evolve with the marketplace. They are
able to change.
And so if a businessman like Mr. Bartmann is looking to
join an AHP or stick with what he has, he will make that
decision in the beginning. He will make that decision. He will
adverse select, as you put it, right away.
If he joins the AHP, he can always get out, but the idea
that the sick will only be left in the AHPs is an idea that has
been pretty well defeated intellectually and through many
studies, including the CBO and CMS that show you risk will be
well spread. Adverse selection on the national level does not
really occur because if it would, it would occur with other
ERISA plans, and that is just simply not the case these days.
So there is a great story to be told on pooling with ERISA
plans across the state boundary lines. That shakes up the
system. That abandons in many cases a state-regulated system,
but the state regulated system we have today under which Blue
Cross operates is giving us this huge rate of uninsured and
these unacceptable rates of increase of health insurance
premiums for small businesses.
So I think there is a broader story to be told with respect
to pooling. I hate to give more of a speech, but----
Chairman Manzullo. Your five minutes is up. So----
[Laughter.]
Mr. Ryan. We deal with this a lot in our committee.
Chairman Manzullo. Congressman Kirk.
Mr. Kirk. Thank you, Mr. Chairman.
We met when you held a hearing on a similar topic in my
congressional district. We met with Sammy Davis, Jr., the real
Sammy Davis, Jr., who operates Handyman, Incorporated in
Mundelein, and Handyman has gone the way that, Phil, you might
be looking at. Handyman employees are now completely uncovered
because of the rates and the increases.
Chairman Manzullo. You said that was going to happen.
Mr. Kirk. And it has happened, yes. So Handyman, with 13
employees; is on their own.
Now, Sammy belongs to a number of associations, and I
wanted to just ask you. Are you a member of the McHenry Chamber
of Commerce?
Mr. Bartmann. I am the Chairman of the McHenry County
Economic Development Corporation.
Mr. Kirk. Are there any other associations that you are
already a member of?
Mr. Bartmann. NFIB.
Mr. Kirk. At the NFIB?
Mr. Bartmann. Almost from the beginning, yes.
Mr. Kirk. Right. And it would seem to me that NFIB would be
an ideal place for a national association health plan.
Mr. Bartmann. That is right.
Mr. Kirk. Very broad membership, and you do not have that
option right now?
Mr. Bartmann. No.
Mr. Kirk. That is, I think, something that is very
important for us to have a Medical Savings Accounts for the
truly small entrepreneur, but to allow you to join through NFIB
or, I think, ideally the county Chamber of Commerce or even the
town Chamber of Commerce in the case of my people.
One of the reasons why costs are going up so much is
because of enormous jury awards against doctors and hospitals,
where you get into the unlimited amounts of money that could be
awarded through ``pain and suffering'' awards.
I just throw it out to the panel here. What would be the
impact, in general, of medical malpractice reform?
Specifically, the House included this as part of the
Patients' Bill of Rights. It gives us theability to expand
health care coverage and lower cost.
Mr. McCarty. I do not have any specific information on the
impact.
Mr. Kirk. Well, let me just throw out one number. I just
talked to some OB-GYNs in my district. The up front cost, the
first thing they have to pay before they see Patient One was
$90,000 for medical malpractice coverage, and so that is built
into their fee schedule right away.
Mr. McCarty. Right. So, yes, there would be a favorable
impact on premiums for small employer groups, for large
employer groups, for everybody, for individuals, if education
were enacted to protect providers from unusually large or
outrageously large settlements.
Mr. Kirk. And it is important that we are not talking about
limiting someone's economic damage. It is the treble, quadruple
damages when a jury in a rural county in Illinois says, ``Let's
give them a $2 billion award.'' That has a ripple effect
throughout the system.
Go ahead.
Mr. Holoka. Yes, in answer to your question, how it impacts
on a particular doctor's practice and their premium, of course,
it puts a lot of pressure on the doctor to see enough patients
to come up with, you know, the premium. But, of course, there
are a couple of reasons for that.
One is when you have PPOs, HMOs, and you have the
government through Medicare and other legislation limiting the
amount a doctor actually receives, you're really slashing the
doctor's wrist at the point.
The second thing is as far as impacting the general cost of
medical care, health care throughout an entire state, for
example, we can go back to Indiana in 1980. In 1980, Indiana
enacted caps on the amount of recovery you could make in a
medical malpractice, economic or otherwise. So it was enacted,
and that cap was $100,000 at one level and then $500,000 at the
next level. Okay? And that was only for catastrophic that you
could go between the $100,000 and $500,000 recovery.
Okay. When Indiana first started this, they were 28 in the
country in health care costs. Okay? In 1990, ten years of
experience, Indiana was still 28th in the country in health
care costs. So I really think that medical malpractice per se
has really no effect or just so small as to be negligible on
the actual cost of health care.
Now, how it impacts doctors' offices, I mean, that is
another thing. If a doctor cannot generate enough income, then,
of course, they are going to have to close their office, but to
the malpractice carriers, they have to base this on what their
experience is.
The second thing is that there is no such thing as treble
damages and all of these other things in medical malpractice.
We have done away with punitive damages in Illinois. We have
had reform to that degree.
We have cut attorney's fees in medical malpractice cases.
There is no other area in Illinois that we have cut attorney's
fees in, other than through the work comp. statute to attorneys
that are handling cases on behalf of the injured people.
Mr. Kirk. And yet in the Congress we hear, especially from
places that include rural areas like this one, that there are
whole regions where you cannot get obstetric care.
Mr. Holoka. Well, I will tell you what. I know of no place
in this area where you cannot get obstetric care.
Chairman Manzullo. I mean, you have to understand, too,
that a lot of things are rural because they saw some cows.
[Laughter.]
We are at five minutes.
Mr. Kirk. Okay. Mr. Chairman, I would just point out that
our colleagues from other states, Iowa, et cetera, will give
you a long list of driving distances that you will have to get
to to find obstetric care, and that is due to the enormous
malpractice costs that only a suburban/urban area could handle
the cost structure of that.
And so we have got real access to care issues erupting in
the country now because of the enormous liability cost of being
in this field.
Mr. Holoka. Can I just make one comment to that? I know a
general surgeon in town who went out of business, and it was
not because of her health care premium. I am sorry. It was not
because of her medical malpractice premium. It was because of
the way her fees continued to get chopped down to the point
that she could not stay in business.
And when you are charging $80 for an office visit, and you
are getting $8 and $10 and $12, you cannot even cover the cost
of a nurse, let alone make any kind of profit. You are killing
yourself in overhead.
So I think the problem is multi-faceted, and it cannot just
be directed to medical negligence cases. And again, I would say
the proof is in the pudding. Medical negligence cases are such
a small amount of the actual cost of health care as to be
negligible.
Chairman Manzullo. Okay. We want to thank the panel for
coming and testifying. You are welcome to sit through the rest
of the testimony this afternoon.
And we are going to take about a ten minute break. During
that period the second panel can go up there.
All of the complete written statements will be made a part
of the record.
[Recess.]
Chairman Manzullo. The Committee will come to order.
Our first witness on the second panel is Ryan Levin. He is
V.P. of Product Development and Risk Management at the Destiny
Health Insurance.
I look forward to your testimony.
STATEMENT OF RYAN LEVIN, VICE PRESIDENT OF PRODUCT DEVELOPMENT
AND RISK MANAGEMENT, DESTINY HEALTH CARE
Mr. Levin. Thank you.
Good morning, Mr. Chairman, Congressman Kirk and Ryan.
Thank you for the opportunity to speak before you this morning.
I think from our perspective we have a very similar
perspective to yours: trying to understand the----
Chairman Manzullo. Ryan, would you keep your voice up? You
have got a very soft voice.
Mr. Levin. Our perspective is very similar to that of your
committee: trying to understand the reasons for high health
care costs and more specifically, the uninsured and the
increasing number of uninsured.
We believe that there are two interrelated reasons for the
number of employed uninsured. The first is cost, and that is
one that has been discussed in quite some depth this morning.
The higher the cost of health insurance, the greater the
likelihood that someone is going to opt out, some people
because they cannot afford it, and I think that is plain for
everyone to see.
The second reason for employed uninsured, I think, is a
little less apparent, but interrelated with the first, and that
is that there are a number of employed uninsured who actually
can afford health insurance, but choose not to. The reason for
that is that health insurance provides themwith no value
because they are healthy, or at least no perceived value.
Now, the problem with that is that if healthy people choose
to opt out, the risk pool on average gets sicker and costs
continue to increase. So in many respects, you get into a
vicious circle where the higher the health care costs go, the
fewer people participate and the higher the health care costs
go.
So we looked at the situation and said, well, we need to
understand the underlying reasons for these high health care
costs, and there have been a lot of reasons spoken about this
morning. There is one that has not been thought about much and
has not been discussed much, and that is the role of the
consumer in health care costs.
We believe this is actually a very key component to rising
health care costs, consumer demand, because consumers really
are driving health care costs in many respects. I will give you
a couple of examples.
First, drug costs. We all know that drug costs are a big
driver of health care costs overall. One of the reasons for
that is technology. Technological advances have increased drug
costs and increased the number of prescriptions and probably
saved other health care costs.
But there is one more reason, and that is consumer demand
for drugs. We all watch TV and read magazines, newspapers, see
the increasing number of direct to consumer drug
advertisements. Because the drug companies understand that
advertising directly to the consumer will drive demand for
their products.
One study performed by Prevention Magazine found that 87
percent of people who asked their physician for a particular
drug are prescribed that drug. Now, the problem is that while
the providers of these health services understand that
consumers are driving demand and driving utilization of these
services, health insurance does not understand that because
health insurance plans typically dissociate the member or the
consumer from the cost of the health care that they are
consuming. They are essentially spending someone else's money
because all they are paying is a very small portion of the
total cost of health care.
Another area where consumers are driving health care costs
is in their response to managed care. Managed care is a tool, a
mechanism that has been used by many health insurance carriers
and specifically HMOs to reduce health care costs. They have
used things like networks, gatekeeper models where you cannot
get care other than through a gatekeeper to control health care
costs.
Consumers understandably are rebelling against these
controls because it restricts their freedom of choice. By doing
that and because the insurers and HMOs have been forced to
react to that, there has been less ability for them to control
health care costs, and that, too, is one of the reasons that
health care costs have been increasing.
So we believe that health care costs are a big driver of
the uninsured, and the fact that there is little value for the
healthy is another big driver of the uninsured. These two are
interrelated.
So the solution we feel has two components. First is to
control the costs of health care by creating the right
incentives within the health insurance infrastructure, and the
second is to introduce value for the healthy, to encourage them
to participate and thus reduce the average cost per participant
in the health insurance system.
There are many consumer driven solutions that are being
touted today, and this is a relatively new movement. The model
I am going to describe is based on one that is currently being
successfully used by our sister company, a company called
Discovery Health. They have over 1.2 million members using this
model and have demonstrated substantial success in controlling
health care costs.
In fact, this model was based on the medical savings
account concept that we spoke about earlier but is in a
substantially higher evolved state. The model relies on one
fundamental principle, and that is that different types of
health care costs need to be dealt with differently.
There are those types of health care costs that are
substantially within the member's control or discretion and
others that are less within their control. Those within the
member's control include things like the more routine, day-to-
day health care costs, doctor office visits, acute prescription
drugs.
Those less within the patient's control are hospitalization
and surgery, those high cost, high severity things that happen
less frequently.
Chairman Manzullo. How are you doing on time, Ryan?
Mr. Levin. I think I have another minute or two.
[Laughter.]
Chairman Manzullo. I will give you another minute. Go
ahead.
Mr. Levin. What our model does is it uses a personal fund
that belongs to the member to pay for those more routine costs.
The key is whatever they do not use they keep, and that
fundamentally changes the way they behave about health care
specifically in those areas where they have discretion and
control.
And the results of studies performed by our sister company
show dramatic reductions in spending on those discretionary
health care costs.
On the other side, we use insurance, risk pooling, to
protect people against the high severity and high cost events
like hospitalization and surgery, where they have very little
control.
Wrapped around this are incentives for people to take the
preventive measures they should be taking, keep healthy, keep
fit, wellness incentives, and very healthy rewards for using
those incentives.
The results of this structure are lower costs because the
incentives are structured correctly, and very importantly,
value for the healthy because suddenly and for the first time
healthy people get value out of their health plan designed in
this way.
Chairman Manzullo. Okay. Thank you very much.
Mr. Levin. And thank you for your time.
[Mr. Levin's statement may be found in appendix.]
Chairman Manzullo. The next witness is Amy Jensen. Amy is
the Director of Federal Public Policy at the National
Federation of Independent Businesses.
Amy, we are looking forward to your testimony.
I am going to excuse myself about two minutes. Mark, would
you take over as Chairman. I will be right back.
Mr. Kirk [presiding]. Yes, Mr. Chairman.
STATEMENT OF AMY JENSEN, DIRECTOR, FEDERAL PUBLIC POLICY,
NATIONAL FEDERATION OF INDEPENDENT BUSINESSES
Ms. Jensen. Thank you, Mr. Chairman and members of the
committee.
I specifically want to thank Chairman Manzullo for all of
your hard work to help solve this very important problem for
small business and also to these strong members who have done
tremendous things to help small business better afford health
insurance.
I am also glad to have this hearing in Rockford since my
family lives in Wheaton. So I could take the opportunity to be
back home.
My name is Amy Jensen, and I am Director of Federal Public
Policy for the National Federation of Independent Business.
NFIB is the nation's largest small business advocacy
organization representing more than 600,000 small business
owners in all 50 states and also in the District of Columbia.
Nothing is more important to NFIB than solving the health
care problems of small business. We firmly believe that
association health plans in removing the restrictions of
medical savings accounts are necessary steps to create more
affordable health care options for small businesses across the
nation.
According to the most recent information from the Census
Bureau, nearly 39 million Americans did not have health care
coverage in 2000. That is nearly one out of every seven
Americans.
Since that time a slow economy, higher unemployment, and
rising health care costs likely mean that more Americans became
uninsured, and two million Americans became uninsured due to
job loss in 2001.
Over 60 percent of our uninsured population consists of
small business owners, workers, and their family members. The
high rate of uninsured in the small business community is
largely due to the lack of available options for small business
and also an increasingly shrinking small group insurance
market.
We know that the smaller the business, the less likely it
is to provide health insurance. Sixty percent of businesses
that have three to nine employees offer health care benefits,
while most large firms are able to offer coverage.
Even in the best of times, the small business health care
plan only covers about 57 percent of the employees, many
choosing to go without coverage due to the high costs. For the
smallest of the small offering health coverage is a constant
battle.
At NFIB can substantiate that the high cost of health care
is the number one problem of small business owners today. NFIB
surveys show that for the past decade small business owners
have ranked the cost of health insurance as their number one
problem, higher than taxes, regulations, and every other
problem.
Our members also have told us that they believe providing
health insurance is the right thing to do, right for their
employees and right for their business. However, the high cost
of health insurance often prevents them from doing this.
As you know, Mr. Chairman, NFIB has provided several
witnesses who testified before your committee, as well as
Representative Thune's subcommittee, and all of them have
experienced double digit health care premium increases. Elaine
Smith from Granite City, Illinois experienced a 26 percent
increase this year. Ron Hatch of Yankton, South Dakota
experienced a 50 percent increase. And Phil Bartmann, who
testified previously and one of the Chairman's constituents,
experienced nearly a 100 percent increase.
On average, a worker in a firm with less than ten employees
pays 17 percent more for health insurance than a worker in a
firm with 200 or more employees.
Small businesses need more bargaining power so that they
can have access to affordable coverage for their employees. In
today's society when it comes to purchasing health care, the
rules of the game are stacked against small business. The small
business with the least income actually pays the most, while
Fortune 500 companies are able to offer exceptional benefits,
have more modest annual cost increases, and have more choices
for their employees.
These companies have benefited from the economies of scale
that come from being able to purchase health care in a large
group across state lines. Unfortunately under today's law, it
is impossible for small business to purchase health care in the
same manner as their big business counterparts.
Association health plan legislation like H.R. 1774, the
Small Business Health Fairness Act, introduced by Fletcher and
Dooley, levels the playing field by enabling small businesses
to purchase their health care like big businesses and union
plans, through AHPs under what's called ERISA.
HPs are a private market solution. It builds upon what has
been proven to work, and if small business could purchase
health care in the same manner and under the same rules as big
business, premiums would go down and coverage would increase.
Allowing small businesses to purchase health care through
association health plans will allow them to save on
administrative costs and bring to the market the amount of
bargaining power in sufficient numbers to absorb risk without
substantially increasing premiums.
As you have heard, insurance companies are not fond of
AHPs. AHPs, it is true, would compete with current insurance
options, but NFIB believes that that competition is long
overdue.
MSAs also offer an alternative solution. Eliminating the
regulatory burden on MSAs would benefit small business. MSAs
without the current restrictions would provide positive
benefits to employees by giving them control over their own
health care dollars.
And making MSAs more workable by easing the regulatory
burden on them would provide yet another affordable health care
option to small business.
Tax credits for individuals would also be anther welcome
option.
One of the most frequent complaints of small business
purchasing health insurance today are drastic high rates that
force them to drop or completely restructure their employer
sponsored health care coverage. Allowing small business to
purchase health insurance through AHPs will minimize this
problem.
Chairman Manzullo. How are you doing on time, Amy?
Ms. Jensen. Just wrapping up----
Chairman Manzullo. All right.
Ms. Jensen [continuing]. To say we thank you for your
strong work on AHPs and MSAs, and I look forward to your
questions.
[Ms. Jensen's statement may be found in appendix.]
Chairman Manzullo. Thank you very much.
I am sorry I had to leave. We have got several members of
our staff up from Washington taking four different cars in as
many different directions and trying to coordinate that out
there.
Our next witness comes from the Illinois Manufacturers'
Association. He is Vice President of Government Affairs, Boro
Reljic.
Mr. Reljic. Reljic, yes.
Chairman Manzullo. Boro Reljic, and the reason I asked Boro
to come here is that there has been a bill that had been passed
out of the Health Committee of the State House of
Representatives here in Illinois that would allow employees of
employers with less than 25 employees to join the State of
Illinois employees' health risk pool, which I guess would be
the ultimate associated health plans.
We found out about it, and Amy has a copy of all of the
work that has been done on it, and you have come here to
testify in behalf of that.
STATEMENT OF BORO RELJIC, VICE PRESIDENT OF GOVERNMENT AFFAIRS,
ILLINOIS MANUFACTURERS' ASSOCIATION
Mr. Reljic. Well, I was trying to figure out. I know that
that is the scope of what you wanted to talk about, and I could
just go right through my testimony, but there will be some
mention of that.
Chairman Manzullo. That will be fine.
Mr. Reljic. Thank you.
Again, my name is Boro Reljic. I am Vice President of
Government Affairs for the Illinois Manufacturers Association.
The IMA is the oldest and largest state industrial association
of its kind in the United States. We formed in 1893 to
collectively address the problem from the railroads that they
presented to us. So we have been around a while.
And health care is really one of the most significant
problems that are facing our members now. You have heard the
stores of the significant increases that our companies have
seen.
The association itself is not just small employers, but
large employers as well. We represent companies like
Caterpillar Tractor and John Deere, as well as companies like
Zenith Cotter and Rockford Spring Company here in this area. So
we are a mix of both large and small employers or members of
the Illinois Manufacturers Association.
Some of the numbers that have been tossed out particularly
about health care costs are significant. According to the
National Association of Manufacturers, health care costs have
increased by more than 300 percent between 1980 and 1990, or
$73 billion to $223.6 billion.
Health care costs in 1999 were 470 percent more expensive
than 1980, again, $73 billion to $343 billion. And as long as
we continue to see the cost of health insurance premiums
increasing in the double digit manner in which it is, we are
going to continue to find a vicious cycle of more uninsured.
And we were concerned about that, and so the Illinois
Manufacturers Association has a couple of viewpoints at least
on the state level where we work most often to try and address
some of those problems as we see them.
One, which was mentioned by the representative from Blue
Cross and Blue Shield is Illinois' insurance code mandates.
Collectively the various insurance code mandates account for 20
percent of premiums right now in Illinois. So you need to keep
in mind that the various insurance code mandates that are
placed on group health, which only impacts the small employers
because larger employers that have the ability to self-insure,
these mandates do not cover.
Another reason that we see in the recent increase in health
care costs is the erosion of managed care. Providers are not
happy with some of the things that are happening in the
marketplace, and we need to make sure, you know, the cost
savings that we saw ten years ago or the controlled cost
increases that we saw ten years ago as a result of managed
care, that was not a legislative fiat. It was the ability of
people to negotiate terms and conditions of payment, and we
need to make sure that we keep those safeguards in place.
Another innovative approach and the one that Chairman
Manzullo is so interested in is the pooling concept, and there
is a bill in the Illinois House, House Bill 5963, which is
sponsored by Karen May from Highland Park, which would allow
employers with 25 or fewer employees to opt to participate in
the state health insurance pool.
Illinois has 66,000 state employees that are covered by the
state health insurance plan, and it is our thought that to give
those small employers the purchasing power they need, they
should be able to opt into that program. They should pay the
premiums. They should pay the increased administrative cost
that would be associated for running it, but that would allow
them some of the purchasing power that larger companies enjoy.
Under the provisions of the bill a company that opted to
participate would not be able to select only certain employees.
Every employee of the company would have to participate, and we
just find that as one of the innovative approaches to try and
solve this problem.
We believe in a private sector solution to this issue. We
do not think that a government mandate is going to answer or
solve this particular problem, but we need to find ways in
which we can incent, if you will, employers to go ahead and
offer health insurance to their employees, which is going to
benefit all of society.
[Mr. Reljic's statement may be found in appendix.]
Chairman Manzullo. You finished early. Great.
Mr. Reljic. Time is always of the essence.
Chairman Manzullo. Okay, great. Our next witness is Vondie
Woodbury, Director of Muskegon, Michigan Community Health
Project and Vondie came all of the way down here just to be
with us today.
STATEMENT OF VONDIE WOODBURY, DIRECTOR, MUSKEGON COMMUNITY
HEALTH PROJECT
Ms. Woodbury. Yes. Thank you.
Chairman Manzullo. Thank you very much. I look forward to
your testimony.
Ms. Woodbury. And, again, I want to thank you for the
opportunity to present testimony on the work we have been doing
in Muskegon County to address health care issues for our small
business community.
My name is Vondie Woodbury. I am Director of the Muskegon
Community Health Project. We are located almost directly across
the big lake from Milwaukee, Wisconsin. So we are right there
on the shore.
I am going to be speaking today about a program that
community volunteers in our project developed called Access
Health. Access Health is not an HMO, nor is it an insurance
product. Access Health is a community owned health coverage
plan that is sold to eligible small businesses in Muskegon
County to provide health care coverage to the working uninsured
and to their dependents. It was intentionally designed to fill
the gap between public insurance programs, like Medicaid, and
commercially available products.
Access Health was developed following extensive
quantitative and qualitative research within our community.
Some of the numbers have been touched upon by other speakers. I
do not think we reflect any differently than other parts of the
country.
What we did find is a group that has tended to be very
small businesses who were insured, less than four employees for
the most part. They tended to have very low profit margins.
They were not members of our Chamber of Commerce.
When we asked them why they did not participate in
commercial coverage, 69 percent of them told us it was too
expensive. They had high rates of employee turnover, which for
us became the carrot because it was very clear to us as we got
into this market that they needed something to stop the
hemorrhaging that was going on, the churning in their
employees.
As we looked at the market, 95 percent of these employers
told us they could afford to pay something, but it had to be
less than $50 per employee per month. The people who worked for
the business sector, the same type of a profile, but we found
that the majority of them tended to be women under 40 with
children. We found a good number of people who had moved
fromwelfare programs into small business.
Sixty-four percent indicated that they valued health care.
They wanted coverage. Most made between $6 and $10 an hour, and
65 percent of us or 65 percent of them told us again that they
could afford to pay something, but it had to be less than $50 a
month.
It is important to underscore when you look at this part of
the month that the popular press keeps referring to them as the
working poor. These are not people that self-identify as
working poor. They are working. They are helping pay taxes.
They are helping to support government programs like Medicaid
and Medicare.
No one that we went to asked for a handout. They were all
willing to pay something, and I think that is one of the most
important things that need to be said about this market.
To insure that our Access Health Program only served that
portion of our population who were unable to pay for commercial
products, we took special steps to limit the type of business
we serve. Eligible businesses must be located in Muskegon
County. They cannot have offered commercial insurance for the
previous 12 months. They must have a median wage of $10 an hour
or less to participate, and we wanted to make sure that these
were businesses that were not in the commercial coverage
market.
Any business that is found falsifying information and
dumping existing coverage is dropped from Access Health for
life. We have targeted 500 businesses, and we hope over time
that we will grow the pool to 3,000 full or part time
individuals. At present we have 300 businesses who are
enrolled, and we have served nearly 1,500 people.
We work very closely with our Chamber of Commerce who sells
the Blue Cross/Blue Shield program in Michigan to small
businesses. We work with local insurance agents. We wanted to
make sure that our part of the market was exactly that, a
niche. We weren't going to pull from either.
So we have actually gotten to a point where Access Health
is sold by insurance brokers for no commission, and they go
back after a year and try to trade people up to commercial
coverage, and so we have worked out a very good relationship
with our commercial group.
Access Health is only offered in Muskegon County. Members
who have medical incidents or seek treatment outside of
Muskegon must pay the full cost of this out-of-pocket care. By
limiting our coverage area to our own county, we insure that
our product does not compete, again, with commercial products.
It is not intended to do that.
Within the restrictions, we are able to provide a
substantial benefit. We enter into contracts with all of the
providers in our community. When I say ``all,'' it is 97
percent, both of our hospitals, almost every primary care
physician.
We pay them on a fee for service basis. They donate ten
percent of those fees back to help administer the program. I
have included a brochure that is on the table that describes
the medical benefit package. We cover everything that is
available in Muskegon County, which means if you have cancer,
you will get care. If you have heart disease, you will get
care.
To make it affordable, Access Health funding comes from
three sources: employer contributions, employee contributions,
community contributions. This type of structuring is commonly
referred to as a three share model.
Three share models are different from traditional
entitlement programs in which the public assumes the full 100
percent of the cost. In public policy terms, what it means in
our program are that taxpayers are liable for 60 percent less
of the cost than a traditional entitlement program.
In Muskegon county today an eligible business can buy
Access Health for an employee for $42 a month. The employee
will pay $42 a month, and the remaining part of our cost, $55,
is paid for by our community. The community accesses federal
dollars that were already in the system called disproportionate
share hospital dollars.
A state may redistribute these dollars to states or to
hospitals who serve a disproportionate share of indigent
people. We directly draw down those dollars and use it for the
third share of our program.
So, again, what we have managed to do is to keep it budget
neutral. We have not created new funds to finance our program.
Access Health provides Muskegon County with shared wins for
all the participants. The community reduces its level of
uninsured as much as one third by the time we get our program
up to 3,000 people.
Those covered get improved health care access, and our
providers reduce the level of uncompensated care they must
otherwise cost shift to insure appropriate patients.
Finally, businesses benefit by reduced employee turnover
and absenteeism and enhanced competition to provide benefits to
workers.
Chairman Manzullo. How are you doing on time, Vondie?
Ms. Woodbury. I am just about there.
Chairman Manzullo. Okay.
Ms. Woodbury. We think our approach is pretty common sense.
Rockford has been looking at it, and I am delighted to announce
that Huntington, West Virginia just got legislation through
their state legislature, and they are about to kick off.
We have also been to States like Utah, Idaho, Delaware, and
Beaumont, Texas before the end of this month.
So with that, sir, I thank you very much.
[Ms. Woodbury's statement may be found in appendix.]
Chairman Manzullo. Thank you very much. We appreciate it.
Our next and last witness is Johanna Lund. She is the
Chairwoman of the Rockford Health Council, and Johanna's mother
and my father went to grade school together. So we go back a
few years, don't we Johanna?
STATEMENT OF JOHANNA LUND, PH.D., CHAIRWOMAN, ROCKFORD HEALTH
COUNCIL
Dr. Lund. We certainly do, and it is really a privilege to
be a part of this.
Thank you, Chairman Manzullo.
Chairman Manzullo. Thank you, Johanna.
Dr. Lund. And your entire committee, Congressman Kirk and
Ryan and Congressman Weller, whom we met earlier in the day.
Thank you so much for coming to Rockford.
I am actually here in a dual capacity as Chairperson of the
Rockford Health Council and a small business owner.
Rockford, like other parts of the country, is facing a
crisis in the ability of small business owners to obtain and
keep affordable health insurance. This fact was documented
three years ago by a study in 1999, the Rockford Healthy
Community Study, which identified 16 issues, major health care
issues, and certainly affordable health insurance care was one
of the major issues.
The Rockford Health Council is a community based health
policy and advocacy group of 54 organizations representing
health care, business, education, social services, and
government in Boone, Ogle and Winnebago Counties, our immediate
area.
Since the release of the health of community study, we have
been working collaboratively to address this issue of access to
medical care. For most of our residents currently, access to
care is through employer based insurance or Medicare or
Medicaid.
But for a sizable number of residents, access to timely and
appropriate health care is impaired due to lack of insurance.
We have estimated that as much as 44,200 residents, or 16 and a
half percent, of our Winnebago County population is uninsured
and another 11,000 uninsured in neighboring Boone and Ogle
Counties.
We estimated that a large portion of the uninsured are
currently employed in the private sector. Among minority
populations, the estimates are that 23 percent of African
Americans and 33.5 percent of Hispanics are currently
uninsured.
Our efforts began with at least two premises. One, we want
to assure access to health care to those who do not currently
have access, and it is not our intention to compete with the
commercial insurance market.
Our desired result is improved health access and outcomes,
and we also do not want to do it on the backs of doctors and
hospitals.
In September of 2000, we sent a team to Muskegon, Michigan,
to examine their innovative program developed for their small
business community, and it is one we feel worthy of
replication, but we do not intend to exclude any other workable
model.
We were granted a federal community access program grant
last September and have been working diligently to develop a
workable model of coverage for small business owners and their
employees. We believe that small businesses are having
difficulty obtaining affordable coverage from the private
market, in part, due to the high cost of mandated benefits and,
in part, due to adverse selection based on group size.
The federal CAP grant has provided funding for a
concentrated effort to develop new options for our small
business community. Through a comprehensive study of 4,700
small business owners with fewer than 25 employees in Winnebago
County, which was completed in December by Health Systems
Research, what we found were the following:
The average small business in Winnebago County employs just
under nine persons. Forty-seven and a half percent of the
respondents do not offer health insurance. Even when companies
offer coverage, only 69.2 percent take the coverage, with 10.7
percent not eligible at the time of the survey.
For those individuals who do not take the health insurance
offered, 59 percent are thought to be using their spouse's
plan. Twenty, point, four percent say that such employees
cannot afford their portion of the premium.
Small employers in Rockford reported rapidly accelerating
health plan premiums, an average increase of 26 percent last
year. Ninety percent of the respondents not offering coverage
cited high cost as the reason.
We have retained Health Management Associates of Chicago as
our principal consultant in the development of a plan
appropriate to our needs and the laws and regulations of
Illinois. We have met with area legislators, hospital CEOs and
interest groups to inform them and to seek their support. We
have engaged the Illinois Department of Insurance in high level
discussions about how to create a new model of affordable
coverage for the 4,000 employees we estimate could benefit from
an initial plan.
I commend the State Department of Insurance. They are
working to help us facilitate our plan. Two weeks ago, we had a
small group, focus group, of nine employers, asking their input
in helping design a coverage product and further meetings are
planned.
We are currently working through the details of a plan that
would offer basic medical, pharmaceutical and limited hospital
coverage for working adults employed by businesses of two to 25
workers with a median wage of $12 per hour who have not offered
coverage for the past year.
We hope to develop a model of community coverage like the
third share arrangement with employers, employees, and the
community sharing the costs. Our actuary is currently pricing
this model, which we expect to be able to offer to eligible
small businesses at no more than $75 per month or less per
employee share. The $75 was arrived at because that seemed to
be the participation break point documented in our survey.
Our goal is to develop a marketable product to bring to
small business owners before the end of this year. If we are
successful, this approach could be a model for other Illinois
communities.
We appreciate the recognition that this Committee is
providing for locally developed solutions to the need for
affordable coverage that have potential applicability on a
community-by-community basis.
Again, I thank you and look forward to your comments and
questions.
[Dr. Lund's statement may be found in appendix.]
Chairman Manzullo. Thank you, Johanna.
Mr. Kirk. Mr. Chairman, I have got to meet with our first
responders in Riverwoods.
Chairman Manzullo. Okay.
Mr. Kirk. So I have got to take off.
Chairman Manzullo. Well, thank you for coming.
Mr. Kirk. There is not a day goes by that this subject does
not come up. So you are right on target.
Chairman Manzullo. We held a hearing in your district what,
last year?
Mr. Kirk. That is right, and I just want to applaud your
leadership.
Chairman Manzullo. Thank you.
Mr. Kirk. Your committee is right on target here.
Chairman Manzullo. Thank you for coming.
Mr. Kirk. Thank you.
Chairman Manzullo. Mr. Ryan, did you want to ask some
questions?
Mr. Ryan. Sure. Did you want to go first, Mr. Chairman?
Chairman Manzullo. No, go ahead.
Mr. Ryan. Okay. Well, thank you.
This has been really enlightening. Ryan, I wanted to ask
you a couple of questions. I notice you have a lot of Ryans in
Illinois. [Laughter.]
Mr. Levin. You would think we were in Ireland.
Mr. Ryan. I am intrigued with your actuarial background
academically, and your model that you prescribed is one, and
correct me if I am wrong, that is individual based where you
make sure that you have informed consumers making decisions.
And would you agree that in the current system you do not have
informed consumers and that is a source of the big problem with
the cost increase that we have?
It is really not a competitive environment. Would most of
the panel agree with that?
Mr. Reljic. Absolutely.
Mr. Ryan. What do you think, and, Dr. Lund, you said
something that I thought was very interesting, which is we are
not trying to preclude other workable models. It seems like
what youhave heard with these two panels are different ideas on
how to achieve the goal of getting access to affordable health
insurance so that there are different workable models.
What is your, and I would like to ask the panel, all of the
panel, what is your impression of basically what the President
outlined on February 11th in Wisconsin when he gave his big
health care speech? What the President outlined was basically
this:
A refundable health insurance tax credit, $1,000 for
individuals, up to $3,000 for families to purchase health
insurance, association health plans so that small businesses
and individuals can get access to pools, and then unlimited
medical savings accounts, which for those who do not know what
medical savings accounts are, are like an IRA for health care.
Right now, as Ms. Jensen said, it is deeply regulated. It
is capped to the amount of people that can participate in it.
In the Ways and Means Committee we are advancing legislation to
unlimit the amount of MSAs that can be used in this country and
reduce some of the regulatory barriers.
What do you panelists think of that model, tax credit with
pooling plans across the country and with unlimited MSAs? Do
you believe that each of the models that you are calling for,
that you are developing could thrive in this environment?
And then at the end of the day, would we or would we not be
able to have a healthy competition of ideas and models at work
for the people in this country to try and achieve better health
care savings?
And then would that not provide us with not just putting
our bank on one good idea, but releasing a bunch of good ideas
to get at the goal of affordable health insurance?
And I will start with you, Ryan.
Mr. Levin. I think you are right on in that there is no one
solution. There are clearly a number of solutions and some are
more applicable in some circumstances than others. The
proposals that the President put forward, I think, have a lot
of merit. Specifically, the tax breaks, that will certainly
increase affordability.
Increasing the ability to use medical savings accounts I
strongly support. My view is that that should not be restricted
to opening them up to larger employer groups and more
participants, but should also include moves to increase the
flexibility of the product designs within that structure.
Regarding association health plans, I have some strong
reservations, and in a nutshell, my view is that unless they're
implemented very, very carefully, they are a recipe for
disaster because of the selection issue. As soon as you offer
an opportunity to a number of individual decision makers to
participate or not to participate, they will make their
decision as to whether they should participate based on the
benefit it provides them personally or their organization.
What that means is that you tend to find those who cannot
get a better deal elsewhere participating, and you get into
that risk spiral where the cost for those in the group
continues to increase because those who can get better deals
elsewhere go elsewhere.
Mr. Ryan. Now, that is the topic of adverse selection that
we debate constantly in our committee, and it is important to
note that association health plans do not necessarily mean that
they are going to offer one health insurance package to
participants in the plan.
They could function like, I assume, your state health
insurance plan does, Wisconsin's state health insurance plan or
the federal employee health benefit plan, which is a laundry
list of access to different products you can use.
I chose the Blue Cross PPO, but I think you mentioned you
are, Don.
Chairman Manzullo. Most members have because it covers the
family both in Washington and----
Mr. Ryan. Yes, and we have many choices. So it seems that,
if the AHP is structured correctly with the right solvency
standards and those kinds of things and with the wide variety
of choices, that the adverse selection can be dealt with.
But it is an important thing. Does your model that you
articulate in your testimony with Discovery fit with what we
just discussed as being the President's plan? Can that be
furthered?
Mr. Levin. Absolutely, absolutely, yes.
Mr. Ryan. Ms. Jensen.
Ms. Jensen. We were thrilled with the President's package,
and as you so eloquently put it, I think it is essential to
have different interchangeable parts that work together.
The three things that our members tend to look for, and we
ask our members before we get involved in any issue, is they do
not like the government telling them what to do. They do not
like mandates, and they like competition because that is the
kind of environment that they work in as a small business
owner.
So those three components of the President's package are
essential, and our only concern about tax credits is if you do
them alone, they are great because they provide you with money
and resources, but they do not provide the competition that
brings premiums down.
So we think it is important that all three work together.
Mr. Reljic. I would agree. I would also add that the issue
of this adverse selection is one that is debated not only in
Congress, but in state legislatures around the country as well.
But I think we need to take a look at, and I certainly do
not know the answers to this, but we really need to take a look
at what is occurring right now because an insurance company
really has a motivation to find the healthiest people possible,
and so it becomes an actuarial game that whoever has the best
actuaries to determine what those losses are going to be is to
be the most profitable.
We really should take a look at what is being done to share
the cost overall as opposed to having a motivation or an
incentive to find the most healthiest group or the most
healthiest customer. I think that is where we really--the
President's package certainly goes a long way at helping get
more affordable coverage, but I think we also need to take a
look at that aspect because as you look at it right now, it is
completely an incentive to have the best.
The company with the best actuary is the most profitable
insurance company as opposed to one that is managing the care
better and sharing those risks.
Ms. Woodbury. If I look at my community and I think about
tax credits, I think about the people down the block at the
Chamber of Commerce because our Blue Cross/Blue Shield product
has been skyrocketing, and every time it goes up they lose
members.
And I think tax credits probably have a bigger impact on
their part of our local market because it stops businesses then
from sort of getting themselves out of the market altogether
and just dumping coverage. I think a tax credit really helps
businesses that are already there.
It does not help very much with that part of the market
that we work with, which is a fairly low income group. If ten
percent of the businesses that we currently have in our program
are child care businesses, the average child care worker makes
$15,000 a year. There is not the expendable income up front to
wait for a tax credit at the tail end.
Mr. Ryan. Well, If I could jump in, the President's
proposal is an advanced refundable tax credit.
Ms. Woodbury. Okay.
Mr. Ryan. So you do not wait until the end of the tax year.
You get it every month when it comes through.
Ms. Woodbury. Okay. That would be critical because these
folks just do not have the money.
Mr. Ryan. No, it is a good observation.
Ms. Woodbury. I would like to point out though I would like
to see an insert there in terms of community innovation because
I think that while we debate these issues and we have debated
them for a long time now in terms of what we are going to do
about an insured in the country, that some of the best
innovations are coming out of communities. It is not just mine,
but communities across the country have just sat down, like
Rockford, and said, ``Let's get our own arms around it. This is
affecting our own hospitals, our own doctors.''
We have always talked about all politics being local, and
so is health care. And I think there comes a point where it
would be good maybe. We have innovation types of programs for
all sorts of things, certainly in research. Why not some
innovation money to allow communities to also explore options?
Because we always tend to think we have invested everything
that is inventable, and that is not true.
Mr. Ryan. Well, and that is what the market does.
Ms. Woodbury. Yes, it does.
Mr. Ryan. One thing I wanted to add is that there is a big
debate right now in Washington and Congress about whether or
not the tax credit goes to people with employer-sponsored
health care or not. So there is a concern that if you offer
just the individual market a health care tax credit, you will
peel away from employer-sponsored health care.
Some of the proposals have a smaller credit available for
those enrolled in employer-sponsored plans. So it would cover
out-of-pocket costs and then a higher credit for those outside
of it so that you do not carve out or shift away from one of
the two models and so that you truly do present a level playing
field so that ideas can compete, the market can work, and that
incentive structures, as you said, Ryan, can be firmly put into
place. Then let's see the good ideas flow and see what works
the best way.
And that is hopefully what we will end up doing at the end
of the day.
Dr. Lund. I certainly cannot add a great deal to what the
rest of the panel has said. I like the idea of the advanced
refundable, provided that that is not used for other expenses.
Mr. Ryan. It would not, no.
Dr. Lund. It would have to be limited. I understand that is
where the President wants it to go. I am concerned that as it
goes through its normal processes, that that might be changed.
So that would be a concern.
The other thing is we can be as innovative as we want in
communities, but if we do not have some sort of equality among
the states, for instance, we cannot do in Illinois what
Muskegon has done because of our legislative process, because
of our legislation currently in place.
So I would like to see some equity, and then we can change
and perhaps fund not only innovation, but forms whereby we can
exchange this information. Right now we pretty much have to
seek that out for ourselves.
But I think the President's plan was a very good one. I was
very happy to see it.
Mr. Ryan. And I think the concern you mentioned about
whether the tax credit goes to health care or something else is
very well founded. One of the ideas that we are kicking around
to prevent that from happening, prevent it from being spent on
something else, is to do it through the employer model. Do it
through withholding so that the HR person at the company, if
you're at a business that doesn't offer health insurance or
does offer health insurance, sends it right to the insurance
company.
You could do it through other reimbursement ways, through
the government, through a FICA tax withholding where it goes
straight to the insurance company without having to have the
individual deal with it, and then have the chance for fraud
like we have had in the earned income tax credit and things
like that.
So it is just food for thought.
Dr. Lund. Right.
Mr. Ryan. I can tell I have gone way over my five minutes.
Dr. Lund. Just one quick comment. On the MSAs, we are
taking a look as a possible alternative. I said we are not
excluding any model. It is something we are calling MSA-lite.
That would be one opportunity for us to perhaps be able to get
up and moving more quickly than having to wait for legislation.
Mr. Ryan. I appreciate that.
I just want to mention I want to thank the Chairman. I have
to head back up to Janesville as well.
Chairman Manzullo. Thanks for coming.
Mr. Ryan. So thank you very much for this hearing. I
appreciate it.
Chairman Manzullo. I appreciate your input.
Oftentimes I like to find out what associations people
belong to to see if they could somehow, say, within an
association health plan--do we have any people from the Farm
Bureau here?
What about the Association of Building Contractors? Okay.
Any other NSIB? All right, okay.
Any medical professional groups, AMA, ADA?
So these are aiming my question. I ask that for your
benefit.
Who is fighting AHPs and why?
Ms. Jensen. Well, we have got a variety of opponents,
largely state regulatory folks, state insurance commissioners,
and insurance companies. Those tend to be the largest
opponents, and our bottom line concern, for insurance companies
we cannot understand why they oppose it because we think that
largely they would be a partner in an AHP, that they would help
offer the product.
So the only reason we can assume they oppose it is a purely
competitive one, and for State Insurance Commissioners we have
gone a long way to address any of their concerns about adverse
selection, cherry picking, as they call it, and we feel that we
have got a very substantial product that is very safe.
And, frankly, you know, we have got an uninsured
population, small business, that is 60 percent. So it is not
that they are going to be cherry picked out of another health
plan. They do not have anything right now. So we do not
understand the opposition, frankly.
Chairman Manzullo. What I----
Mr. Levin. Can I?
Chairman Manzullo. Go ahead, please, Ryan.
Mr. Levin. Perhaps I can answer that at least my own
personal perspective. I do not oppose association health plans
from a business or competitive standpoint. I simply believe
that they will not work.
And if as an insurance company I would be forced to
participate from a risk perspective, then I believe that would
be loss making to my company, and that clearly would not be in
our best interest.
But the existence of association health plans as you
clearly point out would not harm ourbusiness unless we were
forced to participate in a way that we believed was not sustainable.
And, therefore, my personal reservations are based on my
belief that it is not a sustainable solution to the problems
that we are facing.
Chairman Manzullo. But won't you agree that the larger the
pool of prospective insureds, the greater the sharing of the
risk, the spreading of the risk, and the lower the premium?
Mr. Levin. Not exactly, no.
Chairman Manzullo. Let me ask it another way. If a Ma and
Pa company with five employees tried to get insurance, isn't
their insurance a lot more than a company with 1,000 employees
or 5,000 employees?
Mr. Levin. The answer to that depends on their health
status. If that Mom and Pop company of five employees has a
healthy group of employees, they may well be able to get health
insurance for less cost than a larger group.
Chairman Manzullo. So that is called cherry picking; isn't
that correct?
Mr. Levin. It's called risk assessment. [Laughter.]
And appropriate pricing.
Chairman Manzullo. But in the large corporations you do not
require a profile as to every employee's medical condition;
isn't that correct?
Mr. Levin. And the reason for that is because you have a
captive participation audience.
Chairman Manzullo. Right.
Mr. Levin. I agree with your statement that the larger
group in general should have lower costs than a smaller group
because of administrative efficiencies, et cetera.
From a health risk perspective though, the two do not go
hand in hand. From a health risk perspective, it depends on the
choice to participate or not participate in the pool.
If that choice exists, then you get into the adverse
selection issues, and if the choice is made by employers----
Chairman Manzullo. But you have adverse selection now with
Blue Cross/Blue Shield who will say, ``I want five healthy
employees.'' But with the 1,000 people over here where they do
not get the health background, no health check, and give a
lower premium, there is no cherry picking going on.
Mr. Levin. Well, with the 1,000 employees, the risk----
Chairman Manzullo. The universe is complete.
Mr. Levin. Yes.
Chairman Manzullo. All right. So if you took these five
employees for this one company and let them just figuratively
be part of 1,000 employees, just treat everybody the same as
they come into this so-called pool, which I still do not
understand what you are doing that Blue Cross/Blue Shield was
trying to establish, I mean, then can't you treat those people
in multiples of fives and say, well, you can treat 1,000
people?
Mr. Levin. Here is the issue. If you have a population of
1,000 people and you have mandated participation of those 1,000
people in the risk pool, then you have a sustainable solution.
As soon as you say we have got this population of 1,000
that are all being treated the same way, each of those people
can decide to opt in or opt out. Then you have a greater
likelihood of the unhealthy opting in, and the healthy opting
out.
Chairman Manzullo. My brother-in-law is IBEW. He is a
lineman. You could not pay me enough dollars per hour to do
what Brad does. His insurance is carried by the union
regardless of who his employer is. He gets great coverage. He
has lots of choices, and he is an electrician.
Mr. Levin. But there you have mandated participation
because all members of the union are required to participate in
that.
Chairman Manzullo. Does anybody want to touch that?
Dr. Lund. Don, just from a personal experience, Mr.
Chairman----
[Laughter.]
Chairman Manzullo. Yes, Dr. Lund. Does that make it easier
for us?
Dr. Lund. When we sold our company, we had 31 employees. So
that got us just over the 23 employees. Our premium for my
husband and myself was about $240, $250 a month.
The day that we changed from that, we were the same two
people, the same risk factors, the very next day our premium
went to almost $700 a month because now we were only two.
Chairman Manzullo. And AHPs would love that, too, be part
of 2,000 or 20,000.
Ms. Jensen. Can I make one quick point, Mr. Chairman?
Chairman Manzullo. Sure.
Ms. Jensen. All we are asking for is essentially to be
allowed to participate in what is, as you mentioned, already
going on with large employers and unions every single day right
now. I mean, it is working very effectively for those plans.
If you look at the Caterpillar model or the John Deere
plan, they provide a high level of health care, and it is much
cheaper. As far as cherry picking goes, unfortunately our
members are cherry picked every day. Depending on the laws of
the state, whether the insurance company chooses to underwrite
them is a big question.
So the insurance company essentially has the power to say,
``Yes, you will participate,'' or, ``no, you will not,'' and
under AHPs, the association does not have that ability. They
say, ``We must offer to every single person who participates in
an FIB.''
Chairman Manzullo. Okay. Maybe I am missing something here,
but I started off with the premise, and I still believe, that
the larger the group, the more you spread the risk. It brings
down cost shifting in the end, which makes insurance premiums
cheaper for people who already have insurance.
And yet we find this continued opposition from Blue Cross/
Blue Shield on a flawed CBO report that has been discredited by
I do not know how many economists and coming from the labor
unions.
I mean, AHP's are nothing more than the model for the labor
unions, they have been out front on this issue for 50 years.
Because my dad belonged to 792, the local carpenters union, and
Dad floated from place to place to place before he went into
the restaurant business. Our family always had insurance
because the insurance was not employer based. It was based upon
the pool that existed, and he paid so much into the pool and
with the labor union dues, et cetera.
And that has been one of the most seamless plans. You could
go from an IBEW probably to another craft and transfer your
insurance. If you decided to go, you know, from electrical work
to plumbing work, you would probably have a transition period,
but the family is continuously covered there.
But I see something so simple as the AHP getting hammered.
Congresswoman Velazquez, who is the ranking minority member of
our Small Business Committee, has a lot of labor support, and
she is a co-sponsor of a bill for AHPs, and members of Congress
are standing out.
But if I am wrong, that the larger the pool, the lower the
insurance rate, then the AHP is for naught. Is that correct?
Well, let me ask you one last question. The bill to which
you made reference in the house, doyou know what the status of
that is?
Mr. Reljic. It is going to pass today. Who knows? I mean
the house and senate are in session right now. It passed out of
the House Health Care Committee with a substantial number of
votes in a bipartisan manner.
Chairman Manzullo. So it has bipartisan support?
Mr. Reljic. Yes. In sessions past it has passed the house
and stalled in the senate.
Chairman Manzullo. Who is opposed to the bill? Do you know?
Any groups?
Mr. Reljic. Mostly insurance groups and agents as well.
Chairman Manzullo. Okay.
Mr. Levin. Can I just make one point?
Chairman Manzullo. Yes.
Mr. Levin. That my reservations are with no vested
interests. It is a professional opinion and a professional
recommendation I am making that risk pooling only works or
community rating only works with mandated participation. That
is why it works for large employer groups and unions.
As soon as participation is not mandated, the model falls
over.
Chairman Manzullo. Do you disagree, Amy?
Ms. Jensen. I do not believe that union members are
mandated to participate in the union plan, but we would have to
discuss that separately.
Chairman Manzullo. Does anybody know the answer to that
question? Yes.
Audience Member. Maybe I am older. Association health plans
have existed for generations, and what everybody seems to be
missing is why would they all fall apart. Why don't we have
them anymore?
And the reason we do not have them is exactly what Ryan is
saying, because the choice factor drives the healthy out as
soon as premiums start going up.
So what happens is you get the awful spiral where you are
stuck with the sick and the healthy go elsewhere because they
can go elsewhere for coverage. And then union model does not
work because basically when you join the union, that is your
health plan.
Now, you can obviously, I suppose--I am not even sure you
can do this--but I suppose a union member can opt out of the
union plan if he so chooses to buy individual coverage.
Chairman Manzullo. But what if his spouse or her spouse is
covered elsewhere?
Audience Member. Well, then he would have a choice.
But the point is though that you are not going to get the
adverse selection in a union plan. You are not going to get the
adverse selection in a General Motors plan.
Chairman Manzullo. Because they are all healthy working
people.
Audience Member. No, because it is a preexisting pool that
is large enough to sustain the illness of the participants.
Whereas when you are talking about a small business or your
group, the decision making mechanism is totally different. It
is driven almost uniquely by cost.
So as soon as that small employer finds himself in a plan
that becomes expensive and he can find coverage elsewhere more
cheaply, he opts out immediately.
You do not have the same phenomenon. If I end up a General
Motors employee, that is not the same model. If I am a union
member, it is not the same model.
Now, you are absolutely right when you say, you know, the
larger the numbers, the better the risk and the lower. You are
absolutely dead right. The problem is that you cannot fit small
employers into that larger pool unless you mandate it, and that
is the problem.
We are not making this up. This is historical.
Chairman Manzullo. No, I understand. There is another issue
here. There is a First Amendment issue of right of association.
I mean, I have a big problem with laws that say small business
people cannot band together and buy insurance in groups. There
is a constitutional issue that no one is even talking about.
You know, I have an appointment at two o'clock. So what I
am going to have to do is to, Ryan, give you the last word on
it.
Mr. Levin. Can I just make the point?
Chairman Manzullo. Go ahead.
Mr. Levin. In states like Illinois, there actually are
rules designed specifically to protect small employers from an
insurance perspective. Those laws have restrictions on how
insurance carriers can write a small employer group based on
their health status.
In states where these laws are more restrictive, what
happens is the number of uninsured has increased because the
model is unsustainable. So the more restrictive these small
group models become, and what you are talking about with
association plans where there is community rating within the
plan is essentially a very restrictive small group law.
The tighter those laws, the lower participation becomes and
the higher health care costs become, and that has been proven
time and again.
Chairman Manzullo. I want to thank the panel for coming.
The basic problem is this. Small businesses cannot afford
20, 25, 27, 30, 35 percent increase in insurance premiums every
year.
Mr. Levin. Absolutely.
Chairman Manzullo. And so we are trying to do something
innovative. Every time the small business people try to do
something innovative, somebody comes in and says, ``Your model
does not work.''
Well, my comment is the present model is not working. We
have got small business people that are closing up their doors
and going to work for larger employers. It is destroying the
spirit of entrepreneurship.
And the cost of increase of insurance premiums on a small
business is much greater than it is on the cost of a bigger
business. We had a hearing in Washington about three weeks ago.
I could not get Blue Cross/Blue Shield to admit that.
If premiums go up, usually premiums for the small business
person are doubled than they are for the larger corporation.
But we are at the point now here where the system is broken.
The system is broken. I mean, no one wants to come in with any
type of socialistic scheme or anything like that, but we are
looking for some solutions.
And the only thing I see out there besides the tax credit
that goes even to people that do not pay taxes, which is called
the refundable tax credit, is to somehow allow all of these
small groups of people out there the ability to form an
association to be able to come together to try to buy insurance
for themselves.
That is an AHP. You know, let's think past and try it. If
it breaks, it breaks. Because the present system is broken now,
and at this point we do not have much to lose.
Well, listen. I want to thank you all for coming. It has
been tremendous testimony. The purpose of these hearings for
the person doing the recording is to gather all of this
information, and I have heard of some innovative plans.
Ryan, you know, that South African plan, that is a great
model. And the quality of the different plans, I have never
heard this type of diversity before in all of my years on
Capitol Hill when it comes to different approaches to helping
to insure small business people.
Somewhere along the line each of the things that you have
testified to may find its way into some type of legislation.
The insurance industry has raised, in my opinion, some red
flags that are cautionary signs that should be used in setting
up these AHPs, and that has been extremely valuable because
they have seen not only their experience rating, but worked
with other AHPs, that there are giant holes in the way these
things work.
And I will trust somewhere along the line the insurance
companies, the labor unions, and the small business people can
sit down and come up with a workable program that will address
each of these deficiencies, and that is the reason why we have
hearings like this.
This meeting is adjourned.
[Whereupon, at 12:40 p.m., the Committee was adjourned.]
Opening Statement of Chairman Donald A. Manzullo
Good Morning. It is my pleasure to welcome everyone to today's
Small Business Committee field hearing on the crucial issue of small
business access to health care.
Exorbitant health care costs are one of the biggest expenses small
businesses and the self-employed incur as they struggle to provide
coverage for their employees. As Congress continues to examine our
nation's health care problems, we need to remember that sixty percent
of the estimated 43 million uninsured are small businesses owners,
their employees and families.
Small business owners are unable to absorb spiraling health care
costs and find themselves priced out of the health insurance market.
Many owners are faced with the choice of staying in business or
providing their employees with insurance.
I personally know of a small business owner who pays $700 a month
and has a $5,000 deductible to insure both himself and his wife. He and
his wife are considering selling their business and taking jobs that
would pay considerably less in order to receive health care benefits.
Our current health care system does not provide equal access to
affordable and quality healthcare for small businesses.
One of the reasons small businesses cannot afford health coverage
for their employees is that they are unable to achieve the economies of
scale and purchasing power of larger corporations and unions. Small
businesses suffer from unequal treatment--what they want most is a
level playing field when it comes to health care.
Large corporations use the purchasing power of thousands of
employees to offer affordable health insurance to their workers. Small
business owners, on the other hand, have to find their insurance on an
individual basis, making it very difficult and expensive to find
affordable health coverage.
I can't help but wonder why insurance companies cannot offer
affordable healthcare to small business? Why must insurance companies
charge the most to those least able to pay these inflated prices?
I was very heartened to see President Bush issue his plan for
helping small businesses prosper in our economy. The President is aware
of the health care access and affordability problems facing small
business, and his plan includes concrete steps to increase health
security for employees of small businesses. His agenda calls for
Association Health Plans to be available for associations that want to
provide health coverage for their members, and it calls for a permanent
extension of Medical Savings Accounts, including a significant
reduction in the required deductible for these health accounts.
Congress needs to ensure that there are many different health
insurance options for small business owners to utilize. We need to help
our businesses attract and keep employees, and nothing helps more than
the ability to provide health insurance.
I look forward to the testimony of all the witnesses here this
morning and I want to particularly thank those who have traveled a long
distance to be with us here today.
______
Prepared Statement of Michael Holoka
My name is Michael Holoka. I am an attorney in Rockford, Illinois.
I am married to a physician and have a twelve year old daughter. We had
a traditional medical plan through my practice which covered my family.
Since I am a sole practitioner with only one employee, this was the
most economical way for my family to go. We have had our traditional
insurance plan with Guardian Insurance since 1995 with no additional
claim experience. I was paying about $5,000.00 per year. By the year
2000, we were contemplating going without any insurance because of the
cost of the premiums being $21,000.00 per year for our traditional
program still with Guardian Insurance. This was based on the fact that
we had no claim loss, that is we had not made any claim against
Guardian for medical insurance purposes since 1995.
Realizing that we could not afford to continue an insurance program
which was going to continue to rise, at a minimum, twenty percent each
year. We considered picking up a catastrophic insurance policy and
basically self-insuring. While health care services had diminished and
physicians were being paid less for their services, health insurance
premiums continued to rise. One day my wife received a facsimile
concerning something called an MSA insurance plan. I was not aware of
nor had I heard of such a plan. However, the plan turned out to be a
blessing. In fact, it had sounded too good to be true.
Some of the main features of the plan were that we could pick our
own family deductible between $3,100.00 and $4,800.00. We also had the
opportunity to save up to 75% of the deductible each year, which meant
we could put into an MSA account an amount just over $2,300,00. If we
chose not to use those funds for the deductible, they would just
continue to build in the account which we have with Merrill Lynch. The
best part of the plan however was the premium. While looking at a
premium of over $21,000.00 per year with Guardian Insurance for a
traditional medical plan, the medical plan we chose with Fortis
Insurance was approximately $3,600.00 per year. This included maternity
for my wife. If we chose to not include maternity coverage, the premium
would have been considerably less.
It was amazing to me that we had heard very little about MSA
insurance, particularly in view of the insurance crisis. When I
attended a small business breakfast with Congressman Manzullo, I
explained how this plan worked. It was amazing to me that none of the
small business owners in attendance had heard of this plan and there
had to be over 25 businesses represented at the meeting.
It is my understanding that there are any number of variables that
go into the premium. Obviously the higher the deductible you choose,
the less your premium will be. One quote I received for a $4,500.00
deductible was less than $2,500.00 per year. If we chose dental, the
coverage would have added less than $1,000.00 to our plan.
It is not difficult to see how vital the MSA program is for small
businesses so that they can provide the proper benefits for themselves
and their employees for an extremely reasonable cost. There is even a
term life insurance feature available up to $50,000.00 under certain
MSA programs.
The MSA account itself is a tax favored account set up to pay for
medical care and to allow for a build up of savings to pay for future
medical expenses. The MSA itself is a high deductible plan with
extremely low premiums compared to traditional insurance. The premiums
are of course deductible for the business and the amounts contributed
to the medical savings account also have special tax treatment. When
you use the providers participating doctors and hospitals, one hundred
percent of the eligible charges are picked up after deductible. Plans
vary as to what percentage is picked up if you use out of network care.
The bottom line is that the MSA plan certainly will allow small
businesses to affordably provide medical coverage to the owners as well
as to their employees.
We are extremely pleased with this plan. Without it, we would
probably not have any insurance coverage, would be self-insured for
health coverage and would probably be maintaining a catastrophic
insurance policy which, premium wise per year, would probably equal or
exceed the amount we are paying for the MSA program. It is my hope that
the MSA program will continue and be of great benefit to small business
and allow many small businesses to remain soluble in the current
economic market.
______
Prepared Statement of Dr. Bill Kobler
I am pleased to be here to present a medical perspective on the
rising cost of health care, which is a logical contributor, among other
factors, to the rising cost of health care insurance. This is a very
complex and multi-faceted problem, and I surely will not be able to
present a complete picture today, but I hope I can provide some insight
into the problems we face as health care providers. First, a little
background.
An article in the New York Times in January states the government
reported that in 2000, national health spending shot up 6.9 percent to
$1.3 trillion in 2000. This was the largest one-year percentage
increase since 1993. Hospital and drug costs were the main factors in
the latest increase. (NYT 1/8/02)
Growth in health spending outpaced the 6.5 percent growth of the
economy as a whole in 2000. Health care now accounts for 13.2 percent
of the nation's total output, up from 13.1 percent in 1999 and 12
percent in 1990. As a physician, I could argue that this is not enough,
but I'll leave that alone for now!
What are some of the factors leading to these cost increases? There
is an old problem which is again rearing its ugly head. In the 1970's,
there was a crisis for physicians when all the major professional
liability insurers in Illinois pulled out of the market. St. Paul and
CNA again stop providing coverage.
Kenneth S. Abramowitz, of the Carlyl Group states ``The rising cost
of malpractice coverage is becoming one of the most important factors
driving inflation for physicians' services.''
In many hospitals, insurers are not only increasing premiums but
are also sharply reducing amounts of coverage and raising deductibles.
A Chicago hospital paid the St. Paul Companies $1 million for $40
million in coverage in 2000 with a deductible of $15 million. In 2001,
St. Paul raised the premium for the hospital, to $1.8 million, but cut
the coverage to $10 million and more than doubled the deductible (NYT,
9/10/01). Insurers say the increases are due to large awards by juries
and large settlements.
Some research suggests that the average jury award rose to $3.49
million in 1999, up from $1.95 million in 1993. (Jury Verdict Research,
Horsham, PA)
According to the Liability Monitor in Chicago, professional
liability premiums are rising at an annual average of 30%.
Because of the rising medical malpractice premiums, medical costs
are rising in another way: Physicians are practicing more defensive
medicine--ordering extra tests and choosing procedures that limit their
risks.
Another item is the explosion in the availability of very good, but
very expensive prescription drugs. This is a serious problem for all
recipients of health care. The proposal to provide these drugs under
the Medicare program is a wonderful concept, but frightening when one
pauses to consider the source of the funds for this population who
consume a very large percentage of pharmaceuticals.
Medicare managed care and other private insurance plans have cut
drug benefits in the last few years. The average senior spends about
$500 annually for medications, plus hundreds and even thousands more
for private insurance policies to cover some of the cost of
prescriptions. I saw a patient just the other day with a $7,000 tab for
medication in the year 2000!
There are a number of other factors I would like to briefly list,
which also drive up health care costs. The people of this country have
an insatiable appetite for health care services. They are bombarded
with story after story of medical miracles, advertising of prescription
pharmaceuticals, promises of unlimited access to health care made by
their managed care company. Yet there is very little incentive for them
to utilize these services wisely.
There is an overwhelming burden of government regulation, which is
choking the medical profession in its attempts to provide care. Many of
you know the alphabet soup as well as I, but the provisions of COBRA,
CLIA, HCQIA, EMTALA, HCFA, now affectionately known as CMS, are burying
us in needless paperwork and documentation. We attempt to follow the
regulations, at the risk of prosecution, fines and imprisonment under a
system so complex, that it is impossible to meet all of its
requirements. And now we will soon face the absolutely terror provoking
HIPAA statutes!
We are facing a serious shortage in well-trained nurses. Medical
school costs are becoming so large as to discourage our best and
brightest from applying to medical school, knowing they will face huge
debt, declining incomes and loss of respect for the time they spend and
dedication they demonstrate in their career choice as physicians.
As a doctor, my job is to investigate problems and solve them. It
would be easy to become discouraged, but medicine is still the most
rewarding of professions, one worthy of fighting for and defending. I
am pleased to see this forum, attempting to understand the problems of
medicine and its availability to small businesses. After all, physician
practices have traditionally been counted among the ranks of small
business. If we work together, keeping the patient as the center of our
focus, I am confident we will find a solution to our problems.
Thank you for your time and attention.
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