[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS ACCESS TO HEALTH CARE
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
CRYSTAL LAKE, IL, AUGUST 14, 2002
__________
Serial No. 107-67
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Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
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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
MIKE PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MICHAEL 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 August 14, 2002.................................. 1
WITNESSES
Blankenbaker, Mary, Co-Owner, Benjamin's Restaurant.............. 5
Brauns, Ryan, Senior Vice President, Rockford Consulting and
Brokerage...................................................... 6
Shalek, Scott, RHU, Shalek Financial Services.................... 8
Close, Brad, National Federation of Independent Businesses....... 11
Koehler, Ken, Flowerwood, Inc.................................... 13
Buxton, Brad, Vice President of Networks & Medical Management,
Blue Cross & Blue Shield of Illinois........................... 14
Wilson, Isabella, Chief Financial Officer, Illinois Blower, Inc.. 17
Milam, James, MD, Illinois State Medical Society................. 19
APPENDIX
Opening statements:
Manzullo, Hon. Donald........................................ 36
Crane, Hon. Philip........................................... 39
Prepared statements:
Blankenbaker, Mary........................................... 41
Brauns, Ryan................................................. 44
Shalek, Scott................................................ 53
Close, Brad.................................................. 59
Koehler, Ken................................................. 69
Buxton, Brad................................................. 72
Wilson, Isabella............................................. 75
Milam, James................................................. 78
SMALL BUSINESS ACCESS TO HEALTH CARE
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WEDNESDAY, AUGUST 14, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11 a.m., in Room B-
171, College Conference Center, McHenry County College, Hon.
Donald A. Manzullo (chair of the Committee) presiding.
Chairman Manzullo. Well, good morning. Can you hear my
voice clear enough? Okay. It is my pleasure to welcome
everybody to today's Small Business Committee Field Hearing on
the critical issues of small business access to health care. As
soon as this hearing ends, we will be going to Libertyville and
have a hearing there on how the cost of medical malpractice
insurance is affecting the cost of insurance premiums
themselves.
Fighting health care costs is 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 60 percent of the estimated 43 million uninsured
are small business 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 health care for small
businesses. One of the reasons small businesses cannot afford
health coverage is that they are unable to achieve the
economics 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
purchasing their health care products.
Large corporations use their purchasing power of thousands
of employees to offer affordable health care insurance to
workers. Small business owners 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 health care to small businesses. Why must
insurance companies charge the most to those least able to pay
these high prices?
I was very heartened to see President Bush's 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 businesses, 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. It calls for 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 coverage.
I look forward to the testimony of the witnesses. Now, they
are not all going to agree. Some are in favor of associated
health plans, and some are opposed. And the purpose here is to
get a fluent discussion going to see what ideas are bouncing
around Congress and tell us for your perusal. I am joined by my
excellent mentor. I met Phil a long--well, I know you got more
years than I do. I am not as graceful and distinguished as you
are. Before I was elected to Congress, Phil Crane represented
all of McHenry County, and then because of the redistricting in
1992, I became the blessed beneficiary of McHenry County, and
had the privilege to represent you in the past 10 years. As you
know, redistricting occurs every 10 years, and we came to a
situation where we went from 20 members of Congress, down to
19, and so the areas had to get bigger.
The Congressional District that I represent, we,
unfortunately, lost the northeast corner of McHenry County,
which is cities of Richmond, Hebron, Johnsburg; and the city of
McHenry itself, and Scott, also Rinkley. I've been thinking
about the cities that we lost in there. So, I lost that
northeast corner, and the redistricting map, I picked up the
western half of Global County, all of Carol County, the top
halves of DeKalb and Whiteside County. So the new branch of the
district I represent runs from Fulton on the Mississippi, all
the way over until Algonquin on the Fox, and then all the way
to the Iowa and Wisconsin borders to the northeast corner.
Phil Crane, in redistricting, we had to figure, he had to
expand his area, he couldn't go into Lake Michigan, and he
couldn't go into Wisconsin, and so, he had to come into McHenry
County. And as we looked at the map, we tried to make it as
square as possible. One of the townships got split,
unfortunately, but at least he kept the cities intact. So,
Phil, is again, reclaiming that northeast corner, and when we
sat down and talked about redistricting, Phil and I had to
agree that we are going to treat this county as a whole. So you
now have two members of Congress that are looking after the
interest of McHenry County, and I can't think of a finer
partner, and a friend, and a mentor, of so many years, and with
that, I'll go to you. Thank you.
Mr. Crane. Thank you, Don. I deeply appreciate that. It is
a pleasure to have the opportunity to be back in McHenry, and I
maintained a lot of friends over here, even after the loss of
our district. But my district in geographic area is roughly the
same. I lost a big chunk down in Cook County to guarantee that
our colleagues over there stay in their districts, and they
moved into mine, and I've been here eight years.
Chairman Manzullo. Okay.
Mr. Crane. At least we didn't send you down to Kentucky.
Chairman Manzullo. That's correct.
Mr. Crane. Well, I want to congratulate you for holding
this important hearing, and inviting me to have the opportunity
to participate. And I would like to commend your leadership
efforts on access to affordable health care for small
businesses. You've been a great ally in our fight to expand and
remake, or make permanent medical savings accounts, and your
work on establishing association health plans is to be
commended as well.
Let me just say that I believe all Americans should have
access to quality health care, and that is the best health care
system in the world. According to the U.S. Census Data two
years ago, there were around 39 million uninsured. Of that 39
million, 60 percent, I believe are owners or employees of small
businesses.
One of the main reasons that individuals go without health
insurance is the cost of the premium. Since 2000, insurance
premiums have continued to increase. This year, premiums rose
an average of 19.3 percent, and it said that for every one
percent increase in health insurance premiums, 100,000
individuals will lose their health insurance coverage. That's
1.9 million more individuals on the uninsured rolls this year
alone. And, Mr. Chairman, if I could just point out that I
recently read that insurance companies across the country are
seeking rate increases of 22.5 percent for next year. If that
is correct, that would be the highest annual percentage
increase in the last four years, and it would result in 2.3
million more uninsured next year.
There are also other reasons that Americans find themselves
uninsured. Some are unemployed workers who have the option to
continue coverage under their former employer's plan, as long
as they pay the premiums, but do not have the money to do so.
Other unemployed workers and some working families are
uninsured because their employers do not offer any coverage.
Still others, generally low-income workers, may be offered
employer-based insurance for themselves or their families, but
cannot afford the premiums.
All responsible lawmakers want some form of action to help
the uninsured. The argument is how best to do that. And,
although most members of Congress believe that the employer-
sponsored insurance system should continue as the basis of
coverage for most working families, there has been a gradual
recognition that, in today's economy, the traditional employer-
based system cannot serve all families effectively. In
particular, that system does not assure stable, continuous
coverage for all. Two factors demonstrate this problem.
There are very high rates of uninsurance among employees of
small firms. According to a Kaiser Family Foundation Survey,
while 99 percent of large firms offer health insurance, only 55
percent of firms, with fewer than 10 employees do. Among low-
wage workers, those who earned less than $7 an hour in 1996, 45
percent are not even offered insurance.
This is probably due to the fact that employers who try to
offer coverage to very small groups tend to face high
administrative costs. According to data collected by the
Congressional Budget Office, overhead costs for providing
insurance can exceed 30 percent of the premium costs for firms
with fewer than 10 employees, compared to about 12 percent
firms with more than 500 employees. Also, small employers may
lack access to resources to assemble good and affordable
options for their workers. Consequently, many small businesses
adopt a competitive compensation package that emphasizes cash
income rather than health benefits.
Because I am the vice chairman of the Committee on Ways and
Means, as so indicated, I'd like to focus for just a brief
moment on a role of taxes. The Federal Tax Code blocks
employees from obtaining coverage from anyone other than an
employer or former employer; The current tax system excludes
from taxable income, federal and state income taxes, and
payroll taxes, all compensation provided to a worker in the
form of employer-sponsored insurance. But workers who do
purchase insurance for themselves rarely can claim any tax
relief or receive any other assistance toward the cost of
coverage.
There is one section in the tax code that provides for some
tax relief medical expenses. Since 1942 taxpayers who itemize,
have been able to deduct health care costs that are in excess
of a statutory percentage of their adjusted gross income. The
current threshold where deductions of medical expenses are
allowed is after 7.5 percent of the adjusted gross income.
However, few taxpayers who itemize can reduce their taxable
income through the existing deduction, because their
unreimbursed medical expenses are unlikely to exceed 7.5
percent of the AGI. That is why I have introduced legislation
to help make health care more affordable by allowing taxpayers
to deduct most of their medical expenditures to exceed two
percent of their adjusted gross income.
Let me give you an example of how this legislation would
help. Under current law, a family with an income of $30,000
would only be allowed to deduct medical expenses in excess of
$2,250. Under my proposal, that same family would be allowed to
deduct all health care costs exceeding $600.
Let me just end by saying that providing access to
affordable, quality health care is an issue that will be with
us for some time. But the longer we wait to pass legislation to
help improve access to health insurance, means that millions of
Americans will continue to lack affordable protection against
the potentially catastrophic costs of an illness or accident.
And I look forward to hearing some of our local small business
owners, as we work towards a solution for this issue. Thank you
again.
Chairman Manzullo. Thank you, Phil. Most of you have never
testified before a Congressional Committee, and the first thing
I want to tell you is to relax, don't be nervous, this is not
the stuff that you see on C-SPAN and nobody is going to ask
that you get up and swear under oath. We conduct our small
business hearings formal enough to comply with the House of
Representatives Rules, but informal enough so that we are goal
orientated. We have a time clock of 5 minutes, and when we get
to 4 minutes, does a bird come out of the wall? What is going
to be our signal on that?
Mr. Thomas. I'll wave my hand.
Chairman Manzullo. You will wave your hands? What if I
don't see you?
Mr. Thomas. I'll make sure.
Chairman Manzullo. You will make sure you see me? Okay. So,
when we are at 4 minutes, I will let you know, or maybe I will
go like this, okay. And if you run over a little bit, that's
fine. But I do want to--after testimony, we have plenty of time
for questions by Congressman Crane and myself, and also you
might question each other, that is also permissible. And Mary,
you look the most nervous up there. I'm going to start with
you. Either you are first, or you are going to be last. So I'm
going to start with you. You are going to be first. And then,
go ahead, before any testimony, I just want to state that your
written statements will all be made part of the record. And if
you want to do the preliminaries, that's fine.
Mr. Crane. I understand, ladies first, but you mean
Isabella is next to last.
Chairman Manzullo. Oh.
Ms. Wilson. That's okay.
Chairman Manzullo. That's all right? You are okay Isabella,
all right. Thank you for reminding of that. Make sure you tell
us a little bit about your business, if you're self-employed,
and employ employees, et cetera.
With that, Mary Blankenbaker, you can go now.
STATEMENT OF MARY BLANKENBAKER, CO-OWNER OF BENJAMIN'S
RESTAURANT
Ms. Blankenbaker. Thank you. Good morning. My name is Mary
Blankenbaker. I am co-owner of a family owned and operated
restaurant in Galena, Illinois. I have about 12 full-time
employees and about 22 part time.
On behalf of the restaurant industry, I would like to thank
you for this opportunity to speak to the Committee on Small
Business about the important health care problems that are
facing small businesses today.
Small business owners can tell you that any changes to the
Patient's Bill of Rights must include explicit limits on
employer liability and provision for association health plans.
Of the approximate 43 million uninsured Americans, 60
percent live in a family, employed by a small business. Many
restaurants cannot afford to provide health benefits because of
costly state mandates and lack of purchasing power.
For each of the last two years, health insurance premiums
have gone up an average of 23 percent for table service
restaurants. Benjamin's has the best rating an insurance
company can provide. As of August 1st, our renewal date, our
premium increased 28 percent.
Many more small businesses in a variety of industries are
seeing this as well. Over 172 million people in the United
States receive health coverage through their workplace. Yet, it
is becoming increasingly difficult to offer health coverage
incentives to employees as a result of higher premiums.
Prior to August 1st, we were already under great financial
burden to provide health insurance to our employees, while
paying $745 a month for just four people.
I continue to hear from my fellow restaurateurs that some
premiums have risen even higher than ours. From 30 to 40, and
even up to 50 percent, association health plans would provide
employees greater access to better and more affordable health
coverage by allowing small businesses to group together to
purchase health insurance.
This would reduce the premiums and greatly expand the
benefits we could offer our employees at Benjamin's, and the
thousands of small businesses could offer their employees.
The insured deserves better than more mandates. Adding new
laws and expanding liability will only serve to increase
insurance costs and undermine employer's ability to voluntarily
offer this valuable benefit.
Help us to achieve proper legislation that will make it
possible for associations to pool their members and resources
so they can afford suitable coverage.
Association health plans are a win-win-win-win situation.
The insured's companies win because they lower sales costs and
write more policies. The employer wins because they can afford
the health insurance and they can add another benefit for their
employees. The employees now benefit because they are insured
and the government benefits because many more citizens are
insured without costing the government a penny. Thank you.
Chairman Manzullo. Thank you, Mary.
[Ms. Blankenbaker's statement may be found in the
appendix.]
Chairman Manzullo. Our next witness is Ryan Brauns. Ryan is
a senior vice president from Rockford Consulting and Brokerage.
And we look forward to your testimony, Ryan.
Are you doing okay, Mary?
Ms. Blankenbaker. I'm fine.
Chairman Manzullo. Well, you did just fine.
STATEMENT OF RYAN C. BRAUNS, SENIOR VICE PRESIDENT, ROCKFORD
CONSULTING AND BROKERAGE
Mr. Brauns. Thank you, Congressman Manzullo, and good
morning to you and Representative Crane. My name is Ryan Brauns
and I am the senior vice president at the firm called Rockford
Consulting and Brokerage, home office in Rockford, Illinois.
I would like to thank Chairman Manzullo for all of his good
work and efforts in the area of small business needs.
Particularly that of medical savings account expansion and
increasing access to insurance for uninsured working Americans.
Thank you, Congressman Manzullo. There is much work to do, and
with your leadership and free market vision of you and
Representative Crane, I'm sure efficient solutions will be
found.
When starting this, thinking about the testimony today, a
call from--let me paraphrase, Francis Bacon came to mind. ``For
the want of understanding causes, operations fail.''
1776, man, what a good year for the United States. What a
great year for the world, not only did we have Jefferson in the
beginning of this country creating an ethical framework for
political freedom, but a cost upon being as Smith, creating an
ethical framework for economic freedom, it is to be used of all
the nations. The outline in there, what a free market, is how
it could work? What it means to the surviving, and fried, and
what its loss of power is.
And the point of my testimony today is that there is
something going on in health care today. A revolution so-to-
speak, something that gives us great cause, great cause I
should say to be optimistic about what is going on in health
care. And I had college days that would constantly remind us
that the plan for the long run is that we die in the short run.
So clearly, a lot of things that you are discussing today, tort
reform, association plans of Patient's Bills of Rights, and
things of this nature, certainly have a role, they are
important issues. But I assert today, that they are not
necessarily long-run solutions, that certainly would help
people like we just heard from, now in the short run, but what
accountable solutions are systemic? And that is where the role
of consumers comes into play. Our health care system is the
greatest in the world. It reflects our values and that's why
it's different than any other system in the world. We use a fee
for service system. Everybody else matches to allocate these
scarce resources, except in the country of Singapore and South
Africa, the only free countries that have any type of fee-for-
service in free market health care.
But the system that we have developed, really since the
twenties, the day when Blue Cross came around, they
institutionalized the third-party payer system has taken the
consumer out of the equation by large. Taken all the power that
the free market group consumerism can break, and removed it
from the equation. I can give you two quick anecdotes, as to
how this power, we might save our daily lives. I see people
wear glasses, as do I and some of the panel. How often have you
heard a radio commercial advertising laser eye surgery? I think
about it. The next thing you hear one of those commercials, you
know the commercial, when the surgeon talks about the quality,
because we are certainly interested in that in health care, but
he also talks about the price. I will do it for eight hundred
an eye, I take Visa, MasterCard. The RAM study, that anecdote,
shows us that people make health care decisions engross by
price.
Let's take a look at the pharmaceutical industry for a
moment. In 1991, they spent $55 million marketing to you and
me. When you go home tonight and turn on the television, you
are going to see a lot of ads for drugs. It is not a
coincidence that over this last 10-year span, direct-to-
consumer drug advertising has gone from $55 million to $2
billion, and a large component of the rate increases that we
are seeing are driven by rising pharmaceutical costs. I don't
begrudge the pharmaceutical industry, it's a free market, but
it does prove to us the power of consumerism, consumers making
choices, making decisions based on their own wants and desire,
and price is certainly a part of that. Now, bring us to, I
guess the IRS ruling that came out on June 26, greatly
expanding the role of medical savings accounts, and what that
can do. I am going to assert today that just didn't go quite
far enough. That if we could see in your redirect, if we can
see if Congressional discussion, and so forth, an expansion
consumer types of model, the primary reason, it empowers their
employees, it bolsters the doctor-patient relationship, which,
by the way, would have great effects. In that situation, but
also the downward shift, the trend curve, we move up and down
the trend curve, meaning increases year-by-year, but we haven't
ever come up with anything to shift it. And that's the
excitement that consumers brings to the market, the average
rate of increases than you have seen in consumer driven
products, it has been half or less than what we are currently
seeing, and I could go on, but I welcome your questions.
Mr. Crane. Thank you.
Chairman Manzullo. Thank you.
[Mr. Brauns' statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Scott Shalek, Mr.
Crane's new constituent in Brainwood.
Mr. Crane. He used to be yours.
Chairman Manzullo. Yes, that's correct. I guess technically
until January 4th, whatever it is, the--well, I have gotten to
know Scott over the last several years, and Scott is an
insurance broker. And we had some very, very interesting
discussions on the products that are offered, and uniqueness of
products that are out there, and Scott, we welcome you to the
Small Business Committee to share with us your background, your
experience, and your thoughts.
STATEMENT OF SCOTT SHALEK, RHU, SHALEK FINANCIAL SERVICES
Mr. Shalek. Thank you, Congressman Manzullo and
Congressman----
Chairman Manzullo. Scott, can you please move the mike
closer to you? Thanks.
Mr. Shalek. Congressman Manzullo and Congressman Crane, I
want to thank you for the invitation and opportunity to testify
before the Committee on the issue of affordable health care for
small businesses.
My name is Scott Shalek; I am with Shalek Financial
Services in Ringwood, Illinois, and I am Regional Vice
President for the National Association of Health Underwriters.
Shalek Financial Services specializes in employee benefit,
consulting and financial planning for individuals in businesses
ranging in size from one to five hundred.
Our mission is to provide comprehensive solutions to help
individuals and businesses set and achieve financial security
and success, while providing a level of service above
expectations.
The National Association of Health Underwriters is an
association of highly qualified health insurance professionals
with over 18,000 members throughout the United States and
Canada. The mission of NAHU is to serve the public by promoting
the activities and ethical conduct of insurance professionals
through communication, education and legislative
representation. Members are trained and experienced in guiding
individuals and employers through the complexities of choosing
appropriate and affordable health plans.
Many members hold advanced designations from the American
College such as Registered Health Underwriter. We are the
agents and the brokers on the front line of health care every
day helping millions of individuals and businesses get the most
from their health dollars. To demonstrate the value of the
agent and broker, in my written testimony, I have said three
bases for my files.
Last meeting in Rockford you had, there was much discussion
given to using association health plans as a way for small
groups to receive lower rates, similar to those of union plans
or large groups. I realize that concept, that volume discount
to purchasing quotas as endorsed by business groups such as the
NFIV and the IMA to be sound as an innovative solution to
reducing health care costs to small employers. In other words,
these have been tried in several states with disastrous
results.
Last month a big MEWA called Indiana Construction Industry
Trust, became insolvent and left 21,000 members with
approximately $8 million in unpaid claims. As you can see,
there are major problems when considering using AHPs. First,
healthy groups tend to drop out after a year or two to find
coverage elsewhere at more affordable rates. Second, AHPs do
not have sufficient state regulatory oversight, which limits
important consumer protection. Both of these factors can cause
premium rates to rise and lead to more uninsured Americans.
Indeed, a vehicle has long been available to create group
purchasing opportunity for small businesses. These are called
Multiple Employer Trusts (METs). The difference between METs
and AHPs is significant, and METs generally comport to state
laws.
Another suggestion that was discussed is union plans get
better rates over small groups. I have studied major union
programs in Lake and McHenry County, and this is not true--
proved to be true. Union plan groups vary from a low of $631 a
month to a high of $832 per month, with an average cost around
$756 per month. We compared these groups to the groups that I
have studied previously, there is going to be substantially
higher rates, almost double to some cases.
In 1965, there were only eight mandated health insurance
benefit laws in the United States. Today, there are over 11
hundred and the number is escalating. These range from the
trivial, to the serious. In fact, in Minnesota, hairpieces are
coming; Georgia, heart transplants. In Illinois, we have in
vitro fertilization, which is a multibillion dollar cost to the
insurance industry, and passed on to the consumers with more in
premiums.
Mandated benefits drive up costs and increase the number of
uninsured. It is estimated that mandated benefits account for
between 20 to 25 percent of all uninsured Americans. In
Illinois alone, mandates have increased costs over 20 percent.
One idea in reducing health care costs is the elimination
of exemption of mandated benefits for small businesses. The
states and federal governments allow insurers to sell no-frills
policies, which would compete in regulated insurance. Small
employers and consumers of health care would have the freedom
to choose the coverage that best meets their needs.
The health insurance industry has always been in the
forefront in reducing health care costs. Programs such as PPOs
and HMOs were designed to curb rising health care costs.
Administration costs in private sector insurance is
substantially less than government-run programs. Compared to
Medicare and Medicaid, administration costs and private sectors
is about 66 percent less than what the government spends per
dollar of benefits paid.
Electronic claims processing with health care debit card or
Internet processing administration, would also help to reduce
costs by around five times the amount required over paper
claims. Expansion of medical savings accounts and elimination
of burdensome regulations can substantially assist individuals
and businesses to reduce cost and make coverage more
affordable. Countries such as Singapore and South Africa have
had great success with MSAs. Since their introduction in 1994,
MSA plans in South Africa have captured about half of the
private insurance market.
One plan might be ideal for making health care insurance
more affordable, which the federal government has begun to
seriously consider is a refundable health tax credit. The
refundable health tax credit for low to medium income Americans
would substantially reduce the number of uninsured, while
reducing costs, and allow more small businesses the ability to
offer health insurance programs to their employees at
affordable rates. Properly designed health tax credits will
provide a real solution to the problem of the uninsured America
by addressing affordability, than most basic component of
access to health care.
In conclusion, there is no doubt that we have the finest
health care system in the world. Yet, we are our own worst
enemies when it comes to the issue of affordability. Government
regulations and mandates continue to be a driving force in
rising health care and insurance costs, forcing many
individuals and small businesses out of the market. As an
advocate of the health insurance plan consumer, the role of the
agent or broker is key to the individual and business health
care solutions. But they can't do it alone. We need to work
together as a team in educating the consumer and exploring
sensible reforms to make health care more affordable,
predictable and manageable. We need to consider responsible
mandate laws, adverse selection, tort reform, and removal of
political agendas. We need to work to find ways to encourage
more consumers to purchase private sector health insurance.
This would expand markets and increase the number of carriers.
We need more choice for the consumers. Working together for a
common goal, we can make a difference.
Mr. Chairman and Congressman Crane, I want to thank you for
allowing me to testify today and share some common sense
solutions for reducing the cost of the quality of health care.
I look forward to working with you in the future, and look
forward to the good work that Congress will do to make health
care more affordable for all Americans.
Chairman Manzullo. Thank you, Scott.
[Mr. Shalek's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Brad Close,
representing the National Federation of any kind of Businesses.
Brad is the manager of Federal Public Policy and he went on to
newly greater pastures because--for whom did you work before
NFIB? And who set up the hearing in Rockford, that was you, uh?
Mr. Close. Yes, sir.
Chairman Manzullo. The NIFB's great gain and our great
loss, but I guess we trained you right.
Mr. Close. Yes sir, you did.
Chairman Manzullo. We sure did. And prior to working for my
office, Brad worked with Congressman Ewing, and your home is
there.
Mr. Close. Yes.
Chairman Manzullo. At least. So with all of those ties and
connections and great credentials, we look forward to your
testimony.
STATEMENT OF BRAD CLOSE, NATIONAL FEDERATION OF INDEPENDENT
BUSINESSES (NFIB)
Mr. Close. Thank you, Mr. Chairman. Nothing is more
important for NFIB members than solving our current health care
problems in small businesses. We firmly believe that
association health plans and removing the restrictions on
medical savings accounts, are necessary steps to create more
affordable health care options for small businesses across the
country.
As Mary stated earlier, over 60 percent of our uninsured
population consists of small business owners, to families and
their employees. The high rate of the uninsured in the small
business community is due to the lack of available options for
small businesses, and an increasingly shrinking small group
insurance market.
We know that the smaller the business, the less likely it
is to provide health insurance. Our members are the smallest of
the small. We have 6,000 members across the country and over 50
percent of them have less than five employees. Sixty percent of
businesses that have three to nine employees offer health care
benefits. While most large firms are able to offer coverage.
Even the best of times, the small business health care plan
covers only about 57 percent of the employees in small
businesses. Many even go without coverage due to the cost.
In fact, a recent business journal of Jacksonville, Florida
article stated that skyrocketing health premiums are leading
young professionals to opt out of employer-sponsored health
plans, mainly because the monthly premium is no longer
affordable to them.
We at NFIB can substantiate that the high cost of health
care is the number one problem of small business owners today.
NFIB survey shows that 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 have also told us that they believe
providing health insurance is the right thing to do for their
employees. Right for their employees and right for their
business. However, the high cost of health insurance often
prevents them from doing this.
Many of our members have experienced double-digit increases
over the past few years. 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, in McKenna County experienced
nearly a 100 percent increase. On average, a worker in a firm
with less than 10 employees pay 17 percent more for health
insurance than a worker in a firm with 200 or more employees.
In today's society, when it comes to purchasing health
care, the rules of the game are definitely stacked against
small business owners. Small businesses with the least income
actually pay the most, while Fortune 500 companies are able to
offer exceptional benefits, have more modest annual cost
increases, and more health plan choices for their employees.
The companies have benefited from the economies of scale that
come from being able to purchase health care in a large group,
across state lines, under one set of rules.
Small businesses under today's laws cannot have any of
these advantages. Association Health Plan legislation like H.R.
1774, in the House of Representatives, the Small Business
Health Fairness Act, levels the playing field by enabling small
businesses to purchase their health care like big businesses
and union plans through association health plans under ERISA.
Association health plans are a private market solution to our
nation's health care coverage and cost problems. It builds upon
what has been proven to work. If small businesses purchase
health care in the same manner and under the same rules as big
businesses, premiums would decrease and coverage would
increase.
Allowing small business owners to purchase their health
care through association health plans will allow them to save
on administration costs and bring to the market a great amount
of bargaining power with sufficient numbers to absorb risk
without substantially increasing premiums.
Small businesses currently must pay the highest marketing
billing and claim processing costs. Some pay from 20 to 25
percent of their premiums towards such expenses compared to
about 10 percent of the larger employers. The H.R. 1774 would
become law, administrative costs would be spread over thousands
of members in association health plans instead of just a few
workers in a small businesses resulting in significant cost
savings. The bill would also allow association health plan to
operate without having to comply with the 50 individual state
laws on benefits, premiums, and solvency, and the 50 individual
state mandates. This would best expand opportunities for small
businesses which cannot afford coverage right now. Association
Health Plan Bill also requires that the plans put up and
maintain capital surpluses before they can be certified and
maintain sufficient claim preserves, stop loss insurance, and
indemnification insurance to guarantee the claims will be paid
even in the event the financial difficulty for plan
termination.
The bill also gives clear and strong regulatory authority
to ensure that the Department of Labor and partnership of state
regulators are able to ensure that Association Health Plans
will meet the very strong certification reserve departments
that the legislation provides for them.
We strongly believe that if Association Health Plans become
law, our health care system will be fair and more choices will
be available to small business owners, which is what we think
is the ultimate solution. More choices for small business
owners, free market choices, and we urge the committee to
assist in moving the Association Health Plan legislation to the
President's desk issue. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you, Brad.
[Mr. Close's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Ken Koehler. Ken is
the, I guess the CEO, President, probably both, Chairman of the
Board, of Flowerwood, Incorporated. And a very popular nursery,
flower store, all kinds of equipment for gardens and lawns. We
used to have those trains, LGD trains. You don't sell those
anymore, but I like your type of trains.
Mr. Koehler. I still love trains.
Chairman Manzullo. You still love trains. I look forward to
your testimony.
STATEMENT OF KEN KOEHLER, FLOWERWOOD, INCORPORATED
Mr. Koehler. Thank you, Chairman Manzullo, and also
Representative Crane, for giving me the opportunity to address
you today with a subject that I really feel needs serious
attention, and that being, affordable health care.
My name, as you stated, is Ken Koehler. I am president and
co-owner of Flowerwood, here in Crystal Lake. Flowerwood is a
family owned and operated florist, nursery, garden center,
wholesale greenhouse, that has served McHenry County and its
surrounding communities since 1948. Since our beginning with
four employees, Flowerwood has grown to its present staff which
is--ranges in size from 75 to 100 full- and part-time
employees, as well as many seasonal employees.
We have many ethnic--different ethnic groups that are
represented by the employees that we have and very many
different educational backgrounds. Our employees range from
ages of 16 years old starting out on their first job, to many
retirees that are supplementing their income with part-time
employment, and we have wages ranging from about $5,000 a year
up to $75,000 a year.
Our work force includes retail clerks, floral designers,
landscape designers, installers, horticultural growers,
mechanics, delivery drivers and office personnel. And most of
our management team we are proud to say has been with us from
over 10 to 35 years, and are proud to be in service with our
company.
We value these employees, and we have tried to offer
comprehensive benefit packages, which include health coverage,
life insurance, 401(k) plans, Cafeteria Section 125 plan. The
benefits are offered to all full-time employees and currently
we have 20 that have elected to be part of our health benefits
package.
Flowerwood has felt health insurance coverage for its
employees to be very important, it is a safeguard to their
every day lives and their families' security. In the early
years, Flowerwood was able to fund most of the cost of the
insurance, thus minimally impacting the employees out-of-pocket
exposure. Today, that has changed dramatically with the company
covering 40 to 45 percent of the cost and the employees bearing
with 55 to 60 percent cost.
For most of the years prior to 1998 and '99, the cost
increases that we experienced were less than 10 percent, in
many cases around five to six percent. For the most part
manageable and the impact of both Flowerwood and the employees
was moderate. But since then, increases have become double
digit, and now have put our health insurance program in a
crisis. In the years 1999 to 2000, we were faced with a whole
20 percent increase. At that time, we made a major change in
the plan, and began to offer choices between HMO and PPO, and
at this time greatly changed the deductibles.
This change and increases in the deductibles kept the
increase to about 13 percent, rather than 20 percent increase.
In the year 2000 to 2001, we experienced a 17 percent increase,
and in the years 2001 to 2002, was a 18 percent increase. And
then just this July, for the years 2002 to 2003, we had the
pleasure of experiencing in the 43 percent increase.
Since 1999, our per employee health care coverage has
increased between 85 to a hundred percent, and I provided a
table to show you the differences in the single and family
coverage on the PPO and HMO. We are still trying to evaluate
other options, but the bottom line is these cost increases
significantly impacted both Flowerwood and our employees.
The pay increase that we were able to give our employees in
May has been completely eroded by the increased rates in weekly
insurance. And in many cases, the increases and costs double
what they made in increased wages. We are concerned that these
huge increases will lead to our--to help fund some of the
employees' health cost, as well as total lack of ability for
any of them to find their own affordable health insurance.
We realize that there are many small businesses, such as
ourselves, facing the same crisis. We have heard some of that
here today. I hope that some affordable options become
available soon. I have heard some good suggestions here. We are
at the breaking point with our margins and our business is
shrinking every day, like every other retailer and restaurant,
entrepreneurs facing. And then when we have these unpredictable
and controllable costs putting us against the wall, I don't
know where it is going to end up. Mr. Chairman, thank you for
the opportunity to share our company's experience with you and
address the members of your committee. I hope that there are
some good solid solutions to employee-based health care on the
horizon. There is no easy--this is no easy task, and I commend
you and the committee for your diligent work on this very
important issue. And I thank you again for the opportunity.
Chairman Manzullo. Thank you very much, Ken.
[Mr. Koehler's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Brad Buxton. Brad is
the vice president of Networks and Management of Blue Cross and
Blue Shield of Illinois, and Brad, tough job. We all have tough
jobs, it is very difficult, I mean to use the word Medical
Management, okay. Just like calling the House of
Representatives, but we look forward to your testimony.
STATEMENT OF BRAD BUXTON, VICE PRESIDENT OF NETWORKS AND
MEDICAL MANAGEMENT, BLUE CROSS AND BLUE SHIELD OF ILLINOIS
Mr. Buxton. Thank you very much. I'm not even popular at
that home. My name is Brad Buxton, and I am vice president of
Health Care Management for Blue Cross and Blue Shield of
Chicago. And thank you, Congressman Crane and Congressman
Manzullo, for inviting us today.
Blue Cross and Blue Shield of Illinois's mission is to try
to provide its members with quality and affordable accessible
health care in Illinois. And we do insure about one in four
Illinoisans, and we worked very hard over the years to try to
put together programs where we actually pooled for as many
small businesses as we can. Both are HMO and PPO, to try to
keep the cost down, as low as two members per group.
It is a very challenging and daunting task, as you know,
because mandated benefits, as it has been mentioned here before
today, have grown from eight, back 10 or 12 years ago, to now
over a thousand mandated benefits. So, it is very hard, even
when you are dealing with small groups in any pool, to try to
do things to drain the cost down to the small group employer,
that you have to add the mandates.
So, in our programs, in our HMO and PPO, we've added high--
low-cost, high-deductible alternative plans. Our small groups
get the same deals that our large groups get, so we try to keep
them on the same playing field, and at the same time, we worked
very hard in the last six years, we have actually lowered our
administrative costs, that passed on from the mid-20 percent,
to under 10 percent. So, we are working very hard.
But in any business, there are many things that are going
to challenge you. When you look at health care, and when you
look at, let's say the ideology, what we try to do, is we
always try to get to the, where the problems really come from.
What is really driving the cost. Why are we sitting here today
talking about what legislation we need to pass for small
employers? And when it comes down to it, we really get down to
the cost issue. And the cost issue is great. Just a few years
ago, and the law we passed, the Patient Protection Act, and
while the meaning of it was very, very good, one of the things
it said was, ``Insurers will pay all emergency room charges, no
matter what.'' And that means no matter whether they were
emergency or not. That cost our HMO $57 million a year. Those
costs had to be then passed on. And I will tell you that
increase in 57 million, were not all emergency room procedures.
We do have one of the best health care systems in the
world. But there are problems with it and there are issues with
it. And what we have to do is figure out how we balance what we
fixed in controlling the cost, to ensure that the accessibility
is still there. And the quality is there. Today, it is a part
of our economy. If you look at where our health care system is
today, and what it has, to the local economies, it's
incredible. So, if we don't do the right things, and we end up
hurting the employers of people that, whether it would be
health insurance, hospitals, physicians groups, et cetera, they
are going to hurt multiple economies. So what do we do? We have
to be very careful, and we have to get the costs that are
affordable, yet, at the same time, not cut down on advances
that are going to make people live longer and be healthier, and
more productive in their life.
So, what we know today, is that when the medical costs are
going up, they are going at a higher rate than a CPI. And they
are going up on higher rate premiums, and actually the medical
index is going up. Why is that? What is happening and what is
one of the reasons for that? Well, one of the main reasons, and
we talked about it today, is drugs. I brought a list, a little
bit of information here, which isn't in my presentation, that
is written down, but our drug costs, in all lines of business
went up from $463 million in 1999 to $701 million in 2001. And
the average cost of a brand drug was $77 to $78 and the average
cost of a generic similar was $15. That's an incredible
difference, yet we don't have--we don't have a lot of
businesses adapting plans that will force, or at least in
generics.
But we go into three-tier types of programs to drive
formally, there are a lot of things that stand in the way of
having businesses go to that, and that's problematic. Three
comparisons, you take Prilosec, the brand drug, versus a
generic, Zantac, $153 versus $21. I can go down a long list of
that. You talk about drugs are now turning at over 20 percent
per year, whereas, regular hospital cost inflation is somewhere
probably around four to five, but lower.
If you go back in time, and you look at health care costs
back in the 1980s, we had an average length of stay of eight
days. Average days per thousand are close to 900. Out-patient
visits per thousand are somewhere in the mid-300s. Doctor's
visits thousands were around 850.
Today, average length of stay is less than four days, and
admissions per thousand are down to about 220; doctor visits
are still around about 850 to 900; and out-patient is now
somewhere close to 800 visits per thousand. So, when you start
to look at where the costs are growing, you look at that as one
of the issues, and cost continues to escalate there and most
insurance companies don't have contracts which control the unit
cost inflation here.
You look at--now, you go to and you look at what's
happening with malpractice reform, nothing. Today, it's not
only doctors, some doctors are leaving communities. And,
actually, I know a doctor who is traveling from New York City
to West Virginia to practice, because he is getting a better
health insurance rate. He can't afford malpractice in New York.
You can't afford it sometimes in Chicago. They are moving to
other places, there is good and bad in that, by the way. But,
that's a real problem. We have no protection for that. Health
insurance companies today will offer managed care products
which are now being told by their carriers that they may not
carry them anymore.
We are not talking about a cost issue here, we are talking
about the fact that the liability of insurers who has a HMO or
point of service program may not be allowed to have coverage
anymore. That's a huge problem, that's a cost problem that
won't go away, we need some reform there.
Other types of things that we have seen that have come out,
last year the Illinois legislature, a bill which was called the
Fairness and Contracting Bill came out. That bill would have
added, by the state's calculations, to the state program
itself, the State of Illinois employees, almost $500 million.
Blue Cross and Shield by our own calculations, by our
actuaries, there are no actuaries, you know, it was very
precise, thought it would cost us over $1 billion that we would
have to pass on to our members, and this bill, I won't go
through all of the particulars of it, is not just a bill, it is
inherently a problem in Illinois. Just go look at other state
legislatures, and what they are doing in anti-management care
legislation. In 1999, stated in the last person's presentation
is when things went haywire. That's when anti-managed care
legislation started to come in. You look at the biggest bumps
in health care over time, and that care was one of them, and
then when we went to payments in Medicare, and there were bumps
that actually leveled out the cost of care for some time.
Managed care, when it came in, to the eighties, to the late
nineties, actually was leveling out the cost of care, anti-
managed care legislation came in, and it went by the border.
So, we need to do a few things to take care of that, we
need to look at reimbursement, we need to reimburse for health
outcomes, not just generally reimburse based on what you paid
in the past, we really need to figure out how we reimburse in a
way that pays for care, that's quality, just like we do in our
products. Thank you very much, and I appreciate your time.
Chairman Manzullo. Thank you very much.
[Mr. Buxton's statement may be found in the appendix.]
Chairman Manzullo. You know, that's a story. Brad, the
scenario that you painted, that society of the insurance
company, that story is where we are really at now. The cost of
health--the cost of liability insurance for health insurance
providers, it is very interesting. Uhm, the next witness is
Isabelle--Isabella; is that right, Isabella?
Ms. Wilson. Correct.
Chairman Manzullo. Isabella Wilson, chief financial officer
of Illinois Blower, Incorporated and out of Cary. In fact, I
think that I visited your facility.
Ms. Wilson. On Industrial Drive?
Chairman Manzullo. Yes. In Cary, with a group of other
companies, and, is that correct?
Ms. Wilson. In our building we have one.
Chairman Manzullo. Okay. Were there other shops that are
nearby in that area?
Ms. Wilson. Yeah, it is an industrial area.
Chairman Manzullo. Right. And, I think we visited that part
two years ago, and now that you are here, we look forward to
your testimony.
STATEMENT OF ISABELLA WILSON, CHIEF FINANCIAL OFFICER OF
ILLINOIS BLOWER, INCORPORATED
Ms. Wilson. Thank you. Chairman Manzullo, Congressman
Crane, I appreciate the opportunity to testify before you and
this committee on such an important matter. And as you stated,
my name is Isabella Wilson, and I am the chief financial
officer of Illinois Blower. Which is a small, privately held
manufacturer of industrial fans located in Cary. Right now, we
are at about 56 employees. The rising cost of health care has
several implications for a company the size of Illinois Blower
and its employees.
Chairman Manzullo. Isabella, can you pull that mike a
little bit closer to you? Thank you.
Ms. Wilson. Direct and monetary costs are only part of the
story. Overall, our cost for employees has increased by 56
percent from 1999 to 2000; 30 percent from 2000 to 2001 and we
did manage to contain it to 13 percent to 2001 to 2002. To
contain last year's increase to only 13 percent, our employees
did have to make some sacrifices. Out-of-pocket prescription
drug costs increased 750 percent for our employees.
Many, in fact, had to switch doctors. In the last four out
of five years, we had to switch carriers to contain our costs.
Which has an impact on the quality of care, and greatly
increases the company's administrative burdens and costs. Our
new HMO plan is extremely limited to participation in McHenry
County, forcing employees to either travel 30-plus miles to a
participating hospital and doctor, or to absorb the increased
cost of PPO coverage, which many just can't afford.
Financially, the impact of the company is extensive.
Average gross margins in our industry are only 30 percent.
Which means that for every dollar increase in health care
costs, we have to increase sales by $3.31 to cover the
additional costs. Over the past several years we have been very
lucky. Our business is tied to the power generation industry,
and we have enjoyed the boom in the creation of electrical
power generation capacity since 1998.
Unfortunately, that industry has taken a severe hit since
September 11th, and the collapse of Enron. As the company faces
more difficult times, managing health care costs is both
imperative and increasingly difficult. If the economic downturn
continues, and we are forced to reduce our work force, the
options available to us from the number of insurance companies
who write policies for groups our size, and the number of plan
designs available decrease.
Unfortunately, we are also seeing dramatic increases in all
areas of our business insurance. With this year, renewal
increased in our cost by seven percent, these dramatic
increases and non-productive costs will have a direct impact on
Illinois Blower's ability to compete in today's global
marketplace.
These rising costs directly impact our ability to afford,
implement capital projects, which would allow us to improve and
speed up our production process. This directly affects our
ability to compete with companies located in less developed
countries where labor costs are significantly lower.
In summation, rising health care costs not only directly
impact the company's bottom line, it can also negatively affect
employee morale and less productivity; reduce employee's
quality of life and medical care, and lead to a decrease, and
employee's consumer spending as they have a shift in income, to
cover the ever increasing out-of-pocket costs, also impacting
the overall economy.
Finally, I really want to reiterate the plans that impact
rising health care costs, have a major impact on our ability to
compete in today's global marketplace. As an example, we are
currently faced with our largest customer moving 37 percent of
what was historically a product we produced for them to Chinese
manufacturing companies in 2003. Our customers are looking for
greater cost savings than we are able to provide, as our cost
structure is continually being hit by the rising costs of such
non-productive expenses as health insurance premiums.
Again, thank you for the opportunity for me to testify
before this committee on this important matter. Thank you.
Chairman Manzullo. Thank you, Isabella.
[Ms. Wilson's statement may be found in the appendix.]
Chairman Manzullo. Our last witness is with the Illinois
State Medical Society, I'm sorry, is representing the Illinois
State Medical Society and, Dr. Jim, is it Milam? Milam is an
OB/GYN from Libertyville. But you won't be testifying about
what we were hearing a minute ago.
Dr. Milam. No. Sometimes clinical care has to take
precedent over----
Chairman Manzullo. Is that right, you take care of
patients.
Dr. Milam. I'm in the office this afternoon.
Chairman Manzullo. So, we only need you for one half, and
I'm sure you know something about the way the cost increased in
medical malpractice insurance, Doctor, and we look forward to
your testimony.
STATEMENT OF JAMES L. MILAM, M.D., ILLINOIS STATE MEDICAL
SOCIETY
Dr. Milam. Thank you, Mr. Chairman. It is exactly five
minutes after 12, so good afternoon Mr. Chairman, and Mr.
Crane. As stated, my name is James L. Milam, M.D.; I am an OB/
GYN in solo practice in Libertyville. I currently serve as the
First District Trustee to the Illinois State Medical Society. I
represent the Lake County, McHenry County and Kane County. On
behalf of our 14,000 physicians, medical student members, I
appreciate having the opportunity to testify.
I am pleased to present a medical perspective on the rising
cost of health care. This is an extremely complex problem, but
I hope I can provide some insight into the problems we face.
National health spending shot up 6.9 percent to $1.3
trillion in 2000. Health care now accounts for 13.2 percent of
the nation's total economic output, up to 12 percent a decade
ago. Clearly, many factors are contributing to this
unprecedented rise. One of the most pressing, is medical
malpractice insurance rates. Insurance premiums are soaring in
the highest rates since the mid-1980s. Also, alarming is the
high number of insures that have left the medical liability
market. Many physicians are forced to limit service, retire
early, or move to other states where premiums are more stable.
It is not unrealistic to ask the question, ``Will my doctor be
there?''
Many states have been categorized as seriously threatened.
And, I am sure you have seen the list in the newspaper. In
Illinois, the crisis is looming. The primary cause is the
unrestrained escalation in jury awards that are part of a legal
system that, in many states, is simply out of control. The
average jury award goes to $3.49 million in 1999, up from 1.95
million in 1993.
The soaring cost of malpractice premiums drive up the cost
of health care which encompasses everyone, especially small
business owners. The other cost is a loss of service to
patients. Emergency departments are losing staff and scaling
back on many services including trauma units. Many OB/GYNs and
family physicians have stopped delivering babies, and
neurosurgery is being postponed, because surgeons cannot find
or afford insurance.
The critical rise in malpractice premiums, medical costs
are rising in another way. Physicians are practicing more
defensive medicine, where ordering extra tests and choosing
procedures that limit their risks.
There has been an explosion in the cost of prescription
drugs. Medicare, managed care, and many private insurers have
cut drug benefits in the last several years. The average senior
now spends $500 annually for medications. In addition,
government regulation from CMS, one of the HCFA and EMTALA and
COBRA, just to name a few, are burying physicians in paperwork
and documentation. It tends to follow this regulation and are
often at the risk of prosecution, fines and imprisonment. Soon
we will have to face the daunting HIPAA statutes.
There is a shortage of well-trained nurses, as you know,
and many medical students, to say many applicants are not
applying to medical school, because there is a huge debt,
declining income and loss of respect. Without a doubt, it is
clear that legislative action is taken immediately to address
the soaring costs that limit services and that passed on to
many, including our small business owners.
In order to effectively stabilize medical liability
insurance rates, while continuing to ensure that patients who
have been injured are fairly compensated, I believe Congress
must pass fair and reasonable reforms to our medical liability
litigation system, that such as the ones that have been proven
effective in other states.
Currently H.R. 4600, the Health Act of 2002, as well as
with benefit patients, by awarding injured patients unlimited
economic damages yet cap non-economic damages up to $250,000.
This would also address a fair share rule that allocates damage
awards fairly and in proportion to a party's degree of fault.
These reforms are necessary and urgently needed.
Earlier this summer, the House passed a Medicare bill which
the Senate, however, did not pass. To me this is very
disheartening. Speaking as a physician, I can tell you that we
all just want to treat our patients and deliver the highest of
care. However, in the current environment, this is becoming
difficult, and in some cases impossible. Many physician
practices, including my own, are counted among the ranks for
small businesses. If we work together keeping the patient as
the focus, I am confident we can find a solution to the
problem. Thank you for your time and attention.
[Dr. Milam's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much, Doctor, for the
really quality testimony. What a range of opinions and
backgrounds. I've got a--I've got many questions, I'm just
going to take one at a time and we will rotate between the two
of us, Mr. Buxton, you talked about a couple of things, and one
is reimportation of drugs, and I think Blue Cross/Blue Shield
is in favor of Congressman Emerson's bill; is that correct?
Mr. Buxton. That's correct.
Chairman Manzullo. Could you explain to the folks exactly--
I'm an original co-sponsor on that bill. And could you explain
to the folks how that works?
Mr. Buxton. Not exactly. No, I can't. Uhm, actually, I am
not as familiar with the bill. I know we are in favor of it,
and unfortunately what I can tell you about the whole situation
is the fact that, you know, the grand situation has gotten to a
point, where because of the patent abuses, that we are seeing--
where the drug goes off patent, and then they put it back on
under a new name, has become to be unbearable in terms of the
cost. Uhm, we have seen the--actually, the pharmaceutical
companies are now beginning to control the generics. And when
you talk about the reimportation, the ideas that you can get
these drugs for less in another country, because they don't
have the same patent cost on them, and they sell them actually
cheaper out there. And the idea with the legislation, is that
we would be able to get those drugs at the same rate. I am not
sure exactly how that works. But to be quite frank, if we could
increase the use of generics, and the incentive to use
generics, we really wouldn't need the whole reimportation
issue. And so, if we were able to actually put some regulations
on the use of generics and incentives, I think we would
actually be able to bring down cost. As you can see, there is a
$60 difference between brand and similar generic.
Chairman Manzullo. So, you are talking about the--let's
see, Waxman----
Mr. Buxton. I'm looking at Mr. Keye for a little help.
Chairman Manzullo. Hatch. Hatch-Waxman, that was the past
20 years ago, the law was passed 20 years ago, and its purpose
was to speed up of the issuance of generic drugs, but something
has gone haywire with that bill.
Mr. Buxton. Right. Like, for instance, Prilosec is getting
ready to go off brand. When Prilosec goes off brand, it would
become a generic. Generic would take it over, or maybe multiple
generics, and sell it as a generic at probably $60 less. What
happened is that the pharmaceutical company made--Gateway came
out with Nexium. Nexium is the same thing as Prilosec. They are
selling it more than Prilosec, and what they are doing is they
are gaining market share, very fast, and what they will do then
is they will control the generic Prilosec by ideally, maybe the
company that will do the generic. So, they are officially
keeping the rate high, and you still continue to pay for a
patent which, as part of the cost has been taken care of years
passed. So the whole patent, I think--we think the whole patent
law should be looked at in terms of, when a drug really needs
to go off patent, in terms of have they recovered the cost of
inventing that drug. That is something that is very important
and really has never been looked at.
Chairman Manzullo. Well, once it was when the prescription
drug bill came before the House, there were three provisions in
there, one being the reimportation, the other being, and making
sure that everybody that provided an area that show drugs can
really get at the same original discount. And the third one
dealt with generic reform. And none of those were a volume plan
bill. So, that's why any bill that comes through the House,
really gets to address those issues. But what is it that's
causing this spike in the cost of drugs? In the last two
years--I really can't----
Mr. Buxton. I think the doctor--I couldn't be able to
answer that, but I really believe over-the-counter advertising,
you know, has some direct consumer, and that's how they do it.
Dr. Milam. That's exactly correct. This schizophrenia
economy, if you will, because we all know drug companies stock
on 401(k)s and we want them to make a profit. But, yet, we want
the drug costs down. So when a company brings a drug to market,
it may cost $20 million as an average to bring the drug to
market, because there may be three or four drugs of Zantac, so
the company is trying to reduce the cost, and then obviously
doing a patent, so another company who didn't sell it might be
able to sell that drug for cheaper, and manufacture it more
cheaply. Also, you might have colors, there might be a
difference between a white pill and an orange pill. But the
theory is that we also--they have liability. The companies have
lawyers that have to look at all their liability for adverse
outcomes and side effects and things like that. So the notion
is that it can be sold in Canada cheaper, because there isn't
the same liability laws up there, and so many patients can go
across the boarder, and liability isn't the same.
Chairman Manzullo. Like prices on the Internet?
Dr. Milam. Yes. And then bring them back over here, and I'm
not certain in the drug industry, so I don't understand
totally, but it--as far as how much it costs to bring the drug
to market and other significant research----
Chairman Manzullo. It's about $100 million now. Mr.
Buxton----
Dr. Milam. One more thing, another thing that is
problematic is rebates. And we have PPMs that basically are----
Chairman Manzullo. Explain what distribution is today.
Mr. Buxton. As if an insurance company has a covenant, or a
PBM, a Pharmaceutical Benefits Management Company, manages a
drug coverage for you. Okay, they have a formula, and on that
formula there are brand and generic drugs. Every time one of
those brand drugs are sold, the PPM has a deal with the
pharmaceutical company, to get in a sense, a payment for that.
Some people might call it a kickback, but it is called a
rebate. That rebate then, the higher--the more people that use
that drug, the more the rebate is. Now what insurance companies
do, who use PPM to do their own, some of them may do their own
rebate, they take that and pass it back, all of or some, to the
customer. When it goes through a PPM, the PPM will take back a
piece of that rebate and give it to the insurance company, who
will give back some of it to the customer, or none of it, and
put it back into the price, and there are different ways to do
that. The problem is, rebates are inflationary. If I am paying
you a dollar for every time you sell Nexium, let's say. Well,
you want to sell a lot of Nexium. Okay. And it may not net out
to the bottom line to the customer in the long run because some
of those rebates are withheld. So, quite frankly, I think there
needs to be rebate reform, if we are going to get to the bottom
line, cost of the drug, to get it back to the individual.
Chairman Manzullo. In the State of Illinois under the
Circuit Breaker Plan that is provided for seniors, that rebate
goes to the State of Illinois and the PBM acts in the purist
capacity, maybe that's not correct--well, it is, the purist
capacity to negotiate the lowest price and the savings are
passed on ultimately to the consumer.
Mr. Buxton. Right, that is the whole rebate, and there are
other things like information that is sold on, what doctors
prescribe what drugs, and do they get a rebate for that. So,
there are a number of hidden rebates that don't come back to
the state or anybody else. And rebates still, even though the
state gets the net amount, it is still inflationary practice,
because you are sending people to more popular brands and not
move to generics.
Chairman Manzullo. Congressman Crane.
Mr. Crane. Thank you, Don. And thank you all for your
testimony and being here today. You know, this is a very
important subject, and it's one that--we had a town meeting
yesterday, and the day before, and many of these issues came up
at our town meeting. I pointed out that to the folks last night
that one of the ways you get around this is to make sure that
you have one of your kids get a medical degree. With all
kidding aside. My dad got a medical degree, and we never
thought about health care, that's what your father was for. And
before he got his medical degree, though, my mother went into
labor and the OB was out of town that weekend, and so we put
papers on the bed and boiled water, and the dog came in and sat
on the floor watching, and I said to my father afterwards,
``Weren't you a little unnerved about delivering me?'' He said,
``No, I delivered pigs and cows at the farm, it was no big
deal.'' And--but, the fact is that he had his medical degree
then, and he purposely delivered my sister and my two kid
brothers at home. And we always relied on him for everything,
and he produced--well, one of my brothers is a physician, and I
had a nephew who is a neurosurgeon down in Downers Grove. And
having members of the family that went down that path gives you
comfort, as well as an emergency you get a hold of a dentist,
no big deal.
But it is something that is a big deal, and you folks have
all touched upon component parts of it that is a big deal
facing our country today, and potentially impacting in a
negative way, if we don't take some action here. So many
millions of Americans--Mr. Brauns, in your testimony you
dedicated a significant portion of your discussion to the power
of consumerism in the free market. Given the employer-provided
health care structure that the majority of these people seem to
rely on, how do you propose that we begin to change the current
practice, and move toward a health care market geared toward
individual consumer?
Mr. Brauns. Thank you for the question. Uhm, I think first
of all, it starts with understanding. I think we have to
understand that all of us in the industry, the employers, the
brokers, the physicians, the government. In fact, there is
tremendous power in consumerism to begin with. Once we can get
people to understand that we can take the patient, inject that
patient back into the process so that when he confers--that he
or she confers with their doctor, there is only a 800 number
that has to be called. There is no supervising authority that
has to say, ``Yes, Doctor, please go ahead and do that, or
don't go ahead and do that.'' And the way you do that is by
allowing people to generate some fund of funding that they call
their own.
In this country we've evolved into this medical savings
account, and what I am talking about is the next evolution. And
the IRS ruling that came out on the 26th, has had the ruling,
has had tremendous impact in the industry already. And as I
have said since then, our last--we had 50 employers that have
already gone to implement something like this. So communication
has to be part of it. Things like this, but we also do call on
government to? To include this in your letter, to include this
in your potential solutions, and I certainly do not diminish
any of the solutions that have been talked about here today,
like tort reform, or association health plans, and so forth.
They are controversial, I think we would have been back. But if
we could find a solution that would move those or at least make
them as compared to what consumers can do. We can be interested
in pursuing it, and in the consumer's philosophy has that
potential power. For decades, we--I shouldn't say decades. But
in the late eighties, we saw what 401(k) did to the retirement
market. When people got their own that they control, it vastly
changed the way we used to reflect its tool, saving pension,
and government. That same concept could happen here. So the IRS
read the ruling now and it also makes it still very
complicated. But what would be great is that government would
include this in its revenue and say to perhaps House Ways and
Means of the way of this, in the respect that let the money
that accumulate in those funds be used by the consumer for his
or her own purpose. If he wants to take that money at the end
of the year and buy a fishing pole with it, then he could do
it. Currently it is restricted to just health care type
expenses, as we see outlined in previous bills like 125 and
105, and so forth.
But financial engagement, and by the way, consumers want
this. They are clamored for it. We have not seen an employer
yet that hasn't said send us more information on this. Large
employers for a long time have been talking about the--defining
contribution health. How can we do it? It is kind of a Holy
Grail, but we haven't really been able to--the system isn't
quite there yet. That's probably the last step on the journey.
But we are moving in that particular direction. So, directly to
answer your questions, getting information out, letting
government say, Hey, we have recognized the power of this, and
we want to get that information out, crafting rulings like the
recent medical ruling, and expanding upon that, so that
consumers can use that money as they see fit. That's what--to
answer some of the things that came up here at the end of the
table. You know, most consumers have no idea what drugs costs.
They get their EOB, their special Benefits, say, $10, $50. They
have no idea that it was a $80 or $100 bill. But if all of a
sudden that 80 or 100 bucks comes out of their fund of money,
they are very interested in whether they are going to take
Claritin or Clarinex. One way or another, one is off brand,
whether its generic or whether it's not. Because if they can
take that money and go to dinner with it, or buy a fishing
pole, or whether it's for the tires, or the living room. Really
engaged, the last time I will ask you this, if I gave you
$1,000, Congressman, handed it to you today, and said, ``It's
yours, do with it what you will.'' You would love me, you would
be very happy with that. But if I gave you $1,000 and said,
``Congressman, you can only use this for automobile repair.''
Okay, you're happy, but it doesn't have the same effect. So the
revenue ruling is going in the right direction, but it's not
quite there yet to really empower this thing.
Chairman Manzullo. You haven't seen my car; a 1994 Buick
Estate Wagon. A hundred thousand miles. But if you had two
teenage boys driving, you wouldn't want five thousand pounds of
steel wrapped around them. So they have to drive that tank. And
you made your point, but a lot of safety on that. Uhm, Ken, you
mentioned in your previous, about 46 percent last year?
Mr. Koehler. An increase in 43 percent.
Chairman Manzullo. Forty-three percent. Can you put the
mike a little closer?
Mr. Koehler. Oh, sorry.
Chairman Manzullo. Was there a reason for that? Was there
an illness of one of the employees?
Mr. Koehler. We have had some illness within the group, so
it did increase. But we experienced the same thing at the
county this year, and, you know, I am a county board member,
and our rates were going to increase to 37 percent, and we were
able to negotiate them down to 31 percent. So, I mean, there
are dramatic increases that have taken place throughout the
entire industry.
Dr. Milam. I also had the privilege, for over several years
as serving on one of the boards for one of the major hospital
groups in the northwestern part of this area in the State of
Illinois. And some of the things that we found there, obviously
tort reforms make it. This is critical. If there isn't
something done about that. There is no control as far as the
cost of hospitals and commissions are going to be great. And
see, we are going to lose people, just good people that don't
want to practice anymore because they just can't afford it. I
think that is important. The other thing that we found from a
hospital perspective is the fact that there are a lot of costs
that are never paid back in the form of Medicaid and Medicare.
And the hospitals have to absorb those costs, but of course who
ends up paying for it, it's every other patient, certainly the
patients that are covered by insurance, are impacted with that
and it is passed on to insurance companies, but is also passed
on major to the people that just don't have any insurance at
all, but the people who take full bulk. And then in the past,
probably three years, one of the more interesting dilemmas that
have come into the health care really just begins to scratch
the surface as far as health care costs, and that's called
agency providers for nursing. And we've seen the cost go up, I
mean incrementally, it's astounding, and it has taken a
hospital to run efficiently, and in one year turn around
running in the red, and putting them in jeopardy of being able
to deliver good health care. And I don't know what the answer
to that one is, because I mean it is a fact of life, that over
the years, nurses were not paid very well for the type of work
and the hours that they put in, and they realize that and then
somebody that was very cute came up with the idea that, well,
come and work for us as an agency nurse, and we will get you
the better money, and the price went up from--and to use an
example, maybe $20 an hour to $60 an hour overnight, because
these people could get better jobs, better pay, uhm, by just
working through an agency, and this is epidemic. And you talk
about major cost is incredible.
Chairman Manzullo. Doctor. Thank you, Mr. Chairman----
Mr. Buxton. And I have a couple of comments, I want to be
clear, I would like my testimony to reflect the fact that I am
not interested, we are not interested in reforming the tort
concept. If someone is injured, they should be made whole
again. It is just affecting the liability issue, and the cost
involved, and frankly what has happened with nurses, in nursing
schools, in the old days if you were a female you went to
nursing school. Now if you are a female you can go to medical
school. So why should you necessarily become a nurse, when you
can become a doctor. That being said, we have also gone to the
extreme of consumerism, if you will, we now have free agent
nurses. Baseball players can be free agents and go to team to
team, nurses are either finding that there is not necessarily
they are instituted----
Chairman Manzullo. That is a serious problem.
Mr. Buxton. Yeah, there is a 120,000 right now, and
projected to be about a quarter of a million by 2024. Most of
it is the lack of respect, long hours, and the work force is
not here, because the people who go into medicine or health
care do it because they have an inner drive. They want to do
it. Now, they can become a business, then they are getting paid
just as any other business, so why should they work nights and
weekends, and be exposed to bodily fluids and potentially come
down with hepatitis or HIV when they can make the same amount
of money in the business world, unless they really want to do
it, in which case----
Chairman Manzullo. But that is the consumerism.
Mr. Buxton. Yes. Also, the fact that----
Chairman Manzullo. And I might add, please, we are all in
this together, so what I want to know--well, no, what I mean
is, we have to have the nurses or the doctors are affected.
Mr. Buxton. But we have shifting cost for so many years
from one person to another person, as a society that's what
insurance is. Shifting the cost. If I don't have a claim, I'm
paying for the person who is sick, and, frankly, most people
cannot afford out-of-pocket medical care. I could not go pay
for a gallbladder surgery in the next week or long-term
institutional care for my folks, next month or something. So I
suppose part of what I think we should come to grips with is
the fact that, as a society, we need to decide how much we are
going to spend on our health care. We know how much a burger is
worth, we know how much a gallon of gas is worth, and we know
how much we are ready to go pay for a Cubs ticket, but how much
do we want to pay for our health care. And we have to come to
grips with that notion.
Chairman Manzullo. Well, you threw in the Cubs analogy, but
I won't touch that. Scott, on tort reform we might want to look
at structures. So much in the state of Nebraska, which has
probably the lowest malpractice and medical insurance rates in
the nation. In Nebraska, they sent punitive damages to the
state educational system instead of a plan. Now, after all, no
plaintiff has the real right to penalty judgments--they have a
real right that penalty judgments, actual damages--in fact, no
plaintiff has a right to penalty judgments, but they do have a
right to actual damages, pain and suffering and legal costs.
But punitive judgments really don't serve the purpose, except
for enriching the plaintiff's pocket. And why do we need to
give the plaintiffs a motive to sue insurance companies, or
doctors or hospitals? You know, it's a big thing. We can make
$93 million if we sue the doctor, who, on a 77-year-old man who
had eye surgery and they did it wrong.
Mr. Shalek. In the state of Illinois, are punitives a
consideration of medical malpractice?
Mr. Buxton. I think so.
Dr. Milam. What's the question?
Chairman Manzullo. Are punitive damages----
Mr. Buxton. A consideration of malpractice?
Chairman Manzullo. I don't think they are in the State of
Illinois, are they? Do you know of any awards of punitive
damages in Illinois?
Mr. Buxton. There was a 77-year-old man that received $90-
some million----
Chairman Manzullo. Was that in Illinois, the judgments?
Mr. Buxton. I know it was a loss.
Chairman Manzullo. Okay.
Mr. Buxton. It was finalized, it was reduced down, but
still those kind of settlements, all it does, $93 million, who
is going to pay for it? Punitive, excuse me. Punitive, we are
going out and punishing Exxon for adding this bill in Alaska,
but punitive in the sense that the jury is instructed to use
their best judgment of what they think.
Chairman Manzullo. All right, it is covered under pain and
suffering.
Mr. Buxton. Yes.
Chairman Manzullo. Congressman Crane.
Mr. Crane. Uh, yes. Mr. Shalek, you have discussed a number
of solutions for more affordable health insurance, and I would
like to ask you if we were able to help control over
utilization of health care services by making consumers more
aware of health care costs, do you think that would result in
lower utilization and lower costs?
Mr. Shalek. Education of the consumer is a big factor. Now,
if we can see it by what the drug companies are doing on TV,
they are educating the consumers to buy brand name drugs. They
go to the doctor, they have the symptoms, they see everything
else on TV. We need this drug, doctor; the doctor gives them
the prescription for it, and lays the cost. The biggest thing
is education of consumers, and we need everybody to get
involved, agents have tried, doctors tried, but insurance
companies direct, what we need is a greater effort, maybe on
behalf of the government to get involved in educating the
consumer on health care and what the actual costs are and how
to do so affordably.
Mr. Crane. You mentioned that there should be more emphasis
on individually purchased health insurance, and, frankly, I am
amazed at how many people I have talked to that has stated it
is just too complicated to process the work through and they
would rather not bother. Can you tell me how we can work to
educate consumers to make that less intimidating from their
prospective?
Mr. Shalek. That is probably a role of the agent. But
medical savings accounts work, the health tax credit could be a
great success story, with the government, people don't
understand their health care coverage in a big--in a lot of
ways. You talk to most employees, they have no idea they have
this benefit. They go to the doctor, they know they got a $10
co-pay, that's it, that's all they care about. They don't
understand what everything else costs. How to access a doctor,
how to ask for discounts from the doctor. An example: My
chiropractor does not charge me the deductible on insurance.
Because he knows after the deductible they are going to pay,
that's all he settles for, he is basically paid on assignment
from my insurance companies. There are doctors out there that
will do that. But people are, like doctors I guess, they don't
know how to ask for discounts, like the insurance companies are
asking for discounts, they don't understand their benefits.
They get this book that is this thick (indicating) and they are
not going to read it. So, if we don't go with MSAs and a health
tax credit, a refundable health tax credit for all lower income
to middle income Americans, we will increase the number of
uninsured, people will start understanding their insurance
better, because the government is involved with the education
process.
Mr. Crane. When I listen to this, I keep reflecting back on
the experience of when I grew up as a kid. I had a great
grandmother who was in her 90s and she had cataracts, and so my
dad laid her out on the dining room table, and he made us
little kids go into the other room, and he had glass doors that
had little shades on them, and my older brother and I would
climb up on the backs of the chairs and look over and watch,
whatnot. And my mother was in there, and an aunt of ours was
assisting, as they did surgery on one of her eyes and restored
her vision to that one eye.
I mean, it was that whole attitude about any of the needs
that you might have in drawing that out, makes the climate we
live in today something that is bewildering. Because I still
have tendency to think that, you know, I'm going to call all
the medical experts in the family if I have a problem and
that's no big deal. But it is a big deal. It is a big deal in
educating people in understanding what their options are and
things to do with and likely important in educating us as to
what we can do to help with this. Don.
Chairman Manzullo. Thank you. You don't operate like that,
do you?
Dr. Milam. Oh, no. Uhm, with regards to what the
gentleman's chiropractor does, let me just say that, most of
the PPOs and contracts that I belong to and HMO contracts,
require that I collect the deductible from the patient. If I
don't collect the deductible, they can kick me out of the plan.
That being said, in addition with Medicare, we are obligated,
because the Medicare fee is already set. That I have to collect
a deductible in a co-pay for Medicare patient, or else then I
have just changed my rates, so there are contractual, and, in
fact, government restrictions to being kind, it's almost like
we are in a double bind. We want to be nice to our patients and
forget the co-pay, but, in fact, if you forget the co-pay,
there are some jurisdictions, where doctors have not charged
their friends or there other associates for medical care, and
that's been considered kickbacks in some jurisdictions as well.
So this is all about the contracts, and we are talking about
businesses. It's difficult, and it is still burdensome.
Mr. Buxton. Just a moment, Representative Crane, one quick
fact. Last year, we run our data all the time and look at where
our costs are generated from. Twenty percent of our members
last year did not generate a claim, twenty percent. Seven
percent drove 72 percent of the cost. And most of those were
chronic care conditions. So, when you begin to look at what's
driving the cost, chronic care really shows through, especially
when you get down to asthma, diabetes and complications of
heart and hypertension. Those are the major things. And obesity
and smoking are the two greatest causes of health care
problems. And if we could solve those two issues, we could cut
our health care problem. And that's true. That's not something
that is made up. And everybody agrees with that. It is just
that it is so hard to make that change and this is why disease
management--disease management is going to save money per se.
Disease management help people manage their disease better and
might save somebody that cost, like an emergency room here and
there. But over the course of the disease like diabetes, it is
going to be very expensive, and then the most expensive is the
last two or three months of life. And that is where we spend
the most money. So, when you put things in perspective, your
grandfather, your father was right. A lot of people who don't
need care, they get care, and the most terrifying thing you can
do is get care, and be in a hospital too long, because of
hidden infection. And we know for a fact that a lot of people
who are coded as dying of pneumonia, aren't dying of pneumonia,
they are dying of salmonella, and other bacteria. And that's
not even reported to the CDC, because the CDC doesn't require
it. So when you talk about medical errors, you got to start to
talk about what's going on in terms of how we are going to
control these rates with people who are severely ill and in
hospitals, and what are we going to do about that. And that's a
huge issue. So, anyway, I just thought I would bring this up.
Mr. Crane. You know, in that context, my dad used to write
in a syndicated newspaper company called the ``Great Medic''
and he was arguing 70 years ago that smoking caused lung
cancer, and I never ever smoked in his presence, but I was the
only one of his kids that took up that bad habit, and I did it
for 50 years. I quit five years ago, cold turkey.
Chairman Manzullo. Good for you.
Mr. Crane. But, I have a grandfather who lived to be 98 and
grew his own tobacco, and his wife never thought it was--it was
that serious. And he made his own beer, and he grew his own
tobacco, and he lived to 98 in his peaceful business. But,
which is part of the reason why, again, you know our family
environment there. You've got emergency Dr. Pop, you know, it's
a broken bone, he'll fix it. But at any rate, these are
legitimate concerns that I was brought up to be more aware of
than I obviously was, or I wouldn't have taken that path of 50
years of Camel cigarettes. Uhm, let me ask a question of you
Mr. Buxton, can you comment on whether Blue Cross and Blue
Shield are trying to incorporate more emphasis on prevention in
order to keep health care costs down?
Mr. Buxton. Yes, we are actually--most of the products now,
are standard benefits, include preventive care, and we feel
very strongly that preventive care administered correctly will
actually create a healthy new population. So, we have done
things most recently in our HMO product where we actually
reward physicians to do things in preventive care, whether it
be immunizations. But one of the most recent ones was in
preventive care for doing mammograms. We found that our
physicians and our HMO weren't doing mammograms at the level we
felt they should be, or that healthy 2000 dictated they should.
So what we did was, we said anytime we find it in the record,
we will give you an extra $1,000. And we have done that with
mammograms, pap smears, we've done it with diabetic and asthma
programs, so when we find that the program, the five-point
program to the individuals documented in the medical record,
that way we know the individuals know what they are supposed to
do to take care of themselves. We give the physician an extra
thousand dollars. So the idea is that so the beginning of us
getting into the payments for outcomes, because that is a good
outcome, you can actually measure it, you see it, it's there in
the record and then you pay for it.
The idea is you can tie cost effective care to quality
care, but you are paying more for that. And the rationale in
looking at doing that within hospitals in terms of beginning to
look at as you lower infraction rates, as you lower mortality
rates, and those types of things, we are going to actually
increase payments to hospitals who do that, because we feel
then we get a healthier population, and in a sense they
practice better. So I didn't get to that in my little deal
today, but we feel that outcome-based reimbursement is one of
the keys here. You wouldn't pay to have your car fixed twice
for the same thing.
Chairman Manzullo. I have. You haven't seen my car.
Mr. Buxton. At the same time, and we think that those types
of business principles, we need to begin to get into health
care. So, that's a great question, and, yes, we do reimburse
extra for good preventive care.
Chairman Manzullo. There is a bill that was introduced
several months ago, there are ten thousand bills a year, to
allow an employer, an employer to have a gym on-site with the
ability of the employees who come in there, for weight loss,
for continuity, for almost anything. But if there is a gym next
door, that is a separate business and the employer can't
contract with them to provide those services without the
benefit being considered to be included as income to the
employee. And so that is it in the whole wellness-thinking
based upon prevention. That is some of the things that we are
trying to do. But, Scott, I want to ask you a question and that
is, in terms of innovation, you come up with some pretty
interesting scenarios and one of those is on page three of your
testimony, you talk about the Injection Molding Company in
Woodstock. One of the things that I want the folks here to
hear, and maybe you can help Ken in his application, how did
you go about saving that company that tremendous amount of
money?
Mr. Shalek. We reviewed their current programs and looked
at their costs and I worked for almost every single insurance
company selling insurance through the State of Illinois, and
make recommendations on looking at an alternative plan that
they had most of their people on HMO, some of them PPO; I said,
``Look, they were complaining because the HMO was not that well
available to people out here,'' like Illinois Blower has the
same problem. I said, ``Why don't you go all PPO with a
completely different design?'' Go with a $1,000 or $2,000
deductible and then the company offers $1,000, the insurance
company gets $1,000 to $2,000 or $5,000 deductible, with a 100
percent coverage, thereafter. Including prescriptions, and you
also get a prescription discount card up-front. And when you
start comparing the cost, I said, ``give your employees all a
two-hundred and fifty to $500 deductible, let them understand
the cost. What their benefits are. But once they hit this cap
of $1,000 to $2,000, everything is paid 100 percent. Lower the
costs by about 50 percent.'' I lowered their costs from
$23,000--$24,000 basically, to----
Chairman Manzullo. Per month?
Mr. Shalek. Per month. To $14,000 per month. Big, big,
difference in cost deductions. And, you know, as was said,
seven percent of all claims or 90 percent of all claims come
from 70 percent of the people. Well, you get $1,000 or $2,000,
after that you are covered 100 percent. We are getting rid of
the small claims, let the employer pay the first $500
themselves on the little stuff, let the company self-insured
from $500 to a thousand at 70 percent or 90 percent, or
whatever percent they want, but the employer's self-insure
that. It is going to cost them not that much more money, but
the savings they are saving is dramatic.
Chairman Manzullo. So you were able, through global
innovation, to actually lower their health care costs----
Mr. Shalek. Their costs reduced $112,586.52 a year.
Chairman Manzullo. And that's for 40----
Mr. Shalek. Forty-five employees.
Chairman Manzullo. Ryan, we are going to wind up here
pretty soon? You have had similar experiences in your book,
isn't that correct?
Mr. Brauns. Yeah, definitely. Especially recently, with the
consumer concept. And the concept is very similar in a lot of
ways to what we have been talking about. Although some of the
things, kind of nibbling on the edges. And one of the insurance
companies we use is one of the South African companies, and----
Chairman Manzullo. Is that a South African company?
Mr. Brauns. Yeah. And by the way, I think all of the major
insurance companies in this country are working on developing
consumer-type products. This just has to be one of the first
companies that is out of the box with a quality product. And
what is interesting about that particular product is that it
couples with it a health--a preventive healthy behavior-type of
program. The difference is, though, that the compensation for
the healthy behavior isn't going to the doctor or the hospital,
which is really a good idea, however, the conversation here
goes directly back to the person, if the person engages in
health behavior, smoking cessation, weight loss, jogging,
working in a gym, and the whole list of things, and then they
get something for it, they get money or they get airline miles,
or they get dinners at a restaurant, and things like that. It
sounds a bit hokey, I understand, but if you think about it,
that is what we all do. If you say we got a gym on the
premises, build a gym on the premises of this business for the
concept of lowering health plans, nobody wins. Except for the
people who go to the gym anyway, nobody wins. But as soon as
they say, ``Tell you what, if you don't go, I'm going to take
$25 out of your paycheck.'' That's financial engagement.
Well, I did have a demonstrable and impartial effect on his
claims in general. So, many of our cases started to go down to
the consumers that we have. We already have seen a reduction,
and we are anticipating a reduction in renewals as well because
the shift curves a little bit lower, and the magic of this, if
I could use that word, it is kind of expenditure, as that we
just heard, many people don't have claims. Many people have
small claims. These people will roll money over in their funds,
year after year, after year, their funds will grow, because it
is much easier for the employer to have them say, I will have a
$5,000 deductible plan, I'll have a $10,000 deductible plan,
when the bulk of their employees are generating those funds
underneath, or it is for the employer to say, ``You know what,
ladies and gentlemen, with my company, XYZ here, we are
eliminating the company dental plan.'' Under today's scenario
they would be wailing a national fee. But if you are able to
say, ``Look, most of you have a few thousand dollars in your
fund, we are going to let you have a voluntary dental plan, and
we will even put a little towards that.'' All the employees are
going to be happy as clams that the company has off-loaded some
of the liability and made it affixed in that respect. These are
the type of solutions that are starting to come out of the free
market, primarily driven by this consumerism concept. And it
is----
Chairman Manzullo. So the issue is in Illinois health care.
People who buy insurance need to shop more. They need to go
to----
Mr. Shalek. I think it's not shopping, I think they need to
become educated more and find out what benefits are available
to----
Chairman Manzullo. What products are out?
Mr. Shalek. And with destiny, they can even have a week at
the Ritz Carlton if they wanted to.
Mr. Brauns. There are solutions out there. We all know that
there is a price in this, in the employer's respect, we've got
lots of clients who are getting 30 to 40 percent increases. You
know, you just can't sustain your business in that respect, so
short-run stuff is solutions here, and actually are certainly
called for. But something systemic, something long run. And
there was a study done in California, and I can't recall the
name of it, I will put it in my written testimony later, uhm,
where a great way was put toward to developing Web-site and so
forth, so employers can go to that and find out what tax rates
they had coming to them. How does the IRS treat expenses and
even a lot of employers, small employers in particularly,
rent--they don't know that under 162 of the Code, you can
deduct health care expenses of the business expenses. A lot of
them aren't aware of that. You would be surprised. So what this
study found is that when you made a course of the range of
options that are out there, yeah, they lowered their premiums,
it increased substantially from what they were, now that
doesn't mean that those of us who are taking advantage of that
aren't getting much of the same problems, but there are many
that could use additional information.
Last point, PPOs, we talked about the rise in cost of
health insurance going all the way back to July 1, 1966,
Medicare, by the way the Medicare cost shift is killing us, if
Congress can do something about that right away in that
respect. Costs have continued to rise. We saw an inflection in
that curve, an abatement in around the '80s when we started to
get managed care come into the picture in earnest. But now we
see that the trends, obviously this focus really increased.
When everybody has a discount, nobody gets a discount. PPOs are
fundamentally consumers. If you go to doctor A, it costs you
less; if you go to doctor B, it costs you more, your choice.
But all of a sudden, you cannot find an employer that does not
have a PPO arrangement. You can find many employers have two or
three PPOs. In Rockford we have three hospitals. All have
emergency care centers, all level one trauma centers and so
forth, and we have many employers that have all three hospitals
in their PPO in that respect. So the PPO concept proved the
consumerism will work, but all of a sudden as a potential
solution now that the savings have been brought out of that.
Chairman Manzullo. Doctor.
Dr. Milam. Thank you. And, Mr. Chairman, that is the last
comment that I was going to agree with it. Everything that was
just said is accurately said, and it doesn't do anything to
control the cost, it just shifts from one party to another
party. So shopping around doesn't necessarily lower the rates
to the clients, it may lower individual rates or a group rate
like the Injection Molding Company, but it still costs X to
deliver the care. And we have addressed that so far, and that's
what we have to get across or it will--or else we will have to
accept the fact that if we don't control this, it is going to
go up, so we either have to accept rising costs or accept
controlled costs.
Chairman Manzullo. I appreciate that so much. I want to
thank everybody for their testimony. Our Small Business
Committee actually had more hearings on health care than I
think any other committee has in Congress. We held five
hearings on HCFA horror stories of how physicians and medical
providers, and are being abused by HCFA's 4,800 employees and
49 different Medicare contractors. We may not be in that
situation where there are two Medicare contractors such as in
Los Angeles and they have geographical divisions and the MRI
indication for a particular virulent ailment, differs depending
on which side of the street you lived on. There was a
difference in reimbursement rate even though the providers were
across the street. After there was a merger with the two
providers, so that there was now one provider--reimbursement
rates still varied depending on where you lived. This is
totally one of the most inefficient systems that has ever been
developed by Health Care Finance Administration. Physicians and
other health care providers are hammered by provisions that do
not make sense.
Let me give you an example on closing on that. We were
approached by the portable x-ray providers. My mother was at an
assisted living center, when she needed an x-ray, her doctor--
she talked to the doctor on the phone, and he would call the
portable x-ray people, they would go to the nursing home, in
the privacy of her room, they would take the picture, send it
over to the radiologist, who is part of that team, and usually
within two hours of the phone call that my mom would make to
her primary care physician, would know the condition of her
lungs. Most seniors, the biggest fear, of course, is pneumonia.
But Medicare got reimbursement--reimbursement rates go down so
low, that that portable
x-ray provider went out of business, and the next time she had
to have an x-ray, guess what happens, one of those pair of
ambulance units shows up at the nursing home, it is wintertime,
she is pushed out there in the wheelchair, lifted up, taken to
the emergency room at the hospital, sits there in a room with
people of all types of ailments and diseases, and gets her x-
ray taken; four hours later she is transported back to the
nursing home. And the amount of reimbursement is that Medicare
has to pay for that, that obviously is much higher. Brad, you
know what I am talking about.
So we held a hearing, and this was the hearing where we
actually had to subpoena in the head of the Health Care
Financing Administration and he blew off the subpoena. We were
getting ready to have him held in Congressional Contempt of
Congress. Finally he showed up, we got the parties, sat down
together and said this stupid arbitrary rule not only is a
disservice to seniors, that my mother was a victim of that, but
also cost a lot more money. No one is leaving the room, bring
your toothbrushes and your sleeping bags until we come to a
resolution. Well, no one stayed overnight, but the hearing did
last three hours, and now there has been a favorable resolution
where HCFA has now decided to increase the reimbursement.
But that is the type of stuff we have to deal with on a
continuing basis. There is a lady that was here in the audience
had a device called the Mary Walker. What this is, it is a
device, that is the regular walker as we know it. There is a
little seat on it, and the purpose of it, is to encourage
seniors to become mobile and they would walk for a period of
time, then just get a little bit of a rest, and get back up on
that again. Well, because it had an arm that came across and
latched across, and actually much more ergonomically correct,
because the seat here now places his or her hands in front,
with the legs back here, and it spreads out and redistributes
the weight much better. But because it had a latch on there,
HCFA continues to call it a restraint. Therefore, it is not in
the nursing homes, if it is used. We have been working with
those people now for several months. And, Doug, I sent you an
e-mail, what is it called, the therapy, this is round six now
with HCFA. It is everything that we have been working with for
the past two years and the Chairman of the Small Business
Committee is, going to bring in the decision makers from HCFA
and say, now is the time you bring your toothbrush and your
sleeping bag, because no one is leaving this room. We are going
to lock up until you come to an amicable decision. So we need
to talk about HCFA again.
Mr. Buxton. We are doing the same thing with dialysis right
now. Kidney dialysis will become a really bad problem, if it
isn't now, in many metropolitan areas, where hospitals have cut
down because of the reimbursement, and now the private vendors
are charging so much that nobody can afford it.
Chairman Manzullo. Would you talk to them about that
because they don't like me?
Mr. Buxton. And I heard your reputation, and I'm proud of
it.
Chairman Manzullo. Phil, did you have any closing remarks?
Mr. Crane. Well, the only concluding remarks that I would
like to make is title of the Small Business Access to Health
Care field hearing. The importance is small businesses in this
country. I am Chairman of the McHenry Subcommittee and we had a
hearing out here about five years ago and we got Charlie Rangel
who is the Democratic Ranking Member on Ways and Means, to come
with me, and Charlie is basically a free trader, and I knew
that we had giants, we in our district, like Motorola and
Sears, and Allstate, Baxter Avenue, to name a few, and so I
anticipated getting input from all these giants in the world
market. What was revealing about that hearing is better than 90
percent of our exports in the State of Illinois, and at that
time we were the fifth largest export state in the union, over
90 percent of our exports came from companies employing 500 or
less. And a fellow came in to see me that was doing business in
the Persian Gulf and he had a folder, and he said,
``Congressman, do you know how many businesses in your district
that are doing business in the Persian Gulf?'' I said, ``I
haven't the vaguest idea.'' He handed it to me; it was over a
hundred fifty businesses in our district doing business in the
Persian Gulf and I--and these were employers of 150 or fewer.
And I looked at the names and there wasn't a single one of them
that I had seen before, and I thought he was conning me and I
checked and they were businesses from our district, and,
indeed, they were doing business over there. So, I think
getting the message out so people understand that the
importance of small businesses, I mean, that is the real
strength of our nation.
Chairman Manzullo. But, Phil, you can yield on that, the
trade imbalance, in our country the inability of paper
manufacturers to export is because of the higher cost of doing
business and it's a natural sector going into--that will be the
next hearing--but in terms of the higher cost of health care,
makes that less competitive.
Mr. Crane. Well, that is an important ingredient, but the
other thing, Don, is that we didn't have trade negotiating.
Chairman Manzullo. All right.
Mr. Crane. It is eliminating in other countries very good
products.
Chairman Manzullo. Great.
Mr. Crane. And now we have addressed that.
Chairman Manzullo. It makes it better for the farmers.
Well, we want to thank you all for coming. You have been very
gracious in your testimony. I'm going to leave the record open
for 14 days. I think Ryan wanted to add something to your
testimony; is that correct?
Mr. Brauns. Uh-huh.
Chairman Manzullo. If you can give that to Doug. Doug, why
don't you give us the fax number. Uhm, it's 202----
Mr. Thomas. In Washington?
Chairman Manzullo. Yeah.
Mr. Thomas. Yeah, you can send your written testimony down
there, it is 202-225-3587. I'm trying to think, I never faxed
to myself, 3587.
Chairman Manzullo. Okay.
Mr. Thomas. You can put it to my attention or Piper's.
Chairman Manzullo. This hearing is adjourned.
[Whereupon, the Committee was adjourned.]
[GRAPHICS TIFF OMITTED]