[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                             THE UNINSURED

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 9, 2004

                               __________

                           Serial No. 108-50

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 2, 2004, announcing the hearing................     2

                               WITNESSES

Congressional Budget Office, Douglas Holtz-Eakin, Director.......     6

                                 ______

Center for Consumer Driven Health Care, Galen Institute, Greg 
  Scandlen.......................................................    56
Center for Studying Health System Change, Len M. Nichols.........    41
Kaiser Commission on Medicaid and the Uninsured, Diane Rowland...    23
University of southern California, Center for Health Financing, 
  Policy and Management, Glenn Melnick...........................    49

                       SUBMISSIONS FOR THE RECORD

AdvaMed, statement...............................................    85
American Academy of Actuaries, statement.........................    86
American College of Physicians, statement........................    92
Associated Builders and Contractors, Arlington, VA, statement....    96
Catholic Health Association of the United States, Michael, D. 
  Place, statement...............................................    98
Communicating for Agriculture and the Self-Employed, Fergus 
  Falls, MN, Wayne Nelson, letter................................   101
March of Dimes, Marina L. Weiss, statement.......................   102
National Conference for Community and Justice, Sanford Cloud Jr., 
  statement......................................................   105
National Federation of Independent Business, statement...........   106
Neltner Billing and Consulting, Independence, KY, Martin E. 
  Neltner, statement.............................................   108


                             THE UNINSURED

                              ----------                              


                         TUESDAY, MARCH 9, 2004

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:25 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 02, 2004
HL-5

               Johnson Announces Hearing on the Uninsured

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the uninsured. The hearing will 
take place on Tuesday, March 9, 2004, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 2:00 p.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include Douglas Holtz-Eakin, Director of the 
Congressional Budget Office, and experts on the uninsured population 
and health insurance. However, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    This hearing will focus on Americans who lack health insurance 
coverage--a constantly changing group as some gain and others lose 
coverage. Estimates of the number of uninsured range from 20 to 60 
million, depending upon the definition of uninsured, and the length of 
time considered. For example, the Congressional Budget Office estimates 
that between 21 and 31 million people were uninsured for all of 1998, 
about 40 million were uninsured at any point in time during 1998, and 
nearly 60 million were uninsured at some point in 1998. According to 
analysis by the Census Bureau, the number of non-elderly who were 
uninsured increased each year from 2000 to 2002, after falling the 
previous two years.
    The uninsured are not all alike: they encompass a wide range of 
characteristics. While some uninsured tend to have lower than average 
income, and tend to be in poorer health, others are young and healthy. 
Over 50 percent of the non-elderly who were uninsured at any time 
during 1998 had incomes over 200 percent of the poverty level. In 1998, 
90 percent of those who were uninsured all year were in working 
families.
    In announcing the hearing, Chairman Johnson stated, ``When 
Americans who lack health insurance coverage get ill, many suffer lower 
access to care and higher costs. We must understand who lacks coverage 
and why, before we can identify solutions to the problems the uninsured 
face when they need health care.''
      

FOCUS OF THE HEARING:

      
    The hearing continues the Subcommittee's consideration of the 
issues concerning Americans who lack access to affordable health 
insurance. The first panel will discuss the identification of 
individuals without health insurance and changes in the number 
uninsured over time. The second panel will help Members understand the 
causes and consequences of lack of health insurance, tax and regulatory 
policies that affect access to health insurance, and consequences faced 
by some of the uninsured who are hospitalized. This hearing will lay 
the groundwork for future hearings on options to address the problems 
of the uninsured.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Tuesday March 23, 2004. Those 
filing written statements who wish to have their statements distributed 
to the press and interested public at the hearing should deliver their 
200 copies to the Subcommittee on Health in room 1136 Longworth House 
Office Building, in an open and searchable package 48 hours before the 
hearing. The U.S. Capitol Police will refuse unopened and unsearchable 
deliveries to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in WordPerfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman JOHNSON. Good afternoon. The hearing will come to 
order. Today's hearing focuses on uninsured Americans, who they 
are, and why they are uninsured. Since the Subcommittee on 
Health last held a hearing on the uninsured in 2001, the number 
of Americans without coverage has increased. Over 43 million 
Americans, more than 1 in 7, are uninsured on any given day. In 
my home State of Connecticut, more than a quarter million 
residents live and work without health insurance. As we develop 
legislative solutions, we need to understand the latest 
research on the uninsured and the barriers they face in 
purchasing coverage.
    We will hear from our expert panelists that the uninsured 
are a dynamic group which is constantly changing as people gain 
and others lose coverage. The number of Americans who are 
uninsured depends on the definition of the uninsured, 
especially how long a person is uninsured and whom you count. 
Analysis by the Congressional Budget Office (CBO) shows that if 
you look at people who are uninsured for an entire year or 
longer, you find between 21 million and 31 million uninsured. 
If you look at any given day in a year, about 40 million are 
uninsured. If you consider those who are uninsured at any point 
during a year, nearly 60 million are uninsured.
    The uninsured are a diverse and divergent group 
demographically as well. Among the non-elderly who are 
uninsured all year, one-quarter are under age 18, but one-fifth 
are over 45. Three-quarters have income less than two times the 
poverty level, but 5 percent have income four times the poverty 
level. One-quarter lack a high school diploma, but one-third 
attended college.
    One characteristic may come as a surprise to many. About 90 
percent of the uninsured live in working families, and 40 
percent live in families with a full-time worker. Over 60 
percent of uninsured individuals do not have access to 
insurance through their employer, often a small business. In 
Connecticut, for example, 59 percent of the uninsured adults 
work for companies with fewer than 100 employees and 30 
percent, or 76,000 people in Connecticut, work at a company 
with fewer than 10 employees.
    Finally, some of the uninsured are eligible for public 
programs but fail to enroll. For example, one-third of 
uninsured children were eligible for Medicaid. Others are 
eligible for the Children's Health Insurance Program (CHIP). 
The presence of the uninsured is a significant problem in our 
Nation's health care system. The Subcommittee understands the 
importance of addressing this problem, both because those 
without health coverage often go without health care and 
because the payment structure supporting our providers no 
longer accommodates the cost shifting that used to absorb the 
cost of care of the uninsured. Indeed, for the individual 
uninsured person, he or she is more than three times likely to 
delay care, more than three times likely to leave a 
prescription unfilled, and far more likely to face financial 
ruin as a result of health care costs than an insured 
individual.
    From the point of view of the provider network, emergency 
rooms are closing and doctors are being forced to limit the 
number of nonpayers they accept for care as costs rise and 
payments fall. So, both for the sake of the individual 
uninsured people in America and to preserve our health care 
delivery capability for all, we must assure that every American 
has access to affordable health care. Today our experts will 
help us review the who, when, and why questions about the 
uninsured so that we may turn at a later date to the question 
of how to fix the problem.
    First we will hear testimony from the director of the CBO, 
Douglas Holtz-Eakin, who will focus on the diversity of the 
uninsured, and, given that diversity, the multiple approaches 
in the future we will have to consider. Actually he is not 
going to consider the multiple approaches. I sort of misread my 
punctuation there. I say that, given that diversity, I believe 
we will be required to approach this problem from many 
different points of view. Our second panel will turn to further 
examination of the uninsured population and our experts will 
discuss barriers to affordable coverage and myths about the 
uninsured. I would like to recognize Mr. Stark, the Ranking 
Member, for an opening statement.
    Mr. STARK. Thank you, Madam Chair. I appreciate your 
calling this hearing. I must admit it feels a little bit like 
Ground Hog Day. Year after year we hold hearings and report on 
the uninsured and year after year we hear that the numbers 
continue to rise. Year after year we fail to take any action. I 
say that through a series of various Administrations and 
political control. We know who the uninsured are and we know 
why they are uninsured and we could fix it.
    Even President Bush knows how to get there, and that is why 
he is promoting national health insurance for the people in 
Iraq. It may sound strange that I agree with the President on 
something, but in this case his idea that a system of national 
insurance is the most equitable, efficient means of insuring 
all people is right. I only wish that he would decide to extend 
that same generosity to his folks here at home so that everyone 
in our great country could have the benefits of a national 
health insurance program.
    My friend and our own Secretary of Health and Human 
Services has basically said that Americans deserve less than 
national insurance. A week ago, when he was asked about our 
policy in Iraq, he said, well, and I am quoting him: ``Even if 
you don't have health insurance in America, you get taken care 
of.'' I am not sure what that means, ``taken care of.'' That 
could be defined as universal health care. I find it alarming 
that our Administration would equate eventual treatment in an 
emergency room or a charity clinic, often too late to avoid 
serious damage or death, as universal health care.
    We know better than that. The Institute of Medicine will 
tell us that 18,000 Americans die prematurely each year due to 
the effects of lack of health insurance coverage. The Kaiser 
Family Foundation in their 2003 health insurance survey found 
that half of uninsured adults postpone seeking medical care, 
and over a third say they need it but did not get medical care 
in the last year. Their survey also found that a third of the 
uninsured had a serious problem paying their medical bills in 
the past year and a quarter were contacted by a collection 
agency, if not having homes foreclosed or threatened with 
bankruptcy.
    The uninsured are more likely than those with insurance to 
be hospitalized for conditions that could have been avoided. 
``Sicker and Poorer: The Consequences of Being Uninsured,'' a 
report by the Kaiser Commission on Medicaid and the Uninsured, 
found that better health would improve annual earnings by 10 to 
30 percent for private companies.
    The statistics go on. We know how to solve the problem. We 
have programs that work in this country. They work in the State 
of Hawaii. They are up above 95 percent covered, which is far 
better than we are able to do. We have employer-sponsored 
insurance for workers. We have got public programs such as 
Medicare, Medicaid, State Children's Health Insurance Program 
(SCHIP), Consolidated Omnibus Budget Reconciliation Act 
(COBRA). We could build on those programs. All we need is 
somebody in the White House and their adherence here and in the 
Senate to roll up our sleeves and say, let's do it. We could go 
to work tomorrow and require some kind of, I don't care what it 
is, pay or play. We could do it, there is nothing new in this 
world of providing medical care to all Americans. It ought to 
start right here and I would love to join with the Chair and 
introduce a bill next week and let's see how far we can go. 
Thank you.
    Chairman JOHNSON. Thank you, Mr. Stark. I hope that our 
testimony today will create a better factual basis for 
legislative action. Dr. Holtz-Eakin.

      STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Dr. HOLTZ-EAKIN. Chairman Johnson, Mr. Stark, Members of 
the Committee, thank you for the chance for CBO to be here 
today and present some of the work we have done on the 
uninsured. I have a written statement which I will submit for 
the record and I will instead use this time to touch briefly on 
the highlights, some of which the Chairman has introduced in 
her opening remarks.
    Probably the easiest way to do this is through the use of 
the four charts that we brought along. The first chart is 
focused on the question of how many people are uninsured. The 
answer really depends on how one asks the question. One could 
ask the question, How many people are uninsured for an entire 
year, for a full year? If the question is asked that way, using 
data from three different surveys--and these data are from 1998 
but recent research suggests the basic patterns are unchanged--
you would have an answer of roughly 20 to 30 million 
individuals who are uninsured for the entire year.
    In contrast, you could ask the question, How many people 
experience some spell of uninsurance during a year, however 
short or long? If one asked the question in that way, you get a 
much larger number, about 60 million individuals. Those are the 
bars on the right-hand side of the chart. Instead what you 
typically hear is the number 40 million. That is the answer to 
the question, if you walked out on the street and asked how 
many people are uninsured in this week or on this day, there 
would be a mixture of those two groups: those who have short 
spells and long spells, and that number is about 40 million 
individuals.
    As these numbers suggest and as we show in Chart 2, there 
are radically different experiences in terms of the duration of 
spells of uninsurance. For some individuals, about 45 percent, 
the duration of such a spell would be under 4 months. That is 
shown as the large wedge in the pie chart on the left. In 
contrast, about 29 percent, nearly 30 percent of individuals 
experience a spell of uninsurance that exceeds 1 year in 
length. The remainder lie in between.
    As a result of this mixture of individuals with short and 
long spells, if you walk out on the street again and find a 
person who is not insured and ask the question, How long would 
this person be uninsured, you are more likely to find somebody 
who has a long spell of uninsurance because of their prevalence 
in the population and that is displayed on the right-hand pie 
chart. The policy implications of this, I think, are fairly 
straightforward. One size evidently does not fit all and it 
suggests that there are really broadly two different kinds of 
problems of uninsurance: those with short spells perhaps driven 
by labor market dislocations and job transitions; and those 
with longer spells which exceed a year in length.
    The next question is, What do the individuals look like in 
these different spells? This is laid out in Tables 1 and 2 in 
the testimony. The highlights of that are that adults are more 
likely to suffer uninsurance in large part because the children 
are more likely to be covered by Medicaid and SCHIP programs in 
the United States. Those who are uninsured tend to be of lower 
income and lower education and, as the Chairman noticed in her 
opening remarks, in working families, but there is not a large 
difference by health status. There appears to be no like 
defining characteristic on that dimension.
    Among those with longer spells, again we find those who are 
poorer, lower income, and lower education. This suggests that 
these are individuals who are in jobs without employer-
sponsored insurance. There was also the case that among 
different ethnic groups, Hispanics are more likely to suffer 
long spells; and among the age distribution, younger 
individuals are more likely to be represented there as well.
    A moral that comes out of looking at the vast array of 
statistics that characterize the uninsured and the duration of 
spells of uninsured is that it is a very multidimensional 
problem and it will not be simple to target a single 
characteristic to identify those who would be likely to be 
uninsured or even uninsured for a great length of time. All of 
this diversity and dynamics occurs within longer term trends in 
the top line number, the fraction of individuals without 
insurance.
    We show in the next chart some of the patterns over the 
past two decades in the level of uninsurance in the population. 
Out of the 160 million Americans with insurance, about 64 
percent receive their insurance through their employer. That is 
down about 6 percentage points from the beginning of the chart 
in 1997. If you look, the large move occurred between 1987 and 
1993 when there was about a 6 percentage point drop in the 
total level of employer-sponsored insurance. Since then, we 
have seen a modest rise and then a reversal during the most 
recent time period.
    The Medicaid pattern in the green bar roughly offsets the 
trend in employer-sponsored insurance. This suggests that one 
concern may be that variations in new sources of insurance, 
such as Medicaid or expansions of other types, may offset 
existing employer-sponsored insurance or crowd it out to some 
extent, a topic to which I will return before I close.
    The topic of the hearing itself, the dotted red line, is 
the rise in uninsurance, which is now about 17 percent overall, 
up about 3 and one-half percentage points. One lesson I think 
that is easy to draw from that chart is that the uninsured 
problem is not new; indeed it is a chronic condition in the 
United States and needs to be revisited in all its forms.
    The final chart examines more carefully the link between 
health insurance premiums and uninsurance. I want to say at the 
outset that the link between these two is far from simple. One 
could imagine a situation in which premiums rose in the absence 
of any change in the underlying benefit from being insured, and 
in those circumstances it is quite rational for individuals to 
choose to purchase less insurance, and we might see uninsurance 
rise.
    On the other hand, to the extent that health care costs per 
se simply go up, the value of insurance rises and one might 
expect more individuals to choose to purchase insurance and to 
negotiate with their employers to get coverage. So, there is 
not an absolute relationship between premiums which may be 
driven by benefit increases and premiums which are not and the 
rate of uninsurance.
    Nevertheless, a casual inspection of the historical record 
suggests some relationship between rising health insurance 
premiums, an episode in the late eighties and early nineties, 
and more recently have both coincided with declines in the 
overall level of the rate of insurance. That may come in 
roughly two kinds of categories, those which are related to 
business cycles. We discuss in the testimony the notion that 
COBRA coverage may also come with not only the opportunity to 
buy but the obligation to pay a much higher premium in the face 
of diminished income--that would be difficult--but also for 
longer term movements in the crowd-out between the enhanced 
Medicaid programs and the acquisition of private insurance. 
Some estimates in the literature suggest that expansions in 
Medicaid are offset by as much as 10 to 25 percent in reduced 
private insurance. With that overview of the testimony, I would 
like to close and be happy to answer your questions.
    [The prepared statement of Dr. Holtz-Eakin follows:]

Statement of Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget 
                                 Office

    Chairman Johnson and Members of the Subcommittee, I appreciate the 
opportunity to be here today to discuss the characteristics of people 
without health insurance and the relationship between health insurance 
premiums and insurance coverage. Although more than 240 million people 
in the United States have health insurance today through a variety of 
private and public sources, millions of others do not; and the 
percentage of Americans who are uninsured has risen in each of the last 
two years for which information is available.
    In my testimony today, I will discuss some important 
characteristics of the uninsured population that have received 
relatively little attention but that have important implications for 
federal policies to expand insurance coverage. I will also discuss the 
implications of rising health insurance premiums for insurance coverage 
rates and the potential costs of federal programs to expand coverage.
Characteristics of the Uninsured Population
    In recent years, it has been frequently stated that about 40 
million Americans lack health insurance coverage. That estimate, by 
itself, presents an incomplete and potentially misleading picture of 
the uninsured population. The uninsured population is constantly 
changing as people gain coverage and lose coverage. Furthermore, people 
vary greatly in the length of time that they remain uninsured. Some 
people are uninsured for long periods of time, but more are uninsured 
for shorter periods.
    There are several alternative measures of the number of people who 
lack insurance coverage. One describes those people who do not have 
coverage for a sustained period (say, one year)--the long-term 
uninsured. Alternatively, another identifies how many individuals have 
experienced any spell without insurance during a particular period. 
Finally, the most commonly used measure (a mixture of those two others) 
counts the number of individuals without insurance on any particular 
day or in a certain week. Those different approaches yield different 
numbers because of the continual movement of people into and out of the 
uninsured population. The Congressional Budget Office's (CBO's) recent 
analysis \1\ found that in 1998:
---------------------------------------------------------------------------
    \1\ Congressional Budget Office, How Many People Lack Health 
Insurance and for How Long? (May 2003).

      Between 21 million and 31 million people were uninsured 
all year;
      At any point in time during the year, about 40 million 
people were uninsured; and
      Nearly 60 million people were uninsured at some point 
during the year (see Figure 1).
Figure 1. Estimated Number of Nonelderly People Without Health 
        Insurance in 1998

        [GRAPHIC] [TIFF OMITTED] T3794A.001
        
                  Source: Congressional Budget Office.

 Note: The Survey of Income and Program Participation is conducted by 
the Census Bureau. The Medical Expenditure Panel Survey is conducted by 
  the Agency for Healthcare Research and Quality. The National Health 
  Interview Survey, which reports only the point-in-time estimate, is 
      sponsored by the Centers for Disease Control and Prevention.

    CBO conducted the analysis for 1998 because that was the most 
recent year for which suitable data were available to construct all 
three measures. More recent analyses by researchers at the Agency for 
Healthcare Research and Quality indicate that those three measures of 
the uninsured remained fairly stable in the subsequent period from 1998 
to 2001.\2\
---------------------------------------------------------------------------
    \2\ Agency for Health Care Research and Quality, The Uninsured in 
America--1996-2002, Statistical Brief No. 24, available at 
www.ahrq.gov.
---------------------------------------------------------------------------
    Nearly 30 percent of Americans under age 65 who become uninsured in 
a given year remain so for more than 12 months, while 45 percent obtain 
coverage within four months (see Figure 2).\3\ Those estimates were 
obtained by CBO using data from the Census Bureau's Survey of Income 
and Program Participation for 1996 through 1999. They are very similar 
to the findings of previous studies that have examined earlier time 
periods.
---------------------------------------------------------------------------
    \3\ Congressional Budget Office, How Many People Lack Health 
Insurance Coverage and for How Long?
---------------------------------------------------------------------------
    Those estimates of the duration of uninsured spells describe the 
experiences of people who become uninsured in a given year. However, 
almost 80 percent of the people who lack health insurance at a 
particular time end up being uninsured for more than 12 months (see 
Figure 2). Although long uninsured spells occur less frequently than 
short spells, they are more likely to be under way at any given time.
Figure 2. Distribution of Uninsured Spells Among Nonelderly People in a 
        Given Year and at a Given Point in Time, by Duration

        [GRAPHIC] [TIFF OMITTED] T3794A.002
        
  Source: Congressional Budget Office based on data from the first 11 
  waves of the 1996 panel of the Census Bureau's Survey of Income and 
 Program Participation, which followed respondents over a period of 41 
              months (from March 1996 through July 1999).

    People with less education, those with low income, and Hispanics 
are more likely than others to be uninsured (see Table 1). They are 
also somewhat more likely to remain uninsured for long periods. For 
example, people in families in which no one attended college account 
for 64 percent of uninsured spells of more than 12 months but only 49 
percent of uninsured spells that end within four months (see Table 2). 
That difference probably reflects, at least in part, the fact that 
people who did not attend college are less likely than others to have 
access to employment-based insurance.

            Table 1. Nonelderly People Without Health Insurance in 1998, by Selected Characteristics
----------------------------------------------------------------------------------------------------------------
                                                         Nonelderly People
                               -------------------------------------------------------------------- Distribution
                                                                        Uninsured at                   of the
                                                                          Any Time      Uninsured     Uninsured
                                            Characteristic               During the     All Year     Population
                                                                            Year        (Percent)     (Percent)
                                                                          (Percent)
----------------------------------------------------------------------------------------------------------------
Age                             Less than 19                                 26.8           7.3          24.9
                                19-24                                        41.9          14.4          13.7
                                25-34                                        31.1          12.3          21.9
                                35-44                                        20.2           9.3          19.7
                                45-54                                        15.1           7.6          12.6
                                55-64                                        14             6.7           7.2

Race/Ethnicity                  White, Non-Hispanic                          18.4           6.3          48.4
                                Black, Non-Hispanic                          33.4          10.7          15.3
                                Hispanic                                     47.4          22.5          30.8
                                Other                                        31.1          10.9           5.5

Family Income                   Less than 200 percent                        47.9          19.5          74.9
  Relative to the               200 percent to 399 percent                   17.4           5.3          19.8
  Poverty Level a               400 percent or more                           6             1.6           5.3

Education a, b                  No high school diploma                       50.4          24.6          28.4
                                High school graduate                         33.1          12.7          36.4
                                Some college course work                     22.1           7.3          26.6
                                Bachelor's degree or higher                   9.9           2.6           8.7

Family Employment Status a      At least one full-time worker all year       15             5.9          42.9
                                Part-time or part-year work only             46.1          16.1          46.6
                                No work                                      32.8          13.1          10.6

Health Status c                 Excellent                                    23.7           8.9          28.8
                                Very good                                    25.1           9.3          32.8
                                Good                                         24.6           9.1          24.5
                                Fair                                         25.1           8.7           8.9
                                Poor                                         25.3          10.3           5.1

Memorandum:
    Total Nonelderly                                                         24.5           9.1         100
     Population
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office based on an analysis of data from the 1996 panel of the Survey of Income and
  Program Participation.
a For family-level variables, families are defined as health insurance eligibility units, which are composed of
  individuals who could be covered as a family under most private health insurance plans.
b Education measures the highest education level among the adults in the family.
c Information on health status was collected only for survey respondents who were at least 15 years of age.


 Table 2. Comparison of the Characteristics of Nonelderly People with Short Uninsured Spells and Long Uninsured
                                                     Spells
----------------------------------------------------------------------------------------------------------------
                                                              Duration of Uninsured Spell
                                                       ---------------------------------------
                                  Characteristic          Four Months or       DMore Than 12
                                                          Less (Percent)     Months (Percent)
----------------------------------------------------------------------------------------------
    Total                                                      100                 100

Agea                        Children                            47.3                37.5
                            Adults                              52.7                62.5

Race/Ethnicity              White, Non-Hispanic                 56.7                48.8
                            Black, Non-Hispanic                 19.7                18.2
                            Hispanic                            18.4                27.6
                            Other                                5.2                 5.4

Family Income Rela-         Less than 200 percent               61.6                77
  tive to the Poverty       200 percent to 399 per
  Level b, c                  -cent                             26.7                21
                            400 percent or more                 11.7                 7

Education a, c              No high school diploma              17.8                26.6
                            High school graduate only           31                  37.6
                            Some college                        35.5                26.8
                            Bachelor's degree or                15.6                 9
                             higher
----------------------------------------------------------------------------------------------------------------

    Adults are somewhat more likely than children to remain uninsured 
for long periods. The availability of Medicaid coverage may explain 
some of that discrepancy: coverage is available to many children in 
low-income families, but the majority of low-income adults are not 
eligible for the program. In addition, evidence suggests that single 
adults without children may be less inclined to seek insurance, on 
average, than adults with children, which may cause them to experience 
long spells without insurance.
    The vast majority of the uninsured are in working families. Some 43 
percent of the people who were uninsured all year in 1998 were in 
families in which at least one person worked full time all year, and 47 
percent were in families in which at least one person worked part time 
or for a portion of the year (see Table 1, column 3). Studies have 
found that over three-quarters of uninsured workers are not offered 
insurance by their employer.\4\ Low-wage workers are less likely to be 
offered insurance by their employer and are less likely to accept it if 
it is offered.
---------------------------------------------------------------------------
    \4\ See, for example, Bowen Garrett, Len M. Nichols, and Emily K. 
Greenman, Workers Without Health Insurance: Who Are They and How Can 
Policy Reach Them? (Washington, D.C.: Urban Institute, 2001).
---------------------------------------------------------------------------
    Medicaid is an important source of coverage for children and 
parents in low-income families, the disabled, and the low-income 
elderly. However, the number of people who report in population surveys 
that they have Medicaid coverage is smaller than the number indicated 
by the program's administrative data. Survey estimates could therefore 
overstate the number of people who are uninsured. But some evidence, 
albeit limited, indicates that many of the Medicaid enrollees who do 
not report being covered by Medicaid mistakenly report another type of 
coverage, so the bias in estimates of the uninsured may be small.
    About half of all uninsured children in 2002 were eligible for 
Medicaid or the State Children's Health Insurance Program (SCHIP), 
according to one study.\5\ For uninsured people who are eligible but 
not enrolled, Medicaid provides a form of conditional coverage. Such 
people can apply for Medicaid at the time that they obtain care and 
then receive retroactive coverage for their expenses.\6\ Because of 
that provision, some policymakers view those people as insured. Others 
view them as uninsured because they may not realize that they are 
eligible for Medicaid and therefore may delay or avoid seeking medical 
care.
---------------------------------------------------------------------------
    \5\ Genevieve Kenney, Jennifer Haley, and Alexandra Tebay, 
``Children's Insurance Coverage and Service Use Improve,'' Snapshots of 
America's Families, vol. 3, no. 1 (Washington, D.C.: Urban Institute, 
July 2003).
    \6\ In principle, that provision also applies to SCHIP. However, 
seven states have placed caps on their enrollments in SCHIP because of 
budget shortfalls. See Vernon K. Smith and David M. Rousseau, ``SCHIP 
Program Enrollment: June 2003 Update,'' Kaiser Commission on Medicaid 
and the Uninsured (Washington, D.C.: Henry J. Kaiser Family Foundation, 
December 2003).
---------------------------------------------------------------------------
Trends in Insurance Coverage
    The vast majority of nonelderly Americans who have health insurance 
are covered through their own or a family member's employer. According 
to the Census Bureau's Current Population Survey (CPS), 161 million 
nonelderly Americans (or 64 percent of the nonelderly population) had 
employment-based insurance in 2002.\7\
---------------------------------------------------------------------------
    \7\ Researchers disagree about how the CPS estimates of the insured 
and uninsured should be interpreted. Like many health care analysts, 
CBO believes that those estimates provide a close approximation of the 
numbers at a specific point in time. See Congressional Budget Office, 
How Many People Lack Health Insurance and for How Long?
---------------------------------------------------------------------------
    A smaller proportion of Americans have employment-based insurance 
today than in 1987 (see Figure 3).\8\ The decline in coverage occurred 
primarily from 1987 to 1993, when the share of the nonelderly 
population with employment-based coverage fell by nearly 6 percentage 
points. From 1993 to 2000, the percentage with employment-based 
coverage stabilized and then increased, before falling in 2001 and 
2002. The percentage with employment-based coverage in 2002 stood at 
about the same level as in 1993.
---------------------------------------------------------------------------
    \8\ The CPS estimates for 1987 to 2002 have been adjusted to 
account for changes that were made in the survey design during that 
period. The estimates are from Paul Fronstin, Sources of Health 
Insurance Coverage and Characteristics of the Uninsured: Analysis of 
the March 2003 Current Population Survey, Issue Brief No. 264 
(Washington, D.C.: Employee Benefit Research Institute, December 2003).
---------------------------------------------------------------------------
    The percentage of nonelderly Americans without health insurance 
coverage rose gradually during most of the period from 1987 to 2002, 
although it fell in 1999 and 2000 (see Figure 3). The uninsurance rate 
did not increase by as much as employment-based coverage fell because 
of offsetting changes in the percentage of people who were covered by 
Medicaid and SCHIP. The share of the nonelderly population that was 
covered by private nongroup insurance remained relatively stable at 
about 7 percent. In 2002, about 17 percent of the nonelderly population 
was uninsured--about 3.5 percentage points higher than in 1987.
Figure 3. Percentage of Nonelderly Americans With Employment-Based 
        Health Insurance, Medicaid, and Private Nongroup Insurance and 
        Those Without Insurance, 1987 to 2002

        [GRAPHIC] [TIFF OMITTED] T3794A.003
        
Health Insurance Premiums and Insurance Coverage
    Rapidly rising health insurance premiums are a source of concern 
first because they are likely to reduce the percentage of people who 
have health insurance. They also increase the amount of federal subsidy 
that must be extended to individuals or firms to achieve a specified 
reduction in the number of people who are uninsured, and the associated 
growth in health care spending raises the cost of expanding public 
programs such as Medicaid and SCHIP.
    Just how much of the change in insurance coverage rates that has 
occurred over the past 15 years results from changes in premiums, 
changes in unemployment rates, and other factors is unknown. But in the 
two periods in which employment-based coverage dropped (from 1987 to 
1993 and from 2000 to the present), health insurance premiums rose 
rapidly. Private health insurance premiums grew much more rapidly than 
wages and the prices of other goods and services from 1987 to 1993 and 
then grew at a more moderate pace until accelerating again in 1999 (see 
Figure 4). Thus, employment-based coverage rates fell during periods of 
rapidly rising premiums and stabilized (and even increased) when the 
growth of premiums slowed. Those simple correlations suggest that 
rising premiums contributed to the decline in coverage. Other factors, 
such as cyclical changes in employment, changes in the characteristics 
of the health plans offered, expansions in public coverage, and 
demographic changes probably also contributed.

Figure 4. Annual Percentage Change in Private Health Insurance 
        Premiums, Wages, and the Consumer Price Index, 1987 to 2002

        [GRAPHIC] [TIFF OMITTED] T3794A.004
        
    In discussing the effect of increases in premiums on coverage, 
distinguishing among different causes of such increases is important. 
Clearly, an increase in premiums having nothing to do with the quality 
of the insurance benefit (a tax on premiums, for example) would lead to 
a reduction in the number of people with health insurance since the 
price increase would lead some people to drop their coverage. However, 
the growth in health care spending that has driven the increase in 
premiums in recent decades has been largely caused by the advancing 
capabilities of modern medicine. Increases in premiums therefore have 
reflected, at least in part, changes in the product itself, leaving the 
effect of premiums on decisions to purchase coverage less clear-cut.
    Determining how increases in premiums affect insurance coverage 
rates is also complicated by the fact that a general upward trend in 
the cost of medical services can make insurance more appealing, because 
covering potentially costly medical needs without insurance is more 
difficult. Although that argument applies to many individuals, others--
particularly those with limited financial resources--are more likely to 
drop coverage when faced with rising premiums and to then rely on care 
furnished by safety net providers such as community health centers, 
local health departments, and public hospitals.\9\
---------------------------------------------------------------------------
    \9\ David M. Cutler, Employee Costs and the Decline in Health 
Insurance Coverage, Working Paper No. 9036 (Cambridge, Mass.: National 
Bureau of Economic Research, July 2002).
---------------------------------------------------------------------------
    The rapid growth in premiums from 1987 to 1993 may have contributed 
to the reported decline in the rates at which employees take up the 
offer of employment-based coverage. According to one study, the 
reduction in the insurance coverage rate among workers from 1979 to 
1997 resulted from two factors: a decline in the rate at which full-
time workers accepted an offer of insurance from their employer and a 
decrease in the proportion of part-time and new full-time workers who 
were eligible for the insurance that their employer offered.\10\ There 
was no decline in the proportion of workers whose employer offered 
insurance.
---------------------------------------------------------------------------
    \10\ Henry S. Farber and Helen Levy, ``Recent Trends in Employer-
Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?'' 
Journal of Health Economics, vol. 19, no. 1 (January 2000), pp. 93-119.
---------------------------------------------------------------------------
    As noted, increasing unemployment rates, too, reduce insurance 
coverage, because losing a job sometimes puts a worker's employment-
based health insurance at risk. In a recent analysis, CBO found that 
health insurance coverage rates declined significantly among people who 
received unemployment insurance (UI) benefits for at least four 
consecutive months in 2001 or early 2002.\11\ Some 82 percent of such 
workers had health insurance coverage (from any source) before they 
began receiving UI benefits, but only 58 percent had coverage by the 
final month of those benefits.
---------------------------------------------------------------------------
    \11\ Congressional Budget Office, Family Income of Unemployment 
Insurance Recipients (March 2004).
---------------------------------------------------------------------------
    Federal legislation (the Consolidated Omnibus Budget Reconciliation 
Act of 1985, known as COBRA) requires firms with 20 or more employees 
to continue offering health coverage to workers who separate from their 
firm. However, firms may charge former employees up to 102 percent of 
the full (group) premiums for that coverage. Therefore, unemployed 
workers may face a large increase in their out-of-pocket premiums under 
COBRA. The reduction in coverage estimated for recipients of 
unemployment insurance probably stems, in part, from many of those 
people opting not to purchase coverage under that law.

Policy Implications
    Policies aimed at increasing insurance coverage will be more 
effective if designed in light of the characteristics of the uninsured 
population. In particular, policymakers should be mindful of the 
dynamic nature of the uninsured population as well as the distinction 
between the short-term and long-term uninsured. For people with short 
spells of being uninsured, policies might have the goal of filling the 
temporary gap in coverage or of preventing such a gap from occurring. 
For people with longer periods without insurance, policies might seek 
to provide or facilitate an ongoing source of coverage.
    An issue that complicates any policy initiative to expand health 
insurance is the crowding out of existing sources of coverage. ``Crowd-
out,'' which results when coverage through a new government policy 
initiative replaces private coverage that people would have otherwise 
had, can occur in various ways. Some employees may drop their 
employment-based coverage if a government program provides health 
insurance at a lower premium. Or employers may reduce or drop coverage 
if the demand from their employees lessens because a government program 
provides an alternative source of coverage. A related issue concerns 
health insurance tax credits or similar subsidy programs. Some 
proposals would extend credits or subsidies to people who would have 
been insured even without them. Through both phenomena, federal aid is 
extended to people who otherwise would have been insured. As a result, 
the federal cost per newly insured person could be substantially 
greater than the cost for each person who uses the federal program or 
who receives the tax credit.
    Information on the amount of crowd-out associated with policies to 
expand insurance coverage comes primarily from analyses of occasions 
during the late 1980s and early 1990s when states extended Medicaid 
coverage to pregnant women and children with income above the federal 
poverty line.\12\ According to those analyses, an estimated 10 percent 
to 25 percent of the people who were enrolled in Medicaid when 
eligibility expanded would have otherwise been covered by private 
insurance.\13\ The variation in the estimates arises to some extent 
from the use of different methods in measuring the effect. Such 
estimates may also vary because of differences in the types of people 
eligible for the public programs being measured. In particular, crowd-
out rates increase as programs extend the level of income that 
enrollees may have, as the eligible population includes an increasing 
share of people who have private insurance instead of no insurance.
---------------------------------------------------------------------------
    \12\ No estimates of the crowd-out associated with tax inducements 
for insurance coverage are available.
    \13\ For a review of the literature on crowd-out, see Understanding 
the Dynamics of ``Crowd-out'': Defining Public/Private Coverage 
Substitution for Policy and Research (report prepared by the Academy 
for Health Services Research and Health Policy under The Robert Wood 
Johnson Foundation's Changes in Health Care Financing and Organization 
Program, June 2001).
---------------------------------------------------------------------------
    Finally, incremental reforms probably cannot provide insurance for 
everyone, and attempting to achieve 100 percent coverage would be very 
expensive. As an alternative, policymakers could consider policies 
aimed at expanding insurance coverage in conjunction with policies to 
strengthen the system through which the uninsured receive medical 
care--for example, through increased funding of community health 
centers and public hospitals.

                                 

    Chairman JOHNSON. Thank you. Thank you very much. On this 
issue of crowd-out, which is perhaps the most difficult aspect 
of doing something about the uninsured, States have done 
different things in terms of coverage. Have you done any work 
on States that have tried universal coverage to see what the 
crowd-out impact, particularly on small business, was?
    Dr. HOLTZ-EAKIN. We haven't done any work at CBO on that 
particular issue. We have relied on our surveys of the 
literature in looking at, particularly Medicaid expansions 
which have given the best body of evidence, to look at impacts 
with respect to different income levels as the expansions took 
place at different parts of the income distribution. We can go 
back and look at the literature and see if it gives us more 
evidence at the State level evidence and will be happy to work 
with you to get that back to you.
    Chairman JOHNSON. I should think it would be interesting to 
look at TennCare in Tennessee and see whether the change in the 
public coverage affected employer-provided insurance, 
particularly for small businesses. What were the other 
ramifications?
    Dr. HOLTZ-EAKIN. We can go back and look at the Tennessee 
experience. Most of the academic literature tries to aggregate 
many different State experiences into a summary statistic on 
crowd-out without itemizing State-by-State experiences but it 
is certainly within the data.
    Chairman JOHNSON. I don't know whether you can look at 
whether those States have taken up all the options under 
Medicaid, so they cover a much larger population, much higher 
up the income ladder, what the sort of comparison is between 
willingness to provide insurance in the small business sector 
in States with low Medicaid definitions versus States with high 
Medicaid definitions. I mention that because during the 
Medicare debate, one of the things that surprised me absolutely 
the most and one of the reasons I think the benefits in that 
bill are being grossly underestimated is that 38 States define 
Medicaid eligibility as 75 percent of the Federal poverty 
level.
    So, for us to cover people basically up to 150 percent does 
make a huge difference for many seniors throughout the country. 
If that is what States are doing, then in those States, the 
small businesses may be finding a way to participate in their 
employees' health care at a higher rate than, for example, in a 
State like Connecticut that has generous Medicaid coverage. So, 
if there is any way we could look at those two things I would 
appreciate it. I have two specific questions and then I will 
turn it over to Mr. Stark. In your charts and your testimony, 
you mentioned that there is somewhere between 21 million and 31 
million, approximately, uninsured all year. That is a huge 
swing. That is a 50 percent swing. Why can't you do better than 
that?
    Dr. HOLTZ-EAKIN. The range of estimates comes from looking 
at different data sources for information about the uninsured. 
To track completely a spell of uninsurance requires the kind of 
data that follows individuals through time. Such data sets are 
relatively rare. To the extent that they ask good questions 
about the nature of individuals' health insurance coverage is 
even rarer.
    So, we have a restricted amount of data, quite frankly, 
that are available to answer this question. I guess it is in 
the eye of the beholder. From the point of view of someone who 
has looked at data on many problems in economics for a long 
period of time, I was less unhappy with that swing than you 
might have been. I think the key message is that out of the 
whole population of the uninsured, there is a smaller subset 
which is uninsured for a sustained period of time, and if one 
wanted to target that audience more carefully it might be 
useful to peel back more layers, look at those individuals who 
perhaps had not declined employer coverage. If they declined 
employer coverage, it is hard to argue that they were uninsured 
involuntarily. You could look at the degree to which they might 
be eligible for Medicaid and not take it up.
    Chairman JOHNSON. Two things. First of all, I think it 
would be very useful to know more about the difference between 
21 million and 31 million because what you are really saying is 
either half of the uninsured are uninsured for 12 months or 
more or three-quarters. So, I would like to know more about 
that figure.
    Dr. HOLTZ-EAKIN. We can certainly provide that.
    Chairman JOHNSON. I would appreciate that.
    [The information was not received at the time of printing]
    Chairman JOHNSON. Then in your other chart, about spells in 
progress and spells that began. On one chart you have 45 
percent uninsured for less than 4 months, 26 percent for 5 to 
12 months, and about 30 percent for more than 12 months. So, 
about 30 percent for more than a year. Then, in the chart 
beside it, 78 percent were uninsured for more than 12 months. 
You explained that with some man-in-the-street question. I 
didn't get that. If only 30 percent are actually uninsured for 
more than 12 months, why do 78 percent think they are?
    Dr. HOLTZ-EAKIN. It represents the difference between 
watching someone progress through an entire spell, from 
beginning to end and seeing how long it is, versus walking out 
and finding people perhaps in the middle of a spell of 
uninsurance. There are a smaller fraction, 30 percent, who have 
very long spells, so you are more likely to run into that 
person when you survey. As a result, in the right panel, what 
you see is the answer to the question when we find somebody in 
the survey then and say are you uninsured, they say yes, they 
are more likely to be the kind of person who has a long spell 
because they are more likely to be found in such a survey.
    Chairman JOHNSON. Do we ask them how long have you been 
uninsured or do we ask them how long do you think you will be 
uninsured?
    Dr. HOLTZ-EAKIN. We ask the first question. The latter we 
can only track by following them for a long period of time. The 
data are fairly limited.
    Chairman JOHNSON. It seems to me that the former number is 
the one that we as policymakers should be more concerned with. 
That is the number who actually are uninsured for more than a 
year. Is that the correct interpretation?
    Dr. HOLTZ-EAKIN. Yes.
    Chairman JOHNSON. Thank you very much, Dr. Holtz-Eakin. Mr. 
Stark.
    Mr. STARK. I gather that this is sort of like labor 
statistics, and are you talking to the people at home or are 
you talking to the employers to get different employment 
figures? I don't think it makes a whole hell of a lot of 
difference. You still only had 21,000 jobs last month and when 
you need 300,000 or 400,000 jobs a month, we aren't doing very 
well, as we are not in taking care of people who aren't 
insured. I guess the real question is, How many people get sick 
when they don't have insurance? I don't know as we know that, 
do we?
    Dr. HOLTZ-EAKIN. The onset of----
    Mr. STARK. The onset of an expensive medical encounter. How 
many people have a heart attack or get diagnosed with diabetes? 
I don't think we know that. Maybe somebody does, but I don't 
know as we know. That is the key. If somebody makes it through 
the year, they are home free, and then they get insurance next 
year. Where they are going to get it, I don't know. The other 
thing that I don't believe you define, or anybody else that I 
know of, is what do you consider as insured. If they have the 
American Family Life Assurance Company (AFLAC), they get a 
hundred bucks a day if they get sick because they've got some 
kind of a hospital policy. Is that insured?
    Dr. HOLTZ-EAKIN. In the longer paper that underlies this 
testimony, the data sources have different classifications. 
Basically they include employer-sponsored insurance. Not all 
the details about the policy are available, but these are 
standard insurance measures.
    Mr. STARK. At the low end of the scale with some of the 
associated health plans, as we have been reading in the press 
lately about these plans that have cropped up that are phony. 
People think they have bought health insurance and the 
insurance company has gone south. We don't have, outside of, 
say, Medicare, a definition--maybe we do in the Federal 
Employee Health Benefit Plan (FEHBP). I don't know as the 
benefits are--if there is a minimum level of benefits there--
but we really don't have a definition as to what is, quote, 
``insured,'' do we?
    Dr. HOLTZ-EAKIN. The definitions will differ by the survey. 
It is often self-reported.
    Mr. STARK. Particularly if somebody is on the margin, if 
they have high blood pressure or a host of things where they 
have been excluded as a preexisting condition, they are really 
not insured for the things they need most. I don't know how I 
could define that in a way that a scientific researcher could 
use it. I do think that with the vast difference in benefits 
and what is covered and what isn't, we would have a better 
understanding of how well we are dealing with this problem if 
we could define where we put somebody in the winner category. 
We just don't take them and give them some kind of schlocky 
insurance company that may not pay benefits, may not pay 
hospital benefits, may not have mental health.
    We say, look, here is a standard of what a person ought to 
have; and then the question is, if they have a holdover when--
as you say in your testimony--they move from job to job, but 
really do you count the time between when the new insurance 
goes into effect, which often is 60 days, 90 days? Yes, they 
may be insured, but the benefits don't start if you get sick in 
that trial period, and there may be preexisting conditions 
which have been precluded, all of which I think makes no 
difference. I am just suggesting that we could argue all day 
whether there are 30 million or 40 million, and nobody has 
brought up children. I keep hearing the number 12 million. What 
would you say is the number of children? How would you define 
that?
    Dr. HOLTZ-EAKIN. Depending on the definition, we show in 
Table 1 some of the fraction of those individuals less than 19 
who are uninsured at any point during the year. It is about a 
quarter in our data.
    Mr. STARK. About 25 percent of the uninsured are kids?
    Dr. HOLTZ-EAKIN. Yes. Of the kids are uninsured at some 
point during the year.
    Mr. STARK. Again, I think this is all very interesting, but 
what does General Accounting Office (GAO) suggest we do to get 
all these people insured?
    Dr. HOLTZ-EAKIN. I am not familiar with what the GAO folks 
would suggest, sir.
    Mr. STARK. Okay. What do you think we should do? You are 
studying this. You say you think we have trouble affording it. 
What about the social costs? General Motors tells us they lose 
$1,300 by making a car here as opposed to making it in Canada. 
That may be an incentive to not have jobs here or there. In 
your opinion, is that something we should take into account 
when we think about Federal costs of insuring everybody?
    Dr. HOLTZ-EAKIN. On the job location, I think the key thing 
to focus on is not any particular part of the benefit package, 
but labor costs in any location here versus Canada. I am not 
familiar with the particular number you quoted. Certainly if 
you want to look at the decision to locate a facility or a job 
in one place or another, the typical standard is unit labor 
cost relative to the productivity of labor, not a benefit in 
isolation.
    The broader question, the intent of my remarks was not to 
tee up specific policy solutions but to identify the fact that 
there are many different features to the issue of uninsurance. 
There is the time series pattern of the total uninsurance, and 
then there is the fact that within the population, there appear 
to be different kinds of experience with spells of uninsurance. 
It wasn't meant to offer specific solutions but to frame up the 
issues.
    Mr. STARK. So, you don't have a suggestion for us?
    Chairman JOHNSON. Mr. Stark, we actually didn't ask them to 
come to talk about that. They are not prepared for that.
    Mr. STARK. As a person who has a lot of knowledge about 
this, as an economist approach to what it will cost, I think 
you did say it would be expensive, didn't you?
    Chairman JOHNSON. Let me go on to Mr. Crane.
    Mr. STARK. Sure.
    Mr. CRANE. Thank you, Madam Chairman, and thank you, Dr. 
Holtz-Eakin, for coming today. As you know, H.R. 1, the 
Medicare prescription Drug and Modernization Act, included 
language that created Health Savings Accounts (HSAs) for all 
Americans. Do you recall CBO's estimation for the number of 
individuals who would purchase a new HSA based on the new law?
    Dr. HOLTZ-EAKIN. I don't know the number of individuals who 
would purchase them. I know the Joint Committee on Taxation 
scored the budget costs of it. We could certainly discuss with 
them the underlying mechanics of the estimate.
    Mr. CRANE. According to the last Department of the Treasury 
report, 73 percent of people who had a medical savings account 
were previously uninsured, is that correct?
    Dr. HOLTZ-EAKIN. I am not familiar with that number again. 
We can work with you to make sure that that is right.
    Mr. CRANE. One of the arguments against HSAs is that this 
type of savings account drives people out of employer-sponsored 
health care coverage, but based on the Treasury Department's 
report, it seems that most people were not driven out of the 
system. They had no insurance at all. Based on factual data, it 
seems that these types of accounts are not undermining the 
employer-based health care system. Would you agree?
    Dr. HOLTZ-EAKIN. I think it is important to look at the 
evidence. Certainly if you look at the incentives in an HSA, 
they will differ on both the dimension for insurance and the 
incentives for efficient use of health care. For some 
individuals who are already purchasing insurance to get a tax 
subsidy and take on the HSA is clearly to their advantage, it 
doesn't change insurance coverage at all. For other individuals 
who do not have insurance, there is an obvious incentive, 
lowering the cost. It will be an empirical issue as to which of 
those things dominates on the insurance front.
    Mr. CRANE. You stated in your testimony that the vast 
majority of the uninsured are in working families and that over 
three-quarters of uninsured workers are not offered insurance 
by their employer and that low-income workers are less likely 
to be offered insurance by their employer and are less likely 
to accept it if it is offered. It seems to me that if we are 
going to find a way to help uninsured individuals, the first 
place we need to start is to make health care more affordable 
for individuals and small businesses. Would you agree?
    Dr. HOLTZ-EAKIN. It certainly appears that the employer-
sponsored part of this is an important part of it, especially 
the transitory spells of uninsurance.
    Mr. CRANE. Thank you.
    Chairman JOHNSON. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Madam Chairman. There is a 
fascinating article in today's Washington Post entitled 
``Rising Costs of Health Care in the U.S. Give Other Developed 
Countries an Edge in Keeping Jobs.'' Some guy named Jim 
Stanford, an economist with the Canadian Auto Workers, said 
employers who operate in either country, meaning Canada or the 
United States, can save $4 an hour per worker by choosing 
Canada. He says that is a significant differential. It's one of 
the reasons the Canadian auto industry has done a lot better.
    Officials from Ford Motor, General Motors, and 
DaimlerChrysler sent out a letter that said the Canadian public 
health system significantly reduces total labor costs compared 
to the costs of equivalent private health insurance services 
purchased by the U.S.-based auto makers. Then, finally, the 
Vice Chairman of the Ford company said, high health care costs 
have created a competitive gap that is driving investment 
decisions away from the United States.
    My question to you is the Institute of Medicine did a study 
last year, a 3-year study on the uninsured and said that the 
U.S. economy loses between $65 and $130 billion each year 
because we don't have a system of universal coverage. Have you 
done any kind of look at that at all? Did you look at their 
study?
    Dr. HOLTZ-EAKIN. I read the study briefly. I won't pretend 
to be intimately familiar with the research underneath it. At 
CBO we haven't done any estimate of losses of that sort.
    Mr. MCDERMOTT. In a country where these things are true 
about Canada--presumably they are true. I remember that in 1994 
we had a lot of people going around beating on their chests and 
very proudly saying we defeated the Clinton program and that 
the private sector would take care of it. Is there any evidence 
whatsoever that you can show me since 1994 that the private 
sector has done one thing to deal with the measure of 
uninsurance in this country?
    Dr. HOLTZ-EAKIN. The evidence on uninsurance, we have 
presented in my opening remarks and in our testimony. I guess I 
would go back to----
    Mr. MCDERMOTT. You think since 1994 it has gotten better?
    Dr. HOLTZ-EAKIN. In the overall insurance rate, we saw a 
sharp drop between 1987 and 1993. Then it rose during the 
nineties and has declined more recently. We are at 64 percent 
overall in employer-sponsored insurance. I guess I would repeat 
what I offered to Mr. Stark, which is that, with all due 
respect to the individuals involved in the auto companies, I am 
not familiar with their numbers, it is not the full calculation 
to look only at health care costs in the two countries, 
especially at the employer level. It is the total cost of labor 
compensation relative to how productive those workers are that 
will be the key issue.
    If health care costs rose and nothing else changed, 
certainly that is a competitive disadvantage. The evidence, 
however, over a long period of time in the United States and 
elsewhere is that if one part of the benefit package rises, it 
is usually offset to some extent by another part of the benefit 
package or wages. So, the total compensation package does not--
--
    Mr. MCDERMOTT. So, workers wind up really worse off because 
more of their pay goes into their benefit package than it does 
into their pocket.
    Dr. HOLTZ-EAKIN. Obviously they value the benefit. So, it 
is a mix that offsets one value of compensation with another.
    Mr. MCDERMOTT. Are you testifying that from your research, 
that there is really no problem, then, with the health 
insurance? Eight years in a row of double-digit inflation. The 
private sector was going to take care of that, they told us in 
1994, because they were scared that the--that the health 
providers would be scared and the insurers could get a better 
deal. We have had 8 years of double-digit inflation. What is 
happening here? Why does it continue to go up? We leave more 
and more people by the side of the road, even if for 3 or 4 
months.
    If you are uninsured and you get sick, it doesn't make any 
difference whether you haven't been insured for a week or 12 
months and 25 days. It really is a question of what you do. 
Where is the control that is supposed to come out of the 
private sector? I am a free enterpriser. I believe in free 
enterprise, but I don't see them functioning at all. They put 
down the government system. So, where is the evidence that they 
control costs?
    Dr. HOLTZ-EAKIN. I think the underlying question with the 
rising cost of health care in the United States, not insurance 
per se, starts with care. Then I think there is broad consensus 
that it is associated with technology adoption and the 
enhancement of technologies in the medical sector. They have 
not in the United States and elsewhere proven to be cost 
savers. The question is whether the difference in quality is 
worth the money.
    Mr. MCDERMOTT. All this technology has not proven to be a 
cost saver. Why does the health care industry continue to do it 
then? Why does the insurance pay for it? If it doesn't save 
costs, why do they pay for it?
    Dr. HOLTZ-EAKIN. As an economist, I would answer that if 
quality is higher, you would be willing to pay more for 
something. What remains the outstanding question is whether we 
are getting quality per dollar with the technology 
enhancements. That is the question for the United States in 
looking at the efficient provision of health care. Insurance is 
layered on top of that to spread the financial risk of 
providing that care. The underlying issue of the rising cost of 
health care is one in which it may be the case that quality is 
rising and as this Nation becomes older and wealthier it may 
choose to buy more health care. It may also be the case that at 
the margin, some of these enhancements do not provide the 
quality enough to offset their dollar cost. That is the key 
issue I think in terms of the cost.
    Mr. MCDERMOTT. Did you do any cost-benefit analysis at all? 
Did you look at the cost-benefit analysis at all in terms of 
our system versus any of these other systems?
    Dr. HOLTZ-EAKIN. We don't have a study on that. One of the 
questions that would be difficult is measuring benefits. As you 
can imagine just by introspection, valuing the benefits of 
additional medical technology is a very difficult task, both in 
economic and social terms.
    Mr. MCDERMOTT. I yield back the balance of my time. We 
don't need another study, Madam Chairman.
    Chairman JOHNSON. I don't know that I have ever seen a 
study that I thought was useful on that. At the time this issue 
first came up in the eighties, we had more computerized axial 
tomography (CAT) scanners in Connecticut than all of Canada. 
That says a lot about access to quality care. I don't know how 
you would deal with that in a comparative analysis of health 
care costs. That has been one of the difficulties.
    I just wanted to put on the record one issue that I talked 
with you about that you did not mention in your testimony so I 
didn't talk--bring it up earlier. You don't mention the 
variation in the uninsured geographically. You talk about it 
demographically and in terms of income and age, but not 
geographically. I think we need to know that, because these 
sort of generic fixes end up having an enormous number of 
ramifications.
    For instance, if you go to a policy that provides tax 
credits, even if they are refundable and they go to 100 percent 
at certain wages, that will certainly displace a lot of 
employer-provided plans. There are other problems with it. If 
we understood the geographic structure of the uninsured 
population, we would have a lot more levers to pull.
    I just want to comment that the Health Resources and 
Services Administration is handing out grants to community 
health centers that will do two things, and they are 3-year 
grants. They will search out the underinsured and the uninsured 
in their region and bring them into the system and implant 
electronic technology so that any place they enter the system, 
whether it is the hospital, the doctor's office or their 
community health center, a home health agency, an optometrist, 
wherever, they can be brought into the system by electronic 
record so that then wherever they come again, their records 
will be available. It is a very exciting, big effort. I hope to 
get some report on where they are on that in some of the older 
demonstration areas as some portion of the guidance that this 
Committee will need. If you could talk with Census and search 
out and see what do we know about the geographic distribution, 
that would be something of interest to, I think, this 
Committee. Thank you.
    Dr. HOLTZ-EAKIN. Certainly.
    Chairman JOHNSON. We now will ask our second panel to come 
forward. As they are coming forward, I will just introduce them 
very briefly. Diane Rowland is the executive vice president of 
the Henry J. Kaiser Family Foundation and executive director of 
the Kaiser Commission on Medicaid and the uninsured. I won't go 
through her whole biography but she has done a lot of very 
important work on Medicaid and long-term care issues, cost 
containment issues and so on.
    I am very pleased to have Dr. Rowland with us. Dr. Nichols 
is from the Center for Studying Health System Change, a 
nonpartisan health policy research organization in Washington. 
He is an expert on private insurance markets, market-based 
reforms and the Medicare Program. Dr. Glenn Melnick is the Blue 
Cross of California Professor of Health Care Finance at the 
University of southern California and a senior economist and 
resident consultant at RAND Corporation in Santa Monica. He has 
focused a lot of time and effort on areas such as pricing of 
hospital services, health insurance and health care markets. We 
appreciate him being with us here today. Greg Scandlen is with 
the Galen Institute and is an expert on financing, insurance 
regulation, and employee benefits and has written extensively 
on consumer choice and publishes a weekly newsletter, Consumer 
Choice Matters.
    We welcome you all here today. We thank you for your input 
and your help as we embark on this effort to take some action 
on the uninsured. I know it is an old issue as Pete has 
mentioned. It has been with us for a long time, through 
Republican Administrations and Democratic Administrations. It 
is a hard problem, which is one of the reasons we haven't 
solved it. Also our system has a peculiar way of ultimately 
providing health care. At this point, it is not only the 
uninsured, we can't afford for people to be uninsured as a 
matter of principle, but also the caring system can no longer 
sustain the costs of nonpayers. Dr. Rowland, if you would 
proceed.

    STATEMENT OF DIANE ROWLAND, EXECUTIVE DIRECTOR, KAISER 
            COMMISSION ON MEDICAID AND THE UNINSURED

    Ms. ROWLAND. Thank you, Madam Chairman and Members of the 
Committee, for this opportunity to be with you today to discuss 
the Nation's uninsured problem and population. While surveys 
differ in their count of the uninsured and the time period 
without health insurance, all tell us that millions of 
Americans go without coverage each year, and many for long 
periods of time. The census data we use to monitor health 
insurance coverage that gives us in 2002 the number 43 million 
Americans at any given point without health insurance also 
helps us to understand how this number changes over time. In 
2002, we saw an increase of 2.4 million without insurance over 
the previous year. The size of our uninsured population, in 
fact, is comparable to the number of beneficiaries you deal 
with in other legislation who are Members of the Medicare 
Program.
    While the composition of the uninsured population includes 
Americans of all ages and incomes, the problem, especially for 
the long-term uninsured, is particularly focused on low-income 
families. Health insurance coverage in America is very much a 
patchwork. Having insurance depends on where you live, where 
you work, and what you earn. In fact, as you pointed out, Madam 
Chair, the geographic variations in the rate of insurance 
coverage are very significant. Those States with large firms 
and more affluent economies are more likely to have lower rates 
of uninsurance than those States with large poverty 
populations, small businesses and especially rural interests.
    There are also many misperceptions about our uninsured 
population. They are, as you said, hardworking families that do 
not obtain health coverage through their jobs. Eight in ten of 
the uninsured come from a working family, but I think most 
important to remember is that for the most part, they are not 
affluent. Two out of every three come from low-wage families 
earning less than $30,000 for a family of three, families 
hardly able to afford $9,000 for a family policy on their own, 
and in most cases families who work for employers that don't 
offer coverage. In the few cases where the employer offers 
coverage to these low-income families, their share of the 
premium, averaging $2,400 last year for family coverage, is 
often too high a price to pay when the family budget is 
extremely limited.
    The uninsured, of course, are predominantly adults because 
our public programs have actually helped to extend coverage to 
1 in 4 American children. Today Medicaid and SCHIP provide 
coverage to over 25 million low-income children and have 
dropped the uninsured rate among low-income children from a 
high of 23 percent in 1997 to 14 percent at the beginning of 
2003.
    Indeed, a success story in our efforts of extending 
coverage. This drop in the number of children without insurance 
has helped to counteract the rise in the uninsured as a result 
of loss of employer-based coverage. I don't believe it is all 
crowd-outs. For the most part, you have provided coverage 
through Medicaid and SCHIP to millions of children previously 
uninsured, not those who were in the employer-based market. 
However, limited eligibility for parents and restrictions on 
coverage of childless adults and Medicaid leave over 20 million 
low-income adults, half of America's uninsured population on 
any given day, outside of Medicaid's reach. Unfortunately, in 
today's economy with weak job growth, the number of Americans 
without health insurance is likely to grow, not shrink.
    Rising health insurance costs are compromising employer-
based coverage as more and more employers shift increased costs 
for premiums and additional cost-sharing burdens onto their 
employees, making coverage ever more unaffordable for the 
lowest-wage employees. Meanwhile, State fiscal constraints are putting 
Medicaid and SCHIP coverage at risk. Fiscal relief in the tax 
bill really did help stave off deeper cuts and reductions in 
Medicaid and reductions in eligibility during the last year, 
but the matching rate increase will expire this June putting 
the State's fiscal considerations back on the table.
    It is hard to see how we will be able to make progress 
extending coverage to the uninsured or maintaining the coverage 
Medicaid now provides without a commitment of additional 
Federal resources. Addressing the uninsured is, as you have 
said, a national priority. People without health insurance 
often go without appropriate care and get sicker and die sooner 
than they should because of it.
    Leaving millions uninsured and coverage of millions more at 
risk in Medicaid is a poor prescription for our Nation's 
health. So, I look forward to working with the Committee to 
find ways to secure the coverage we have and extend coverage to 
the millions of uninsured who need assistance in meeting their 
health care needs. Thank you. Dr. Nichols.
    [The prepared statement of Ms. Rowland follows:]

     Statement of Diane Rowland, Sc.D., Executive Director, Kaiser 
                Commission on Medicaid and the Uninsured

      Today, over 43 million Americans are without health 
insurance. The uninsured are predominantly low-income working 
families--nearly two-thirds (64%) have incomes below 200 percent of the 
poverty level (or less than $30,000 per year for a family of three in 
2002).
      Eight in ten of the uninsured come from working families 
but do not obtain coverage in the workplace. Low-wage workers are 
particularly disadvantaged--they are less likely to be offered coverage 
through the workplace and unable to afford coverage on their own.
      The rising cost of health insurance is a major problem 
for both employers and employees; in 2003, the average premium cost was 
$3,383 for single coverage and $9,068 for family coverage. On average, 
employers contributed 84 percent of premium costs for single and 73 
percent for family coverage; however, the employee share remains a 
substantial burden for many low-wage workers.
      Medicaid helps fill in the gap by providing health 
insurance coverage with limited cost sharing and comprehensive benefits 
to 38 million low-income children and parents, the large majority being 
children. Medicaid's reach for low-income adults, however, is severely 
limited--income levels for parents in 35 states are below poverty and 
childless adults are generally excluded from coverage, no matter how 
poor.
      The recent economic downturn and return of escalating 
health costs now place health insurance coverage for working families 
in jeopardy from increased premium costs and loss of employer-sponsored 
coverage, combined with limits on the availability and scope of 
Medicaid due to state fiscal constraints. We face the prospect of 
seeing coverage erode, not expand, for millions of Americans.
      The combination of rising health care costs and state 
fiscal constraints puts the low-income population relying on Medicaid 
and SCHIP particularly at risk. Maintaining the gains in public 
coverage over the last decade, especially for children, may require 
continuing federal fiscal relief to the states in return for a 
commitment to maintain coverage.
      Health insurance matters for the millions of Americans 
who lack coverage--it influences when and whether they get necessary 
medical care, the financial burdens they face in obtaining care, and, 
ultimately, their health and health outcomes. Extending coverage to the 
millions of Americans without health insurance is both an important 
policy and health objective.

    Thank you for the opportunity to offer testimony this afternoon on 
the nation's growing uninsured population and the consequences of 
leaving 43 million Americans without health insurance coverage. I am 
Diane Rowland, Executive Vice President of the Henry J. Kaiser Family 
Foundation and Executive Director of the Kaiser Commission on Medicaid 
and the Uninsured.
    Health insurance coverage remains one of the nation's most pressing 
and persistent health care challenges. The most recent data from the 
Census Bureau show that more than one in every seven Americans--43.6 
million adults and children--were without health insurance in 2002. 
This is not only a large problem, but a growing problem for millions of 
Americans. From 2001 to 2002, the number of Americans lacking health 
insurance increased by 2.4 million (Figure 1). Public coverage 
expansions through Medicaid helped to moderate the growth in the 
uninsured, most notably by providing coverage to children in low-income 
families, but were not enough to offset the decline in private 
coverage. Lack of coverage compromises not only access to care and the 
health of the uninsured, but also the health and economic well-being of 
our nation.

[GRAPHIC] [TIFF OMITTED] T3794A.005

The Uninsured Population
    Who are America's 43 million people without health insurance 
coverage? The uninsured are predominantly adults from low-income 
working families--three-quarters of the uninsured are between age 18 
and 65; two-thirds have incomes below 200 percent of the federal 
poverty level or $28,696 for a family of three in 2002; and the 
majority (eight in 10) come from working families (Figure 2). The 
complexities of coverage through the workplace combined with gaps in 
public coverage through Medicaid and the State Children's Health 
Insurance Program (SCHIP) mean millions of Americans are outside of the 
reach of health insurance coverage. Health coverage in America is very 
much a patchwork--having health insurance depends on where you live, 
where you work, and too often what you earn.

[GRAPHIC] [TIFF OMITTED] T3794A.006

    Two out of three nonelderly Americans receive their health 
insurance coverage through an employer-sponsored health plan offered 
through the workplace, but for millions of working families such 
coverage is either not offered or is financially out of reach. Among 
the 43 million uninsured, eight in ten come from working families--
nearly 70 percent come from families where at least one person works 
full-time and another 12 percent from families with part-time 
employment.
    Most uninsured workers, and consequently their dependents, are not 
offered job-based coverage either through their own or a family members 
job. The likelihood of obtaining coverage through the workplace depends 
largely on where one works and what one earns. Most large firms offer 
coverage, but many smaller firms do not. Low-wage workers are often 
employed in small businesses, particularly in the retail and service 
industries, where health insurance is not widely offered as a fringe 
benefit.
    The cost of health insurance in the workplace is a substantial 
financial burden for both the employer and employee, but remains a key 
fringe benefit, especially in large or unionized firms. When health 
insurance is offered in the workplace, most employees opt for coverage 
even though the share of premium they must pay often represents a 
substantial share of their income. In 2003, the Kaiser/HRET national 
survey of employers found the average annual premium for employer-
sponsored group insurance for a family was $9,068 with the employer 
contributing 73 percent of the premium ($6,656) and the employee 
contributing 27 percent of the premium or $2,412 per year (Figure 3). 
For single individuals, the premiums averaged $3,383 per year with the 
employer covering 84 percent of the premium cost ($2,875 per year).

[GRAPHIC] [TIFF OMITTED] T3794A.007

    If health insurance coverage is not available through a group 
policy from an employer, families are hard pressed to be able to find 
and pay for a policy in the individual insurance market. Most directly 
purchased policies are expensive and have more limited benefits and 
more out-of-pocket costs than group coverage plans. Moreover, the cost 
of these policies is based on age and health risk, and any preexisting 
health conditions are generally excluded from coverage. For the average 
low-income family, a $9,000 family policy in the individual market 
would consume a third or more of their income, provide only limited 
protection, and could exclude coverage for any family members with 
health problems. Most notably, in many states, private plans 
individually marketed do not provide routine maternity benefits or, if 
they do, they are offered as a very costly add-on.
    Medicaid and SCHIP help fill in the gaps for some of the lowest 
income people, but this publicly sponsored coverage is directed 
primarily at children and pregnant women and varies in availability 
across the states. Most low-income children are eligible for assistance 
through Medicaid or SCHIP, but in most states parents' eligibility lags 
far behind that of their children. While eligibility levels for 
children are at 200 percent of the federal poverty level ($30,520 for a 
family of three in 2003) in 39 states, parents' eligibility levels are 
much lower (Figure 4). A parent working full-time at minimum wage 
(approximately $9,300 per year at 35 hours per week) earns too much to 
be eligible for Medicaid in 19 states (Figure 5). For childless adults, 
Medicaid funds are not available unless the individual is disabled or 
lives in one of the few states with a waiver to permit coverage of 
childless adults. As a result, in 2002, Medicaid provided health 
insurance coverage to over half of all poor children, and a third of 
their parents, but only 22 percent of poor childless adults. Over 40 
percent of poor adults and a third of near-poor adults were uninsured.

[GRAPHIC] [TIFF OMITTED] T3794A.008

[GRAPHIC] [TIFF OMITTED] T3794A.009

    Low-income individuals are disproportionately represented among the 
uninsured--nearly two-thirds (64%) of the uninsured come from low-
income families earning less than 200 percent of the poverty level and 
over a third (36%) come from families living below the poverty level. 
Employer-sponsored coverage is extremely limited for the low-income 
population; only 15 percent of the poor and 42 percent of the near-poor 
receive coverage through their employer (Figure 6). Medicaid helps to 
offset the lower levels of private insurance for over a third (38%) of 
the poor and 20 percent of the near-poor, but many parents of low-
income children as well as childless adults do not qualify for Medicaid 
assistance.

[GRAPHIC] [TIFF OMITTED] T3794A.010

    The chances of experiencing a long spell without health coverage 
(12 months or longer) are not equal. Individuals with low incomes and 
those in fair or poor health status are significantly more likely than 
others to be uninsured for long periods. Young adults (19-34 years old) 
are at greater risk of being uninsured for 12 months or longer than 
other age groups (Figure 7).

[GRAPHIC] [TIFF OMITTED] T3794A.011

    This confluence of factors relating to the characteristics of the 
uninsured places low-income adults at the center of the nation's 
uninsured problem and the group most likely to have long periods 
without coverage. In 2002, 48 percent of the 43 million uninsured 
Americans were low-income adults--16 percent parents of low-income 
children and 32 percent low-income adults without children (Figure 8). 
Assuring coverage for this group, as well as extending coverage to the 
parents of the low-income children who are now largely eligible for 
public coverage, poses the next challenge in coverage expansions. 
Focusing attention on the lack of coverage for low-income adults and 
continuing to push for better enrollment of low-income children offers 
the potential to reach two in three uninsured Americans.

[GRAPHIC] [TIFF OMITTED] T3794A.012

THE CONSEQUENCES OF LACK OF INSURANCE
    The growing number of uninsured Americans should be of concern to 
all of us because health insurance makes a difference in how people 
access the health care system and, ultimately, their health. Leaving a 
substantial share of our population without health insurance affects 
not only those who are uninsured, but also the health and economic 
well-being of our nation.
    There is now a substantial body of research documenting disparities 
in access to care between those with and without insurance. Survey 
after survey finds the uninsured are more likely than those with 
insurance to postpone seeking care; forgo needed care; and not get 
needed prescription medications (Figure 9). Many fear that obtaining 
care will be too costly. Over a third of the uninsured report needing 
care and not getting it, and nearly half (47%) say they have postponed 
seeking care due to cost. Over a third (36%) of the uninsured compared 
to 16 percent of the insured report having problems paying medical 
bills, and nearly a quarter (23%) report being contacted by a 
collection agency about medical bills compared to eight percent of the 
insured. The uninsured are also less likely to have a regular source of 
care than the insured, and when they seek care, are more likely to use 
a health clinic or emergency room. Lack of insurance thus takes a toll 
on both access to care and the financial well-being of the uninsured.

[GRAPHIC] [TIFF OMITTED] T3794A.013

    Moreover, there is a growing body of evidence showing that access 
and financial well-being are not all that is at stake for the 
uninsured. There are often serious consequences for those who forgo 
care. Among the uninsured surveyed, half report a significant loss of 
time at important life activities, and over half (57%) report a painful 
temporary disability, while 19 percent report long-term disability as a 
result. Lack of insurance compromises the health of the uninsured 
because they receive less preventive care, are diagnosed at more 
advanced disease stages, and once diagnosed, tend to receive less 
therapeutic care and have higher mortality rates than the insured 
(Figure 10). Uninsured adults are less likely to receive preventive 
health services such as regular mammograms, clinical breast exams, pap 
tests, and colorectal screening. They have higher cancer mortality 
rates, in part, because when cancer is diagnosed late in its 
progression, the survival chances are greatly reduced. Similarly, 
uninsured persons with heart disease are less likely to undergo 
diagnostic and revascularization procedures, less likely to be admitted 
to hospitals with cardiac services, more likely to delay care for chest 
pain, and have a 25 percent higher in-hospital mortality.

[GRAPHIC] [TIFF OMITTED] T3794A.014

    Urban Institute researchers Jack Hadley and John Holahan, drawing 
from a wide range of studies, conservatively estimate that a reduction 
in mortality of five to 15 percent could be achieved if the uninsured 
were to gain continuous health coverage. The Institute of Medicine 
(IOM) in its analysis of the consequences of lack of insurance 
estimates that 18,000 Americans die prematurely each year due to the 
effects of lack of health insurance coverage.
    Beyond the direct effects on health, lack of insurance also can 
compromise earnings of workers and educational attainment of their 
children. Poor health among adults leads to lower labor force 
participation, lower work effort in the labor force, and lower 
earnings. For children, poor health leads to poorer school attendance 
with both lower school achievement and cognitive development.
    These insurance gaps do not solely affect the uninsured themselves, 
but also affect our communities and society. In 2001, it is estimated 
that $35 billion in uncompensated care was provided in the health 
system with government funding accounting for 75 to 80 percent of all 
uncompensated care funding (Figure 11). The poorer health of the 
uninsured adds to the health burden of communities because those 
without insurance often forgo preventive services, putting them at 
greater risk of communicable diseases. Communities with high rates of 
the uninsured face increased pressure on their public health and 
medical resources.

[GRAPHIC] [TIFF OMITTED] T3794A.015

    A recent IOM report estimates that in the aggregate the diminished 
health and shorter life spans of Americans who lack insurance is worth 
between $65 and $130 billion for each year spent without health 
insurance (Figure 12). Although they could not quantify the dollar 
impact, the IOM committee concluded that public programs such as Social 
Security Disability Insurance and the criminal justice system are 
likely to have higher budgetary costs than they would if the U.S. 
population under age 65 were fully insured. A new study by Hadley and 
Holahan of the Urban Institute suggests that lack of insurance during 
late middle age leads to significantly poorer health at age 65 and that 
continuous coverage in middle age could lead to a $10 billion per year 
savings to Medicare and Medicaid.

[GRAPHIC] [TIFF OMITTED] T3794A.016

PROSPECTS FOR THE FUTURE
    Given the growing consensus that lack of insurance is negatively 
affecting not only the health of the uninsured, but also the health of 
the nation, one would expect extending coverage to the uninsured to be 
a national priority. All indicators point to significant growth in our 
uninsured population if action is not taken to both broaden and secure 
coverage.
    With the poor economy and rising health care costs, employer-based 
coverage--the mainstay of our health insurance system--is under 
increased strain. Health insurance premiums rose nearly 14 percent this 
year--the third consecutive year of double-digit increases--and a 
marked contrast to only marginal increases in workers' wages (Figure 
13). As a result, workers can expect to pay more for their share of 
premiums and more out-of-pocket when they obtain care, putting 
additional stress on limited family budgets. With average family 
premiums now exceeding $9,000 per year and the workers' contribution to 
premiums averaging $2,400, the cost of coverage is likely to be 
increasingly unaffordable for many families, especially low-wage 
workers. However, for most low-wage workers, especially those in small 
firms, it is a question of availability, not affordability--because the 
firms they work in do not offer coverage.

[GRAPHIC] [TIFF OMITTED] T3794A.017

    In recent years, with SCHIP enactment and Medicaid expansions, 
states have made notable progress in broadening outreach, simplifying 
enrollment processes, and extending coverage to more low-income 
families (Figure 14). Participation in public programs has helped to 
reduce the number of uninsured children and demonstrated that outreach 
and streamlined enrollment can improve the reach of public programs. 
However, the combination of the current fiscal situation of states and 
the downward turn in our economy are beginning to undo the progress we 
have seen.

[GRAPHIC] [TIFF OMITTED] T3794A.018

    From 2001 to 2002, employer-based health insurance coverage 
declined for low-income adults and children while Medicaid and SCHIP 
enrollment increased, muting a sharper climb in the number of 
uninsured. Most notably, while the number of uninsured adults 
increased, the number of uninsured children remained stable because 
public coverage helped fill in the gaps resulting from loss of employer 
coverage (Figure 15). Recent reports of enrollment freezes in SCHIP 
programs and reductions in Medicaid coverage are troubling.

[GRAPHIC] [TIFF OMITTED] T3794A.019

    With the recent economic downturn, states have experienced the 
worst fiscal situation they have faced since the end of World War II. 
State revenues fell faster and further than anyone predicted, creating 
substantial shortfalls in state budgets. In 2002, after accounting for 
the effect of legislative changes, real state revenue collections 
declined for the first time in a decade--falling 6.8 percent that year 
followed by a 3.3 percent decline in 2003. Although states predict 
slight growth for 2004, it is not sufficient to meet rising program 
costs. Medicaid spending has been increasing as health care costs for 
both the public and private markets have grown and enrollment in 
Medicaid has increased, largely as a result of the weak economy and 
loss of jobs and income. However, even with Medicaid spending pressure, 
it is the state revenue shortfalls--not Medicaid--that remain the 
primary cause of the state budget crisis.
    The state revenue falloff is, however, placing enormous pressure on 
state budgets and endangering states' ability to provide the funds 
necessary to sustain Medicaid coverage. Turning first to ``rainy day'' 
and tobacco settlement funds, states have tried to preserve Medicaid 
and keep the associated federal dollars in their programs and state 
economies. But, as the sources of state funds become depleted, states 
face a daunting challenge in trying to forestall new or deeper cuts in 
Medicaid spending growth. In the Jobs and Growth Tax Relief 
Reconciliation Act enacted in May 2003, Congress provided $20 billion 
in state fiscal relief, including an estimated $10 billion through a 
temporary increase in the federal Medicaid matching rate. This helped 
states avoid making deeper reductions in their Medicaid spending 
growth, but this fiscal relief will expire in June of this year. It 
seems unlikely that states' fiscal conditions will substantially 
improve by then, so the absence of continued fiscal assistance from the 
federal government will likely result in additional cutbacks in 
Medicaid coverage in many states.
    Because Medicaid is the second largest item in most state budgets 
after education, cuts in the program appear inevitable--in the absence 
of new revenue sources--as states seek to balance their budgets and the 
fiscal relief expires. Indeed, survey data the Kaiser Commission on 
Medicaid and the Uninsured released in January indicates that 49 states 
and the District of Columbia put new Medicaid cost containment 
strategies in place in fiscal year 2004. This cost containment activity 
follows two previous years of Medicaid cost containment action in many 
states (Figure 16).

[GRAPHIC] [TIFF OMITTED] T3794A.020

    States have continued to aggressively pursue a variety of cost 
containment strategies, including reducing provider payments, placing 
new limits on prescription drug use and payments, and adopting disease 
management strategies and trying to better manage high-cost cases. The 
pressure to reduce Medicaid spending growth further has also led many 
states to turn to eligibility and benefit reductions as well as 
increased cost-sharing for beneficiaries, although, reflecting the 
requirements of the federal fiscal relief, no states have made 
additional Medicaid eligibility reductions since the fiscal relief took 
effect last year. Although in many cases these reductions have been 
targeted fairly narrowly, some states have found it necessary to make 
deeper reductions, affecting tens of thousands of people.
    The fiscal situation in the states jeopardizes not only Medicaid's 
role as the health insurer of low-income families, but also its broader 
role as the health and long-term assistance program for the elderly and 
people with disabilities. Although children account for half of 
Medicaid's 51 million enrollees, they account for only 18 percent of 
Medicaid spending. The low-income elderly and disabled population 
represents a quarter of Medicaid beneficiaries, but 70 percent of all 
spending because of their greater health needs and dependence on 
Medicaid for assistance with long-term care. Facing their budget 
shortfalls, states will find it difficult to achieve painless 
reductions and understandably are seeking more direct federal 
assistance, especially with the costs associated with the elderly and 
disabled who are covered through both Medicare and Medicaid (the dual 
eligibles) and account for 42 percent of Medicaid spending.

CONCLUSION
    Looking ahead, it is hard to see how we will be able to continue to 
make progress in expanding coverage to the uninsured or even 
maintaining the coverage Medicaid now provides. Lack of health coverage 
is a growing problem for millions of American families. The poor 
economy combined with rising health care costs make further declines in 
employer-sponsored coverage likely. The state fiscal situation combined 
with rising federal deficits complicate any efforts at reform. In the 
absence of additional federal assistance, the fiscal crisis at the 
state level is likely to compromise even the ability to maintain 
coverage through public programs. Although Medicaid has demonstrated 
success as a source of health coverage for low-income Americans and a 
critical resource for those with serious health and long-term care 
needs, that role is now in jeopardy.
    Assuring the stability and adequacy of financing to meet the needs 
of America's most vulnerable and addressing our growing uninsured 
population ought to be among the nation's highest priorities. 
Maintaining the coverage now provided through Medicaid and SCHIP and 
building on that foundation to extend coverage to more of the low-
income uninsured population provides both a tested and cost-effective 
approach to reducing the number of uninsured Americans. But, like all 
solutions to the uninsured, this too requires additional resources and 
given the fiscal straits of the states, undoubtedly means a greater 
commitment of federal support to address this national problem.
    I commend your efforts to highlight the plight of the 43 million 
Americans without health insurance coverage and to identify options 
that could help address this growing problem. I look forward to working 
with you to meet the challenge of making health care coverage a reality 
for all Americans.
    Thank you for the opportunity to testify today. I welcome any 
questions.

                                 

    STATEMENT OF LEN M. NICHOLS, VICE PRESIDENT, CENTER FOR 
                 STUDYING HEALTH SYSTEM CHANGE

    Mr. NICHOLS. Madam Chair, Representative Stark, and Members 
of the Subcommittee, I am honored to testify before you today 
on a topic of such importance to our Nation. My name is Len 
Nichols, and I am the vice president of the Center for Studying 
Health System Change. I am also a participant in the Economic 
Research Initiative on the Uninsured (ERIU), a project that 
convened a group of health and labor economists from around the 
country to sort out what we do and do not know about the 
uninsured. ERIU recently published a book entitled Health 
Policy and the Uninsured, and my written testimony is organized 
around 10 myths about the uninsured which are implicitly 
debunked in different chapters of the book, one of which I 
coauthored. My remarks today shall highlight four of these 
myths.
    Myth number 3: Coverage is coverage is coverage. As 
Representative Stark alluded to, the punch line is that head 
counts in coverage are not enough. Insurance differs in terms 
of the kind of financial protection it offers, the potential 
for improvement in health, and the humanity of the treatment 
when you enter the delivery system. To put it slightly 
differently, imagine a policy that gave every American as much 
insurance as $100 could buy. We would then have zero uninsured, 
but we wouldn't be very much better off than we are now.
    Myth number 4: Health insurance would improve the health of 
all the uninsured. This is among the more complicated and 
emotional disputes in health policy analysis. It turns out that 
standards of proof about causation in this area have not been 
as high as they should have been. Researchers have come to 
realize there may be important but unobservable differences in 
people that make different choices about things like insurance, 
diet, exercise, and education. If we merely observe what people 
do without proper research controls, it is hard to be sure what 
caused and what was merely associated with health outcomes. 
When appropriate standards of proof have been met, the evidence 
suggests that health insurance does indeed have positive 
effects on the health of certain key populations: the poor, the 
elderly, the truly sick, and children. What has not been proven 
by this standard is that universal coverage would improve the 
health of all of the uninsured, and this leads economists to 
the following three inferences: We cannot say with certainty 
that more public subsidies for health insurance for the general 
population would be the best way to improve health. The second 
thing, understanding more about the complex relations between 
health status, health services, health insurance, personal 
behaviors and information would help us improve our policy 
advice. Third, there are many reasons to support universal 
coverage, but the analytic case for the general short-run 
positive health effects is not the strongest one.
    Myth number 9, one of my favorites: Economists don't know 
anything about why people are uninsured. Sometimes it seems 
that a normal person might listen to economists argue among 
themselves and conclude that nothing has ever been 
satisfactorily proved. That is not the case. This issue is so 
important, I devote the last two myths to embellishing the 
point. There are three things most economists actually do 
believe about the lack of insurance coverage, and this one is 
key. The single most important reason people are uninsured in 
this country is they are not willing to pay what it costs to 
insure themselves. This unwillingness to pay is highly, but not 
perfectly, correlated with low income. Thus, if policymakers 
really want to increase coverage, they are going to have to 
provide substantial subsidies since most of the uninsureds have 
incomes below twice times poverty.
    Finally myth number 10: The combined research evidence 
supports doing nothing to address the problems of the uninsured 
today. Now, I want to be clear. Economists and health policy 
analysts cannot tell you as a scientific matter that you should 
implement new subsidies and other policies designed to reduce 
the number of uninsureds. We can, when we are at our best 
behavior, articulate and help you see the tradeoffs involved, 
but only you who have been entrusted with the power of the 
people can decide if the opportunity cost is worth it; that is, 
which competing priorities will and should get less attention 
and fewer resources. A politically neutral observer might 
conclude from our relative inaction on behalf of the adults in 
the last 35 years that the case for doing something substantial 
about the uninsured must be weak. I believe this is the wrong 
conclusion to draw from the evidence I have reported on today 
as well as some other recent empirical work.
    The case for some kind of significant coverage expansion 
seems persuasive to many health economists and health policy 
researchers today, but perhaps the best proof of the value of 
health insurance lies not in statistics or econometrics, but 
rather in the fact that all of the health policy analysts I 
know--and I have lived long enough to know quite a few of 
them--actually seek out and keep health insurance even when 
self-employed. They even buy for their recalcitrant adult 
children when the latter emerge from college feeling immortal 
but also stunned at the rental price of nice apartments in our 
great cities.
    The choice is less funny for two working parents who make, 
say, $7.50 an hour and therefore earn $30,000 a year. Their 
children would in most States, as Diane pointed out, be 
eligible for SCHIP, but they would not likely be offered health 
insurance at their jobs, and they make far more than most 
States' Medicaid income cut-off for adults. They are also not 
likely to spend a third or more of their income on family 
health insurance than the nongroup market. To add one final 
touch of realism, you may assume they are healthy today.
    Are we willing to require them to obtain health insurance? 
If they do get sick, they will use resources that will impose 
costs on the rest of us, and thus a requirement to purchase 
would be responsive to the free rider justification for 
universal coverage. Of course, at $30,000 a year, they can't 
afford it, so we would also have to subsidize their purchase of 
insurance or impose an inequitable burden upon them. At the 
same time, they are healthy now, so the Nation would be 
essentially buying for them true insurance with no necessary 
immediate health benefits; that is, we would be buying 
protection from risk, a risk of potentially devastating 
financial, emotional, and health consequences of unforeseen 
health problems which could strike any of us this very 
afternoon.
    The question comes down to, are we willing as a nation of 
communities to pay to protect these parents from living with 
this risk that we all pay to avoid for ourselves and to protect 
us all from free rider costs? These are the ultimate questions 
that only you and your colleagues can answer, but we would be 
glad to help. Thank you very much.
    [The prepared statement of Mr. Nichols follows:]

Statement of Len M. Nichols, Ph.D., Vice President, Center for Studying 
                             Health System

                       Myths about the Uninsured

    Madame Chair, Representative Stark and members of the Subcommittee, 
I am honored to have been invited to testify before you today on a 
topic of such importance to our nation, facts about those who live 
without health insurance. My name is Len M. Nichols and I am an 
economist and the vice president of the Center for Studying Health 
System Change (HSC). HSC is an independent, nonpartisan health policy 
research organization that is principally funded by The Robert Wood 
Johnson Foundation and is affiliated with Mathematica Policy Research. 
We conduct nationally representative surveys of households and 
physicians, site visits to monitor ongoing changes in the local health 
systems of 12 U.S. communities, and we monitor secondary data and 
general health system trends. Our goal is to provide members of 
Congress and other policy makers with unique insights on developments 
in health care markets and their impacts on people. Our various 
research and communication activities may be found at www.hschange.org.
    I am also a member of the Policy Advisory and Research Review 
Committees of the Economic Research Initiative on the Uninsured (ERIU), 
a project of The Robert Wood Johnson Foundation that convened a group 
of health and labor economists to sort out what we do and do not know 
about the uninsured in our country. The ultimate goal was to inform 
policy makers who may consider specific policy responses. The project 
was directed by Catherine McLaughlin, a professor of economics at the 
University of Michigan. I was a co-author of a chapter in a recently 
published book that grew out of this project, Health Policy and the 
Uninsured (Urban Institute Press, 2004). My chapter was titled, ``Why 
Are So Many Americans Uninsured?''
    My testimony today is organized around a theme called ``Myths About 
the Uninsured.'' This theme was also the one used at a recent press 
briefing, which Mark Pauly--professor of economics and health care 
systems at the Wharton School of the University of Pennsylvania--and I 
did together to report on the research contained in the ERIU book. Dr. 
Pauly and I took turns clarifying the research pertinent to each myth, 
and we both essentially agreed with what the other said. Dr. Pauly has 
kindly allowed me to use some of his logic and words in my written 
testimony. I take sole responsibility for any remaining errors or 
ambiguity, however. In this testimony I have combined and rephrased 
some of the myths we used that day, and I have added one more that 
grows out of the spirit of the research but is wholly my contribution 
to your deliberations. The 10 myths about the uninsured my written 
testimony will highlight are:

     1.  We know how many uninsured there are.
     2.  The uninsured are all alike.
     3.  Coverage is coverage is coverage.
     4.  Health insurance would improve the health of all the 
uninsured.
     5.  The uninsured choose to be so.
     6.  Employers pay $400 billion for health insurance today.
     7.  The decision to remain uninsured has no effect on anyone else.
     8.  Until HIPAA, workers were afraid to switch jobs because of 
health insurance.
     9.  Economists don't know anything about why people are uninsured.
    10.  The combined research evidence supports doing nothing to 
address the problems of the uninsured today.

    Below I explain why economists think all these myths are misleading 
to an important degree.
    Myth #1: We know how many people are uninsured. Forty-four million 
is the ``official'' number from the most recent Current Population 
Survey, but the truth could be (and is) on either side. The CPS asks: 
did you have health insurance at any time in the 12 months ending two 
months ago? Penn State Professor Pamela Farley Short's chapter 
clarifies the overwhelming evidence that many respondents answer the 
CPS insurance questions incorrectly. Even if answered perfectly, this 
concept omits quite a large number of people who lack insurance for a 
period shorter than 12 months or the interval in which they lacked 
insurance did not match the particular window asked about. So the truth 
is that far more than 44 million are uninsured for a period shorter 
than 12 months in a given year.
    On the other hand, other surveys make clear that the 44 million 
number overstates by as much as a factor of two the people who were 
uninsured for all of the prior 12 months. The Census Bureau's Survey of 
Income and Program Participation, HSC's Community Tracking Household 
Survey, and AHRQ's Medical Expenditure Panel Survey, as well as the 
Urban Institute's National Survey of America's Families, all have 
probed survey respondents for years and said, now, are you really sure 
that you didn't have any insurance for that time period?
    The subtle lesson here is to pay attention to time frame. The 
longer the period of time, the smaller the number of people who are 
always without health insurance and the larger the number of people who 
are without insurance for some of the relevant time period.
    Perhaps the most important thing to establish from a policy 
perspective is not the precise number, as long as we are confident that 
the number of uninsured for an entire year is in the tens of millions, 
and researchers are confident of this. The most important analytic 
measurement may be the time trend in the percentage of non-elderly 
Americans who are uninsured, which has recently been quite adverse. 
Trends are more reliably calculated, assuming that the same kinds of 
respondent errors and measurement imperfections are present each year, 
which is a reasonable assumption.
    Myth #2: The uninsured are all alike. This is manifestly false. The 
uninsured tend to be somewhat lower-income and in somewhat poorer 
health, but because there are so many of them and because they do span 
various dimensions of American life, there are many who are young and 
healthy but there are many who are not; there are many who are 
reasonably well off, including a sizable fraction above the median 
income. And then, as is also important to note, there is a sizable 
fraction below the poverty line who are also sick and in a very bad 
way. The message of this diversity for policy design in a world of 
public budget constraints is that you probably want to be careful and 
clever in making limited funds go as far as they can toward expanding 
coverage. Of course, policies that are target efficient are also more 
complex. In addition, there are inherent trade-offs in choosing a 
target population, for example, in extending lower cost coverage to a 
larger number of relatively healthy uninsured vs. extending higher cost 
overage to a smaller number who are likely to have more health risks. 
Value judgments are unavoidable when making actual policy choices in 
this case.
    Myth #3: Coverage is Coverage is Coverage. Designs of insurance 
policies really do matter. Insurance is not insurance. Insurance 
differs in terms of the kind of financial protection it offers, in the 
potential for improvement in health it offers, and the humanity of the 
treatment when you contact the healthcare system. To put it slightly 
differently, imagine a policy that gave every American as much 
insurance as $100 could buy. Every American would then have insurance, 
we'd have zero uninsured, but we wouldn't really be in that much better 
of a situation than we are now.
    But the punch line is that the head counts of coverage are not 
enough, that the actuarial value \1\ of insurance may vary, and even 
given the same number of dollars spent on insurance, the consequences 
of insurance may be different, depending on the form that insurance 
takes. Furthermore, the harm of not having insurance may vary with the 
length of time coverage is lost, as well as with nature of the people 
without coverage.
---------------------------------------------------------------------------
    \1\ Actuarial value can be thought of as the percentage of expected 
health-related costs for an average risk person that the policy is 
designed to cover. It is thus a measure of generosity of a health 
insurance policy.
---------------------------------------------------------------------------
    Moreover, the kind of insurance that people get depends very 
strongly on where they get it. If they work for a large Fortune-500 
firm whose benefits department is run by professionals, they will get 
very good and well-designed coverage. If they get it from Gus and 
Otto's Garage, and neither Gus nor Otto was trained as an actuary, it 
may not be such great coverage. And if they get it in the individual 
market, it depends on how good the consumers are at searching through 
the wide range of possibilities available to find the best buys out 
there compared to other less satisfying policies that are also 
available and may be easier to find.
    Myth #4: Health insurance would improve the health of all the 
uninsured. This is among the more complicated and emotional disputes in 
health policy analysis. I will clarify how the literature may be 
correctly interpreted on what is accepted as proven now, and take some 
care to distinguish this from what we would like to know and from what 
we might think policy should do in the face of real-world imperfect 
knowledge.
    Helen Levy and David Meltzer, both professors at the University of 
Chicago, were asked to review the literature to assess this question: 
``Does health insurance really affect health status?'' They were 
rightly concerned that standards of proof about causation in this area 
have often been lower than they should have been in many published 
papers, even in many prestigious journals over the years. And they 
chose to use a standard of proof that is quite high, but is nonetheless 
becoming increasingly common in the social sciences, that causation is 
not likely to be appropriately inferred unless there has been an 
adequate natural experiment or a true experiment in which a 
representative sample of people are assigned to have or not have 
insurance for the duration of the experiment. This standard of proof 
for causation has become more widely shared as researchers have 
realized that there may be important but unobservable differences in 
people that make different choices about things like insurance, diet, 
exercise and education. If we merely observe what people do, it is hard 
to be sure what caused and what merely reflected health outcomes. For 
example, if some people (for whatever reason) have a low value for 
their health, it is likely that they will not obtain health insurance 
but also will not take steps (like preventive care and better health 
habits) that are known to affect health. We can easily observe the 
association of lack of insurance and low health, but it will be their 
low demand for health that causes the poor health, not lack of 
insurance per se.
    Now, this standard of proof has rarely been met in the research 
literature, but when it has, the bulk of the evidence suggests that 
health insurance does indeed have positive effects on the health of 
certain populations, and indeed, those most often at the center of a 
policy debate: the poor, the elderly, the truly sick and children. What 
has not been proven by this standard is that universal coverage would 
improve the health of all of the uninsured, and this leads economists 
to the following three inferences. (1) Because we do not have an 
unbiased measure of the effect of health insurance on health in 
general, we cannot say with certainty that more public subsidies for 
health insurance for the general population would improve health status 
more than would an increase in the capacity of public health centers or 
public hospitals, better education about diet and exercise, or a more 
equal income distribution for that matter; (2) Understanding more about 
the complicated pathways that different types of people traverse from 
coverage to health status through health services, and indeed, health 
insurance and health education, would help us make far better 
calibrated recommendations to policymakers; (3) There are many reasons 
to support universal coverage, but the analytic case for the short-run 
positive health effects is not the strongest one, at least for the 
higher income and basically healthy uninsured who comprise roughly 40 
percent of the uninsured today.
    Another element of this generalized myth is that universal coverage 
would eliminate poor health status among vulnerable populations. 
Despite considerable policy attention and focus, rather large 
disparities in health care outcomes among different population 
subgroups persist in our country. At least part--and perhaps a very 
large part--of the reason lies in differential access to health 
insurance. Harold Pollack and Karl Kronebusch, from the Universities of 
Chicago and Yale, respectively, have written a chapter that focuses on 
access to health insurance by six subgroups that are often considered 
vulnerable for one or more reasons. The groups are the low-income 
population, children, racial and ethnic minorities, people living with 
chronic conditions, the near-elderly, and people suffering from 
psychiatric and substance use disorders.
    Each group raises distinct concerns for public policy, health 
insurance and the healthcare delivery system. Pollack and Kronebusch 
conclude there are four basic reasons vulnerable populations often lack 
health insurance: (1) they have medical and social needs that hinder 
their access to good jobs and to private health insurance markets; (2) 
they have general economic disadvantages, including lower incomes, 
which impede their ability to pay for health insurance when it is 
available and less access to jobs with employer-sponsored insurance, 
which makes it cheaper; (3) they sometimes face discrimination based on 
race, ethnicity or language; and (4) they sometimes suffer from 
impaired decision-making and rather imperfect proxy decision-making. 
And unfortunately, many people in vulnerable populations face multiple 
barriers at the same time.
    As an example of troubling disparities, taken from AHRQ's recent 
healthcare disparities report,\2\ black women have lower rates than 
white women of cancer screening and higher rates of diagnosis in late 
stage and consequently higher death rates. These death rates apparently 
persist even after controlling for education and income. They also 
appear to persist after controlling for insurance. This suggests that 
insurance alone cannot solve the problems faced by vulnerable 
populations. Pollack and Kronebusch wrote: ``The data provide ample 
warning that one should not oversell the possibilities of improving 
health status and individual well-being through expanded health 
coverage. Expanded coverage is unlikely to eliminate the high rates of 
death and illness that arise from multiple causes and require 
multifaceted interventions.'' In other words, insurance will help these 
populations and reduce gaps,\3\ but eliminating the disparities gap 
will require multiple policy changes.
---------------------------------------------------------------------------
    \2\ http://qualitytools.ahrq.gov/disparitiesReport/
download_report.aspx
    \3\ Hargraves, L. and J. Hadley. ``The Contribution of Insurance 
Coverage and Community Resources to reducing Racial and Ethnic 
Disparities in Access to Health Care,'' Health Services Research 38:3 
(June 2003).
---------------------------------------------------------------------------
    Myth #5: Individuals without insurance choose to be so. In some 
general sense this is true. No law prohibits people from buying 
insurance, and most could buy individual insurance, although if you are 
a very high-risk person you might find the price quoted to exceed what 
you expect to get back in benefits, and a small fraction of people are 
outright denied access to insurance at any price. But, more generally, 
if we think of realistic choice or reasonable choice for low-income 
people or for people at high levels of risk, if they don't have 
insurance now, obtaining insurance voluntarily without further 
subsidies is probably not a realistic option.
    We also know--especially from some of the studies described in the 
chapter that Linda Blumberg of the Urban Institute and I wrote--that 
job matching is not perfect and there are some people who probably want 
insurance who can only find a job in firms that do not offer insurance. 
Now, they do not want it so much they are willing to pay whatever it 
may take in the non-group market, but they do want insurance and can 
not get it. There are also some other people who would rather have 
higher wages than health insurance but can only find a job in a firm 
that offers health insurance to them along with an acceptable wage. The 
out-of-pocket premium required of them may even be low enough to induce 
them to take-up this employer offer, but maybe not, and thus this low 
relative demand--or willingness to pay--for health insurance may be the 
core reason roughly 20% of workers do not accept their employer's 
offer.
    Myth #6: U.S. employers spend $400 billion a year for workers' 
health care. This issue reveals how differently economists think from 
most people. Imagine that somebody could wave a magic wand and end $400 
billion of employer payments for health insurance. First, the 
definition of ``pay'' in economics is not who writes a check, but the 
definition is wrapped up in the question, would employers then get to 
keep $400 billion more of profits that they could distribute to 
stockholders on to increase compensation of their senior executives, or 
to do whatever they wanted to do with it?
    And the answer that economics gives--well summarized in a couple of 
chapters in the ERIU volume--is no. One way to think about why the 
answer is no is to think about why employers offer health insurance. 
Now maybe some of them do it out of the goodness of their heart, and 
some of them do it because they think insurance makes employees 
healthier and therefore more productive, and under certain 
circumstances there may be a business case for doing that. But most 
employers, at least if you locked them in a room and asked them, ``Why 
are you doing this if you whine and complain about it all the time, why 
don't you just stop offering health insurance?'' And their answer is, 
``Well, we need to offer health benefits to be competitive in the 
market for workers, to be able to attract and retain high-quality 
workers,'' which is another way of saying they offer health insurance 
to obtain a given quality of worker for less total compensation outlay 
than they would have to expend in the absence of health insurance.
    And so the punch line is that if somehow employers were not allowed 
to spend $400 billion on health insurance, then in order to attract the 
workers that they were formerly attracting with this benefit, they 
would have to use money or some other benefit that could well eat up or 
even exceed all of the savings. So that's at least one way to think of 
why economists are out of step with the rest of the world. Our 
theoretical logic--and some careful empirical work--tells us that 
(most) employers actually do not pay for health insurance (and by the 
way, then, health insurance costs are not what makes U.S. products 
noncompetitive internationally). Economists believe that ultimately 
most workers end up paying for health insurance in the form of lower 
wages.
    This argument also works in reverse, which may be more germane for 
the current situation. Imagine that employers are mandated to provide 
health insurance, as has been passed in some states and introduced at 
the federal level from time to time. Who's going to actually end up 
paying for that? Well, the story is just the same as above but in 
reverse. Initially of course employers will do most of the complaining 
about it, as they have, and threaten to lay off workers, but that will, 
at least over time, soften the labor market, cause raises to be smaller 
than they otherwise would have been, and sooner or later, the bulk of 
workers will end up paying for the health insurance that policy makers 
gave them with the best of intentions. They'll end up paying for it 
themselves through reduced wages and fewer jobs unless they receive a 
subsidy. Of course, if they receive a generous subsidy or their 
employer does, that subsidy will ultimately go to workers.
    Myth #7: The decision to remain uninsured has no effect on anyone 
else. An overarching feature of modern labor markets is worker 
heterogeneity; we all differ in many important dimensions, including 
our preferences for health insurance arrangements. One consequence of 
heterogeneity is that different kinds of compensation packages may 
exist in equilibrium, some with a broad array of health insurance 
choices attached, some with one health insurance option embedded, and 
some with only cash wages to entice a prospective employee to give up 
their leisure time. Michael Chernew and Richard Hirth of the University 
of Michigan focus their critical review essay on the connections 
between decisions made by different people in the nexus of labor and 
health insurance markets. This myth was chosen to highlight the reality 
that some workers' willingness to work at jobs without health 
insurance--while this may be a minority of workers today--has important 
consequences for the rest of us.
    First and foremost, it means employers have a choice about whether 
to offer health insurance, and they will make this decision largely 
based on the preferences, expectations and productivity of the dominant 
type of worker they need to produce their products and services, as 
well as on their own unique costs of delivering health insurance to 
their workforce. For example, higher-wage workers are likely to be 
willing to pay more for health insurance in the form of reduced wages, 
and so employers of highly productive high-wage workers are more likely 
to offer than are employers who can get by with mostly lower-wage 
workers. This effect is amplified by our current tax subsidy for 
premiums nominally paid by the employer, a subsidy that works out to be 
roughly proportional to the marginal income tax rate of the worker. It 
is also amplified for large firm employers of high wage workers, since 
they have the lowest costs of providing health insurance, for they can 
take advantage of various economies of scale.
    But worker heterogeneity also means that local labor market 
conditions can significantly affect offer rates, since firms offer only 
when they must to compete for the workers they want, and we do observe 
offer rates differ by as much as 20 percentage points across the United 
States. This variation in offer rates also affects ultimate coverage 
rates, of course. Differential offer rates and employer-sponsored 
insurance (ESI) coverage rates also affect the contours of the coverage 
problem faced by policy makers. For example, states with high offer 
rates find it cheaper and easier to be more generous with Medicaid and 
SCHIP eligibility--Minnesota and Wisconsin come to mind--than do states 
with very low employer offer rates, like Arkansas and Mississippi.
    Myth #8: Workers used to be afraid to switch jobs because of health 
insurance, and HIPAA fixed that. ``Job lock'' is the shorthand term 
economists applied to the phenomenon of workers remaining with less 
productive jobs than they could get because they fear losing health 
insurance if they were to switch. This was originally investigated with 
some vigor in the early 1990s during the debates over the Clinton 
Health Security Act, for it was argued that if the aggregate amount of 
lost productivity was large enough, there could be a very large 
hitherto uncounted gain to universal coverage, and thus the net cost to 
society might be much lower than simple budgetary cost estimates.
    Since then, much research was done, and HIPAA was passed, which 
among other things, was designed to make the portability of insurance 
more real and reduce job lock. Jonathan Gruber of MIT and Bridget 
Madrian of the University of Pennsylvania reviewed the complex research 
evidence and concluded that the studies with the most defensible 
methods do indeed find some pre-HIPAA job-lock, though the welfare cost 
from this job lock is essentially impossible to quantify. This means 
economists cannot tell, at the moment, if additional policy 
interventions are justified.
    Gruber and Madrian also highlight two broad reasons to believe that 
many workers are still reluctant to switch jobs for health insurance-
related reasons, even after HIPAA: They stem from Myth #3, coverage is 
coverage is coverage. First, workers could have more generous coverage 
on their current job than HIPAA requires, in terms of pre-existing 
condition waiting periods, actuarial value or access to preferred 
providers. Second, insurance in the individual market costs more per 
dollar of coverage, so that higher wages--exactly equal to what the 
previous employer ``paid'' toward health insurance, for example--may 
not be able to make one whole. Thus, workers are often reluctant to 
leave a job with health insurance for a job that might pay higher wages 
but does not have health insurance attached. The cost advantages of 
group purchase are large.
    Myth #9: Economists don't know anything about why people are 
uninsured. Sometimes it seems that a normal person might listen to 
economists argue among themselves or read a whole book devoted to 
methodological flaws in prior work and reasonably conclude that 
economists actually think we know exactly nothing, that nothing has 
been satisfactorily proved, and we therefore need millions of dollars 
and years more to study and argue before we will be able to say 
anything at all that is useful to policymakers. This is not the case, 
and this idea is so important, I will devote the last two ``myths'' to 
embellishing the point. There are three things I think most economists 
actually do believe about the lack of insurance coverage. And I think 
the chapter by Linda Blumberg and myself make these fairly clear, even, 
and maybe especially, to non-economists.

    1. The single most important reason people are uninsured in this 
country is they are not willing to pay what it costs to insure 
themselves. This unwillingness to pay is highly but not perfectly 
correlated with low income. Thus, if policy makers really want to 
increase coverage, they're going to have to subsidize people, probably 
quite substantially, since most of the uninsured have incomes below 
twice-times poverty.
    2. The prices people are required to pay for health insurance vary 
a lot across different circumstances and insurance markets. Workers at 
large firms probably face the lowest prices, and they, correspondingly, 
have the highest offer rates and the most generous policies on average. 
Thus, to economists, price really, really matters.
    3. Even though price really, really matters, most people and firms 
have fairly inelastic demands for health care and health insurance. 
That is to say, those of us who can pay quite a bit more would pay more 
than we have to now before we would go uninsured, and those who do not 
buy it now will require substantial subsidy before they will buy it 
voluntarily.

    Myth #10: The combined research evidence supports doing nothing to 
address the problems of the uninsured today. Economists and health 
policy analysts cannot tell you--as a scientific matter--that you 
should implement new subsidies and other policies designed to reduce 
the number of the uninsured. We can--when we're at our best--articulate 
and help you see the tradeoffs involved, but only you who have been 
entrusted with the power of our people can decide if the opportunity 
cost is worth it, i.e., which competing priorities will and should get 
less attention and fewer resources. For let there be no doubt, if you 
really want to make a serious dent in the uninsured problem, you're 
going to have to be willing to claim and redirect a considerable amount 
of public resources.
    But at the same time, a politically neutral observer might 
reasonably conclude, from the decades we have been discussing this 
issue as a nation even while the number and percentage of uninsured 
keeps trending upward, that the case for doing something substantial 
about the uninsured must be widely perceived to be weak. I believe this 
is the wrong conclusion to draw from the evidence I've reported on 
today, as well as form the empirical work my colleagues at HSC and 
others around the nation have done these last few years.\4\ Perhaps the 
best evidence of the value of health insurance is not in statistics or 
econometrics, however, but rather lies in the fact that all the health 
policy analysts I know--and I know quite a few around the country--
actively seek out and keep health insurance at all times, even when 
self-employed, and they even buy it for their recalcitrant adult 
children when the latter emerge from college feeling immortal but also 
stunned at the rental price of nice apartments in our great cities 
these days.
---------------------------------------------------------------------------
    \4\ B. Strunk and P. Cunningham. ``Treading Water: Americans' 
Access to Needed Medical Care,'' Tracking Report No. 1. Center for 
Studying Health System Change. March 2002. http://www.hschange.org/
CONTENT/421/; Care Without Coverage: Too Little, Too Late. Institute of 
Medicine, National Academy Press, May 2002; J. Hadley. ``Sicker and 
Poorer--The Consequences of Being Uninsured: A Review of the Research 
on the Relationship between Health Insurance, Medical Care Use, Health, 
Work, and Income,'' Medical Care Research and Review Supplement to Vol. 
60, No.2 (June 2003).
---------------------------------------------------------------------------
    The choice is less funny for two working parents who make say $7.50 
an hour each--that's more than $2 above the minimum wage--and if they 
work full time as most do, they therefore earn $30,000 a year. Their 
children would in most but not all states be eligible for SCHIP, but 
you can know they would not likely be offered health insurance at their 
jobs, and they make far more than Medicaid income cutoffs in the vast 
majority of states in our country. They are also not very likely to 
feel like they can afford to spend a third or more of their gross 
income on family health insurance in the non-group market. To add one 
final touch of realism, you may assume they are healthy today.
    Are we willing to require them to obtain health insurance? If they 
do get sick, they will most likely access health resources that will 
impose costs on the rest of us in various ways, and a requirement to 
purchase then would be responsive to the so called ``free rider'' 
justification for universal coverage. But of course they cannot afford 
it, so we would also have to subsidize their purchase of it, or impose 
an inequitable burden upon them. At the same time, they are healthy 
now, so the nation would be partially buying for them true insurance 
with no necessary immediate health benefit, that is, we would be buying 
protection from risk, a risk of potentially devastating financial, 
emotional and health consequences of unforeseen health problems which 
could strike any of us this very afternoon. The question comes down to, 
are we willing as a society to pay to protect these parents from living 
with this risk that we all pay to avoid for ourselves, and to protect 
us all from living with their free-rider risk? These are the ultimate 
questions that only you and your colleagues can answer.
    I devoutly wish it were otherwise, but we economists cannot tell 
you with certainty the best particular way to expand health insurance 
coverage,\5\ but I can say the case for some kind of significant 
coverage expansion seems strong to many health economists and health 
policy researchers today. The prudent strategy in the event you do move 
in that direction would be to monitor the outcomes quite closely and be 
prepared to alter details of the program or change course altogether if 
credible evidence warrants it. We at the Center for Studying Health 
System Change and in the economics and health services research 
professions more generally will undertake to try and keep you well 
informed.
---------------------------------------------------------------------------
    \5\ For a range of coverage proposals developed by thinkers with 
many different perspectives, see the Covering America Web page at 
www.esresearch.org. This Robert Wood Johnson Foundation project was 
directed by Jack Meyer of the Economic and Social Research Institute.
---------------------------------------------------------------------------
    I would now be glad to answer any questions my testimony today 
might have provoked.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Nichols. Dr. 
Melnick.

STATEMENT OF GLENN MELNICK, PH.D., DIRECTOR, CENTER FOR HEALTH 
   FINANCING, POLICY AND MANAGEMENT, UNIVERSITY OF SOUTHERN 
              CALIFORNIA, LOS ANGELES, CALIFORNIA

    Mr. MELNICK. Good afternoon, Chairwoman Johnson and Members 
of the Subcommittee. I am privileged to have this opportunity 
to share with you my recommendations on what Congress might do 
to improve the pricing information in the health care 
marketplace. Such improvements can be a first step in helping 
to protect the uninsured from arbitrary and excessive prices 
and to lay a foundation for serving individuals under the HSA 
insurance option.
    I am a professor of health care finance at the University 
of Southern California, where I direct our Center For Health 
Financing, Policy and Management. We have been conducting 
analyses of hospital pricing for many years using data from 
California and other States. In my short time today, I hope to 
leave you with a better understanding of how hospital pricing 
as currently practiced impacts the uninsured and what might be 
done to improve it. My written information supplements my 
testimony.
    I first began with two powerful trends of hospital pricing 
that I am afraid worsen the problem of the uninsured in America 
and may stifle the market for HSAs. I will then present 
recommendations designed to limit the negative effects of these 
trends. Hospital pricing as currently practiced negatively 
impacts the uninsured. We have witnessed a very significant and 
rapid increase in hospital prices over the--list prices over 
the last 8 years. Hospitals have two sets of prices, list 
prices and net prices. Hospital list prices are the standard 
set of prices established by hospitals each year for all their 
services. The list price is more or less equivalent to the rack 
rate that hospitals display--that hotels display for their 
rooms.
    All patients are charged the same list price for the same 
service; however, very few patients actually pay the list 
price. Insurance companies and other third-party payers 
generally have contracts with hospitals which allow them to pay 
a discounted price that is significantly below list price. 
Uninsured patients, referred to in most hospital accounting 
systems as self-pay, are charged the list price and then, 
depending on the individual hospital's policies, may be offered 
a discount.
    To illustrate how this affects the uninsured, I turn your 
attention to Exhibit 1 in the handout. This exhibit shows list 
and net prices for patients admitted to California hospitals 
for an appendectomy in 2002. The list price is $18,229, the 
same to all patients. However, as you can see, the net price 
differs depending on the patient's insurance status. Managed 
care plans paid about $6,000, a 66 percent discount. Medicare 
paid about $4,800, a 73 percent discount from list prices. The 
uninsured self-pay patients are divided into two groups, those 
that qualify for hospital indigent programs and all other 
uninsured. The indigents end up paying the lowest net price, 
about $1,700. Nonindigent self-pay patients paid the highest 
net price, about $8,000. They did receive a discount, but it 
was the smallest one.
    Please note that these numbers are not exact, but they do 
accurately portray the pattern of pricing out there. Hospital 
pricing strategies are driven by a complex mix of contracting 
arrangements as well as market forces, and as a result, 
hospitals have focused largely on net prices. However, since 
most hospitals can continue to increase their revenue from 
insured patients by raising list prices, there is a strong 
incentive for them to continue to increase list prices. The 
data in the attached exhibits show that list prices have 
increased rapidly and substantially in recent years throughout 
the United States. An indirect and largely, I believe, 
unintended affect of these trends is that they have created 
hardship for the uninsured patients. In fact, hospital prices 
that the uninsured population pay are increasing more than any 
other group.
    Given the incentives in the system, I believe that hospital 
list prices will continue to rise faster than costs and net 
prices, and will further exacerbate the problems facing the 
uninsured. In some cases hospitals do discount from list prices 
for self-pay patients; however, the practice of granting 
discounts to self-pay patients is ad hoc at best right now. The 
net price that an uninsured patient will pay depends on too 
many arbitrary factors, such as the patient's level of 
education, their negotiation skills, where the patient lives, 
the hospital they are admitted to, their ability to pay, and 
which collection agency their unpaid bills are sent to. 
Furthermore, the lack of a rational and transparent pricing 
system for self-pay patients may hinder development and 
adoption of the HSA reforms.
    In closing, I have two sets of recommendations: Form a 
national task force to study the current patterns and practice 
of pricing to the uninsured; and, two, charge the task force to 
do the following: Develop guidelines and policies regarding 
pricing and payment options for the uninsured; mandate that 
hospitals report both the policies for discounting charges to 
the self-pay patients and the procedures used to ensure that 
all patients are aware of those policies and procedures; and, 
finally, mandate that hospitals annually report their actual 
experience publicly vis-a-vis the uninsured in terms of 
charges, discounts, and collections. Through mandated public 
disclosure and media attention, social pressure will be brought 
to bear on hospitals to develop fair and reasonable pricing for 
the uninsured. These explicit policies and better reporting can 
serve to moderate the negative and arbitrary effects of rising 
hospital charges until we have a more systematic solution to 
covering the uninsured and could lay the groundwork for the 
emerging HSA market. Thank you.
    [The prepared statement of Dr. Melnick follows:]

    Statement of Glenn Melnick, Ph.D., Director, Center for Health 
 Financing, Policy and Management, University of Southern California, 
  School of Policy, Planning and Development, Los Angeles, California

                   Hospital Pricing and the Uninsured

    I will first discuss powerful trends in hospital pricing that I am 
afraid will worsen the problem of the uninsured in America and stifle 
the market for HSAs. I will then present a set of recommendations 
designed to limit the negative effects of these trends.
Hospital pricing as currently practiced negatively impacts the 
        uninsured
    We have witnessed a very significant and rapid increase in hospital 
list prices over the past 8 years in the U.S.
Hospital Pricing Terminology and Practices
    To better understand hospital pricing, some terminology is 
required. Hospitals have two sets of prices: list prices and net 
prices.
    Hospital list prices (more commonly referred to as gross charges) 
are a standard set of prices established by hospitals each year 
(generally) for all their services. The list price is more or less 
equivalent to the ``rack rate'' that hotels display for their rooms. 
All patients are charged the same list price for the same service.
    However, very few patients actually pay the list price (see Exhibit 
1). Insurance companies and other third party payors generally have 
contracts with hospitals, either directly or indirectly through rented 
provider networks, which allow them to pay a discounted price that is 
significantly below the list price. Uninsured patients (referred to in 
most hospital accounting systems as self-pay) are charged the list 
price and then depending on the individual hospital's pricing policy, 
may be offered a discount. The actual amount a hospital receives from 
the patient will be based on this discounted price less any portion of 
the bill that turns out to be un-collectible.
    Hospital pricing strategies are driven by a complex mix of 
differing payment schemes and contracting arrangements as well as 
market forces.
    With the advent of selective contracting and the growth of managed 
care in the U.S., the practice of negotiating discounts with hospitals 
has become widespread. In this environment the gap between list and net 
prices has widened. Contracting, combined with market forces, largely 
drives hospital net prices. Consequently, most insurers, policymakers, 
and researchers have focused on net prices. However, there are a number 
of factors that have kept hospital list prices important in overall 
hospital pricing and which have contributed to the rapid run-up in list 
prices. These factors include:

      Not all third party payors have contracts with all 
providers (i.e., Some third parties pay list prices or charges).
      Many third party contracts include payment formulae where 
the discount is applied to list prices (or charges).
      Many third party contracts (including Medicare) have 
stop-loss provisions that pay on the basis of list prices (charges) 
above a certain threshold.
      In many cases the stop loss threshold is based on list 
prices (charges).
      Not all insured patients are covered by a third party at 
every hospital (e.g, for out-of-network use).
      Some patients have no insurance coverage (self-pay 
patients) and do not have access to negotiated discounted prices at any 
hospital.

    Since most hospitals can increase their net revenue (from private 
insurers, Medicare, and workers comp plans) by raising their list 
prices, there is a strong incentive to keep increasing list prices. 
Indeed, data show that list prices have increased rapidly and 
substantially in recent years.
    The following data provide a picture of what has happened to 
hospital list prices in recent years:

      Hospitals have increased their list prices much faster 
than their costs have gone up and much faster than their net prices 
(see Exhibits 2 and 3 for California data and Exhibit 4 for national 
data).
      The difference between hospital list prices and costs 
varies substantially from state to state across the U.S. (see Exhibit 
5).
      The difference between hospital list prices and net 
prices varies substantially across hospitals within the same state 
(data can be obtained from the author)

    An indirect and largely unintended effect of these trends is that 
they have created hardship for uninsured patients--the hospital prices 
they face are increasing more than for any other group.
    Not only do the uninsured pay for all their care out-of-pocket, but 
they face higher fees for the same procedure than the insured since 
they do not benefit from the bargaining clout of an insurance company. 
In the current environment, self-pay patients are much more likely to 
be asked to pay the list price than insured patients. An example of 
this is illustrated by the data previously presented in Exhibit 1. This 
exhibit compares the average list price for an appendectomy in 
California hospitals in 2002 with the amount actually paid based on the 
insurance status of the patient. Uninsured patients who do not qualify 
as indigent (according to each hospital's criteria) pay far more than 
patients who have insurance coverage.
    Hospital list prices will continue to rise faster than cost and net 
prices, further exacerbating the hardship on the uninsured.
    With continuing managed care push back by hospitals, we will see 
more hospitals terminating their capitated contracts with third party 
payers. This will move more hospital volume into fee-for-service 
contracts that generally include list prices in the payment formulae, 
either in terms of discounts from list price or as part of stop-loss 
provisions. This will increase the reward to hospitals gained by 
raising their list prices. Under this scenario, the uninsured will 
continue to face higher price increases than insured patients.
    In some cases, hospitals do discount from list prices for self-pay 
patients. However, this policy may not be uniformly applied to all 
self-pay patients within a hospital and discounts vary substantially 
across hospitals and across the country.
    The practice of granting discounts to self-pay patients is ad hoc 
at best. It varies both across hospitals and within hospitals. As a 
result, the net price that an uninsured patient pays for hospital care 
depends not only upon his ability to pay, but also upon his level of 
education, negotiation skills, where he lives, the hospital he is 
admitted to, and which if any collection agency is retained by the 
hospital.
    One reason for the wide variation in pricing services for self-pay 
patients is that hospitals have not really focused on developing an 
analytical capacity for retail pricing. List prices have grown very 
quickly and so have only recently become an important element of 
pricing to hospitals.
    Moreover, most hospitals do not have the necessary data systems 
that allow them to accurately calculate how much they charge or receive 
from the self-pay population. Self-pay patients often start out in and 
are billed to a third party payor category and then end up as self-pay. 
Often the charge is not reclassified while any payments would be 
credited to the self-pay category. This could understate gross charges 
to self-pay patients and make it appear that hospitals are collecting a 
higher percentage of gross charges to self-pay patients than is the 
case.
    Furthermore, the lack of a rational and transparent pricing system 
for self-pay patients may hinder development and adoption of the health 
savings account (HSA) reforms.
    Individuals choosing an HSA as their primary insurance mechanism 
may face the same rapidly increasing list prices that the uninsured 
face since they will be seeking care with their own funds. Moreover, 
the nascent state of analytical pricing models in hospitals and the 
absence of management tools that I've already noted could hinder the 
development and growth of the retail market envisioned under health 
savings accounts.
Recommendations
    1.  Form a national Task Force to study current patterns and 
practices of pricing to the uninsured.
    2.  Charge the Task Force to:

      a.  Develop guidelines for policies and procedures regarding 
pricing and payment options for the uninsured.
      b.  Mandate hospital reporting of both the policies for 
discounting charges to self-pay patients and the procedures used to 
ensure that all patients are aware of the discounted payment options.
      c.  Mandate that hospitals annually report their actual 
experience vis-a-vis the uninsured in terms of charges, discounts and 
collections.
Rationale
    Through mandated public disclosure and media attention, social 
pressure will be brought to bear on hospitals to develop fair and 
reasonable pricing policies for the uninsured in their communities. As 
a first step in easing access for the uninsured, hospitals should be 
required to develop explicit policies and procedures for discounting 
list prices or charges to self-pay patients. Ideally, the discounting 
schedule would be a sliding scale based on income.
    These policies and procedures should be included in all mailings to 
patients. When patients receive their first bill, it should clearly 
state that they may not be required to pay the charge listed. Rather, 
it should inform them that they are eligible to apply for a reduced fee 
under the hospitals' discounting program based on specific guidelines.
    These policies and procedures should also be posted at the hospital 
registration area and should be reported to state health departments or 
other relevant agencies so that the public and media have easy access 
to this information.
    In addition to developing and publicizing policies for charging the 
uninsured, hospitals should be required to report their experience each 
year in terms of how the uninsured were billed and the final 
disposition of their bills. The annual reporting could be incorporated 
into the recent CMS rule requiring hospitals to report uncompensated 
care on the Medicare cost report form. Explicit policies and better 
reporting could serve to moderate the negative and arbitrary effects of 
rising hospital charges until we have a more systematic solution to 
covering the uninsured in the United States.

                             Glenn Melnick

    Dr. Melnick is Professor and Blue Cross of California Chair in 
Health Care Finance at the University of Southern California (USC).
    Dr. Melnick has worked extensively in the area of health care 
insurance and health care market competition. Dr. Melnick's research 
has focused on the areas of pricing of hospital services, health 
insurance and health care markets and he has numerous publications in 
the scientific literature, including journals such as Health Economics, 
JAMA, Health Affairs and many others. He is frequently called upon to 
provide expert advice to the Federal Trade Commission, States' 
Attorneys General and others. His editorials have appeared in the  Wall 
Street Journal and the Los Angeles Times.
    In addition to his work in the U.S., Professor Melnick works in 
Pacific Rim countries (including China, Taiwan, and Indonesia) 
providing technical assistance and training to assist countries in the 
development of formal health insurance systems and social programs. Dr. 
Melnick is also the Director of USC's International Public Policy and 
Management Program (IPPAM). [email protected]

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    Chairman JOHNSON. Thank you very much, Dr. Melnick. Mr. 
Scandlen.

   STATEMENT OF GREG SCANDLEN, DIRECTOR, CENTER FOR CONSUMER 
   DRIVEN HEALTH CARE, GALEN INSTITUTE, ALEXANDRIA, VIRGINIA

    Mr. SCANDLEN. Thank you, Madam Chairman, for the 
opportunity to share some thoughts with you. I think it is 
worth stepping back a few paces and looking at how we got here 
if we are looking at the underlying causes of noninsurance in 
this country. I think my perspective will be different than 
most of what you have heard in the past several years.
    Generally people will cite the growth of technology, the 
aging population, labor market effects in looking at what is 
behind the uninsured. I think these things, perhaps with the 
exception of the aging population, are more symptom than cause, 
and I think the technology--for instance, in most industries 
technology will actually save money, but only in health care 
does technology actually add to overall costs. I would suggest 
this is because only in health care are we subject to a system 
of third-party payment. Third-party payment distorts the market 
so that economizing technologies are given short shrift while 
revenue enhancing technologies are highly valued.
    Third-party payment itself is also not the ultimate cause, 
I don't believe. We have adopted a system of third-party 
payment largely because of State and Federal policy that has 
been adopted over the years. There are two things that I would 
like to focus on particularly today, although these are only 
two of many. It is Federal tax policy dating back to 1943, and 
the Employee Retirement Income Security Act (ERISA) that goes 
back to 1974.
    Starting with the tax situation. As you know, the Internal 
Revenue Service ruled that employer-sponsored health insurance 
benefits would be free of taxes, excluded from income for 
workers, and Congress codified that ruling in 1954. It was 
seen, and I think it was, a good way to encourage more 
coverage. The numbers of Americans with health insurance grew 
from about 12 million in 1940 to 80 million in 1950 to 132 
million in 1960, and the coverage became more generous and more 
comprehensive, switching from basic hospitalization services to 
major medical-type approaches.
    It has also had two substantial, I think, negative 
consequences. First of all, it advantaged only those with 
access to employer-sponsored health insurance. It did not 
advantage people that bought their own coverage or people that 
paid directly for services. The large amount of new money that 
was put into the system as a result of this incentive raised 
prices for everybody, including those not associated with an 
employer, with employer-based coverage. Now, that includes the 
aged and the poor, but it also includes the self-employed and 
people whose employers simply did not choose to provide 
coverage. These people found it increasingly hard to pay for 
their services.
    In 1965, Congress addressed part of this problem by 
enacting Medicare and Medicaid, but the rest of the affected 
population, the self-employed and people without employer-based 
coverage, were not helped. These days, the cost of these 
subsidies are enormous, $250 billion in Federal money for 
Medicare in 2003, $160 billion for Federal spending on Medicaid 
and SCHIP, and $180 billion for employer-sponsored coverage in 
2004.
    There is another consequence of this subsidy as well. The 
extraordinary amount of the subsidy causes that anyone who 
could possibly get employer-sponsored coverage will do so, 
leaving behind only those people who are unable to. That 
includes lower income workers, people too sick to work, people 
who are semiretired, and people in seasonal employment. This is 
the pool that is available for the individual insurance market, 
so their costs are considerably higher than the employer-
sponsored pool, and coverage is ever less accessible for them.
    I think ERISA has had a similar story. The primary result 
of ERISA was to divide the employer-based market into very 
large employers, influential employers who are completely 
unconcerned about State regulation, and small, powerless 
employers that were subject to State regulation. With the 
absence of the larger employers from the political scene, State 
legislators went on a feeding frenzy of regulation that raised 
costs for smaller employers and for individuals and made--and 
in some States destroyed the insurance market, and in all 
States making coverage much less affordable for people not in 
the employer-based system.
    I would be happy to share additional information with you 
sourcing these assertions, but also discussing some of the 
other provisions in Federal law that have been problematic.
    [The prepared statement of Mr. Scandlen follows:]

Statement of Greg Scandlen, Director, Center for Consumer Driven Health 
                         Care, Galen Institute
Madam Chairman and Members of the Committee,

    Thank you for the opportunity to share some thoughts with you about 
the underlying reasons for uninsurance. I think you will find my 
perspective rather different than most of what you have heard in the 
past few years. Most commentators will discuss the aging population, 
the growth of technology, labor market effects, and the like.
    These all contribute, of course. But they are actually more 
symptoms than causes. Take technology. In most industries technology 
saves money. Only in health care does technology add to costs. Why 
should this be? Because we have a system of third-party payment that is 
unique to health care. Third-party payment distorts the market so that 
economizing technologies are dismissed in favor of revenue-enhancing 
technologies. Hospitals are encouraged to buy the latest whiz-bang MRI 
machine, but do not equip physicians with PDAs that would reduce 
medication errors.
    But third-party payment is not the ultimate cause, either. Our 
system of third-party payment is the direct result of many decades of 
well-intentioned, but short-sighted and ultimately misguided state and 
federal policies. These policies have had far-reaching and negative 
consequences that were unforeseen (but not unforeseeable) when they 
were enacted.
    I will deal today with two--federal tax policy and ERISA--but these 
are only two of the more prominent examples. Other federal laws that 
have contributed to the problems we face include the Hill-Burton Act of 
1946, the McCarran-Ferguson Act of 1947, price controls in the early 
1970s, the HMO Act of 1973, the Health Planning Act of 1974, various 
aspects of Medicare and Medicaid, COBRA, HIPAA, and a range of state 
and federal mandates.
    In each case, the law was passed with high hopes and good 
intentions, but without adequate consideration of the long-term 
consequences. Some of those consequences include creating the 
conditions that made health coverage unaffordable for many, and 
preventing the market from being able to respond appropriately. 
Oftentimes the problems are compounded because of the way several of 
the laws interact, as we will see with the combination of federal tax 
policy and ERISA.
    Let's start with tax policy. As you know, in 1943 the Internal 
Revenue Service ruled that employer-sponsored benefits would be 
excluded from income, and Congress codified that ruling in 1954. Health 
insurance at the time was not very expensive and relatively few 
Americans had any coverage at all, so the revenue effect was small. The 
measure was seen as a good way to encourage more coverage, and in that 
it was very successful. The numbers of Americans with health insurance 
coverage grew from about 12 million in 1940 to 80 million in 1950 to 
132 million by 1960 and the kind of coverage became more generous, 
moving from basic hospitalization coverage to more comprehensive major 
medical plans.
    But this growth in employer-sponsored coverage had two negative 
consequences:

    1.  Tax policy advantaged only those with employer-sponsored health 
insurance coverage, not people who bought their own or who paid 
directly for services, and
    2.  The large amount of new money in the system raised prices for 
everybody--including those with no coverage. People not associated with 
an employer--especially the aged and the poor, but also the self-
employed and people whose employers didn't offer coverage--found it 
increasingly difficult to pay for medical care.

    In 1965, Congress addressed part of these concerns by enacting 
Medicare and Medicaid for the aged and the poor, respectively. But 
predictably, the infusion of large new amounts of federal money on the 
demand side of health care resulted in even greater increases in the 
cost of care. In 1960, 56% of total national health spending was paid 
directly out-of-pocket by consumers, and only 21% was paid by state and 
federal governments. In just seven years, in 1967, that changed to 36% 
OOP and 37% by government payers. The total amount of money spent on 
health care rose dramatically, tripling from 1965 to 1977, and rising 
from 5.9% of Gross National Product to 8.3%. These demand-induced cost 
increases further disadvantaged people remaining outside of the 
subsidized system.
    [As an aside, alarm over rising health care costs induced by all 
this new money in the system resulted in a panic to ``do something'' 
about costs in the early 1970s. What was done included the imposition 
of price controls and health planning activities aimed at limiting the 
supply of services. These were precisely the wrong responses to dealing 
with demand-induced inflation. The basic theory of supply and demand 
says that prices go up when demand outstrips supply. The way to deal 
with rising prices is to increase--not reduce--supply.]
    Since 1965 we have had a system that generously subsidizes the 
elderly, the poor and people who get coverage on the job. Federal 
expenditures alone equaled $250 billion for Medicare in 2003, $160 
billion for Medicaid and SCHIP, and $180 billion in 2004 for employer-
sponsored coverage. This subsidized spending clearly results in higher 
prices for everyone, including those who get no subsidies at all.
    Some of the uninsured, perhaps one quarter of the total, are 
already eligible for Medicaid or employer-sponsored coverage, but have 
not taken advantage of the coverage. But the overwhelming majority are 
people who are not eligible for public programs and whose employers do 
not offer coverage. These people might be willing to purchase their own 
coverage, but there is no subsidy available to them to do so.
    Someone getting coverage on the job has to earn $4,000 in 
compensation to get $4,000 in benefits. The same person who does not 
get coverage from an employer may have to earn $8,000 in wages to have 
enough left over after taxes to pay for a $4,000 insurance policy. 
Members of Congress, corporate executives, members of labor unions, all 
are well subsidized. But someone who is laid off from a job, a waitress 
in a diner, a stock clerk in a small retail store--people whose 
employers don't provide coverage get no help with their health premium 
at all. Their only choice is to buy individual coverage with after-tax 
dollars or go uninsured.
    There is another consequence, as well. Because of the extraordinary 
tax subsidy provided solely to employer-sponsored coverage, anyone who 
can get an employer-based plan will do so. This leaves only those who 
cannot in the individual market. These people may be lower-income 
workers, people too sick to work or semi-retired, people who change 
jobs frequently, and people with seasonal employment. They are older, 
sicker and poorer than people with employer-sponsored coverage. Because 
they tend to be older and sicker and financially less stable, the cost 
of the coverage is higher than it would be for an employer-sponsored 
pool. There are higher claims costs because they are sicker and there 
are higher administrative costs because premium collection, marketing 
and retention are difficult. Yet these people get no help from their 
employers and they get no tax advantage from the government.
    Some employers might be willing to contribute to the costs of 
coverage for these employees, but here the Employee Retirement Income 
Security Act (ERISA) gets in the way. The employer may not want to 
commit to purchasing a full-scale benefit plan with all the added 
regulatory reports and responsibilities. They would prefer to simply 
contribute money to the cost of an individual policy chosen and owned 
by the employee.
    The tax code actually allows them to do this. As far as the IRS is 
concerned, employers are free to make such a contribution on a tax-
favored basis. But ERISA forbids it. Under ERISA, an employer's 
contribution means the coverage is an ``employee welfare benefits 
plan:'' ergo, a ``group'' plan subject to all the requirements of any 
other group plan, including the HIPAA guaranteed issue requirement. 
Plus, state insurance law makes a clear distinction between group and 
non-group coverage. The two are regulated and priced separately, 
controlled by different sets of laws, usually offered by different 
insurance companies. A worker who buys his own health coverage in the 
non-group market must forfeit any tax advantage if the employer 
contributes to the cost of the policy--not due to any tax code 
regulation, but because of ERISA.
    This is only the tip of the iceberg when it comes to problems 
created by ERISA. ERISA was enacted in 1974 to give employers a safe 
harbor from state regulations and protect the assets of a benefit plan 
from unreasonable costs. It was particularly important to multi-state 
employers who wanted to provide consistent benefits in all of their 
locations. But ERISA applies to all employer-sponsored plans (except 
those offered by churches and governments), not just multi-state plans, 
and not just to large employers. ERISA pre-empts all state laws 
``relating to an employee welfare benefits plan.'' But ERISA ``saves'' 
from pre-emption state laws that regulate insurance companies. The 
states are allowed to continue regulating insurance companies.
    Unfortunately, this results in a division of the employer 
community. All are ERISA plans, but those who purchase coverage from an 
insurance company are indirectly subject to all the regulations that 
apply to that insurer. Those employers who ``self-insure'' their 
benefits are exempt from the state insurance laws. Large employers are 
able to self-insure and are thus exempt from state law. Smaller 
employers must buy coverage from insurers and are thus subject to state 
law.
    This division affects the uninsured by disrupting the political 
equilibrium in the states. Large influential employers don't care what 
the state legislatures do, because they are completely unaffected by 
it. That leaves only small, powerless employers to complain when a new 
mandate is proposed, or new restrictions are placed on their coverage. 
As a consequence, advocates of more regulations and more mandates 
encounter little effective resistance.
    In 1974, before ERISA was enacted, there were very few mandated 
benefits. Since that time, over 1,500 separate laws have been enacted 
by state legislatures mandating coverage of somebody's favorite little 
service. The states have also passed limits on underwriting, community 
rating laws, price controls, and a vast number of other laws and 
regulations that have destroyed the insurance market in some states. 
Whatever their seeming merit, all of these laws add costs and 
complications to the process of a small employer providing coverage to 
its workers.
    Not surprisingly, the cost of small group coverage has gone up 
faster than that of large, self-insured employers for many years. Also, 
not surprisingly nearly half of uninsured workers work for small 
companies. The ``irrational exuberance'' of state legislatures for 
onerous regulations has virtually destroyed the small group market 
across the country.
    Let me summarize these two issues so the point doesn't get lost. 
First on tax policy:

      Congress allowed-employer sponsored health insurance to 
be free of all taxes, state and federal, income and payroll.
      The exclusion from income encouraged virtually all health 
care services to be paid through a third-party mechanism.
      Third-party payment created unlimited demand for health 
care services.
      Unlimited demand causes ever-higher prices.
      Higher prices made it difficult for people not associated 
with an employer to pay for their care.
      Congress responded by enacting Medicare and Medicaid to 
help the elderly and the poor to pay for coverage that was otherwise no 
longer affordable
      Medicare and Medicaid further increased demand, raising 
prices even further.
      The people not associated with any of these programs--
especially people whose employers do not provide coverage--found it 
even harder to pay for health care.
      These same people had access only to individual insurance 
policies, but the individual market had become a ``residual pool'' made 
up largely of those people too sick or too unstable to access employer 
plans.
      Not only are costs higher in the individual market, but 
tax policy requires these people to earn up to twice as much in wages 
to pay for their coverage.

    Next on ERISA:

      Congress allowed all employer health plans to be exempt 
from all state laws.
      But Congress also allowed the states to continue to 
regulate health insurance companies.Only those employers large enough 
to self-fund their benefits actually escaped state regulation.
      That left only those smaller employers who could only buy 
fully-insured benefits subject to state regulations.
      This eliminated the largest and most influential 
corporations from being concerned about state laws and regulations.
      State legislators now found little political resistance 
to piling on regulations.
      State legislators went on a feeding frenzy of mandates 
and other regulations that substantially raised the cost of coverage 
for small employers.
      Small employers found it ever-harder to afford coverage.
      Ever-fewer small employers provide coverage to their 
employees.

    These are the kinds of underlying conditions that make it difficult 
for the uninsured to access coverage. We are not supposed to discuss 
solutions here, but I do want to add a cautionary note. The American 
people, the American health care system, and the American economy are 
all entrenched in this system. Even if we wanted to un-do it, it would 
be enormously disruptive to do it quickly. Change should be made 
carefully and thoughtfully. But having an understanding of this history 
and the consequences of well-intentioned policies should make it more 
feasible to tailor changes that can work.

                                 

    Chairman JOHNSON. I thank the panel very much. You have 
brought out a number of different things that create barriers 
for people getting access to health insurance. Dr. Melnick, in 
your charts you demonstrate how rapidly gross patient charges 
have grown, particularly disparate to patient costs. To what do 
you attribute this? Since raising their charges, I appreciate 
that raising their charges also has an impact on raising what 
they actually get for their services. Nonetheless, the 
difference between the publicly announced charge and the 
received payment is extraordinarily large. If you were to do 
the bar chart on the bottom of page 8 where you talk about 
trends in hospital charges and costs in California, if you were 
to do that for any other product sector, would you see as big a 
difference, for instance, in retail clothing between the marked 
price and the discounted price at Marshall's?
    Mr. MELNICK. I can't think of any example outside of health 
care. I think the peculiar aspect of the way health care 
financing payment has evolved over the last 10 or 15 years with 
contracting, and the fact that embedded in many contracts is a 
formula which includes charges on which some payments are made. 
So, what happened is hospitals figured this out and said, well, 
wait a second, we can raise our charges and get a higher 
revenue. Even if it is only a small fraction, a half of a 
percent, why not do it? I think that is how we got to where we 
are today.
    Chairman JOHNSON. I think behind that lies the complexity 
of the Medicare payment system and there are points at which 
raising your charges will reap you very big benefits for small 
groups of patients. So, there are factors that drive this 
behavior. In my experience, Medicaid is the worst actor in this 
in the sense that the managed care plans tend to bargain across 
the board; Medicaid tends to have a fixed price. So, if you 
want to comment on that, I would be happy to hear that.
    Mr. MELNICK. Well, I think, in preparing my testimony for 
today, one thing I am struck by is we know very little about 
actually this side of the whole pricing and how hospitals 
operate in their data systems. I think one of the things we 
need to do is improve that side of the hospital industry in 
order to understand it better and prepare for other products. I 
think third-party private sector contracts also many times have 
charges built into the contracts so hospitals are rewarded both 
through the Medicare side as well as through the commercial 
side.
    Chairman JOHNSON. Thank you. Dr. Rowland, in your research, 
since you have done quite a lot of research, we all agree that 
the most disadvantaged under this system are the people who 
aren't poor enough to be on Medicaid or aren't signed up for 
Medicaid whether they are poor or not, and those who work for 
an employer that has a good plan or who can afford a plan 
themselves. What do we know, outside of the demographics, about 
where these people are? If they are mostly in the cities, do we 
know why they are not signed up for Medicaid? It is astounding 
that CBO could say that we have 25 percent of the children 
uninsured when we have two different policies to cover 
children. So, we need to understand more why those policies 
don't reach.
    One of the things about SCHIP is it discovered an awful lot 
of Medicaid kids who were eligible for Medicaid and hadn't 
signed up. How big a problem is that really? How many of the 
uninsured live in a reasonable circumference of our community 
health centers which will provide them with care according to 
their income? So, we need to know more about who is using the 
resources we have out there for people under 200 or 300 percent 
of poverty income, and why do people who are eligible and 
nearby don't use it? Has any of your research led you down 
these particular trails?
    Ms. ROWLAND. Well, our research has clearly shown that the 
kinds of rules and eligibility requirements in place for 
Medicaid prior to SCHIP, the documentation required when you 
apply for coverage, the face-to-face interview, the enrollment 
forms that were 24 pages long and asked numerous questions, the 
requirement to bring in birth certificates and all kinds of 
documentation helps to impede families from coming in to apply. 
So, with SCHIP, the streamlined eligibility that came in for 
SCHIP and then has been implemented in many States for the 
Medicaid population as well; the fact that a working family 
doesn't need to take the day off to come in and sign up.
    Chairman JOHNSON. How much has that helped? Can you see 
that in the data?
    Ms. ROWLAND. We can clearly see. We have almost doubled the 
number of children on Medicaid as a result of some of these 
practices in the States that have streamlined it, and we can 
show you the increased enrollment State by State from some of 
the statistics that we collect. So, the children's story is 
that when you simplify eligibility, you begin to increase 
participation. What we see in a State like Wisconsin is that 
when you cover the parents as well as the children, you have an 
even higher participation rate.
    So, some of the lack of coverage now is that in a State 
like, for example, Louisiana, children are covered up to 200 
percent of the poverty level, that is about $30,000 per family 
of three, whereas a parent in that State is only covered up to 
about $3,000 per year, so that this gap between covering the 
parents and the children has really resulted in some lag in 
enrollment.
    Chairman JOHNSON. If you could provide us with that State 
by State data, that would be helpful.
    Ms. ROWLAND. I will certainly do that.
    Chairman JOHNSON. Both for children and for adults.
    Ms. ROWLAND. The other issue is that the uninsured children 
live throughout the country, and they are often in rural areas. 
So, really looking at access to facilities like community 
health centers can help and really does help in many of the 
urban areas, but has been a much less available source in the 
rural areas.
    Chairman JOHNSON. The same kind of studies about community 
health centers and who they serve and how that has grown and 
changed that you have around SCHIP.
    Ms. ROWLAND. We have some studies that have looked at the 
number of people served by community health centers and how 
many of those are actually on Medicaid. About one-third of the 
revenue today to community health centers comes from providing 
services to people already on Medicaid and that helps to 
supplement the direct core funding of community health centers. 
I think that is an important thing to remember when you are 
looking at trying to make that access more available.
    Many community health centers have also become part of the 
managed care plans that States contract with for their Medicaid 
plans. We really need to look at both the delivery side of care 
as well as the insurance card, because we know a Medicaid 
insurance card can be fairly empty if it doesn't connect you 
into a network of physicians. The low payments rates 
historically have really made access to care for some 
specialists especially difficult for Medicaid patients.
    Chairman JOHNSON. Of course, the access to care with the 
community health centers is less of a problem since community 
health center doctors don't have malpractice costs, and the 
community health centers are reimbursed on costs. They are only 
one of the few actors in the systems that are reimbursed that 
way. So, any information you can give us about---SCHIP and 
children and adults, but also about community health centers 
and any ways in which you see them participating more 
aggressively in the uninsured and serving the uninsured 
population.
    Chairman JOHNSON. Now, Connecticut lost a large, very 
large, number of jobs when a big insurance company went under 
and regardless of their income, I told them to go, there was an 
excellent facility. It was a great boon to the community health 
center because all those people were full pay. Full pay at that 
time was $27 for an annual physical. Now, this is 10 or 12 
years ago. So, that was $27, but at that time that was about 
$60 normally. So, they are very affordable. It is mysterious to 
me that people of higher incomes when they are unemployed don't 
use these facilities.
    So, I think we need to know more about who uses them, 
whether the unemployed go there, and so on and so forth. So, 
how can we use the resources we have in the system better is 
one of the most rapid avenues to reaching out that we would 
have. Then, of course, what else do we need to do. So, anyone 
who wants to offer on that. My time is up, and I don't want to 
take much more, but I do thank you, Mr. Scandlen, for your 
insight into current law, and, Dr. Nichols, for your work. Mr. 
Stark.
    Mr. STARK. Thank you, Madam Chair and the panel, for your 
efforts in trying to enlighten us. I guess, however, there are 
two questions for Dr. Nichols and Dr. Rowland in particular. We 
talk about the diversity of the uninsured, but it is my sense 
that perhaps two-thirds, just to pick a number, of the 
uninsured come out of the lower-income population. Now, they 
may be lower income because they lost their employment and 
thereby their insurance. I don't know as there is any cause and 
effect here.
    What would be the low income--if it is systemic, if they 
have been in low-paying jobs in the service sector, in jobs 
that are part time, in jobs that have multiple employers in the 
service sector, and they are unapt to have--they work for Wal-
Mart, what would be your recommendation, just briefly for each 
of you, of reaching that 60 percent or two-thirds of the 
uninsured, however many there are out there? I think we would 
all agree that a substantial majority of the uninsured are low 
income. What is the best way to provide them coverage? Diane?
    Ms. ROWLAND. Well, certainly I think building on the 
experience of Medicaid and SCHIP with children and to try to 
continue some of the outreach and enrollment simplification to 
get those children that are already eligible for coverage but 
are not enrolled, enrolled and into coverage.
    Mr. STARK. Okay. In that, do you think you could find some 
studies that you could send on to me that would show that that 
is economically efficient, as opposed to individual policies 
with a tax subsidy or other alternatives that are mentioned?
    Ms. ROWLAND. We have done some recent work in conjunction 
with Jack Hadley and John Holohan at the Urban Institute that 
looks at the low-income population, the coverage received 
within Medicaid versus comparable coverage through private 
insurance. In fact, Medicaid treats, because of the nature of 
the population it enrolls, a sicker population than those 
privately insured in the low-income groups, but does so at a 
much lower cost per person when you adjust for the differences 
in health status. The reason for that is partially the low 
payment rates that Medicaid pays to providers, but it is also 
that Medicaid operates fairly efficiently for that population. 
We can make that study available to you for the record.
    Mr. STARK. I would appreciate it.
    [The information follows:]

Medicaid: A Lower-Cost Approach to Serving a High-Cost Population
    Medicaid is our Nation's principal provider of health insurance 
coverage for low-income Americans. The program is generally the only 
source of health coverage available to the 38 million low-income 
children and adults who are enrolled. Discussions about Medicaid 
spending and financing are a perennial feature of policy, legislative, 
and budget deliberations at both the Federal and state level. Some 
contend that Medicaid is excessively costly and argue that the private 
sector could provide coverage more efficiently. Others maintain that, 
for the population covered and the services provided, Medicaid is, in 
fact, an effective vehicle for providing coverage.
    New research conducted by Jack Hadley and John Holahan of the Urban 
Institute examines this issue and shows that Medicaid is a lower-cost 
approach to providing coverage when compared with private insurance--
once the poor health status of Medicaid's beneficiaries is taken into 
account.\1\ The study brings new empirical evidence to bear in the 
debate concerning the efficiency of Medicaid versus private health 
insurance as a mechanism for covering low-income children and adults.
---------------------------------------------------------------------------
    \1\ For more details on the findings and methodology described in 
this issue paper, see Jack Hadley and John Holahan, ``Is Health Care 
Spending Higher under Medicaid or Private Insurance?'' Inquiry, Vol. 
40, No. 4, Winter 2003/2004. This research was supported by the Kaiser 
Commission on Medicaid and the Uninsured.
---------------------------------------------------------------------------
    The researchers sought to assess whether, for non-elderly adults 
and children with incomes below 200 percent of the Federal poverty 
level, Medicaid is a high-cost program relative to private health 
insurance. Using statistical methods to control for differences between 
the demographic, socio-economic and health characteristics of those 
with Medicaid and those with private insurance, the investigators 
examined whether health care spending would be lower under private 
coverage than through Medicaid.\2\ This policy brief highlights the key 
findings from this study.
---------------------------------------------------------------------------
    \1\ For more details on the findings and methodology described in 
this issue paper, see Jack Hadley and John Holahan, ``Is Health Care 
Spending Higher under Medicaid or Private Insurance?'' Inquiry, Vol. 
40, No. 4, Winter 2003/2004. This research was supported by the Kaiser 
Commission on Medicaid and the Uninsured.
    \2\ Hadley and Holahan based their analysis on pooled data from the 
Medical Expenditure Panel Surveys (MEPS) conducted in 1996, 1997, 1998, 
and 1999. The expenditure data were inflated to 2001 dollars using the 
annual percentage increase in the National Health Accounts.
---------------------------------------------------------------------------
Study Highlights

The Medicaid Population is Much Poorer and Sicker than the Low-Income 
        Privately Insured Population
    Income. The Medicaid population is much poorer than the low-income 
privately insured population.\3\ The analysis by Hadley and Holahan 
indicates that the average family income for adults with Medicaid was 
only $18,614--56% of the average family income for low-income adults 
with private insurance. Similarly, average family income for children 
with Medicaid was 58% of average family income for low-income children 
with private coverage.
---------------------------------------------------------------------------
    \1\ For more details on the findings and methodology described in 
this issue paper, see Jack Hadley and John Holahan, ``Is Health Care 
Spending Higher under Medicaid or Private Insurance?'' Inquiry, Vol. 
40, No. 4, Winter 2003/2004. This research was supported by the Kaiser 
Commission on Medicaid and the Uninsured.
    \2\ Hadley and Holahan based their analysis on pooled data from the 
Medical Expenditure Panel Surveys (MEPS) conducted in 1996, 1997, 1998, 
and 1999. The expenditure data were inflated to 2001 dollars using the 
annual percentage increase in the National Health Accounts.
    \3\ ``Low-income'' is defined as income below 200% of the Federal 
Poverty Level (FPL).

[GRAPHIC] [TIFF OMITTED] T3794A.026

    The much lower average income of the Medicaid population reflects 
the extremely high concentration of poverty among Medicaid enrollees. 
Among low-income adults, over 70 percent of those with Medicaid had 
incomes below the poverty level, compared with only 20 percent of the 
privately insured (Figure 1). Likewise, 73% of Medicaid children came 
from families below poverty, compared with only 21% of privately 
insured children.
    Health. Health status is markedly worse among both adults and 
children in Medicaid than among their privately insured counterparts. 
Among adults, the disparity is dramatic. In particular, over one-third 
of adults with Medicaid report that they are in fair or poor health, 
compared with only 11 percent of the privately insured. Nearly 60 
percent of low-income adults with private coverage reported that they 
were in excellent or very good health, compared with only 34 percent 
with Medicaid (Figure 2, Table 1).\4\ The health status differentials 
for children are similar, though not as dramatic.
---------------------------------------------------------------------------
    \4\ Tables 1 and 2 appear at the end of the brief.
---------------------------------------------------------------------------
    Disability is also much more prevalent in Medicaid. Nearly half of 
adults with Medicaid report physical or cognitive limitations--a 
proportion over four times greater than among low-income adults with 
private insurance (Figure 3, Table 1). Among children, the disability 
rate is 20 percent in Medicaid, but 13 percent among the privately 
insured.

[GRAPHIC] [TIFF OMITTED] T3794A.027

Health Status Explains Medicaid's Higher Per Capita Spending
    Driven largely by health status, per capita expenditures for adults 
with Medicaid were higher than the corresponding amounts for low-income 
adults with private coverage. However, when health status differences 
were adjusted by excluding disabled adults \5\ from the analytic 
sample, per capita expenditures were significantly lower for Medicaid 
adults than for the privately insured. This result suggests that the 
higher per capita spending associated with Medicaid adults was due to 
the much poorer health of the Medicaid population.When all sample 
adults were included in the analysis, per capita spending was $4,877 
for those with Medicaid, compared with $2,843 for the privately 
insured. When only non-disabled adults were included, spending per 
Medicaid adult dropped by nearly two-thirds, to $1,752--about 78 
percent of the corresponding private insurance level of $2,253 (Figure 
4, Table 2).
---------------------------------------------------------------------------
    \5\ For purposes of this analysis, ``disabled'' individuals are 
defined as those reporting any physical or cognitive limitation (see 
Table 1).

[GRAPHIC] [TIFF OMITTED] T3794A.028

[GRAPHIC] [TIFF OMITTED] T3794A.029

    Among children, per capita expenditures were significantly lower 
(p^.10) for those with Medicaid than for those with private coverage--
even when children with disabilities, who are more prevalent in the 
Medicaid population, were included in the analysis (Figure 5, Table 2).
    Benefits Often Cited as ``Overly Generous'' Account for Small Share 
of Medicaid Spending and a Larger Share of Private Insurance Spending

[GRAPHIC] [TIFF OMITTED] T3794A.030

    Dental and other services that states are not required by Federal 
law to provide under Medicaid were found to account for less than 10 
percent of per capita spending for non-disabled adults in Medicaid. In 
fact, per capita spending for these services was higher for the 
privately insured than it was for the non-disabled in Medicaid (Figure 
6).
Medicaid Protects against the High Out-of-Pocket Spending Faced by the 
        Low-Income Privately Insured

        [GRAPHIC] [TIFF OMITTED] T3794A.031
        
    Low-income people with private insurance incur much higher out-of-
pocket costs than do those covered by Medicaid. Presumably, the higher 
out-of-pocket costs they bear are attributable to cost-sharing charges 
and spending for non-covered benefits.
    Privately insured adults below 200% FPL had out-of-pocket costs 
more than twice those of Medicaid adults, $585 versus $266 (Figure 7, 
Table 2). When disabled adults were excluded from the sample to 
increase comparability between the Medicaid and privately insured 
groups with respect to health status, the out-of-pocket gap widened to 
nearly a sixfold difference--$508 for the privately insured versus $91 
for those in Medicaid (Figure 8). In the case of children, the 
privately insured spent roughly seven times more than those with 
Medicaid--whether children with disabilities were included or not. The 
limits on cost-sharing in Medicaid appear to protect its beneficiaries 
from large out-of-pocket obligations.

[GRAPHIC] [TIFF OMITTED] T3794A.032

    The higher out-of-pocket health care costs incurred under private 
coverage would be difficult for the sicker and poorer Medicaid 
enrollees to afford if they were enrolled in private plans unless 
states provided comprehensive ``wrap around'' or supplemental 
protection to cover these costs.
Simulation Results: Estimates of Spending per Person under Medicaid and 
        Private Insurance
    If the average person enrolled in Medicaid were shifted to private 
insurance, simulation models indicate that per capita spending would 
increase by $1,265 for an adult and by $76 for a child (Figure 9).\6\
---------------------------------------------------------------------------
    \6\ See Hadley and Holahan, 2004, for more details on the 
simulation models used.
---------------------------------------------------------------------------
    Per capita spending for an adult Medicaid beneficiary in poor 
health would rise from $9,615 to $14,785 if the person were insured 
privately and received services consistent with private utilization 
levels and private provider payment rates. For an adult in excellent 
health, a shift from Medicaid to private coverage would increase per 
capita spending by $675 (Figure 10). The results for children are 
generally similar, but less dramatic because the spending per person is 
so much lower.

[GRAPHIC] [TIFF OMITTED] T3794A.033

[GRAPHIC] [TIFF OMITTED] T3794A.034

    Medicaid's low per capita spending levels are due, in part, to 
lower provider payment rates under Medicaid than in private insurance. 
Inadequate payment rates have affected some providers' willingness to 
participate in the Medicaid program and have impeded access to care. 
But, as discussed below, this research indicates that utilization of 
basic services among Medicaid beneficiaries is generally the same as or 
higher than the utilization of these services by the low-income 
privately insured.

Utilization of Services
    When controlling for income, health and other characteristics, 
adults in Medicaid appear no more or less likely than those with 
private coverage to have a medical expense (i.e., use a service). Among 
the adults who did have an expense, total spending was significantly 
lower for those with Medicaid than for the privately insured, largely 
reflecting Medicaid's lower provider payment rates. Unlike adults, 
children with Medicaid were found to be more likely than their 
privately insured peers to use a service. However, among children with 
any expense, total expenditures were also lower for those covered by 
Medicaid.

[GRAPHIC] [TIFF OMITTED] T3794A.035

    Using simulation techniques, the predicted utilization of Medicaid 
adults shifted to private insurance is not significantly different from 
their actual utilization under Medicaid (Figure 11). However, the 
findings for children are different--children in Medicaid have more 
doctor and office visits under Medicaid than they would be expected to 
have if their utilization followed private insurance patterns (Figure 
11). This may reflect Medicaid's emphasis on well-child care, and the 
deterrent effect on utilization of the much higher cost-sharing 
requirements of many private plans.
    It should be noted that while utilization of broad categories of 
service was examined, possible differences in the detailed content of 
the care (e.g., specialist services, surgical procedures, diagnostic 
tests, and so forth.) between the Medicaid and privately insured low-
income populations were not analyzed.

Discussion
    When the poorer health status of Medicaid beneficiaries is taken 
into account, Medicaid provides coverage at a lower per capita cost 
than private insurance. The study findings highlight the distinctive 
profile of the Medicaid population, compared with other low-income 
people, and the special role that Medicaid plays as an insurer. Neither 
higher utilization in Medicaid nor the program's more comprehensive 
benefit structure are key factors driving Medicaid spending.
    The results of this research suggest that using public funds to 
purchase private coverage would cost considerably more than building on 
Medicaid. However, any reform based on a broad expansion of Medicaid 
would need to address the low provider payment rates long associated 
with the program. Additionally, the prospect of much higher out-of-
pocket costs for the Medicaid population if they were moved to private 
coverage could limit their access to needed care, particularly 
considering their poverty and extensive health care needs.
    As policymakers evaluate Medicaid's performance as an insurer for 
low-income non-elderly adults and children, and private-market coverage 
as a potential alternative, these key study findings and implications 
warrant consideration:

      The high per capita spending associated with non-elderly 
adults and children with Medicaid, as compared with the privately 
insured low-income population, is due to the much poorer health of 
those with Medicaid. The Medicaid population differs significantly from 
the privately insured low-income population. Comparisons between the 
two groups need to account for their different income and health 
profiles. Medicaid plays a critical role in our health insurance system 
as the source of coverage for many of the sickest and poorest 
Americans, whom private insurance does not reach.
      Out-of-pocket spending for the low-income privately 
insured is six to seven times greater than that faced by low-income 
Medicaid beneficiaries. These much higher out-of-pocket costs would 
represent a heavier financial burden for the much sicker and mostly 
poor population in Medicaid. If Medicaid beneficiaries were moved into 
private coverage without the financial protection of ``wrap around'' or 
supplemental coverage, access to care could be diminished for those 
most in need.
      Medicaid's comprehensive coverage of dental care and 
other optional services accounts for less than 10 percent of per capita 
spending for individuals with Medicaid; per capita spending for these 
services is higher for individuals with private coverage.
      Lower per capita spending in Medicaid (adjusted for 
differences in health status) reflects, in part, Medicaid's lower 
provider payment rates, raising concerns about access to care in the 
program. Although this study indicates that expected utilization of 
basic services by Medicaid beneficiaries is comparable to what would be 
expected for the privately insured, further analysis is needed to 
examine whether less access to medical specialists, advanced diagnostic 
and therapeutic procedures, and high cost drugs contribute to 
Medicaid's lower costs.
      Moving those who are now on Medicaid into private 
coverage could significantly increase health care spending and might 
not improve access if cost-sharing proved to be a barrier. Better 
access to specialty care or better quality of care through market-based 
coverage would need to be balanced against budget concerns, and against 
the risk that higher cost-sharing might diminish access to care and 
increase financial hardship for very low-income people.

    This brief was prepared by Julia Paradise and David Rousseau of the 
Kaiser Commission on Medicaid and the Uninsured and is based on 
research conducted for the Commission by Jack Hadley and John Holahan 
of the Urban Institute. For more details on this research see Jack 
Hadley and John Holahan, ``Is Health Care Spending Higher Under 
Medicaid or Private Insurance?'' Inquiry, Vol. 40, No. 4, Winter 2003/
2004.''

[GRAPHIC] [TIFF OMITTED] T3794A.036

                                ------                                

    Mr. STARK. Dr. Nichols, which way would you go to handle 
this group?
    Mr. NICHOLS. Well, sir, I would want us to remember that 
the picture here is quite diverse even among the lower income 
uninsured. Some work for firms that actually do offer now, and 
they feel like they can't afford it. So, you might think about 
low-hanging fruit, including subsidies to people to pay their 
employees' share. That will end up being expensive because a 
lot of low-income workers who are offered today do take.
    So, you have got this diversity problem which will lead to 
an equity problem. So, in some ways it really does depend, sir, 
on how much you want to spend. If you want to pay for equity, 
that is expensive. If you want to target the money just for 
those who are currently uninsured, then you might think, well, 
the best thing to do would be to focus on those who don't have 
employer offers, who don't have any other alternative. Like 
Diane said, you might insure them efficiently through Medicaid, 
but you might also give them tax credits; you might also give 
them access to maybe let them buy into the State employee plan. 
That is a big umbrella plan; it ends up being--it is like FEHBP 
on the State level. It ends up being an avenue that you can 
enroll people in every county; it ends up being a way you can 
guarantee choice.
    So, I would submit, it depends--you have got to tell me a 
little bit more about which way--what your values are, what 
your choices are. Tell me that, and I can design a system. I 
would say at this point, do something, because we are looking 
at 40-something million. I would submit, if there is one thing 
I could say today that would be my main point on all of, it is 
we are now in a dynamic system where health care costs are 
growing faster than wages, and they have for 30 years. No 
matter what we do, that seems to be the reality and what that 
means at a personal level is that an increasing fraction of our 
workforce cannot afford health care as we know it. Thus, if we 
don't intervene---
    Mr. STARK. Let me toss this in. Just think about it, and 
send me a letter if you are concerned. Half of--more than half 
of personal individual bankruptcies are related to medical 
expenses, but 80 percent of those people filing had health 
insurance. Now, what does that tell you? Does it begin to tell 
you that the health coverage or quality of their insurance is 
inadequate, or they wouldn't be going bankrupt? Generally they 
can't get the check and spend it on a new car and not give it 
to the insurance. Most of the health insurance goes right to 
the provider. So, the bankruptcy has got to be for the extra 
charges that the insurance didn't cover.
    So, again, that is something--it is one of those little 
factoids that troubles me when we are dealing with--we are 
saying, well, we can't--Holtz-Eakin said we don't know. What is 
insurance? It sure wasn't good enough for the people who went 
bankrupt who had insurance. Let me just--one more question, if 
I may, Madam Chairwoman, to Dr. Melnick. Maybe you know her, 
maybe you don't, but missing, at least conspicuous to me but 
not to most people, from your testimony and your charts was 
Maryland, where I suspect your problems are all solved.
    Mr. MELNICK. You have a good eye.
    Mr. STARK. I happen to be a fan of the all-payer system, 
and all of your testimony wouldn't apply in Maryland, would it?
    Mr. MELNICK. To tell you the truth, I didn't know it was 
missing, so I am not sure.
    Mr. STARK. Maryland has a State-set all-payer system. So, 
between cost, they charge everybody the same.
    Mr. MELNICK. Right.
    Mr. STARK. So, there is no pricing strategy there because 
the prices are set. They can't offer every person who walks 
into any particular hospital pays the same rate no matter how 
they are insured. That would solve your problem, wouldn't it?
    Mr. MELNICK. That would solve this problem.
    Mr. STARK. Thank you. Thank you.
    Chairman JOHNSON. Mr. Camp.
    Mr. CAMP. I thank the Chairman. I want to thank all the 
panelists for your testimony today. I think it has been very 
helpful. What I take away from what you have been saying is 
that the uninsured are a diverse population that is constantly 
changing as some lose coverage and some gain coverage. That may 
mean that different solutions might be required depending on 
the group of people that we are trying to help.
    It seems that estimates of the number of uninsured vary 
depending on what timeframe is used. Dr. Rowland, you testified 
that there were 43 million uninsured in 2002, and you gave some 
of their characteristics in your testimony. We have heard from 
CBO and others that obviously that timeframe is important when 
you look at this number of uninsured, and that there are more 
uninsured if you consider people who lacked coverage at a 
particular time. I think you stated that 43 million are 
uninsured, which is similar to CBO's number of those uninsured 
at particular times.
    So, are your conclusions based on that same premise, that 
those are people who are uninsured at a particular time? If 
not, would those conclusions differ? Or would that change your 
analysis; if you considered the uninsured for an extended 
period of time, would you come up with a different number of 
uninsured people?
    Ms. ROWLAND. I certainly agree with the analysis that CBO 
presented to you. We tend to use the snapshot of the uninsured 
that comes from the current population survey so that we can 
measure how that snapshot changes from year to year. That is 
where the 43 million comes from, from the latest numbers for 
2002. If you look at people who have a bout of uninsurance 
during the course of the year, that would increase that number 
much higher.
    One of the other surveys that we have worked with, the 
National Survey of American Families conducted by the Urban 
Institute, showed, for example, in 2002 that there were some 49 
million people who were uninsured at some point during a 12-
month period, and that of those, half, or 26 million, were 
uninsured for the whole 12 months. I think what really is 
important here is that there are lots of people who move in and 
out of coverage when they are between jobs, when they are young 
and move off of their family's health insurance policy, or when 
they are on Medicaid and their income changes and they lose 
coverage.
    I think what really is important in looking at solutions is 
that we have to look at that short-term set of people with 
perhaps a different set of solutions than the very hardcore, 
long-term uninsured. That group remains primarily a very low-
income population and one which tends to have bouts of 
uninsurance that are 12 months or longer. So, the chronically 
uninsured, I think, is a different problem than those who are 
between jobs or certainly family situations.
    Mr. CAMP. So, that your analysis of those for an extended 
period of time, more than a year, is similar, falls into the 
same range as CBO?
    Ms. ROWLAND. Right.
    Mr. CAMP. I appreciate that.
    Dr. Melnick, you mentioned that the uninsured paid more, 
and they are more likely to pay above the list price. It does 
seem to me that lack of transparency is a real problem, because 
it is hard to find out what something costs around the country. 
You make a series of recommendations. What do you think is the 
most significant thing we could do with regard to that?
    Mr. MELNICK. Well, I think we need to shine a light on the 
policies and procedures at the hospital level. We need 
hospitals to, first of all, look at what they are doing. A lot 
of hospitals, because it is kind of an artifact of their main 
line of business, which is insure patients, this problem has 
emerged--a lot of them may not even know that they are imposing 
a hardship on uninsured self-pay patients. They get the bills, 
they send the bills out, and then they turn it over to 
collections. So, a lot of hospitals may not know and plus, they 
pay the collection agency anywhere from 20 to 80 percent of the 
revenue that the collection agency collects. So, a lot of 
hospitals may not even know the hardship they are imposing on 
their patients. So, I think the first thing I would do is shine 
a light on this, force hospitals to look at it; publish their 
policies and procedures; make it clear to patients that when 
they get this giant bill in the mail, they are not responsible 
for that. There is a procedure to go through to get a discount.
    Mr. CAMP. Thank you.
    Dr. Nichols, I know my time is almost expired, but I 
realize we are dealing with a diverse group of people in terms 
of the uninsured. What is the one thing that we could do to 
help the uninsured? I realize that is a varied group, but what 
is the one thing that Congress might be able to do that you 
think would be most helpful?
    Mr. NICHOLS. Well, it seems to me that the evidence is most 
clear on the low-income population being the target and would 
most benefit from some kind of health insurance, and their 
health status would be improved the most. We cover today about 
half of the population below poverty in various ways, mostly 
through Medicaid and about 10 or 12 percent or so through 
employer-sponsored coverage. I would submit, commit yourselves 
to making sure that all of the people who are below poverty are 
covered somehow. There are lots of different subsidy mechanisms 
that could get us there, but that would be a goal you should 
set, because you know you would do good.
    Mr. CAMP. Thank you.
    Chairman JOHNSON. Thank you. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Madam Chairman.
    I don't know quite what to ask you, because I have sat here 
for years and years and years and heard the same stuff go round 
and round and round. People ask, well, what little thing could 
we do here; one little thing we can do there? It is pretty 
obvious nobody wants to have a universal system, so we are 
going to continue to tinker with it.
    I noted, Mr. Scandlen, you didn't like what State 
legislators did. You kind of gave a kind of an off-hand slap to 
the fact that legislators insure things that don't get covered 
by insurance companies, like Dr. Melnick. I think the States 
are really hamstrung in this whole business and what is 
fascinating about the two proposals that are floating around 
here, this Association Health Plan (AHP) business and HSAs, the 
AHP is deliberately set up to get rid of that problem with 
State legislatures, just knock them out of the box. Knock them 
out, knock out insurance commissioners, and leave the insurance 
industry with no regulation at all except a two-man operation 
over at the Department of Labor.
    Now, I can't see any evidence from any--either of those 
proposals, either the AHP which allows small businesses to get 
together--they can do that now. They could do it before this 
bill passed. They have been--they have had that open to them 
for a long time. Didn't reduce costs anywhere, it didn't get 
any more people covered. Now we have HSAs and the idea that you 
would have $5,000 to put into an account that you could start 
drawing out over the year for anybody making less than $40,000 
a year sounds like pretty much pie in the sky. I would like to 
hear from either Dr. Rowland or Dr. Nichols. Do you think 
either of those proposals will significantly improve the number 
of covered people in this country, reduce the number of covered 
people in this country?
    Mr. NICHOLS. Well, sir, I actually testified on AHPs a year 
ago before the Senate Small Business Committee, and I think it 
is fair to say that there is a lot of passion on this issue and 
relatively little light. I will tell you what I believe. I 
believe that benefit mandates are real. They do add to costs. 
They don't add as much to costs as the advocates of AHPs 
believe.
    If you look at the study done by the Department of 
Insurance in the State of Texas, which is not known to be a 
left-wing bastion, they concluded that their benefit mandates, 
which include inpatient mental, which, as you know, is one of 
the more expensive--the full month thing for alcohol and 
substance abuse. They concluded their benefit mandates added 
about 3 percent to the premium. Now, 3 percent is no small 
number when you are talking about premiums that are $9,000, 
$10,000. I don't want to imply it is trivial and if you are a 
small business on the cusp. That can make a difference, but 
that is not the kind of belief that I think a lot of people who 
advocate AHPs hold.
    So, I think there is kind of a search, if you will, with 
all due respect, for fool's gold there. They are looking for 
savings that aren't really there, because at the end of the day 
they are going to have to pay the same costs everybody else 
does. What is driving cost is technology.
    Mr. MCDERMOTT. It is the waste, fraud, and abuse sort of 
argument. That is what they are looking for.
    Mr. NICHOLS. Well, sir, I believe that they are sincere. In 
some cases I think they do think that it is that nasty 
insurance company middleman that somehow thinks there are costs 
there to be taken that are not.
    Mr. MCDERMOTT. Well, but when a State legislature requires 
that supplies for the diabetic patient be paid for, the number 
one chronic disease in the United States, the hospitalization 
costs, all the problems that come, all the disability costs 
that come out of uncontrolled diabetes, do you think that that 
is a wasteful effort on the part of the State legislature?
    Mr. NICHOLS. No. I believe a number of studies have found 
that even if you didn't have specific things mandated, as you 
know, most physicians who are going to try to get their 
patients the right care, which is true everywhere, are going to 
find a way to make what is needed covered. So, that is part of 
the reason, by the way, the benefit mandates studies don't find 
all that much of a cost increase, because the reality is they 
are getting that stuff anyway, and they are going to get it. 
What you don't get if you don't have mandates are things like 
in-vitro fertilization and in some cases maternity care, which 
is not sold in the nongroup market as a matter of course.
    Ms. ROWLAND. I would also point out that while we have 
talked about the diversity in uninsured, the diversity of small 
businesses in America is also something that you have to take 
into account. The majority of the small businesses that don't 
offer health insurance coverage tend to have a very low-wage 
work force where I think some of these efforts would be far 
less effective than in areas where the work force has a higher 
income. We have begun to start doing some modeling of the HSAs 
to see what the take-up rate might be and hope to have those 
results in a few weeks.
    Mr. MCDERMOTT. I would like to see them when you have them 
done. Thank you, Madam Chair.
    Chairman JOHNSON. I hope you will also model the HSAs, 
because the----
    Ms. ROWLAND. Actually, it is the HSAs that we are modeling.
    Chairman JOHNSON. The other proposals do get small business 
out from under State mandates the very way big business is out 
from under State mandates. The fact that big business offers 
roughly the same spectrum of benefits indicates that mandates 
aren't the key difference. On the other hand, all the little 
different mandates in high-mandate States do mean that you have 
to insure to a higher standard. In Connecticut, which is a 
high-mandate State, I am being told over and over again we 
could cut premiums 10 percent if we could choose of the 
mandates the basic ones that everybody offers.
    So, while we don't know exactly what it will cost, the idea 
that I am bound by what the legislature does--and the 
legislature is going to do what is politically useful--is a 
problem. Then don't underestimate the power of bargaining. The 
big difference between these associated health plans or the 
HSAs is that you are going to have an employer group bargaining 
price, and your charts say loud and clear what a big difference 
that makes.
    So, as you look at HSAs, one of the things about HSAs that 
could make a huge difference is employer creativity and being 
able to add more in a good year and less in a poor year so that 
they are not obliged. With a rollover capability, they can even 
have some variation of benefit depending on catastrophic 
problems or big health problems.
    So, there are a lot of permutations of HSAs. People will 
have a lot more control over what they look like, both the 
employees and the employers. So, it is hard to model, but I 
think we do need to think about it. What I want to ask you is 
do we know anything at all about how many of the--what 
percentage of the uninsured have a health problem during their 
spell of uninsurance by group; the under 4 months, 4 months to 
12? Obviously, people who are uninsured for 12 months, of 
course, will access the system.
    Mr. MELNICK. The Institute of Medicine study reported 
statistics of 62 percent of the uninsured use health services 
while they are uninsured, about 1 in 30 use inpatient care, and 
about 1 in 15 use the emergency room, and a higher percent use 
physician services as well.
    Chairman JOHNSON. This includes the long-term uninsured as 
well?
    Mr. MELNICK. Correct.
    Chairman JOHNSON. Do we have any breakdown?
    Mr. MELNICK. I can get you that.
    Chairman JOHNSON. If you will get that to me, I would be 
interested in that.
    [The information follows:]

Health Services Utilization and Spending by the Uninsured
    The uninsured, while they use fewer services than the uninsured, 
still use health services during periods without health insurance 
coverage. Several researchers 1,}2 have utilized the Medical 
Expenditure Panel Survey (MEPS) to study and compare utilization 
patterns for the uninsured and insured populations. Provided below are 
three tables based on 1996 data from this prior research to provide a 
picture of utilization and spending patterns of the uninsured (for 
different time periods) compared to the insured.

Probability of Using Health Services
    Table 1 presents data comparing the probability of using different 
kinds of health services depending on whether an individual is insured 
or uninsured for a full year. In general, the insured have a higher 
probability of using all health services, except for hospital emergency 
care. A number of other key findings include:
    For under-65 population, 89% of the people who were privately 
insured for the full year in 1996 used at least one health service, 
compared to 62% of the people who were uninsured for the full year in 
1996.
    4.6% of privately insured population used inpatient hospital 
services compared to 2.9% of the uninsured.
    The percentage of privately insured population was more than double 
compared to the percent of uninsured population using services such as 
Outpatient hospital (13.4% vs. 6.2%) and Dental (53.1% vs. 20.4%).
    A larger portion of privately insured population used preventive 
care services compared to the uninsured.

Total Spending and Out of Pocket Spending
    Table 2 presents data on total spending from all sources on behalf 
of the insured and uninsured and out of pocket spending by the insured 
and uninsured. The estimates of per capita medical care spending are 
for the under-65 population and include estimates of the uninsured for 
an entire year or part of a year. A number of key findings include:
    Total per-capita spending for the uninsured (for the entire year) 
was about $923 per person compared to $2,484 per person for privately 
insured and $2,435 per person for publicly insured.
    Total per capita spending on behalf of the uninsured (for the 
entire year) was substantially below the insured population--about 38% 
of the total spending by an insured person.
    For the uninsured population (including those uninsured for the 
entire year or part of the year), total per-capita spending on medical 
was about $1,335 per person
    This represents about 54% of total per-capita spending compared to 
an insured person.
    Average per capita out-of-pocket spending for an uninsured (for a 
full year) person was $426 compared to $402 for a privately insured for 
the entire year.
    Out of pocket spending by the uninsured was not substantially 
different from the insured population in 1996.

Financial Burden
    A final measure of the effects of being uninsured is the financial 
burden of out-of-pocket spending on uninsured families. Table 3 
presents estimates of the percent of privately insured and uninsured 
families that spent greater than 20% of their annual income on health 
care in 1996. A number of key findings include:
    Overall, about 4% of the uninsured families and about 1.1% of the 
privately insured families spent greater than 20% of their family 
annual income on health care.
    For poor families (income less than or equal to Federal poverty 
line), and for low income families (125-200 percent for Federal poverty 
line), a greater portion of the privately insured families spent more 
than 20% of their annual income compared to those that were uninsured.
References
    \1\ Taylor, Amy K., Joel W. Cohen, and Steven R. Machlin. 2001. 
Being Uninsured in 1996 Compared to 1987: How Has the Experience of the 
Uninsured Changed Over Time? Health Services Research 36(6, Pt. II): 
16-31.
    \2\ Hadley, Jack and John Holahan. 2003a. How Much Medical Care Do 
the Uninsured Use and Who Pays for It? Health Affairs Web Exclusive 
(1): W66-W81

Tables

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[GRAPHIC] [TIFF OMITTED] T3794A.038

[GRAPHIC] [TIFF OMITTED] T3794A.039


                                 

    Chairman JOHNSON. Then the other thing that does continue 
to frustrate me, How much do you know about--there is money in 
the system now for the uninsured, and you have talked about 
Medicaid money and SCHIP money. States are cutting back on 
Medicaid, in case you didn't notice. The Federal government's 
budget is stressed. I believe budgets are going to be stressed 
at both the local and the State level, no matter which party is 
in power, for at least a decade, if not for 20 years. So, I am 
not optimistic about solving this through annually appropriated 
programs.
    I am interested that the President put 70 billion dollars 
in over 10, even in this year's budget for the uninsured. So, 
there is some money allocated to this. In none of this 
conversation--this is exactly the same hearing we had 2 years 
ago, and yet this Administration has committed itself to and is 
methodically doubling the number of community health centers, 
and they expect that next year, with the additional allocation 
they are putting in, that they will be providing total coverage 
for 15 million uninsured and underserved individuals. About 7 
million of these are in rural areas.
    We need to know what is happening as these expand. Who is 
being served? Are they Medicaid people? Are they SCHIP people? 
Are they uninsured? Are they underinsured? Not to know that 
does really weaken our ability to move forward. There are so 
many urban areas in which there are outstanding multiservice 
clinics, and they do mental health, and they do dental. So, why 
is it we have completely neglected in our study of the 
uninsured who is going there?
    Now, what do we know about disproportionate share hospital 
(DSH) payments? How effective are DSH payments? Are they just 
actually covering overhead for some of these people that you 
charge who it turns out are paying more than any average bloke, 
more than any other payer? So, what do we know about DSH money? 
It is big, and we give it to a hospital in ways unrelated to 
the burden they carry. So, what do we know about that money? 
What do we know about indirect medical education money and its 
relationship to uninsured?
    So, I hope that, given your resources, you will help us 
narrow this problem beyond the kind of definition we have given 
it today, because the debates to this point have covered 
exactly the kinds of things we have talked about today. Clinton 
laid down the challenge to the Congress to provide universal 
health care to all Americans. There was a bipartisan bill, 
Rowland and Michel, that met that challenge and had a majority 
vote, and that is why it was not allowed to come to the floor 
of the House. It covered everybody. That last segment it 
covered through means tested premiums so everyone would have 
access, but it did a number of other things.
    So, it isn't that we haven't thought about this a lot at 
the Federal level. We have. It is hard, because nobody 
understands the interactions of what happens at the end if we 
subsidize premiums. I have been amazed at how many small 
companies I represent, small manufacturers, where the employee 
pays 50 percent of the premium. That is tough. So, we need to 
be thinking more clearly about how do we reach and how do we do 
it in an affordable way, and how do we do it to encourage 
modest use of our resources.
    I am surprised that you haven't talked more about consumer 
involvement. One of the things that is dramatic about disease 
management--and I want to commend the Administration right here 
and now for offering to pay half the cost of implementing 
disease management programs in Medicaid because they pay back 
so fast. It will be budget neutral for the States in a year or 
two. It is just astounding for people with chronic illness. We 
need to think about this problem: Who is it that is uncovered 
that needs help, where do they live, who could they go to? Do 
we need a combination of community health center expansion and 
special payments for physicians in rural areas who just take 
all the people who are uncovered?
    We need to think more specifically about the nature of this 
problem. I appreciate your input. It has been very good. It has 
been broad, and it has brought back to the table the basic 
research and state of knowledge about this issue in America. It 
isn't exactly the information that can drive specific 
solutions. If we are going to do specific solutions, we need to 
think about the next step. I hope to have your help in doing 
that. Thank you very much for being here. The hearing is 
adjourned.
    [Whereupon, at 4:00 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

                          Statement of AdvaMed

    AdvaMed is pleased to provide this testimony on behalf of our 
member companies and the patients and health care systems we serve 
around the world. AdvaMed is the largest medical technology trade 
association in the world, representing more than 1100 medical device, 
diagnostic products, and health information systems manufacturers of 
all sizes. AdvaMed member firms provide nearly 90 percent of the $71 
billion of health care technology products purchased annually in the 
U.S. and nearly 50 percent of the $169 billion purchased annually 
around the world.
    AdvaMed shares the concerns of the Members of Congress, the 
Administration and millions of working Americans about the number of 
people in our country lacking access to affordable health insurance 
today. Our nation enjoys the best health care system in the world, and 
everyone should have full access to it. While today's market-based 
system provides insurance coverage to the majority of Americans, and 
along with it access to most of the latest, breakthrough technologies, 
some 43 million Americans are currently uninsured.
The Benefits of Access to Health Care Insurance and Advanced Treatment
    In addition to the personal benefits to securing individual 
insurance, there are also larger benefits to the health care system and 
society for reducing the number of uninsured. An Institute of Medicine 
(IOM) report published in June 2003 estimated that the benefits from 
health years of life gained by providing continuous insurance coverage 
are greater than the social costs of providing it. Specifically, the 
report estimated the potential economic value from better health 
outcomes from uninterrupted coverage is between $65 and $130 billion 
each year.
    A paper published by David Cutler and now FDA Commissioner Mark 
McClellan in the Sept/Oct 2001 Health Affairs noted the net benefits of 
new technology for several conditions, including cataracts, depression 
and heart attacks. A review of the findings estimates that more than 
$1.1 billion is lost annually from lack of access to new technologies 
for treatment of the three specific conditions--an annual loss of 
around $350 in excess morbidity and mortality per uninsured person in 
the age group studied.

Incentives to Help Make Insurance Coverage More Affordable
    To bridge the current gaps in insurance coverage, AdvaMed has 
consistently supported maintaining tax incentives to encourage 
companies to offer health benefits to their employees--including 
refundable tax credits similar to Trade Adjustment Assistance (TAA)--as 
well as expanding tax incentives to allow individuals to more 
affordably purchase coverage. As supporters of market-based health care 
and competition, AdvaMed also believes consumers should have a wide 
choice of health plans and coverage options that allow them to select 
those that best fit their needs.
    To expand the number of choices available, AdvaMed supports the 
creation of Individual Membership Associations or Association Health 
Plans to allow groups to leverage size for more affordable health 
options, as well as the expansion of Health Savings Accounts, which 
have already helped address the insurance needs of a select group of 
previously uninsured Americans. To address the many problems facing 
individuals with uninsurable medical conditions, AdvaMed also supports 
efforts to encourage states to offer ``risk pools'' that help them 
access insurance that will meet their complex and costly health care 
needs.

Innovation Also Helps Reduce Health Care Costs and Makes Coverage More 
        Affordable
    America is undergoing a revolution in medical technology. Through 
advances in technology we can detect diseases earlier when they are 
easier and less costly to treat, provide more effective and less 
invasive treatment options, reduce recovery times and enable people to 
return to work much more quickly. Medical technology has advanced to 
the point where it is fundamentally transforming our health care system 
in ways that improve quality and reduce costs. For example:

      Three types of laparoscopic surgery have generated 
approximately $1.9 billion annually in increased productivity by 
enabling people to return to work more quickly, according to a study by 
DRI-McGraw Hill.
      Angioplasty and other minimally invasive heart 
procedures, for example, have greatly reduced the need for riskier, 
more expensive heart bypass procedures. An angioplasty procedure costs 
$20,960 on average, compared to $49,160 for open-heart surgery. 
Surgeons can complete an angioplasty procedure in 90 minutes compared 
to 2-4 hours for open bypass surgery. Patients can leave the hospital 
in one day instead of 5-6 days, and recovery only takes one week rather 
than 4-6 weeks for bypass.
      Total knee replacement produces an average one-time 
health care cost savings of $50,000 per patient; a savings of $11.5 
billion in 1994 alone, according to the American Academy of Orthopedic 
Surgeon (AAOS).

    An article in the Washington Post highlights another of the many 
advances transforming health care delivery: a health care information 
system that alerts doctors at Brigham and Women's hospital to 
potentially dangerous medical decisions. The system has cut the 
medication error rate at Brigham by 86% compared to 10 years ago.
    Information systems like these can dramatically improve the safety 
and efficiency of health care delivery and help reduce health care 
costs. Automation in the insurance industry alone could save an 
estimated $20 billion. That is why both the President's Information 
Technology Advisory Committee and the Institute of Medicine report on 
health care quality have stressed the need for a new health information 
infrastructure.
    Steady declines in mortality rates, medical procedure times, 
hospital stays and patient recovery times all illustrate the emergence 
of the New Health Economy. Gains in workforce productivity and 
accelerating declines in disability rates point to this shift as well.
    In order to reap these benefits, advanced medical technologies must 
be rapidly assimilated into the health care system. The Institute of 
Medicine's report, ``Crossing the Quality Chasm,'' underscored this 
point, stating: ``Narrowing the quality chasm will make it possible to 
bring the benefits of medical science and technology to all Americans 
in every community--and this in turn will mean less pain and suffering, 
less disability, greater longevity, and a more productive workforce.''
Conclusion
    Again, AdvaMed applauds Congress for addressing the many needs of 
the uninsured in America. We look forward to working with the Congress 
and the Administration on efforts to help increase access to affordable 
coverage, as well as improve the quality, efficiency and cost 
effectiveness of the health care system through innovative medical 
technology.

                                 

 Statement of Catherine M. Murphy-Barron, American Academy of Actuaries

    The American Academy of Actuaries' Uninsured Work Group appreciates 
the opportunity to provide comments on issues concerning Americans 
without health insurance. The Academy is the non-partisan public policy 
organization for actuaries of all specialties in the United States.
    The U.S. Census Bureau estimates that more than 43 million non-
elderly Americans did not have health insurance in 2002, an increase of 
more than 2 million from 2001. A solution to the uninsured problem has 
so far been elusive, but the issue is again moving to center stage. The 
actuarial profession has extensive experience designing, pricing, and 
managing health insurance coverage for individuals, employers, and 
public programs, including Medicare and Medicaid. As the actuarial 
profession's voice on public policy issues, the American Academy of 
Actuaries has many insights that may benefit members of Congress as 
they design proposals to provide health coverage to the uninsured.
    This document identifies many, but not all, of the myriad issues 
that should be considered when designing and evaluating proposals to 
expand health insurance coverage. Addressing these and other issues 
should help minimize any unintended consequences and increase the 
chances for success of any such proposal. This document does not cover 
implementation or administration, both of which will be critical to the 
success of any new initiative. Rather, in the sections that follow, we 
identify issues related to: the target population(s); the benefit 
packages; the costs to individuals, employers, and states; the impact 
on the health insurance market; the impact on regulation; and the 
impact on overall health costs.
Who Is the Target Population?

    The uninsured population is not a homogeneous group. It includes, 
among others, low-income workers who do not have access to or cannot 
afford employer-sponsored coverage, early retirees not yet eligible for 
Medicare, adults who do not feel that insurance is a good way to spend 
their money (these people are often young, but not always), individuals 
ineligible for or unaware that they are eligible for public programs, 
and unhealthy individuals who cannot obtain insurance at any price.\1\ 
A proposal could use a single approach to increase coverage among the 
uninsured, or it could use different strategies for different segments 
of the uninsured.
---------------------------------------------------------------------------
    \1\ For more information on who the uninsured are, see the American 
Academy of Actuaries issue brief Health Coverage Issues: The Uninsured 
and the Insured, which is available on the web at http://
www.actuary.org/pdf/health/uninsured_0903.pdf.
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Who is the target population?
      What uninsured population subgroup(s) does the proposal 
target?
      How well does the proposal target the intended group(s)? 

What is the expected participation among the intended group(s)?
      Will other groups also participate? If so, are they 
currently insured or uninsured?
      How will the eligible population be contacted and 
enrolled?

What are the conditions of eligibility?
    A proposal may offer direct insurance coverage through a public 
program such as Medicaid, a premium subsidy for use in the private 
insurance market, or some other approach.
      Under what conditions does an individual or family member 
become eligible for coverage or premium subsidy under the proposal?
      Is there a requirement to be uninsured for a certain 
period in order to be eligible for coverage?
      How long will an individual or family member be eligible?
      Is the proposed coverage meant to be permanent or 
transitional? For example, is eligibility tied to being unemployed? Is 
eligibility tied to ineligibility for other private coverage, 
regardless of cost?
      If the proposal relies on public program expansions, how 
will the eligibility rules differ by state?
      If the proposal relies on private coverage expansions, 
will plans be widely available, regardless of state or rural/urban 
location?

What are the conditions of issue and is coverage portable?
      The Federal Health Insurance Portability and 
Accessibility Act (HIPAA) provided Americans with increased access to 
health insurance.
      Will the coverage offered under the proposal change an 
individual's HIPAA right to insurance without a pre-existing condition 
exclusion?
      Does the proposal contain open enrollment periods with 
guaranteed issue?
      What conditions, such as pre-existing condition 
exclusions, waiting periods, etc. will apply to uninsured individuals 
who wish to obtain coverage under the program?
      Will those who are already insured but want to move into 
the new program be subject to any pre-existing condition exclusions, 
waiting periods, etc.?
      If coverage eligibility is tied to certain requirements, 
such as being unemployed, are there any portability opportunities so 
coverage can be retained?

What Is the Benefit Package?

    The benefit package must be considered when evaluating proposals to 
provide health insurance coverage for the uninsured. Most insurance 
typically protects against catastrophic losses that occur with low 
probability. Employer-provided health insurance, however, has usually 
covered not only the expenses associated with high-severity, low-
incidence health services, such as hospitalization, but also high-
incidence, low-severity health services, such as office visits. One 
recent trend has been to move toward higher deductibles, thus reducing 
or eliminating coverage for more predictable health expenses. Another 
trend has been for some states to allow ``bare bones'' policies, thus 
avoiding state coverage mandates that can increase premium costs.

What is the benefit design?
      Does the proposal provide comprehensive coverage with 
relatively low deductibles similar to traditional health insurance, or 
does it provide benefits more closely associated with catastrophic 
coverage?
      Will coverage abide by state-mandated benefit 
requirements or are ``bare bones'' policies allowed?
      Is any required provider network adequate to meet the 
health care needs of plan enrollees?
      How flexible is the benefit package to advances in 
medicine?
      Does the benefit design include cost-sharing provisions 
designed to encourage efficient use of health care?
      Will the benefit design allow an individual to pre-fund 
future insurance expenses (e.g., health reimbursement accounts)?

What Are the Costs to Individuals/Families?

    Many proposals to increase insurance coverage rely, at least in 
part, on the private insurance market. To make coverage in this market 
more affordable, proposals often provide subsidies that cover all or 
part of an individual's insurance premiums.

Are premium subsidies proposed?
      What are the premium subsidy levels? Are they expressed 
as a percentage of premiums or as a flat amount?
      How do the subsidies vary by income or age? Do subsidies 
vary by income levels of the individuals within a state, or nationwide?
      Will they reflect state premium variations?
      How will the subsidies be distributed?
      Will they be provided in advance, as a refund of costs, 
or both?
      Where can individuals use their subsidies? Can they be 
used toward only one coverage plan, or toward any appropriate coverage 
the person may be eligible for?

What are the net costs payable by individuals/families?
      The cost of participating in an insurance plan includes 
not only the premium, but also any cost-sharing requirements. On one 
hand, high cost-sharing requirements will reduce premiums, all else 
being equal. On the other hand, some individuals, especially those with 
low incomes, may choose not to enroll in plans with high cost-sharing 
requirements, even if the premium would otherwise be affordable.
      What is the premium required, net of any subsidies?
      What is the deductible and are there any other cost-
sharing requirements? Are there any cost-sharing subsidies for low-
income individuals/families? Is alternative care available at no, or 
low, cost?
      Is there an out-of-pocket maximum that limits the amount 
of cost sharing?
      Are there any lifetime or annual benefit maximums? Are 
there any financial penalties imposed for not having coverage in place?

Will insureds know the true costs of their health care?
    Insurance shields most Americans from the true costs of their 
health care. Workers who obtain insurance through their employer 
typically pay only part of the premium, and may not know the total 
premium costs, including the employer premium share. Perhaps even more 
important, when receiving health care services, insured Americans 
typically see only their out-of-pocket costs, not the total costs 
billed or paid. Some data suggest that the lack of understanding 
regarding the total costs of care provides insureds with incentives to 
over utilize health services.

      Will the proposal make insureds more aware of the total 
costs of their health care?
      Does the proposal include incentives intended to 
encourage insureds to be more efficient users of health care services?

What Is the Cost to Employers?

    Although most insured Americans obtain their coverage through the 
workplace, the majority of the uninsured are in working families. Some 
employers, especially small employers, do not offer insurance. 
Moreover, many employers who do offer and subsidize coverage are 
responding to growing coverage costs by shifting more costs to workers 
through increased premiums or cost sharing, thus making it more 
expensive for workers. Many proposals aim to increase the share of 
employers offering coverage as well as increase the affordability of 
that coverage. Such proposals may include providing additional tax 
subsidies to employers offering coverage, mandating that employers 
offer coverage, providing reinsurance to employers to lower the costs 
of coverage, and facilitating the formation of purchasing pools for 
small employers. Whether such provisions would be successful at 
increasing the availability of employer-sponsored coverage and, 
ultimately, whether they will reduce the number of uninsured depends on 
several issues:

Are tax subsidies available to employers who sponsor coverage?
    Currently, employers who offer insurance coverage are allowed to 
deduct their premium contributions as a business expense.

      Would any additional subsidies be available for employers 
who offer coverage?
      Would employers be required to pay a minimum share of the 
premiums to qualify for the subsidies?
      Would the subsidies apply to the costs for all workers, 
or would they be limited to those with low incomes, or other targeted 
populations?
      What conditions, if any, are placed on the availability 
of additional subsidies? For instance, are certain benefits required? 
Are minimum enrollment targets included? Are employers required to pass 
along any premium savings due to subsidies to the employees?

Does the proposal include other provisions designed to make it easier 
        for employers to offer coverage?
      Does the proposal allow collective employer actions, such 
as purchasing pools or association health plans (AHPs)? \2\
---------------------------------------------------------------------------
    \2\ For more information on AHPs, please refer to the Academy's 
April 28, 2003 letter to Congress regarding the Small Business Fairness 
Act of 2003 (H.R. 660 and S. 545), which is available on the Academy's 
website at http://www.actuary.org/pdf/health/ahp_042803.pdf.
---------------------------------------------------------------------------
      Will reinsurance be made available to reimburse employer 
plans for high-cost individuals?
      Does the proposal include some form of coverage sharing 
that would form a partnership among the employer, the government, and 
the insured?
      Note that the potential impact of some of these types of 
provisions on the insurance market is discussed in the next section.

What are the estimated net costs to employers and are they predictable 
        over time?
      What are the premium costs to an employer affected by the 
proposal, net of any subsidies? Are they higher or lower than those 
currently available?
      What are the associated administrative costs? Are they 
higher or lower than current administrative costs?
      Are premium costs more predictable over time?
      Are there any costs for employers who do not offer 
coverage, or otherwise do not participate in the proposal?

Are new subsidies available for insurance outside the employer group 
        market?
    Proposals that increase the availability or affordability of 
insurance outside the employer group market could also impact whether 
some employers continue to sponsor coverage, regardless of whether any 
changes are made to the employer market. For instance, if subsidized 
insurance is available in the individual market, some employers may be 
less inclined to offer coverage to their workers.

      Does the proposal increase the availability or 
affordability of coverage outside the employer group market?
      Could the proposal prompt some employers to discontinue 
offering coverage for workers and/or their dependents? Is this 
consistent with the long-term goals of the proposal?
      Does the proposal include any incentives for employers to 
continue offering coverage?
      If workers can use individual tax credits to pay for 
their share of employer-sponsored coverage premiums, will employers 
shift more of the premium costs to workers?
How Will the Proposal Impact the Health Insurance Market?

How will the proposal affect the different private insurance market 
        segments (small group, large group, and the individual market)?
    There is not a single unified market for private health insurance. 
The three main segments are: large (employer) group, small (employer) 
group, and individual. There are major differences in the underwriting 
and pricing of the coverage in these three markets. These differences 
are due to competition, the regulatory environment (primarily state), 
and to the fundamental purchasing decisions made in the different 
markets.
    Large-group insurance (generally over 50 employees) is driven more 
by competition than by regulation, at least in the underwriting and 
pricing functions. Insurers generally accept any employer and provide 
coverage to any enrolled employee or family. Prices are set at the 
group level and typically are based in whole or in part on the prior 
and expected medical costs of the specific group. An average price is 
charged for each employee and family unit, without variation for age, 
gender, or health status. Larger employers often self-insure the 
underwriting risk. State benefit and coverage mandates apply to the 
insured groups but not to the self-insured groups due to exemption 
under the Employee Retirement Income Security Act of 1974 (ERISA).
    Small-group insurance (2 to 50 employees) is subject to 
significantly more state regulation of the rating and underwriting 
practices. All groups and eligible employees must be offered coverage 
regardless of health status. Surcharges based on health status for 
individual employees are not permitted. Premiums charged for each 
employee may be either the average of the group or based on the age and 
gender of the specific employee. Some states mandate community rating, 
whereby an insurer is required to pool the medical cost experience of 
all small groups in determining the expected average medical costs and 
premiums. The average rates serve as the basis of the rates charged to 
a specific employer. State variations often set limits on the maximum 
or minimum difference from this average, and also on the percentage 
rate increase an employer must pay in a given year due to experience. 
For example, the minimum may be 75% of the average, the maximum may be 
150%, and the rate increase limit is the increase in the average plus 
15%.
    The individual insurance market is tightly regulated. Rating 
practices permitted by the states vary from community rating to full 
age/gender rating with initial underwriting loads (extra premiums) 
permitted. Many states permit individuals to be denied coverage due to 
poor health, or to have specific pre-existing conditions excluded for 
the life of the policy. Other states require that all applicants be 
accepted and all conditions covered. In most states, renewal rate 
change to reflect the change in an individual's health status is not 
permitted. However, the rates for the entire pool, both new and renewal 
business, may be increased to reflect the experience of the pool. A 
sub-segment of the individual market is composed of those who are 
guaranteed coverage regardless of health. In some states the entire 
market is guaranteed issue. This guaranteed issue right comes under the 
state group conversion regulations or under the federal HIPAA 
portability provisions. Although coverage must be offered to these 
individuals, the premium rates charged are typically higher than the 
rates for underwritten individuals. The excess premium charges may or 
may not be regulated by the state.

      Does the proposal change the underwriting methodology 
allowed in the different markets?
      Does the proposal increase or decrease the risks to be 
borne by any of the private market pools?
      Does the proposal change any ERISA exemptions for 
employers that self-insure coverage?
      Does the proposal give flexibility to both the insured 
and the insurer to provide products appropriate to the risk the insured 
wants to cover?
      Will the proposal allow insureds to move between markets?

Will the proposal affect the risk composition of the insured 
        population?
    Different insurance expansions can affect the insured-risk 
composition of the market differently. Proposals that remove the high-
cost or otherwise uninsurable population from the individual and group 
markets and put them into a high-risk pool will reduce the coverage 
costs of the remaining population. The resultant lower premiums could 
make insurance more affordable among some of the currently uninsured. 
Similarly, if reinsurance is provided to insurers to cover the costs of 
high-cost enrollees, premiums could be reduced. Note, however, that 
such high-risk pools and reinsurance arrangements are mechanisms to 
spread cost, not eliminate it, and will reduce premiums only to the 
extent they are financed by a population broader than the privately 
insured population.
    On the other hand, if healthy individuals are more likely to drop 
one type of coverage for another, premiums for those remaining with the 
original coverage will increase. Some may find the higher premiums 
unaffordable, and drop coverage as a result. Insurance plans that are 
left with a disproportionate share of unhealthy individuals are much 
less likely to be viable in the long term, which could ultimately 
result in more uninsured individuals if those dropping coverage are 
unable to find more affordable coverage elsewhere.

      Does the proposal include high-risk pools, and if so, how 
are they financed?
      Does the proposal provide reinsurance to cover the costs 
of high-cost enrollees, and if so, how is it financed?
      Other than into high-risk pools, will the proposal result 
in healthier individuals opting for one type of plan and unhealthy 
individuals opting for another? If so, is this the desired result?

Is adverse selection manageable?
    Sustaining a viable private health plan typically requires 
minimizing adverse selection, which occurs when relatively fewer 
healthy individuals enroll in a plan. However, this adverse selection 
is the norm in a high-risk pool. Therefore, it is important to consider 
the health characteristics of those who will become newly insured. In 
particular, will only the unhealthy choose to participate, or will the 
healthy participate as well? If this segmentation occurs, is it planned 
for in the proposal? Under a private group type plan the key to 
minimizing adverse selection is to increase participation, especially 
among healthy individuals. This can be accomplished through various 
means, including high premium subsidies, automatically enrolling 
eligible participants, and requiring higher premiums and/or other 
penalties for those who delay enrollment.

      Do insurance subsidies or other incentives encourage 
enrollment among not only the unhealthy but also the healthy?
      Does the proposal require the individual to obtain 
coverage?
      Does the proposal require an employer to provide 
coverage?

Are risk-sharing provisions included?
    In the absence of universal coverage, some degree of adverse 
selection is inevitable and should be planned for. Risk adjustment and/
or other types of reinsurance arrangements can reduce the incentives an 
insurer might have to avoid enrolling high-risk individuals. For 
instance, risk adjustment would adjust the payments to insurance plans 
to account for the health status of plan participants. As mentioned 
above, reinsurance is another option to limit insurers' downside risk. 
Under aggregate reinsurance, all or a percentage of a plan's total 
claims exceeding a predetermined threshold would be reimbursed. 
Individual reinsurance can reimburse a plan for high claims from 
individual plan participants.

      Does the proposal include risk adjustment to reduce the 
incentives among insurers to avoid high-risk individuals?
      Are reinsurance provisions included?

What Are the Costs to States?

    Medicaid and coverage under the State Children's Health Insurance 
Program (SCHIP) are not reaching all the people they are designed to 
serve for many reasons. With state budget deficits increasing, states 
may have modified their Medicaid and SCHIP programs to reduce costs. 
These cost reductions have been in the form of increased eligibility 
requirements or the termination of eligibility categories, decreased 
benefits or provider fee schedules, and more aggressive contract 
negotiations with managed care plans that may administer a state's 
Medicaid or SCHIP program. Managed care plans may in turn withdraw from 
providing Medicaid or SCHIP coverage.

      Will the proposal increase Medicaid or SCHIP coverage 
through increased benefits, provider fee schedules, decreased 
eligibility requirements, or new eligibility categories?
      Will the proposal increase or decrease the financial 
burden to states and the federal government?

Will enrollment in public programs increase?
    Implementing broader outreach programs to reach those who are 
eligible for public programs but do not know it may decrease the 
current number of uninsureds.

      How does the proposal address bringing greater awareness 
of Medicaid and SCHIP programs to those who are eligible?
      Will administrative language and cultural barriers be 
reduced so that Medicaid and SCHIP enrollment will be more efficient 
and effective?
What Is the Impact on Regulation?
    Individual states are responsible for regulating the individual, 
small--and large-group insurance markets and monitoring the financial 
solvency of insurance companies. ERISA controls many aspects of self-
funded programs provided by larger employers.

      Will the proposal affect each state's ability to regulate 
its local insurance market?
      Will the proposal reduce or increase an individual 
state's regulatory burden?
      Which states will have to increase/decrease their 
regulatory activities as a result of the proposal?
      Will ERISA need to be modified to allow any changes 
required under the proposal?
      Can the federal government handle any new requirements?

How Will the Proposal Be Funded?
    Proposals that include public program expansions or subsidies for 
private insurance coverage will need to be funded by state and/or 
federal revenues. Consideration of funding sources should also include 
an analysis of the sustainability of the funding over a relevant period 
of years and the proposal's impact on administrative costs.

How will funding be provided?
      Federal government
      State governments
      Individuals (e.g., taxpayers, program participants, 
uninsured, etc.)
      Employers (e.g., insured, self-insured, not currently 
offering insurance, etc.)

Will funding be on an annualized basis or will it include long-term 
        funding mechanisms?

What Is the Impact on Overall Health Costs?
    According to the Centers for Medicare and Medicaid Services (CMS), 
the United States spent $1.6 trillion on health care in 2002 or 14.9 
percent of gross domestic product (GDP). CMS projects spending to 
increase to $3.4 trillion, or 18 percent of GDP, by 2013. Because 
rising health expenditures have contributed to insurance being less 
affordable and less available, managing the growth in health care costs 
is key to long-term solutions for reducing the number of uninsured. 
Medical malpractice reform, better contract negotiations with health 
care providers, more consumer awareness of the cost of healthcare, and 
others have all been suggested as potential ways to stem this growth.

      How will the proposal address the rising costs of health 
care?

Conclusion
    Whether a proposal to reduce the number of uninsured is successful 
depends on many factors. We have tried to present many, but by no means 
all, of the issues that need to be considered as Congress drafts and 
evaluates proposals to extend health insurance coverage to the 
uninsured. Addressing these issues will improve the likelihood that 
such proposals will have a significant affect on reducing the growing 
number of Americans who lack health insurance coverage.

                                 

            Statement of the American College of Physicians

    The American College of Physicians (ACP), representing more than 
115,000 internal medicine physicians and medical students, is the 
nation's largest medical specialty organization and second largest 
medical association. The ACP commends Chairwoman Nancy Johnson for 
addressing the causes and consequences of lack of health insurance. 
Understanding who the uninsured are and why they lack health insurance 
is a critical first step to formulating policies that ensure this 
increasing segment of the population can access quality health care.
    The advanced science, technology, and practice of American medicine 
is admired throughout the world. Americans with access to health care 
benefit from widely available preventive care, state-of-the-art 
equipment, and accomplished practitioners. However, the benefits of 
American medicine are less available to those who lack health insurance 
coverage. Individuals without health insurance coverage are less likely 
to have a regular source of care, more likely to delay obtaining needed 
medical care until a later and more advanced stage of disease, and more 
likely to obtain care in more costly emergency centers rather than in a 
physician's offices. For these patients, the benefits of the best 
medical services in the world are not fully realized.

Rising Numbers of Uninsured Americans
    Tough economic times and soaring health care costs have compromised 
access to the health system. As unemployment rises, states cut back on 
the number of people eligible for public insurance programs. At the 
same time, employers reduce benefits, shifting a larger share of health 
care costs to employees, or simply discontinue offering health 
insurance coverage. After increasing by roughly a million people each 
year throughout most of the 1990s, the number of uninsured now exceeds 
43 million persons, representing more than 17 percent of the U.S. 
population under age 65.\1\ Those most likely to lack health insurance 
continue to include young adults in the 18-to-24-year-old age group, 
people with lower levels of education, people of Hispanic origin, those 
who work part-time, and the foreign born.
---------------------------------------------------------------------------
    \1\ U.S. Census Bureau. Current Population Reports: Health 
Insurance Coverage in the United States: 2002. September 2003.
---------------------------------------------------------------------------
Health Consequences of Being Uninsured
    A popular myth exists that not having health insurance is merely an 
inconvenience. The myth asserts that anyone can go to an emergency room 
or free clinic and get care. To help dispel this myth and prove that 
lack of health insurance is a serious health threat, ACP conducted a 
literature review of over 1,000 documents published over the last ten 
years linking health insurance coverage with the utilization of health 
care services and individual health outcomes. The College's 2000 
report, No Health Insurance? It's Enough to Make You Sick, verified 
that the uninsured experience reduced access to health care and tend to 
live sicker and die younger than people with health insurance. Evidence 
from the available medical and scientific literature indicates that:

      Uninsured Americans experience reduced access to health 
care;
      Uninsured Americans are less likely to have a regular 
source of care;
      Uninsured Americans are less likely to have had a recent 
physician visit;
      Uninsured Americans are more likely to delay seeking 
care;
      Uninsured individuals are more likely to report they have 
not received needed care;
      Uninsured Americans are less likely to use preventive 
services;
      Uninsured Americans experience poorer medical outcomes;
      Uninsured Americans experience a generally higher 
mortality and a specifically higher in-hospital mortality;
      There is a disproportionate representation of racial and 
ethnic groups among the uninsured;
      Uninsured Americans may be up to three times more likely 
than privately insured individuals to experience adverse health 
outcomes;
      Uninsured patients are up to four times as likely as 
insured patients to require both avoidable hospitalizations and 
emergency hospital care.

    More specifically, ACP found that uninsured working-age adults are:

      More likely to go without care that meets professionally 
recommended standards for managing chronic diseases, such as timely eye 
exams to prevent blindness in persons with diabetes;
      Less able to access medications needed to manage 
conditions like hypertension or HIV;
      Less likely to receive appropriate cancer screening, 
resulting in delayed diagnosis, delayed treatment, and premature 
mortality; and
      More likely to have avoidable medical crises and 
emergency hospitalizations from untreated conditions.

    A separate study, funded by ACP to raise awareness about the 
uninsured found that high proportions of uninsured adults were not 
receiving needed medical care. The study examined 1997 and 1998 survey 
data for more than 220,000 adults between the ages of 18 and 64 from 
the Centers for Disease Control and Prevention's Behavioral Task Force. 
Highlights from this study, which was published in the Journal of the 
American Medical Association,\2\ include:
---------------------------------------------------------------------------
    \2\ Ayanian J, Weissman J, Schneider E, Ginsburg J, and Zaslavsky 
A. Unmet Health Needs of Uninsured Adults in the United States. JAMA. 
October 2000; 284 (16): 2061--2069.

      About 14 percent of respondents lacked health insurance 
and 10 percent had gone without health insurance for an entire year.
      Nearly two-fifths of long-term uninsured and one-third of 
short-term uninsured adults reported they were unable to see a 
physician within the last year due to costs.
      Of the long-term uninsured, nearly 70 percent of those in 
poor health and nearly 50 percent of those in fair health reported 
being unable to see a physician in the previous year due to cost.
      Those who reported excellent or very good health were two 
to three times more likely to have health insurance.
      For highly recommended preventive services, long-term 
uninsured adults (those that were without health insurance for more 
than one year) were three and a half times less likely to receive 
cardiovascular risk reduction services such as hypertension and 
cholesterol screening; 25 percent less likely to have had a mammogram; 
and three to four times less likely to have had a screening for breast 
cancer.
      Clinical risk groups for the long-term uninsured reported 
being unable to see a doctor when they needed due to cost during the 
past year including: 37 percent of smokers, one-third of the obese, 40 
percent for hypertension, 46 percent of diabetics, and 37 percent with 
elevated cholesterol.
      One in five of the short-term uninsured in these same 
risk groups reported encountering the same obstacles.
      One quarter of the long-term uninsured had not received a 
routine check up in the last two years in high-risk groups reporting 
hypertension, diabetes and elevated cholesterol.
      Nearly half of the long-term uninsured women and 40 
percent of short-term uninsured women reported being unable to see a 
doctor when needed during the last year (versus 30 percent and 22 
percent of men.)
      Long-term uninsured women aged 50-64 were three times 
less likely than insured women of the same age to have received a 
mammography or clinical breast exam; long-term uninsured women between 
ages 18 and 64 were three times as likely not to have obtained a pap 
smear within the last three years.
      Nearly 20 percent of the self-employed had been uninsured 
for greater than one year; another 5 percent had been without insurance 
for some period within the last year.
      Nearly 40 percent of the employed long-term uninsured and 
30 percent of the employed short-term uninsured reported being unable 
to see a doctor when needed during the last year.
      In contrast to federal and state government efforts to 
extend affordable health care coverage to children, nearly 33 million 
adults continued to lack a cohesive plan to address their needs.
Economic Costs of Being Uninsured
    One of the principal obstacles to enactment of legislation to 
expand health insurance coverage to all Americans is the belief that 
the cost would be enormous and unaffordable. In a forthcoming paper, 
The Cost of the Lack of Health Insurance, ACP documents the extent of 
what is known about the aggregate economic costs to the United States 
of maintaining a considerable uninsured population. By illustrating 
that the United States already spends an enormous amount on health care 
for the uninsured, both in terms of the direct costs of services 
provided and the indirect costs to society of having individuals forego 
or delay receipt of needed health care, the paper counters the claim 
that the cost of extending coverage to the uninsured is prohibitive.
    Following an extensive review of the current literature, ACP found 
that the most integral cost estimate of the uninsured takes into 
account multiple factors, some more quantifiable than others. There are 
the direct costs borne by the health care system for treating the 
uninsured, whose care is often more expensive than the insured since 
the uninsured tend to receive treatment in the emergency department and 
lack preventive care. These costs must be absorbed by providers as free 
care, passed on to the uninsured via cost shifting and higher health 
insurance premiums, or paid by taxpayers through higher taxes to 
finance public hospitals and public insurance programs. Estimates of 
the direct costs of the uninsured found in the literature include:

      The uninsured receive as much as $98 billion in medical 
care, $35 billion of which is considered uncompensated, a year.
      Total government spending in the name of the uninsured is 
about $30 billion a year.
      Hospitals provide about $24 billion worth of 
uncompensated care a year.
      Physicians spend about $5.1 billion a year caring for 
those who cannot pay their bills.
      Employers and managed care companies spend $1.5-$3 
billion through higher rates to cover part of the amount hospitals 
spend caring for the uninsured.\3\
---------------------------------------------------------------------------
    \3\ Hadley J, Holahan J. How Much Medical Care Do the Uninsured 
Use, and Who Pays For It? Health Affairs Web Exclusive. 12 February 
2003.

    Although the indirect costs associated with lack of insurance are 
more difficult to calculate, a discussion of the consequences of not 
extending coverage to the uninsured would be incomplete without their 
consideration. Inadequate preventive care and delayed treatment among 
the uninsured yields substantial societal costs in terms of reduced 
life expectancy, lower workforce productivity, diminished educational 
attainment, imperiled public health, and the financial burden 
shouldered by uninsured individuals and communities. Making preventive 
medicine and existing treatment therapies available to uninsured 
persons will not only increase overall access to health care but may 
also substantially contribute to a reduction in the total burden of 
illness facing the United States.
    The Institute of Medicine (IOM) report, Hidden Costs, Value Lost, 
estimates the aggregate, annualized cost of diminished health and 
shorter life span to be between $65 billion and $130 billion for each 
year of health insurance forgone. This figure does not include the 
increased financial risk and uncertainty borne by the uninsured and 
their families, which is estimated to cost between $1.6 billion and 
$3.2 billion, nor does it account for the wide range of societal costs 
to which a price tag cannot be assigned.\4\
---------------------------------------------------------------------------
    \4\ Institute of Medicine. Hidden Costs, Value Lost. Consequences 
of Uninsurance Series, No. 5. Washington, DC: National Academies Press; 
17 June 2003.
---------------------------------------------------------------------------
    Critics of proposals to expand health insurance coverage point to 
the high cost of the additional medical care that would be used by 
newly insured Americans if coverage were expanded. However, a report 
published in Health Affairs in June 2003, found that this amount may 
not be as high as critics claim. The authors estimated that the 
uninsured would use about $34-$69 billion (in 2001 dollars) in 
additional medical care if they were fully insured, accounting for 
about 3-6 percent of total health care spending. While this amount may 
seem large in absolute dollars, an increase in medical spending of this 
range would increase health care's share of gross domestic product 
(GDP) by less than one percentage point.\5\
---------------------------------------------------------------------------
    \5\ Hadley J, Holahan J. Covering the Uninsured: How Much Would It 
Cost? Health Affairs Web Exclusive. 4 June 2003.
---------------------------------------------------------------------------
    In a related analysis, the IOM found the estimated benefit that the 
uninsured would experience from incremental health coverage ($1,645 to 
$3,280) to be higher than the estimated incremental cost of providing 
that service to the uninsured ($1,004 to $1,866), resulting in a 
benefits-cost ratio of at least one for most values within each 
range.\4\ Given the positive effects health insurance has on life 
expectancy, public health, educational attainment, production, and the 
economy in general, the benefits of extending coverage to the uninsured 
appear to be greater than the costs of not insuring them.
    The value of extending health insurance coverage to all Americans 
requires an understanding of the alternative--the cost of leaving over 
17 percent of the population under age 65 uninsured for all or part of 
the year. When millions of Americans are unable to receive the care 
they need, the health and lives of all patients are endangered, costs 
are added to the health care system, and productivity is reduced. In 
the debate of how to extend coverage to the uninsured, it is critical 
that both short and long-term benefits are fully considered, since the 
latter may offset what many critics fear are the direct costs 
associated with such an expansion.

Proposals to Expand Health Insurance Coverage
    Given that the rising number of uninsured are imposing huge 
economic and social costs on our country, ACP believes that it is 
essential that Congress enact legislation to expand health insurance 
coverage to all Americans by the end of the decade, starting with the 
working poor and near poor who do not qualify for coverage under public 
safety net programs and those who do not have access to affordable 
employer-provided and individual insurance In April 2002, ACP proposed 
a plan, entitled ``Achieving Affordable Health Insurance Coverage for 
All Within Seven Years: A Proposal from America's Internists,'' which 
offers a framework for policies that would enable all Americans to 
obtain affordable health insurance within seven years. The College's 
plan calls on Congress to take the following steps:
    Enacting legislation to make affordable coverage available to all 
people with incomes up to 200 percent of the Federal Poverty Level 
(FPL), including: creating a national income eligibility for Medicaid 
at 100 percent of FPL; converting the State Children's Health Insurance 
Program (SCHIP) to a federal-state entitlement program; and creating a 
tax credit/premium-subsidy program for individuals from 100-200 percent 
of FPL that would apply to Medicaid or SCHIP ``buy-ins'' or toward the 
purchase of private insurance.

      Expanding the premium subsidy program to uninsured people 
with incomes above 200 percent of FPL, while authorizing the creation 
of purchasing groups and conditions for health plan participation, 
modeled after the Federal Employees Health Benefit Program.
      Enacting legislation to authorize states to request a 
waiver to opt-out of the national framework for coverage. States that 
meet federal guidelines would be able to use federal funding for state 
programs.
      Establishing a national commission that would report 
annually to Congress on progress, develop a basic benefits package, and 
recommend mechanisms to discourage individuals from voluntarily opting 
out of insurance coverage.

    Key elements of the College's seven year plan subsequently have 
been incorporated into the bipartisan Health Coverage, Affordability, 
Responsibility and Equity Act of 2003 (HealthCARE Act of 2003), H.R. 
2402, introduced by Rep. Steve LaTourette (OH) and Marcy Kaptur (OH). A 
companion bill, S. 1030, has been introduced in the Senate.
    We believe that the policy framework proposed in the HealthCARE Act 
of 2003 provides a realistic basis for a bipartisan consensus in 
Congress on expansion of health insurance coverage. The legislation 
provides for a program of tax credits combined with state purchasing 
pools, to provide uninsured low-income Americans with the same dollar 
subsidies and choice of health plans available to members of Congress 
and other federal employees through the Federal Employee Health 
Benefits Program. It provides a means for small businesses to band 
together to purchase coverage comparable to that available under the 
FEHBP. It also provides states with new options to expand and simplify 
enrollment on Medicaid, without imposing new unfunded mandates on the 
states. Finally, it provides an innovative structure to encourage 
health plans to offer essential health benefits without imposing 
unrealistic benefit mandates. The ACP would welcome the opportunity to 
provide additional information to the Committee on the HealthCARE Act 
of 2003 and on initial steps that could be taken this year, based on 
elements in this legislation, to expand health insurance coverage to 
the working poor.

Conclusion
    The American College of Physicians appreciates the opportunity to 
provide the Ways and Means Committee's Subcommittee on Health with this 
summary of our views on the economic and health costs of not providing 
health insurance coverage to 44 million Americans, as well as our 
recommendations for expanding coverage to all Americans. Additional 
information on ACP's analysis and proposals can be found on our 
website:

      No Health Insurance? It's Enough to Make You Sick: http:/
/www.acponline.org/uninsured/lack-contents.htm
      Unmet Health Needs of Uninsured Adults in the United 
States: Ayanian J, Weissman J, Schneider E, Ginsburg J, and Zaslavsky 
A. Unmet Health Needs of Uninsured Adults in the United States. JAMA. 
October 2000; 284 (16):2061-2069.
      Achieving Affordable Health Insurance Coverage for All 
Within Seven Years: A Proposal from America's Internists: http://
www.acponline.org/hpp/afford_7years.pdf
      The Cost of the Lack of Health Insurance: http://
www.acponline.org
      Highlights of the HealthCARE Act of 2003, H.R. 2402, S. 
1030: http://www.acponline.org/uninsured/bing_highlights.pdf
      Section by Section Summary of the HealthCARE Act of 2003, 
http://www.acponline.org/uninsured/bing_sectsum.pdf

                                 

 Statement of Associated Builders and Contractors, Arlington, Virginia

                      SPEAKING FOR THE MERIT SHOP

    Associated Builders and Contractors (ABC) appreciates the 
opportunity to submit the following statement for the official record. 
We thank Chairwoman Nancy Johnson (R-CT), Ranking Member Fortney 
``Pete'' Stark (D-CA) and members of the Health Subcommittee of the 
House Ways and Means Committee for addressing the crisis of the 
uninsured in America. ABC urges the committee to follow up on this 
important hearing with an additional hearing to examine possible 
solutions to this growing epidemic.
    ABC is a national trade association representing 23,000 general 
contractors, subcontractors, material suppliers, and construction-
related firms from across the country within a network of 80 state 
chapters. Our member companies represent over one million craft 
professionals and administrative employees. As the nation's second-
largest employer, with over 6 million workers, the construction 
industry continues to create new and beneficial jobs each year. 
Construction spending has a stimulative effect on the economy. For 
every $1 million spent in construction, $3 million in economic activity 
is generated and 13 new permanent jobs are created.
    To remain at the present level of activity, the construction 
industry needs an additional quarter of a million (250,000) workers per 
year to replace an aging and retiring workforce. One of the key 
elements to attracting and retaining workers and remaining competitive 
in any industry is to provide high quality, flexible health benefit 
plans. Providing quality health care benefits is a top priority for ABC 
and its members, and maintaining cost effective health insurance plans 
is a key ingredient in achieving this objective.
    Currently, there are more than 43 million uninsured Americans, and 
60 percent of them are employed by (or family members are employed by) 
small businesses. Therefore, the problem of the uninsured does not 
solely lie with the unemployed, but also with the small businesses 
across the country who are unable to provide quality health care 
coverage due to skyrocketing costs. In fact, a new study by the Robert 
Wood Johnson Foundation found that more than one in three Americans 
under 65 was uninsured at some point over the past two years.
    In 2002, the Census Bureau released a study that showed that the 
share of the population covered by employer-sponsored health care 
coverage declined from 63 to 61 percent. The rising cost of health 
insurance premiums is the biggest factor in this decline and number one 
problem facing small business in this country. Faced with 15, 20 and 
even 50 percent premium increases annually for the past several years, 
many small businesses have been forced to reduce or even drop coverage.
    Many factors have contributed to the cost increase of health 
insurance. Hospital costs, frivolous medical malpractice lawsuits, lack 
of competition and increased state regulation have all led to increased 
premiums. However, it is important to note that while health insurance 
costs have gone up at twice the rate of inflation, a vast majority of 
small businesses's productivity and profits have failed to grow at the 
same rate. One sector though, has enjoyed its greatest profit margins 
ever. The insurance industry, namely large health insurance companies, 
have experienced record-setting profits over the past few years.
    A number of state reforms have actually led to increased rates, 
thus forcing employers to reduce benefits through higher deductibles 
and co-pays or eventually to drop coverage in order to comply with the 
law. State health insurance reforms and community rating laws have 
forced some insurance carriers to completely withdraw from the small 
group market for employers with less than 50 employees. When these and 
other state reforms occur, small employers are left with fewer 
alternatives for health insurance coverage for themselves and their 
employees.
    Recent mergers of health insurance companies have also reduced 
competition and alternatives for employers who seek access to quality 
and affordable health insurance. Today, there is a great need to bring 
more competition back into the system rather than continually reducing 
it.
    While there is no single solution to the problem of the uninsured, 
ABC feels that it is vital for Congress to examine the current market 
and to consider proposals that will provide market-based reforms. We 
believe that our current health insurance system, while flawed, is 
still the best in the world. Any solutions should help provide working 
families the best opportunity to obtain the quality, affordable health 
coverage they both need and deserve. Increasing competition within the 
small group market will help lower costs to employers struggling to 
continue to offer health insurance to their employees today.
    The House of Representatives has already passed The Small Business 
Health Fairness Act (H.R. 660), which represents one common-sense 
proposal to address the uninsured problem plaguing small businesses. 
President Bush, a strong proponent of this legislation, called on the 
Senate to pass this same measure in his State of the Union Address. ABC 
recognizes the need for this legislation and commends the House for 
approving it last summer.
    ABC appreciates this opportunity to submit comments on such a vital 
issue. We look forward to continuing a constructive dialogue on how to 
increase access to affordable and competitive health insurance for 
small businesses and thus reducing the number of uninsured Americans.

                                 

   Statement of Michael D. Place, Catholic Health Association of the 
                             United States

        THE NATIONAL TRAGEDY OF THE NEARLY 44 MILLION UNINSURED

INTRODUCTION
    Clearly, a disease that infects nearly 44 million individuals in 
this country would quickly command resources from every possible 
governing agency and public health entity. But this country faces an 
epidemic of uninsured individuals, and many in our nation seem willing 
to ignore this epidemic.
    While researchers and economists may disagree on exactly how many 
are uninsured, their income levels, and the reasons that they are 
uninsured, no one can deny the fact that by default a ``silent'' 
national policy excludes 1 in 7 individuals from fully participating in 
and enjoying the benefits of our health care system.
    The recent IOM Study, Insuring America's Health: Principles and 
Recommendations,and numerous other research reports clearly state that 
being uninsured presents a formidable barrier to obtaining necessary 
medical care with a multitude of health consequences. For the 
individual, treatment delayed can mean serious complications, even 
death. For society, it means the potential spread of disease, rising 
medical costs, and the inefficient expenditure of health care 
resources.
    As the Catholic health ministry, whose history began over 275 years 
ago, we continue to serve uninsured and underinsured individuals every 
day in our hospitals and clinics. We have seen the unraveling of our 
nation's safety net due to a downturn in our nation's economy; 
decreasing resources at the local, state, and federal level; and 
increasing demands for services. The strains on our health care system 
must be addressed.
    As employers, health care providers, and above all as a community 
of faith, our values are the basis for our commitment to addressing 
these issues and presenting our recommendations.
OUR VALUES
    The perspective of the Catholic health ministry is founded in 
social justice teachings. The following are our ``operating 
principles,'' derived from a faith-based tradition of caring for the 
poor, healing the sick, and speaking for those who often go unheard.

      Every person is the subject of human dignity. This 
dignity must be honored, preserved, and protected from conception to 
death, whether one is disabled or aged. Flowing from this dignity is 
the right to basic and continuing health care.
      Health care is a service to people in need. Health care 
is an essential social good. It should never be reduced to a mere 
commodity exchanged for profit.
      Health care must serve the common good. The health care 
needs of each individual must be balanced by the needs of the larger 
society.
      There is a special duty to care for the poor and 
vulnerable. The well and the wealthy should care for the poor, the 
sick, and the frail.
      There must be responsible stewardship of resources. The 
resources needed for health care must be balanced with the needs of 
other essential social services.
      Subsidiarity. To the greatest degree practicable, 
administration must be carried out at the level of organization closest 
to those to be served.

    Our ministry's approach to health care rests in these values. As a 
result, we believe there is a human right to basic health care and that 
society has a special duty to care for the poor and vulnerable. These 
are commitments that many Americans, regardless of their denomination 
or faith, also share.
    Today, turning a blind eye to discrimination, denying any child a 
public education, or allowing a defendant in a criminal proceeding to 
stand trial without legal assistance would be unacceptable to us as a 
nation.
    We believe that if more individuals understood the suffering that 
millions among us endure, the apathy that now shrouds the issue of 
helping the nation's uninsured could be remedied. After all, any one of 
us among the over 160 million privately insured could very quickly and 
unexpectedly join the ranks of the uninsured.
    As a ministry, we continue to take steps to educate and raise 
awareness among our associates, our community leaders, and the general 
public about this critical issue. We are committed to partnerships with 
other organizations such as the Robert Wood Johnson Foundation to 
prepare this country for a serious dialogue about the nearly 44 million 
who are uninsured. We also are looking at innovative ways to provide 
coverage for low-wage earners in our own ministry, and to assist in 
identifying and facilitating enrollment of those populations who are 
eligible but not enrolled in public programs. Our ministry is motivated 
by our mission and underlying values to do the right thing, as 
evidenced through our commitment to broader community benefit efforts.
    As we prepare for this national dialogue, the Catholic health 
ministry has articulated the following guiding principles for a broader 
approach to health care reform and remains committed, both in the short 
and long term, to achieving the necessary changes in our current 
system. The guiding principles include:

      A reformed system should provide health care for all
      A defined set of basic benefits should be available to 
all
      Responsibility for health should be shared by all
      Spending on health care should be based on the 
appropriate and efficient use of resources
      Financing of the delivery of health care should be 
adequate and based upon a pluralistic model, with shared responsibility 
by government, employers, and individuals
      A reformed system should provide quality health care 
services
      The effective participation of patients and families in 
decision making should be encouraged and enhanced

    In light of our values and our guiding principals, we offer the 
following recommendations for your consideration.
RECOMMENDATIONS
    There are tough moral, ethical, and policy questions surrounding 
the uninsured that must be discussed and debated in an open forum where 
all sides are heard. We thank the committee for addressing these very 
important policy questions.
    Without abandoning the goal of accessible and affordable health 
care for all, but in recognition of the valuable lessons learned from 
previous efforts, CHA has chosen to pursue a strategy that works toward 
our goal in intentional and sequential steps.
    Our proposal, crafted in collaboration with the American Hospital 
Association, is both an acknowledgment of today's political realities 
and an example of the policy choices and strategy we intend to follow 
in building an infrastructure for accessible and affordable health care 
for all. This proposal is consistent with our sense of societal 
responsibility and guiding principles. We are well aware of the current 
fiscal constraints at the local, state, and federal level, but we also 
believe that this issue demands significant resources in the near term.
    While we acknowledge that this proposal is not the ultimate 
solution, and that accessible and affordable health care for all cannot 
be achieved overnight, we do believe that this proposal provides 
additional ideas and consideration for the committee as it looks for 
ways to craft bipartisan legislation that achieves coverage for our 
nation's children, the future of our country, and those most in need of 
care.
    The AHA/CHA proposal would expand insurance coverage through a 
combination of approaches. The proposal mandates that all children have 
health insurance coverage, and expands eligibility under the Medicaid 
and State Children's Health Insurance Program (SCHIP) for those 
children not otherwise covered by other sources. The plan also would 
provide tax credits and premium subsidies to assist small employers and 
individuals in the purchase of private health insurance for their 
workers and families. The three key components to the AHA/CHA proposal 
to expand health insurance coverage are briefly described below.
    1. Mandatory Children's Coverage: All children under the age of 19 
would have coverage. Accessible and affordable health care for all 
children, without reducing employer coverage for dependents, would be 
accomplished by structuring the programs so that financial incentives 
remain for people to cover their children through private insurance 
whenever possible. Children would be enrolled at birth. Subsequently, 
coverage would be required as a condition of enrolling in school.

      Premium Structure: States would be required to expand 
eligibility under their Medicaid and/or SCHIP programs to provide 
subsidized coverage for all children living below 250 percent of the 
federal poverty level (FPL). Children below 150 percent of the FPL 
would be covered without premium contribution, while premiums would be 
phased in on a sliding scale for those between 150 and 250 percent of 
the FPL, subject to a premium cap equal to 5 percent of family income. 
Children above 250 percent of the FPL would pay full actuarial costs in 
premiums to ``buy into'' the Medicaid/SCHIP coverage.
      Benefits Package: States would have the choice of 
offering the Medicaid benefits package or an alternative benefits 
package (similar to SCHIP).
      FMAP: State spending would be matched at the current 
SCHIP enhanced Federal Medical Assistance Percentage (FMAP) rate.
      Eligibility: States would be required to maintain their 
current income eligibility levels and covered services throughout the 
Medicaid/SCHIP programs.

    2. Small Employer Premium Subsidies/Tax Credits: The plan includes 
premium subsidies to small employers for the purchase of insurance for 
low-wage workers below 200 percent of the FPL. The premium support 
would be administered by the United States Treasury Department.

      Employer Eligibility: Firms with between 1 and 50 workers 
would be eligible for the subsidies, provided the employer's workforce 
is paid less than an average of $10.00 per hour, or 60 percent of 
employees in the firm are earning less than $10.00 per hour. In 
addition, the employer must be paying at least 70 percent of the 
premium for single-only coverage, and 60 percent of the premium for 
family coverage. The subsidies would be available to both for-profit 
and not-for-profit employers.
      Subsidy Amount: The maximum subsidy would be 50 percent 
of the employer's share of the premium, up to a maximum premium amount 
based on a benchmark health plan (i.e., Blue Cross Blue Shield's 
``Basic Plan'' offered through the Federal Employees Health Benefits 
Plan). The premium percentage subsidy is phased down with firm size 
from 50 percent for the smallest firms to 30 percent for firms with 50 
workers.
      Additional Provisions: The subsidy would be refundable 
(the amount of the subsidy could exceed the amount of taxes owed by the 
employer), and would be advance fundable so that subsidies are 
available throughout the year as the employer's premium payments are 
due. In addition, employers taking the subsidy would be required to 
offset the employer premium payment by the amount of the subsidy 
received in determining the employer's allowable deduction for employee 
health benefits costs.

    3. Premium Subsidies/Tax Credits for Individuals: The program would 
provide a subsidy for the purchase of non-group insurance for people 
below 300 percent of the FPL, or help pay the worker's share of 
premiums for people with employer-sponsored insurance (ESI).

      Subsidy for individual non-group coverage: The subsidy 
would be equal to two-thirds of the insurance payments for qualified 
coverage through an FEHBP plan, and would be phased out for persons 
over 150 percent of the FPL reaching $0 at 300 percent of the FPL.
      Subsidy for employee share of ESI: The premium subsidy 
amount is capped not to exceed $1,000 for single coverage and $3,000 
for family coverage for the employee share of the ESI.
CONCLUSIONS
    As provider, employer, advocate, citizen, bringing together people 
of diverse faiths and backgrounds, our ministry is an enduring sign of 
health care rooted in the belief that every person is a treasure, every 
life a sacred gift, and every human being a unity of body, mind, and 
spirit.
    As the Catholic health ministry, our faith tradition calls us to 
collaborate with others to be both a voice for the voiceless--the 
millions of uninsured--and agents for change. CHA has been, is, and 
will continue to be a strong advocate for accessible and affordable 
health care for all in a reformed health care system. We stand ready 
and willing to work with the committee this year and as long as it 
takes to craft an equitable solution to this national tragedy.

                                 

                Communicating for Agriculture and the Self-Employed
                                             Fergus Falls, MN 56537
                                                      March 9, 2004
The Honorable Nancy Johnson
Chair, Subcommittee on Health
House Ways and Means Committee
Washington, DC 20515

Dear Chairman Johnson:

    Communicating for Agriculture and the Self-Employed (CA) is a 
national, non-profit rural association made up of farmers, ranchers and 
rural small business members throughout the country. Throughout CA's 
32-year history, we have been active on health care affordability and 
access issues and we applaud your efforts to address, through a series 
of hearings, this pressing problem for millions of Americans.
    While much of the discussion on this issue has centered around the 
employer-based health insurance market, our members bring a different 
perspective to the issue, a perspective I would be happy to discuss at 
a future hearing. Many of our members are self-employed, do not have 
access to employer-based insurance and must rely on the individual 
health insurance marketplace.
    Solutions that we have found that would help these individuals 
obtain affordable health insurance, and solutions I would be happy to 
discuss with the Subcommittee in future hearings, include:
State Health Insurance High Risk Pools
    High risk pools are special state created and overseen health 
insurance programs that serve people in the individual market who have 
been denied coverage, or who can only access coverage at very high 
rates due to a pre-existing health condition such as cancer, congestive 
health failure, diabetes, AIDS and other chronic illnesses.
    Federal legislation recently provided $40 million a year for two 
years to help existing risk pools and another $20 million to help 
states form new pools. (CA was called in by the Department of Health 
and Human Services to suggest language for the new regulations 
governing this program.) CA is now supporting legislation that would 
increase the funding per year and extend the program through 2009.
Advanceable, Refundable Tax Credits to Purchase Health Insurance
    As you know, there are several proposals in Congress to create an 
advanceable, refundable income tax credit for the cost of health 
insurance purchased by individuals under 65 years of age.
    Depending on income and other factors, this tax credit would be 
available in advance of the time the insurance is purchased. 
Individuals would reduce their premium payment by the amount of the 
credit and the health insurer would be reimbursed by the Department of 
Treasury for the amount of the advance credit. Eligibility for the 
advance credit would be based on an individual's prior year tax return.
Individual Tax Deductions
    In addition the refundable tax credits, CA supports 100 percent 
deduction for health insurance for all individuals and there are 
several bills now in Congress to address this issue. Businesses and the 
self-employed can deduct 100 percent of health insurance costs, but not 
individuals. If General Motors can deduct its insurance costs, why 
can't a woman who holds two part time jobs and is not eligible for 
health insurance at either job, deduct the cost of her individual 
policy?
    We believe that there is no one silver bullet that will immediately 
solve the problem for our uninsured. However, we also believe that a 
combination of programs, such as those I have outlined, will go a long 
way to enable a great many more Americans to have access to health 
insurance.
    Our members support your efforts to deal with this very serious and 
very complex problem and if we can ever be of service, please don't 
hesitate to call.
    Thank you.
            Sincerely yours,
                                                       Wayne Nelson
                                                          President

                                 

              Statement of Marina L. Weiss, March of Dimes
    The March of Dimes Birth Defects Foundation is pleased to submit 
for the hearing record the following statement on ``The Uninsured.''
    President Franklin Roosevelt established the March of Dimes in 1938 
to fight polio. The March of Dimes committed funds for research and 
within 20 years Foundation grantees were successful in developing a 
vaccine to prevent polio. The March of Dimes then turned its attention 
to improving the health of children through the prevention of birth 
defects, prematurity and infant mortality. As you might expect, 
providing coverage to women of childbearing age, especially those who 
are pregnant, infants and children are policy priorities for the 
Foundation.
    Today, access to health insurance is especially pertinent to the 
advancement of the March of Dimes mission. In January 2003, the 
Foundation embarked upon a 5-year, $75 million campaign to address the 
growing problem of preterm birth. The Prematurity Campaign is designed 
to increase awareness of the problem of preterm birth; to expand 
research on the causes of preterm birth and the care of babies born 
preterm; and to improve access to health coverage for women of 
childbearing age and their children.
    The March of Dimes includes millions of volunteers and 1,400 staff 
members who work through chapters in every state, the District of 
Columbia and Puerto Rico. The Foundation is a unique partnership of 
scientists, clinicians, parents, business leaders and other volunteers, 
who work to advance the mission by supporting programs of research, 
community services, education and advocacy.
    At the March of Dimes, the overarching goal is to improve the 
health of women and children. This is why we are so concerned about 
improving access to health coverage for women of childbearing age, 
especially those who are pregnant, as well as to their infants and 
children.
The Problem of the Uninsured
    Lack of health coverage continues to be a significant problem for 
millions of Americans. The Census Bureau reported in September 2003 
that 43.6 million Americans were uninsured in 2002. Census Bureau data 
commissioned by the March of Dimes show that in 2002, 12.1 million 
women (19.6 percent) or nearly one in five women of childbearing age 
(15-44) went without health insurance--a higher rate than other 
Americans under age 65 (17.2 percent). In other words, approximately 28 
percent of uninsured Americans are women of childbearing age. Hispanic 
women in this age group are more than 2.5 times as likely as whites to 
be uninsured--37 percent compared to 14 percent respectively. Native 
American (29 percent), African-American (24 percent) and Asian (24 
percent) women were also likelier than whites to be uninsured.
    Compared with a U.S. average of 19%, New Mexico (31 percent) and 
Texas (30 percent) had the highest rates of uninsured women of 
childbearing age for the 2000-2002 period according to the U.S. Census 
Bureau.\1\ Since the mid-1980's expanded Medicaid eligibility for 
pregnant women has resulted in better rates of coverage for this group 
than for women in general. The Congressional Budget Office, citing in 
part March of Dimes supported research, estimates that about 1.7 
million pregnancies are covered each year through Medicaid.\2\ But as 
the data indicate, considerable room for improvement remains.
---------------------------------------------------------------------------
    \1\ U.S. Census Bureau, March 2003 Current Population Survey. Data 
prepared for the March of Dimes. October 2003. http://
www.marchofdimes.com/files/census2003.pdf
    \2\ Congressional Budget Office. ``Cost Estimate: S. 724 Mothers 
and Newborns Health Insurance Act of 2002.'' October 11, 2002.
---------------------------------------------------------------------------
Health Insurance Makes a Difference
    Numerous studies have shown that having insurance coverage affects 
how people use health care services.\3\ Particularly important is the 
finding that the uninsured are less likely to have a usual source of 
medical care and are more likely to delay or forgo needed health care 
services.
---------------------------------------------------------------------------
    \3\ Kaiser Commission on Medicaid and the Uninsured. Sicker and 
Poorer: The Consequences of Being Uninsured. February 2003.
---------------------------------------------------------------------------
    In a report issued in 2002 by the Institute of Medicine, 
researchers concluded that ``[L]ike Americans in general, pregnant 
women's use of health services varies by insurance status. Uninsured 
women receive fewer prenatal care services than their insured 
counterparts and report greater difficulty in obtaining the care they 
believe they need.'' \4\
---------------------------------------------------------------------------
    \4\ Institute of Medicine. Health Insurance Is A Family Matter. 
National Academies Press. 2002.
---------------------------------------------------------------------------
    A study funded by the March of Dimes and cited by the Institute of 
Medicine in its report shows that, in 1996, some 18.1 percent of 
uninsured pregnant women reported going without needed medical care 
during the year in which they gave birth. That compares with 7.6 
percent of privately insured pregnant women and 8.1 percent of pregnant 
women covered through the Medicaid program.\5\
---------------------------------------------------------------------------
    \5\ Amy B. Bernstein. ``Insurance Status and Use of Health Services 
by Pregnant Women.'' AlphaCenter prepared for the March of Dimes. 
October 1999. http://www.marchofdimes.com/files/bernstein_paper.pdf
---------------------------------------------------------------------------
    Pregnancy represents a significant cost to young parents without 
insurance, even in the healthiest pregnancies. For families with a 
problem pregnancy, the financial impact can be devastating. Without 
access to health insurance, many pregnant women delay seeing a doctor 
and getting the prenatal care they need. As the report that accompanied 
legislation passed by the Senate Committee on Finance in the last 
Congress stated, ``[R]ecent studies have shown that infants born to 
mothers receiving late or no prenatal care are more likely to face 
complications which can result in hospitalization, expensive medical 
treatments, and increased costs to public programs. Closing the gap in 
coverage between mothers and their children will improve the health of 
both, while reducing costs for taxpayers.'' \6\
---------------------------------------------------------------------------
    \6\ Report 107-233. ``Mothers and Newborns Health Insurance Act of 
2002.'' Committee on Finance, United States Senate. August 1, 2002.
---------------------------------------------------------------------------
Maternity Coverage is Often Not Available in the Individual Insurance 
        Market
    In accordance with its mission, the March of Dimes seeks to reduce 
the number of uninsured women, infants and children and to improve 
access to medical care. It is for this reason that the Foundation is 
concerned about certain aspects of Administration and Congressional 
proposals to address the problem of the uninsured by providing a health 
insurance tax credit for use in the individual market. A recent study 
by Ed Neuschler of the Institute for Health Policy Solutions, 
commissioned by the March of Dimes, found that using tax credits to 
subsidize the purchase of individual (non-group) health insurance would 
do little to expand access to maternity coverage.\7\ Services related 
to normal pregnancy and childbirth typically are not covered under 
health insurance policies sold in the individual market--except in a 
few states where such coverage is mandated. In some cases, maternity 
coverage for individuals is offered as a separate rider with an 
additional premium. Coverage under such riders is typically very 
expensive and limited in scope, with separate higher deductibles or low 
dollar limits on benefits, and special waiting periods. Private 
individual coverage for women who are already pregnant is simply not 
available, at any price. In fact, to the extent that tax credits 
promote a shift from employer-based coverage to individual coverage, as 
some researcher predict, widespread use of such credits could increase 
the number of young families lacking coverage for maternity care, 
according to Neuschler's report.
---------------------------------------------------------------------------
    \7\ Ed Neuschler. Policy Brief on Tax Credits for the Uninsured and 
Maternity Care. Institute for Health Policy Solutions prepared for the 
March of Dimes. January 2004.
---------------------------------------------------------------------------
    Maternity care is offered in most employer plans. Under the federal 
Pregnancy Discrimination Act, employers with 15 or more workers may not 
offer health insurance that excludes maternity care. Some researchers 
have estimated that, while providing tax credits for non-employment-
based coverage would reduce the number of uninsured, there would be 
considerable shifting in source of coverage. That is, the number of 
individuals with employment-based coverage and associated maternity 
benefits would decline, mostly due to employers' elimination of health 
coverage as a fringe benefit, with the result that some employees would 
switch to individual insurance and others would become uninsured. Thus, 
the number of people with individual coverage (and, therefore, without 
maternity coverage in most cases) could increase significantly. None of 
the individual health insurance tax credit proposals introduced in the 
108th Congress would specifically require qualifying health plans to 
cover maternity benefits.
    While several approaches to improve the availability of maternity 
coverage might be considered in the context of designing a tax credit, 
there appears to be no easy way to assure that a policy of subsidizing 
individual health insurance plans will also expand coverage of 
maternity care. Simply requiring health insurers to include maternity 
coverage in individual insurance policies could cause carriers to 
increase premiums dramatically--diluting whatever effectiveness tax 
credits might have in helping the uninsured afford coverage--or 
withdraw from the market altogether, according to Neuschler.
    Should the Committee elect to approve creation of a tax credit 
targeted at subsidizing individual health insurance coverage, it is 
important that the overlap between eligibility for the credit and 
Medicaid or State Children's Health Insurance Program (SCHIP) coverage 
for pregnant women be addressed. Tax credit proposals introduced in 
Congress and proposed by the Administration in 2003 deny eligibility to 
individuals enrolled in Medicaid. Because Medicaid income eligibility 
for pregnant women is more generous than for women who are not 
pregnant, some tax-credit eligible women will qualify for Medicaid 
coverage of pregnancy-related services. Under the proposals currently 
pending before the Committee, these women would be forced to forgo 
prenatal coverage while covered in the individual market and enroll in 
Medicaid for coverage of delivery and postpartum care, or to decline 
private coverage and enroll in Medicaid only for the duration of their 
pregnancy. If she chose the latter course, the woman would then be 
forced to re-apply for private coverage--and face possible denial due 
to underwriting--once her pregnancy is over and she is no longer 
eligible for Medicaid.
    At the very least, pregnant women who become eligible for Medicaid 
only because of pregnancy should be able to retain their tax credit for 
individual coverage. The normal third-party liability provisions of 
Medicaid can assure that Medicaid does not pay for services that the 
woman's private insurance ought to cover, thus avoiding any risk of 
duplicative federal costs.
Alternative Approaches
    The March of Dimes urges Members of the Committee to consider the 
needs of women, especially those who are pregnant, as you tackle the 
problem of the uninsured. In addition, we offer for your consideration 
some `best coverage' suggestions from both the public and private 
sectors.

    1.  If tax credits are considered as a vehicle to help the 
uninsured, encourage use of the credits for purchase of employer-based 
or group health insurance, rather than coverage in the individual 
market. Because of the difficulties inherent in trying to integrate 
maternity benefits into individual insurance coverage, it would be 
preferable if health insurance tax credits were used to expand access 
to and participation by low-income workers in employment-based coverage 
and other group plans that cover maternity services. In addition, 
allowing tax credits to be used for purchase of COBRA continuation 
coverage through a former employer--as with the Trade Adjustment 
Assistance health insurance tax credits--would protect some individuals 
and families from losing coverage that includes maternity care.
    2.  Allow states the flexibility to extend SCHIP coverage to 
pregnant women 19 and older. Although outside the direct jurisdiction 
of the Ways and Means Committee, extending the State Children's Health 
Insurance Program (SCHIP) to income eligible pregnant women is a 
modest, incremental step that would provide access to maternity 
services for thousands of women.\8\ In 1999, 80 percent of uninsured 
pregnant women (about 340,000) were eligible for Medicaid or SCHIP but 
were not enrolled. If SCHIP were expanded as described, and women 
already eligible for Medicaid were enrolled, nearly 90 percent of all 
uninsured pregnant women would have health insurance coverage.\9\
---------------------------------------------------------------------------
    \8\ The provision to expand SCHIP to cover pregnant women is a 
component of H.R. 3293, ``The Prevent Prematurity and Improve Child 
Health Act'' introduced by Representative DeGette on October 15, 2003.
    \9\ Kenneth E. Thorpe, Jennifer Flome, Peter Joski. ``The 
Distribution of Health Insurance Coverage Among Pregnant Women, 1999.'' 
Emory University prepared for the March of Dimes. April 2001. http://
www.marchofdimes.com/files/2001FinalThorpeReport.pdf
---------------------------------------------------------------------------
    3.  Automatically enroll newborns whose mothers are enrolled in 
SCHIP and provide 12 month continuous coverage. To avoid gaps in 
coverage for medically vulnerable newborns, enrollment of infants born 
to mothers eligible for SCHIP should begin on the child's date of birth 
and continue uninterrupted for at least one year.
Conclusion
    The March of Dimes supports improving access to health coverage for 
the 12.1 million women of childbearing age and 9.3 million children who 
are uninsured.\10\ As the Committee considers alternative ways of 
addressing this complex but urgent problem, we ask that you keep the 
needs of women, especially those who are pregnant, infants and children 
uppermost in mind.
---------------------------------------------------------------------------
    \10\ U.S. Census Bureau, March 2003 Current Population Survey. Data 
prepared for the March of Dimes. October 2003. http://
www.marchofdimes.com/files/census2003.pdf

---------------------------------------------------------------------------
                                 

Statement of Sanford Cloud, Jr., National Conference for Community and 
                                Justice

    Madam Chairperson and Members of the Committee, my name is Sanford 
Cloud, Jr., President and CEO of the National Conference for Community 
and Justice (NCCJ). The NCCJ, founded in 1927 as the National 
Conference for Christians and Jews, is a human relations organization 
dedicated to fighting bias, bigotry and racism in America. With 55 
regional offices in 32 states and the District of Columbia, NCCJ 
promotes understanding and respect for all races, religions and 
cultures through advocacy, conflict resolution and education. On behalf 
of NCCJ, I am pleased to submit this testimony to the House of 
Representatives Subcommittee on Health of the Committee on Ways and 
Means hearing on the uninsured.
    NCCJ has identified racial and ethnic disparities in healthcare as 
one of our core public policy issues. Looking at healthcare in America, 
one can see there is a racial and ethnic divide at the most basic level 
by examining major differences in health insurance coverage by group. 
Some facts to consider when discussing the uninsured include the 
following:

      According to the report Going Without Health Insurance: 
Nearly One In Three Non-Elderly Americans (March 2003) released by the 
Robert Wood Johnson Foundation (RWJ), historically underrepresented 
racial and ethnic groups are significantly more likely to be uninsured 
as compared to White non-Hispanic Americans. During the period 2001-
2002, 52.2% of Hispanics and 39.3% of African Americans were uninsured, 
compared to 23.3% of White non-Hispanics for the same period. Among 
Asian Americans and Pacific Islanders, 17% of children and 24% of 
adults are uninsured. According to the U.S Census Bureau, 25.5% of 
American Indian and Alaskan Natives reported that they did not have 
health insurance.
      According to the same RWJ report, there were an estimated 
39.8 million people in the U.S. population without health insurance in 
year 2000. However, that number increased to 41.2 million in 2001, and 
at least 50% of those are people of color. The problem is compounded 
because those who do have insurance tend be in lower-end plans, forcing 
them to pay greater out-of-pocket expenses and reducing their access to 
medical specialists.
      The disparities in health insurance coverage even exist 
among those who receive insurance through their employers. The report 
by the Henry J. Kaiser Family Foundation entitled Racial and Ethnic 
Disparities in Access to Health Insurance and Health Care (August 2000) 
found that only 51% of American Indians and 43% of Hispanic Americans 
have health insurance through jobs, compared with 73% for White 
Americans.

    NCCJ is addressing this issue through our research, programming and 
advocacy work. Studies, such as the 2002 Institute of Medicine report 
Unequal Treatment: Confronting Racial and Ethnic Disparities in 
Healthcare, show that the many factors contributing to the disparities, 
but can be grouped into three main categories:

      Socioeconomic disparities--It is a fact that 
underrepresented ethnic groups and people of color are 
disproportionately represented in lower socioeconomic ranks, lower 
quality schools, and poorer-paying jobs. These factors lead these 
groups to experience lower rates of insurance coverage and an inability 
to pay for rising costs of health care.
      Cultural differences and bias--The lack of diversity and 
cultural understanding among health care workers contributes to 
stereotypes and bias in our health care providers. Increasing the 
proportion of underrepresented racial and ethnic professionals and 
integrating cross-cultural curricula will assist caregivers to increase 
understanding of diversity and background of their patients and 
increase the trust of the patients in the care and caregiver.
      Education and language barriers--Education and language 
barriers affect the delivery of adequate care through ineffective 
exchanges of information, misunderstanding of physician instructions, 
or poor shared decision making. Language difficulties may also result 
in decreased adherence to medical regimes, low appointment attendance 
and decreased satisfaction with services.

    While much of our work focuses on the non-socioeconomic factors, we 
understand and agree that part of the solution to eliminating 
healthcare disparities is based on increasing access to insurance or 
other affordable healthcare in our communities of color.
    Historically underrepresented racial and ethnic populations 
continue to experience disproportionate rates of morbidity and 
mortality. Reduced access to quality, affordable and culturally 
competent healthcare services are critical factors that impact the 
health of underrepresented ethnic groups and communities of color 
across our nation.
    Public perceptions of the shape, depth and dimension of healthcare 
problems vary dramatically depending on one's own background. NCCJ, in 
partnership with Aetna Inc., conducted a survey that documents the 
public opinion and perceptions of the problem of racism in healthcare. 
The report, Racial and Ethnic Disparities in Healthcare: A Public 
Opinion Update, discusses the results.

      Americans do not see racism as an isolated phenomenon: 
they see it appearing in many aspects of daily life. In healthcare, 64% 
view racism as a problem, with 20% saying it is a major problem.
      41% of African Americans see racism in healthcare as a 
major problem, as do 25% of Hispanics. Only 16% of White Americans say 
it is a major problem.
      Most Americans say difficulty getting healthcare because 
of one's racial or ethnic background is not a problem for people like 
themselves. While only one in five White Americans (21%) see this as a 
problem, fully 45% of African Americans and 34 % of Hispanics do.
      The public is split on how often a person's race or 
ethnic background has an impact on whether one can get routine medical 
care. 40% say it happens very often or somewhat often, while 49% say it 
is an obstacle less frequently.
      A majority of Americans (55%) say people of color receive 
the same quality of medical care as White Americans do. Less than a 
third (28%) disagree; saying African Americans, Hispanics, and other 
racial and ethnic groups receive a lower quality of care. A substantial 
majority of White Americans (63%) see no differences in the quality of 
healthcare, while an almost equally strong majority of African 
Americans (59%) see lower quality care for people of color. Hispanics 
are divided on the issue.

    NCCJ expresses its high hopes and expectations for the 108th 
Congress to address the issue of healthcare disparities. Two bills 
introduced recently, Healthcare Equality and Accountability Act of 2003 
(S. 1833 and H.R. 3459) and Closing the Health Care Gap Act of 2004 (S. 
2091), have the lofty goal of expanding access of quality healthcare 
through increasing access of affordable health insurance and expanding 
the health care safety net. With work we can rid our healthcare system 
of bias, bigotry and racism, and create a system that is more inclusive 
and just.
    Thank you.

                                 

      Statement of the National Federation of Independent Business

    On behalf of the 600,000 members of NFIB, we thank you for allowing 
us to submit testimony today about the worsening health care crisis 
that faces our country, as the small business community is among the 
hardest hit. Since 1986, NFIB members have ranked the cost of health 
insurance as their top concern.
    America's small-business owners, whose businesses create two out of 
every three new jobs in this country, continue to struggle with the 
high cost of offering health insurance to their employees. Because of 
the current structure of the health care industry, too many small-
business owners and their employees do not have access to affordable 
health insurance.
    A recent Census Bureau report showed that over 43 million Americans 
lack health coverage. That is an increase of almost 2.5 million people 
over the previous year and the largest annual increase in more than a 
decade. In 2002, more than 8 out of 10 uninsured Americans came from 
working families, with nearly 70% coming from families with one or more 
full-time workers. It is no coincidence that the uninsured figures 
continue to rise as the cost of insurance continues to skyrocket--
small-business owners face double-digit increases year after year, 
pricing more of them out of the marketplace.
    Many factors contribute to the overall cost of healthcare. Lack of 
competition in the small group market, litigation, and mandates are 
just some of the many cost drivers that have led us to where we are 
today.
    Small employers are forced to purchase in the over-regulated small 
group market, and consequently, workers in the smallest businesses that 
do provide health insurance pay 17 percent more on average for health 
benefits than workers at large companies. There is inadequate 
competition among insurance carriers. A recent GAO survey found 
dangerously high levels of market concentration among large insurance 
companies in the states' small group markets. This concentration 
reduces competition and enhances insurers' underwriting gains; as 
competition decreases, prices increase.
    We must also address the growing cost of benefit mandates. 
Requiring health insurance to pay for every medical treatment and 
service covered by state mandates drives the cost so high that the 
coverage is unaffordable, and therefore, unrealistic. More mandates 
mean higher costs. The Council for Affordable Health Insurance says 
that since January 1970, mandates have increased 25-fold.
    Something must be done on the front of medical malpractice 
litigation. The cost of malpractice lawsuits has soared in recent 
years, pushing up insurance premiums and forcing physicians out of 
business.
    A government run healthcare system is not the solution, however, it 
is still very much on the minds of some in Congress. The devil is in 
the details, whether it comes in the form of government-run health care 
or mandates and minimum benefit packages forced on the backs of small 
employers.
    The problems facing small-business owners, their employees, and 
families must be addressed as part of the debate. We understand that no 
one solution will help all of the 43 million uninsured, and, therefore, 
we propose a multi-faceted approach that will help move countless 
numbers of Americans off the rolls of those without health care 
coverage. We are aggressively urging enactment of legislation to permit 
Association Health Plans--AHPs--to operate nationwide. We support the 
recently enacted Health Savings Accounts (HSAs), coupled with a high 
deductible health care plan, as a way for small businesses and 
individuals to lower their health care premiums. Along with HSAs, 
individuals should be allowed to deduct 100 percent of their high 
deductible health plan premiums, if they are not subsidized by an 
employer plan already. Representative Crane's newly introduced bill, 
H.R. 3901, would allow for this. Lastly, NFIB supports allowing 
individuals to rollover Flexible Spending Account (FSA) money from year 
to year as well as allowing individuals to use tax credits for the 
purchase of health insurance or toward lowing the cost of their 
employer-sponsored health insurance plan premiums.
    Association Health Plans would allow small-business owners to band 
together across state lines through their membership in bona fide trade 
and professional associations to purchase health care for their 
families and employees. Organizations such as NFIB, the U.S. Chamber of 
Commerce, Associated Builders and Contractors, and the National 
Restaurant Association would be able to offer insurance to their 
members.
    Association Health Plans will make health insurance more affordable 
for small businesses. The Congressional Budget Office has estimated 
that small firms obtaining health insurance through AHPs will realize 
premium reductions of 13 percent on average. In fact, reductions range 
from 9 percent to 25 percent. It is estimated that as many as 2.1 and 
up to 8.5 million individuals--employees and their dependents--will 
obtain employer-sponsored health care insurance for the first time due 
to enacting AHP legislation.
    HSAs will also help reduce the number of uninsured Americans by 
allowing small businesses more choice in the current small group 
market. For example, some small businesses have saved up to 42 percent 
when they have chosen a Medical Savings Account (MSA) over traditional 
insurance products; others have saved up to 60 percent using a Health 
Reimbursement Account (HRA). Additionally, individuals who have 
catastrophic health care coverage with a health savings account should 
be allowed to deduct 100 percent of the premiums from their taxes. 
HSAs, along with 100 percent deductibility, will provide small 
businesses with more accessible, affordable options in the health 
insurance market.
    According to a 2001 survey, 80 percent of NFIB members believe that 
individuals who contribute to tax-free savings accounts for health care 
should be allowed to carry over any unused portion. Individuals should 
be allowed to rollover any unspent funds tax-free from year to year. 
The current limitation of ``use it or lose it'' needs to be changed to 
allow workers to take control of health care costs and prepare for the 
future.
    Lastly, small business owners have told us they support tax credits 
for individuals. With tax credits, small business owners and employees 
without insurance currently would be more likely to purchase coverage, 
leaving fewer people without insurance. The credit should be created in 
a manner that it can be used toward either an individual policy or an 
employer-sponsored policy. This would provide an opportunity for 
choice--an employee can purchase a policy based upon his/her individual 
health care needs. Health insurance policies purchased with the 
proposed tax credit would also be portable, meaning employees could 
have the benefit to carry the policy with them to another job and keep 
the same providers of care through many years, rather than changing 
providers with each new job.
    We cannot afford to wait for the ``perfect'' solution. There is 
none. The longer we delay, the more we will hear the calls for 
government-provided health care, and certainly, that is not the perfect 
solution.
    Thank you for holding this hearing that continues the discussion on 
how to solve the problem of the uninsured.

                                 

    Statement of Martin E. Neltner, Neltner Billing and Consulting, 
                         Independence, Kentucky

         Focus on Americans Who Lack Health Insurance Coverage

EXECUTIVE SUMMARY

Circle of Life and the ``Scars'' of the Health Care System
    One can sum up the health care crises relating to the uninsured as 
told by a story where one day my friend the farmer went to see his 
doctor for a physical. Now this person was never sick a day in 60 
years. The farmer noticed that everyone was so busy that he felt bad 
when they called him back. After all he felt good with the exception of 
a small tingle in his arm. Because the clinic was busy no one would 
take the time to ask the pertinent questions about his health. After 
all he looked healthily so why waste time to ask questions. Two days 
later my friend the farmer had a stroke that ended up costing the 
system over $100,000. So instead of the doctor spending 40 minutes and 
billing $ 150 he spent 10 minutes and billed $60. So the circle of life 
was broken because now my friend is laid up and he cannot work. His 
wife can't work because he needs someone to care for him. No taxes were 
collected on wages and he could not afford his health insurance.
    The insurance company hassle factor of putting up roadblocks to pay 
appropriately backfired and now we have another person who is 
uninsured. My friend will never be insured again because now he has a 
pre-existing condition. So if he is able to purchase health insurance 
it will be costly and it will not cover this chronic condition that was 
caused by to busy a doctor who is not paid appropriately for the 
service that in the end cost everyone unnecessary costly health care. 
Had the doctor spent the time, they would have asked the question ``do 
you have any tingling'' the answer of yes would have prompted testing 
and discover of his risk. Preventive measures would have occurred and 
my friend would have return to work and continue paying his fair share 
of being a productive citizen.
    There are many ``Scars'' in the health care system that is causing 
the uninsured problem. All which are easily repaired. What is needed is 
for the ``Lion King'' to return to restore confidence, accountability 
and responsibility. We need to invoke the principles of the

                            ``OZ Principle''

    The recent major increases in the premiums by the insurance 
companies are unjustified. 35% in the past two years alone suggests an 
out of control system. Health care is the only industry where there is 
no accountability and everyone has lost his or her focus. Hospitals are 
still inefficient. Doctors have lost confidence and don't care anymore. 
It's all about the money. After all they just spent 15 years in school 
and residency, fellowship and paid dearly with long hours of work with 
little pay. Now they are strapped with school debt, raising families 
etc. The average mean salary for a primary care doctor is $90,000. That 
is an insult to the time they spent learning to care for the sick.
    West Virginia along with other states experience a major crises in 
malpractice. In Cincinnati, Ohio physicians closing up their practices 
leaving town because the managed care companies would not increase the 
pay to doctors or hospitals. A large settlement by one insurance 
company will pay Cincinnati doctors their increases. The other two 
payers are doing nothing and the suits continue. Charges against 
insurance companies for Racketeering, low pay, timely payments are 
increasing all over the country. CLEAN CLAIMS ACT. In the last five 
years virtually every state has had to enact legislation to force 
insurance companies to pay promptly. The legislation is called ``Clean 
Claims Act''. The problem is the insurance companies have figured out 
how to get around the term ``clean claim so the state legislatures had 
to return to put teeth into the legislation.
                                 ______
                                 

                         The Problem Summarized

    1.  Physicians have lost confidence in the system. I don't care and 
the attitude is ``they cheat me so I will cheat back''
    2.  Hospitals should stay with core business and learn to manage 
their resources well. Stop the kickbacks and striking deals in secret 
joint ventures that cause unnecessary increases in health care cost.
    3.  Patients take health care for granted. Give me a pill to fix my 
problem. The emergency room rotation of crime, drug addicts, etc. is 
killing our resources.
    4.  Every one is sue happy. We need tort reform desperately.
    5.  The coding system that is used to pay providers invites abuse. 
It is complex and is designed to send in a 5-digit number and a 
paycheck appears with no monitoring. Medicare is the only insurance 
payer that has instituted audits to verify services provided.
    6.  If hospitals and doctors would collect the small dollar 
balances health insurance cost could be reduced by 10% to 20% alone. 
Most providers collect only 50% of what they charge.
    7.  Stop this nonsense of the doctor dictating a note that creates 
worthless points to judge the level of care. Ask a doctor and he will 
tell you 90% of the documentation created in the chart is meaningless. 
The national coding guidelines managed by the AMA to describe physician 
complexity in the visit service called the ``Evaluation and 
Management'' is causing worthless documentation that cannot tell you 
much about the patients symptoms and outcome.
    8.  Resolve the problem of allowing aliens or illegal residents to 
tax our health care system. The attitude is if you are sick come to 
America and they will care for you for free.
    9.  Pushing pill on TV is out of control. I don't need the V drug
                                 ______
                                 

                              The Solution

                   Accountability and Responsibility

Practicing the OZ Principle ``Getting Results Through Individual and 
        Organizational Accountability \1\
---------------------------------------------------------------------------
    \1\ The OZ Principle, Roger Connors, Tom Smith, Craig Hickman.

     1.  Restore confidence in the providers who control the spending 
of the health care dollars by paying more to evaluate the patient 
symptoms. Make the providers justify their care in a simple 
documentation process that promotes positive outcomes. I can show you 
how this would work.
     2.  Patients must be held accountable for their health. Employers 
and employees should work together to reduce health care risk.
     3.  Counter the pushing of pills on TV with more how to care for 
your health in a natural way.
     4.  Use Medicare as a model for insurance companies to follow in 
claims processing. Their system is the best.
     5.  Better tort reform.
     6.  Medicare should go into the claims processing business. 
Insurance companies could contract with Medicare to use their system. 
Here is an approach based on fact and outcomes. This will offset 
Medicare administrative cost.
     7.  Berlin Wall Theory. Require insurance companies to justify 
their cost. Require meaningful audits of insurance company books. Open 
the door to hearing about complaints from providers and allow 
meaningful dialogue to stop abuse, pay promptly and restore confidence 
between the two parties looking over the Berlin Wall.
     8.  Allow a simple process for providers to report health care 
payment abuse. The state department of insurance is worthless.
     9.  Encourage employers to install wellness programs for their 
employees.
    10.  Encourage employers to take positive action and for God's sake 
we should not wait for the government to solve our health care problem.

    The only way to insure those with out insurance is to lower the 
premium and spread the risk among a lot of people. This is how the 
system worked before 1984. Ask several insurance companies to pull 
their resources, and insure those with out insurance. Work with 
providers to install meaningful systems that reward for symptom 
management.
                                 ______
                                 

                             Other Comments

     1.  The physician's pen can be the best tool to curtail health 
care cost.
     2.  Pay the physician appropriately for spending time evaluating 
the patient symptom and developing a plan of action.
     3.  Stop these foolish audits that derive no benefit. Physicians 
are scared to code appropriately.
     4.  The system encourages doctors to see more patients in volume. 
Its all about quantity and not quality. Refer to graph below.
     5.  Profiteers in the industry that built small insurance plans 
100,000 or less that were purchased and repurchased causing more cost 
in the system.
     6.  The charge for the service commonly referred to as the single 
fee schedule. The phony dollar of what the service is worth. The 
average industry collection rate.

         a.  Hospitals are paid 30% to 50% of gross charge.
         b.  Doctors are paid 30% to 60% of the single fee schedule.

     7.  NO ONE IN THE HEALTH CARE SYSTEM KNOWS WHAT IT COST TO PROVIDE 
THE SERVICE. NO ONE KNOW S WHAT THEIR PROFIT MARGIN SHOULD BE?
     8.  Insurance company claims processing is a shamble.

         a.  More insurance companies over pay than what you can 
imagine. Doctors and hospitals play catch me if you can.
         b.  Referrals and authorizations. This system created by the 
insurance companies is become a legal way to steal from the health care 
provider.
         c.  THE AMA CODING SYSTEM INVITES ABUSE.

     9.  Patients demanding more but will not take care of themselves.
    10.  As an employer every time I try to create a system that 
promotes healthily life styles I get bomb bared with obstacles by the 
government employees rules that say I cannot do this or that because it 
discriminates against some one else in the organization.

         a.  As an employer of 84 staff here are my stats.

     i.  40% are over weigh.
     ii.  40% eat and drink.
     iii.  10% drink excessively after work.
     iv.  10% are chronic depressed.
     v.  5% have worthless spouses who milk the health care system
     vi.  65% of my employee smoke
     vii.  There are approximately 10 healthy people in the 
organization.
     viii.  Absentee is very high, kids are always sick or employee is 
sick. I have ten employees to cover for the 80 employees who call in 
sick.

                                                  Office Visit
----------------------------------------------------------------------------------------------------------------
                                                AMA
                                            recommended    Visits per     Physician                    Consider
                                              time per       hour 60       time per     Compared to    this the
                                               visit                        visit                       range
----------------------------------------------------------------------------------------------------------------
Level one                                        5           12               3            2.4               ok
Level two                                       10            6               5            4.8               ok
Level three                                     15            4               8            7.2               ok
Level four                                      20            3              10            9.6               ok
Level Five                                      40            1.5            15           19.2               ??
----------------------------------------------------------------------------------------------------------------


                                     As it relates to the RVU of each visit
----------------------------------------------------------------------------------------------------------------
                                                     AMA recommended
                                                      time per visit     Physician time 48%     Staff time 52%
----------------------------------------------------------------------------------------------------------------
Level one                                                   5                    2.4                  2.6
Level two                                                  10                    4.8                  5.2
Level three                                                15                    7.2                  7.8
Level four                                                 20                    9.6                 10.4
Level Five                                                 40                   19.2                 20.8
----------------------------------------------------------------------------------------------------------------

    So it appears that a physician could see double the number of 
patients as recommended by the AMA guidelines since in reality his 
staff is assisting with the evaluation to the degree his efficiency is 
improved and more billable patients per day are realized.

----------------------------------------------------------------------------------------------------------------
                                                                Level II    Level III
                                                       Hours   phy time 5     Phy 7     Level IV 10  Level V  15
----------------------------------------------------------------------------------------------------------------
Patients per hour                                                      12            9            6            4
  8 till 12                                                4           48           34           24           16
  1 till 5                                                 4           48           34           24           16
    Total patients per day                                             96           69           48           32
Payment per service                                                    34           48           75           91
Payment per day                                                 $3,264.00    $3,291.43    $3,600.00    $2,912.00
Works 4 days a week                                                     4            4            4            4
                                                               $13,056.00   $13,165.71   $14,400.00   $11,648.00
Weeks worked                                                           48           48           48           48
                                                              $626,688.00  $631,954.29  $691,200.00  $559,104.00
Take home rate                                                       0.52         0.52         0.52         0.52
Take home                                                     $325,877.76  $328,616.23  $359,424.00  $290,734.08
----------------------------------------------------------------------------------------------------------------


                                 
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