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



                                                   S. Hrg. 102-000 deg.

                    THE RISING COST OF HEALTH CARE

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

                             FIELD HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

               BUCKHANNON, WEST VIRGINIA, AUGUST 25, 2003

                               __________

                           Serial No. 108-30

                               __________

         Printed for the use of the Committee on Small Business


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

                                 ______

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                            WASHINGTON : 2003
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Jones, Cynthia B., West Virginia State Chamber of Commerce.......     3
Elliot, Brian, McGraw-Elliot Media Group.........................     6
Williams, Robert L., West Virginia Farm Bureau...................     8
Butch, James N., Eagle Research Corporation-Automation Solutions.    10
Hawks, Jean, Fort Hill Child Development Center..................    12

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    23
    Capito, Hon. Shelley Moore...................................    25
Prepared statements:
    Jones, Cynthia...............................................    34
    Elliot, Brian................................................    42
    Wiliams, Robert..............................................    47
    Butch, James.................................................    53

 
 FIELD HEARING ON THE HIGH COST OF HEALTHINSURANCE ON SMALL BUSINESSES

                              ----------                              


                        MONDAY, AUGUST 25, 2003

                   House of Representatives
                                Committee on Small Business
                                                     Buckhannon, WV
    The Committee met, pursuant to call, at 9:30 a.m., in 
Conference Room B, Physicians Office Center, St. Joseph's 
Hospital, Buckhannon, West Virginia, Honorable Don Manzullo 
[Chairman of the Committee] presiding.
    Chairman Manzullo. Well, good morning. What a beautiful day 
Mrs. Capito. The air is a lot cleaner here than Washington, and 
in more ways than one. Definitely. It's a real joy to be here 
this morning.
    We continue with the Small Business Committee having a 
series of hearings around the country with regard to the 
affordability and availability of health care insurance. Of the 
43 million Americans without health insurance, over 60 percent 
are small business people and their families, employees of 
those business. And according to Milliman USA, the nation's 
largest health care actuarial company, 40 States and the 
District of Columbia have virtually no small business health 
insurance market. And one of those States is the State of West 
Virginia. People just are getting out of the business of 
selling it.
    And as you go across the country, for example in South 
Carolina, we will be having a second hearing down there in 
Congressman DeMint's district. We were there about two years 
ago continuing with the prices that goes on. And according to 
South Carolina Department of Insurance 8 out of 10 uninsured 
individuals are members of working families. So we see the gap 
continues.
    And at one time the employer, at least, was an anchor where 
you could get health insurance. And now it's becoming 
increasingly difficult.
    The National Association of Self Employed reports in a 
recent survey, 7 out of 10 small businesses do not provide 
health coverage to their employees and costs are cited as the 
chief reason for this trend.
    So we work on various solutions in Washington including 
association health plans, different types of deductibility and 
tax credits to make health care insurance more affordable to 
small employers and their employees. Well, now we are in West 
Virginia and the problems here are no different than the 
problems of the nation.
    Chairman Manzullo. Congresswoman Shelley Moore Capito is a 
valuable member of our Small Business Committee.
    And the only rule that we have here is try to keep your 
testimony to 5 minutes, more or less, but usually more. And 
just 5, 6, 7 minutes, that is okay. We have to be up in 
Pittsburgh later on this afternoon. Would like to leave here a 
little after 11:00 or so. So we have about an hour and a half 
to have the hearing.
    The way it will work is each of you testify. Then at the 
end of that period of time we will be asking you questions 
here. And depending on how much time we have left, we could 
also, perhaps, do some audience participation.
    We are going to leave the record open for 10 days. Anybody 
who wants to submit any testimony to be made part of this 
record, you can get it to our office. Here is the rule: It 
cannot exceed 2 pages typewritten, single spaced in 10 point 
type. That is elite type, okay? No footnote type because then 
we cannot read it. But if you keep it to 2 points. And then, 
Shelley, maybe they could just get it into your office? Will 
that be the easiest thing to do?
    Ms. Capito. That is fine.
    Chairman Manzullo. Do you want to give them a fax number, 
or what would be the best place that they could send it to?
    Ms. Capito. I have my cards here. Let me get my glasses for 
my 2 point type.
    Chairman Manzullo. Okay.
    Ms. Capito. Fax number 202-225-7856. Christa Sheets in the 
back from our Washington office, who a lot of you know, and 
then also Ann McCusky, Mary Margaret Chandler, Phillip Turner 
and Conrad Lucas. Where is he? There he is in the back. So we 
should have you covered, but we do have cards that have all of 
our available phone numbers.
    Chairman Manzullo. Just send it to that fax number and ask 
that it be made a part of the testimony of this hearing.
    And I will give the Chairman's gavel to Mrs. Capito and ask 
you to chair the meeting.
    Ms. Capito. Thank you. Love that.
    Okay. Well, I really want to thank Chairman Manzullo for 
coming to West Virginia, to Buckhannon, to Upshire County to 
address an extremely important issue to all of small business, 
in particular the small business I care most about, which is 
our West Virginia small business.
    And we have in the course of our small business committee, 
we have heard many of the trials and tribulations of conducting 
small business, but when I went to visit one of my small 
businesses in West Virginia, that would have been Eagle 
Research, Mr. Butch asked me to come down and wanted to really 
lay out the problems and the difficulties that he was having 
with his health insurance, securing health insurance for his 
company. So that was sort of the genesis when you and I got 
together and you accepted the invitation to come to West 
Virginia very graciously. Mr. Butch was really the one in the 
back of my mind. And I wanted to thank him and everyone for 
coming. Some of you have driven several hours, and I appreciate 
that.
    I know you have a great appreciation for the Second 
Congressional District because you are only half way through it 
when you start in Charleston and come here.
    I am going to make just a brief opening statement along the 
lines of what the Chairman said. Small businesses make up a 
considerable percentage of our West Virginia workforce, but 
unfortunately less than half of America's small businesses 
offer health benefits to their employees and we all know why. 
And the high cost. This leaves out a huge portion of our 
working population that cannot afford health coverage for their 
families.
    We have worked on a bill in Congress, the Associated Health 
Plans Bill which would allow small businesses and other groups 
to pool their resources and purchase quality coverage. As a 
result, small businesses would be able to enjoy the same 
uniform regulation and economies of scale and administrative 
efficiencies that large companies have. It is believed it could 
reduce the ranks of the uninsured by as many as 8.5 million 
people in the United States, which is significant.
    Hopefully, this legislation has passed the full House. We 
had a hearing on it in our Small Business Committee at which 
Secretary of Labor Elaine Chao was present. The Administration 
is very much behind this plan, and we believe it will offer at 
least a ray of hope for our small businesses. But we know that 
no one solution is going to help the millions of uninsured.
    The Small Business Committee is dedicated to exploring a 
variety of options to help small business, and I look forward 
to the continuing dialogue with our small business owners.
    I would like to stop here and thank Mr. Wayne Griffith for 
the facility, and all of those at Saint Joe's for their 
hospitality. And a wonderful venue to conduct such a meeting. 
All of this will be on the record, will become part of the 
Federal record and, as the Chairman said, additions can be 
made. And I think it is significant.
    So I was going to start with Ms. Jones. Normally I would 
go--tells me to go this way, but my notes has me going this 
way. So I will stick with my notes.
    I want to recognize Cynthia Jones. She is a partner in the 
law firm of Steptoe & Johnson, and the leader of the firm's 
employee benefits practice. For over 18 years she has 
represented and counseled employers on a variety of employment 
benefit issues, including those related to medical benefits and 
group health insurance. She also serves on the Employee 
Benefits Committee of the Tax Labor and Insurance Law Sections 
of the American Bar Association.
    Her testimony today is on behalf of the Small Business 
Subcommittee of the West Virginia Chamber of Commerce, of which 
she is a member. Welcome.

    STATEMENT OF CYNTHIA B. JONES, ESQUIRE, SMALL BUSINESS 
     SUBCOMMITTEE OF THE WEST VIRGINIA CHAMBER OF COMMERCE

    Ms. Jones. Thank you.
    Chairman Manzullo. I am going to be the official 
timekeeper.
    Ms. Jones. Do I get a little card?
    Chairman Manzullo. Well, what I am going to do is I am 
going to put a 4 on here. So, you know, since we make up our 
own clock in Washington, you see a 4 you got to 2 minutes. That 
is close enough to 5. Our official 15 minute vote is officially 
17 minutes.
    Ms. Capito. At least. At least.
    Chairman Manzullo. So we change the clock.
    Ms. Jones. Well, I will try to limit myself to 5 minutes. 
Because you know for lawyers that is sometimes difficult.
    On behalf of the West Virginia Chamber of Commerce and its 
Small Business Subcommittee, I am pleased to submit the 
following statement. In West Virginia, the Chamber is known as 
the voice of business. And primarily when we speak about 
business and the economy in the State of West Virginia, we are 
talking about small businesses.
    The U.S. Census tells us that just over 89 percent of firms 
in this country are businesses that employed fewer than 20 
people. Nearly one out of five employees in this country, or 18 
percent, work for companies that, in fact, have fewer than 20 
people.
    In West Virginia, again according to the U.S. Census in 
1999, small businesses employed 298,680 workers or 54.8 percent 
of the State's workers. In 1999, West Virginia had 
approximately 32,813 small business.
    As the West Virginia economy increasingly turns more toward 
entrepreneurial businesses, high technology and service 
oriented businesses, we fully expect that the percentage of the 
economy represented by small business will continue to 
increase.
    I would like to turn to why small employers want to offer 
health coverage. Back in the early 1970's Congress made a 
comprehensive review of employee benefit programs sponsored by 
employers. That initiative eventually led to the enactment of 
the Employee Retirement Income Security Act of 1974, or as we 
know it most frequently, ERISA. ERISA, along with the Internal 
Revenue Code, is the primary means of regulating the employer-
provided group health benefits in this country.
    Although we will celebrate 30 years of ERISA next year, for 
an employee benefits lawyer like me, that's an important 
landmark. Congressional policy that was embodied in ERISA 
continues to be the same driving force behind the way in which 
businesses offer group health benefits.
    ERISA is organized around one concept, and that is that 
employers should voluntarily provide group health benefits and 
other benefits to their employees. The primary legal incentive 
for employers to sponsor group health plans are really twofold. 
First of all, tax incentives found in the Internal Revenue Code 
and also, importantly, the existence of a single comprehensive, 
uniform system of federal regulations that replaced the 
patchwork of pre-ERISA insurance, primarily insurance 
legislation that had been enacted by the State. Before ERISA, a 
small business person located on the borders of West Virginia 
that would do business in both West Virginia as well as in 
other States had to employ someone to focus on not one single 
system of regulation, but a patchwork of various States. You 
work in 3 States, you have 3 sets of regulations.
    According to a 2002 survey by Employee Benefits Research 
Institute/Consumer Health Education Campaign and Blue Cross/
Blue Shield about 92 percent of the employers offer group 
health coverage because they simply feel that it is the right 
thing to do. We, at the Chamber, think that West Virginia 
businesses want to offer group health coverage for much of the 
same reason. However, when you look at small business and 
particularly small business in West Virginia, both law and 
market forces provide some powerful disincentives to employers 
who want to sponsor group health plans.
    Why do not employers in West Virginia offer coverage? Well, 
the first one is obvious, and that is cost. And we all know 
that cost is a problem. It is a big problem in the State of 
West Virginia. According to an article in The State Journal of 
September 2, 2002, small businesses that provide insurance for 
employees can expect to pay $16,272 on average for health care 
by 2007. That's almost double what they are paying now.
    Same article estimates that by 2008 West Virginia families 
can be charged $18,000 or more, and this is not for cadillac 
coverage. This is for modest health care coverage.
    State Chamber has estimated on an informal basis that 
health care costs for some employers amounts to about 30 
percent of payroll, and in some cases can go as high as 40 
percent of payroll.
    Let me give you a good example of what we see in West 
Virginia. I work with a small manufacturing company in the 
Northern Panhandle. The company has about 50 employees, they 
offer group health coverage through a group health plan. 
Through an HMO. They are a union company, so they have a 
collective bargaining agreement. And the labor agreement as to 
provisions relating to health care. One is that the company 
will provide coverage for retirees until the retiree reaches 
age 65, and the other is that the amount of employee 
contributions specified in the agreement, the difference 
between what the employee pays and the premium is the 
employer's responsibility. So any increase in premium is the 
problem of the company, not the employee.
    Rates were relatively stable for this company throughout 
the mid-90's. There was one significant rate increase in 1991. 
In 1997 through 2000, monthly rates were increasing about 12 
percent. Not particularly wonderful, but not particularly 
catastrophic.
    In July 2001, the ceiling fell in. The company was informed 
that beginning September 1, 2001, its employees would be 
separated into two rate groups; active employees and retirees. 
The monthly rate for actives went up by 19 percent. The 
increase for retirees went by 169 percent. The company, of 
course, remained obligated under the labor agreement to pay 
everything above what the employee specified premium in the 
contract, and that was about 4 percent. So, again, most of the 
increase was falling on the heads of that company.
    The company renewed its contract with the HMO for 2001/
2002. In July 2002 it learned that the rate for the following 
one year period would be increased by 121 percent for actives 
and 69 percent for retirees. As it happened, during this period 
of extraordinary rate increases, the group had a single 
catastrophic loss, one single claim that amounted to half a 
million dollars in medical expenses. Although under federal law 
the company cannot take that into account, the insurance 
companies certainly do that.
    My time is up. I would just like to say that there are many 
other issues that face small employers in West Virginia 
including concerns about the number of uninsured workers where 
those costs are being passed on indirectly to small businesses.
    And I will submit a written statement.
    [Ms. Jones' statement may be found in the appendix.]
    Chairman Manzullo. All the written statements will be a 
made a part of the record. What I would encourage the witnesses 
to do is to, 5 minutes pass very quickly, as you know.
    Ms. Jones. Right.
    Chairman Manzullo. And being a lawyer, I also understand 
that 5 minutes converts to 10 minutes in a hurry.
    Get right to the heart of your testimony. Start there. 
Because we want to hear the anecdotal stories. I mean, for 
example the last part was--all your testimony was excellent, 
but the last part is worth 30 hits around the head. So if you 
could focus on where the hammer is coming down right away, that 
would help us.
    Ms. Capito. Thank you, Ms. Jones.
    Next I would like to recognize Mr. Brian Elliott. Mr. 
Elliott is the general sales manager for McGraw-Elliott Media 
Group, Media Properties, which include WBRB, WBTQ, B93, WELK, 
K95, WBUC AM and TV3 that reach audiences in Upshire, Randolph 
and surrounding counties. The company employs 25 to 30 full 
time and part-time employees.
    Thank you, Mr. Elliott.

     STATEMENT OF BRIAN ELLIOTT, McGRAW-ELLIOTT MEDIA GROUP

    Mr. Elliott. As member of the media, if I start with a 
signal like this. I understand that.
    My company has a health insurance plan called ``Super Blue 
Plus'' which has a tremendous amount of irony in that we find 
it to neither be super nor a plus. Quite frankly, the annual 
increases in premiums are making us all just a little blue.
    As owner and Vice President of Sales of a local family 
owned business, I'm thankful for the opportunity to speak 
today.
    I have three top areas of concern: The ability to retain 
and attract quality employees; how we as a small business are 
being penalized by the insurance industry, and; our inability 
to get competitive quotes.
    As a married man and a proud new father of twins, I have 
recently been faced with the rising costs of insurance for our 
family. My premium next month will go from $274 to $747. With 
very few options available to me, I am faced with the decision 
of putting my entire family on this plan and reduce my cash 
flow at a time when my costs are rising. This very decision is 
one that my employees have made time and time again.
    Unfortunately, 44 percent of our company has chosen to go 
without health care insurance. This makes them a little high 
risk for us in that we know that they are keeping their open 
for another opportunity, perhaps with larger companies that can 
afford to give them a better plan with lower premiums.
    When trying to attract employees I find we are at a 
disadvantage competing for the main breadwinners of the 
families. These people are attracted to us in that they put a 
certain level of commitment and dedication to their careers. 
Well, due to the high cost in part to insurance, we cannot 
provide the wages that offset the high cost of insurance when 
they become eligible for insurance. As a result, we are often 
hiring the second breadwinner of these families and new, young, 
inexperienced employees that can opt and not go with insurance 
for a period of years in lieu of the higher net income they can 
get.
    Fortunately, we have been able to uncover some talent in 
these categories. But, still, we have a high amount of turnover 
in our company, and with a company of our size it is difficult 
to rebound quickly due to the time and cost of all the training 
these types of employees.
    Currently we have 27 full-time employees, only 6 of them 
are on the company plan, which leads me to my next point. We 
are being penalized by our insurance company for being a small 
business with only 6 insureds.
    Consider, if you will, the example of a large company with 
500 people in the pool. If one of these employees should be 
diagnosed with, say, cancer the overall effect is spread among 
many and barely felt by the other participants. However, in a 
small company with a pool of, say, 6 should one person need 
surgery and be in the hospital for a week. The overall entire 
pool of our employees would suffer from the skyrocketing 
premiums in the next coming year.
    This happened to us in 1997 when a gentleman had to have 
triple bypass heart surgery. Everything went well, but he was 
of the retirement age and chose not to continue working. 
Unfortunately, it was those left in the company and those who 
were the future employees who paid for that particular surgery.
    Another reason our company is being penalized is due to the 
fact that six of these employees that are in the pool, four of 
them are of the age of 50 and over. As a matter of fact, 
Mountain State Blue Cross/Blue Shield tells us that they pay 
out 70 percent of what we put into the plan annually. As a 
result, we have been incurring approximately 25 percent annual 
increases in insurance for the past 5 years. As a small 
company, this is way out of proportion with any cost of living 
that we could possibly provide to these people.
    Not only does having a small pool of insured employees 
penalize us, but it hinders us from obtaining competitive 
quotes from other companies.
    Where does a company our size turn for reasonable health 
care coverage? With more and more insurance companies pulling 
out of the State, our options are becoming fewer by the month. 
Allow me to read a short memo from Steve Nafe, President of 
Deep South Insurance Company, that is addressed to all West 
Virginia agents. This might shed some light on why we are left 
with fewer options.
    It says: ``Last November ``Deep South announced that we 
would no longer be writing new business in West Virginia. Our 
decision was based upon our poor underwriting results in the 
State coupled with the very difficult legal environment that 
the State presents.
    Last week a survey released by the United States Chamber of 
Commerce assessed the fairness of liability systems for all 50 
States. States were evaluated by corporate general counsels and 
their senior litigators. The worst perceived States included 
Mississippi, Alabama, Louisiana, Texas and West Virginia.
    The study asked corporate attorneys what they thought was 
the most important issue state policy makers...should focus on 
to improve their State's litigation environment. The leading 
two issues were tort reform and punitive damages. Certainly 
these issues joined by the bad faith venue that West Virginia 
presents, curtail economic development and deter a health 
insurance marketplace.''
    The end result of decisions like this one from Deep South 
leaves companies like ours with fewer competitive options to 
leverage lower rates. We are forced to put up with increase 
after increase, in some cases made to fell fortunate that 
anyone would provide us with coverage at all.
    It is clear that West Virginia's small businesses may have 
challenging issues, but for us the increased cost of health 
care is right at the top. When a company cannot retain and 
attract key personnel, is being penalized for the size of its 
workforce and is running out of competitive options to save 
money, it makes it difficult to stay optimistic about a healthy 
business environment and future opportunities.
    I thank you for the chance to speak this morning. I hope 
these comments will stimulate conversation and debate on how we 
can meet these challenges.
    As a business owner that plans on staying in West Virginia, 
we need insurance that lives up to its name is super and a 
plus.
    Thank you.
    [Mr. Elliot's statement may be found in the appendix.]
    Ms. Capito. Thank you, Mr. Elliott. Appreciate that.
    Next we have Mr. Robert Williams. Mr. Williams is the 
Executive Secretary for the West Virginia Farm Bureau.
    The West Virginia Farm Bureau is a nonprofit member 
organization that represents over 16,000 families in West 
Virginia. Their mission is to provide leadership, education, 
training, information and economic services to county farm 
bureaus, to enhance the quality of life for their members. The 
West Virginia Farm Bureau is affiliated with the American Farm 
Bureau Federation that represents farmers and rural folks 
throughout the United States.
    Welcome, Bob.

  STATEMENT OF ROBERT L. WILLIAMS, EXECUTIVE SECRETARY, WEST 
                      VIRGINIA FARM BUREAU

    Mr. Williams. Thank you, Chairman Manzullo and 
Congresswoman Capito for taking the time from your schedules to 
hear testimony about the problems facing small business in 
acquiring health insurance for its workers and in the case of 
the West Virginia Farm Bureau our members.
    As Congresswoman Capito mentioned, the West Virginia Farm 
Bureau represents over 16,000 families as members of our 
organizations, and it is our belief that there is no more 
important small business in the United States than the family 
farm. There are 20,500 family farms in the State of West 
Virginia and over 2.1 million farms in the United States. And I 
understand, Mr. Chairman, that you are a member of that class 
of farmers in the United States and understand some of these 
issues.
    In West Virginia, and I suspect throughout the United 
States, most of the farms are managed by families in which one 
of the family members works off the farm. When questioned, many 
will respond that it is not the money that forces them to seek 
off farm employment, but the need for the benefits. Farming can 
be a dangerous occupation and health insurance is a necessity 
for those families. Heavy equipment, large animals, hard work, 
exposure to various chemicals and dusts make health insurance a 
necessity for farmers.
    Farms continue to operate on low or non-existent profits. 
And I might suggest that one of your other committees in 
Congress may want to look at that issue somewhere down the road 
regarding the profits available to the family farm.
    The lack of disposable income makes a non-insured health 
emergency a crises for the family in terms of personal injury 
and concern, but even a short, non-insured stay in the hospital 
could easily lead to financial ruin for a small farmer. The 
risks of being uninsured are great.
    While working for a previous employer, I had a farmer offer 
to work for that agency for no salary if he could qualify for 
the health insurance benefits.
    As we sit here today, there's a young Farm Bureau member 
about 45 years old in the hospital at West Virginia University 
with a very serious illness and no insurance coverage. His 
family is considering selling the farm, or at least a portion 
of it, to pay those bills.
    In West Virginia, individuals who do not qualify for 
Medicare cannot afford to purchase health insurance coverage. 
Premiums for a single-family plan can exceed $1100 a month, an 
amount out of reach for many full-time farmers. Those 
individuals often look to organizations like the Farm Bureau 
for help with these problems. The West Virginia Farm Bureau's 
experience with group health insurance plans is dismal. We have 
offered several plans in the past. We have met with failure, 
disappointment and huge liabilities for our policyholders.
    In 1981, health insurance coverage was offered to the West 
Virginia Farm Bureau members through an agreement with Farm 
Family Insurance through their Member Health Plan. This plan 
failed when Farm Family Insurance withdrew from the health 
insurance market in 1994.
    Our organization then moved to John Alden Health Insurance 
which accepted most of the members, but not all, leaving some 
without insurance through no fault of their own, but because 
they were a poor insurance risk.
    In 1996, John Alden withdrew from the health insurance 
business in West Virginia, again leaving our members without 
coverage.
    Later in 1996, the West Virginia Farm Bureau entered an 
agreement with Continental Casualty Company doing business as 
the CNA Insurance Company and with the International Benefit 
Services Corporation, which allowed the members previously 
insured to enter the program at the same premium rate they had 
been paying. This company wanted to stop insuring our members 
in 1999 and since they would remain in the insurance business, 
could not simply withdraw. Their approach was to raise the 
rates 20 to 40 percent in October. Another 20 percent in 
January, and another 30 to 35 percent in April. One member 
reported that he dropped his insurance on himself in order to 
continue to cover his wife who had a medical condition and 
could not get insurance at any price until the premium he was 
paying was over $1,000 a month.
    That's 5 years, 3 carriers and at the end, no coverage at 
all.
    Since that time the West Virginia Farm Bureau has sought 
other health insurance carriers without success. These results 
are not due to a lack of effort or good faith on our behalf or, 
for that matter, on behalf of the insurance company. There 
needs to be a solution that provides a chance to make money for 
the carriers while providing the needed insurance coverage for 
our policyholders.
    Obviously, the answer to affordable health insurance must 
be found and it is elusive. Without some guidance from our 
elected officials, small business will continue to struggle 
with paying the costs of health insurance for their employees 
and run the risk of personal and business financial disaster.
    We look to you for this guidance and hope that your 
colleagues in the Senate will approve the Association Health 
Plan approach which you in the House have so diligently pursued 
which we hope will help provide assistance for groups like the 
West Virginia Farm Bureau and others on this panel.
    Thank you very much.
    [Mr. Williams' statement may be found in the appendix.]
    Ms. Capito. Thank you. Thank you, Mr. Williams.
    I now recognize Mr. James Butch. Mr. Butch is the President 
and one of the original founders of Eagle Research Corporation, 
a small West Virginia high tech business. The company was 
founded in 1976 in Charleston, West Virginia. It is now located 
in Scott Depot, West Virginia where it designs and 
manufacturers electronic products for the natural gas and other 
industries.
    Eagle has 30 full-time employees that use state-of-art 
engineering and manufacturing equipment to build its projects. 
Eagle markets its products throughout the United States and 
exports to 6 other countries.
    Thank you, Mr. Butch.

    STATEMENT OF JAMES N. BUTCH, EAGLE RESEARCH CORPORATION

    Mr. Butch. Thank you. Thank you for inviting me here today, 
Chairman Manzullo and Congresswoman Capito.
    I guess the points I want to summarize in this slide are 
that we do have 30 employees. About a third of them are 
engineers, about a third are technical sales and support and 
about a third manufacturing and administration.
    Our issue is that our health insurance has more than 
doubled over the last 4 years. And since a third of our staff 
are professionals, we have to get to certain standards or 
expectations for them to stick with us. Small companies cannot 
hire a large staff, so those that we do hire must be the very 
best. And in order to attract and keep the very best, we have 
to offer a competitive benefits package, comparable to those 
offered by large corporations.
    Now, our turnover is very low, thank goodness. Because 
there is a lot of training and experience involved in designing 
these products. This slide shows our history over the last five 
years for health insurance plans. I'll go over with the family 
portion here for purposes of savings some time. But in '98 we 
started with American Medical Security. And a family plan was 
$531. The next year it went to $651, which was a 23 percent 
increase. And in 2000 it went to $1182 or a 82 percent 
increase.
    So not being able to tolerate something like that again, we 
shopped around for insurance again. And the best of those was 
Mountain State Blue Cross/Blue Shield and they quoted $856 a 
month. The next year we got hit with over 26 percent increase 
taking it to a $1075. And then this year we got a 6 percent 
increase taking it almost back to where it was in 2000 at 
$1138. But that 6 percent increase was only after we asked the 
West Virginia State Insurance Commissioner Office to meet with 
Blue Cross/Blue Shield on our rate increases that we were 
experiencing. And since we have less than 50 employees our 
prescription drug coverage wasn't as good.
    The cost of our health care insurance benefit is now at 
$25,000 a month and our payroll is at $104,000 a month. So that 
puts our health insurance benefit at 24 percent of our payroll 
today. Most of these employees qualify for 4 weeks of vacation, 
because we have low turnover. So our direct benefits on just 
these two benefits is over $400,000 a year or 33 percent of our 
wages.
    And since the health insurance appears to be doubling every 
4 years it really rings some alarms with us. Is it going to be 
48 percent of our wages? Is health insurance going to be 50 
percent of our wages in another 4 years?
    These two slides summarize graphically showing that 
American Medical Security is more than doubling in the 3 years 
and Mountain State Blue Cross looks like it is doubling at 
every 4 or 5 years.
    Okay. The problem as I see it is that health insurance 
companies are allowed to base rate increases on the 
profitability of each company plan. I realize that's the way 
the regulations are written right at the moment, but this is 
the problem.
    In the case of a small business like Eagle's, one claim for 
a long term illness or severe accident will make our plan not 
profitable. You know, we have 30 people. After you have this 
one large claim, the other insurance providers either will not 
quote or quote very high rates and it effectively locks you in 
with your current provider. And after this, in turn, the rate 
increases of over 30 percent per year are possible, with our 
experience being between 6 percent and 80 percent per year.
    So will it ever stop? Do they have a free hand to do this 
every year?
    So I see a solution being based on passing legislation 
requiring health insurance companies to base rate increases on 
their own profitability, not the profitability of my 30 
employee plan. And to require all rate increases to be equal on 
all their plans. And if this is insurance, is it not supposed 
to average out, or average the risk to all their insured 
clients?
    And also I think it should require full disclosure of their 
profitability, especially those that have other types of 
insurance and other types of financial services. And I think 
there should be some kind of a rate review board.
    And that's my presentation. And I hope it will spark some 
change in this, because we truly cannot afford our health 
insurance to double again.
    [Mr. Butch's statement may be found in the appendix.]
    Ms. Capito. All right. Thank you, Mr. Butch.
    And our final, last but not least presenter is Ms. Jean 
Hawks. Ms. Hawks is the President and owner of Fort Hill Child 
Development Center Incorporated. She is the original owner.
    The Child Development Center has 50 to 55 employees full 
and part-time serving 200 families in the Cannaan valley. Ms. 
Hawks is also a member of Charleston's Chamber of Commerce and 
President of Charleston's Women's Forum.
    Thank you.

   STATEMENT OF JEAN HAWKS, PRESIDENT/OWNER FORT HILL CHILD 
                DEVELOPMENT CENTER INCORPORATED

    Ms. Hawks. Well, thank you.
    Thank you so much for the opportunity to be here today. I 
am a little intimidated following Mr. Butch's high tech because 
my role is diapers, tears, wiping up spills. It is quite a 
different industry, but at the same time we share the same 
problems.
    I do have today as we speak 53 employees. I offer a health 
insurance plan, but the corporation pays only 25 percent of it. 
So that eliminates many of my employees whose salaries range 
from $13,000 to $30,000 a year as the child care industry is a 
very low paying industry. If I were to increase that amount, I 
would have to pass the cost onto my clients, which might push 
me out of the industry in Charleston. So that is a concern to 
me.
    Seventeen of my employees, all women, do not have any 
health coverage at all. A few of them have medical cards 
because their income is low and they have a child under the age 
of 18 so they are able to have a medical card. And then 7 of us 
have the actual insurance policy that the company subsidizes.
    I for 12 years did not have any health insurance of my own 
at all, which was a very scary situation. Many women after 
divorce and being without health insurance because most of the 
men are in the higher paying industries. And so many women 
across the nation are in the area of child care and child care 
is so important, we know we have a lot of uninsured women 
working with children. And I think that is very discouraging.
    Being a child care provider is a wonderful profession. It 
is a wonderful industry. It is fun, it is inspiring, it is a 
wonderful place to spend your day. But if you are sick and you 
do not have health insurance, it becomes a big, big problem.
    I hope that there is some way that we can get coverage for 
all Americans, but especially for the women who do not have 
coverage.
    Thank you.
    Ms. Capito. Thank you.
    Well, I appreciate all of your testimony. Certainly you 
come in from different angles, but the same angle essentially. 
And, Mr. Chairman, do you have some questions?
    Chairman Manzullo. Yes, I do. I want to thank you for the 
excellent testimony.
    Mr. Butch, the question I wanted to ask you, could you go 
back, flip your slide back to that chart. Right there. Explain 
the footnote on the bottom with the asterisk.
    Mr. Butch. Okay. When we were soliciting for proposals for 
our insurance which renews every May, we solicited proposals in 
January. We got several proposals in in the actual March/April 
time frame that were in the 30 percent increase range. And Blue 
Cross stated that they were going to withhold their proposal 
until 30 days before it had renewed.
    So we talked to someone in the Governor's office. It was 
Roland Phillips, I believe. And he got us connected to someone 
in the West Virginia State Insurance Commissioner office, I 
believe it was a gentleman at the time. But he met with Blue 
Cross/Blue Shield for us to review the rate increase. And as a 
result of this meeting, we got 6 percent increase. He was able 
to manage to pull it down, but even at that it was still 6 
percent more. And I guess it is better than 30 percent.
    Chairman Manzullo. Is that some quirk in West Virginia 
State law that allows your state insurance commissioner to 
become involved when these rates are filed?
    Mr. Butch. I think it----.
    Chairman Manzullo. Shelley, can you answer my question?
    Ms. Capito. Well, my understanding, I believe, and if there 
is another expert in the room that knows this more specifically 
than I do, our State insurance division has to rule on rates. 
And you may----.
    Ms. Jones. That is correct.
    Ms. Capito. Yes. And so they probably had the right to go 
in and investigate any kind of rate increases. And, obviously, 
they have the right to--well, we do not know exactly what 
happened, whether they turned the rate down or the company 
voluntarily stepped in.
    You might have some experience with that legally. I do not 
know.
    Ms. Jones. In my experience the insurance commissioner--and 
a lot of problems even if he is asked to do so. You can see 
from the testimony here rate increases are a real problem in 
West Virginia. And I think just the mere power alone of 
insurance commissioner would not possibly be able to intervene 
in the crisis.
    Mr. Butch. I clearly view it as a favor. He did not have to 
do it.
    Chairman Manzullo. Is there legal authority to knock down 
an increase or could you walk us through that?
    Ms. Jones. Actually, no, I do not practice in the area of 
State insurance law. I practice in the area of federal employee 
benefits. But I can tell you, as I have an anecdotal 
experience. I have suggested several of my clients contact the 
insurance commissioner. Sometimes it is helpful, sometimes it 
is not. But it is not, again, above the State Insurance 
Commissioner at all. He does have authority over insurance 
contracts and rate increases, but it is just when you have so 
many increases effecting so many businesses, there's only so 
much manpower available.
    Chairman Manzullo. And the other question I had is if you 
are a very small company going head-to-head not only with 
domestic companies but internationally and you are exporting--
this is more of a comment than a question. But we spend a lot 
of our time on the Small Business Committee trying to identify 
the reasons why so much of our manufacturing and now 
engineering and architectural and accounting services are going 
overseas. And when you take a look at just your example, Mr. 
Butch, only 20 percent of your full time employees are vetting 
themselves of the insurance, it is easy to see why we become 
more and more noncompetitive in this country.
    Mr. Butch. I agree. And I think that is certainly another 
topic. But if our insurance were to double again, it would be 
48 percent of our----.
    Chairman Manzullo. Well, you could not afford that. You 
would be out.
    Mr. Butch. Something has to change. And if I were to, say, 
if we are going to pass all future rate increases on to my 
employees, the lower paying--my average wage is over $41,000 a 
year. So basically we are not a low paying company. But even at 
that, the lower paid manufacturing people it would take more 
than half their paycheck into paying for insurance rate 
increases. It is ridiculous. It cannot be allowed to continue.
    Chairman Manzullo. Well, one study I think, Ms. Jones, that 
you cited showed that by the year 2007 it is going to cost 
$16,000 a year to insure a family of 4. Well, that is 
impossible.
    Ms. Jones. That is correct.
    Chairman Manzullo. Wages, obviously, are not going to 
increase to absorb them.
    Ms. Jones. And that, again, is just for modest coverage. By 
no means it that the cadillac type of coverage. That is just 
the basic plan.
    Chairman Manzullo. You know, when I was in one of my 
reelection bids, a lady stood up, a component, she said ``You 
know, I just wish that we had insurance the way the members of 
Congress did.'' She said, ``I understand you have cadillac 
coverage.'' And I said ``If it is a cadillac, we are in the 
trunk.'' Because, I do not know about you Shelley, we have got 
Blue Cross/Blue Shield.
    Ms. Capito. Yes.
    Chairman Manzullo. Fight all the time. Always fighting with 
the insurance company over coverage on it. We have no coverage 
for--very little dental, but no orthodonture. So at that time 
my son stood up and I said ``Neil, show the audience your 
teeth.'' So he smiles and a full set of braces on there that 
ran us a $100 a month for 3 years and we have no coverage on 
that.
    But this is not what you are experiencing. I just want to 
assure you that members of Congress do not get different types 
of insurance. We get a choice, but invariably it is Blue Cross/
Blue Shield. And we are not here to criticize companies because 
when you get involved in medical technology, the cost of 
innovation has always historically exceeded the cost of 
inflation just because people want and demand the latest 
products and medicines and physicians have to use those, unless 
they face even more crises with the medical malpractice.
    Ms. Capito. I had a question for Mr. Elliott. And really, 
all of you all might be able to answer this. In terms of trying 
to find coverage, how much time do you spend as a business 
owner trying to find and then comprehend? Do people market to 
you, do you have to go out and find it? I mean, to me that has 
to be an inordinate amount of time taken away from delivering 
your business service?
    Mr. Elliott. Yes, good question. My time is best spent 
dealing with my employees. And really, honestly, until I had 
children I did not really pay attention. My wife was on another 
plan at that time. So I have had to dive in head first.
    And to my knowledge we do not have many insurance companies 
knocking on our door to give us a better choice. As a matter of 
fact, I have had to actually sought out the West Virginia 
Broadcasting Association, the National Association of 
Broadcasters. I would try to find some group that I could put 
myself into to be competitive. But even with those 
organizations, even our local Chamber of Commerce there does 
not have anything available to us.
    So I spent a good bit of time researching that and only to 
find out that we are just an unattractive proposition for an 
insurance company. Well, I understand as a business owner that 
you got to make a profit. With our pool of people, 6 are over 
the age of 50. These people are going to make demands on any 
policy.
    So, you know, I do spend a lot of--and I probably will 
continue to spend time researching this.
    And you spoke this morning at the Governor's Inn on perhaps 
something opening up in terms of companies being able to jump 
into a larger pool. I wonder if you could speak about that?
    Ms. Capito. Well, that is the Associated Health Plan that 
we have passed through the House where you would become part of 
a larger pool across state lines. You know, the problem that 
Mr. Butch has with the one, he had one person, as I recall in 
your company that was--and I think you said you did, too. 
Somebody who had a catastrophic illness or a very, very 
expensive illness that was just driving the cost of the entire, 
everybody's plan way up rather than attaching it to a larger 
pool.
    I think your idea of--the suggestion was that the 
profitability of the plan should be attached to the 
profitability of the insurance company. There.
    Chairman Manzullo. Well, that is community based pricing 
what you are talking about, as opposed to individual companies.
    Ms. Capito. I have a question for Ms. Hawks. Because I know 
in day care what a tremendously vital service that you provide 
to all of America's families. My gosh. But, you know, you are 
so heavily regulated in terms of how many staff members you 
have to have per child. And so you have got a situation where 
your folks are not insured. So the wellness and prevention 
aspect of health insurance is not there for any of the folks 
that are working for you; checkups, inoculations, all these 
kinds of things, people let go because they are not covered by 
their insurance and they do not have the money to pay for it. 
How does that not having insurance, not having so many people 
with insurance, how does that effect your ability to do 
business? Because I would imagine people get sick. They cannot 
take care of themselves. I mean, your employees. And then you 
are stuck because you probably spend a lot of your day filling 
in for people that cannot be there.
    Ms. Hawks. I do. I am very fortunate. I have a very long 
term group of employees working for the day staff, have been 
with me many, many years.
    I do several things for the employees. I do an annual 
health examine that I pay for. Because State licensing for day 
cares requires that each employee have an annual physical and 
recognizing that many of them do not have insurance, I provide 
that for them. And that is helpful.
    I do in-house training sessions for my staff twice a year 
and I bring in health care professionals to talk about how 
women can get free mammograms, that sort of thing.
    So to sort of try to make up for the fact that many of them 
do not have health insurance, that is the way we attack it.
    I have a very broad socio-economic cross section of 
clients. I have some that come through DDHMR, their day care is 
paid for. And then I have two professionals, two doctors, two 
lawyers, or whatever. And I really tap into the resources that 
my clients have, and many of them are doctors and help us as 
well. If I have a client who doesn't have health insurance who 
just need some consultation. I realize it is a high risk thing 
for a medical person to do, but you know we can usually refer 
them to someone and get something that would prevent having to 
go to, you know, a higher, more less cost effective steps for 
it.
    So I am very fortunate, but it is a problem. And so far in 
the 13 years we have not had anyone with major illness. We 
really stress; we walk at noon; but we do the little things 
that you can do if you are a head of a company. You know, we do 
not do the junk food. We put fruit plates in the teacher's 
lounge and try to do things to help encourage good health 
because we want them to teach good health attitudes to our 
children as well. So those are just some of the things we do.
    But I would love to see these woman, as someone else 
mentioned my work force because they have been with me a long 
time, we are all getting close to that age 60. And they will 
start having health problems, and that is scary to me as their 
coworker.
    Ms. Capito. Mr. Williams, I have a question for you. 
Another important industry, farmers and certainly feeding 
America and the world. And I would like to ask you, you know 
you think of the family farm and its inception or at least the 
way I have come to think of it, it is the family working. It is 
the husband and the wife, and then the children when they grow 
older and are able helping, and then generationally passing it 
on. But I would imagine that the family farm is probably being 
gutted in some way for the search for health insurance.
    One of the principals, the husband or the wife, probably 
leaves the family farm to go to another source of employment so 
that they can get these benefits to secure for the farm. Is 
that a phenomena that you all are experiencing?
    Mr. Williams. Absolutely, Congresswoman. It is something 
that occurs in West Virginia. I do not have any statistics on 
that, but I would be willing to predict that better than 80 
percent of our family farms have one member of the family 
working off the farm. And the reason that they work off the 
farm is for the benefits and almost exclusively for the health 
insurance.
    If they both stayed on the farm, they cannot afford to buy 
the insurance from current carriers that are available here in 
West Virginia, which also is one of the problems that we are 
experiencing. There are not many people, not many companies out 
there that are offering to pay the health insurance for an 
individual person. That is why everyone looks to try to find a 
group plan where they can find insurance that is affordable for 
them.
    One of the problems that we see, though, is that that 
causes the family farm to, first of all, lose one of its vital 
workers on the farm which then must be replaced by a hired 
employee who often asks, the first question asked is do you 
provide health insurance. It is a vicious circle that continues 
to exacerbate the problem.
    It divides the family. It causes one of the family members 
to be away from the farm. And as all of us who have been on 
farms in the past know, that that family structure is an 
extraordinarily important part of that family farm. The husband 
and the wife and the children working together on the farm, 
learning the things that you learn on a farm that are so 
important to you as an individual and becoming a citizen in the 
United States.
    So it is a real critical situation that we think is bearing 
on the family farm. And we, frankly, do not see a solution out 
there unless some of these innovative plans become available to 
us in this organization.
    Ms. Capito. Well, I have no further questions.
    I think, sort of just in a summarization in my view, you 
know we have got a couple of different dynamics going here. We 
have got the lack of people that are actually bidding and 
providing the service. You are handcuffed then because your 
rates are going up 25 and 40 percent.
    Something that both Mr. Elliott and Mr. Butch talked about 
is how you retain your employees if you cannot compete. That, 
to me, is an aspect of it that I had never really thought of in 
terms of being able to keep your folks in a small business and 
not jumping ship to a larger one.
    And I think this is not a West Virginia problem. This is a 
national problem. It is cascading. We have different problems 
in West Virginia associated with this that may make our 
dynamics a little bit different.
    But I guess what I would like to say is thank you all. 
Obviously, when I first met Mr. Butch one of the things I 
remember him telling me was that because he is going for a 
highly specialized, highly trained individuals, engineers for 
the most part or computer specialists, he pays a higher wage. 
But he feels that in order for him to be able to keep and 
retain and to keep the quality of life of his business, he 
wants to provide as much and have the company pay for as much 
of the insurance as he possibly can. And, you know, the heart 
is in the right place for everybody here.
    I mean, Ms. Hawks is over there offering a lot of 
preventional wellness and checkups. And, you know, you are 
going the extra mile. How many employees in West Virginia and 
across the country are not doing that, are getting by on the 
bear minimum. It is a scary proposition.
    And the other dynamic to me is this catastrophic illness. 
You have one person in your pool that just drives the cost so 
way out of control that the rest of your wellness pools have to 
bear the brunt. And if you have a pool of 6 or 7, you cannot do 
it.
    So, I appreciate your all bringing your stories to the 
Chairman.
    I want to thank you, Mr. Chairman.
    And then I do not know if you have any further questions.
    Chairman Manzullo. I just want to close things out.
    Bob, you had talked before about the experience of the 
State of Washington Farm Bureau that has its own association 
health plans intrastate. Did you take a couple of minutes and 
talk about their experience?
    Mr. Williams. Well, I can. What I would like to say, Mr. 
Chairman, is that as the West Virginia Farm Bureau have, after 
talking with the Washington Farm Bureau and how they worked 
their plans and with their associated health plan, we had 
conversation with the Farm Bureaus of States surrounding West 
Virginia to see if there was any possibility of a similar kind 
of approach interstate where we might be able to work, and 
quickly realized that that was not going to be a possibility 
unless we had the legislation that you all have pending before 
the Senate.
    We then explored the possibility of simply becoming a 
member of one of the surrounding State's health insurance plan. 
Letting them do the administration. They have a very successful 
plan in their State.
    After exploring the issues that many of the folks on the 
panel had talked about regarding the competitiveness of the 
insurance climate in West Virginia, one thing that has not been 
mentioned here is our judicial climate in West Virginia and has 
led many companies not to be interested at all in offering any 
kind of insurance in West Virginia simply because of decisions 
that have been made by our Supreme Court.
    After investigating that by this other State Farm Bureau, 
they came back to us and said we are simply not interested in 
pursing the 16,000 members in West Virginia. We could make 
money on it if the climate was similar to our State, but we 
simply cannot explore that in West Virginia.
    Chairman Manzullo. I'm sorry.
    Mr. Williams. Interestingly enough, they were able to 
establish a relationship with the State of Maryland's Farm 
Bureau. And they do offer a health insurance plan to the 
members in Maryland Farm Bureau.
    Chairman Manzullo. The State of Washington?
    Mr. Williams. No, no. This is the State of Virginia.
    Chairman Manzullo. Okay.
    Mr. Williams. They can offer a plan.
    Now, in Washington I'm not familiar with the associated 
plan that they have in their State. We did have conversations 
with them about how that was organized and explored that to 
some degree. But just came to a decision that it was not going 
to be feasible alternative for West Virginia.
    Chairman Manzullo. The State of Washington came up with 
some extraordinary rates. I think it was $500 to $600 a family.
    Shelley, I do not know if you were at that hearing. You are 
on 3 committees, right? You have 5 subcommittees. And it is 
amazing how many hearings you actually do attend with that 
load.
    Ms. Capito. Yes.
    Chairman Manzullo. But you would think that in a profession 
that has more exposure to risk, that is that farming is more 
dangerous than most manufacturing sectors, plus the age of the 
participants; that there are more people of older age involved 
in agriculture than in industry across the board on. There are 
more kids that are not coming into farming with just the 
parents remaining in the farming business. That the rates would 
be extraordinarily high. But they said no. They have just been 
able to do something in that State that has been extraordinary.
    In fact, in your State I understand that all medical 
malpractice companies had actually stopped writing policies and 
the State had to step into the gap because of the tort conduct 
here in your State.
    Let me just get a couple of concluding remarks here on what 
others have been doing as we have been having these hearings 
across the country.
    There is an outfit in Rockford, Illinois, which is the 
largest city of the congressional district that I represent, 
that actually leases employees.
    The Catholic Dioceses of Rockford, for example, has I'm not 
sure how many employees. I know it is a significant number. But 
they have entered into an arrangement with a company whereby 
the Dioceses will pay a flat fee and then the employees are 
actually employees of this leasing company. And I know it 
sounds cold and sterile, but it is because I know the lady who 
runs it, she started it actually 30 years ago. But with that 
she is able to drive down dramatically the cost of health and 
accident insurance because she has several hundred if not a 
thousand people that actually work for her company. And she 
coordinates all the benefits. She does the worker's 
compensation, etcetera. And she has even extended that service 
to a physician who started with one-half employee under a 
contract basis and now has about 3 or 4 employees. So that is 
one of the ways. It is a unique angle.
    Now you get into questions of direction and control and 
liability, and things of that nature.
    Another thing that we have seen is the result of a hearing 
that was held in Rockford, Illinois whereby an individual 
testified as to the tremendous spikes in the cost of health and 
accident insurance. Was contacted by a person such as members 
of the audience sitting here, and instead of the person 
testifying, instead of his insurance premiums going from $8500 
to $16,000, they went from $8500 to less than $10,000 because 
the consultant sitting in the audience said why do you not get 
a second insurance company to write your deductible.
    We have found that in talking to insurance agents and 
brokers to just keep--I do not want to use the word 
``shopping,'' but there is some very unusual circumstances that 
are occurring of bringing down the cost of insurance.
    We have a physician back home whose husband is a trial 
attorney. That is an interesting group, and they got a great 
marriage. But his law firm and her medical practice, again they 
are very small businesses, have extraordinary spikes. He 
decided to shop for medical savings accounts. Found that no one 
in the area was actually offering them. He set up a medical 
savings account and he combined the two companies, as it were, 
cut his premium by 50 percent.
    That is one of the things, Brian, you might want to take a 
look at and Jim, is to really explore. And I think, Shelley, we 
lifted the cap on those. It was frozen at $750,000. Is that 
correct? The cap has been lifted on MSAs.
    MSAs are a real cost savings. But it is sort of a 
mysterious product. And I know that some insurance agents do, 
in fact, offer it. But that is something you really ought to 
take a look at.
    And the other thing that we have introduced a bill that 
would automatically lower the cost of self-employed 
noncorporate businesses by 15.3 percent. And how is that done? 
Even with a 100 percent deductibility for health and accident 
insurance, that still is after tax dollars that are being used 
to purchase health and accident insurance for noncorporate 
businesses. And what this does is it effectively gives a 15.3 
percent tax credit to the self-employed as opposed to not 
paying that FICA tax into a Social Security fund. So it 
preserves the integrity of the fund while putting the 
unincorporated business person in the same position as the 
corporation.
    And the last thing that I might suggest, I did before I was 
elected to Congress, I incorporated my office. Sole 
stockholder. And it is you use these legal ruses in the best--
that is why we have attorneys, right, Ms. Jones?
    Ms. Jones. That is right.
    Chairman Manzullo. But by incorporating the law firm, the 
sole proprietor, I was able to deduct 100 percent of health and 
accident insurance for my family and put my family on the same 
basis as my employee, to whom I offered full health insurance. 
And then there is a provision if it is still under corporate 
law, that allows instead of giving a salary increase, you can 
make a corporate reimbursement for that which is not covered on 
insurance as long as everybody is treated the same. Employees 
who are salaried and those who are non-salaried. So for 
example, we had something called medical reimbursement plan 
that each year we would increase it so that instead of being 
increasing the salary, we would increase the corporate 
reimbursement, which is really great because that is all 
nontaxable to the employee and a full deduction for the 
employer.
    All types of things, what you have to do to shop.
    Listen, you folks have given us tremendous testimony. Lots 
of things to think about. This will all be made part of the 
record.
    We have got about 10 or 15 minutes. Shelley, what I would 
like to do is are there any folks here in your audience that 
want to take one or two minutes to give their testimony. We can 
open up the mike and then close it off at 11:05.
    Anybody would like to do that? Would anyone here like to do 
that? Raise your hands? Okay. Well, I just thought I would 
offer. Sometimes that happens.
    Come on up. Why do you not come on up and take this mike 
over here and just give us your name, spell the last for the 
record. And do not exceed 2 minutes. How does that sound? That 
sound all right? Here we are.

        STATEMENT OF SCOTT PRESTON, MAIN STREET STUDIOS

    Mr. Preston. Good morning. My name is Scott Preston. S-C-O-
T-T P-R-E-S-T-O-N. I own and operate Main Street Studios----.
    Chairman Manzullo. Is that turned on? Go ahead. I think it 
is.
    Mr. Preston. My name is Scott Preston. S-C-O-T-T P-R-E-S-T-
O-N. I own and operate Main Street Studios, a professional 
photography business here in Buckhannon. My wife operates a 
retail store in Buckhannon as well.
    We are part of the 43 million uninsured or under insured. 
We have health insurance coverage. We have the catastrophic 
coverage. And we have excluded conditions on those coverages as 
well.
    Would it not be nice to be part of a large pool? I need a 
hip operation. I have osteoarthritis. We are selling one of our 
businesses in order to pay for that hip operation. That is just 
not right.
    And it would be nice. And it just brings home the fact that 
these issues really hit home as recent as today. And it is 
incumbent upon you, Mr. Chairman and Congresswoman Capito to 
keep the sparks as hot as possible to try to open up pools of 
insurability. It's a concept that Brian said, that insuring 
the--I could not remember--insurance but not sharing risk. And 
the ideas of opening up profitability will just perhaps prevent 
other businesses from failing. But it has a direct impact on 
communities.
    And I just wanted to share that with this panel this 
morning that is now a wide issue and it is happening to people 
in this room. None of us want cheap--or none of us want free 
health insurance. We all want to pay for it. But it needs to be 
affordable and it needs to be something we can all obtain. 
Because a hip operation costs as much as a Harley. And I would 
like to have both, but the hip comes first.
    Thank you for your time.
    Chairman Manzullo. Okay. Thanks.
    Anybody else?

                    STATEMENT OF SANDRA DEAN

    Ms. Dean. I am Sandra Dean. The last name is D-E-A-N.
    The only comment I have to make is you have never addressed 
the fact that this insurance premium policy should be pre-tax 
dollars. A lot of the companies around here do not do pre-tax 
dollars. You would save a lot of the money if you took out the 
premium before you would take the taxes. Board of Education is 
one of them. My husband is employer, who is US PFO is one of 
them.
    You want to address that?
    Chairman Manzullo. Well, you just did.
    Shelley, we just had something on that for federal 
employees.
    Ms. Dean. That did not happen until just before he retired.
    Chairman Manzullo. Yes. Yes. Well, you just addressed it. 
It is a problem. And that is why we have this legislation. That 
would not help retirees.
    Ms. Dean. No. But it sure would help my savings plan.
    Chairman Manzullo. Okay.
    Anybody else?

                  STATEMENT OF ROSEMARY WAGNER

    Ms. Wagner. I am Rosemary Wagner. The last name is W-A-G-N-
E-R. I am the Executive Director of Region 7, Planning 
Development Council. And I will be very brief.
    Just would like to make a comment of the struggles we have 
in this particular region, which I consider the heart of West 
Virginia, which is very rural. I have to look at our agency, 
which is provided by an act of legislature, as a business even 
though it is not my business to make sure that the something is 
available, that we provide benefits to the employees and have 
the right employees. At the same time, looking at the region 
that we serve. And what we have found is going to be the 
future. The future for this region is small business retention, 
small business expansion and new small business development.
    We do not seem to find from what we have available as far 
as the infrastructure development and the highway development 
is slow, to be able to attract the major industries. So our 
future is small business development. And then you have heard 
the testimony of all these folks, they struggles they have even 
to stay here.
    And so I just want to reinforce the comments that have been 
made of the struggles that it is as we are trying hard to keep 
these folks here and add more small business for the future of 
the citizens so that people can stay in West Virginia.
    Thank you very much.
    Chairman Manzullo. Thank you, Rosemary.
    Anybody else?
    Okay. Well, again, thanks for coming. And do you want to 
adjourn the meeting? You have got the hammer.
    Ms. Capito. I have got the hammer, but I cannot pass up 
this opportunity to tell my sister is a small business owner in 
Charleston and recently had an appendectomy. She has insurance. 
She got her bill. It was $28,000. Her insurance is only going 
to pay $8,000. So not only having insurance does not guarantee 
that you are getting the coverage that you need.
    Of course, I told her do not give up on this. You know, 
just because this is the initial swing by of what supposedly 
your insurance company is going to pay, you are going to have 
to get in there and fight it out tooth and nail to get the 
detailed records.
    And, Jim, do you have a comment on this?
    Mr. Butch. Well, $28,000 is ridiculous for an appendectomy.
    Ms. Capito. I know. Exactly. But she lost 10 pounds, Jim, 
so you got to--you know, what is that worth. But those of you 
who know my sister know she did not need to do that.
    Mr. Butch. But what was the cost 20 years or 10 years ago.
    Ms. Capito. Oh. Well, it is like anytime I--I mean, I have 
three children that are now in their 20s. And when I look at 
what we were paying back then compared to what probably you 
just paid with your twins, it is probably staggering.
    But on that note, I will adjourn the meeting.
    Thank you.
    [Whereupon, at 11:05 a.m., the Committee adjourned.]

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