[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE RISING COST OF HEALTH CARE FOR SMALL BUSINESS
=======================================================================
FIELD HEARING
before the
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT & GOVERNMENT PROGRAMS
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
CHARLESTON, SC, AUGUST 25, 2003
__________
Serial No. 108-31
__________
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 : 2004
92-794 PDF
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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
Csiszar, Ernst N., Director of Insurance, State of Carolina...... 3
Marchant, Larry, South Carolina Managed Care Alliance............ 5
Perry, Evelyn Reis, National Federation of Independent Business
(NFIB)......................................................... 7
Degenhart, Vincent J., M.D....................................... 10
Moreland, Doug, Benefitfocus.com, Inc............................ 11
Kulze, John, M.D................................................. 13
Appendix
Opening statements:
Akin, Hon. W. Todd........................................... 24
Prepared statements:
Csiszar, Ernst N............................................. 26
Perry, Evelyn Reis........................................... 41
Degenhart, Vincent J., M.D................................... 50
Moreland, Doug............................................... 51
(iii)
THE RISING COST OF HEALTH CARE FOR SMALL BUSINESS OWNERS
----------
MONDAY, AUGUST 25, 2003
House of Representatives,
Subcommittee on Workforce, Empowerment,and
Government Programs,
Committee on Small Business,
Charleston, SC
The Subcommittee met, pursuant to call, at 1:45 p.m., in
the Magnolia Room, Charleston Place Hotel, 205 Meeting Street,
Charleston, South Carolina, Hon. Todd Akin [Chairman of the
Subcommittee] presiding.
Chairman Akin. Good afternoon. If I could please have your
attention. The Committee on Small Business and Workforce will
come to order. Those of you in the back of the room, if you
would like to grab a snack or a beverage or whatever, if you
could do that please, and make yourselves comfortable.
One of the things that I have tried to do as Subcommittee
Chair is to try to run our meetings, get them going on time and
try and get them out in a reasonable period of time. I think
some of you are probably pleased to hear that. So we are going
to go ahead and proceed.
The general format is going to be I will make an opening
statement. I do believe Congressman DeMint may have an opening
statement as well, then we will hear from our different members
of the panel, five minute statements from each, and then we
will proceed to some questions at that point.
I would first of all like to say to all of you, thank you
so much for coming today. I was pleased to be able to come here
and to be able to come here with Jim DeMint. It might be a
surprise to you, but the Congress has these different Committee
hearings, and most of the time they are held in Washington,
D.C., but we have the authority to hold Committee hearings
anywhere in the country that we want to, wherever it makes
sense logically. This seemed to be a very appropriate place for
our topic today. Our topic is going to be, from a small
business point of view, the rising cost of health care and
people who are uninsured. Now that is important to us because
of the fact that of the people in America who are uninsured,
about sixty some percent of them are, in one way or the other,
connected with small business. So that is very much down the
lines of things of interest to our Committee.
So why would we choose to come here particularly for an
official meeting of the House? Well, the reason is that to
really find out what is going on, it is necessary to get into
various states and to see what is going on and be able to have
witnesses such as yourselves. So we are very thankful to have
you coming and joining with us.
I was looking around at different opportunities and talking
to Congressman DeMint, who is very, very well respected, first
of all on the subject of health care, but just generally
speaking in the house. It was really an opportune time for us
to be able to come and join you here, even though I am new to
this city and wish I had a little longer to stay and visit.
Jim has been on the front lines of the small business world
with his own market research company and he has not forgotten
some of what it is like to be a small business owner. So he
combines that interest in small business but also he has been
involved with legislation that connects to the health care
business. And in fact, that is to some degree his hallmark, is
being involved with health care kinds of issues. He
particularly caught my attention this year when he got through
the idea that you could provide employees with a $500 rolling
over option, so in other words at the end of the year, you did
not have to spend all the money that was in your particular
account, but you could roll that money over in your health
savings account or these different flexible spending accounts
for the end of the year. This is a significant step. It does
not sound like a lot perhaps to us, but in Washington, D.C.
where things tend to move slowly, that was quite a significant
advance and Jim made that break-through. We are thankful to
have him here.
So first of all, thank you all for coming but before we
proceed and take the five minute statements, I would like to
turn over the microphone if Congressman DeMint would like to
make a statement or say a few words. Certainly, as I emphasized
before, he has the qualifications that we need for this hearing
today and we are very thankful to the people of this state for
sending him to Washington, D.C. and for his expertise.
[Mr. Akin's statement may be found in the appendix.]
Chairman Akin. Jim.
Mr. DeMint. Mr. Chairman, thank you for coming to South
Carolina, welcome to Charleston. We very much appreciate your
work on the Committee. The Chairman is very involved with small
business, particularly oversight of SBA and other government
programs related to small business, so he is very instrumental
in things that affect a lot of us.
As he has mentioned, this is an official meeting of the
Committee, it's not just the two of us listening. The lady here
who appears to be on a respirator is actually taking down
everything we say, it will be part of the official Committee
record and we use that and Committee staff uses that as we put
together the case for changes, reform, for legislation. So our
intent is to use this to develop solutions.
The Committee's work, while not official with jurisdiction
over tax code and some other areas, it does have a lot to do
with regulations that affect small business. we find ourselves
very much as advocates for development government contractual
arrangements with small business, whatever we can do to grow
small businesses in this country, which make up about 99
percent of all the employers. So it is a big part of the
American economy. Most of the new jobs are coming, or at least
a whole lot of them, from small business. So I think what we do
is pretty important.
This issue of health insurance today is huge. It is a hard
issue for major employers, it is an even harder issue for small
businesses.
I have been traveling the state like wildfire over the last
three weeks and I have not talked to one employer who has not
mentioned this as a major issue. It is an issue that even makes
them consider locating subsidiaries offshore. It is another
reason that American businesses are having difficulty being
competitive, and then as increasingly as we on the government
side reduce reimbursement for Medicare/Medicaid, that cost is
being shifted on the private insurers. The rates are being
forced up. We have got to do something to change our health
care system or to save our private insurance market and to make
sure that we do more to help people get insurance rather than
what we are doing now and we are making it harder for them to
have insurance.
My hope today is that our witnesses will not only make us
aware of the problems, which a lot of us are aware of, but to
help us identify examples of things that might be working or
ideas they have on how we can fix things to save the private
insurance market, which is where we need to go.
So Mr. Chairman, again, thank you and I look forward to the
testimony and the questions that you and I both have later on.
[Mr. DeMint's statement may be found in the appendix.]
Chairman Akin. Thank you very much, Congressman.
I think now that what we will do is we will just proceed
right down the line up of our witnesses, go for five minute
statements from each of you and then we will have some
questions we would like to ask afterwards, if that will work.
Do we have a timer specifically?
Mr. Bezas. Yes, I have it.
Chairman Akin. Okay, he will make some kind of a signal
when you are starting to get close to the end of your five
minutes.
So our first witness, and I am very thankful to have Ernst
Csiszar, who is the Director of Insurance for the State of
South Carolina. We had a chance to have lunch together and
Ernst has shared a couple of thoughts with me. I am just
fascinated by what your comments are going to be Ernst, and
thank you so much for taking time to join us here.
STATEMENT OF ERNST N. CSISZAR, DIRECTOR OF INSURANCE, STATE OF
SOUTH CAROLINA
Mr. Csiszar. Thank you, Congressman and again, I extend my
welcome to the State of South Carolina, what may be the first
time, I hope will not be the last time. We can use to tourist
dollars, by the way. And Congressman DeMint, welcome to your
home.
I am delighted to be here today and what I would like to
start with is just sort of a view, at least from a regulators
standpoint, of what some of the basic problems are with our
health care system, and perhaps suggest maybe not entire
solutions because this is a complex, very, very complex field,
but perhaps some of the answers that are worth considering. I
have heard some of those directly from Congressman DeMint at
lunch time. I think those were great ideas.
To begin with, I would describe the problem to start with
as what I would describe or call a flawed business model. And
the flaw starts with the very basic proposition that we have a
third party payer system in which the end customer is in
essence entirely desensitized from the price. Doctors and
patients incur the cost and employers and insurance companies
pay for that cost. So there is not much incentive, shall we
say, to have any degree of exercise by those who are actually
consuming the health care.
I would add that that fundamental flaw in the business
model is compounded by other flaws that I would attribute to
that same business model. I would say there is weak corporate
governance that we face in the sector. I will give you an
example. Most public hospitals, as you know, are run by a board
of trustees. Private ones also board of trustees or board of
directors. They tend to be staffed with political or business
cronies and oftentimes they do not do the job they are designed
to do. So corporate governance is weak.
I would also say that weak management teams quite
frequently are associated with the health care field, not least
because the skills of a doctor are not oftentimes the skills
that are required for management. No offense to the doctors,
they are wonderful, they are great in terms of their own skills
in practicing medicine, but I would suggest that management
skills sometimes are of a different nature and do not often
coincide with the profession that doctors engage in.
I would add another component, weak capitalization of the
business model. We heard this morning, for instance, that in at
least one state of the union--and I do not think this is
untypical necessarily--you can form an HMO with $1.00. So there
is overall, generally speaking, a weak capitalization.
Interestingly enough, it is also a business model that
turns the laws of economics upside down. In most other places,
demand drives supply. In the case of the health care system,
supply I think sometimes drives demand. If you build a
hospital, they will fill it for you, sooner or later it will be
filled.
I would add one other component to this business model
because it is a highly--and I would describe it as an over-
regulated business model in fact, it has high administrative
costs. The businesses incur, from what we estimate--I saw one
estimate quite recently--about 25 percent in overhead costs,
essentially paper shuffling kinds of costs, and that is
exceedingly high for an industry that has to live on very thin
margins, if there are any margins at all.
So fundamentally, I think the problem starts with the
problems with the very nature of the business. You add to that
the fact that this model, because of this removal of the
pricing decision if you will, from the end user, from the
patient, really brings about utilization issues. I sort of
shrink when I hear things coming out of Washington that suggest
we put cost controls on this, for instance. Cost controls do
not work when your price is not an inflationary kind of price.
If we are talking about spending, then the only way to control
the spending is through rationing, for instance. And that is an
unpalatable kind of solution I think politically or
economically for most Americans, but it is indeed spending. The
inflationary costs, if anything, have gone down. The costs of
actual medical procedures I think has gone down. The cost of
pills tends to go down as well, even though over time we have
seen increases in that.
The other problem we have of course is that over 40
percent, close to 50 percent, is already paid for by government
and it is really unaffordable from a governmental standpoint
and ultimately I can say that you add all these problems
together, together with the cost shifting out of Medicare and
Medicaid, and we have got what is certainly a bit of a mess.
In terms of solution, I would say address the fundamental
problem and the fundamental problem I think you have already
identified. It has to hurt the purchaser's pocketbook in some
shape or form, whether it be through a medical savings account,
whether it be through a voucher system, whether it be through
some other means, the fact of the matter is that unless you
bring a significant portion of the cost out of the purchaser's
pocket, you are not going to be able to control consumption.
Thank you.
[Mr. Csiszar's statement may be found in the appendix.]
Chairman Akin. Thank you very much, Ernst, that was very
much on target with what we are looking for--specific in terms
of where the problems were and then you give us a number one
solution for what you do about it. Thank you.
And we will take our next witness is Larry Marchant and I
believe that Larry is the Executive Director of the South
Carolina Managed Care Alliance, but also with experience in the
medical insurance business as well; is that correct, Larry?
Mr. Marchant. Yes, sir, thank you.
Chairman Akin. Good. Thank you very much for coming and
joining us.
STATEMENT OF LARRY MARCHANT, EXECUTIVE DIRECTOR, SOUTH CAROLINA
MANAGED CARE ALLIANCE
Mr. Marchant. Thank you for letting me be here, Mr.
Chairman, Congressman DeMint, it is a pleasure to represent the
third party payers today at our Congressional hearing. I also
have a little bit on the Alliance I would like to leave with
you, I have got an annual report I would like to share as part
of the record as well.
Chairman Akin. Without objection.
Mr. Marchant. From the insurer's standpoint, I think the
one thing that we would like for you to help us do as we form
partnerships to address this situation--I was happy to hear
Congressman DeMint's remarks at lunch about getting everyone to
the table because we want to make sure we are part of the
solution and we have some ideas.
If you will help re-empower us from the private sector
standpoint to help solve this affordability issue as well, I
think that as unpopular as managed care has been in the public
with some of our politicians and with the media, the fact of
the matter is, there was a time when managed care did help
control cost in the health delivery system. Honestly, there are
really only two ways we can control costs in the delivery
system. One is you lower the reimbursement level or you lower
the commodity which you are purchasing, that price, that unit
price, or you control the utilization of how much you are going
to purchase. And in health care, that is what we attempted to
do, and honestly, we thought we were successful in managed care
on trying to control those costs and still deliver a quality
product.
What concerns us, however, is regardless of what model we
end up doing--and we are supportive of a lot of different
options for employers and individuals. We, Congressmen, agree
that MSAs or those type of plans have a place. I think what we
fear is we do not want them necessarily to take the place of
another. We would like to have a lot of choices for individuals
and employers to choose from, whichever best fits their ability
to purchase that insurance. But when you boil it down to the
lowest common denominator, and the Director hit on it a little
bit on the inverse economics, and that is the health care
equation is very simple. You take the total number of dollars
that we spend in health care delivery, and let us say here in
South Carolina, put it all in the pot--doctor's salaries,
hospital costs, hospital administrators, insurance executives,
premiums, everything--put it all in the pot, divide it by the
population of South Carolina. And if the top line is higher
than the bottom line, you have medical inflation.
In my hometown of Columbia, 100 miles up I-26, we have a
quarter of a billion dollars in new hospital construction going
on just in my hometown. Somebody is paying for that
construction. I am not saying it is good or bad, it is needed,
I suspect you could probably line up the folks clear out to
King Street to give you all the reasons why we need every--all
four hospitals in Columbia need all this technology. But the
fact of the matter is those are the dollars that are added to
the top line and the industry is concerned that regardless of
how you are paying for it, whether it is a third party payer or
individual, some entity has to stand over someone's shoulder
and control excess capacity because we will still pay for that
no matter what model that we use.
Of course, my doctor friends will agree with me on this
statement, I think the only other construction project going on
in Columbia right now is a high rise for a new law firm.
[Laughter.]
Mr. Marchant. And that may tie in to his remarks on medical
malpractice.
But you know, we laugh and we are joking, but if you sit
back and think about it, somebody is paying for those costs.
And again, we have to make sure we have a system that is
looking at those costs and making sure when you go in to
purchase, that you are not over-paying or that you are not
accidently being over-utilized.
I do want to brag about one particular thing that the
Alliance for Managed Care worked with hand-in-hand with the
NFIB, Chairman Dan Tripp, I think who is in the audience, and
Chairman Thomas from the Senate, and the DOI, as a matter of
fact, and that is a mandate moratorium bill that we passed in
South Carolina last year. We were the first state to do this. I
think our General Assembly was wise enough to understand that
until we decide what the final answer is going to be on health
care delivery and how we are going to pay for this, at least we
can say okay, that is it, we are going to put a lid on
government mandates, we are going to put a lid on forcing
employers to pay for this and that. And while this is
definitely not the solution, we can do that until we can get to
those answers, Congressman DeMint, down the road and I would
ask the Chairman and the Committee to seriously look and see if
there are ways that we can kind of at least just put a stop to
any government intervention until we can come up with a plan
for the future, because you know there is a mile long of
mandates and HIPAA and privacy and reform that we did back in
the 1990s that we feel like maybe have hurt more than it has
helped.
I'm looking forward to questions from the Committee, and I
will do my best to supply the answers. And thank you for
allowing me to be here.
Chairman Akin. Thank you very much, Mr. Marchant, for your
perspective, and we will look forward to getting back with some
questions too.
Our next witness is Ms. Evelyn Perry and I believe that you
are a small business owner I am told, but also are you
connected with NFIB as well?
Ms. Perry. I am a member.
Chairman Akin. Member of the NFIB and also a small business
owner.
Ms. Perry. Correct.
Chairman Akin. And what was the nature of that business
again?
Ms. Perry. I will be glad to tell you about it.
Chairman Akin. You are going to sell me something.
STATEMENT OF EVELYN REIS PERRY, PRESIDENT OF CAROLINA SOUND
COMMUNICATIONS, INC., AND NATIONAL FEDERATION OF INDEPENDENT
BUSINESS (NFIB)
Ms. Perry. I wish you good afternoon, Mr. Chairman and Mr.
DeMint. Thank you for inviting me today to talk about the
important issue of affordable, accessible health insurance for
small business. I am pleased to be here on behalf of the
National Federation of Independent Business, representing
600,000 members who face a similar challenge.
My name is Evelyn Reis Perry and I am President of Carolina
Sound Communications and Georgia Sound Communications, family-
owned firms that provide a wide range of communication products
and services to over 2000 clients.
We are based right here in beautiful Charleston, South
Carolina and we also have offices in Myrtle Beach and recently
Savannah, Georgia.
At Carolina Sound, we are both low voltage contractors and
the MUZAK franchise in over 30 counties in South Carolina and
Georgia.
We design, install and service sound and video systems for
industry, schools, health care, the hospitality industry,
military installations and other businesses. Recently, we have
begun to work with the medical profession to help them comply
with the HIPAA Act.
The MUZAK business has been in Charleston since the early
1950s and has continued to grow appreciably. It is established
as a premier sound and video contractor in South Carolina and
now Georgia.
As President, I manage the day-to-day operations which
includes administering our employees' benefit package. At
Carolina Sound and Georgia, we have 17 employees.
Like many entrepreneurs, I learned early that if I want to
remain competitive in hiring, I must offer an attractive
benefit package. Since we started the company, we have provided
comprehensive health care to all employees.
I spent 20 years in the private non-profit world including
government before I became a business owner, and social
responsibility is important to me. However, recently, two
experiences forced me to stop and rethink health insurance and
what role an employer should play.
In January of this year, we acquired the MUZAK franchise in
Savannah, Georgia, which consists of 13 counties in Georgia
plus Hilton Head and Beaufort in South Carolina. The five
employees there were covered by health insurance provided by a
larger corporation which previously owned this property. The
company provided 50 percent of the premium cost to the
employee.
In investigating what this group would cost our company to
cover, we found that the premiums in Savannah were almost
triple the premiums in Charleston. This penalty was for no
other reason than the zip code of the Savannah office. It would
be impossible for us to cover these new employees at 100
percent, as we have done for years in Charleston. We have them
presently covered under a temporary policy while we investigate
what other options are available. Additionally, one of our
principals is now a diabetic, making it a risk to change
insurance companies in Charleston, even though we might wish to
look at competitive bids.
The government has provided that insurance companies must
cover all employees, but no one has guaranteed that it will be
at a rate which is affordable.
Our company offers a quality plan--medical, dental,
pharmaceutical coverage--with a wide network of doctors. Every
year that passes, to remain affordable, I have to either raise
the deductible or raise to copay. In past years, we have taken
competitive bids just to remain even. However, the reality is
that being insured is critical to our employees. We have in the
past paid 100 percent of the premium cost for them.
In addition to being a socially responsible company, it is
to our benefit to have healthy employees and we know that if we
did not supply this benefit, some would never visit the doctor
even for preventive care.
As you know, affordable health care is a problem that
stretches from coast to coast. A colleague of mine in Wisconsin
just went through the renewal process for her employees. She
shared with me her employees will be paying a larger share of
the premiums and they may delay coverage for new hires. One
agent told her, ``Small businesses can expect double digit
increases every year in the foreseeable future no matter what
their group's medical history is and no matter who the provider
is.'' Every year I hold my breath when that renewal notice
arrives. Our average increase has been almost 20 percent every
year for the past four years.
Knowing that providing health insurance is necessary to me
for both business and social reasons and knowing that I cannot
increase prices to my customers an extra 20 percent in order to
absorb the cost, I continue to offer health insurance benefits
despite the growing cost to our business. We have absorbed the
cost every year and have not passed it on to our employees.
Sadly, we now have had to rethink that policy and thus, I take
the risk of losing good employees and dramatically increasing
my turnover rate.
We have a 30-year old male employee, happens to be a family
member, for whom our premium is about $200 a month. When he got
married and had one child, he had to shoulder over $550 a month
for two dependents, even after we paid his personal premium.
Those of us in the small business community are struggling
each year to afford the cost of increasing premiums. It is for
this reason that I support legislation endorsed by NFIB and
others that would create association health plans. AHPs would
allow small business owners to band together across state lines
to purchase health insurance as part of a larger group, thus
ensuring greater bargaining power and lower administrative
costs.
Fortune 500 companies and labor unions already have this
right. AHPs will simply level the playing field and give small
employers the same privilege as their counterparts in labor and
big business. It will also spread the risk for the insurance
companies. In the end, they win as well.
We all know that small businesses employ the vast majority
of employees in this country and create the lion's share of all
net new jobs. Yet this economic engine that drives our economy,
small business, is the very group hurt by the inability to form
AHPs. This needs to change.
I know that the AHP legislation has already passed the
House of Representatives and I thank you for your leadership on
this issue. I would urge our Senate to follow the House's lead.
There are several other things that Congress can do. I
support and encourage the expansion of Medical Savings Accounts
and Flexible Spending Accounts.
Currently, there is no rollover provision. NFIB supports
legislation before Congress to allow $500 in unspent balances
in FSAs to be rolled over.
Further, MSAs without the current restrictions would give
employees more control over their own health care decisions. I
also support the concept of having a tax credit for the
purchase of individual health insurance.
I am a business owner, not a health policy expert, but I do
know that there is a lot of debate about how to insure more
Americans and how to help those currently insured continue to
afford their coverage. We need common sense solutions to
controlling the cost of quality health insurance.
Mr. Chairman, thank you for allowing me to share my
experience with you and the members of the Committee. And I am
happy to answer any questions that you might have.
[Ms. Perry's statement may be found in the appendix.]
Chairman Akin. Thank you, Ms. Perry. We are going to go
ahead to the questions afterwards, after we have heard from the
other witnesses, but thank you very much for sharing with us.
Our next guest is Dr. Vince Degenhart. I believe you are an
anesthesiologist and we really appreciate you coming in. Please
proceed.
STATEMENT OF VINCENT J. DEGENHART, M.D.
Dr. Degenhart. Thank you, Congressman Akin and Congressman
DeMint and staff for enabling me to be here to speak with your
Committee.
I have been practicing anesthesiology in Columbia, South
Carolina for over 20 years. In those 20 years, I have seen an
escalation in the number of malpractice cases and the amount of
jury awards against physicians and hospitals. These rises in
number of cases and jury awards have added greatly to the
health care bill of America. Last year, of the 10 awards of
over a million dollars in the state of South Carolina, six were
against physicians, according to South Carolina Lawyers Weekly.
Ironically, this comes at a time when health care,
technology, medical education are all improving. Health care in
the United States is at a pinnacle and we try to get better and
better and better. Life expectancy in the United States today,
if you are born today, is 75 years. By the year 2010, it is
expected to be 80 years. This is not because Americans are
taking better care of themselves, as obesity and sedentary
lifestyles have only increased the problems we see in medicine.
But medical care is getting better, in spite of what our trial
lawyer friends want to make America think. In other states,
such as Pennsylvania, Nevada, West Virginia, they have had
terrible crises in medical malpractice with doctors leaving the
state, doctors quitting neurosurgery, physicians stopping
delivering babies at ever increasing cost of malpractice
insurance and the constant threat of being sued.
Not every decision we make in medicine is going to be the
right decision, but even with the best education, the best
drugs, the best surgeons, things will go wrong. The human body
is a living marvel, yet we are all going to die. But that does
not mean that someone made a mistake or that there was
malpractice involved. But somehow in America, we have gotten to
expect that perfect results are the only way.
The typical wage earner in America earns $25,000 a year, in
South Carolina it is closer to $20,000 a year. As previous
speakers have said, the premiums monthly are about $200 to $220
per month. That is over 10 percent of the salary. Each year,
premiums go up by 15 or 20 percent, so now you pay more than 20
percent of your salary in premiums, so pretty soon, you cannot
afford health insurance; therefore, we have 41 million
Americans who are uninsured. These increases are incredibly
high, yet if we look at malpractice insurance increases, they
are staggering.
In Florida, the average OB/GYN premium is $143,000 to
$203,000 per year. It is no wonder they are leaving Florida.
Why when millions of Americans are without health insurance are
we spending more and more on malpractice insurance and legal
costs? $10 billion a year in the United States.
The average jury award in the last five years has gone from
$500,000 to $1 million in medical malpractice cases. Insurance
companies are stopping selling malpractice insurance. The
biggest one in the country, St. Paul Fire & Marine, stopped
selling malpractice insurance in South Carolina and nationally
last year, as their loss ratio--for every premium dollar they
collected, they lost a $1.50. Well you cannot make money doing
that. So they got out of the malpractice business, and they
were the second largest insurer in our state. In this state, we
are insured now primarily by the JUA and PCF, which are quasi-
state agencies, non-profit with all volunteer boards. Yet, we
have even seen dramatic increases in our insurance costs. This
year in 2003, our increase is 24 percent on average. For my
practice, it was 34 percent. We are paying this year $104,000
more than we were a year ago in malpractice insurance costs. We
have gone from $301,000 to $405,000 in one year. Now you just
cannot sustain those kind of increases in any type of small
business.
So many people look on malpractice and physicians and
hospitals as a pot of gold or their chance at the lottery, when
it is not. That money comes from somewhere, it comes from each
of you, all of us pay for it. That money comes out of the
system. So now you have raised the bar, somebody gets a $20
million award, now somebody else cannot afford health
insurance. It is estimated now that physicians, hospitals due
to the cost of malpractice and runaway jury awards along with
defensive medicine costs $50 to $100 billion a year in health
care dollars.
What can we do to solve this problem? We need drastic
solutions. Now H.R. 5 is a great start, we need to limit non-
economic damages to $250,000; we need to do something with the
contingency fee system. We are patterned after the English
system of law and yet there is no contingency fee system in
England. The loser pays and the judge is the judge and jury. So
I think that we are on the right track with H.R. 5,
unfortunately the Senate has voted against it and our own
Senators, Hollings and Lindsey Graham, have voted against tort
reform. A lot of money has gone into financial contributions,
but I think that if we keep pushing, keep pushing, keep
pushing, we can do something to solve this problem and get that
hundred billion back into the health care system and out of
these runaway jury awards.
Thank you.
[Dr. Degenhart's statement may be found in the appendix.]
Chairman Akin. Thank you very much, Doctor.
Our next witness is Mr. Doug Moreland and I believe Doug,
you are in the software business?
Mr. Moreland. That is correct.
Chairman Akin. Thank you very much for joining us. You can
proceed.
STATEMENT OF DOUG MORELAND, CHIEF TECHNOLOGY OFFICER,
BENEFITFOCUS.COM, INC.
Mr. Moreland. Good afternoon, thank you.
There are a number of factors that are contributing to the
high cost of health insurance. One of them that is significant
I believe is the cost of the administration of health-related
services. The cost of administering membership, determining
eligibility, adjudicating claims is a significant contributor
to the cost of insurance and this is a burden that the health
insurers and life insurers are all very familiar with.
About three and a half years ago, I and two other gentlemen
co-founded a business here in the Charleston area, originally
targeting a need that large and small employer groups had.
Those groups were suffering under the burden of paperwork,
paperwork associated with enrolling all of their employees in
health-related services as well as other benefits such as
401(k) dental and vision insurances. Our intent was to capture
that information, to unify it, on line so that it would be
quick and easy for employees to enroll and transfer that
information electronically to the health insurance carriers and
the other related benefit providers.
Well, we learned very quickly that there was a substantial
need in the insurance industry for these services and that led
very quickly to partnerships with a number of large health
insurers including Blue Cross-Blue Shield of South Carolina.
From there, we began to learn what their exact needs were, how
we could capture benefit enrollment for them, how we could
transfer that data to them electronically and how we could
reduce errors that were produced through latency in billing
systems and in claims, a substantial number of claims that were
being rejected because of miskeyed data.
From there, we began to work further and we became involved
with the small group business, and we learned that the cost of
administering small groups was substantially higher than the
cost of administering large groups. Small groups turn over
insurance quicker and the cost of selling and underwriting
small groups is substantially greater.
Further, from there, we began to learn that consumer-driven
health plans could be a significant contribution to the
administrative costs because health insurers' cost was very
high, but in addition to that, the employer groups' cost is
very high. They are experiencing, you know, 15, 20, 25 percent
rate increases every year and they are looking for some relief.
The small group consumer-driven health plans would allow
potentially for the configuration of health insurance on a
family-by-family basis, in particular, co-payments,
deductibles, co-insurance. Those types of features, if
configured, would allow a family to purchase health insurance
that would be substantially tailored for their needs, combined
with a medical spending account, it could be a great advantage,
because this would allow the employer to provide a fixed amount
of funding to a family's insurance and thus allow families to
spend their money more wisely. It also would introduce
responsibility to the consumer.
Currently we have an environment where consumers have a
tendency to use insurance if they have it and if they had more
responsibility in purchasing the insurance, then we would
probably see reduced costs--I would expect to see reduced costs
from that.
So in summary, what Benefitfocus has been able to provide
is administrative simplification, which of course is one of the
chief tenets of the HIPAA Act and I am here less to tell you my
opinions or what I think should be changed in the health
industry, but more to inform you what our experiences have been
these past years. And I give all of the credit to the health
insurers for educating us and inviting us into their business
to add administrative simplification.
Thank you.
Chairman Akin. Thank you very much for your perspective.
Dr. John Kulze, you are providing laser kinds of eye
operations, if I understand that.
Dr. Kulze. Exactly. Thank you.
Chairman Akin. Thank you.
[The statement of Mr. Moreland follows:]
STATEMENT OF JOHN KULZE, M.D.
Dr. Kulze. I am a Charleston physician in a small group
practice with one other doctor and 10 employees. We provide
comprehensive eye care including Lasik surgery and other eye
surgery.
As a small business, we have experienced first-hand the
difficulties of providing health insurance as an employer with
skyrocketing costs also. We treat patients in need of health
care without health insurance coverage also.
Lasik is one segment of eye care that has emerged in the
last decade and is generally not covered by insurance.
Subsequently, we have seen the cost of this procedure drop
substantially over the last several years due to competitive
pricing. Pricing varies greatly from high volume, low priced
laser centers to more moderate costs from individual providers
with personalized treatment. Medical offices, laser centers,
banks, financing companies have all emerged that have created
financing opportunities for almost any individual desiring the
treatment. So it has opened the doors to almost everyone.
As a small business owner and physician, we recently
changed our health insurance to a high deductible plan where
the employee/employer contribute to the deductible cost. This
returns the majority of the patient's outpatient care to a
health care and financial transaction between doctor and
patient. The third party does not stand in the middle and the
doctor and patient are forced to weigh the cost of the
treatment. This also allows the patient to control more of
their health care costs and direct costs toward preventive care
if they choose. Hopefully, changes such as these will continue
to help relieve this insurance cost burden.
Thank you.
Chairman Akin. Thank you very much for your testimony,
Doctor.
My understanding is that you have business here that you
have got to attend to fairly quickly, so perhaps I might start
with a question or two for you.
Dr. Kulze. Okay.
Chairman Akin. I will just start with first of all, how are
the third party payment plans affecting your practice and how
do you feel this practice can be improved?
Dr. Kulze. Well, quite often, the third party payment plan
is, as I said in my testimony, in the middle. So a patient
comes to see me and the patient and the doctor are together,
yet they cannot maybe continue treatment or provide treatment
until it is okayed by a third party payer and then possibly the
treatment, depending on what it is, may not be covered by the
third party payer. So it adds a whole other layer between
doctor and patient, where, you know, treatment and payment is
done.
Chairman Akin. Thank you very much. Congressman, did you
have a question you wanted to------.
Mr. DeMint. Yeah, Dr. Kulze--Kulze is right?
Dr. Kulze. That is correct.
Mr. DeMint. I often use the example when I am speaking of
laser eye surgery, so I am glad you are here. Because after
years of working in health care myself and dealing with process
improvement in many other business categories, I have found
that because of the payer system on the medical side of health
care, that it was very difficult for them--physicians,
hospitals--to constantly change the way they deliver, to look
for more efficient ways to do things, to look for new
technology, to cut out steps, because of the coding system and
really because of third party fixed payer systems. Not
necessarily insurance in general, I want to make a distinction
there.
But it looks to me that Lasik eye surgery is kind of an
example of what could happen if not only the consumer was
involved, but the physician was not tied down to the code
system that is a part of all other medicine. You can deliver
the service in the way that you think is best and you can pull
out as many steps as you want and it is competitive, like you
said, but it is my understanding that Lasik eye surgeons do
just fine as far as what they are making, the price is getting
lower and lower, the quality appears to go up, consumers making
the decision.
Sometimes people will say well consumers really are not
smart enough to buy health care. I would like you to maybe just
comment on the code system, the consumers, how you do business
directly with them. Do you think the American consumer can buy
health care?
Dr. Kulze. Well, first, the code system is quite
complicated and it seems to constantly change. So in a small
practice like myself, I mean I even have to have someone
designated or hired to keep up with correct coding. It would be
completely impossible for me to code everything myself and know
correct codes and file subsequently. I would not have the time.
Mr. DeMint. But you do not have to do that for Lasik.
Dr. Kulze. Yes, Lasik, you do not. Lasik is--there is not a
third party issue there to file. It is a transaction between
patient and doctor simply, like most any other thing purchased
in the world. So doctor and patient are going to sit down and
discuss the procedure and decide the best route to go. There
are varying price levels emerging with advancements in Lasik.
Prices may very according to the patient's desires. If you want
to take the Cadillac version, then you can have the Cadillac
version and pay for it too. But there is some pricing in that
manner. But competitive pricing between physician and physician
has really brought the price down I think.
Certainly it is not going to go lower than the physician
can stand. So it is at a level that is accepted I think to
physician and patient.
Mr. DeMint. Do you find the patient able to make--I mean
there is a concern that if patients ever do business directly
with you, that you are going to take advantage of them. How
would we make sure that did not happen if we tried to allow a
lot of other medical services to be delivered in the same way?
How do we know doctors would not take advantage of us?
Dr. Kulze. That is a good question and obviously like any
business person--physician, lawyer, whatever--it comes down to
when you are making the purchase, the transaction, the
treatment, there has to be some trust obviously. I think
physicians work hard to train themselves, to keep
certification, to know what goes on from one physician to the
other. I think patients see the quality of their care. I think
what you see in the majority of private medicine is that
doctors gain their business from referral from other patients.
So patients that have received appropriate care and quality
care, they tell their family members and friends who they think
they should go to. So that system alone promotes quality care.
Mr. DeMint. Okay. I yield back, Mr. Chairman.
Chairman Akin. Thank you. I very much appreciate your
coming in.
Let me see if I can summarize what I think I was hearing
you say, to make sure I understand.
First of all, you are saying that at least in the Lasik
side of your business, it is basically a free market in the
sense that there is a product that is available and customers
can come in and purchase it and they can negotiate what price
they want, depending on which doctor they want to talk to or
what procedure they need. And what you are saying is that that
free enterprise is working well. It is producing--maybe I am
putting words in your mouth, but tell me if I am. We are
producing a good quality product, the costs are continuing to
come down and yet the doctors and everybody is content with the
result of the transactions, nobody is starving to death and
people are getting good service. Is that the bottom line of
what you are saying?
Dr. Kulze. That is generally so, I agree.
Chairman Akin. But your practice also includes a much
broader spectrum of work other than just Lasik, and so in those
other categories, those are where you have the government set
up and essentially it is a de facto price control type of thing
and you also do not have the consumer that involved or
immediately involved in the cost of what they are purchasing.
Dr. Kulze. True. I do probably the majority of my practice
not Lasik and I strongly agree with the first gentleman that
talked that I think the answer in my view, from the doctor's
standpoint, is bringing this transaction back between patient
and doctor, so that at the same time that you are discussing
treatment, you are discussing the cost of the treatment. I
think that is very, very important.
Chairman Akin. Thank you very much for joining us, we
appreciate you coming in, especially with I know that you have
got other business waiting. So if you would like to be excused
and want to slip out, that is fine. We have got some questions
for the other gentlemen here as well.
Dr. Kulze. Thank you.
Chairman Akin. I think maybe what I am going to do is to
kind of go back around, Ernst, to you to start off and a
question which pretty much really occurred to me as I heard a
number of your other testimonies. Different ones of you,
depending on your perspectives, identified things that are
driving health care costs. You know, the problem of malpractice
in some areas, the problem of the cost of administration and a
number of different things.
Let me ask, and anybody who wants to jump in on this
question, please do. If you take a look at what these different
cost drivers are and you had to rate them, which one is really
driving cost of medicine the most. The first question would be
what do you think that would be, if you can compare
administrative costs to malpractice to other things. So that
would be my first question.
Mr. Csiszar Actually, Congressman, there is an interesting
study out by Price Waterhouse in 2002 that sort of identifies
some of the drivers and I think they are pretty much on target,
because I would agree with the fact that the number one driver
is demand. The number one driver is the fact for the first time
since the Egyptian pyramids, doctors are providing of value to
the patients, they are not telling them to go home and take a
couple of aspirins. You know, there are procedures--artificial
knees, MRIs, CAT scans, so on and so forth. So there is
something that the customer is valuing in this. So I think
demand supplemented by demographics, we know that our aged
population is roughly about 13 percent of the population, but
consumes roughly 33 percent of overall medical costs. So
combine demographics into this demand equation and I do not
think there is any doubt in my mind whatsoever that demand is
the number one driver.
Add to that then things like malpractice and I would agree
entirely with the doctor here that malpractice is a
contributor. I would only caution you, I keep hearing about
caps on awards and that is a good start, but that is not the
whole solution. I entirely agree with the comments made with
respect to loser pays, with respect to choice of venue, for
instance, which is significant, with respect to trial by judge
alone without juries for instance. So I think a comprehensive
tort reform package would make eminent sense because it is a
clear, clear driver.
I would add to that------.
Chairman Akin. Could I interrupt you just a second? Could I
assume that the things that you are mentioning are in sort of
economic order?
Mr. Csiszar Yes.
Chairman Akin. So you would say first of all demand,
obviously people want health care and that is really what is
driving it.
Mr. Csiszar Yes.
Chairman Akin. Second thing would be malpractice.
Mr. Csiszar Malpractice.
Chairman Akin. You pick that over, for instance,
administrative costs or whatever.
Mr. Csiszar I would pick that over the regulatory cost, for
instance, because the regulatory cost I would pick as number
three, just the amount of paperwork required by things like the
privacy legislation. Never mind paperwork, actually changes to
computer systems, for instance, at an enormous cost. So I would
add regulation as number three.
Certainly fraud is in there, I would put that probably in
as sort of a number four.
But by far, outstripping all of this is just the demand
factor I think. And that again is supplemented by a third party
payer system, by demographics, et cetera.
Chairman Akin. Thank you very much. Did anybody want to
piggyback on that one way or the other?
Mr. DeMint. A lot of the things you have mentioned--
paperwork, administration, fraud--a lot of these are a result
of again the third party fixed fee system, even the fraud
trying to game the system. Liability is somewhat of an issue in
that the patient is somewhat helpless in the process, all the
decisions have to be made for them, so they cannot share in the
responsibility the way it is set up.
So what I look for is, is there a common root cause. I mean
certainly not any one thing is going to change it, but a lot of
the system of bureaucracy and liability is built around the
fact that the patient is not a decision-maker, not a
responsible participant in the process and you have certainly
spoken of that.
Let me switch to Mr. Marchant. Mr Marchant, you have heard
the mention of these patient-directed plans, defined
contributions. And in your testimony you mentioned that someone
is going to--in other words, is going to have to ration
utilization. It is either going to have to be a third party or
it is going to have to be the patients themselves. I think we
have heard here and many other occasions, if we make it free
for the patient, then a third party is going to have to
restrict access, because getting back again to the idea of
demand.
But my question to you and I know that a number of the
companies that you represent have been involved with some of
these new products, but it does not appear that the insurance
industry is as active as I might think they would be at a
crisis stage of the industry developing defined contribution
plans, trying to work out how to make them work better for
patients, for employers, and maybe there is a lot going on that
I do not know. But just from an industry perspective, is the
development of defined contribution, health savings accounts,
HRAs, is that a priority of the health insurance industry?
Mr. Marchant. Congressman, the industry reacts to the
market. That is the reason why we had managed care to begin
with and that is why you are seeing more and more companies
coming up with these defined plans, MSAs. I know of at least
one, probably several health insurance companies here in South
Carolina that do offer these type products to employers. The
information that I have received back is that people are not
jumping to buy them. They appear to be complicated and for
whatever reason, I do not know if the marketing folks are not
pushing them, but we are not seeing people beat down the doors
to buy them. But we surely--we are at a position in the market
where we want to offer an employer anything. I mean we are at
the point where they are making decision to drop everything
that they have, so the industry is trying to retool and put
products on the market which people feel comfortable they can
buy. From what I understand so far is that the marketplace has
not matured yet or maybe the crisis is not large enough, I am
not sure. But they are not buying them like we thought they
would. But they are being offered in this state.
I want to get back though to a question about controlling
the cost and utilization, you talked a little bit about that in
the laser surgery that was talked about earlier. That is an
elective procedure. The industry is concerned that most health
care is an involuntary purchase, so whatever--I mean the laser
surgery, there is probably a lot of thought put into that, that
is elective and you can shop around. But whatever plan that we
decide to do, we still hope that there is an ability for
someone to go in and have some prearranged discounts or some
look after the fact to make sure that utilization does not
continue on the rate that it is right now and that costs stay
level.
Mr. DeMint. I appreciate those points. But I think most
health care is elective, 70 or 80 percent of what we go to the
doctor for goes away by itself within a few days. And what
concerns me is the way our system is set up, it encourages
people to actually over-elect. Certainly the more serious
procedures are not elective, the problems that people have, and
my concern is that we are over-utilizing at the primary care
level and we are not getting enough money up to the chronic,
more tertiary services.
But again my question goes back to you. I know following
the market is one thing, but it is my opinion that we need a
lot of help figuring out how to make consumer-directed products
work and we need a lot of participation from the health care
industry. This is not exclusive of other health care products,
I believe the cash accounts can work in conjunction with an HMO
insurance product, with a PPO insurance product, with all kind
of alternatives. What we are trying to do though is get some of
the health care decision-making made with the individual having
a vested interest in what it costs, pushing the health care
industry to publish prices, to get more quality information and
I guess my challenge to you and the industry is to help us on
that, because it is a complex product to develop and I have had
a number of employers say they have talked to their insurance
companies about it, the products are not developed very well,
there is not marketing material and folks are really just
learning about it. But we did have 10,000 federal employees
this year take a health reimbursement account product without
very much promotion at all. So my hope is that it is growing.
But I appreciate yours answers and response and
consideration there.
Mr. Chairman.
Chairman Akin. Thank you very much for the back and forth
on that. It raised one of the questions that came up to me,
Larry, in your comments. I think you said something to the
effect ``someone must control the excess capacity,'' and I
guess you could say which came first, the chicken or the egg.
But that does raise a question and that is if you are going to
control costs, and maybe that is making the assumption that
they will be controlled one way or the other, you know, who is
to do that? I think that certainly the health care industry has
done a job doing that, they have dropped a lot of costs in the
process of trying to cut out duplicate procedures, which we had
a lot of problems with in other ways.
On the other hand, at a fundamental level, I think Ernst
has raised the question of who is the ultimate person that is
going to be controlling that, and do we believe, as the doctor
just suggested, that that is more of a consumer base or is that
something that is going to be controlled by someone else. Do
you have a personal opinion as to where that should go or do
you generally support the concept that it should be more of a
consumer driven model that is going to help us?
Mr. Marchant. Well, surely we would support more cost
sharing for employees. I mean we understand and we believe that
the more people feel the give and take, the better off we
probably are on controlling utilization, and that of course
will be right back to the patient. I mean they will make that
decision. You know, insurance used to operate that way and we
have moved toward copays and we have moved toward the
prescription cards because that was the consumer demand, that
is what employers were asking for. We got into the preventive
medicine is good, we need to encourage people to get physicals
that may have cost $400 but it is better to let them have it on
a $25 copay and maybe catch that disease.
So all of these things were market forces and the industry
is supportive of going back towards more pay as you go, but we
have been under a tremendous political pressure from the
Congress and from our state legislators to try to put products
in the market the cover all these things, make it easy for the
employees to access this care. So I think the industry is
prepared to go either way, Mr. Chairman, on that issue. We want
to be involved in presenting options for the market.
Chairman Akin. Thank you very much, I think you answered my
question.
A follow up then, Ms. Perry, you had mentioned several
different kinds of ways to move more towards a market-driven
system. At least I got that impression of some of your
conclusions.
And I guess maybe I would just ask if you could elaborate,
what are the advantages or limitations of either, whether it is
a Medical Savings Account or the FSAs. I have trouble keeping
them all straight, but essentially------.
Ms. Perry. I do too.
Chairman Akin. --essentially variations on the theme where
you create more flexibility on the part of the consumer to
control how they want to get insured and how they want to cover
their medical liabilities. Could you comment on that?
Ms. Perry. Sure.
On the MSAs, from my understanding and again, I am not an
insurance expert by any means, individual families and
individuals can pay medical expenses from an MSA and they can
contribute to this tax free and it can be rolled over from one
year to the next. So if they bank the pretax money to pay for
copays or to pay for the deductibles and they do not use them
all this year, they will roll over and this is true of the FSAs
as well, the following year. Right now, I believe it's the
FSAs, if they are not used by the employee, who has been the
one to put their money into it, it goes to the employer, a
wonderful boon to me, but not to my employee. And they are not
going to be overly excited about putting their money into a
fund that disappears at the end of the year. And right now,
MSAs are scheduled to end December 31 of this year. They were a
demo, it was strictly an experiment and it is not going to
continue into the next year unless something happens. And there
has been a limitation of 750,000 individuals who are able to
participate in this product and then it cuts off.
Chairman Akin. So it is very limited what is available
right now.
Ms. Perry. Extremely limited--extremely limited.
Chairman Akin. Okay.
Ms. Perry. And I guess the one that is of most interest to
me right now is the AHP, the Association Health Plan, and
mainly for some of the reasons that I had mentioned. I see an
economy of scale, I see a spreading the risk. Instead of just
in-state, across the states, across the country, using the
population of the country or the population of an association
to spread the risk factor for the insurance company and for us.
So that when I buy a company in Georgia, I do not have to worry
about paying three times what I pay in Charleston, South
Carolina. If I only have 17 employees, I am competing with a
General Electric, I am competing with a large company that has
a very large population to spread that risk.
Chairman Akin. Thank you. Congressman DeMint, did you have
any follow up questions along those lines?
Mr. DeMint. Well, it is more of a suggestion. While MSAs
are very limited, health reimbursement accounts are now
available and can be rolled over. I would hope whatever carrier
you use would make you aware of those. This is where an
employer can put money into an account for an employee, they
can provide a reinsurance product above that and the money can
roll over if they do not spend it. Now we are trying to improve
that so it will be portable, so that the employee can put money
in it that rolls over, that is what health savings accounts are
ultimately envisioned to be. But right now, you can create an
HRA style of product.
But let me move from you to Mr. Moreland for a quick
question.
When you were talking about defined contribution plans, it
sounded like while you were positive about it, you were--did I
hear you say that the administrative costs of those were high?
Mr. Moreland. Well, to be more clear, I would say that the
delivery mechanism is a little more complex. It is difficult
for an employee to configure their benefits and determine their
cost on a piece of paper, which is why our organization has
gotten so involved in defined contribution plans, because it is
easy via computer software to provide an environment where a
subscriber, contract holder can configure their benefits
different ways and see the immediate impact on the bottom line,
their medical spending account and their overall costs.
Mr. DeMint. But your general conclusion is that this is a
potential solution to at least some of the problems we have
talked about. Is that fair to say?
Mr. Moreland. It is.
Mr. DeMint. And it can be administered efficiently if given
the right software and if your company does it, right?
Mr. Moreland. And we might. But further I would say too,
just referring to what we were speaking about earlier are
defined contribution system really prevalent in our industry
yet, and the answer I think is no, but I think there are a
number of reasons for that. One is that there is somewhat a
wait-and-see environment in the industry, but also because
there needs to be a fair amount of infrastructure in the
administration systems to support defined contribution plans;
in particular, paying claims out of medical spending accounts.
None of those systems, software systems or even processes have
really been established yet. So I think we will see that in
time.
Mr. DeMint. Good, good. I yield back.
Chairman Akin. Thank you, Congressman.
I know that Congressman DeMint has done a lot to challenge
the thinking of many of us in Congress along the lines of
these, particularly the MSAs, FSAs and it is helpful to hear
what you are saying, it just takes time. I remember when the
HMO first came along. Boy, it took a long time to drag me
along, I was one of those died in the wool, get my major
medical policy on the street corner and do not bother me with
telling me who my doctor was going to be. It takes time to try
to have a public understanding, and I am sure the medical
community to understand, how these systems are going to work.
So I appreciate your perspective on that.
I appreciate, Jim, that you are challenging all of us to
take a look at the way to try to develop that flexibility for
our consumers across the board.
Mr. DeMint. Thank you, Mr. Chairman.
Chairman Akin. I think maybe just in a general sense, I
will go back to the starting point I think that you, Ernst, put
pretty clearly and that was from a systems point of view, we
have got some fundamental problems in what we have got going.
And I think that is has been my sense, and part of the reason I
even ran for a government office was that we do have a systemic
kind of thing. And the problem is that we have separated the
consumer from the product that he is using, and that just by
definition is going to drive costs. And I appreciate your sort
of standing off and taking a look at it at a distance and
saying, you know, we kind of have to challenge some of those
assumptions at the front end.
My background was big business, I used to work for IBM and
other places like that, and I understand--you know, businesses,
I do not think of them as being evil, they are pretty much, you
show me the rules, I will play the game. And I think the
insurance companies have responded to the rules to some degree
the way politics and people in public office have defined them.
Maybe we need to get back to the drawing board and get back
to the basics that built America, which is allowing the
consumer to be one that defines the demand, and maybe that
answers that question that you mentioned, in terms of excess
capacity. You know, if people will not pay for it, that is a
quick way to stop it, and to try to develop those products.
Unless you have a follow on questions, Mr. Congressman, I
am------.
Mr. DeMint. I think we need to reassure Vince that we have
heard the malpractice argument and that is almost a no-brainer,
we need to do something about that. Medicine is not a perfect
science and to hold doctors to a standard of perfection is only
going to make it harder and harder for people to get health
care and to afford insurance.
But did you have any additional comments to make?
Dr. Degenhart. Well, I appreciate what the House has done
in that regard, and hopefully the Senate can somehow come
around, it has become a very partisan issue.
But since I spoke about the malpractice issue, I think I
would be remiss if I did not speak about the quality issue.
Because in medicine, we have got to improve quality. I think it
is good and we like to pat ourselves on the back that we all do
a great job and do not want to get sued. Yet the Institute of
Medicine says we make 44,000 errors a year that cause death in
the United States in American hospitals. That may be high, it
may be low, I do not know for sure. But in any event, we are
doing things. Our new committees on quality assurance, the new
leap frog group out of Washington that is instituting a
partnership with hospitals to have software programs such that
medical errors in medications basically cannot be made. You
cannot make a medication error that you write too much for a
patient or not enough, or that you write the wrong drug or
something they are allergic to. Also they will have treatment
protocols for different disease processes--did you think of
this, did you want to do this, did you want to do that. These
are some systems things.
A lot of times, I think what has been known with this with
the Institute of Medicine, what they showed was that most of
the errors are not errors that the physician or the nurse or
somebody makes personally, it is a system error. And we can fix
a lot of these systems. And yes, that takes money and it is
going to take time, but I think in the next two or three years,
you are going to see dramatic changes in that regard in
hospitals and health care facilities in their systems that are
going to be so much better. And I think that will deliver a
better product and hopefully ultimately a more cost-effective
product as Lasik has shown.
Chairman Akin. I may have glossed over. As a member of the
House, we passed some different malpractice legislation, I do
not know how many times in the last couple of years and so I
kind of took that as we have already done that, and I would
just wish that we had a tape recording to pass on to some of my
Senate colleagues so perhaps we could move something along in
that regard as well.
Perhaps some of you can do something about that. Who knows.
Larry.
Mr. Marchant. Going back to the answer that I gave to you
about the utilization, I cannot leave without stressing this
for the Committee to remember--patients do not control
utilization in the hospital setting. The providers control
utilization. So again, as we go back and rethink, yes, on the
voluntary procedures when you are of a sound mind and you can
think about what procedures you want to have done, remember
that most of cost that we incur in the health care delivery
system are 25 percent of the sickest people in the United
States. Most of those decisions are involuntary, the person
that is paying the way does not make those decisions on how
many tests to run, what procedure is done. Those are done by
the provider. So again, as we go through this process of
putting people in control of their health care, we have to take
into account that many of these decisions are not made by the
folks who actually pay the bill.
Mr. DeMint. And that is an excellent point, if I can jump
in, Mr. Chairman. As I envision defined contribution, patient
driven, I see primary and secondary health care and as we get
to the tertiary level which is more involuntary, obviously
third parties need to be involved. But we do need, to what
degree we can, keep--make sure folks have insurance, they are
covered, but keep the patient, their family at least involved
with the financial aspect of it. Because at whatever point
health care becomes free, the demand goes through the roof. And
we just need to question all aspects of it and I appreciate all
of you today helping us question it and come up with a few
ideas.
We want to move from talking about the problem to figuring
out what the solution is. And I know some of that is on our
side, some of it is on your side, and so hopefully we have
challenged each other today to come up with some new ways of
doing things and we will see how the health care market
evolves.
Mr. Chairman, I know we need to close right now but if
anyone has 30 seconds of something that has not been said that
needs to be said, you have done us all a great honor to be here
and I want to make sure we do not leave it unsaid. So any
additional comments?
(No response.)
Chairman Akin. Well, I appreciate that. So far I have a
perfect record of bringing meetings in on time and we have got
four minutes that has been redeemed for everybody.
Thank you all very much. We will be standing by for a few
minutes afterwards if you have any questions or answers or
thoughts. Thank you all very much, the meeting is adjourned.
[Whereupon, at 3:00 p.m., the hearing was concluded.]
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