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





     EXAMINING INNOVATIVE HEALTH INSURANCE OPTIONS FOR WORKERS AND 
                               EMPLOYERS

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

                                HEARING

                               before the

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             June 24, 2004

                               __________

                           Serial No. 108-66

                               __________

  Printed for the use of the Committee on Education and the Workforce



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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Cass Ballenger, North Carolina       Major R. Owens, New York
Peter Hoekstra, Michigan             Donald M. Payne, New Jersey
Howard P. ``Buck'' McKeon,           Robert E. Andrews, New Jersey
    California                       Lynn C. Woolsey, California
Michael N. Castle, Delaware          Ruben Hinojosa, Texas
Sam Johnson, Texas                   Carolyn McCarthy, New York
James C. Greenwood, Pennsylvania     John F. Tierney, Massachusetts
Charlie Norwood, Georgia             Ron Kind, Wisconsin
Fred Upton, Michigan                 Dennis J. Kucinich, Ohio
Vernon J. Ehlers, Michigan           David Wu, Oregon
Jim DeMint, South Carolina           Rush D. Holt, New Jersey
Johnny Isakson, Georgia              Susan A. Davis, California
Judy Biggert, Illinois               Betty McCollum, Minnesota
Todd Russell Platts, Pennsylvania    Danny K. Davis, Illinois
Patrick J. Tiberi, Ohio              Ed Case, Hawaii
Ric Keller, Florida                  Raul M. Grijalva, Arizona
Tom Osborne, Nebraska                Denise L. Majette, Georgia
Joe Wilson, South Carolina           Chris Van Hollen, Maryland
Tom Cole, Oklahoma                   Tim Ryan, Ohio
Jon C. Porter, Nevada                Timothy H. Bishop, New York
John Kline, Minnesota
John R. Carter, Texas
Marilyn N. Musgrave, Colorado
Marsha Blackburn, Tennessee
Phil Gingrey, Georgia
Max Burns, Georgia

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director
                                 ------                                

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                      SAM JOHNSON, Texas, Chairman

Jim DeMint, South Carolina, Vice     Robert E. Andrews, New Jersey
    Chairman                         Donald M. Payne, New Jersey
John A. Boehner, Ohio                Carolyn McCarthy, New York
Cass Ballenger, North Carolina       Dale E. Kildee, Michigan
Howard P. ``Buck'' McKeon,           John F. Tierney, Massachusetts
    California                       David Wu, Oregon
Todd Russell Platts, Pennsylvania    Rush D. Holt, New Jersey
Patrick J. Tiberi, Ohio              Betty McCollum, Minnesota
Joe Wilson, South Carolina           Ed Case, Hawaii
Tom Cole, Oklahoma                   Raul M. Grijalva, Arizona
John Kline, Minnesota                George Miller, California, ex 
John R. Carter, Texas                    officio
Marilyn N. Musgrave, Colorado
Marsha Blackburn, Tennessee


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Month Day 2003...................................     1

Statement of Members:
    Andrews, Robert E., Ranking Member, Subcommittee on Employer-
      Employee Relations, Committee on Education and the 
      Workforce..................................................     3
    Johnson, Hon. Sam, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the 
      Workforce..................................................     2
        Prepared statement of....................................     3

Statement of Witnesses:
    Dennis, William Jr., Senior Research Fellow, National 
      Federation of Independent Business (NFIB), Washington, DC..     5
        Prepared statement of....................................     8
    McArdle, Frank, Ph.D., Manager, Washington, DC Research 
      Office, Hewitt Associates, Washington, DC..................    13
        Prepared statement of....................................    15
    Pollack, Ron, Executive Director, Families USA, Washington, 
      DC.........................................................    19
        Prepared statement of....................................    21
    Remmers, Rick, Chief Executive Officer, Humana, Inc. - 
      Kentucky, Louisville, KY...................................    27
        Prepared statement of....................................    31

 
EXAMINING INNOVATIVE HEALTH INSURANCE OPTIONS FOR WORKERS AND EMPLOYERS

                              ----------                              


                        Thursday, June 24, 2004

                     U.S. House of Representatives

               Subcommittee on Employer-Employee Relations

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2181, Rayburn House Office Building, Hon. Sam Johnson 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Johnson, Tiberi, Wilson, Kline, 
Carter, Andrews, Payne, McCarthy, Kildee, Tierney, and 
McCollum.
    Staff present: Kevin Frank, Professional Staff Member; Ed 
Gilroy, Director of Workforce Policy; Aron Griffin, 
Professional Staff Member; Richard Hoar, Staff Assistant; Molly 
Salmi, Deputy Director of Workforce Policy; Deborah L. 
Samantar, Committee Clerk/Intern Coordinator; Jody Calemine, 
Minority Counsel Employer-Employee Relations; Margo Hennigan, 
Minority Legislative Assistant/Labor; Marsha Renwanz, Minority 
Legislative Associate/Labor; and Michele Varnhagen, Minority 
Labor Counsel/Coordinator.
    Chairman Johnson. Good morning.
    A quorum being present, the Subcommittee on Employer- 
Employee Relations of the Committee on Education and the 
Workforce will come to order.
    We are holding a hearing today to hear testimony on 
examining innovative health insurance options for workers and 
employers. Under Committee Rule 12(b), opening statements are 
limited to the Chairman and Ranking Minority Member of the 
Subcommittee. Therefore, if other Members have statements, they 
will be included in the hearing record.
    With that, I ask unanimous consent for the hearing record 
to remain open 14 days to allow Member statements and other 
extraneous material referenced during the hearing to be 
submitted into the official record.
    Without objection, so ordered.

   STATEMENT ON HON. SAM JOHNSON, CHAIRMAN, SUBCOMMITTEE ON 
  EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 
                           WORKFORCE

    I want to extend a warm welcome to all of you and to the 
Ranking Member, Mr. Andrews, and my other colleagues who are 
present today.
    With annual double-digit health care cost increases over 
the last few years, employers are faced with the question of 
how they will continue voluntarily providing the high level of 
quality benefits that they have in the past.
    Essentially, they have three options: reduce benefits, ask 
employees to contribute more, or reexamine your whole 
workforce.
    Many employers are redesigning their health plans and 
implementing new options to help employees become more savvy 
customers of health care. For example, the Wall Street Journal 
had an article yesterday which described what the Texas-based 
Whole Foods Market, Inc., was doing. In 2003, Whole Foods took 
a chance and implemented their own high-deductible plan 
combined with an account that the employer subsidized. By 
putting employees in the driver's seat when it came to their 
health care decisions, they hoped to lower costs.
    The results of their decision was impressive. According to 
the article, overall medical claim costs fell 13 percent from 
the year before, and despite critics' conjecturing, one woman 
said that the plan certainly never stopped her from going to 
the doctor, ``but it made me a more conscious spender.''
    At the end of 2003, $14 million carried over in employee 
accounts, which employees can use toward this year's medical 
expenses, and the benefits of a plan like this are not just 
cost-based. The number of Whole Foods employees with health 
insurance skyrocketed from 65 percent to 95 percent, and the 
employees are happy with their plans.
    Last summer, the company gave their workers a choice 
between consumer-driven plans and one of the more traditional 
insurance arrangements. The high-deductible plan won out, with 
an overwhelming 83 percent of the vote. Many Members of 
Congress would do well to get that kind of confirmation.
    The Whole Foods model is just one example of the innovative 
ways employers are continuing to offer benefits. In today's 
hearing, we will also explore two other options that were made 
available to employers in last year's Medicare Modernization 
Act. Employers now have the benefit of new health savings 
accounts. Individuals and employers may make annual 
contributions in these HSAs tax-free, and as long as the money 
is used for medical expenses, it can be withdrawn tax-free.
    As a way of helping employers to continue offering high 
quality health benefits to their employees once they have 
retired, the recent Medicare prescription drug law also made a 
range of new options available to employers with respect to 
prescription drug benefits, and the options present a great 
opportunity to help ensure the viability of voluntarily 
sponsored health plans.
    We look forward to hearing your testimony, and I thank all 
of you for coming.
    I am going to yield now to the distinguished Ranking 
Minority Member of the Subcommittee, Mr. Andrews, for whatever 
statement you wish to make.
    [The prepared statement of Chairman Johnson follows:]

   Statement of Hon. Sam Johnson, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the Workforce

    Good morning. Let me extend a warm welcome to all of you, to the 
Ranking Member, Mr. Andrews, and to my other colleagues.
    With annual double-digit health care cost increases over the last 
few years, employers are faced with the question of how they will 
continue voluntarily providing the high level of quality benefits they 
have in the past. Essentially, they have three options: reduce 
benefits, ask employees to contribute more, or reexamine their 
workforce.
    Many employers are redesigning their health plans and implementing 
new options to help employees become more savvy consumers of health 
care.
    For example, the Wall Street Journal had an article yesterday which 
described what the Texas-based Whole Foods Market Inc. was doing. In 
2003, Whole Foods took a chance and implemented their own high 
deductible plan combined with an account that the employer subsidized. 
By putting employees in the driver's seat, when it came to their health 
care decisions, they hoped to lower costs.
    The result of their decision was impressive. According to the 
article, ``overall medical claim costs fell 13% from the year before.'' 
And, despite critics conjecturing, one woman said that the plan 
``certainly never stopped [her] from going to the doctor, but it made 
me a more conscious spender.''
    At the end of 2003, $14 million carried over in employee accounts, 
which employees can use towards this year's medical expenses.
    The benefits of a plan like this are not just cost-based. The 
number of Whole Foods employees with health insurance skyrocketed--from 
65% to 95%!
    And the employees are happy with their plans. Last summer the 
company gave their workers a choice between the consumer-driven plan 
and one of the more traditional insurance arrangements. The high-
deductible plan won out with an overwhelming 83% of the vote. Many 
members of Congress would do well to get that kind of confirmation!
    The Whole Foods model is just one example of the innovative ways 
employers are continuing to offer sound benefits. In today's hearing we 
will also explore two other options that were made available to 
employers in last year's Medicare Modernization Act.
    Employers now have the benefit of new health savings accounts 
(HSAs). Individuals and employers may make annual contributions in 
these HSAs tax-free. And, as long as the money is used for medical 
expenses, it may be withdrawn tax-free.
    As a way of helping employers to continue offering high quality 
health benefits to their employees once they have retired, the recent 
Medicare prescription drug law also made a range of new options 
available to employers with respect to prescription drug benefits.
    The options present a great opportunity to help ensure the 
viability of employer-sponsored health care. We look forward to hearing 
your testimony.
                                 ______
                                 

STATEMENT OF ROBERT E. ANDREWS, RANKING MEMBER, SUBCOMMITTEE ON 
  EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 
                           WORKFORCE

    Mr. Andrews. Good morning. Thank you, Mr. Chairman, for 
your courtesy, and I appreciate the chance to hear from the 
witnesses this morning. Thank you for your time and your 
preparation.
    In the last three-and-a-half years, over 4 million people 
have lost their health insurance. The number of people who are 
without health insurance has gone up from about 40 million to 
44 million.
    One of the driving factors in that is the wildly escalating 
cost of health insurance. There is not an employer with whom I 
have met in the last 5 years, frankly, that has not listed the 
skyrocketing costs of health insurance at or near the top of 
his or her list of concerns. Without a doubt, the rising cost 
is a major contributor to the growing ranks of the uninsured. 
So, the focus on ways to reduce the cost of health insurance is 
a welcome focus.
    It is a highly debatable area. I, frankly, am greatly 
skeptical that so-called consumer-driven models will reduce 
health care costs. Buying health care is not the same thing as 
buying an article of clothing or a piece of furniture. It is a 
very complex transaction, and I think that the presumption is 
that these choice models may deteriorate quality before they 
reduce cost, but that is why we have these hearings, so we can 
debate and hear the arguments for and against such models.
    I would caution people, however, not to put too much 
credence in the theory that a modest cost reduction would 
radically reduce the number of uninsured people in the country, 
because it will not. A modest cost reduction is welcome and it 
is necessary, but it is wholly insufficient to deal with the 
vast majority of the 44 million uninsured Americans. If you 
look at American families that made less than $37,000 a year, 
half of them have been without health insurance in the last 
year.
    Typically, the family that is without health insurance has 
a very low family income. The person who is working in that 
household is working for a thin margin industry at low wages 
with little or no health benefits. A significant drop in the 
price of health insurance is not going to reach most of those 
uninsured people. It is not.
    The employer who is working on a very thin margin to begin 
with is not going to be motivated to provide health insurance 
to an employee if the price drops from $8,200 to $7,800 per 
family. He or she still cannot afford it.
    The harsh reality here is, without significant public 
subsidies, there will not be a significant reduction in the 
number of uninsured people in the country. So I think that 
leads us to the discussions we are going to have on the floor 
today about the larger and global economic questions for the 
country. Are tax cuts the right policy or not? Is spending 
restraint the right policy or not? In what areas are these the 
right policies or not? Without a significant investment in 
subsidy to help uninsured people gain access to health care, it 
is not going to happen.
    Now, that does not mean that we should not explore various 
tools at our disposal to reduce the price of health care, and I 
look at this morning's panel as an excellent opportunity for us 
to learn that.
    There are many different approaches to this. Some I think 
will work and some will not, but I think it is very important 
that we approach this problem with a clear understanding that a 
family that is making 24 or $25,000 a year, that makes too much 
for Medicaid but not enough to pay for private health 
insurance, is not going to be helped very much by a stabilizing 
or modest reduction in prices of health care for employers. 
Some of those families will, in fact, get covered, but anyone 
who assumes that it is more than 15 or 20 percent of those 
families just is wrong. It is not.
    So I think that not only do we need to focus on the issues 
of reducing cost, but we also need to focus on the budget 
priorities and policies of the country as to whether we are 
putting the money in the right place, and I will just conclude 
by saying I think we did the right thing in 1997 with the 
creation of the State Children's Health Insurance Program, the 
SCHIP program.
    There was more progress made in those few years when the 
funds were available for that program than any other time in 
the recent history of the country, because we put a significant 
amount of Federal resources into purchasing high-quality health 
insurance for children across the country.
    That is what is going to make a dent. These other 
strategies are welcome and necessary, but they are not 
sufficient to address and solve the problem.
    So I look forward to the testimony of the witnesses, and I 
look forward to the questions from the members of the 
Committee.
    Thank you.
    Chairman Johnson. Thank you, Mr. Andrews.
    Let me introduce our witnesses now, and I want to thank you 
all for coming now, and I will again later.
    The first witness is Mr. William Dennis, Jr. Mr. Dennis is 
a Senior Research Fellow at the National Federation of 
Independent Business. He has also served as President of the 
International Council for Small Business.
    Second, Mr. Frank McArdle. Mr. McArdle is the manager of 
the Hewitt Associates Washington, DC Research Office. Prior to 
joining Hewitt, Mr. McArdle was Director of Education and 
Communications at the Employee Benefit Research Institute. 
Prior to assuming his position, he was a Professional Staff 
Member at the U.S. Senate.
    You did not talk them into doing anything right over there, 
did you?
    Mr. Ron Pollack is our third witness. Mr. Pollack is 
Executive Director of Families USA, a national organization for 
health care consumers. Mr. Pollack is also the founder and 
chair of the Health Assistance Partnership.
    Finally, Mr. Rick Remmers. Mr. Remmers is the chief 
executive officer of Humana, Incorporated, Kentucky, Indiana, 
and Tennessee health plans. In this capacity, he is responsible 
for overall strategic direction and operational performance of 
a combined 500,000-member, $1 billion premium revenue 
commercial health plan operation.
    Before the witnesses begin, I would like to remind the 
members that we will be asking questions after the entire panel 
has testified.
    In addition, Committee rule 2 imposes a 5-minute limit on 
all questions, and the lights that you saw working down there 
are also 5-minute timer lights, and we would ask you if you 
could try to keep your comments within that limit. When you see 
the yellow light, you know you have got a minute left, and if 
you could shut it down pretty quick after the red one comes on, 
we would appreciate it.
    You may begin your testimony, sir.

   STATEMENT OF WILLIAM DENNIS, JR., SENIOR RESEARCH FELLOW, 
NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB), WASHINGTON, 
                               DC

    Mr. Dennis. Thank you, Mr. Chairman.
    I would ask that my full statement be included in the 
record at this point.
    What happens when small employers receive substantial 
increases in employee health insurance premiums? Well, the flip 
answer is they struggle a lot. Unfortunately, the real answer 
is they struggle a lot.
    The easiest way to explain is to walk you through the 
process.
    Once they receive a substantial increase, their first 
reaction is to shop for a better deal. Indeed, we now find 60 
percent of small firms are shopping for a better deal every 
year. About half that number actually switch. Small firms are 
the most frequent shoppers, although they are the least 
frequent switchers. There are limits to what they can get in 
the market.
    Some move to non-traditional forms of insurance. For 
example, 13 months ago, we found that about 5 percent of all 
small firms had an MSA. These firms employ 3.9 million 
employees, although obviously they all did not participate. 
Once they finish shopping and even if they get some price 
break, they still need to offset the rest. They have various 
options before them. I will mention three of the most 
important.
    The first is to raise prices, in other words forward shift. 
The second is to back shift to employees. The third is to lower 
their own earnings.
    Most would like to raise prices, but most also operate in 
highly competitive markets.
    I would draw your attention to Exhibit 2. Exhibit 2 shows 
how unsuccessful small firms have been in passing on cost 
increases over the last decade. If you will note, the thin line 
represents those who would like to raise prices in the next 3 
months; the heavy line indicates the number who were able to. 
You can see that the heavy line is around zero. Therefore, when 
they get--when small firms get premiums increases, substantial 
premium increases, they have a very difficult time forward 
shifting it.
    The alternatives to back shift to employees in the form of 
fewer jobs, lower wages, fewer benefits, etcetera--economists 
argue that both theory and evidence show that most health 
insurance cost increases are back shifted over some period of 
time but not everything is back shifted and not everything is 
back shifted immediately.
    For example, we can see 25 to 30 percent of all small firms 
raising cost shares, raising co-payments, raising deductibles. 
That is back shifting.
    Actually, we are finding that relatively few drop 
insurance, per se. Now, that seemed kind of strange, because 
why would we have declining coverage? Well, we believe that an 
important reason for this is that new firms, of which there are 
800,000 new employers every year, are reluctant to begin 
providing insurance.
    The third thing that could be done is lower earnings. That 
is not viable over the longer term. No earnings, no business, 
no need for health insurance. Yet all costs cannot be back 
shifted, and we cannot forward shift, as you have seen.
    So what is left? That is earnings, that is income, and most 
small firm owners are middle, upper middle-class folks. So what 
is the stopgap? Their income is stopgap until a transition can 
be made, and those transitions are exacerbated by short notice 
of premium increases, unexpectedly large hikes, proportionally 
large hikes, payroll as a large portion of expenses, and a 
tough earnings environment, and that is what we have had, a 
tough earnings environment.
    So what choices do they have? Well, there is no fixed 
strategy. It depends upon individual circumstances, but there 
is no reason to believe that back shifting will stop or 
decrease. We may be able to do a little more forward shifting. 
There has been some pricing power in the last couple of months, 
but I do not see Mr. Greenspan letting that go on for long, and 
they will continue to shop and look for better deals.
    In conclusion, whatever one thinks of insurance companies, 
rates do reflect the price of health care. Curbing health care 
costs is an important target. How do we get there? Well, we get 
there best with individuals making choices about the health 
care rather than employers, through their insurers, or 
government making it for them.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Dennis follows:]

  Statement of William Dennis, Jr., Senior Research Fellow, National 
       Federation of Independent Business (NFIB), Washington, DC

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                                ------                                

    Chairman Johnson. Thank you, sir, and let me advise all of 
you, your full remarks will be entered into the record if you 
desire. So if you cannot get through them all, we will get them 
in the record for you and perhaps discuss them more in detail 
when the question period begins.
    You may begin your testimony, sir.

 STATEMENT OF FRANK McARDLE, MANAGER, WASHINGTON, DC RESEARCH 
           OFFICE, HEWITT ASSOCIATES, WASHINGTON, DC

    Mr. McArdle. Good morning, Mr. Chairman and Members of the 
Subcommittee.
    Thank you for the invitation to appear before you this 
morning, and Mr. Chairman, I appreciate your condolences on my 
prior Senate staff experience.
    My name is Frank McArdle, and I manage the Washington, DC, 
Research Office of Hewitt Associates. Hewitt is a global human 
resources outsourcing and consulting firm headquartered in 
Lincolnshire, Illinois. We have been in business since 1940, 
and we work with employers, employees, and retirees, literally 
millions of employees and retirees throughout the country.
    In addition to that experience, I will also draw this 
morning from some surveys that we have conducted at Hewitt in 
conjunction with the Henry J. Kaiser Family Foundation, which 
are all available on the web-site, www.kff.org.
    Today's hearing is focusing on new insurance options, and I 
would like to discuss some new options available to employers 
under the Medicare Prescription Drug Improvement and 
Modernization Act, which I will abbreviate as the MMA.
    What I would like to do before I get into that, though, is 
describe four key pre-existing trends that were in force just 
prior to the enactment of the MMA, and one is employer plans 
were voluntarily providing very generous benefits to retirees, 
both pre-65 retirees and Medicare-eligible retirees, and these 
are highly valued.
    Observation No. 2: Retiree health benefits were continuing 
to erode, as they had begun to do in the 1990's, early 1990's, 
and you have charts in my testimony that illustrate that.
    Three, double-digit cost increases in the range of 13 to 14 
percent were playing a major role in driving that erosion, and 
fourth, retiree health plans varied widely both within large, 
multi-state firms and across the country nationwide.
    So, in light of these trends, the MMA seeks to encourage 
employers to continue providing retiree health coverage by 
offering incentives for employers to do so and, equally 
importantly, the flexibility for employers to choose among 
multiple options, because no single option would likely fit the 
situation of these complex entities.
    There are basically three broad categories of options and 
then some additional ones. The three big ones are, option one, 
the plan sponsor provides retirees not enrolled in Part D--and 
that is important--qualified retiree prescription drug benefits 
that are at least equivalent actuarially to what Medicare will 
provide in 2006.
    If the plan meets those requirements, then the plan is 
eligible for a payment from Medicare equal to 28 percent of the 
allowable costs for a drug for a retiree, between $250 and 
$5,000. So it is done on a per-retiree basis. It is not done on 
an aggregate basis.
    This option is probably the least disruptive for all 
retirees, and it actually costs Medicare less to provide this 
28-percent subsidy than it would cost Medicare to provide 
coverage to a similar retiree without employer coverage.
    Option two, the plan sponsor can supplement or wrap around 
Medicare, generally using ways that are similar to what 
employers did in the past in terms of aligning with Medicare, 
but also, there is a new twist, and there are differences, 
because drug coverage is obviously very different than hospital 
care and physician services.
    Then option three is an employer can become an employer-
sponsored PDP or Medicare Advantage plan using a waiver 
authority that is provided for under the new law.
    Beyond these three broad options, other possibilities exist 
for companies who may have the financial ability to do 
something but would choose a route that is better suited to 
their circumstances. At this stage, most large employers have 
yet to make the firm decisions as to which approach they will 
take, because it's still very early in the process and 
employers still lack certain piece of key information.
    For example, there are unanswered questions that will be 
decided in forthcoming regulations at which CMS is busily and 
diligently at work, and in addition, employers will be looking 
to the marketplace to see how plans will respond to the 
prospect of becoming a stand-alone PDP or Medicare Advantage 
plan.
    I can tell you that I think, at this point, that sponsors 
of large collectively bargained plans may be more inclined to 
choose a 28-percent subsidy while other sponsors may, instead, 
prefer to wrap around the new Medicare coverage.
    Based upon CBO and Joint Tax estimates, these financial 
incentives for the 28-percent subsidy are very substantial, at 
$71 billion between 2006 and 2013 and nearly another $18 
billion in related tax benefits.
    In explaining these incentives, the Conference Report 
noted--and I quote--``Absent this assistance, many more 
retirees will lose their employer-sponsored coverage.''
    We agree with that conclusion, Mr. Chairman, and I thank 
you.
    [The prepared statement of Mr. McArdle follows:]

  Statement of Frank McArdle, Ph.D., Manager, Washington, DC Research 
               Office, Hewitt Associates, Washington, DC

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                                ------                                


    Chairman Johnson. Thank you, sir.
    You may begin, sir.

 STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, FAMILIES 
                      USA, WASHINGTON, DC

    Mr. Pollack. Mr. Chairman, thank you so much for inviting 
me. I am delighted to join you.
    For three reasons, this is a very timely hearing. We 
issued--we at Families USA issued a report about 2 weeks ago 
that looks at the uninsured in a somewhat different way than we 
are normally used to doing.
    The current population survey of the Census Bureau tells us 
there are 43.6 million people who are uninsured. Depending on 
your interpretation, that is either the number of people 
uninsured throughout the course of the year or a point-in-time 
estimate, but it does not tell you how many people are directly 
affected with being uninsured.
    Our report, also based on Census Bureau data, shows that, 
over the course of the last 2 years, 81.8 million people, 
almost 82 million people were uninsured at some point over the 
last 2 years, 2002-2003.
    That constitutes approximately one out of every three 
people under 65 years of age, and most of these people were 
uninsured for substantial periods of time. Over half were 
uninsured for more than 9 months, and the vast majority of 
these people are in working families. Four out of five are in 
working families.
    Mr. Chairman, as you probably know, Texas ranks at the very 
top of the list that has a very high uninsured rate. In Texas, 
43.4 percent of people under 65 years of age were uninsured at 
some point over the last 2 years.
    Now, there are other reasons why this hearing is very 
timely. Obviously, there was a very important Supreme Court 
decision that was rendered which means that, for many people 
who have health coverage through their employer, even though 
they are covered, they may not get the care that they thought 
that they were supposed to get when they got coverage, and now 
it appears that there is not meaningful recourse to make sure 
that people actually get the care they thought they were 
supposed to get when they obtained insurance from an employer.
    My hope is that we will work in a bipartisan fashion to 
enact a patient's bill of rights so that people who do have 
insurance actually get the care that they need.
    Lastly, this is a very important and timely day for a 
hearing because later day, you may be voting on budget 
legislation that will establish entitlement caps that would 
cause severe harm to those people who are dependent on 
Medicaid.
    If the legislation is adopted that establishes an 
entitlement cap, by the end of the 10-year period, 17 percent 
of those on Medicaid are projected to lose their coverage. As 
many as 8 million people whose lifeline is the Medicaid program 
would lose coverage.
    So this is a very timely day for us to be having this 
hearing.
    In my written testimony, I focus on three different aspects 
of proposal--I am not going to go into them in great detail--
health savings accounts, tax credits to buy individual 
coverage, and association health plans. We think, actually, 
that those approaches will do very little to provide health 
coverage for those people who do not have it today and, in some 
instances, may actually do harm.
    Let me just mention that, with respect to health savings 
accounts, we think they are poorly targeted. They provide the 
greatest relief for people in the highest income brackets.
    We do not believe it is going to achieve meaningful cost 
containment. It is more likely, ultimately, to cause adverse 
risk selection, and we believe that it will facilitate more 
cost shifting to workers who can ill afford it.
    I think there are alternatives, and in the remaining time, 
I just want to suggest that one alternative that we should look 
at is reinsurance coverage, especially for small businesses, so 
that those small businesses who are having difficulties paying 
for the care of their workers have two things.
    One is they get some relief, because by the provision of 
reinsurance, it would reduce the premiums, because for example, 
reinsurance that would provide protection for people with 
claims above $50,000--only one half of 1 percent actually 
encounter those kinds of costs, but they account for 20 percent 
of health care costs.
    If we provided such reinsurance protection for employers, 
it would not only reduce their premiums, but it would provide 
greater predictability in terms of what those premiums would be 
in the future, and it could be a great help to small 
businesses.
    Lastly, I would say, rather than establishing an arbitrary 
cap on public programs like Medicaid, I think we should be 
using those programs to expand coverage so that the 
arbitrariness that results in people getting coverage based on 
state of residence or their family's status is brought to an 
end and we can expand coverage substantially to working 
families in the process.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pollack follows:]

Statement of Ron Pollack, Executive Director, Families USA, Washington, 
                                   DC

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    Chairman Johnson. Thank you.
    Mr. Remmers, you may begin.

  STATEMENT OF RICK REMMERS, CHIEF EXECUTIVE OFFICER, HUMANA, 
                 INC.- KENTUCKY, LOUISVILLE, KY

    Mr. Remmers. Chairman Johnson, Ranking Member Andrews, and 
distinguished Members of the Subcommittee, my name is Rick 
Remmers. I am Chief Executive Officer of Humana's operations in 
Kentucky, Indiana, and Tennessee.
    Humana is one of the nation's largest health benefit 
companies. We provide health benefits to approximately 7 
million Americans.
    I am also testifying today on behalf of America's Health 
Insurance Plans, AHIP. AHIP is a national trade association 
representing approximately 1,300 private sector companies 
providing health insurance coverage to more than 200 million 
Americans. Its members offer a broad range of health insurance 
products in the commercial marketplace and also have 
demonstrated a strong commitment to participation in public 
programs.
    I appreciate having this opportunity to testify about 
health insurance options for American workers and their 
employers. I will begin by reviewing the innovative strategies 
health insurers are developing to help employers and workers 
receive the greatest possible value for their health care 
dollars.
    Next, I will highlight initiatives AHIP's board of 
directors have endorsed in an effort to make health coverage 
more affordable for small employers and their employees. I will 
conclude by identifying steps Congress and the Administration 
can take to make health savings accounts and flexible spending 
accounts more workable and attractive options for patients.
    To reduce health care costs, Humana and other health 
insurance plans are developing innovative solutions in two 
broad areas. First, we are offering consumer choice products to 
give workers new options for exercising greater control over 
their health care decisions. Second, we are advancing disease 
management, wellness, and pay for performance initiatives to 
improve patient care and help workers stay healthy.
    Patient choice products are available in the marketplace 
today in at least three basic designs: low-premium health plans 
offered in combination with a health savings account, health 
reimbursement arrangement, or flexible spending accounts; two, 
products that allow employees to build their own plans after 
employers have chosen a core level of benefits; and three, 
products designed around tiered networks of providers.
    At Humana, we have designed product offerings known as 
Smart Suite and Smart Select that combine some of these 
features. Our Smart Select product is available to self-funded 
employers of 300 or more workers. Employers are allowed to 
choose from a variety of plans, some of which include a health 
reimbursement arrangement and flexible spending account.
    Smart Suite and Smart Select also include web-based tools 
that are both sophisticated and user friendly. Employees can 
use these tools to compare cost and benefits, estimate their 
total health care spending, and customize their health plan by 
selecting varying levels of co-payments, co-insurance, and 
premium costs, and prescription drug options.
    This approach allows employers to maintain a single 
insurance pool with a single insurance carrier and, at the same 
time, give employees the ability to choose health plans based 
on their own evaluation of their health care needs, 
preferences, and values.
    Smart Suite and Smart Select have demonstrated that 
consumer choice offerings reduce medical costs in total. Humana 
has seen single-digit annual medical cost increases in Smart 
Suite compared to medical cost increases approaching 17 percent 
on traditional offerings.
    Humana has offered Smart Select to our own associates over 
the last 2 years and has experienced an average medical cost 
trend under 5 percent without shifting a larger portion of the 
cost to the associates.
    In fact, Humana's workers' overall contribution rate 
actually, on average, decreased from 21 percent of the total 
premium to 19 percent in the first year.
    Medical cost savings are the result of utilization 
reductions in hospital in-patient and out-patient services. 
Preventative services and routine physician services actually 
increased by 14 percent, indicating that associates and their 
dependents are not avoiding care but are more cost-conscious 
about the choices of benefits, services, and providers.
    Our experience with these products has recently led us to 
offer a new enhancement, Smart Assurance. Many Americans are 
worried about future increases in the cost of health care. 
Smart Assurance is the nation's first enhancement to a consumer 
choice product that gives workers the ability to ensure that 
their costs rise at a predictable single-digit rate of no more 
than 9.9 percent.
    Quality improvement is another important area where health 
plans and insurers are working to provide greater value to 
employers and their workers.
    My written testimony explains the steps the private sector 
is taking to promote evidence-based medicine, disease 
management programs, predictive modeling programs, wellness and 
prevention programs and incentives to reward quality.
    Humana uses a technique known as predictive modeling to 
help employers understand the dynamics of their work forces and 
identify at-risk and chronically ill persons. We then work with 
employers to tailor the types of disease management programs 
that should be implemented for their employees. These disease 
management programs improve health care quality by focusing on 
the comprehensive care of patients over time rather than their 
individual episode of care.
    I also want to briefly focus on small employers and the 
challenges they face in offering affordable coverage to their 
employees. We know that small employers are much less likely 
than large firms to provide health care coverage for their 
employees.
    Almost all employers offer health insurance coverage. 
However, among employers with fewer than 50 employees, only 80 
percent offer coverage; among employers with fewer than 10, 
only 55 percent offer health insurance coverage. Affordability 
is the most important reason that many small employers do not 
offer coverage. To address this concern, I urge the 
Subcommittee to consider policy proposals endorsed in March of 
this year by the board of directors of America's Health 
Insurance Plans, AHIP. These proposals would directly address 
the problem of affordability through a program of tax credits 
for small employers and individuals. My written testimony 
outlines additional details on these proposals.
    Implementation of these tax credits would make health 
coverage more affordable for workers and increase the number of 
small employers who offer coverage.
    Lastly, I want to discuss ways Congress and the 
Administration can make health savings accounts and flexible 
spending accounts more workable and attractive in the 
marketplace.
    First, on behalf of both Humana and AHIP, I want to thank 
Chairman Johnson and many other Subcommittee Members who helped 
to win Congressional approval of health savings accounts. I 
also want to emphasize our enthusiastic support for bipartisan 
legislation recently approved by the House which would allow up 
to $500 in unused FSA funds to roll over from 1 year to the 
next. These are valuable options for health care consumers.
    I have a number of other ideas that we can address during 
the questioning.
    Thank you.
    [The prepared statement of Mr. Remmers follows:]

  Statement of Rick Remmers, Chief Executive Officer, Humana, Inc. - 
                        Kentucky, Louisville, KY

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                                ------                                

    Chairman Johnson. Thank you, sir. We appreciate the 
testimony of all of you, and your remarks will be entered into 
the record.
    You know, Mr. Dennis, it sounded to me like you think small 
business guys are having a hard time, and I know they are. Do 
you anticipate employers not having the competitive competition 
between each other in order to provide health care to obtain 
good employees? Is that fading from our system, or are the 
prices just running them out of business?
    Mr. Dennis. Well, there is a certain element--there is a 
proportion of businesses that are vigorously competing for 
employees and for very high quality employees, and they need to 
provide health care, there's no ifs, ands, or buts about it, 
and they frequently provide very, very good benefits.
    There is another side, though, where that is not the case 
at all, and they are struggling to meet payroll. They are in 
highly competitive markets, very frequently. They are not 
taking much out.
    In fact, there is a direct relationship, quite frankly, 
between the amount of money a business owner takes out of the 
business, whether or not they provide health care, whether or 
not they provide pensions, and the wages they provide. I mean 
there is a direct relationship there.
    So, there are--you have almost a situation where you have 
some that are vigorously competing, using health care and using 
all types of benefits, and you have others that are not.
    Chairman Johnson. Thank you.
    Well, I know, when I was running a business, it was tough 
finding health care, and you have really got to search around 
for it, and sometimes you don't get the best stuff.
    Mr. McArdle, on page 5 of your testimony, you mention one 
option employers may take advantage of when providing retiree 
prescription drugs, supplementing or wrapping around a stand-
alone prescription drug plan.
    Could you tell me how that option might work for an 
employer?
    Mr. McArdle. That is an excellent question, Mr. Chairman.
    There are various ways of doing that. One way might be--and 
that is why I said in my opening remarks that the employers are 
looking to see what happens in the marketplace, who is standing 
up to do PDP plans or Medicare Advantage plans, but one option 
would be to contract--for the employer to contract with a 
Medicare Advantage plan or a PDP plan for their retirees to get 
coverage through that plan and the employer would pay an 
additional premium to provide more generous benefits than 
what's in the standard plan. For that purpose, it would really 
be an advantage.
    Most of the employers offering retiree health are large 
multi-state employers, and so, they have retirees all over, and 
if they had to coordinate with 50 or--who knows?--75 different 
PDPs, the coordination problem could be quite severe.
    So, for that purpose, having an opportunity for a national 
PDP plan or a national Medicare Advantage plan would be a big 
boon, because then the employers could be able to service all 
their retirees and do it in a way that is administratively 
feasible.
    Chairman Johnson. Thank you.
    You know, Mr. Pollack made the statement that--it is all 
doom and gloom according to him, and you know, some of the 
statistics that we have seen indicate that HSA applicants, for 
example, did not have any prior coverage, which means some of 
them are getting insurance that did not have it, and some of 
them are older than those purchasing traditional insurance, and 
quite a few of them are buying policies who make less than 
$50,000 or even down to less than $25,000 a year.
    So I am not sure that your statement that we are only 
helping the wealthy is a true statement, and I would be 
interested in your response to that remark and where you got 
your statistics from.
    You know, since I have been up here in the Congress--when I 
first got here, we started with 15 million people uninsured. 
Then it went to 18. Then it went to 21. Then 35. Now 40 and now 
41 and now 45, maybe 48, and gosh, you are talking about 85 
million. Come on. Where are you getting those statistics from?
    Mr. Pollack. Well, if--so, you want me to focus on the 82 
million number? I am happy to do that.
    Chairman Johnson. Sure.
    Mr. Pollack. The 82 million figure also is derived through 
Census Bureau data, and there is no actual contradiction 
between the 43.6 million figure that is most commonly cited and 
the 81.1 million that we cite in our report. They actually 
depict two different things.
    The 43.6 million figure, which comes from the current 
population survey, comes from a question that essentially asks 
were you uninsured throughout the course of the year? Most 
policy analysts actually interpret that question differently. 
Most policy analysts interpret the 43.6 million as being a 
point-in-time figure, how many people were uninsured at the 
time the survey was taken.
    The 82 million figure comes from trying to look at how many 
people over a period of time--in this instance, 2 years--were 
uninsured at some point in that 2-year period. As you know, 
some people are uninsured and then they regain insurance. 
Others, at the time a survey may be taken, have insurance, but 
later on, they lose that insurance, and so this depicts how 
many people over the course of the last 2 years, 2002-2003, 
were uninsured at some point, and of course, that number is 
considerably larger.
    The two numbers do not contradict one another, they depict 
something very different; and I would suggest that the 82 
million figure is a very useful way of analyzing how many 
people are directly impacted by the lack or loss of health 
coverage.
    Chairman Johnson. Well, our CBO estimates 20 million 
uninsured in any given time.
    Mr. Pollack. That is a different--again, we are depicting 
different numbers.
    Chairman Johnson. Well, that is why you cannot use numbers 
like that. I do not think they are realistic.
    Mr. Pollack. Well, I think it is very useful to have a base 
of information about how many people are truly affected. The 
Census Bureau data that I cited, both in terms of the 43.6 
million and the 82 million, are not contradictory with one 
another. They give you different pictures of this problem.
    Chairman Johnson. Maybe they tell you how many babies are 
born a day.
    Mr. Pollack. I am sorry?
    Chairman Johnson. Maybe they tell you how many babies are 
born a day, because they are not insured. Our time is up. We 
will get back to that issue.
    Mr. Andrews, you are recognized for questions.
    Mr. Andrews. Thank you, Mr. Chairman.
    I would suggest that we could easily settle this dispute 
about numbers if we adopted a national policy and made the 
number zero, which is what it ought to be. If we had a policy 
that invested the right number of resources into health care 
for people, it would be zero. We would not have to worry about 
this.
    I wanted to ask Mr. Remmers and Mr. Dennis a question about 
reducing costs by more competition. In the market that I 
represent, two insurers have 82 percent of the covered lives, 
there is very little competition, and I think that is common in 
markets throughout the country.
    What would you think about a proposal that would create a 
Federal charter for health insurance underwriters that would 
say that if you met a fixed standard of fiduciary 
responsibility and a fixed level of consumer protection, 
benefit protection, if you met these standards, that you would 
be able to write insurance in any of the 50 states and compete 
on a national basis?
    Do you think that would induce competition that would lower 
costs for health insurance buyers, Mr. Remmers?
    Mr. Remmers. Congressman Andrews, if you could clarify one 
more time--you gave several criteria before you finished the 
question. What were the criteria again?
    Mr. Andrews. The criteria are that there would be fiduciary 
standards that would ensure that the company would be solvent, 
and there would be consumer protection standards so that 
certain benefits would be mandated and covered, similar to 
state mandate benefits. There would be one set of mandates for 
the whole country. Do you think that would lower costs or not?
    Mr. Remmers. Probably have to get back for the record on 
that; I do not have the information at my fingertips. But my 
first reflection on this is that it probably would not, that 
competition is driven through normal competitive alignment of 
are you committed to a marketplace, do you have the network-
based contracts, do you have the things that are, frankly, very 
important in order to provide a competitive offering in a given 
state.
    Mr. Andrews. Isn't it, in part, driven now by the fact 
that, in fact, as a practical matter, you have to be licensed 
by each state that you operate in, so the regulatory barriers 
to market entry are very significant? If you knock down those 
regulatory barriers, wouldn't you have more competitors in the 
marketplace?
    Mr. Remmers. I think that would be helpful. I think there 
are regulatory barriers, and they do vary by state. In 
Kentucky, where I reside, I think our state legislature has 
recognized that and had worked to try to soften some of the 
barriers to entry and encourage competition to come back in.
    Having said that, we have very actively six or seven 
offerings in most areas of the state for competitive offerings 
rather than just a presence.
    Mr. Andrews. Does any one insurer have more than 40 percent 
of the market share where you live?
    Mr. Remmers. No, not where I live, in Louisville, Kentucky, 
no.
    Mr. Andrews. That is unusual.
    Mr. Dennis, what do you think?
    Mr. Dennis. Yes, I would agree, and in fact, associated 
health plans are kind of a parallel to what you are talking 
about. There are some differences, but clearly the idea of this 
relatively uniform regulatory set is to cut entry barriers and 
to eliminate overlap, duplication, so on and so forth. So, yes.
    Mr. Andrews. Well, of course, a lot of us think associated 
health plans create an un-level playing field, because they 
create one set of rules for one competitor and another set for 
another, but that is an argument for a different day.
    Mr. Dennis. Yes.
    Mr. Andrews. Mr. Pollack, I wanted to ask you a question. 
Your idea about providing tax credits to small businesses to 
help them purchase insurance for their employees, I think, is 
the only viable strategy out there. As I said earlier, I think 
subsidies for people who cannot afford insurance are necessary, 
and I think an employer-based system works. I do not think it 
is a wheel that needs to be reinvented.
    What do you do about the problem of increasing the number 
of uninsured because you are subsidizing those who do not 
provide coverage? What do you do in a situation where one 
service station owner goes the extra mile and insures his or 
her employees, but the guy down the street does not? Do you 
offer the tax credit to both service station employers, or do 
you only do the one who does not offer coverage, and how do we 
reconcile that problem?
    Mr. Pollack. I think that is a very tough issue, because on 
the one hand, you want to use your tax dollars as prudently as 
possible and achieve policy results. On the other hand, you do 
not want to penalize somebody who's done the right thing in the 
first place.
    Mr. Andrews. Right.
    Mr. Pollack. So I think there has got to be a very careful 
balance.
    I think we send the wrong signal when those people who have 
done something voluntarily then get disadvantaged in terms of 
the tax benefits that are offered.
    Mr. Andrews. It is a hard problem.
    Mr. Pollack. I do not think you can simply provide that tax 
benefit to those people who had not provided it in the past and 
now provide it and do not provide assistance to those who----
    Mr. Andrews. I think Mr. Dennis had a--one comment he made 
earlier suggests where you might break that gradation. There is 
a cleft in the marketplace, there is a cleavage in the 
marketplace between employers who are competing for employees 
who demand health insurance and cannot get them without it and 
employers that are not in that marketplace, and I think that is 
probably the way you have to do this, and you have to extend 
the tax credit to some of the employers in that marketplace 
where employers--employees do not have the market power to 
demand health care.
    You have got to extend it to them, which means that these 
all cost more than you and I would think they would originally, 
because it has to cover not only employers who are employing 
uninsured people but employers who are employing insured people 
but competing with people who do not insure, if you follow me.
    It is a very tough problem.
    Mr. Pollack. I think it is. I mean, it creates a cost 
inefficiency, but you have to balance it with equity and 
fairness.
    Mr. Andrews. Thank you very much.
    Chairman Johnson. Thank you, Mr. Andrews.
    Mr. Carter, do you care to question?
    Mr. Carter. Thank you, Mr. Chairman.
    First, let me apologize for being late. We had a markup 
down the hall I had to be at.
    A question was asked just a minute ago--and I took it as a 
two-part question--and one of the things was mandated coverage. 
Mr. Remmers, I think my colleague down here mentioned two 
parts, and one part you addressed. The other was mandated 
coverage, like many of the states have mandated coverage that 
they require of anyone who offers policies. I have heard 
testimony that mandated coverage actually drives the cost up, 
rather than down, and having policies that offer marketplace-
driven coverage is a more economical method. Do you have a 
comment on that?
    Mr. Remmers. I would agree with you. From Humana's 
perspective, our experience is you get into various forms of 
mandates, whether it is at the benefit level or at the coverage 
level, as you mentioned, I think it is going to be difficult 
for employers to assume.
    That is why we favor strongly the marketplace approach of 
offering innovation, which I referenced some and go into 
further detail on or off the record, offering innovation in the 
marketplace to allow the voluntary system to continue but 
provide some of the gaps, solutions, which I think is what 
Congressman Andrews was referencing with various types of 
public--both financing support and program support, which are 
badly needed in certain areas of the market.
    Mr. Carter. I understood the other part he was addressing.
    Mr. Dennis, in your opinion, proposals to make it easier 
for patients to sue employers--would that have any help to 
small business, the way you look at it?
    Mr. Dennis. I am sorry. I did not hear the question.
    Mr. Carter. There are proposals to make it easier for 
patients to sue their employers in state courts. Do you see 
that as any help at all to these small businesses that are 
trying to offer health insurance coverage?
    Mr. Dennis. No, sir. No, sir.
    I would like to go back to the prior question, too, about 
mandates. I mean I think the empirical evidence suggests that 
they add considerable cost, and it ought to be taken in that 
light.
    Mr. Carter. Well, it seems to me--for instance, there was a 
time in my life when my wife and I needed to have maternity 
benefits in our family, and in fact, I had four children and 
never had a policy that had them, on four children, just bad 
luck, but now I really do not care anything about that, and so, 
to me, policies that--the more you can offer a marketplace 
solution where you could tailor the policy to fit your 
individual needs, the better you are served by the coverage 
that you receive, and so, I agree with that.
    What significant steps can Congress take that will make it 
easier for small employers to offer health insurance benefits 
that you see?
    Mr. Dennis. There are really a series of them. We think, 
certainly, the HSA program that's now on the books is 
definitely a step in the right direction; association health 
plans, definitely a step in the right direction. We ought to be 
looking at some medical malpractice sorts of reforms, steps in 
the right direction.
    One of the things that I think is quite clear is that there 
is no magic bullet.
    I do not see one magic bullet either holding down health 
care costs or making sure that we cover a lot more people than 
are currently covered. It is important, though--and a major 
target is that we curb the rising cost of health care, because 
that does have impacts on all kinds of coverage issues. We know 
that there is an elasticity in health care, that when it gets 
higher, fewer people get it. So, we need to really look at 
those things.
    Mr. Carter. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Mr. Carter.
    Mr. Tierney, do you care to question?
    Mr. Tierney. I do.
    Chairman Johnson. You are recognized.
    Mr. Tierney. Thank you, Mr. Chairman.
    Mr. Pollack, I would like to cover some ground that I think 
you mentioned in your testimony, and that is the prospect of 
reinsurance, and I would like to--my understanding is you're 
talking about reinsurance through a premium rebate pool and 
that you would reimburse the employee health plans for 75 
percent of the cost for catastrophic cases over $50,000.
    Would you expand on that a little bit, how that would work, 
and what the benefits of that would be?
    Mr. Pollack. Well, I think this is a very practical step 
that would be of real help to small businesses. For small 
businesses, they not only have to worry about the general cost 
increases, but they also have to worry about the 
unpredictability of those costs, and for a small business, if 
they have just one employee who has a major catastrophic 
illness, this could devastate a small business and certainly 
would significantly increase their premiums in future years.
    So the idea is to provide help to small businesses to 
improve the predictability of their costs and to help reduce 
premiums somewhat, and the way this would work is that, for the 
very, very small number of individuals who have really 
catastrophic expenses, say expenses in excess of $50,000--and 
that only constitutes about one-half of 1 percent of all people 
who have health coverage, but yet, it accounts for about 20 
percent of total cost.
    This would mean that a small business would understand that 
there would, in a sense, be some significant cap in their 
liability, and it would mean that they would much better 
predictability in the future, so that I think this is a very 
practical step that is worth looking into. There are some 
difficult issues, I think, that need to be worked out in terms 
of how this gets implemented, but I think the concept makes 
abundant sense and hopefully will be welcomed by the small 
business community.
    Mr. Tierney. Thank you.
    Mr. Dennis, let me ask you--some people have proposed 
allowing small businesses to join insurance pools, like the 
Federal Employee Health Benefit plan. In fact, I know Stu 
Butler, over at the Heritage Foundation, seemed to have sort of 
endorsed this concept lately.
    What do you think? Would you think that the government-
sponsored insurance pools would allow small businesses to 
benefit from this? Would that be a helpful prospect?
    Mr. Dennis. I am not sure. Clearly, there are some 
conceptual pros to it.
    I notice that Stuart has just changed his mind, for what 
that's worth, has come up with a separate proposal, but the 
idea of having a very large pool operating in which these 
individual employers can operate in and around, or whatever you 
want to call it, is very, very attractive. That is one of the 
reasons we have supported HSAs, for example--not HSAs--AHPs, is 
the whole idea that, you know, we are going to have a larger 
pool, we are going to have better bargaining power, and so on 
and so forth, and so, in that sense, it is very positive.
    I do not think that we have, as an organization, have taken 
any position on the Federal plan itself, though.
    Mr. Tierney. Mr. Pollack, do you have an opinion on the 
benefit of that type of a process, allowing employers to buy 
into the Federal employee health benefit plan, helping them 
with the affordability, hopefully, and the administration of 
their plans?
    Mr. Pollack. Yes, I do. I think it would make a great deal 
of sense, and I am not sure whether it would be the precise 
same plan as the Federal employees, but it could be some kind 
of a parallel plan, and my hope is that through economies of 
scale, that employers would be able to achieve some significant 
savings in the process.
    Mr. Tierney. Thank you.
    I yield back, Mr. Chairman.
    Chairman Johnson. Thank you, sir.
    Mr. Kline, do you care to question?
    Mr. Kline. Yes. Thank you, Mr. Chairman.
    Chairman Johnson. You are recognized.
    Mr. Kline. I want to thank the panel for being here. This 
is a subject that has been driving us all crazy for years now, 
but the last two or 3 years, it has just been remarkable how I 
travel around my district in Minnesota and talk to employees 
and employers, and both sides always, invariably, talk about 
the cost of health insurance. It is frequently the No. 1 issue 
to the businesses that I am visiting. Sometimes it is the No. 1 
expense, but it is always very, very high. So I very much 
appreciate your being here today, and I certainly want to thank 
the Chairman for holding this hearing.
    Mr. Dennis, a couple of minutes ago, you said HSAs and 
corrected yourself to say AHPs, but both are possibilities. 
HSAs are, in fact, now in law, and I have been surprised, as I 
have traveled around to talk to these same business owners, 
that they do not know what HSAs are, and so, my first question 
to you is, since you are representing a very large 
organization, what is the discussion to educate employers about 
the potential for HSAs?
    Mr. Dennis. Well, that's a major thrust that we are going 
to be undertaking, in fact have begun to undertake, but more 
than that, I think one of the major issues involved is that is 
how do we get the word out through the normal market process, 
through the insurance industry, if you will?
    We have had a very small MSA program before AHAs came 
along, and it was reasonably well--well, the renewal rate was 
very high--94, 95 percent--savings were quite substantial, but 
the problem was we had an issue of marketing, and that is what 
the issue is right now, because the incentives for those to 
market it, for the agents, if you will, are not there, and what 
we have to do is find a way to make sure that the agents 
involved in this have incentives, and we have got some plans on 
the drawing board right now, hopefully, to do that, because if 
you have got active sales forces out there doing it, that is 
the best publicity, in effect, there is.
    Mr. Kline. Well, exactly, and we had a meeting here a month 
or so ago--we had a number of representatives from the insurers 
and were talking about how well received they were and talking 
about, frankly, their efforts to inform the public about HSAs, 
and yet, I have yet to go to one of these companies--and I 
visit two or three a week every week when I am back in the 
district--who knew about them and anymore than the most 
rudimentary notion of how they might work. So, I would 
encourage you and your organization to talk about it as much as 
you can, and then, as you say, the industry is going to have to 
do that, as well.
    Mr. Remmers, on page 3 of your testimony, if I have got the 
right note here, you talk about information transparency and 
other quality tools. How will the average consumer be able to 
access these tools, and what benefits will they gain?
    Mr. Remmers. There's a variety of work taking place in the 
transparency area today, and it is all predicated on, if you 
believe in the patient as an active consumer and having the 
right to know information regarding cost and quality, which we 
do stand for at Humana, you have to put information in a way 
that they can, one, get to it, and two, understand it.
    Sometimes it is easier to give an example, and I can give 
one in my own life that is personal. When I was asked to be put 
on a cholesterol-lowering medication about 2 years ago, for the 
most part it was a bunch of Latin to me, the various options, 
as they are to most people. My internist suggested--and I will 
refrain from using the drug name here for a moment--drug A, 
which in my benefit plan would have cost me $50 a month. It 
was, in fact, a benefit plan that I chose. No one chose it for 
me. So for $50 a month or $600 a year, I could have this drug 
that I needed to have, that in fact would benefit me in out-
years, not near term.
    I went to the drug store, got it, and was shocked at the 
$50.
    Having said that, Humana contacted me in about 24 hours, in 
my case through the web, because that is how I asked to be 
contacted, through e-mail, but we can do it through phone, 
which most people have access to, or regular mail. In my case, 
it came through an e-mail that gave me an alert. I signed on a 
private web-site, secured just to me, not to my spouse or 
anyone else, for privacy reasons, and I saw, as I clicked onto 
my e-mail, an alert message, a little red flag flicking, which 
all 3 million of our commercially insured people have access to 
this, it said if you would like some helpful information 
regarding the opportunity to lower your prescription costs, 
click here.
    I did so and found a row of alternative drugs, in this case 
one that would cost me 25 a month or, in effect, save me $300 a 
year.
    I, in turn, took the initiative--Humana did not require me 
to do it, I did not have to ask permission to do it, so there 
was choice in play here--I chose to call the internist back and 
discuss it with her, which, frankly, was a little bit startling 
to her office, if I have to be candid. They were not used to 
this kind of engagement----
    Mr. Kline. I can imagine.
    Mr. Remmers.--which we are going to see more and more as 
people get more and more in tune with having access to 
information and having the ability to control their own 
decisions.
    She was thrilled. She said, ``I am in the habit of 
prescribing drug A, but for $300 a year less, I would 
absolutely suggest drug B.''
    That has been 2 years, and I am fine.
    So that is maybe a specific example of the way that we 
are--and by the way, I could see the actual retail cost of the 
drug, I could see our Humana cost for the drug, and what my 
cost share piece of it was, or any other drug that you want to 
see on our web-site.
    Mr. Andrews. Will the gentleman yield for a second?
    Mr. Kline. Certainly, glad to yield.
    Mr. Andrews. Who was it that made the judgment that the 
other drugs on that list were the equivalent of drug A that you 
bought? Who made that decision?
    Mr. Remmers. We have a group of people that are physicians 
and pharmacists that stratify the whole PDR. So this is not 
that 50 percent of the drugs are available across the list.
    In my case, in my benefit plan, there are four tiers that 
this group decides, for both cost and clinical efficaciousness 
reasons, reside in one of these four tiers, and this is not 
administrators; it's pharmacists and physicians.
    Mr. Andrews. Thank you.
    Thank you for yielding.
    Mr. Kline. I see my time has expired, so I yield back.
    Chairman Johnson. Thank you, Mr. Kline.
    Is that a generic drug?
    Mr. Remmers. Neither of these are.
    Chairman Johnson. OK. Thank you very much.
    Ms. McCarthy, you are recognized.
    Mrs. McCarthy. Thank you, Mr. Chairman, and I probably know 
what the first choice of the drug was. Most likely, it was 
Lipitor, because I started off with it--oh, gosh--too long ago, 
but I have slowly seen it go from $20 a month up to the $50 a 
month, and people should have more choices, or at least the 
information.
    What I will say--and I am going to probably come in a 
different way--I happen to believe, because you went on your 
medication, I went on mine, that some of the best practices 
that are agreed upon are disease management or wellness 
programs. That is not what we do enough in this country. 
Unfortunately, we still look at medicine during the crisis 
center instead of the prevention that we're looking at.
    So I do not know why we do not have a standard part in 
almost every health insurance plan. Some do, and I know they 
do, and those are the ones I look for.
    I am lucky. I work here. I have the doctors here that have 
me on a computer and say, hey, you have to go for your test, 
you have to have this done next month, so they keep track to 
keep me healthy, which hopefully, in the end, when I am in my 
80's, is going to pay off, but I guess my question is--and I 
also--when we were talking earlier--and I am sorry if I am 
talking funny, I had a little teeth work done this morning.
    Many of us are also onto a bill, legislation that is here 
on the House, which we cannot seem to get a hearing on, to give 
small businesses a tax credit for the health care costs on top 
of the already existing full tax deductibility, and I guess my 
question would be how big would a tax credit have to be in 
order to make a difference for the small businesses to be able 
to cover, certainly, their low-wage workers?
    I mean, how do you figure that out?
    Mr. Dennis. There are elasticities that economists have 
developed over the years. They are very crude at this time. 
This goes all the way back to some of the early Rand studies in 
the 1980's or late '70's, where they know that certain--you 
know, you add a certain price, lower a certain price, you get 
more, you get less people that will be covered.
    I do not know if anything has been done specifically 
dealing with smaller firms, however, on that score.
    I have no idea what those numbers would be, and clearly, 
the higher, the more you would include, and the lower, the less 
you would include, if that is what you determine would be good 
policy, but I do not know of any number and I do not know of 
anybody who does have a number for you.
    Mrs. McCarthy. On the cost-effectiveness, just going back, 
because we had--it came through this Committee going back where 
we had the AHPs passed for small businesses. I fought against 
that, and basically, it goes back to my original part on the 
wellness.
    My state of New York and many other states throughout this 
country, through the attorney generals, through legislation, 
realized that wellness, yearly physicals, mammograms were 
important so we could prevent or, if we found a disease, get it 
early, and yet, the bill that was passed through here on the 
House side would have done away with all of that.
    You know, when I try to talk to my small business people, I 
want you to have insurance, I want you to be able to cover your 
employees, but we have to somehow find a way--forget about the 
politics--on what is good health care practice, because in the 
end, in the end, we will end up saving so much more money.
    Diabetes--perfect example--people that do not take care of 
themselves end up in a dialysis center, which is costing us so 
much money, or lose a leg or their eyesight, come off the 
workforce.
    It is complicated. I think everybody here cares very much 
that people have insurance, but we seem to--cannot find an 
answer.
    Mr. Dennis. One of the situations is that, with the 
constant--with constant price increases, smaller firms are 
constantly shopping, and when they are constantly shopping, it 
is very difficult to develop relationships with insurers and 
insurance products and that sort of thing where you might 
institute a wellness program for three or 4 years or something 
like that, if you are constantly going back and forth, and that 
is one of the really difficult problems created by this 
environment of rapidly rising prices, and that is small 
business owners have to look for new things, they just cannot 
take those, and as long as we do it, it is going to--as long as 
we have to keep shopping, it is going to work against precisely 
those relationships which will give you what you are looking 
for.
    Mrs. McCarthy. Mr. Pollack?
    Mr. Pollack. I think the issue of AHPs that I find even 
more troubling relates to the potential for market segmentation 
and dividing those who are healthier, younger, from those who 
are sicker and older.
    I do not worry so much about this with a group like NFIB or 
the Chamber of Commerce, which has members--they are not--these 
members have joined those organizations for other reasons other 
than becoming a member of an association health plan, but for 
others who really would be encouraged to create these 
association health plans and for whom market segmentation could 
potentially be very easy and whom I try to encourage those 
businesses that have a healthier, younger workforce to join and 
to discourage the older, sicker ones from joining, I think for 
those who are left in the traditional pools, it means the costs 
for them are going to increase, and CBO tells us it would 
increase, I think, for approximately 20 million people who 
would be left in these traditional pools.
    Mrs. McCarthy. Thank you.
    I see my time is up.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you. I appreciate your questions.
    You know, AHPs are part of large organizations like the 
Chamber, for example, which you say would be OK, and I think 
there is a requirement for any organization to be in effect for 
at least 3 years before they can start an AHP program, under 
the law, if it's ever passed, and so, I think that maybe we are 
talking about something that will not ever happen, but can I 
just ask--your large companies who have health insurance do 
provide wellness programs, do they not?
    Mr. Remmers. Yes, sir.
    Mr. Chairman, in part, it is the definition of a wellness 
program, and I would say not just large but small and medium-
size employers--the vast majority of our health plans that we 
at Humana sell to customers and administer for them do include 
preventative services, mammograms, physicals, things such as 
that; other kinds of wellness and lifestyle programs along the 
lines of fitness and that sort of thing, no.
    Most of that, as Denny mentioned down the row, generally 
aren't offered by a vast majority of employers, and the reason 
is their health benefits costs are costing them too much and 
they cannot invest the additional amount, which is one of the 
reasons that giving more options and more choice and more 
innovation in the marketplace is extremely important, because 
as people decide to possibly consider a lower-premium plan, if 
that's right for them--if it's right for them in accordance 
with their needs, their values, their ability to do that, that 
is an attractive offer, and in turn, there may be more money 
freed up to invest in other fairly more traditional wellness 
programs, but preventative services, yes, including in the 
lower-premium plans like HRAs and HSAs.
    Chairman Johnson. Disease management, if you will.
    Mr. Remmers. Disease management applies to all of our 3 
million people that we administer or insure unless a large 
self-funded employer specifically requests not to, but beyond 
that, all of our insured business, it does.
    Chairman Johnson. Thank you, sir.
    Mr. Wilson, do you care to question?
    Mr. Wilson. Yes, Mr. Chairman. Thank you, and I would like 
to thank all of you for coming this morning, and Mr. Dennis, 
thank you very much for your past presidency of the 
International Council for Small Business.
    I also very much appreciate your service with NFIB. I 
served for a number of years in the State Senate and worked 
very closely with the executive director, Michael Fields, in 
South Carolina, and NFIB is a real world advocate for small 
business, and in our state, which is not unusual, 99 percent of 
the businesses are small businesses, 85 percent of the 
employment are small businesses, and so, we really appreciate 
your input, and today, in your testimony, you noted that small 
employers have a limited number of options from which to choose 
when facing the cost increases. They can pass on the cost 
increases to consumers, reduce employee compensation, or limit 
business investment or owner earnings.
    How feasible are any of these options for the small 
employer?
    Mr. Dennis. None of them are very attractive. I mentioned 
that it is very difficult to pass on cost increases right now, 
particularly in this low inflation environment. Most of it ends 
up getting passed back to employees, but small employers do not 
like to do that. I mean somehow it is the idea that, you know, 
we are having a good time when we do that sort of thing.
    Employees do not like it, we do not like to do it to 
employees, and so, that is not--that is what happens, 
eventually, but that is not a very positive thing, and if you 
take it out of your investments, business investments, you are 
eating your seed corn, in effect, you cannot operate that way, 
and if you take it out of your own earnings, well, a middle-
class person cannot take a lot of money out of their earnings 
as a stop gap, even as a temporary measure. The alternatives 
are not very attractive, let me put it that way, none of them.
    Mr. Wilson. I do appreciate NFIB trying to get the word out 
to businesses as to what is the best approach.
    Mr. Dennis. Thank you.
    Mr. Wilson. Also in terms of your opinion, what regulatory 
burdens do you foresee in creating and offering consumer-driven 
health plans, and how can Congress best address them?
    Mr. Dennis. Regulatory burdens.
    Well, there is a potential range of mischief, but I think 
one has to look at it not so much about where the problems are 
but where you want to go, and is something necessary?
    I mean if you want to offer certain options, is there--is 
it necessary that you put a certain requirement on the--on that 
option?
    Within reason, I would generally say stay as flexible as 
possible, but there are clearly some things, in terms of 
various types of discrimination and things like that, that you 
want to, you know, fence off.
    So I'm not sure that I can answer your question very well 
without a little bit more--in a more specific context, unless I 
have a more specific context, but generally, flexible is the 
watch word.
    Mr. Wilson. Excellent.
    Mr. Remmers, I really appreciated--I, 2 years ago, too, 
started on the cholesterol-lowering pharmaceutical, and I am 
really grateful for the effect and very pleased about the 
advance, and I appreciated your recounting how you looked into 
lowering the cost, and in fact, you mentioned in your testimony 
that many insurers and employers are providing education to 
consumers.
    Can you relate efforts to, again, educate consumers as well 
as you did on the internet?
    Mr. Remmers. I will be glad to. I will give you another 
specific example. Maybe it is a bit more tangible. I would love 
a shot at your previous question for 30 seconds, as well.
    Mr. Wilson. You can come back and get that one, too.
    Mr. Remmers. OK.
    A large health system in Louisville, just as an example--I 
will not reference their name, but they are a large employer, 
multiple hospitals, health system--went into a patient choice, 
consumer-driven, however you choose to reference it, which 
really meant they gave a choice, a range of choices of health 
options for people to consider--in their case, six.
    They have about 8,500 people enrolled in their plan, 
meaning employees, workers, and in turn, about roughly 14,000 
people when you include family members and such. One of the 
things they were concerned about was how do you--how do we 
communicate with and educate a workforce while in health care, 
for the most part, although you have a wide diversity of 
workers in that sort of environment, not just nurses and 
doctors and such.
    So we have tools that we deployed. We happen to call them 
Plan Professor. We did it, in their case, on both paper and 
through the web. We also asked them to come on and consider how 
they would choose one of the six plans that would most meet 
their needs, again, from a leaner benefit offering to a very 
rich benefit. What might meet my needs may not meet your needs.
    We had a tool--we have a tool called the Plan Wizard that 
helped them select the plan that would best meet their needs, 
again, or preferences, and that was both on-line and on paper. 
In fact, the irony of this is that the leadership of that 
organization was doubtful that, of their 8,500 people, many 
would have access to the web or know how to use it. So we gave 
them a voluntary option of enrolling in these plans, which 
meant, when you enrolled in these plans, you both got the 
benefit of the education--you had to read through things to 
learn how to become a more active health care consumer in both 
choosing your plan and using your plan, so is this plan best 
for me, and how do I make certain decisions like a drug choice, 
as I use the health system.
    They could either go through the phone to do that, through 
a voice-activated type of technology, which again, most people 
have the phone, or they could voluntarily go on-line, through 
the web, and go through the enrollment, where they got 
introduced to all these guidance tools, if you will.
    In fact, they felt that less than 30 percent of their 
people would go on-line to do this, because they would not have 
access or would not know how to use it.
    Now, through multiple support systems that we offered them, 
84 percent of their people went on-line to both enroll and use 
these other tools. To me, that is a terrific success story. It 
is one story, but I think it gets at some of your question.
    Mr. Wilson. Yes.
    Mr. Remmers. Your previous question on what regulatory 
hurdles are there----
    Mr. Wilson. Right.
    Mr. Remmers.--here are several, but there are many more we 
could talk about for the record.
    One, in regard to the HSAs, health savings accounts, the 
health care reimbursement arrangements, and FSAs, flexible 
spending accounts, there are rules--the Treasury Department 
gave some relief this week, but--that limit the coordination of 
these three things, and these are how people can begin to think 
about how they plan for their health care financing out in the 
future in a tax advantaged way.
    Secondly, the President's final legislation to allow 
unspent funds in these flexible spending accounts, which now 
you cannot roll over from year to year, so very few employers, 
small or large, take advantage of that, or their workers, 
frankly--they ought to be able to carry those over from year to 
year.
    There is a proposal working its way through now to allow 
$500 of unused money--allow HSA funds to be used to pay the 
health insurance premiums of individuals who retire before they 
are age 65, speaking to the retirement dilemma, allow those 
monies to be used for that. Again, it is a way to plan for your 
retirement in a tax advantaged way.
    Fourth, allow HSA funds to be used to pay Medi-gap 
premiums, again, so if you are over 65 and retired, you would 
have these funds available to help you do that. And last, allow 
consumers to continue to contribute to an HSA after age 65, 
again for tax purposes and planning.
    The HSAs are good news for consumers, but the lack of 
uniformity in state insurance regulations are a barrier to us 
getting them out in the market and having understanding and 
acceptance in the marketplace.
    I will not bore you with what all of those are, but they 
have to do with other kinds of mandated benefits and such that 
counteract with the HSAs in a negative way regarding 
deductibles and such, and that needs to be worked through.
    Mr. Wilson. Well, thank you, and in particular, I 
appreciate you bringing up about the HSAs, because I believe 
they can be very helpful, but we do need, certainly, to fine 
tune, and I know that I was hopeful that they would be very 
flexible, and--but thank you all for your participation, and 
Mr. Chairman, thank you for your leadership in trying to assist 
small businesses address the problem of health care cost.
    Chairman Johnson. Thank you.
    The gentleman's time has expired.
    Actually, HSAs are in 49 states, as we speak.
    Mr. Holt, you are recognized for 5 minutes.
    Mr. Holt. Thank you, Mr. Chairman, and I thank the 
witnesses for your good presentations.
    Let me understand better the effects of risk pooling. 
Obviously, in some general sense, it makes sense. Is there a 
well-understood industry-wide formula for the function for 
decreasing rates with increasing pool, and does it vary greatly 
from company to company?
    In other words, if--what we are trying to get at is, if we 
are trying to find mechanisms to increase pools, association 
health plans or whatever, do we really know what we will get, 
and you know, maybe Mr. McArdle, maybe you have thoughts on 
that?
    Mr. McArdle. Yes, sir. I think it would--pooling, 
conceptually, I think would be very helpful. I mean you have 
issues about what is the experience of the pool and, you know, 
the companies and the employees that are in the pool, but I 
think the pool is also maybe helpful in making larger group 
sort of possibilities available.
    Mr. Holt. Apart from questions of skimming and segmentation 
and so forth, is the function well understood, you know, the 
lower rates?
    I mean can we say it will be 10-percent lower if you have 
50 percent more members in the pool?
    Mr. McArdle. I think you can say generally yes, that the 
larger the pool, the larger the risk is.
    Mr. Holt. In general, I understand. Is the function well 
understood, and is there a great deal of variation?
    Mr. McArdle. Well, I think it would depend a lot on how you 
design it.
    There can be variation, absolutely, but you know, I think, 
again, the advantage is--I mean you have to look at what the 
experience has been of individuals and whether they have been 
subject to underwriting before and whether they would no longer 
be subject to underwriting, whether they would have guaranteed 
access, for example, under the pool, which they might not have 
outside the pool.
    So it can be beneficial in a number of ways, and you know, 
let's say, because there is no underwriting, that it jumps up a 
percentage point or two, on average, just hypothetically. Then 
it would still be a great advantage for the employees who would 
be in that pool.
    Mr. Holt. Mr. Dennis, both on that question and another 
question--really, why are businesses not pooling more? I mean, 
there is nothing under law that prevents them from doing it. 
Why do we need to provide them more incentives to do it? Why do 
we need to excuse them from various state law to prompt them to 
do it?
    Mr. Dennis. Let me start with the first question first, if 
I might, and that is yes, as a general rule, this is 
understood, the whole idea, because the difference between 
pooling costs and the price of the insurance that comes out of 
it--and I think that that may be an issue that is causing some 
confusion or something of that nature.
    In other words, we basically know and understand what the 
costs are given the larger pools, as you increase the pool. We 
do not necessarily know what the price is, because price is 
based on other things besides the actual loss.
    Why are we not already doing it? Well, I can give you one 
example, and that is, several years ago, we tried as an 
organization to do it, and we just ran into state law after 
state law after state law being contradictory, and it was 
just--it became impossible for us to do anything like that, and 
this goes back several years, and we just had to give up the 
whole effort.
    Mr. Holt. Why is it not happening more, say, within a 
state's, say, chamber of commerce or some intra-state 
organization?
    Mr. Dennis. Frequently what has happened is that the pool 
has not been large enough. They have not been able to sell and 
get enough people.
    Mr. Holt. We have millions of workers in New Jersey.
    Mr. Dennis. Yes, but a lot of them already have something, 
you know, already have health insurance somewhere, they are 
happy with it for some reason or another, and there has not 
been able to get a critical mass together to do it. Why more 
effort has not been put into it, I do not know.
    Mr. Holt. I am sure that small businesses would like to be 
relieved somewhat of the burden. They want to provide good 
insurance for their employees.
    I guess a question is do they care whether that burden is 
shifted to the government or shifted to the employee? Do they 
care for any reasons other than kind of ideological reasons? 
Let us consider, say, catastrophic insurance.
    Mr. Dennis. Well, as a general rule, without a specific 
type, they do not want it shifted to the government, partially 
for ideological, partially because it is going to be higher 
taxes for them, assuming that is where the money is going to 
come from and we do not borrow it all, but you know, it is 
higher taxes.
    So I would assume that probably the cost shift would be the 
preferred strategy, but you know, that would be pure 
speculation on my part.
    Mr. Holt. Well, I see my time has expired and the Chairman 
is eager to move on.
    Thank you.
    Chairman Johnson. Thank you, Mr. Holt.
    I appreciate the testimony that you all have provided 
today, and obviously we still have some problems in the health 
care business and need to address them, and we appreciate your 
input, and I hope you all will stay in touch with both Mr. 
Andrews and myself.
    I think this was a good hearing, and if there is no further 
business, the Committee stands adjourned.
    Thank you.
    [Whereupon, at 11:32 a.m., the Subcommittee was adjourned.]

                                 
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