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




   H.R. 1818, THE WORKFORCE HEALTH IMPROVEMENT PROGRAM ACT: HEALTHY 
                    EMPLOYEES; HEALTHY BOTTOM LINE

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                      WASHINGTON, DC, JULY 8, 2004

                               __________

                           Serial No. 108-71

                               __________

         Printed for the use of the Committee on Small Business


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


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
96-504                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

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

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Policy Director/Deputy Chief of Staff

                  Michael Day, Minority Staff Director

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

PATRICK J. TOOMEY, Pennsylvania      [RANKING MEMBER IS VACANT]
Chairman                             JUANITA MILLENDER-McDONALD, 
STEVE CHABOT, Ohio                   California
MARILYN N. MUSGRAVE, Colorado        ENI F. H. FALEOMAVAEGA, American 
JIM GERLACH, Pennsylvania            Samoa
BOB BEAUPREZ, Colorado               DANNY K. DAVIS, Illinois
TRENT FRANKS, Arizona                DENISE L. MAJETTE, Georgia
JIM DeMINT, South Carolina           JIM MARSHALL, Georgia
CHRIS CHOCOLA, Indiana               MICHAEL H. MICHAUD, Maine

                     Joe Hartz, Professional Staff

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
McCarthy, Mr. John, Executive Director, International Health, 
  Racquet & Sportsclub Association...............................     3
Foulke, Mr. Edwin, Jr., Esq., Attorney at Law, Jackson Lewis, 
  LLP............................................................     5
Brinson, Mr. John, Owner, Lehigh Valley Racquet and Fitness 
  Centers........................................................     7
Fehrmann, Mr. David, Director of Brand Standards & Operating 
  Systems, USA Management, Inc...................................     8
Silberman, Ms. Karen, Executive Director, National Coalition for 
  Promoting Physical Activity....................................    11

                                Appendix

Opening statements:
    Toomey, Hon. Patrick J.......................................    29
Prepared statements:
    McCarthy, Mr. John, Executive Director, International Health, 
      Racquet & Sportsclub Association...........................    31
    Foulke, Mr. Edwin, Jr., Esq., Attorney at Law, Jackson Lewis, 
      LLP........................................................    34
    Brinson, Mr. John, Owner, Lehigh Valley Racquet and Fitness 
      Centers....................................................    39
    Fehrmann, Mr. David, Director of Brand Standards & Operating 
      Systems, USA Management, Inc...............................    42
    Silberman, Ms. Karen, Executive Director, National Coalition 
      for Promoting Physical Activity............................    45

                                 (iii)
      


 
   H.R. 1818, THE WORKFORCE HEALTH IMPROVEMENT PROGRAM ACT: HEALTHY 
                     EMPLOYEES; HEALTHY BOTTOM LINE

                              ----------                              


                         THURSDAY, JULY 8, 2004

                   House of Representatives
             Subcommittee on Tax, Finance & Exports
                                Committee on Small Business
                                                     Washington, DC
    The Subcommittee met, pursuant to call, at 10:08 a.m. in 
Room 311, Cannon Office Building, Hon. Pat Toomey presiding.
    Present: Representatives Toomey, Chabot, Chocola and 
Millender-McDonald 

    Chairman Toomey. Good morning, everyone, and welcome. Thank 
you all for being here today as we discuss H.R. 1818, the 
Workforce Health Improvement Program Act. I would especially 
like to thank all of our witnesses who have agreed to testify 
before the Subcommittee this morning, and who have traveled to 
be with us today.
    I appreciate you being here. We do expect some other 
members will be arriving as we proceed with this, but I want to 
respect everybody's time and get started at this point. Let me 
just say a few things about the idea behind this bill.
    You know, it is about a number of things but there are 
certain fundamental ideas that we all know and they are under 
the underpinning for this idea. The fact is that exercise and 
weight management are critical to maintaining a healthy 
lifestyle. I think we all understand that.
    And public health experts unanimously agree that people who 
maintain active, healthy lifestyles dramatically reduce their 
risk of contracting a wide variety of chronic diseases.
    A physically fit population results in a decrease in health 
care costs, lower government spending, fewer illnesses, 
improved worker productivity, and most importantly of all, a 
better quality of life for the people who choose to remain fit.
    Exercise itself is a proven and cost effective method of 
preventative medicine, and it is an effective way of treating 
many of the illnesses that many Americans are confronted with 
today.
    Unfortunately, 60 percent of all Americans are still 
physically inactive, and that contributes significantly to the 
growth in our Nation's obesity rate to where it is today, near 
epidemic proportions.
    The Centers for Disease Control and Prevention, the Rand 
Corporation, the Surgeon General, and countless other experts 
consistently document that obesity, often exacerbated by this 
lack of physical activity, is in fact the number one health 
problem in the United States today.
    And given the tremendous benefits that exercise provides, 
it just makes sense to remove the obstacles that keep folks on 
the couch and not leaving a healthy lifestyle. Currently, about 
almost 98 percent of health care expenditures are spent on 
curative measures.
    The approach that the WHIP Act takes is that prevention 
could lead to dramatic reductions in the cost of medical 
expenses in the U.S., which by the way are estimated to double 
to $2.6 trillion by the end of this decade.
    The Centers for Disease Control and Prevention have 
concluded that the potential savings in direct medical costs, 
if all inactive adult Americans engaged in regular exercise, 
could be as high as $77 billion annually.
    By enacting the WHIP Act, we could take a significant step 
towards encouraging the use of fitness centers, which would 
lead to a healthier population, which would in-turn decrease 
health care costs, reduce government spending, and help prevent 
debilitating illnesses.
    Most importantly, it will demonstrate that a better quality 
of life is attainable even with relatively minor behavioral 
changes. Not only is this a health improvement bill, but it is 
also a tax equity bill in my mind.
    Under current Federal tax law the value of on-premises 
athletic facilities that are provided by employers to their 
employees are not counted as employee income. However, if an 
employer does not have the resources to build facilities on 
premises, but instead provides health club services to 
employees at an off-site facility, the value of that benefit is 
included as taxable income to the employee.
    It strikes me that this is a flagrantly inconsistent and 
unfair approach. It is especially unfair to employees of small 
and medium-sized companies, and I see no reason why this should 
continue.
    I think this inequity in fact needs to be corrected, and 
that is exactly what the WHIP Act does. It simply says that 
wellness benefits would be excluded and not considered taxable 
income for the employee.
    Another benefit that can be realized through this 
legislation is the direct effect it will have on the workplace. 
H.R. 1818 would provide employers with more options when 
creating compensation packages for recruiting and retention 
efforts, and as our economy continues to grow, the competition 
for qualified employees increases. Employers need as many tools 
as possible to recruit and retain the best possible employees.
    This again is especially true for small and medium-sized 
businesses, which often don't have all the options that large 
companies have at their disposal. By way of conclusion it is 
just a simple fact that America is getting heavier, less 
physically active, and that is very unhealthy.
    America is also getting older. As the leading edge of the 
baby boomer generation is beginning to retire, this is going to 
force the American taxpayers to continue to pump very large 
sums of money into health care in general, and Medicare in 
particular.
    If we enact legislation that would encourage fitness and 
weight management, not only will Americans tend to lead 
healthier lifestyles, but we would lower the total cost of 
curative health tactics, both now and in the future.
    The old saying of an ounce of prevention is worth a pound 
of cure I think is relevant in this case. I am happy to note 
that there was what I thought was a reasonably favorable 
article about this idea recently in the Washington Post, 
specifically referring to this bill that is under 
consideration.
    So it is my hope that we can generate some more interest in 
this bill and that Congress will consider this most likely as 
part of a broader tax package. I think this deserves every 
consideration.
    So I am again grateful for the witnesses for coming here 
today to share your thoughts about the merits of this bill. 
Having said that, I would be happy to yield to my colleague if 
he has an opening comment.
    And if not, then I will move right on to the witness 
introduction. The leadoff witness today will be a Mr. John 
McCarthy. Mr. McCarthy is the Executive Director of the 
International Health Racket and Sports Club Association.
    He earned his undergraduate degree from the University of 
Notre Dame, and has received Masters degrees in Philosophy, 
Theology, and Business Administration. Mr. McCarthy has spent 
his life in and around the sports and fitness arena, beginning 
with his selection by the New York Knicks in the 1958 NBA 
draft.
    Later, he began--I am a big fan of basketball, and I used 
to play a lot of basketball, and I just mention this to suggest 
how little we have in common, because my high school basketball 
coach took me aside early in my career and said, ``you know, 
Pat, you are small, but you are slow.''
    And that is when I began to think that an NBA draft was not 
terribly likely in my case. But to get on with Mr. McCarthy, I 
am very grateful that he has agreed to testify today, because 
he has such a great range of experience in fitness.
    He began a career as a theology teacher while coaching both 
basketball and tennis at colleges in Minnesota and 
Massachusetts. Prior to joining the International Health, 
Racket, and Sports Club Association, he was the executive 
director of a regional trade association for sports clubs in 
New England.
    Mr. McCarthy, I thank you for joining us today, and I 
welcome your testimony. We will have a five minute system. We 
will have a green light. We will be on for four minutes, and 
when you are down to one minute remaining, the light will 
change to a yellow light.
    And when five minutes is up, the red light will come on, 
and if we could all try to stick to that program, we will be 
able to proceed in an orderly and efficient fashion. So again, 
welcome, and thank you, and I invite your testimony.
    [Chairman Toomey's statement may be found in the appendix.]

  STATEMENT OF JOHN MCCARTHY, INTERNATIONAL HEALTH, RACQUET & 
                     SPORTSCLUB ASSOCIATION


    Mr. McCarthy. Thank you very much. It is a privilege to be 
here, and I want to thank also my colleagues who are here. I am 
from Boston, Massachusetts. I am the Executive Director of the 
Trade Association for Private Sector Fitness Centers in the 
United States.
    We have 4,500 members that represent an industry that 
serves almost 40 million Americans as members and another 16 
million as patrons. So there is about 60 million Americans who 
use fitness centers on a regular basis in America.
    I think we are all aware that as the Chairman pointed out 
that we are going through a health care crisis in the United 
States. The Kaiser Family Foundation recently reported that the 
family cost of health insurance right now is approaching $9 
thousand and is expected to be $15 thousand by 2008.
    We are also aware, because the CDC has just told us that 
obesity is expected to become--that obesity related diseases is 
expected to become the number one killer in the United States 
by 2005.
    We are also aware as the Chairman pointed out that regular 
exercise is key, not only to the prevention of obesity, but it 
is key to the prevention of heart disease, hypertension, Type 
II diabetes, several forms of cancer, stroke, et cetera.
    So we are all aware of how essential regular exercise is to 
the improvement of the health and productivity of Americans 
generally. We are also aware thanks to the Society for Human 
Resource Management that this bill, if passed, would have a 
huge impact on corporations' willingness to subsidize employee 
fitness.
    The poll that is over there on my right indicates that 67 
percent of small business employers said that they would more 
positively consider subsidizing the fitness of their employees 
if this bill was passed.
    Mr. Chairman, this bill, as you pointed out correctly, is 
really a technical correction. Big businesses that have on-site 
corporate fitness centers, those fitness centers, that subsidy 
are not imputed as taxable income to the employees of those big 
businesses.
    However, small businesses that subsidize the participation 
in regular exercise of their employees, that subsidy is imputed 
as taxable income to the employee. So what we are really trying 
to do is level the playing field between on-site fitness and 
off-site fitness.
    An example of this here is right here in Congress where 
there is an on-site fitness center for the Members of Congress, 
and all the 15 thousand young men and women who work here are 
off-site fitness, they get taxed on their subsidy; whereas, the 
Members of Congress don't get taxed on their subsidy.
    Mr. Chairman, we are very thankful for you developing this 
bill and proposing this bill, and we hope that you will 
continue to support it. Thank you very much.
    [Mr. McCarthy's statement may be found in the appendix.]

    Chairman Toomey. Thank you very much. And if--okay. In that 
case, I will introduce our next witness. The next witness that 
we have with us today is Mr. Edwin Foulke, a practicing partner 
at the law firm of Jackson, Lewis, L.L.P.
    Mr. Foulke has extensive experience in labor and employment 
law as evidenced by his 20 years of specializing in this area 
of the law. Additionally, in 1990, he was appointed by former 
President George H. W. Bush to a vacancy on the Occupational 
Safety and Health Review Commission, later rising to commission 
chairman.
    He also served the current President Bush as a member of 
the Bush-Cheney transition policy advisory panel for the U.S. 
Department of Labor. Thank you very much for being with us 
today, Mr. Foulke, and I welcome your testimony.

      STATEMENT OF EDWIN FOULKE, JR., JACKSON LEWIS, LLP.


    Mr. Foulke. Thank you very much, Mr. Chairman. And I feel 
doubly honored to be here. First, to be honored that you have 
given me the privilege to be able to testify before this 
Subcommittee, and second, I am honored to be here to be 
representing the Society for Human Resource Management.
    As you are aware, SHRM, as the acronym is known, is the 
world's largest association devoted to human resource 
management, representing more than 185 individual members. The 
society's mission is both to serve the human resource 
management professional, but also to advance the HR profession.
    You can see how it is advancing it by seeing what are the 
major issues, and clearly the issue that you are trying to 
address here today in H.R. 1818 is an important issue to 
employers across the country and to H.R. professionals across 
the country, and probably across the world.
    And as the earlier speaker alluded to the survey that was 
done by SHRM, clearly the membership is very, very much 
interested in this particular benefit for its employees, and 
they recognize the importance of this.
    Now, I am going to kind of come probably from a little bit 
different standpoint than the rest of the members. You know, I 
have kind of committed to legal career to focusing in on the 
health and safety of employees.
    And I kind of see where this country is going. You are 
seeing a lot of problems as employees grow--the workforce that 
is going to be coming into play here is going to be more and 
more overweight unfortunately.
    The people that came in before; our fathers, and our 
grandfathers, and our great grandfathers, when they came to 
work in their teens and twenties. They were in fairly fit 
condition, but now the workforce that is going to be coming is 
going to bring a number of associated problems.
    You are going to see, first of all, that they are going to 
become injured much earlier in their work career, and if you 
look at the statistics previously, persons that got injured 
more than likely got injured in the later part of their working 
career, and into their forties and fifties.
    We are going to have employees that are going to be coming 
in that are going to start getting injured in their twenties, 
and this is going to skyrocket workers comp costs dramatically.
    And this is going to be most acutely felt by the small 
businesses, because any of those types of costs are going to be 
much more or less likely to be spread out to their customers or 
anything else. So they are going to be focused on that.
    So you are going to see a lot of small businesses 
dramatically impacted by increases in workers compensation if 
we don't deal with this problem now. Secondly, you are going to 
have a workforce that is incoming that is going to have health 
problems already when they arrive at the work site.
    We are already seeing a dramatic rise in Type-I child 
diabetes, and that is going to also see an increase in Type-II 
diabetes as people come to work. This is going to dramatically 
increase health care costs for employers, and it is not going 
to be just the employees that are coming to work, but it is 
going to be their families that are going to also have this 
serious problem.
    And that is going to tremendously impact the costs to 
employers on health care, and one of two things can only occur 
as a result of that. Either they are going to pass that cost on 
to the employees, which they unfortunately are not going to be 
able to afford.
    Or secondly, they are going to start reducing their 
benefits and the amount of health care coverage potentially 
even eliminating the health care coverage to their employees.
    So this is a really critical issue that we really need to 
get a hold of here. As I see it, H.R. 1818 is going to help 
employers and employees in a number of different ways. Once as 
you start getting people more healthier, they are going to have 
the possibility of them having injuries is going to be greatly 
diminished.
    If people are working, and as an employee starts 
exercising, their muscle tone is going to be strengthened, and 
the likelihood of them having back injuries or muscle strains 
are going to dramatically increase.
    And this is right now the number one work related problem 
in the United States. Also, as you increase the issue of health 
issues and exercise, you are going to have better muscle tone 
in your lower extremities, and so you are going to see a 
decrease possibly in carpal tunnel syndrome and tendinitis. So 
it will have that benefit.
    Secondly, as the workforce becomes more healthier 
associated with this, you are going to see less injuries and 
you are going to see less heart disease, less stroke, less 
stress. I mean, exercise has been demonstrated to have a 
greater impact on reducing stress in the workplace.
    That could have a two toll effect. First of all, stress is 
a major factor in workplace violence across the country. Now, I 
have dealt with a lot of issues, and a number of situations 
where stress has been directed related to where we have had 
violence in the workplace.
    Secondly, I find what is interesting is that there was an 
article that came up yesterday talking about workplace stress 
hitting the waistline, and in particular it was a study done 
out of College Park, Pennsylvania, that talked about how it 
affecting women, and the more stress on women, the more that 
they ate, and thus the more weight that they gained.
    And it was kind of a continual cycle here, and so hopefully 
one of the benefits that you are going to see on your bill is 
this education of stress, and which to me will help eliminate a 
lot of associated problems in particular due to the incidents 
of workplace violence, which has been increasing over the last 
several years.
    But overall, and I know that my time is about up, clearly I 
think the work or the employers here really are interested in 
having this bill based on the statistics for a number of 
different reasons. First, one, healthy employees are going to 
be more productive.
    Two, healthier employees are going to experience lower 
incidence of workplace injuries. Third, employer participation 
will provide a variety of tools of recruitment and retention 
valuable there.
    So you are going to have a series of things here that are 
going to be very helpful to employees. This is just clearly one 
step in dealing with the obesity problem, but is an important 
first step. And I commend you for championing this issue. Thank 
you.
    [Mr. Foulke's statement may be found in the appendix.]

    Chairman Toomey. Next we have Mr. John Brinson, president 
and CEO of Lehigh Valley Racquet and 24/7 Fitness Clubs in and 
around the greater Lehigh Valley in Pennsylvania. Mr. Brinson 
earned a Bachelor of Science from the U.S. Military Academy at 
West Point, and began his military service as an officer in the 
U.S. Army Airborne Rangers.
    Following his service to our country, he spent some time in 
the insurance field before opening his first fitness club in 
1979. He served on the board of many organizations throughout 
the Lehigh Valley and beyond.
    Mr. Brinson is my constituent and I am very happy to see 
him here. I welcome your testimony, and I look forward to our 
discussion today. Welcome.

 STATEMENT OF JOHN BRINSON, LEHIGH VALLEY RACQUET AND FITNESS 
                            CENTERS


    Mr. Brinson. Thank you, Chairman Toomey, and other 
Committee members. I am honored to be here today. This is a 
very important Committee. Small Business is the impetus, the 
driving force behind the economy in the United States. It is 
small business that drives our free market economy.
    I am a member of the National Federal of Independent 
Business and have been for over 30 years. It is the premier 
small organization in the country. I am a founding member of 
John McCarthy's wonderful association, the International Health 
Racquet and Sports Club Association, and I enjoyed hearing John 
McCarthy's testimony this morning.
    My testimony has been typed and is available to all the 
Committee members, and rather than just read it, I would like 
to concentrate on a couple of things that John McCarthy touched 
on, and also that Ed Foulke touched on.
    This program is subsidized fitness benefits for employees, 
although it is an employee benefit, it is far more than that. 
It is a benefit for the employer. It is a benefit for the 
business.
    I see it personally. My business has 300 employees, and I 
see it personally. Those who exercise and those who are fit are 
more productive. And that is the key to the economic future of 
the United States; productivity of our workforce.
    Employees who are fit show up for work more often than 
those who are not. They show up on time more often. They show 
up with good attitudes. Their morale is good. They can handle 
stress a lot better as Ed mentioned before.
    They have more endurance. They can work longer and harder, 
and are more productive than non-fit employees. So their output 
is better. They are more productive. They take fewer sick days. 
I just looked at my own record of sick days and nationally the 
number of sick days taken by employees is approximately six 
sick days per year.
    Companies that are supporting fitness, and there are a 
number of them here, and I will leave the Committee some 
brochures prepared by John McCarthy's association, and the 
title of this brochure is the Economic Benefits of Regular 
Exercise.
    These are success stories of businesses that subsidize 
fitness. They have found that their number of sick days is 
approximately 2 to 3, rather than 5 or 6, which is the national 
average.
    In my company, our sick days average 1.2 sick days per 
full-time employees. So there are fewer sick days, meaning 
better productivity, lower health insurance costs, as has been 
mentioned already, better retention.
    People who have good morale and who are fit, and who are 
more productive, are happier employees and they tend to stick 
with their employers longer than those who are not fit. And as 
has also been mentioned by Ed Foulke and others, it is a very, 
very good recruiting tool for businesses.
    So in summary, we are talking about a benefit for the 
employees, but we are talking about also--and perhaps even more 
importantly--a benefit for the employer, and for our economy.
    So I commend you, Chairman Toomey, on your sponsorship of 
this very important legislation, and I hope that your 
colleagues in the Congress will support it. Thank you for 
hearing me today.
    [Mr. Brinson's statement may be found in the appendix.]

    Chairman Toomey. Thank you very much for coming here and 
for your testimony. Next we have Mr. David Fehrmann, Director 
of Brand Standards and Operating Systems at USA Management here 
in the D.C. Metro area.
    Mr. Fehrmann earned a Bachelor of Science in Business 
Administration from Southeast Missouri University, and then 
spent 32 years working for the John Deere Company in a wide 
array of capacities.
    In addition to his work as Director of Brand Standards, and 
Operating Systems for USA Management, he is also the general 
manager of the Courtyard by Marriott in Springfield, Virginia. 
Mr. Fehrmann, I appreciate your time and look forward to your 
testimony.

       STATEMENT OF DAVID FEHRMANN, USA MANAGEMENT, INC.


    Mr. Fehrmann. Thank you, Chairman Toomey. I appreciate 
being invited to attend today. I am representing small business 
also and I wanted to tell you just a little bit about USA 
Management, Incorporated, which is located here in the District 
on twenty-second street.
    We have been headquartered at that location continually 
since 1946. I am employed by the company as the Director of 
Brand Standards and Operating Systems, and that does include 
human resource development.
    In small business, many times, as I am sure you are aware, 
you find yourself wearing multiple hats and I am no different. 
Our business is as a hospitality company, and it includes 
restaurants and hotel operations, hotel management company, 
some office buildings, and we are all located here in the D.C. 
Metropolitan area, and we employ about 225 people.
    We are undergoing an expansion project at the current time, 
and in three years, we are going to expand into some additional 
markets. We will have tripled the size of our business, and our 
employment will escalate from currently 225 to about a thousand 
people.
    I would like to tell you that we are currently offering 
state-of-the-art health care facilities at our headquarters and 
in remote locations for our employees, but we are not. We just 
simply can't afford the cost, and we can neither allocate the 
expense or the capital in the space to such facilities.
    Our CEO, however, is a very health conscious individual, 
and realizes that there is considerable value in keeping 
personally fit, and a number of years ago, he contracted with a 
health club facility in the District, and provided membership 
to a group of managers and key employees.
    About 10 percent of our current full-time employee base is 
involved in health club activity. The cost of this health club 
participation is roughly $150 a month per employee, and is 
borne solely by the company at this time.
    The total annual cost is $30 thousand and that is a 
significant expense to a small family-owned business like ours. 
Employee usage is monitored, and it is provided on a use it or 
lose it basis, and most of our employees do participate 
actively.
    Restaurant employees and hotel employees are sometimes 
staggered by the long hours that they must keep. Many of our 
key employees will work double-shifts or even around the clock 
to support our businesses and take care of our customers.
    I am sure that is the same that many other small business 
owners would tell you. It takes people who are willing to work 
long hours, and people who can wear several hats, and who are 
successful in the small business atmosphere.
    Our owners have recognized that a physically fit business 
person, or excuse me, a physically fit employee with a neat and 
trim look is advantageous to our business. We consider healthy 
and happy employees a valuable asset.
    Our company needs to attract high quality employees and we 
continually seek out the most qualified people that we can 
find. Besides meeting our job requirements, they tend to be 
energetic, charismatic, and physically fit.
    They are leaders who will attract and surround themselves 
with others just like themselves. Some of the direct benefits 
of a regular workout regimen include general improvement in 
overall health, reduced weight, increased energy levels, and 
generally a reduced stress level.
    I see employees who are completely stressed out by the 
events of the day happening around them, leave the facility and 
go for a 45 minute workout, and then return to work absolutely 
refreshed, energized, and ready to get back to work.
    These people produce more, and they work well under 
pressure, and they present a calm, outward appearance to those 
around them. They tend to lead by example and I believe that 
the people who work out regularly are more competitive.
    They seem to have increased stamina, and they ultimately 
perform better in our business. This bill has the advantages of 
helping us in our business. It is going to level the playing 
field on tax deductions, and that is something that a small 
decentralized business like ours needs.
    And employees of both large and small business enterprises 
that work out as part of an employer-sponsored program should 
not be taxed on that value. Maintaining a healthy lifestyle 
that includes vigorous exercise and a weight loss program is so 
important that we should remove any obstacles that would 
prevent its use.
    I told you that we are engaged in expansion projects. I 
don't foresee health club, or private health club facilities at 
any of our locations, but I do see expanded health club 
benefits offered to employees.
    We want to continue to reap the benefits of a more 
physically fit employee base. We must continue to offer 
competitive wages, competitive health care, and competitive 
indirect compensation packages to attract the workforce that we 
need, and a benefit package that includes some form of health 
club participation is going to be both good for our company, 
and for the employee.
    We are also focused on our largest expense, the cost of 
providing health care insurance coverage to our employees. We 
have been staggered by the rapid escalation of health care 
costs over the last several years.
    Those premiums have been increasing well over 10 percent a 
year, and are expected to continue. We believe that improving 
the health of the population in general and specifically our 
employee base, can help reduce these future increases, and we 
intend to do our share to control the rapidly rising costs of 
providing medical coverage to our employees.
    In conclusion, I just want to say that our business is 
growing and we will need to recruit a hundred key people in the 
next several years, and it is going to take a complete 
employment package, including direct compensation and benefits, 
to attract the right people.
    Health club participation is going to be part of those 
benefits if we can continue to see the on-job related benefits 
of health club participation, and also see reduced health care 
insurance premiums at the same time, we can get a double-impact 
from the dollars that we spend.
    And that is the kind of impact that impresses a small 
business owner. It is the kind of expense that is easy to 
justify. Passage of House Bill 1818 , will help small business 
get there, and I urge you to move it forward. Thank you for 
inviting me today.
    [Mr. Fehrmann's statement may be found in the appendix.]

    Chairman Toomey. Thank you very much, Mr. Fehrmann. Last, 
but certainly not least, rounding out our panel is Ms. Karen 
Silberman. Ms. Silberman is the executive director of the 
National Coalition for Promoting Physical Activity.
    She earned her undergraduate degree in sociology from 
Overland College in Ohio, and a Masters of Public Affairs, Non-
Profit Management, from Indiana University. Ms. Silberman has 
an impressive resume of work for various nonprofit 
organizations, including the Coalition for the Homeless, the 
American Heart Association, Points of Light Foundation, and of 
course her current role of executive director of the NCPPA.
    Ms. Silberman, thank you very much for being with us today, 
and I look forward to your testimony.

STATEMENT OF KAREN SILBERMAN, NATIONAL COALITION FOR PROMOTING 
                       PHYSICAL ACTIVITY


    Ms. Silberman. Thank you. The National Coalition for 
Promoting Physical Activity is a coalition of major health, 
fitness, and recreation organizations working to advance 
policies and programs that encourage physical activity.
    NCPPA was created in response to the 1996 Surgeon General 
report on physical activity and health. The American College of 
Sports Medicine, the American Heart Association, and the 
American Alliance for Health, Physical Education, and 
Recreation, and Dance, convened the coalition as a way to 
advocate and educate Americans on the importance of regular 
physical activity.
    NCPPA has since grown to include a broad cross-section of 
national and local organizations, including Federal Agencies, 
corporate partners, trade and professional associations, and 
national charitable organizations.
    Our members are as diverse as the International Health, 
Racquet, and Sports Club Association, the American Cancer 
Society, AARP, the YMCA, the National Recreation and Park 
Association, and the NCAA.
    NCPPA's members independently address a host of issues 
pertaining to physical activity, including health science, 
education, environment, population-specific outreach, and 
activity behavior.
    By working together and building on existing relationships 
in the public and private industry sectors, NCPPA is developing 
new alliances and partnerships to focus and coordinate public 
education campaigns, policy development, and media education.
    Our work is motivated in-part by the alarming rates of 
obesity, chronic disease, and inactivity in our country. 
America faces a health crisis of epidemic proportions. Physical 
inactivity, combined with being overweight, has in less than 30 
years made the United States a nation of overweight and out-of-
shape individuals.
    According to the Centers for Disease Control and 
Prevention, the incidents of overweight or obesity among adults 
increased steadily from 47 percent in 1976 to 61 percent in 
1999.
    Despite proven benefits of physical activity, more than 60 
percent of Americans do not get enough physical activity to 
provide health benefits. And as I like to say, the Surgeon 
General once said that physical activity is so important that 
it should be made an honorary vitamin.
    Obesity is a significant risk factor for developing chronic 
disease, such as diabetes, asthma, and heart disease. Physical 
inactivity and obesity now rank second after tobacco use as the 
leading cause of death in the United States.
    The newest figures estimate that 400 thousand deaths 
annually are attributable to poor diet and inactivity. In 2000, 
the costs associated with physical inactivity, obesity, and 
related chronic conditions was estimated to be $117 billion.
    Moderately intense daily physical activity has long been 
recognized as an essential ingredient to a healthy life, but 
increasing physical activity has been engineered out of 
Anericans' daily lives. We have yet to find the solution.
    We know that old problems and initiatives aren't working 
and the statistics illustrate a deepening problem. What we do 
know is when physical activity is incorporated into a person's 
daily life, it is more likely to become a habit and more likely 
to provide lasting health benefits.
    One of the best delivery systems to reach the American 
adult population is the workplace. When an employer provides 
for or encourages physical activity among its employees, the 
benefits can be considerable, including significant health care 
cost savings, a decrease in absenteeism, competitive advantages 
in attracting and retaining highly qualified employees, and 
promoting the business of co-employees.
    The WHIP bill is not a cure all, but it is a step in the 
right direction. It provides the flexibility and incentive to 
both employers and employees to make physical activity part of 
their daily routine.
    The WHIP bill encourages employers of all types and sizes, 
whether they have in-house or off-site premises or fit 
facilities to offer an exercise benefit to their employees.
    Most importantly, the WHIP bill levels the playing field 
between small businesses and large corporations by assuring 
that small businesses receive the same opportunities to improve 
their health as those of large corporations.
    It is time to make a change and although NCPPA does not 
believe that we can legislate individual behavior change, we do 
believe that we can make our physical environment more 
conducive to being physically active.
    The WHIP bill addresses this issue head-on. It makes the 
environment as tax friendly as possible, and provides the most 
flexibility to employers to create fitness programs.
    It incentivizes those small businesses that want to do the 
right thing, and eliminates a road block to those small 
business employees who want to live a more healthful lifestyle.
    NCPPA strongly believes in tax incentives as a way to 
encourage physical activity. Our board of directors recently 
decided to make this concept our signature issue. The idea is a 
novel one, linking tax benefits to healthier lifestyles is an 
innovative way to combat obesity.
    Although the Federal Government and the medical community 
have done a good job of studying and advertising the risks of 
inactivity, no one has offered real incentives to the average 
American to change behaviors.
    Measures such as the Impact bill and others do not provide 
the degree of motivation that a tax break and its associated 
economic benefits would. NCPPA is glad to be taking the lead on 
the way that we address physical inactivity and related chronic 
diseases.
    We believe that there is broad public support for measures 
that will make it cheaper for individuals to join fitness 
centers, pay for preventive health maintenance programs, lose 
weight, and stay active. We will continue to advocate and 
educate around these issues, and look forward to working with 
the Committee on Small Business on these initiatives.[Ms. 
Silberman's statement may be found in the appendix.]

    Chairman Toomey. Thank you very much for your testimony. I 
want to thank you all. I appreciate it very much. I have 
several questions that I would like to begin with. First of 
all, I would like to address the issue of just how broadly 
beneficial this idea could be, and perhaps one way to look at 
this is to think about what percentage of employers in America 
today actually have their own fitness facility therefore might 
not be terribly interested in this bill. I suspect that it is a 
tiny percentage. Does anybody know? It has got to be a very, 
very small number. Can anyone hazard an estimate?
    Mr. McCarthy. My sense is that there is probably several 
thousand, as many as five thousand corporate fitness centers 
around the United States, but let me give you, Mr. Chairman, an 
example.
    Federal Express has a magnificent fitness center at its 
world headquarters in Memphis, Tennessee. However, they have 
employees all over the United States, and Pepsi Cola is the 
same way.
    The have a magnificent fitness center in Purchase, New 
York, but 99.5 percent of their employees are elsewhere. So the 
on-site fitness centers only really cover probably 1 to 2 
percent of the total employees in the United States. And the 
need for off-site fitness centers is inordinate.
    Small business has this disadvantage, and have what I would 
consider an unfair tax treatment and just don't have the 
opportunity to have the same kind of access to health care.
    Chairman Toomey. Mr. Brinson, would you like to add to 
that?
    Mr. Brinson. In the Lehigh Valley, with a population of 
between 6-to-700 thousand, there is only one corporate fitness 
center. No other employers except for colleges and universities 
have fitness centers for their employees.
    Also, I wanted to emphasize that the--well, I, by the way 
engage myself almost full-time in trying to sell corporate 
fitness memberships, and it is a huge disincentive to have this 
tax treatment.
    Once an employer hears that he has to give a 1099 to his 
employees for subsidizing their fitness, he is not interested 
any longer. It is very, very difficult to get employers to 
subsidize fitness under the current rules.

    Chairman Toomey. Thank you. Another question that I would 
like to touch on is that we touched on some things that all 
know intuitively to be true. I am wondering if there is any 
empirical data, and whether you have it with you today, or 
whether you can refer it to the Committee, such as a 
correlation between physical fitness and lower incidents of 
workplace injuries, lower incidents of absenteeism as Mr. 
Brinson provided with respect to his company, productivity of 
workers?
    Do we have any objective studies that have been done that 
document this?

    Mr. McCarthy. Mr. Chairman, we brought to you an entire 
document on this.

    Chairman Toomey. On just that.

    Mr. McCarthy. And that features the documented productivity 
gains and health care cost gains of companies that do subsidize 
fitness, and we will leave that with you.

    Chairman Toomey. Terrific. And without objection, we will 
include that in the record.

    Chairman Toomey. I appreciate that. I think that it is just 
important to be able to back this up with factual objective 
scientific criteria, and there is plenty there. So let us 
include that. I appreciate that.
    Mr. Fehrmann, a question for you. You know, I think of your 
company, which many would consider a small business, but 
certainly a substantial small business, as one that is soon to 
embark on very significant growth.
    And yet you certainly don't have the resources to build 
your own fitness facility. Do you see that ability anytime 
soon, or is employing the kind of benefits that we have been 
talking about the much more likely avenue for your company for 
the foreseeable future?

    Mr. Fehrmann. Mr. Chairman, I don't believe that we would 
ever construct the facilities, and own those, and operate them 
ourself. We are going to be a largely decentralized company, 
with small workforces scattered over a large area, and I don't 
think the impact would be there if we were to embark on that 
ourself.
    Rather, I think our course is probably going to be to seek 
out the providers of health club facilities in each one of the 
city locations where we establish businesses.

    Chairman Toomey. And I suspect that is just the case for 
the overwhelming majority of companies. Well, thank you for 
that. At this time, I will yield to my friend, the ranking 
member and the gentle lady from California.

    Ms. Millender-McDonald. Thank you so much, Mr. Chairman, 
and let me just kind of give an overview of what I would have 
said had I not gone to the Small Business Committee, thinking 
that is where we were. And so I had to rush over here, and so 
perhaps I need to check my heartbeat to see just how well it 
is.
    But I do thank you for convening this. I want to thank the 
witnesses who have come before us today. There is no doubt that 
fitness and overall health are linked. Many Americans are on a 
quest to improve their personal health and fitness.
    And, in-turn, good health results and a stronger and a 
healthier, and more energetic workforce. We do understand 
though that this workforce is growing rapidly to minorities, 
and given that, your workforce will be looking differently than 
what it looks today, and over the next decade.
    So we look at 70 percent of Americans are sufficiently 
inactive, and thereby are classified as sedentary, with over 30 
percent are considered obese, and then we draw on statistics 
such as over 60 percent of African-Americans and Hispanic 
Americans are overweight, and low income minority women prove 
to have the greatest likelihood of becoming overweight.
    We all know this. I am one who really do appreciate and 
know the value of a productive, healthy workforce. As a former 
personnel director in both the private and the public sector 
years ago, I recognize that immensely, because I know that it 
reduces absenteeism and just a lot of other things.
    And while we need to encourage Americans to improve their 
health status, I introduced--we must also recognize that we 
cannot as the young lady said, we cannot legislate behavior. We 
really cannot do that.
    Irrespective, I have given sometimes, and this is with my 
own money, invested in a health club, and have gone few times 
as what that health club fee asks for. But we cannot do that, 
and yet when you see your workforce growing more and more, 
women and minorities, you are going to be faced with some 
health related problems with them coming on as Mr. Foulke said.
    And it is true that you will see that as you have a 
different type of employee. My question to all of you as I see 
the majority of our witnesses, Mr. Chairman, are health club 
related witnesses, and it does not seem to have any small 
businesses and minority business witnesses here today, who can 
speak to their problems that they have, ongoing problems, of 
just trying to stay afloat.
    But I would like to ask all of you are your businesses--do 
any of your businesses have an employment of under 50 
employees? Do you have under 50 employees at your different 
businesses?

    Mr. Foulke. I would say that I represent a lot of small 
business, mom and pop companies, all the way to Fortune 500. So 
I have dealt with a lot of different companies, but very small 
companies, and surprisingly that is the area that I probably 
deal with most, is small employers.

    Ms. Millender-McDonald. But, Mr. Foulke, you spoke to the 
whole notion that before we even engage in health fitness that 
we need to look at health benefits, because that is the really 
driving issue here with small businesses. They cannot afford 
health benefits.
    And so my question to you is, how many of you give health 
benefits to your employees?

    Mr. Brinson. Could I address this? I am active as I 
mentioned before in selling corporate fitness memberships. I am 
also a member of the NFIB, and I have been involved with small 
businesses for 30 years.
    I do have 300 employees myself, but I am still a small 
business. We are privately owned. What we see is that the cost 
of subsidizing fitness really depends on what the employer 
wants to spend, and it does not have to be large at all.
    I tell my corporate prospects that they can contribute 
whatever they want to. There is no price tag. It could be as 
high as $150, which apparently David's business is spending to 
subsidize memberships, or it could be as little as only five or 
ten dollars a month.
    The average fitness club membership I believe in the 
country averages, depending on what it offers, somewhere 
between $40 and $50 a month, the average. So if the employer 
contributes only a little bit, as little as maybe $10 or $12 a 
month, it provides a tremendous incentive for the employees to 
pay the balance.

    Ms. Millender-McDonald. Are we talking about health related 
benefits, or are you talking about for fitness?

    Mr. Brinson. Fitness benefits, and they are linked as you 
mentioned before, and fitness and health are linked. If your 
question has to do with our we providing health insurance 
benefits, my business does.
    I believe that most small businesses do provide some kind 
of support. We provide 80 percent of the cost of health 
insurance for our employees.

    Ms. Millender-McDonald. Anyone else want to weigh in on 
this?

    Mr. McCarthy. May I add one point? We have 63 employees, 
and we provide $350 per year toward a fitness membership 
anywhere, whether it is a YMCA, a Jewish Community Center, a 
corporate fitness center.
    And we find that almost all of our employees take advantage 
of it, and as a result our sick days, our productivity, is very 
much at the very low end of the average.
    So we find it enormously valuable, even though we have to 
submit for every one of those employees a 1099 that shows that 
that benefit was a taxable benefit.

    Ms. Millender-McDonald. And I am not arguing the fact that 
health fitness is not critical to the well-being of anyone. I 
walk myself or go to the gym, but to bring this into a bill, 
this is why H.R. 1818 is stuck in the Ways and Means Committee 
that was introduced last year by the Chairman, is because--and 
there is no action on it.
    And it is because we are looking at how we can have some of 
the most critical issues facing employees in small businesses 
like child care services. Do either of you provide child care 
services?
    These are the services that are going to be critically 
needed for this new workforce that will be coming into gear 
over the next decade. You will have more women, more mothers, 
more single parents.
    And so those are some of the critical areas that we will 
need to see in terms of employees having benefits, and benefits 
that will help them to continue to have the morale that is 
needed in any employment.
    I see that my time is up, Mr. Chairman. I wish you would do 
like other Committees that I serve on that we just go round-
robin, and let us extend these questions, because this is an 
important issue. But I will wait my turn for the next go-around

    Chairman Toomey. Well, as you know, I generally do that, 
and I am more than happy to yield additional time to the 
ranking member if she would like that. Do you want to pursue 
that now?

    Ms. Millender-McDonald. Yes, I would like to just raise a 
couple of questions. Thank you so much, Mr. Chairman. Mr. 
McCarthy, what is the average wage for small business employees 
in your business?
    Now, I notice that you have a health club, Health Racquet 
and Sports Club business. What type of wages are paid to them, 
and how would this bill, H.R. 1818 level the playing field 
between your business and any other business with reference to 
what the content of this bill speaks to?

    Mr. McCarthy. Well, I am not sure if I am answering your 
question directly, but the beauty of this bill is that it 
applies to all fitness centers, whether they be YMCAs, Jewish 
Community Centers, or community fitness centers.
    And so it applies to all employees at all fitness centers, 
and so we think it provides a benefit, and it is not a mandate 
for employers or for anybody.

    Ms. Millender-McDonald. But if I am not mistaken, the 
employee would buy into this fitness club, or the employer will 
provide the fee for the employee to go this fitness club. Which 
one is it?

    Mr. McCarthy. Well, Mr. Brinson had it exactly right. What 
typically happens is that the employer provides partial 
subsidies. So it probably reduces the out-of-pocket costs for 
the employee from maybe $45 a month to $15 a month, which 
brings that within the reach of almost every employee.

    Ms. Millender-McDonald. Well, that might be a little 
presumptuous on all of our parts to say that, because in 
looking at a lot of the employees whom I have seen, even $15 is 
a stretch for them to pay for something that they perceive a 
luxury, even though they might have Diabetes II.
    I mean, it is amazing. There is a culture here that we are 
talking about and this culture will not dictate employees 
buying into a health fitness program when they can barely 
provide the bread and butter on the table.
    So that is why I was asking about the wages of those who 
work in your business as to whether or not they would engage in 
this fitness program that you would offer, even though you 
would pay a percentage of that. Mr. Brinson.

    Mr. Brinson. If I could, I am looking at this from both 
ends. I am a small business owner. By the way, none of our 
employees earn the minimum wage. All of our employees earn more 
than the minimum wage.
    And then looking at it from the point of view of employers 
who are trying to get their workforce to be more productive, 
and to get fit, the amount that they contribute is totally up 
to them.
    I have corporate clients who pay the entire costs of a 
fitness club membership. So it costs the employees nothing, and 
the cost is minuscule compared to health insurance. For 
example, we have a company that is subsidizing memberships for 
all of its employees, every single one of them.
    And these memberships would cost $55 a month, and the 
company is paying the entire cost. That seems like perhaps a 
lot of money, and I do hear what you are saying about maybe the 
employer should take that money instead and provide child care.

    Ms. Millender-McDonald. Or health care.

    Mr. Brinson. Well, they do. The employers do all across the 
board support health care, but the cost of subsidizing fitness 
can be very, very small. It is totally up to the employer.
    So I don't see it as a hindrance. I don't see it as taking 
money away from anything, and I would like to address also the 
cost to the Internal Revenue Service. Because of the 
disincentive right now for companies to subsidize fitness, very 
few companies are subsidizing fitness, and very few 1099s are 
finding their way to the IRS.
    So the cost to the government for H.R. 1818 is minuscule or 
nothing, because it just is not happening. So I guess what I am 
saying, Congressman, is that this program will not be a 
disincentive for employers to do anything else--provide health 
insurance or provide child care, and all of those other things 
that are so important.
    It will instead make it a very, very simple thing for them 
to look at. Right now they have to look beyond the pure costs 
that they may be willing to pay because of the disincentive.
    Once they hear the word 1099 for their employees, they are 
turned off.

    Ms. Millender-McDonald. I tend to agree more with that in 
terms of the forms and all that one has to fill out for that. 
Mr. Foulke, you mentioned that workers' injuries will be much 
sooner than those of their parents and those who have gone 
before them in terms of workers.
    And I could not agree with you more given the fact that 
people do not have health insurance, and so the likelihood of 
their coming to the workforce, well and able to work, is going 
to be slightly less than those who went before them.
    What statistics have you shown where most of your small 
businesses that have employees under 100 can afford health 
insurance?

    Mr. Foulke. I don't have any specific statistics here, but 
I was very happy to hear about your involvement in your 
previous work as a health care or human resource professional.
    And I think you have kind of already realized--and I am 
going to address one of your concerns that you mentioned a 
little bit earlier. I think you realize that with respect to 
where we are as employers, and especially small businesses 
being competitive, obviously that is the key that we have to 
have here, because if we are not competitive, there are no jobs 
and there is no business, especially for the small business, 
and I appreciate your concern about that.
    And I think probably as you have been an HR professional, 
you are aware with respect to productivity and quality that any 
gains we are going to get are going to be very minuscule from 
that, because most businesses have pretty much gone--you know, 
they have done the Sic Sigma, and they have done Just in Time, 
and they have done the quality circles, and they have done all 
these issues.
    So that area is pretty much set aside. So the only large 
area left of expense to employers is in the health care area, 
or just in the whole area of health and safety if you would 
like, because the more injuries we have, the less likelihood 
that we are going to be able to be competitive because the 
costs are just going to continue to rise.
    And with respect to the workforce that is coming in, 
clearly they are going to be less healthy, and that is kind of 
what we are talking about here. So the question is where are we 
going to spend the money.
    And I think that is your concern, and to me it seems like 
that we have got to look at, if we don't spend it on trying to 
get a healthier workforce, and reducing our health care costs, 
and reducing our workers compensation costs, then it doesn't 
matter if we have child care to tell you the truth, because the 
jobs are just not going to be there unfortunately.

    Ms. Millender-McDonald. Well, that is very true, and that 
is very true. Mr. Chairman, I will stop and allow other members 
to speak and I will come back when the time is appropriate.

    Chairman Toomey. All right. I will yield to the gentleman 
from Ohio.

    Mr. Chabot. I thank the Chairman for yielding, and I want 
to commend him for holding this hearing, and I apologize for 
being a little late myself. As you are probably aware, many of 
us here have commitments all over the place, and you get to 
meetings as you are able to.
    But this has been very interesting and I would like very 
much to look into this legislation, and I have my staffer here, 
and so whereas my philosophy is that we need to simplify the 
tax code, and I would like to get rid of the whole thing and 
come back with something much fairer and flatter, and simpler, 
until such time as we are able to accomplish that, I think 
pieces of legislation like this make a lot of sense.
    And members of the House and the Senate have access to a 
gym, and some of us take advantage of it, and too many of us 
don't. But it seems to me that it makes a lot of sense, a lot 
more sense to encourage the public to maintain a healthy level 
of physical fitness and too many obviously don't at the present 
time.
    It seems like some think that it might be better to sue 
McDonalds, or Burger Chef, or others, but I think rather than 
do that--and we are looking at legislation to prevent that sort 
of abuse of the judicial system.
    It seems like this type of bill makes an awful lot of 
sense. A lot of questions have been asked and some prior to my 
getting here, and are there any issues that any of you on the 
panel would like to expound upon that you did not have an 
opportunity to? Yes?

    Mr. Brinson. If I could just briefly, very, very briefly. 
Fitness centers are very expensive to build and operate. They 
are very expensive to build and operate, and a company cannot 
do it unless it is economically feasible for a company to have 
its own fitness center, unless it has by my estimate about 
2,000 employees on-site.
    Otherwise, it is just a big waste of money to try to build 
a fitness center. It is much better for the employer to make a 
deal with the surrounding fitness clubs and YMCAs, and 
whatever, to contribute toward memberships for the employees.
    And then the employees can pick whatever fitness center 
they want to go to and pay. Most of them pay half or more than 
half of the costs themselves, the employees. The best way to 
reach the most employees is to reach the employees of small 
business and the best way to do that is to encourage these 
businesses to subsidize fitness benefits for their employees.

    Mr. Chabot. Thank you. I think the gentleman next to you 
had a point.

    Mr. Fehrmann. Thank you, sir. Our company is developing 
plans, compensation packages, for our employees that are 
competitive, and when the need for child care, or any other 
benefit is presented in such a way that many of the employers 
are moving that direction, our company will do that also.
    Right now we are focused on some major expenses, and that 
is the cost of providing health care insurance, and we offer 
health care insurance to all of our full-time employees. By the 
way, approximately 50 percent of our employees are of the 
minority classes.
    And 80 percent of those employees actively participate in 
health care insurance. The cost of that to our company is 
somewhere between $6 thousand and $8 thousand per employee, and 
that is a huge expense that is growing quite rapidly.
    And we are very supportive of this bill and any activity 
that would encourage employees to become more physically fit to 
help control the rapid escalation of that cost.
    And so that is what I wanted to speak about and encourage 
you to do what you can to move this forward, and provide some 
incentive to the employer to continue to provide the benefit 
like health club membership so that these employees will take 
it upon themselves to address some of the health problems and 
help us control these costs.

    Ms. Millender-McDonald. Would the gentleman yield?

    Mr. Chabot. I would be happy to yield.

    Ms. Millender-McDonald. Thank you so much. Sir, do you want 
to say something, Mr. McCarthy, before I just speak to this?

    Mr. McCarthy. I would like to add one point if I may; that 
our 63 employees, that the vast majority are women, and we are 
proud that we have a very diversified employee staff, in terms 
of all races, ethnic groups, et cetera.
    And I can tell you that the minority members, whether they 
be women or others, are as eager about this particular benefit 
as anybody else. So I find this benefit that we are talking 
about to be attractive to all the entire population, and it 
does not segment in any particular way.
    And I think what Mr. Fehrmann said, I am just backing up 
what he said on that.

    Ms. Millender-McDonald. And I could not agree with you 
more.

    Mr. Chabot. Mr. Chairman, my time has expired, but I would 
like to ask for an additional two minutes so that I can yield 
to the gentle lady.

    Ms. Millender-McDonald. My dear friend, I thank you so 
much, the distinguished gentleman.

    Chairman Toomey. I will yield an additional two minutes to 
the gentleman from Ohio.

    Mr. Chabot. Thank you.

    Ms. Millender-McDonald. Thank you so much, Mr. Chairman. I 
just wanted to get back to what Mr. Fehrmann said. You are 
right. We know the cost of health insurance to businesses.
    I don't mind at all looking at and have provided, and have 
introduced legislation for tax incentives and tax credits for 
businesses that are having difficulty with health insurance. It 
is skyrocketing, and it is very true.
    It is also true that people should invest more into health 
fitness, but that is a culture that we have got to change here 
in America, and it is not going to be overnight, and it is not 
going to be in my opinion through legislation.
    It is just going to be through the myriad of advocacy 
programs that are out there encouraging that. But I just wanted 
to say that we sympathize with small businesses. This Chairman 
and I are on the same page in trying to help small businesses 
as much as we can with the relief that you have in health 
insurance.
    Now, that I can look into full-pledged, in terms of tax 
incentives. Thank you, Mr. Chairman.

    Mr. Chabot. I yield back.

    Chairman Toomey. Thank you, and I will begin the second 
round of questions by yielding to myself five minutes. First, 
let me say that my take on where this legislation is, it is 
under the jurisdiction of the Ways and Means Committee 
obviously because it changes the tax code.
    My view on this, and I would think that there are many 
colleagues in the House that would share this view is that this 
is simply one of many good ideas. There are many things that I 
would like to see us do with this tax code.
    I would like to eliminate the death tax permanently, and I 
would like to further lower marginal tax rates, and I would 
like to dramatically simplify the code. Personally, I have my 
own, many things that I would like to accomplish.
    Most of us in this chamber and in the other body have their 
ideas. It is my hope because I think that this is a 
particularly meritorious idea, that it will be included in the 
mix at some point when we have an opportunity to consider 
additional tax legislation and that is why I think it is 
important that it be introduced, and that we grow the number of 
co-sponsors, and that we have this hearing today, and I am very 
grateful to all of you for helping this cause.
    The other point that I would like to make pursuant to the 
discussion that we have been having is that I personally do not 
see this as conflicting with a company's ability to provide 
other kinds of compensation or benefits.
    I think it is worth keeping in mind, for instance, with 
regard to health care that employers that provide health care 
to their workers find that their workers are not required to 
pay tax on that benefit. All we are really asking for is the 
same treatment for this kind of health care, a preventive kind.
    But very much a kind of health care. So in many ways I 
think this could be construed as a broadening of an existing 
tax treatment of health care, and an appropriate one at that.
    I would like to ask a question to--I think Mr. Brinson had 
in his written testimony addressed this, and I am wondering if 
any of you have similar or different opinions.
    And that is, is there a way to quantify or estimate any 
kind of percentage increase or numerical increase in the usage 
of health care facilities if we were to provide this change in 
the tax code?
    Do we have any guess as to what kind of numbers we would 
see people actually taking advantage of it?

    Mr. Brinson. If I may, in Northeastern Pennsylvania, we 
have a very low market penetration by fitness club memberships, 
about six percent. The national average is about 13 percent.
    So we can assume that for the general population the 
penetration is about six percent. It is my experience with 
companies that I do business with, and who subsidize fitness 
benefits, that as many as 20 or 25 percent of the employees 
participate.
    So we are looking at 4 to 5 times more participation simply 
because the employer is supporting fitness. And by the way, I 
have heard it said that this H.R. 1818 is an incentive program, 
but it really is not.
    It is removing a disincentive, because what we have right 
now in the tax code is a disincentive to fitness, a 
disincentive. So we are not giving anything to anyone here. We 
are simply asking that there be fair treatment for all, and it 
is not going to cost the Ways and Means Committee any money.
    Because very few employers are doing this, and I am telling 
you that it is very, very difficult--

    Ms. Millender-McDonald. Tell that to Mr. Thomas.

    Chairman Toomey. I have only a minute-and-a-half left in 
this time round, and so I would like to just if I could switch 
to another topic, which is the fact that this benefit, to the 
extent that it is provided to an employee, and deemed to be 
taxable income at the Federal level, of course many States have 
an income tax as well.
    And are any of you aware of any efforts at the State level 
to exclude this benefit from the taxable income at the State 
level? Is there any movement in that direction?

    Mr. McCarthy. I wish I could speak more specifically, but I 
am aware that there are some States that are trying to 
incentivize fitness participation. I can't give you chapter and 
verse on that, Mr. Chairman.

    Chairman Toomey. Okay. Does anybody else have any input on 
the State practices? Okay. Well, obviously the Federal 
Government has a much higher income tax burden than any of the 
States, and so the biggest impact by far would be if we made 
the change, and if States chose to follow suit, so much the 
better.
    But with that, I would be happy to yield five minutes to 
the ranking member.

    Ms. Millender-McDonald. Thank you, Mr. Chairman. Ms. 
Silberman, you stated in your testimony that the NCPAA strongly 
believes in tax incentives as a way to encourage physical 
activity. Would the NCPPA support an individual tax refund 
rather than business tax expenses, as proposed in H.R. 1818?

    Ms. Silberman. We advocate on actually a lot of different 
issues around physical activity, and if it was something that 
we felt like would encourage people to be physically active, it 
is something that we would support. This is one of many ways 
that we want to get people more active.
    And one of the things that we work on is making sure that 
people can be active across the board, and I think we have 
touched on some of the things here in the hearing in terms of 
not everybody is going to join either a public or private 
health club, or YMCA, or JCC.
    Some people are just going to walk in their neighborhood. 
Some employers are going to take advantage of this if they have 
the money and they want to, and some won't.
    But again we feel like we are taking away a barrier, and it 
is just one more thing that we can do to say to people that 
this is important. It is important to take care of your health 
and to practice prevention. This is one way to get that done.

    Ms. Millender-McDonald. In speaking to a lot of members on 
this bill, about this bill, they find that this has been a 
luxury that one should have if one wants it, and this is why 
perhaps the individual tax credit or incentive would be more of 
an avenue that they could engage in dialogue on, as opposed to 
a business tax.
    And that is why I brought that forward because you had 
mentioned that. So it is very encouraging to know that you 
would consider an individual tax incentive because of your 
whole notion of physical fitness.
    One of the major contributors to the development of chronic 
diseases in obesity is attributable to poor diets, and we know 
that. Now, H.R. 1818 addresses just half of that problem. What 
changes would you like to make in WHIP to improve the diet 
issue that is not included here?

    Ms. Silberman. NCPPA has made a very strategic decision 
actually not to be involved in the diet fight of things. There 
is a lot of politics involved around anything having to do with 
the food, and NCPPA is specifically focused on the physical 
activities.
    As I like to say, there are not any people who are against 
being physically active, but there certainly are a lot of 
people who have particular ideas around what good nutrition is. 
So I would respectfully decline to respond.

    Mr. Brinson. If I may.

    Ms. Millender-McDonald. Mr. Brinson, yes.

    Mr. Brinson. Thank you, Madam. In the fitness industry, the 
fitness club industry, most clubs provide nutritional 
counseling and diet advice for their members. We do. It is 
included with the membership's free of charge, so that we are 
addressing the diet and nutrition problems, which are huge as 
you say.
    It is a combination of things and it is not just physical 
inactivity. It is poor diet and we do address that, and I 
believe that John McCarthy could attest to the fact that of our 
4,500 U.S. members in his association, almost all of these 
organizations provide free nutritional counseling.
    We have two registered dieticians on our staff to help with 
this. Thank you.

    Ms. Millender-McDonald. Mr. Brinson, as well as Mr. 
McCarthy, both of your organizations title or names are--is it 
Lehigh Valley Racquet and Fitness Centers?

    Mr. Brinson. Yes.

    Ms. Millender-McDonald. And, Mr. McCarthy, yours is 
International Health, Racquet and Sports Club Association. 
Would you not say that that is more geared for an affluent type 
of person, as opposed to any commoner like in my district, the 
Watts for heaven's sake?

    Mr. Brinson. Absolutely not. Our members range from very 
low wage workers all the way to wealthy lawyers. We are trying 
to get rid of the lawyers.

    Ms. Millender-McDonald. Be careful now.

    Mr. Brinson. But, no, Madam. You would be surprised that in 
most fitness clubs, the members of fitness clubs range all over 
the economic scale, and everyone is welcome. These benefits 
don't really cost a lot of money.
    I mean, you can get a good fitness club membership for less 
than cable television.

    Ms. Millender-McDonald. I know that I paid nearly a 
thousand dollars for fitness programs.

    Mr. Brinson. Well, you may be going to a really upscale 
club, but there are plenty of just nice average clubs for nice 
average people. That is what we have.

    Ms. Millender-McDonald. Mr. McCarthy, why don't you speak 
to this.

    Mr. McCarthy. Well, I just concur with Mr. Brinson on this, 
and the beauty of this industry as many industries, as the 
restaurant industry, and the hotel industry, is that there 
really is a facility for every pocketbook.
    And we are privileged in this endeavor to be affiliated 
with the YMCA and with other groups such as the YMCA that 
basically say that no one will ever be forbidden membership by 
reason of financial need.
    In many, many facilities like Mr. Brinson's, they provide 
scholarships to people on an as-needed basis.

    Ms. Millender-McDonald. But the YMCA is a public--

    Mr. McCarthy. But they are allied with us in this 
initiative. And they are not exactly public. They are public-
private.

    Ms. Millender-McDonald. Public-private, yes. Mr. Foulke.

    Mr. Foulke. Well, as to the lawyer bashing, but I will 
leave that for later.

    Ms. Millender-McDonald. That is right. Take them outside.

    Mr. Foulke. But I would like to address one of the points 
that you brought up. You were obviously concerned about where 
the tax credits should go.

    Ms. Millender-McDonald. Yes.

    Mr. Foulke. And I understand what you are saying with the 
individual tax credits, but I think the benefit is going to the 
company, because if you look at insurance companies, they will 
generally give lower rates for companies that have health 
fitness benefits that they are providing their employees. Or if 
they have smoking cessation things. They look at all those 
areas. I think that this goes to the focus that you really 
want. You are going to have the best health care that an 
employer can provide for its employees. If we can reduce the 
premiums by providing these things, the incentives to the 
employers, that they provide these fitness programs, then they 
are going to be able to provide more health care for their 
employees overall.

    Ms. Millender-McDonald. And I think that is a valid 
argument, provided that this would be just for the small 
businesses, but this will go across the board.

    Chairman Toomey. Will the gentlelady yield?

    Ms. Millender-McDonald. Yes, please.

    Chairman Toomey. I just want to state, unless there is any 
confusion, just make it very, very clear. What this legislation 
does is nothing for any employer.

    Ms. Millender-McDonald. That is correct.

    Chairman Toomey. This is exclusively for the individual. 
This bill simply says that if your employer chooses to provide 
this benefit, you would no longer have to pay personal income 
tax on the value of that benefit.
    So this is entirely about making it more appealing and more 
viable for individuals to be able to take advantage of what an 
employer may choose to provide. I just want to make it very 
clear.

    Mr. Foulke. Well, I think it does provide an incentive for 
employers.

    Chairman Toomey. That fact creates an incentive for 
employers, but there is no tax incentive provided to any 
employer under this for any corporation large or small under 
this legislation. That is a fact.

    Ms. Millender-McDonald. Well, one more question to Mr. 
Brinson. You did mention and talk about taxes. You mentioned 
that the loss of tax revenues from H.R. 1818, which there is 
going to be a tax loss revenue here, unless we looked at this 
incorrectly, and I will be happy to go back and look at it, but 
it would cost the government nothing is what you said.
    Now, will you explain that to me how you arrived at that 
determination given that this is not the determination that we 
have arrived at?

    Mr. Brinson. Alright. Let me try. Right now the rule is 
that the employer, if the employer subsidizes the benefit, the 
employer should be given a 1099. Some organizations, such as 
John McCarthy's organization, gives 1099s to its employees.
    There aren't many companies doing this, and not many 
companies are subsidizing memberships for their employees 
because of this disincentive. It is just not happening. So that 
we are talking about a minuscule--I said minuscule or nothing.
    I believe that the increase in productivity will create 
more productive companies and will pay more in corporate income 
tax, but you are not going to lose a lot of money or any money 
at all to speak of because of changing this rule, because 
employers are not doing what they want to do.

    Ms. Millender-McDonald. Well, I was just reading here, and 
the Chairman has kind of peaked my interest again or concerns 
here. I was reading that this legislation, while it is in the 
Ways and Means, would amend the Internal Revenue Code to extend 
non-taxable fringe benefit coverage to qualifying off-premises 
fitness centers or athletic club services provided for by the 
employer. Yet he is saying that this bill does not indicate 
that it is the employer that is--

    Chairman Toomey. Again, if I could respond, you have 
correctly described the bill and I would still maintain that 
there is no change whatsoever in an employer's corporate tax 
return. For instance, the total tax liability of a company 
would not be changed by this legislation.
    What would change is the fact that the worker who gets this 
benefit would no longer have to declare this income and pay 
personal income tax on the value of this benefit. And if anyone 
disputes this, please join me, but--

    Ms. Millender-McDonald. And then that would be the loss of 
the taxes then and the worker's tax assessment.

    Chairman Toomey. And that is why Mr. Brinson observes that 
it would be very, very small, because very, very few employees 
currently have this benefit. Now, you could speculate that many 
more corporations would choose to participate in such a 
program, and they would divert some of their pre-tax profits to 
providing this benefit. So that would then be an expense of the 
company and diminish their profits, and very slightly diminish 
the total tax that would be taken in that fashion.
    However, as Mr. Brinson observes, that is also extremely 
modest and increases in productivity at the company and worker 
performance, and morale, and many other factors would 
presumably offset that as well.
    I want to reiterate that this is directly targeted for 
individuals and really does not change tax law regarding 
corporations.

    Ms. Millender-McDonald. I don't want to prolong this any 
further, and this has been an absolutely and very provocative, 
and interesting topic to discuss in the meeting. I thank this 
Chairman who was so innovative in and of himself bringing these 
types of things to our Committee. I really do thank him for his 
leadership.
    So, Mr. Brinson, I think we would be here all day with your 
questions, and so I am going to turn it back over to the 
Chairman and then you can talk with him.

    Chairman Toomey. Well, I thank the gentlelady, and I 
appreciate this discussion. I think it was a thorough 
examination of the ideas, and the merits of the legislation, 
and I hope that we have advanced the ball a little bit today, 
and again I want to thank all the witnesses for coming today, 
and thank the ranking member as well. The hearing is adjourned.
    [Whereupon, at 11:34 a.m., the Subcommittee meeting was 
adjourned.]

[GRAPHIC] [TIFF OMITTED] T6504.001

[GRAPHIC] [TIFF OMITTED] T6504.002

[GRAPHIC] [TIFF OMITTED] T6504.003

[GRAPHIC] [TIFF OMITTED] T6504.004

[GRAPHIC] [TIFF OMITTED] T6504.005

[GRAPHIC] [TIFF OMITTED] T6504.006

[GRAPHIC] [TIFF OMITTED] T6504.007

[GRAPHIC] [TIFF OMITTED] T6504.008

[GRAPHIC] [TIFF OMITTED] T6504.009

[GRAPHIC] [TIFF OMITTED] T6504.010

[GRAPHIC] [TIFF OMITTED] T6504.011

[GRAPHIC] [TIFF OMITTED] T6504.012

[GRAPHIC] [TIFF OMITTED] T6504.013

[GRAPHIC] [TIFF OMITTED] T6504.014

[GRAPHIC] [TIFF OMITTED] T6504.015

[GRAPHIC] [TIFF OMITTED] T6504.016

[GRAPHIC] [TIFF OMITTED] T6504.017

[GRAPHIC] [TIFF OMITTED] T6504.018

      

                                 
