[Senate Hearing 108-41]
[From the U.S. Government Publishing Office]
S. Hrg. 108-41
IN CRITICAL CONDITION: AMERICA'S AILING HEALTH CARE SYSTEM
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
MARCH 10, 2003
__________
Serial No. 108-5
Printed for the use of the Special Committee on Aging
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WASHINGTON : 2003
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SPECIAL COMMITTEE ON AGING
LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama JOHN B. BREAUX, Louisiana, Ranking
SUSAN COLLINS, Maine Member
MIKE ENZI, Wyoming HARRY REID, Nevada
GORDON SMITH, Oregon HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Pennsylvania EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
DEBBIE STABENOW, Michigan
Lupe Wissel, Staff Director
Michelle Easton, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator John Breaux......................... 1
Statement of Senator Larry E. Craig.............................. 3
Statement of Senator Susan Collins............................... 3
Prepared Statement of Senator Ted Steven......................... 5
Panel of Witnesses
Dan Crippen, Former Director of the Congressional Budget Office,
Washington, DC................................................. 6
Len M. Nichols, Ph.D., Vice President, Center for Studying Health
System Change, Washington, DC.................................. 17
Karen Davis, Ph.D., President, The Commonwealth Fund, New York,
NY............................................................. 30
Stuart Butler, Vice President, Domestic Policy Studies, The
Heritage Foundation, Washington, DC............................ 68
(iii)
IN CRITICAL CONDITION: AMERICA'S AILING HEALTH CARE SYSTEM
---------- --
MONDAY, MARCH 10, 2003
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee convened, pursuant to notice, at 2:02 p.m.,
in room SD-628, Dirksen Senate Office Building, Hon. John
Breaux presiding.
Present: Senators Breaux, Craig, Stevens, and Collins.
OPENING STATEMENT OF SENATOR JOHN BREAUX
Senator Breaux. The Committee on Aging will please come to
order, and good afternoon, everyone. Thank you for being with
us.
This week, as many of you may or may not have seen already,
is referred to as ``Cover the Uninsured Week,'' the week of
March 10 through 16. There are a number of organizations
ranging from the U.S. Chamber of Commerce to the AFL-CIO, the
Business Roundtable, a number of international unions, the
Health Care Leadership Council, you name it. If you are
involved in health care, they have all joined together, really,
in an effort to try and point to America and to Congress, I am
certain, the importance of addressing the question of the
uninsured in dealing with health care in this country.
So we thought it would be appropriate to use the Aging
Committee as a forum this afternoon to have a discussion on the
state of America's health care, and particularly emphasizing
the uninsured in our country. Obviously, in meetings that we
have been having, in talking to large employers, the problems
that they have in providing insurance, particularly for their
retired workers, the older Americans, is becoming an
increasingly more and more difficult problem. So I think it is
appropriate that the Aging Committee use this forum to have a
discussion this afternoon on the overall question of the
uninsured, and in doing so, keeping it with the Uninsured Week
of March 10 through 16.
If you look at the news, we find that health premiums are
going up. The number of small businesses that offer health
insurance is going down. The number of uninsured Americans is
going up. The financial conditions of both Medicare and the
Medicaid program are heading downward.
Last year, premiums for the employer-sponsored health
insurance increased by nearly 13 percent. The number of small
businesses offering health insurance to their employees
continues to decline, dropping from 67 percent down to 61
percent just last year. Medicare, I have argued, in its current
form is unsustainable. Medicaid, the safety net for our most
vulnerable, is crippling State budgets and many benefits on the
State level are being scaled back or eliminated completely.
We depend on our coverage on health care in this country
under what I have called the box system of health care, which
means that if you are an older American, you are in the
Medicare box, which spends $236 billion a year. If you are a
veteran, you are in the VA box, where we spend $26 billion a
year. If you are poor, you fall into the Medicaid box, which is
$170 billion a year. If you are working and have the fortunate
situation where your employer provides health insurance, you
are in the employer-sponsored box, where we spend $140 billion
a year in government subsidies. That adds up to about $1.4
trillion that we spend on health care annually in the United
States of America.
Yet, there is a box that is not on that table but on the
bottom, rather, that has 41 million Americans in it that have
no insurance whatsoever because they don't fit in any one of
the boxes up on top. So we have a situation where we are
spending an incredible, large amount of money every year and
yet we still have a relatively large percentage of our citizens
who have no access to health care insurance whatsoever.
It seems to me that Congress spends an inordinate amount of
time just trying to tinker with the boxes. We are trying to
tinker with the Medicare box this year, with adding
prescription drug benefits, and the President has proposed a
reform program which I think moves it in the right direction.
We continue to tinker with the Medicaid box, trying to help the
States. Just this week, the National Governors Association made
that one of their priority concerns, not having enough money
for the Medicaid program within their States. Every year, we
try to do things for the employer-sponsored box in terms of tax
credits or other means to allow them to do a better job and to
stay in the program.
So the problem is, we tinker with all the boxes, but we
very seldom take a look at the overall problems that our health
care delivery system has in this country in the larger picture,
and hopefully, we can get some discussion on that this
afternoon.
We have got a good group of witnesses that are with us.
They have been around almost as long as I have, dealing with
these problems from different perspectives, and I think that is
healthy. They have got different perspectives, but we are all
going to talk about the same subject matter.
With that, I would like to recognize our Chairman, Senator
Craig, who has allowed me to chair this hearing. Senator Craig.
OPENING STATEMENT OF SENATOR LARRY E. CRAIG
The Chairman. Mr. Chairman, thank you very much. You have
outlined clearly, I think, a great concern that we have here in
the Congress as it relates health care and the insured, the
cared for and the uninsured.
After nearly a decade of relatively modest health care cost
growth, we are now back into the double-digit annual increases,
partly driven by prescription drugs and a lot of other issues
coming together, and I think the failure of us to move with
some degree of speed in a comprehensive way prolongs and causes
the whole situation to worsen.
Last month, we had the Chairman of the Federal Reserve,
Alan Greenspan, here, not to talk about interest rates but to
talk about another passion of his and that is the aging of the
world and the costs of that. I think his testimony was very
sobering. He warned us that we simply cannot afford to wait
much longer to begin seriously tackling the long-term
challenges of Medicare and Social Security and, of course, the
uninsured was not mentioned, but clearly is a reality out there
that is being brought to our attention for the balance of the
month, coupled with these hearings.
I think the idea of comparing and relating and looking at
the overall impact that these programs have is an important
part of what this committee can do and must do as we put
together the record that the Finance Committee will ultimately
have to deal with in working on these issues.
I would ask unanimous consent that the balance of my
statement become a part of the record.
Senator Breaux. Without objection, so ordered.
The Chairman. I look forward to the testimony of our
witnesses.
Senator Breaux. Thank you, Mr. Chairman.
Any comments from Senator Collins?
STATEMENT OF SENATOR SUSAN COLLINS
Senator Collins. Thank you very much, Mr. Chairman. I was
trying to decide how I address you both. Is it Mr. Chairmen?
Mr. Chairman and Mr. Chairman? What would work? [Laughter.]
I want to thank you both for holding this extremely
important hearing to focus on the problems plaguing our
nation's health care system and the options for reform to
ensure that more Americans--indeed, our goal should be that all
Americans--have access to affordable health care.
The United States health care system is experiencing
serious problems that are driving more and more Americans into
the ranks of the uninsured. Rising health care costs, spiraling
health insurance premiums, coupled with the recent slowdown in
the economy have created conditions that one commentator has
likened to the ``perfect storm,'' a confluence of forces, each
worrisome in itself, but together posing a lethal threat.
One of my top priorities in the Senate has been to expand
access to affordable health care for all Americans. There are
far too many of our citizens without health insurance or with
woefully inadequate coverage. Last fall, the Census Bureau told
us the number of uninsured Americans had increased to more than
41 million. Moreover, just last week, Families USA released a
study that estimates that some 75 million Americans have been
without health insurance at some point during the past 2 years.
Health insurance matters. The simple fact is that people
with health insurance are healthier than those without. People
without health insurance are less likely to seek care when they
need it and tend to forego services, such as periodic check-ups
and preventive services. As a consequence, they are more likely
to be hospitalized or require costly medical attention for
conditions that could have been prevented or treated
successfully at an early, curable stage. Not only does this put
the health of those individuals at greater risk, but it also
puts additional pressures on our hospitals and emergency rooms,
many of which are already financially stressed.
Maine, like many States, is in the midst of a health
insurance crisis, with premiums rising at alarming rates.
Whether I am talking to a self-employed fisherman, a displaced
worker, the owner of a struggling small business, or the human
resources manager of a large corporation, the soaring cost of
health insurance is a common concern.
Maine's employers are facing premium increases of 20, 30,
or even 40 percent a year. This is particularly burdensome for
our smaller businesses, which are facing a dilemma. If they
pass on the cost of the health insurance to their employees,
more and more of their employees will decline coverage because
they simply cannot afford their share of the premium. On the
other hand, the smaller businesses cannot continue to absorb
double-digit increases in rates.
The problem is even more acute for the many Mainers who are
self-employed and must purchase health insurance on their own.
What we are finding in Maine is that monthly health insurance
premiums often exceed the family's mortgage payment. So it is
no wonder that more than 150,000 Mainers are now uninsured.
Earlier this year, I joined with my colleague, the other
distinguished Senator from Louisiana, Senator Landrieu, in
introducing a plan that combines a variety of public and
private approaches to make quality health coverage more
affordable and available. I also believe that we need to press
hard to include in the administration's economic recovery
package some fiscal relief to the States that is targeted to
the Medicaid program. We need to increase the Medicaid match
over the next 18 months to help preserve the health care safety
net for our low-income families that is now in danger of being
shredded due to State budget cuts.
I know that the distinguished chairman for the day, Senator
Breaux, has also introduced an important proposal, as have
others, to lay out their vision for reform. My hope is that
this hearing will serve as a springboard for further
discussions to find a bipartisan solution to this pressing and
growing problem. Thank you, Mr. Chairman.
[The prepared statement of Senator Susan Collins follows
along with prepared statement of Senator Ted Stevens:]
Prepared Statement of Senator Susan Collins
Mr. Chairman, I want to thank both you and the Ranking
Member of the Aging Committee for holding this hearing to
examine the problems plaguing our nation's health care system
and the options for reform to ensure that all Americans have
access to affordable health care.
The U.S. health care system is experiencing serious
problems that are driving more and more Americans into the
ranks of the uninsured. Rising health care costs and health
insurance premiums, coupled with the recent slowdown in the
economy have created conditions that a recent David Broder
column likened to ``The Perfect Storm: a confluence of forces,
each worrisome in itself, but together posing a lethal
threat.''
One of my top priorities in the Senate is to expand access
to affordable health care for all Americans. There are far too
many Americans without health insurance or with woefully
inadequate coverage. Last fall, the Census Bureau announced
that the number of uninsured Americans increased to more than
41 million in 2002. Moreover, just last week, Families USA
released a study that estimates that 75 million Americans have
been without health insurance at some point during the last two
years.
Health insurance matters. The simple fact is that people
with health insurance are healthier than those who are
uninsured. People without health insurance are less likely to
seek care when they need it, and to forgo services such as
periodic check-ups and preventive services. As a consequence,
they are more likely to be hospitalized or require costly
medical attention for conditions that could have been prevented
or treated at a curable stage. Not only does this put the
health of these individuals at greater risk, but it also puts
additional pressure on our hospitals and emergency rooms, many
of which are already financially challenged.
Maine, like many states, is in the midst of a growing
health insurance crisis, with premiums rising at alarming
rates. Whether I am talking to a self-employed fisherman, a
displaced worker, the owner of a struggling small business, or
the human resource manager of a large company, the soaring
costs of health insurance is a common concern.
Maine's employers are currently facing premium increases of
as much as 40 percent a year. These premium increases have been
particularly burdensome for small businesses, the backbone of
the Maine economy. Many small business owners are caught in a
cost-squeeze: they know that if they pass on the premium
increases to their employees, more of them will decline
coverage. Yet, these small businesses simply cannot afford to
absorb double-digit increases of 20, 30 or 40 percent, year
after year.
The problem of rising costs is even more acute for
individuals and families who must purchase health insurance on
their own. Monthly health premiums in Maine often exceed a
family's mortgage payment. It is no wonder that more than
150,000 Mainers are now uninsured. Clearly, we must do more to
make our health care system more efficient and health insurance
more available and affordable.
Earlier this year, I joined my colleague from Louisiana,
Senator Mary Landrieu, in introducing the Access to Affordable
Health Care Act, a seven-point plan that combines a variety of
public and private approaches to make quality health care
coverage more affordable and available. Our bill will bring
millions more Americans into the health system by providing tax
credits for small businesses that offer health insurance to
their employees. It would strengthen the health care safety net
by increasing funding for Community Health Centers, and it
would address inequities in the Medicare system that hurt rural
states like Maine.
Mr. Chairman, I know that Senator Breaux and others have
also introduced proposals that lay out their visions for
reform. This hearing will serve as a springboard to further
discussions, and I look forward to working with my colleagues
to find a bipartisan solution to this pressing and growing
problem.
------
Prepared Statement of Senator Ted Stevens
Thank you, Mr. Chairman. I'm pleased to be here today to
discuss ways in which our American health care system might be
changed to make sure that more people get health coverage at a
cost our society can afford.
Our employer-based health care system has served us well
for many decades now, but there are new pressures on that
system--and on our public health programs like Medicare and
Medicaid--that are causing large holes in the system that leave
many with no coverage, or with coverage that doesn't provide
basic necessities like prescription drugs.
In Alaska we have many small businesses for which the cost
of providing health benefits to their employees is very high.
Alaska thus has a higher rate of uninsured than does the rest
of the country.
I'm also, however, concerned about access to care for those
who do have health insurance.
The Medicare program, for example, in Alaska, pays doctors
less than 40 percent of the cost of seeing Alaska seniors. As a
result, many physicians are unable to accept new Medicare
patients, leaving those patients with few options for getting
needed care.
Some of these patients end up using costly services in
hospital emergency rooms because they can't find a physician.
We're also finding it harder to recruit new doctors to
Alaska because of the extremely low payment rates compared to
the cost of seeing patients. Yet, more than 50 percent of our
primary care doctors in my State are over 50 years old and are
looking to retirement.
The fast rising costs of malpractice insurance, due in some
part to extremely large jury awards to patients for ``pain and
suffering'' are also contributors to fast rising health costs
as well as to decreased access to services like those needed by
pregnant women.
These access issues must also be considered as we proceed
with this debate.
I look forward to hearing from our panel.
Senator Breaux. Thank you, Senator Collins, for that
excellent statement.
I would like to welcome our witnesses, and under the rule,
the last shall be first. We will start left to right from the
chair with Mr. Dan Crippen. Dan, of course, served as our
Director of the Congressional Budget Office from February 1999
until January of this year. He has also served in senior
positions in the White House and the U.S. Senate and has done a
great deal of work on the Federal budget as it relates to the
issue of health care and retirement and we are delighted to
have him this afternoon. Dan, welcome to the committee.
STATEMENT OF DAN CRIPPEN, FORMER DIRECTOR OF THE CONGRESSIONAL
BUDGET OFFICE, WASHINGTON, DC
Mr. Crippen. Mr. Chairman, Senator Collins, first, let me
apologize for my tardiness. It has been 4 years since I have
had to look for a parking place on the Senate side. [Laughter.]
It is not as easy as it used to be.
Mr. Chairman, as you observed on many occasions and just a
few minutes ago, we have developed an array of health care
delivery systems in this country which result in a disparate
treatment in payments, unequal quality of care, substantial
numbers of people who may not be receiving adequate care, all
the while spending more than any other nation. Further, our
attempts to fix parts of this system, our so-called incremental
reforms, well intentioned as they may have been, have often
caused as many problems as they have solved.
I am reminded though, Mr. Chairman, at the outset of this
hearing, as in many other gatherings like this, of a friend of
mine who I don't think I have told you about. He is a tunneling
engineer. After he graduated from college, he took a qualifying
exam, I guess to be a tunneling engineer, and he failed it, and
it, needless to say, irritated him a great deal. So he studied
a lot for the second chance, and as he was taking the exam, he
finished, he looked up, he had an hour left. So he turned over
his test booklet and he wrote on the back side, ``These things
I also know.'' [Laughter.]
Very often, we find ourselves with such a broad topic
before us that we wander into the very tempting position of
talking about all the things we happen to know. I am going to
try to avoid that today and speaking only for a few minutes, I
want to propose to focus on one thing. We ought to know the
nature of the problem before we try to fix it.
That sounds pretty straightforward, and I have
characterized that in the past, Mr. Chairman. You have heard me
talk about Moynihan's several laws. Well, the first Moynihan
law that I think is appropriate here is, if you don't ask the
right questions, you are not likely to get the right answers.
The second Moynihan law, also appropriate here, is before you
can solve a problem, you have to be able to measure it, to size
it correctly.
I will use two quick examples today, but two issues that
are very much in the forefront of your concerns in the Senate
to hopefully make this point. Since, as you said, this is the
``Week of the Uninsured,'' I will start there.
Ask almost anyone in this room, as we have already heard,
how many uninsured Americans there are and the answer is likely
to be the one you have in your chart, 40 million, plus or
minus, thereabouts. Inquire further about the nature of these
40 million and most people will say that these are folks who
have extended periods of uninsurance, who you might say are
chronically uninsured.
The truth is, the number of chronically uninsured--for this
purpose, I will use 12 months or more without insurance--is
substantially lower than 40 million, perhaps as much as 20
million lower than 40 million when you examine other surveys on
this issue. How can that be, because headline after headline,
newspaper and television advertisements all use the number 40
million?
Well, the 40 million may be uninsured today as we sit here
for a given day, but it turns out that about half of the 40
million people are temporarily between coverage of some kind,
between employers, between spousal coverage, between public
programs, so much so that the average period of uninsurance for
the 40 million in the CPS survey is less than 7 months. Only 40
percent of this 40 million are uninsured for less than 4
months.
This perspective, I would suggest, deals a much different
picture and one that likely suggests different policies. A tax
credit, for example, may be unnecessary and ineffective for
filling short gaps. A policy along the lines of COBRA coverage
might be more suited.
As for those who are without insurance for 12 months or
more, we might want to look even more closely at them before
deciding on the right policy. Of these, one-quarter are
families with incomes over 200 percent of poverty. Another 20
percent, likely the younger of this group, say they have no
need for insurance. Some number, perhaps a very substantial
number, are eligible for Medicaid, but either unaware they are
eligible or don't yet need medical care.
Mr. Chairman, there is an underlying metaphysical question
here, of course, with public programs. If you are eligible for
Medicaid but haven't used it, are you uninsured? I strongly
believe the answer is no. I think you are insured, because the
first time anyone eligible shows up at a hospital, they will be
enrolled, and the 3 months' prior expenditures will be
reimbursed, as well. To say otherwise is akin to saying that
anyone who is privately insured should be counted as uninsured
until they make a claim.
Similarly, as you know better than I, there are many
veterans who rely on VA for health care and do not buy
insurance. Are they really uninsured as well?
Let me hasten to add at this point, I am not trying to
downplay the important problem making sure citizens get health
care. Even if there are only 15 to 20 million chronically
uninsured in this country, that is a potentially big problem
and certainly deserving the attention of government. What I am
saying is that until the nature of the problem is clear, the
solutions we devise may be ineffective and unnecessarily
costly.
With your indulgence, Mr. Chairman, I want to quickly turn
to another issue before the Congress and the country, that of
providing pharmaceutical benefits for Medicare beneficiaries,
something you have all been very involved in, Senator Collins
in particular, and you, Senator Breaux, as well. The debate
thus far is largely predicated, in my view, on the need to
prescribe prescription medicines to the elderly. The truth is,
Mr. Chairman, three-quarter of the elderly already have
insurance of one kind or another that covers some drug
spending, maybe not enough, maybe with hardship, maybe with
deprivation. But again, it is not that we have 40 million
seniors without any drug coverage.
If you look behind this, those 30 million beneficiaries
with insurance fill about 32 prescriptions a year at an average
cost of $45. Importantly, the quarter of the Medicare
population that has no insurance for pharmaceuticals fills 25
prescriptions a year at an average cost of $37. It may well be
that this gap of seven prescriptions per year is important,
critical, necessary, to put a word on it, but the perfectly
targeted policy if you are worried about access could be
ensuring access for these seven prescriptions for the 25
percent of the population that aren't insured, and the cost of
that would maybe be around $3 billion a year, not 30, not 300,
but three.
The issue, I would suggest, is not necessarily access. What
is really at issue, and we are not debating it in these terms,
I understand, but what is really at issue is the financing of
drug benefits. Drugs are being supplied now. The question is,
who should pay? There may be very good and compelling reasons
to change the financing from what exists today and place it in
the Federal budget and on current workers, but that reason is
not access.
I will conclude, Mr. Chairman, by saying everyone at this
table and many in this room have spoken eloquently, certainly
more eloquently than I am able, about the need for Medicare
reform and the desirability of adding drugs to that benefit.
Mr. Chairman, I would suggest until we are clear-eyed about the
nature of the problem, until we understand better than we do
today the current system, hodgepodge and inefficient as it is,
until we understand what kind and quality of health care we are
buying in programs like Medicare, it is very hard to see how we
might productively reform them. As Senator Moynihan would say
if he were here, if we don't take the time to ask the right
question, we aren't likely to get the right answer.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Crippen follows:]
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The Chairman. Thank you, Mr. Crippen, very much. Dan, would
you give me, just before we move to the next witness, what were
the numbers you had, the 32 prescriptions at $45 a year versus
what, 47 prescriptions at what?
Mr. Crippen. I want to be precise. I looked it up just this
morning. Thirty-two prescriptions a year for those who have
insurance at a cost of $45 per prescription. Those who are
uninsured fill 25 prescriptions a year, on average, at a cost
of $37 per prescription. The lower cost, it is assumed, because
of more use of generics.
The Chairman. OK, thank you.
Our next witness will be Mr. Len Nichols. Mr. Nichols
joined the Urban Institute's Health Policy Center in November
1994, but prior to that, he was a Senior Advisor for Health
Policy at OMB, where he managed and coordinated the cost and
revenue estimates for President Clinton's Health Security Act
and the Congressional successors. We thank him for being with
us this afternoon.
STATEMENT OF LEN. M. NICHOLS, PH.D., VICE PRESIDENT, CENTER FOR
STUDYING HEALTH SYSTEM CHANGE, WASHINGTON, DC
Mr. Nichols. Thank you, Mr. Chairman, Mr. Chairman, and
Senator Collins. My name is Len Nichols. I am the Vice
President of the Center for Studying Health System Change,
which is a nonpartisan health policy research organization
exclusively funded by the Robert Wood Johnson Foundation, and I
will try to address the question of the hearing, is our health
care system in a crisis, in the 4\1/2\ minutes I have left.
I think our health care system looks like it is in a crisis
from a number of different vantage points, but our health care
system also performs amazing feats every day and it serves most
of us very well most of the time. But we do have three key
interrelated problems. I will label them waste, uneven quality,
and uneven access to care, and these problems add great stress
to our system every day. We cannot solve any of these problems
without attacking them all simultaneously, and systemwide
reform, as you yourselves know quite well, will require Federal
leadership, and I will come back to that in a moment.
On waste, you probably know we spend substantially more on
health care than any nation on earth, yet we rank 28th in
infant mortality, right below Cuba, Ireland, and Portugal,
countries that usually beat us at soccer, but not at health
care, and 26th in life expectancy after 60. One way to
interpret these numbers is we perform much costly unnecessary
care. Rates of excess care vary inexplicably across the nation.
One major consequence of waste is that an increasing fraction
of our workforce cannot afford comprehensive health insurance.
Growth in per capita health care cost has outstripped earnings
growth by 260 percent since 1980.
On uneven quality, it is unambiguously true we have many of
the best doctors, nurses, and hospitals in the world, but our
Institute of Medicine tells us that between 50,000 and 100,000
people each year die in our hospitals due to medical errors.
The biggest quality gaps stem from not doing what we know
should be done, that is to say, for example, providing routine
medication after heart attacks and performing certain tests
regularly for diabetics. The most spectacular quality failures,
as the recent transplants at Duke indicate, result from
endemically poor communication among different parts of our
incredibly talented health care system.
Finally, but by no means least, we suffer from uneven
access to care. As you know and as will be pointed out later,
the uninsured are disproportionately low-income and minority,
especially Latino. The uninsured are less likely to access
care, and delayed access often leads to unnecessarily poor
outcomes and even death. All of us could become uninsured as a
result of bad luck, as all of us know. Even controlling for
insurance and income, et cetera, minority death rates are
higher than whites for a large number of diseases. We are a
long way from color-blind equality in our health care system.
Now, most recently, it is true, as Senator Collins pointed
out, our three key problems of waste, uneven quality, and
uneven access have been intensified by a reacceleration of
health care cost growth, which is, in my view, has been ignited
by a wholesale retreat from effective but unpopular techniques
of managed care. As a result, our three major problems are,
indeed, deeply connected. Waste and poor quality raise costs,
which creates more uninsured, especially among low-income
working families, and the cost of paying for universal coverage
in our current system seems so daunting that policy is easily
paralyzed.
The market return to investing in the quality enhancing
infrastructure, which are primarily measurement and
communications tools, has been low because most patients are
not aware of our health care system's quality problems and
because knowledgeable payers fear they are too small to make a
difference. Profound fear of malpractice claims and economic
loss generally have retarded provider engagement in quality-
enhancing and error-reducing efforts, which keeps costs high,
and this is how the dysfunctional set of interactions continues
to stress our health care system.
Therefore, in my view, we have to attack all these problems
simultaneously and Federal leadership will be necessary and
this will require substantial new resources to be committed.
But before I outline specific roles for Federal leadership,
I would like to take just a second and celebrate the fact that
we are entering into a new national conversation. Senator
Breaux has recently laid out a vision for system reform that
includes a new kind of social contract between individual
responsibility and our collective obligation to make group
health insurance affordable and available to every American.
His vision, in my view, can serve as a cohesive and catalytic
springboard for ongoing discussions by this committee, Members
of Congress, Presidential candidates, the Secretary of HHS, and
the President himself.
Indeed, this might be a good time to remind ourselves of
some key lessons from the last national conversation we had
about health care reform in the 1993-94 period under the
leadership of President Clinton, and my written testimony lays
a number of these out. I will focus on the one that I think is
the key analytic one today.
The Clinton proposal at its core assumed that the health
plan is the key unit in our health care system, as the agent
that would solve all problems. It is becoming increasingly
clear to me that the key unit in our health care system is
actually the patient-provider interaction. We must get
incentives right at that level. If we do, much else will take
care of itself. If we do not, no matter what else we do, we
will fail to reduce waste and improve quality and thus will
never feel able to afford more equal access for all.
Now, what kind of system is most likely to get these
incentives right? A system that pays for good quality health
care and good health outcomes and does not pay for failure to
provide quality care. This kind of system will require public
investment in information infrastructure so that providers and
patients will find it easier to jointly produce good health
care and the best health outcomes possible.
Current efforts underway at IOM, AHRQ, and CMS are a good
start, but they need your unwavering and continued support.
This kind of system will also require group purchasing.
Information economies of scale are simply too great to expect
comparable efficiencies from individual health care consumers
acting with their own knowledge alone. Our major Federal
purchasing agencies, CMS and OPM, if equipped with the tools
and the power and discretion to use quality data to guide
choices, can provide essential and catalytic leadership in this
area.
Finally, the system will have to extend access to all
Americans, which will require Federal subsidies, else will
always suffer too many inequities to solve our uneven quality
problems.
In the long run, I think research is very clear. Technology
drives cost growth. Our decentralized health care financing
system, however, is biased in favor of paying for virtually
everything the medical industrial complex offers us, regardless
of its effectiveness for many types of patients.
So my plea to you is and my claim is, we have to learn how
to buy health services and technologies now so that we can
reduce waste, improve quality, and learn how to decide which
future technologies we will pay for together and which we will
leave to individuals on their own. As we become better buyers,
we will be better able to afford quality health care for all
Americans. Thank you very much.
Senator Breaux. Thank you very much, Mr. Nichols, for a
very detailed statement.
[The prepared statement of Mr. Nichols follows:]
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Senator Breaux. Our next witness will be Ms. Karen Davis.
Welcome. Ms. Davis is currently the President of The
Commonwealth Fund, which is a national philanthropy that does
independent research on both health and social policy issues.
Before joining The Commonwealth Fund, she served as Chairman of
the Department of Health Policy and Management at Johns Hopkins
School of Hygiene and Public Health, where she is also a
professor of economics and currently one of the promoters of an
annual conference on health care that brings together some real
experts, and we thank her for that participation. Ms. Davis,
thank you very much.
STATEMENT OF KAREN DAVIS, PH.D., PRESIDENT, THE COMMONWEALTH
FUND, NEW YORK, NY
Ms. Davis. Thank you, Mr. Chairman, Mr. Chairman, Senator
Collins, Senator Stevens, for this opportunity to be with you
today.
We have entered the 21st century encumbered by a health
system that is not up to the challenge of ensuring a healthy
and productive nation. It was really set in motion over 50
years ago, after World War II, and it has resulted in a system
that is costly, complex, and confusing. Most important, it is
failing to meet the twin objectives of health insurance, to
ensure that people have access to needed medical care and to
protect them from the financial burdens of costly medical
bills.
Today, I would like to focus on five types of costs that
are inflicted by our fragmented health insurance system. First
of all, we have already heard today about the costs of the
growing number of uninsured. I include in my testimony a number
of charts at the end that demonstrate, for example, in Chart 1,
that we are not making any progress in reducing the numbers of
uninsured. They have gone up steadily since the mid-1970's and
we do have 41 million Americans today that, as Senator Breaux
reminded us, fall between the boxes of our American health care
system because they are not lucky enough to be covered by
employer-based coverage, Medicare, Medicaid, or the Children's
Health Insurance Plan.
We also know that coverage is eroding dramatically for
retirees. Senator Breaux mentioned the situation of retiree
health insurance coverage. In Chart 11, I note that it has
dropped from 66 percent of large firms in 1988 that provided
retiree coverage to 34 percent today, and only 3 percent of
small firms provide retiree coverage. We know that Medicare is
not enough on its own, that people need prescription drug
coverage, and yet there are a fourth of Medicare beneficiaries
who do not have such coverage.
I think it is important to know that there are both health
and economic consequences of the gaps in health insurance
coverage. The Institute of Medicine released a study last year,
which I have shown in Chart 16, indicating that there are
18,000 deaths of adults ages 25 to 64 that occur each year as a
direct consequence of the absence of health insurance coverage.
If you look at deaths of those non-elderly adults, it makes
uninsurance the sixth leading cause of deaths in this age
group, greater than the number of deaths from HIV/AIDS or from
diabetes.
At The Commonwealth Fund, we have supported numerous
studies that look at those who do not have health insurance
coverage, either part-year or full-year, and we find that
whether you are a long-term uninsured or a short-term
uninsured, you have greater difficulty getting needed care,
greater difficulty getting preventive services, and you incur
much greater financial problems as a consequence of that
exposure.
We also know that the cost shifting that occurs in a
fragmented financing system, especially as health care costs
accelerate, as Senator Collins mentioned, creates inefficiency
in the system.
There are 70 million American workers who are covered by
their own employer. There are 20 million more workers who are
covered under a family member's coverage, typically a spouse's,
and there are 30 million workers who are not covered at all. So
we really have a ``pass the buck'' system of health insurance,
where we are perpetually shifting costs from one party to
another.
Those large employers that cover their workers cover that
cost as well as the cost of dependents whose own employer is
not picking them up, and they also pick up the costs of the
uninsured that are reflected in higher rates charged by
hospitals, and some physicians, that result in higher health
insurance premiums. Employers, in turn, try to shift more cost
to workers in the form of higher premiums or cost sharing.
States allege that the Federal Government shifts costs to
them by not picking up all of the costs of Medicare
beneficiaries. I give one example in Chart 23, where State
Medicaid prescription drug spending for dual-eligibles that are
covered by both Medicare and Medicaid comes to $6.8 billion a
year, and I have indicated how that breaks down across the
various States.
In addition, hospitals shift costs from one to the other.
Those hospitals that are willing to serve the uninsured are
much more financially fragile than those who do not provide
care to the uninsured, and care is increasingly concentrated in
a limited number of safety net and teaching hospitals.
But my basic point is that far more energy goes to shifting
costs than to enhancing efficiency or quality of health care.
Insurance companies are profitable because they attract
favorable risk and drop unfavorable risk, not necessarily
because they provide innovative incentives to improve quality
and efficiency.
There also is the cost of churning in health insurance
coverage as people's economic and personal circumstances
change. Mr. Crippen pointed to the fact that about half of
people who are uninsured at some point during the year, 62
million people, were uninsured all year long. About half were
insured part of the year, and about, as Senator Collins noted,
75 million people were uninsured over a 2-year period.
But as this churning occurs, these people are at risk for
not getting care when needed and they face unaffordable medical
bills when care could be incurred. But I think most
importantly, we pay a high price in high administrative costs.
Every time somebody enrolls, disenrolls, reenrolls, it is
administrative cost to the insurance company or the public
program. It is also an administrative cost to the health care
providers that have to change their records, perhaps forward
medical records to another provider.
As I show in Chart 29, the U.S. spent $111 billion in 2002
on private insurance or government program administrative
costs, and that doesn't include the administrative cost that is
incurred by hospitals and other health care providers or by
individuals as they enroll, disenroll, and reenroll, changing
insurance coverage and plan.
The final point I want to make is simply the cost of
complexity from a pluralistic system of health insurance
without an integrating framework and consensus on basic
principles. As I show in Chart 31, Professor Reinhardt has
developed a chart that he uses to explain the U.S. health care
system, and it is a Mondrian diagram of cuts that are on the
basis of whether you are a child, an adult, or an elderly,
whether you are poor, near-poor, working income, middle class,
or rich, and there are separate ways in which you get covered
depending upon which of those categories you fall in.
But I also provide in Chart 32 at the very back of the
testimony an example of the complexity of different benefit
packages. This is just in our Medicare+Choice program in Tampa,
where there are eight different plans available, but they each
have their own set of premiums, cost sharing requirements, drug
formularies. It is really impossible for either the beneficiary
or a family member or a consumer advocacy group to explain
which plan best fits the circumstances of those individuals.
Thus complexity leads to the costs of large numbers of
people who are eligible but not enrolled. It leads to costs of
lost productivity, and lost resources wasted on administration.
It also leads to the cost of inefficient and low-quality care.
Senator Collins mentioned the high costs in emergency rooms for
preventable conditions and for hospitalizations and the costs
of different standards of care that depend on insurance status.
In fact, the U.S. spends twice as much per capita on health
care as other industrialized nations, and yet is the only one
to fail to cover everyone.
There simply has to be a better way to go about providing
coverage, and that should include automatic and affordable
coverage for all, a balance between choice, flexibility, and
innovation, and between simplicity, efficient administration,
and standardization that facilitates informed choice; shared
responsibility for financing coverage, including, I would
argue, contributions from employers, both the insured and the
uninsured, health care providers, Federal, State and local
government; a commitment to quality improvement and greater
efficiency in care and in insurance administration using modern
information technology. Finally, we need to set the goal of
high-quality health care for all as the top national policy
priority essential to a strong and healthy and productive
nation. Thank you.
The Chairman. Thank you very much, Ms. Davis.
[The prepared statement of Ms. Davis follows:]
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Senator Breaux. Next, we will hear from Mr. Stuart Butler,
who is from the Heritage Foundation. He is currently the Vice
President of Domestic and Economic Policy Studies there and he
has argued for a long time for a health care system based on
consumer choice and also market competition and we are
delighted to have him with us. Mr. Butler.
STATEMENT OF STUART BUTLER, VICE PRESIDENT, DOMESTIC POLICY
STUDIES, THE HERITAGE FOUNDATION, WASHINGTON, DC
Mr. Butler. Thank you, Mr. Chairman and Senators. All of us
in this room want to see an America in which everyone can count
on a decent basic level of health care, but we need to make
sure we reach that goal in a manner that is affordable,
efficient, fair, and as seamless as possible. Our current
system has none of these features.
As you mentioned, Mr. Chairman, and others have done on
this panel, millions of Americans currently have no regular
coverage at all, and most with coverage move over time from one
program or plan to another, each with different benefits and
eligibility rules depending on the person's situation at that
time. For instance, an American faces totally different health
care coverage depending on whether he or she currently is
employed in a small firm, a large firm, has changed jobs, is
unemployed, is unemployed because of the impact of trade, is a
veteran, is poor and on welfare, is poor but not on welfare, is
retired and age 64, is retired and age 66, or is a member of
this committee. Everyone is different.
Not only is there a fragmented patchwork of programs, but
also, these programs or plans are run on totally different
operational principles with wide variations in Federal
subsidies that defy logic. Some, like the VA, are run directly
by the government. In Medicare, by contrast, the government
contracts out the delivery of services, but Congress fixes
the benefits. Elsewhere, employers basically decide whether a
sick child will or will not see a specialist. Meanwhile, the
Federal Government gives Bill Gates thousands of dollars each
year in tax breaks to help him because he no doubt struggles to
afford his dental check-ups, yet gives little or nothing to
help the busboy down the street pay for minimal medical care
for his family.
Mr. Chairman, we will never achieve universal coverage
simply by adding here and there to this mishmash of programs
and this indefensible method of subsidizing people. Moving
toward a fairer and more rational system will, of course, be
difficult, but the best way to do so would be to take some
steps consistent with four strategies that I discuss in my
written testimony.
First, I agree with others on the panel and with you that
we should commit ourselves to a social contract on health care
that is explicit and fair. In a rich country like America, we
should declare that it is the obligation of society to assure
that all residents will have affordable access to at least a
basic level of health care. But a contract is a two-way
process. Residents should also have the legal obligation to use
a reasonable level of their finances to contribute to the cost
of basic coverage so that others in society are not needlessly
called upon to help.
Second, tax breaks or other subsidies to help people afford
coverage should not vary significantly because of the
particular piece of the patchwork people happen to be in, or
very significantly, if they move from one piece to another.
This implies such things as delinking the eligibility of tax
relief from employment status. It also means gradually
redesigning the method of tax relief so that help is focused
where it is really needed. For Medicare, it means that
assistance toward the cost of such things as Part B premiums or
new benefits, such as a drug benefit, should be focused on
those who need that help the most.
Third, the place of work should function more as a
clearinghouse for choosing and enrolling in health coverage and
less as the place where an employer decides what your coverage
will be. The place of work is a convenient place today for
people to pay their taxes through the withholding system, yet
employers do not sponsor the tax system. They do not decide
what taxes their employees will pay. It should be the same in
health care. In the case of workers in small firms especially,
the health subsidy reforms I have suggested would permit
employees to sign up at the place of work for coverage that
they want rather than coverage decided by their employer.
Fourth, Mr. Chairman, there remains the obvious question of
how do we move from a patchwork with many holes to a more
consistent and complete tapestry. To be sure, there are deep
disagreements about what a reform system should look like, and
you will hear disagreements on this panel. There is also
uncertainty about what will actually happen on the ground when
certain policy changes are made.
Recognizing this, I suggest that the Federal Government,
with the States, should embark on a systematic strategy of
creative federalism to test comprehensive approaches to
achieving universal coverage. To do this, the Federal
Government should establish the goals and dedicate some
funding. Congress should also enact a menu of policy tools that
would be available to States, but not imposed upon them. These
tools might include such things as association plans, as
opening up the FEHBP, or modifying Medicare and SCHIP. A State
could then propose a covenant combining State actions with
selections from the Federal menu designed to test an approach
to achieving universal coverage. Rather than arguing endlessly
about what the end result should look like, let us instead
learn systematically what really works.
Mr. Chairman, thank you for the opportunity to testify.
[The prepared statement of Mr. Butler follows:]
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Senator Breaux. Well, thank you, Mr. Butler, and thanks to
all the members of the panel for your comments and thoughts and
suggestions. I think they are very, very important.
Let me ask each one of you if you could just maybe comment.
The only question I have is to the point of looking at all the
boxes. As I have said, and you have all heard me say it, that
this boxed area of getting health care just cannot continue. We
try to put band-aids on each one of the boxes and each one of
the boxes is a huge bureaucracy with red tape and regulations
and fraud, waste, and abuse, and what I have suggested, that in
the long term, what we ought to do is guarantee that Americans
get health care, not because they fit into one of the boxes but
because they, in fact, are an American citizen, which means I
am talking about an individual mandate that people buy health
insurance in this country which would be subsidized by the
Federal Government for low-income individuals.
I would involve the States in sort of the role that OPM
provides for those of us who are Federal workers, to create the
pooling arrangements to allow for purchasing and group rates as
opposed to individual rates. That is the concept I think most
of you are fairly familiar with.
Can you give me a short comment, and we will start the
opposite way, Mr. Butler, and work back to Dan.
Mr. Butler. I strongly agree with that approach. I believe
that it is important to try to gradually move toward
consistency in the system for the very reasons that you mention
and to make sure that if we do require people to obtain at
least basic coverage, coverage that protects the rest of us
from unnecessary expense, then we have to give that subsidy in
a form that is far more rational than it is today. I think the
best way forward is to experiment with States, but also, as we
begin to move forward, to rationalize the subsidy system so
that it becomes easier for these different boxes right now to
begin to function in a similar manner.
For example, in the Medicare program, let us look at
premium support approaches that recognize that we have got to
help people in certain situations get assistance, such as the
SLIMBY and QUIMBY case that Karen Davis mentioned. This
recognizes that lower-income people need a lot more help to
afford what is even available in Medicare today. We need to
begin to start fixing that particular inequity will help all of
these boxes in the first instance to start functioning in a
rather more similar way than they do today.
Then simultaneously, we have got to look at the
infrastructure of information that others have mentioned so
people can navigate the system that they currently are in. So I
think if----
Senator Breaux. You hit upon a thought that I hadn't really
thought about. We have got this box theory, but each one of the
boxes is actually, in most cases, a different type of delivery
system.
Mr. Butler. Absolutely. Absolutely.
Senator Breaux. You are in a box because of whether you are
old or whether you are poor or whether you are a veteran, but
not only are you in the box that is supposed to be for you,
each box is sort of a different delivery system on top of it.
Mr. Butler. Right.
Senator Breaux. Ms. Davis.
Ms. Davis. Mr. Chairman, I think you are to be
congratulated for really calling for making comprehensive
health insurance for all a top priority. I think until we are
serious about really committing the resources that it takes to
make coverage automatic and affordable for everyone, we are
going to continue to suffer both the health and the economic
consequences of our current system.
So I think trying to set up a simpler system where coverage
is automatic is key. It can go as far as an individual mandate
or simply just making it so easy for people and so affordable
that you get virtually everybody covered.
I think looking at the experience of the Federal Employees
Health Plan makes a lot of sense. I think that works well for
Federal employees, and works well for Members of Congress. I
don't think one wants to add new groups into that plan
specifically, but instead use it as a model, for something that
I call the Congressional Health Plan that would cover Members
of Congress, small businesses, and individuals. But link the
two by requiring any plan providing coverage through the
Federal employees plan to also provide coverage through this
new pool.
I think having premium assistance that is income-related
makes a lot of sense. I think building on the income tax
system, makes a lot of sense because that is one thing that we
do verify and it is an administrative system that is out there.
I think there is a way of really checking people's insurance
status at tax time and then referring people who are uninsured
to something like a Congressional Health Plan pool. So I like
all of those ideas.
I think the ones that I think need to be looked at fairly
carefully and are very difficult to look at is the employer-
based health insurance system that we have now. There are about
160 million people covered under employer plans. Employers put
up $335 billion a year for that coverage, so I don't think we
want to risk moving backwards and eroding that coverage. I
think that is going to require looking at a fair contribution
from all employers, everybody contributing at least something
toward coverage, whether they provide coverage to their workers
or their workers wind up getting covered through something like
the Congressional Health Plan.
Finally, we have to think about the role of public
programs. I think that Medicaid and Medicare are very important
programs. They cover the sickest and the poorest of all
beneficiaries and these are beneficiaries that are, for the
most part, not attractive to private insurance firms. Medicaid,
for example, covers the homeless, people with HIV/AIDS, people
with very serious physical and mental problems, children with
special health care needs, quadriplegics. So there are subsets
of the Medicaid population, that represent a large portion of
Medicaid dollars and that really need this coverage. We are
going to need to turn to public programs to cover the sickest
and poorest, but perhaps we can offer people choices of other
options, as well.
So I think the broad framework that you have set forward is
critical and the commitment of resources is also very
important, to begin thinking about moving from where we are
today to getting to such a system is the major challenge.
Senator Breaux. Mr. Nichols.
Mr. Nichols. Mr. Chairman, when I think about your theory
of the boxes and how your proposal attempts to create a
framework where everyone would have a home, I have to applaud.
I think there are five major goals we want to achieve here and
I keep coming back to something like the group purchasing
arrangement as the best way to achieve those goals. We have to
have a system that is efficient. We have to be good both at
enrolling people--we can only get low administrative costs
through group enrollment. At the same time, all the quality
issues and waste issues I talked about in my testimony, I
think, can only be addressed in a big group purchasing kind of
arrangement.
We want to have good risk pooling so that people of
different risks can be pooled together so that you are not held
accountable for being unlucky in life. At the same time, you
want to make sure that those who are healthy don't pay premiums
that are way out of balance with what they are expected to
cost. You have to have some compression there.
You have to have a choice. I think Stuart's point about how
most individuals today in the employer system really don't have
much choice because they basically end up with the one choice
their employer makes for them. Maybe it is best for some group
of workers, but it is surely not best for all workers. So we
want to make sure we have more choices.
We want to have subsidies tied to the circumstances of
individuals. I am very impressed with the notion that the
individuals who most need subsidies in our country tend to
float in and out of different kinds of employment arrangements.
That is why they are sometimes uninsured and sometimes not.
That is why that is the common circumstance. The notion that
one subsidy will be right for them at all times is probably not
true. Therefore, we want to have a system that follows
individuals and not other kinds of circumstances.
Finally, we want seamless. We want a system where when they
have a life change, they don't have to change their health care
system or have to change their providers who they know and, our
surveys at least show, they trust, and that is the good news
about our health care system today.
To me, the way you accomplish all of that is to make one
big box, that is to say, to make a box where everyone has a
right to go. As you know, I have argued that you don't want to
force people into that box. You want to leave people with
choices outside the box if, indeed, they think they can do
better on their own. But it is perfectly consistent with my
view of what we want here and what we all agree on to enforce
an individual mandate to buy coverage, but you can choose to
get it where you want. In my view, most people will, as Karen
said, drift to the bigger box over time. If you create it, they
will come, but you don't want to force them all to come the
first day.
Senator Breaux. Thank you, Mr. Nichols. Dan.
Mr. Crippen. Mr. Chairman, a couple of kind of disparate
comments, but, I think, saving the most important for the last.
Looking at Federal programs, of course, we can often find
what we are looking for and ignore some of the more obvious
points. The FEHB works well in large measure because it is 72
percent subsidized. If we had other health care systems that
were as heavily subsidized, they would work better, too, but it
is not that we probably can't afford them.
Similarly with Medicare, while, as Len says, central
purchasing may give you some efficiencies, we only spend 3
percent on administrative costs on Medicare. At the same time,
Medicare, since 1965, on a per capita basis, has increased in
cost more than any other system we know of, more than other
public programs, more than private, more than private premiums
plus cost sharing, and substantially faster than the economy
itself, inherently, by definition, unsustainable.
So we can point to some aspects that are advantageous, but
taken as a whole, it is not clear these systems are
sustainable. What we do think we know--that is a real
statement, we do think we know---- [Laughter.]
The economists tend to believe, at least, that incentives
matter and that if you develop a system in which individuals at
least have some responsibility for making the decisions and
paying in part for their own care, whether it is small amounts,
and whether they are subsidized or not, that that is important.
For example, we believe that the existence of Medigap,
because it very often provides first dollar coverage, results
in the average Medicare beneficiary spending $2,000 to $3,000 a
year more than they would otherwise. Now, they may have better
health care because of it. I don't want to interpret that
otherwise. But the point is that first dollar coverage incents
people to use a lot more health care, and so as we have
discovered in things like pharmaceuticals, where we have
multiple or tiered copays, other things, those kinds of
incentives work if individuals are faced with those choices. So
any system you develop needs, I think, to keep that very
clearly in mind.
Senator Breaux. Thank you all for that comment. I have some
additional questions, but I want to recognize Senator Collins.
Senator Collins. Thanks very much, Mr. Chairman, and let me
commend you for putting together a truly extraordinary and
balanced panel. Your testimony has been excellent and very
thought provoking and I really appreciate your taking the time
to be with us.
When I approach the issue of the uninsured, I start with
the fact, and I think one of you, maybe Ms. Davis, said it
today, that 82 percent of uninsured Americans are part of
households where at least one person works. This is contrary to
what most people think of when they think of the uninsured.
They believe that uninsured individuals are unemployed
individuals, yet the majority of them are in households where
someone is working.
Of those who are uninsured and working, 60 percent of
uninsured workers are employed by small firms. If we could
figure out how to make insurance more affordable to those small
employers so that population, that 60 percent, had access to
affordable health insurance, we could go a significant way
toward lessening the number of uninsured. We would bring
literally millions into the system.
The legislation that I have introduced tries to take a
variety of approaches. It would provide tax credits for small
employers. It would allow them to form purchasing coalitions to
increase their bargaining power. What it would not do, however,
is authorize, as the administration has proposed to deal with
this problem, association health plans. Having supervised the
Bureau of Insurance in the State of Maine for 5 years, I have a
lot of reservations and concerns about association health plans
because I think they will lead to cherry picking. I also don't
like the idea of such plans being preempted from State
regulation, which I think is problematic.
I would like to get your views on the merits of association
health plans now that I have told you my bias against them. So,
Mr. Nichols, I am going to start with you in the hopes that I
am starting with someone who might agree with my opinion before
I move on to the other panelists. [Laughter.]
Mr. Nichols.
Mr. Nichols. Well, I am impressed you picked me out of a
crowd.[Laughter.]
You may have heard I testified before your Senator from
Maine about a month ago on precisely this issue and I would
just say you are right in spades on this matter. There is no
question that a number of us are very concerned about small
business's ability to offer health insurance. I think the one
thing that I think all of us hope is that we can find a way for
them to find the cheapest possible coverage available.
What association health plans would like do, as the
legislation that was introduced in the House last session and
as legislation introduced by Senator Snowe a few days ago, I am
afraid, would permit, or would indeed encourage a situation
where the healthiest would join those association health plans,
where those who wanted to join and couldn't would be the less
healthy, and, thus, it would serve to destabilize the existing
risk pools, which as you know in Maine are already fragile
enough in that small group market and, therefore, would make
kind of a bad situation worse, except for the few who got the
good coverage in the short run.
The problem would be some of them who were the healthiest
would always want to peel off from the existing group, and so
it would introduce instability, which brings you back to the
point about regulation. Exempting them from solvency
requirements that are serious, exempting them from oversight on
the part of people who actually know how solvency matters, what
guarantee funds are all about, would leave a lot of workers at
great risk.
I will say the problem of small business offering insurance
needs to be thought about, I think, in a context of the way
labor markets work. What most of us observe who study these
markets carefully is that there are kind of two kinds of labor
markets. There are markets where most of us have lived most of
our lives, and that is where jobs have health insurance
attached because the productivity of workers is high enough to
merit and to pay for that in the marketplace.
Then there is a set of jobs, they are not as many jobs, but
there is a set of jobs where health insurance is never
attached, and in fact, those workers tend to have lower
productivity, lower human capital. It is not fair, but it is
the way it is. In those firms that need those kinds of workers
exclusively, there is just not enough surplus there to pay for
health insurance. The workers who get those jobs have low
wages. They are not willing to pay out of their own wages. The
employers who employ them don't make enough money to make it
something they can just give away.
Firms do what they do to compete for labor and margins are
driven down to those competitive edges. So I am afraid for some
class of workers in some firms, we are never going to get them
to offer unless we can offer two things, serious subsidies to
defray the costs so they can afford it, just like other low-
income people are sometimes eligible for public programs they
are not, as well as a home.
I come back to Senator Breaux's idea. There is going to
have to be a home where they can buy. In my view, the place to
do that is building on existing pools. State employee plans are
a natural experiment. I love Stuart's idea of allowing States
to do this in lots of different ways. I would climb onto that
this afternoon or this morning or whenever it is we can sign.
Mr. Butler. I will sign you up.
Mr. Nichols. That is the way to go. Let people buy into
existing pools that are large and not create a new
destabilizing force, and you can refer to my testimony for
details if you would like.
Senator Collins. You raise a really good point that I want
to emphasize. The small employers in my State that don't
provide health insurance don't provide it because they can't
afford it. They don't even have it for themselves in most
cases. It is not only their employees. They can't afford the
coverage for themselves.
Mr. Crippen, any comments or thoughts on how we expand
access to health insurance for this critical group?
Mr. Crippen. I think it is important to recognize, Senator,
that without attributing motives, the reason insurers or
companies or associations are trying to change the nature of
the pools they are dealing with is they are not looking so much
for least risk as they are looking for something like average
risk or stable risk. In fact, least-risk pools may be very
unprofitable in some ways. So by trying to eliminate or cordon
off or deal with a more knowable risk pool, they come up with
an average risk that is easier to underwrite, easier to manage,
all those kinds of things.
Clearly, the smaller the pools, the harder it is to do
that, and if the result of policy is to make smaller and
smaller pools, it is going to be harder and harder to get
something that has average risk.
I am more familiar with public programs, of course, given
my last 4 years, and I can tell you that for Medicare, we have
done a lot of simulations that suggest you need about 100,000
elderly in any given risk pool to have average risk. Now, the
distribution of expenditures by the elderly are a little more
skewed than they are for a non-elderly population, but it is
still a very skewed distribution. High-cost individuals drive
the average, and those are a relative handful compared to the
non-high-cost.
So one needs to be concerned about size of the pool, how
average risks are determined, but there are many ways to adjust
risk, many that we haven't thought about, frankly, particularly
in public programs. Medicare, for example, you could look at
high-cost individuals and see if there were a way to compensate
for them perhaps differently. If they were removed from a risk
pool, then the average risk would be much more stable and
lower.
So the same phenomenon applies to non-elderly, as well,
whether it is State risk pools, as I think Len was talking
about, other ways to say risk or insure catastrophic cost, the
high cost, the extreme costs, would then give you a much more
manageable risk pool with much lower cost and, therefore, lower
premiums. So you might think about reinsurance or State pools
for catastrophic ways to manage the high cost risk that will
then allow more normal risk to permeate the rest of the pool.
Senator Collins. Ms. Davis.
Ms. Davis. I agree with many of the points that Mr. Nichols
made. I think you are right, based on your experience at the
Bureau of Insurance in Maine, to be concerned about association
health plans. I think what we need is broad risk pooling, not
risk segmentation, because risk segmentation would just
accelerate the deterioration of the better risk sorting out
into certain plans, leaving the worst risk for others. So I
also am attracted to the notion of either something like a
State public employees' health plan as a pool or an analog to
the Federal Employees Health Plan as an option.
I, too, support the notion of State demonstrations. I was a
member of the Institute of Medicine committee that issued a
report last November called ``Fostering Rapid Advances in
Health Care'' that called for Federal funding of the
incremental cost of providing universal coverage in three to
five States and testing either a tax credit, private insurance
approach, or expansion of public programs or a combination of
those. So I do think that we need to move forward. State
demonstrations with Federal funding, because I don't think
States are in a situation to do this with their own money, is a
good first stop.
I also believe the deck is stacked against small
businesses. They pay much higher premiums than large business.
Administrative costs for a very small firm can run 30 percent,
contrasted with 10 to 15 percent in large firms. Large firms
are more likely to have plans available to them with large
provider price discounts, physician fees, hospital rates. So
large firms, ironically, can get coverage cheaper than small
firms and that is why I think we do need pools, larger pools
available at either the State level or the national level,
available to small businesses.
You mentioned tax credits for businesses, and Len talked
about the money following the worker. I tend to favor the money
following the worker and to have tax credits for workers to
make sure they can afford the coverage that employers offer to
them and have premium assistance that would pick up a big
portion of the premium in excess of, say, 5 percent of income
of a low-wage worker.
I personally am an outlier in that I think every firm ought
to contribute something. I think we will find an erosion and a
deterioration of the coverage that employers now provide if
there is assistance for firms that don't provide, since they
would get left holding the bill. So it can be modest, whether
it is a dollar an hour or 5 percent of earnings, but I think
every firm ought to contribute something into a pool to finance
this coverage.
Mr. Crippen mentioned reinsurance. I do think that looking
at adding a publicly subsidized reinsurance to something like a
Federal Employees Health Plan is important, but I also think we
need to keep the worst risk in public programs, Medicare
covering the disabled, Medicaid covering many of the sickest
and the poorest, and that those programs have the effect of
helping private insurance markets work by pulling the worst
risk out. We know that if you take the 1 percent of the people
with the most serious health problems and take them out of the
individual market or out of the small business market, it will
reduce premiums by 28 percent.
So certainly covering all of the disabled, not having a 2-
year waiting period for coverage under Medicare, and opening up
Medicaid to everyone below a certain income level with a
serious problem, are ways in which we can help the private
market to work better. Thank you.
Senator Collins. Thank you. Mr. Butler.
Mr. Butler. Senator, I have wrestled with the whole idea of
employment-based coverage for many years, trying to think about
what is the proper role and appropriate function of employer-
sponsored coverage. It is interesting that I believe this is
the only country in the world, certainly the only large country
in the world, that has an employment-based system. You could
say maybe Germany does, but that is more of an industry-based
system.
That is an interesting point to just bear in mind, because
when you look at the employment-based system in this country,
you do see a spectrum of effectiveness. If you work for the
Federal Government, or if you work for General Motors you have
lots of choices. If you intend to work for either of those for
all of your life, it is a pretty good, stable system.
When you get down to the other extreme, however, such as
the ones you mentioned in Maine of the small firm in the
fishing industry or something like that, or a restaurant, where
the people who are working for you next year may not even be
the same people who are working for you this year, it begs the
question. Is this really the best place to help people organize
their health care?
I have come to the conclusion that the more you go down the
employment system, to smaller firms, to low-paid firms,
particularly in firms with people moving in and out of the
workforce, the less and less that makes sense as the basic
method to get coverage. Therefore, I am leery of approaches,
that say, ``Well, let us help people get coverage, but let us
do it via the employer.'' When you have got employers that may
be facing 30 percent more of overhead costs for getting
coverage, and may not know anything about insurance, or may
have three different people working for them, one is 18, one is
65, and one has got a major heart problem, how can they
possibly figure out and organize insurance?
I think that leads you into starting to think about pooling
arrangements, whether it be association plans or whatever, and
you almost get to the stage eventually where you say, ``Well,
if we do all these things, in what sense is this an employer-
based system anymore?'' The place of employment ends up being
really where you sign up and where you become eligible for a
subsidy.
So that is why I am very interested in looking at
approaches that say, ``Let us use the place of employment,
particularly in the case of smaller firms, as a convenient
place to sign up.'' But let us make the subsidy system, and the
kind of plans available to you in the system you are in, not
connected to your place of work for these people.
Let me just go on to talk about specifically association
plans. I am really open-minded on that particular approach. I
do agree with the others on the panel that we must look at
people who work for these small firms, people who do move in
and out of the workforce for different employers, and try to
group them in a different way. Maybe the way you do it in Maine
is not the right way in Texas or in Alaska, Senator Stevens.
That is why I think it is important to say to States, well,
we are not going to tell you to put an association plan in
place or open up the FEHBP, as Karen Davis suggested, but let
us make that available and if you think in your State that that
is something you think might be part of the equation, well,
then that is available to you. I think that is the way to look
at these things.
Quite frankly, I am sure Len and others would be hard-
pressed to say that they were 100 percent certain in their
views of any of these approaches and how they would work, and
therefore I think the Federal Government should not impose them
on anybody. We should make them an available menu to be tried
in these different places, and that is why I favor going down
that road.
Senator Collins. Thank you.
Senator Breaux. I thank the panel. Let me just ask one
other question with regard to the concept of the individual
mandate. We have tried the employer mandate in the first
Clinton Administration and we saw the problems that that
brought up and the intense political opposition that that had.
If we had an individual mandate, two questions--I mean, there
are a million questions, but two of them that we are still
wrestling with.
First how do you enforce it? I think there are ways to do
that. I mean, obviously, we have an individual mandate that
people buy liability insurance before they drive a car in this
country and people have sort of accepted that and there are
penalties if you don't do that. But the question is, how do you
enforce an individual mandate, and second, how do you enforce--
or maybe I should say it this way--how do you continue to have
the participation by employers, which are very, very important
if any system is going to work? There is some fear that if we
went to an individual mandate, that employers would just bail
out of their participation in the system and we can't have that
happen, at least not initially, because of the huge amount of
costs that would be associated if their contributions were not
available.
So can I have anybody talk about either one of those or
both of those, enforcement of an individual mandate, and
second, how do we guarantee the continued participation of
employers who are currently providing employer-sponsored health
insurance? Anybody?
Mr. Butler. Well, maybe I can take a crack at it first.
First of all, I think it would be unjust to require somebody,
to put a mandate on somebody to do something if they do not
have the capabilities of discharging that mandate. I mean, in
the case of automobiles, we do that, and if you can't afford
it, you don't have a car. But obviously if you say you have got
to have health insurance and so on and it is is illegal if you
don't, if you have to have this and you can't afford it, you
are in a problem. So I think that does require you----
Senator Breaux. Although the concept, obviously, is in the
context of a subsidy for those who would be low-income.
Mr. Butler. Right. I do think that there are various forms
of enforcement that you can consider. You can have something
that is called hard enforcement or a soft enforcement. You can
say, ``It is illegal, and if you don't do it we put you in
jail.'' That would be hard enforcement. I certainly wouldn't
recommend that.
But you can also say that there are certain things you
can't avail yourself of if you don't do this. For example,
certain tax benefits could be contingent on that. You can also
say to a State, ``Well, if certain people don't sign up, rather
than sending the State police out to find them, maybe at the
Federal level we will compensate the State in some way in the
amount these people would have gotten in tax subsidies had they
actually signed up so the State, at least, is not left holding
the bag on people who don't take part in that enforcement.''
As far as how to keep employers involved, I do think it is
important to recognize that employers today are not under any
obligation to provide health insurance to people. There is no
law that says you must, as an employer, do this. They do it for
certain very sound economic reasons. They do it because of the
labor market, because employees expect this. So I don't think
for a moment that if you said, ``Well, we will help your
employees to obtain coverage, then somehow that will then mean
suddenly the whole logic of providing health insurance to
employees suddenly disappears.''
It might in certain parts of the market, where an employer
may say, ``Look, I have got four employees, and may have four
different people next year.'' It really makes more sense for me
to add a little bit to your wages, take your subsidy and then
go and join a plan that is far better than anything I can find
for you. I don't find that such a problem.
I think within that range, you can look at approaches that
have requirements on employers to continue coverage for a
period if they already provide it, such as maintenance of
effort approaches. Under these if they do for whatever reason
eliminate their coverage, then they must compensate the
employee, at least in the first year, to the equivalent cash
amounts. There are all kinds of ways, I think, to minimize a
kind of change in the approach of employers that you want to
avoid. But if some employers decide to drop coverage, give
cash, and allow that person to join an FEHBP-type plan that is,
in fact, far better in the current situation and should not be
avoided.
Senator Breaux. Any other comments?
Ms. Davis. Well, I have given a little bit of thought to
how one might enforce an individual mandate or something just
short of that that I call an automatic enrollment with opt-out,
but it is basically using the income tax system. So, first of
all, each year there is insurance verification, so just like
you submit forms from your employer saying what your earnings
were, you get a form saying you had health insurance coverage
or Medicare, SCHIP provides the documentation of coverage.
But if you don't have coverage, then you are automatically
enrolled in what I call the Congressional Health Plan and you
are charged a premium which you pay through the income tax
system. So if you are filing in April, you pay a premium that
is roughly 5 percent of your income in the lower tax brackets
or 10 percent in the higher brackets for coverage that starts
on July 1 and you get the packet just as Federal employees get
a packet of insurance choices and then there is a default
mechanism that assigns you to a plan.
So I think there is a way to enforce it by having the
enrollment happen through the income tax system, through an
OPM-like administrative structure, but assessing a premium and
giving people effectively a tax credit for any portion of the
premium over 5 percent of income.
Senator Breaux. It has been suggested on that point--sorry
to interrupt you, but that if a person during the year went to
an emergency room, for instance, for health care and did not
have insurance, they could be enrolled at that point, as well.
Ms. Davis. Absolutely. So you would also, and again, this
was part of the Institute of Medicine recommendation, have an
electronic insurance clearinghouse, so once you get this up and
running, you know at tax time what people's coverage is, and if
anybody goes to a provider at any point during the year and
they are uninsured, the provider says, ``These are your
circumstances, you qualify for this and you are signed up and
you start paying a premium through the tax system that is based
on your income over a year's period.''
In this particular scheme that I have had modeled and some
cost estimates done, for it also gives people below 150 percent
of poverty the right to go into a Medicaid or a SCHIP family
health insurance plan. That would be done without premiums, so
you have got that option, 5 percent of income in the lower tax
brackets, 10 percent of income in the higher tax brackets.
So I certainly agree with Stuart that you need to make it
affordable and people may have different amounts that they
consider affordable, but that is what I have looked at.
Your second question was how to have employers continue to
make contributions toward coverage. Obviously, as Stuart says,
they do it voluntarily now, so many will continue. But I am
concerned that many might drop if they felt like their workers
can always get this coverage in an affordable way through the
Congressional Health Plan. So I have leaned towards something
that was called ``play or pay.'' If you don't provide coverage
to your workers, you have to contribute something.
In this particular model, employers are contributing a
dollar per hour up to 5 percent of earnings, and the estimates
are that if you did that, you would keep roughly the same mix
of public-private coverage that you have now. About two-thirds
of the population under age 65 would be covered under private
insurance. About a third would continue to be covered under
public programs, Medicare.
Now, some small businesses would shift from the coverage
that they now buy to buying coverage through the Congressional
Health Plan because they would be getting better premiums, so
they would move their workers in there, but would still have
the private plan coverage like that available to Federal
employees.
Mr. Nichols. Mr. Chairman, I would just add on the
individual mandate piece that the one thing I would be sure of,
to speak back to Stuart's point, is that we are never going to
get 100 percent of Americans signed up for anything, but that
is kind of OK, because, in fact, the ones you would miss
through all the nets that others have talked about, so I won't
belabor the point, are healthy. So they're not sort of the
problem. I mean, the problem would be contributing money, and
you would certainly want to catch them, but you could catch
them, I think, in lots of these nets. But most of them, if they
are going to need to go to the services, the providers will
sign them up just like they do Medicaid now and that problem
will take care of itself, coupled with the tax incentive.
Senator Breaux. But the question is, I mean, for those that
do not have insurance today, they tell me the largest
percentage of the 40 million, or whatever they are, are between
18 and 41 years of age and basically in fairly good health. We
want those people in an insurance plan.
Mr. Nichols. Yes, sir, we do, and over half of them go to
the doctor every year and a fair number of them know exactly
how tenuous their situation is, and so I think the ones that
are sort of not 22 and immortal are going to think hard about
signing up for something that is going to be basically free for
them.
So I think the problem you would have, as you are always
going to have, is on that margin where people have to pay
something out of pocket because we can't afford to do better
and it is perceived to be relatively high compared to what they
used to have to pay because they used to get their care for
free. Those folks are going to be the margin you have got to
worry about, but, therefore, what you want to do is not destroy
the safety net but keep that safety net there so they can have
access and we can get them signed up. So on that front, I am
less worried.
On the employer side, I think it is a very interesting kind
of analytical question. My view is, as you know, is that a lot
of employers offer today because they have to in the labor
market. That compulsion will not go away once this kind of
system would be in place. If they didn't continue to make a
contribution toward my health insurance, they would have to
give me wages or I would switch employers. So I am not worried
about that.
Karen is right. There is a class of firms who are on the
cusp. They tend to be those smaller firms who are trying to
offer now and are finding it increasingly difficult. Those
firms may very well find an incentive to pull out, and I think
the way to deal with that is a 1-year maintenance of effort
kind of requirement, where you say if you contributed to health
insurance last year and you drop, then you have to give workers
the wages equal to what you contributed last year. Then from
that moment on, those workers' compensation has been raised
equivalent to what the premium would have been. In a sense,
they are made whole from what they were, but they have relieved
the firm from the fear of having these premium increases over
time.
Senator Breaux. Mr. Crippen.
Mr. Crippen. I think, Mr. Chairman, as Len just said,
``While it may be possible in a transition to force employers
to do something they wouldn't otherwise do, it is probably
ephemeral and temporary, and there is a lot of evidence that it
doesn't matter.'' That is, as Len just said, ``If, as the
evidence shows, fringe benefits are an alternative to wages, if
fringe benefits change, wages will change to compensate the
other way.'' So trying to force companies to do something or
other probably is unproductive and unnecessary.
Equally importantly, I mean, it depends on what the plan is
that you are mandating, obviously, and you have thought a lot
more about this than I have, and if it is a mandatory
catastrophic kind of coverage, then there is certainly a lot of
insurable risk left for employers and others to give as fringe
benefits or to work with at individual markets, as well. So it
really depends on the nature of the package that you are
mandating.
Senator Breaux. I think this has been very helpful, Senator
Collins. I think that it has been a good discussion. You all
are experts in this area. You have been very helpful up to this
point and we would encourage you to continue your involvement
with all of us who are looking at these issues.
The question of uninsured and the question of these boxes
that are up there are not going to go away in any short-term
venue. It is going to be an ongoing battle to come up with
answers. I mean, I just happen to think it is time to think
outside of the boxes, so to speak, and think in a broader
picture about where we are going to be down the road in this
country when it comes to health insurance and that people
should get it because they are an American citizen, not because
they fit into one of the boxes.
We thank you very much, and that will conclude this
hearing.
[Whereupon, at 3:26 p.m., the committee was adjourned.]