[Senate Hearing 108-400]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-400

       THE SMALL BUSINESS HEALTH CARE CRISIS: POSSIBLE SOLUTIONS

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 5, 2003

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


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


                                 ______

91-137              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

        .........................................................

                      ONE HUNDRED EIGHTH CONGRESS

                              ----------                              
                     OLYMPIA J. SNOWE, Maine, Chair
CHRISTOPHER S. BOND, Missouri        JOHN KERRY, Massachusetts
CONRAD BURNS, Montana                CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
MICHAEL ENZI, Wyoming                JOSEPH I. LIEBERMAN, Connecticut
PETER G. FITZGERALD, Illinois        MARY LANDRIEU, Louisiana
MIKE CRAPO, Idaho                    JOHN EDWARDS, North Carolina
GEORGE ALLEN, Virginia               MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada                  EVAN BAYH, Indiana
NORMAN COLEMAN, Minnesota            MARK PRYOR, Arkansas
            Mark E. Warren, Staff Director and Chief Counsel
    Patricia R. Forbes, Democratic Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Snowe, The Honorable Olympia J., Chair, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Maine..........................................................     1
Burns, The Honorable Conrad R., a United States Senator from 
  Montana........................................................     4
Bond, The Honorable Christopher S., a United States Senator from 
  Missouri.......................................................     4
Kerry, The Honorable John F., Ranking Member, Committee on Small 
  Business and Entrepreneurship, a United States Senator from 
  Massachusetts..................................................    34
Bennett, The Honorable Robert F., a United States Senator from 
  Utah...........................................................    47

                           Witness Testimony

Chao, The Honorable Elaine L., Secretary, U.S. Department of 
  Labor, Washington, D.C.........................................     7
Barreto, The Honorable Hector V., Administrator, U.S. Small 
  Business Administration, Washington, D.C.......................    52
Leonard, Kathie, Co-Founder and President, Auburn Manufacturing, 
  Inc., Mechanic Falls, Maine....................................    65
Valentine, Anne, President, SmartCatalog, Portland, Maine........    71
Faris, Jack, President and Chief Executive Officer, National 
  Federation of Independent Business, Washington, D.C............    76
Neese, Terry, President and Co-Founder, Women Impacting Public 
  Policy, Oklahoma City, Oklahoma................................    91
Alford, Harry, President and Chief Executive Officer, National 
  Black Chamber of Commerce, Washington, D.C.....................    98
Shannon, Cliff, President, SMC Business Councils, representing 
  the National Small Business United and SMC Business Councils, 
  Pittsburgh, Pennsylvania.......................................   104
Lichtman, Judith L., President, National Partnership for Women & 
  Families, Washington, D.C......................................   125
Praeger, Sandy, Commissioner of Insurance, representing the 
  National Association of Insurance Commissioners, Kansas City, 
  Missouri.......................................................   145
Nichols, Len, Vice President, Center for Studying Health System 
  Change, Washington, D.C........................................   160

          Alphabetical Listing and Appendix Material Submitted

Alford, Harry
    Testimony....................................................    98
    Prepared Testimony...........................................   100
    Answers to Committee Questions...............................   186
Barreto, Hector
    Testimony....................................................    52
    Prepared Testimony...........................................    55
    Answers to Questions.........................................   187
Bennett, The Honorable Robert F.,
    Opening Statement............................................    47
Bond, The Honorable Christopher S.
    Opening Statement............................................     4
Burns, The Honorable Conrad R.
    Opening Statement............................................     4
    Prepared Statement...........................................   272
Chao, The Honorable Elaine L.
    Testimony....................................................     7
    Prepared Testimony...........................................    10
Faris, Jack
    Testimony....................................................    76
    Prepared Testimony...........................................    78
    Answers to Committee Questions...............................   189
    NFIB Members Experience......................................    81
Kerry, The Honorable John F.
    Opening Statement............................................    34
    Letters for the Record.......................................    39
    Prepared Statement...........................................   304
Leonard, Kathie
    Testimony....................................................    65
    Prepared testimony...........................................    68
    Answers to Committee Questions...............................   193
Lichtman, Judith
    Testimony....................................................   125
    Prepared Testimony...........................................   129
    Answers to Committee Questions...............................   196
Neese, Terry
    Testimony....................................................    91
    Prepared Testimony...........................................    93
    Answers to Questions.........................................   201
Nichols, Len
    Testimony....................................................   160
    Prepared Testimony...........................................   163
    Answers to Committee Questions...............................   202
    Additional Prepared Statement................................   345
Praeger, Sandra
    Testimony....................................................   145
    Prepared Testimony...........................................   147
    Answers to Committee Questions...............................   210
Shannon, Cliff
    Testimony....................................................   104
    Prepared Testimony...........................................   107
    Answers to Committee Questions...............................   214
Valentine, Anne
    Testimony....................................................    71
    Prepared Testimony...........................................    74

                        Comments for the Record

American Farm Bureau Federation, Washington, D.C., statement for 
  the record.....................................................   230
Anderson, James A., Vice President, Government Relations, 
  National Association of Wholesale-Distributors, Washington, 
  D.C., prepared statement.......................................   232
Ashmus, Keith, Chairman, Council of Smaller Enterprises, 
  Cleveland, Ohio, statement for the record......................   261
Associated Builders and Contractors, Washington, D.C., prepared 
  statement......................................................   265
Association Healthcare Coalition, Washington, D.C., prepared 
  statement......................................................   269
Burns, The Honorable Conrad R., a United States Senator from the 
  State of Montana, prepared statement...........................   272
Buschmann, Susan, Vice President, Mid-Missouri Machines, prepared 
  statement......................................................   274
Clough, Ronald E., President, Maine Masonry Co, Inc, Scarborough, 
  Maine, letter..................................................   275
Cummings, Pat J., President, American Optometric Association, 
  Alexandria, VA, letter for the record..........................   277
Downey, Shane, Director, Government Affairs, National Tooling & 
  Machining Association, Ft. Washington, Maryland, letter........   279
Enzi, The Honorable Mike B., a United States Senator from 
  Wyoming, prepared statement....................................   286
Gaddis, Evan R., President, Gas Appliance Manufactures 
  Association, prepared statement................................   288
Goldblatt, Howard, Director of Government Affairs, Coalition 
  Against Insurance Fraud, Washington, D.C., letter..............   290
Hussey, James, Chairman, Air Conditioning Contractors of America, 
  Arlington, VA, statement for the record........................   293
Josten, R. Bruce, Executive Vice President, Government Affairs, 
  Chamber of Commerce of the United States of America, 
  Washington, D.C., letter and statement.........................   295
Keithley, Carter, President & CEO, Hearth, Patio & Barbecue 
  Association, Arlington, Virginia, letter.......................   301
Kerry, The Honorable John F., Ranking Member, Committee on Small 
  Business and Entrepreneurship and United States Senator from 
  Massachusetts, prepared statement..............................   304
Kofman, J.D., Mila, Assistant Research Professor, Institute for 
  Health Care Research and Policy, Georgetown University, 
  Washington, D.C., letter and statement for the record..........   307
Kostek, Paul J., Chair, American Association of Engineering 
  Societies, Washington, D.C., statement for the record..........   321
Landrieu, The Honorable Mary L., a United States Senator from 
  Louisiana, prepared statement..................................   323
Melcher, Ph.D., Beth, Director, Public Policy, NAMI, Raleigh, 
  North Carolina, letter.........................................   326
Mental Health Liaison Group, Washington, D.C., letter for the 
  record.........................................................   327
National Association for the Self-Employed, Washington, D.C., 
  prepared statement.............................................   330
National Funeral Directors Association, Washington, D.C., 
  statement for the record.......................................   335
National Governors Association, Washington, D.C., letter.........   340
National Restaurant Association, Washington, D.C., statement for 
  the record.....................................................   342
Nichols, Len M., Vice President, center for Studying Health 
  System Change, Washington, D.C., prepared statement............   345
Pennsylvania Builders Association, Lemoyne, Pennsylvania, 
  prepared testimony.............................................   360
Samuel, William, Director, American Federation of Labor and 
  Congress of Industrial Organizations, Washington, D.C., letter.   365
Talent, The Honorable James M., a United States Senator from 
  Missouri, prepared statement for the record....................   367
U.S. Department of Labor, Washington, D.C., report...............   383
Westerfield, Ph.D., Donald, Professor, Webster University, 
  prepared statement.............................................   372
Woods, Thomas E., President, TE Woods Constructions Co., Blue 
  Springs, Missouri, prepared statement..........................   381

 
       THE SMALL BUSINESS HEALTH CARE CRISIS: POSSIBLE SOLUTIONS

                              ----------                              


                      WEDNESDAY, FEBRUARY 5, 2003

                      United States Senate,
          Committee on Small Business and Entrepreneurship,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:05 a.m., in 
room SR-428A, Russell Senate Office Building, the Honorable 
Olympia J. Snowe, Chairman of the Committee, presiding.
    Present: Senators Snowe, Bond, Burns, Bennett, Kerry, 
Levin, and Pryor.
    Also Present: Senator Talent.
    Senator Bond. It is now my pleasure, with mixed emotions 
but with high expectations, to turn over the gavel to the new 
Chair, Senator Olympia Snowe.
    [Applause.]

OPENING STATEMENT OF OLYMPIA J. SNOWE, CHAIR, SENATE COMMITTEE 
  ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A UNITED STATES 
                       SENATOR FROM MAINE

    Chair Snowe. Thank you. I want to thank my colleague, 
Senator Bond, for this pleasant surprise because it truly is a 
privilege for me to be able to have this opportunity to Chair 
the Small Business Committee here in the United States Senate. 
I want to thank and acknowledge Senator Bond's exemplary 
leadership that he has provided on this Committee for many 
years. I cannot think of a more stalwart champion of small 
business.
    As I convene my first hearing and begin to work on these 
issues and in my discussions with so many of you here in the 
audience, I can tell you he has set a high standard and I am 
looking forward to working with him on the issues that are 
affecting small business in America.
    I also want to thank Senator Kerry for his stewardship. He 
has been a long-term advocate for small business and I know 
that he is going to continue to do everything that he can to 
enhance small business as a vital sector of this economy and he 
will continue his long-standing commitment to small business. I 
know he will be here shortly.
    We also have new Members of the Committee that will be here 
as well, Senator Coleman, Senator Bayh and Senator Pryor. We 
are immensely fortunate to have the benefit of their insights 
and knowledge on this Committee, as well.
    Finally, before I get started, I also want to welcome 
Senator Talent, also from Missouri, a newly elected Member to 
the United States Senate. He is going to participate in this 
hearing today because Senator Talent, when he served in the 
House of Representatives, chaired the Small Business Committee, 
and also was a leading proponent of association health plans, 
as many of you know. So he will be participating here today and 
I know that he will be contributing significantly to this issue 
and others concerning small business.
    Having served on this Committee throughout my tenure in the 
Senate, and earlier on its counterpart, I am eager to begin an 
ambitious agenda to address the wide-ranging challenges small 
businesses face.
    In that light it is no coincidence I focus our very first 
hearing on the challenge that is not only a matter of urgency 
for small businesses, but is also of dual significance to our 
nation at a time when we are both exploring opportunities to 
help boost the economy and ways of reducing the stunning number 
of uninsured in America.
    Knowing that small businesses are creating up to 75 percent 
of net new jobs in the country, knowing that they contribute 42 
percent of all revenues while the SBA only consumes 0.04 
percent of the Federal Budget, can there be any doubt that our 
investment in small business, whether in financial assistance, 
loan guarantees, or helping to reduce the overall cost burdens, 
pays tremendous economic dividends to America.
    At the same time, with a shocking 60 percent of the 41 
million uninsured in this country already either working full-
time in small businesses, or depending on someone who does, we 
have an obligation to ensure that more of these individuals can 
receive insurance through their employers.
    So when the Kaiser 2002 Employer Health Benefit Survey 
reports that only 61 percent of all small businesses are 
offering health benefits and that is down, I might add, from 67 
percent just 3 years ago, is there any question that we are 
headed in exactly the wrong direction?
    This is a crisis and it is even worse in businesses with 
fewer than 50 employees. Of those, only 47 percent currently 
provide health insurance benefits. The Department of Labor 
reports that only 24 percent of small businesses that employ 
low-wage workers offer health plans. So this is an emergency.
    But there should be no mistake. It is not because small 
businesses do not want to provide these benefits. If there is 
one thing I have heard time and again in my meetings with small 
businesses in Maine and representatives here in Washington, it 
is that costs have skyrocketed to the point of being 
prohibitive. I have heard of premiums rising 50, 60 and 70 
percent.
    In the chart behind me, and I think it is illustrative of 
the problem that we are facing, two-thirds of all Americans 
rely on their employer for health insurance. We cannot afford 
the disturbing trends that are indicative in this chart of the 
kinds of increases that employers are facing with respect to 
health care insurance premiums.
    The average cost for health insurance premiums rose 11 
percent from 2000 to 2001 and then 12.7 percent from 2001 to 
2002, the second consecutive year of double-digit increases. As 
a result, 22 percent of all firms increased employee 
deductibles in 2002 and 32 percent told Kaiser they are likely 
to do so this year.
    The problem is all the more acute for small businesses. For 
those with fewer than 10 workers, the employer and employees 
together paid on average about 8 percent more in premiums than 
the amount paid by larger companies. For all firms under 200 
employees, 84 percent indicated to Kaiser that cost was an 
important factor in not offering health care.
    The result of all this is not hard to predict. Businesses 
can and clearly are dropping health benefits. Others struggle 
onward in providing coverage but only at the cost of the growth 
of the business or offering a package with higher premiums or a 
combination of both. We simply cannot go on in this direction.
    I plan to introduce legislation to level the playing field 
between large and small businesses through association health 
plans. We want to give small businesses the same strength as 
unions and large companies to negotiate better rates.
    Let there be no doubt, there would be cost savings. Indeed, 
a CBO report estimated in 2000 that on average premiums paid by 
small firms that purchase health insurance through AHPs could 
see, on average, a reduction anywhere from 9 through 25 
percent.
    Now I realize there is no single answer to this 
multifaceted problem and there are those with a divergent view 
and different ideas including medical savings accounts, 
flexible spending arrangements and tax credits to help defray 
the cost of accessing health insurance. But I do believe that 
AHPs would be a major step in the right direction and I am 
pleased we will have an opportunity to hear from a number of 
individuals who may have differing ideas on how to approach the 
problem, but who all have experience, expertise, and informed 
opinions on this pressing matter of national concern.
    We are privileged this morning to have with us first, 
Secretary of Labor Elaine Chao, who has provided strong 
leadership on the President's behalf on this issue, as 
exemplified by a report the Department of Labor issued on AHP 
plans, as well as letters she sent last September to Senate 
leaders in support of this legislation.
    Obviously, this is a critical labor issue as well as a 
challenge for small business and I thank her for her steadfast 
commitment for being here today and for improving the lives of 
American workers.
    Of course, no one knows better than our second witness, who 
will be SBA Administrator Hector Barreto, just how crucial this 
issue is for small businesses. I know the health benefit crisis 
is of tremendous concern to the Administrator and I thank him 
for his dedication and for being here today, as well. I am 
looking forward to hearing what he will provide in terms of 
comments on this legislation.
    Our third panel includes representatives of the small 
business community who believe this issue is so vital to their 
future that they have taken time to be here today and to share 
their views and experiences. I also want to acknowledge two 
small business owners from my State of Maine, Ms. Kathie 
Leonard and Ms. Anne Valentine, who will help lend a 
perspective on what this issue means in our State where 97 
percent of the businesses employ fewer than 20 employees.
    For our fourth panel, we will hear from those with a 
different perspective on approaching this crisis. I also want 
to thank them for contributing their thoughts and for appearing 
here today as we begin to proceed on this most vital piece of 
legislation to enhance the well-being of small business.
    I would now like to turn to my colleague, Senator Bond.
    Senator Bond. Madam Chair, I have been implored by my good 
friend, formerly of Missouri and now Montana, Senator Burns to 
make a short statement. On that condition, I would be happy to 
yield to him.

OPENING STATEMENT OF HON. CONRAD BURNS, A UNITED STATES SENATOR 
                          FROM MONTANA

    Senator Burns. I thank my good friend from Missouri for the 
statement.
    Madam Chair, thank you very much for holding this hearing 
today. I am not going to get to stay. We have got an important 
vote coming up in the Energy Committee in about 7 minutes or so 
and I want to hustle over there.
    This is very important and this is an area where there is 
conflict, as you well know, where States rights comes into it 
and everything that we try to do has far-reaching effects on 
industry and small business, on the insurance industry, and of 
course, our relationship with the States. So it sounds easy but 
we know there are a lot of complications to it.
    Thank you for the hearing and I will be looking at the 
testimony of the Secretary of Labor and also from the Small 
Business Administration. It will be interesting what they have 
to say. But I will also read the testimony of the witnesses 
that you have today. Thank you for allowing me to make this 
statement because this is probably the most important thing 
that faces small business today.
    Thank you very much.
    Chair Snowe. Thank you, Senator Burns.
    Senator Bond.

        OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, 
             A UNITED STATES SENATOR FROM MISSOURI

    Senator Bond. Thank you, Madam Chair, for giving me the 
opportunity to say a few words.
    It is a real pleasure to work with you in your new capacity 
as the Chair of the Small Business Committee. You have been a 
great, active Member of the Committee. I am grateful that you 
are taking the gavel, although it is with mixed emotions that I 
turn it over to you. I intend to work very closely with you but 
I think the Committee needs the vitality and enthusiasm of some 
new leadership and I have some other important pressing items 
that I have to work on, as well.
    Your statement today and your willingness to call this 
hearing, as your first hearing on AHPs, indicates your 
commitment to this issue. Your powerful statement is a strong 
boost for us as we move forward on the push to get AHPs.
    It is a pleasure, also, to see my new colleague from 
Missouri, Senator Jim Talent. As a Member of Congress on the 
House side, he was a champion of AHP legislation. As the former 
Chairman of the Small Business Committee, obviously he 
understands these issues very well. I know he is going to be an 
active inter-meddler in the work of this Committee, and we are 
delighted to have so many Missourians involved in this effort. 
He will be a great addition to this battle because of his 
passion and commitment.
    Chair Snowe. There is no doubt where Missouri stands on 
this issue.
    Senator Bond. However, we Missourians join Maine in 
championing AHP legislation.
    Other Missouri natives include Senator Burns and 
Administrator Barreto. Pardon me for pointing out the fact that 
we do have a strong Missouri commitment.
    During these tough financial times small business needs as 
much capital as possible to continue maintaining, growing, and 
providing jobs. I fought a few years ago, with your help and 
others, to get 100 percent deductibility for proprietorships 
which will take effect finally this year.
    Runaway health care costs and health insurance are still 
issues to be addressed by Congress. In my opinion, the best 
way, to control costs in health care is through choice and 
competition, distinctly American ideals. These ideals can work 
in health care to provide innovation and encourage new ideas.
    As many as 24 million individuals, or 60 percent of the 40 
million uninsured Americans, are employed. That figure is 
shocking. That 24 out of 40 million have jobs but do not have 
health insurance. Many of them who are in the ranks of the 
``employed but uninsured'' work for small businesses that would 
like to provide health insurance but cannot. Others are in the 
group that have provided health insurance coverage previously 
to their employees, but today's exploding and spiraling health 
care costs have driven many small businesses out of the market.
    No one is hit harder by large premium increases than small 
business. We hear about the cost explosion that insurers and 
health care providers are imposing on small business. Many 
small businesses find it virtually impossible to provide the 
coverage they would like to provide and know they should 
provide to their employees.
    Our office continues to be flooded with calls and letters 
illustrating the dire need of small firms to obtain health 
insurance, competitively priced and comparable in quality to 
the insurance plans enjoyed by big businesses and unions.
    I am convinced that the only solution is to allow small 
businesses across the country to pool together, access health 
insurance, gain the administrative benefits from larger 
memberships and get the bargaining power they need. This should 
provide small businesses the same opportunity as other large 
purchasers of health insurance.
    AHPs, or association health plans, should reduce costs 
through greater economies of scale, to spread costs and risks, 
increase group bargaining power and generate more insurance 
options. They are not a new idea. They have been talked about 
and bandied about for almost a decade. During that period, what 
was once thought to be a manageable problem has become the 
crisis we have today.
    Had we passed this AHP legislation, I am convinced we would 
not be seeing the problems we see today in small business.
    The underlying AHPs principle is simple, the same principle 
that makes it cheaper to buy your soda by the case instead of 
individual cans. Bulk purchasing is why the large purchasers 
can get better rates. It is about time we bring the same 
Fortune 500 style health benefits to the nation's Main St. 
businesses.
    President Bush has said it well: ``It makes no sense in 
America to isolate small businesses as little health care 
islands onto themselves.''
    AHPs simply will mean more coverage, better coverage for 
employees, the companies, their families, and their children. 
It is time we take control for small businesses. They deserve a 
chance to channel these funds to other needs.
    I look forward to working with you, Madam Chair, along with 
Senators Talent, Burns and the others on this important issue. 
I thank all of you for coming here to testify today.
    Secretary Chao has been a very vocal, very eloquent 
spokesperson for the President's plans in this area. She is 
joined by Administrator Barreto, whose representation of the 
small business community will give AHPs a big push.
    I apologize that I have other commitments, but I too will 
be reading the testimony, and I will be right behind you in the 
battle to get the AHP coverage that small businesses need. I 
thank you.
    Chair Snowe. Thank you, Senator Bond, for being such a 
leader on this issue. We appreciate it.
    Senator Levin.
    Senator Levin. I do not have an opening statement but I 
just want to reassure Senator Bond that I, too, have deep 
Missouri roots. I was a Harry Truman supporter.
    [Laughter.]
    Senator Bond. Actually, Carl, we are related, cousins-in-
law, I think. Something like that, by marriage, so he is 
acceptable. Senator Pryor is in the Dunlop area, where Missouri 
done lop over into Arkansas. So the heartland, Michigan, 
Arkansas and Missouri, are well represented.
    Chair Snowe. I am feeling left out here. Senator Pryor, 
welcome to the Committee. We are delighted to have you on this 
Committee.
    Senator Pryor. I am excited to be here. Thank you.
    Chair Snowe. Secretary Chao, thank you as well for being 
here today. My colleagues and I would like to extend our best 
wishes to your husband, Mitch. We hope that he is successfully 
recovering and we thank you for taking the time for being here 
today. Tell him we are looking forward to having him back soon.
    Secretary Chao. Thank you very much. Mitch is indeed doing 
very well and I am now a great proponent for people taking the 
stress test. Thank you.
    Madam Chair, I also have a written statement that is 
lengthier, and so I would like to submit that for the record 
and I will make a little summary of my remarks.
    Chair Snowe. Absolutely. It will be included in the record.

         STATEMENT OF HON. ELAINE L. CHAO, SECRETARY, 
                    U.S. DEPARTMENT OF LABOR

    Secretary Chao. Good morning Chairman Snowe, and other 
Members of the Committee. Thank you very much for providing 
this opportunity to discuss the President's agenda for giving 
Americans more access to quality, affordable health care, 
specifically through association health plans.
    As the Chairwoman noted, more than 41 million Americans 
lack health insurance and 85 percent of the uninsured are in 
working families. Some of the uninsured are young and have 
minimal health problems. They are quite healthy. Other 
uninsured families have children and need access to basic care. 
Some face serious health issues requiring the most up-to-date 
and expensive treatment. There is simply no one-size-fits-all 
solution to all of these different health care needs. That is 
why the President has proposed a number of different remedies 
to the problems of health care costs and also lack of access.
    These proposals, as the Chairperson has noted, include 
making medical savings accounts more widely available, medical 
malpractice reform, individual tax credits and association 
health plans, also known as AHPs which I am about to discuss 
today.
    In my view, Madam Chair, the Small Business Committee is 
the ideal forum to discuss how to expand health care coverage 
because employer-provided health insurance pays for the health 
care of more Americans than both Medicaid and Medicare 
combined.
    In order to extend health insurance to millions of 
additional working families, we need to find ways to encourage 
more employers to include health insurance as part of the 
compensation package that they offer to their employees. The 
sector that presents the ripest opportunities for making a real 
difference is indeed small business.
    Right now, as you have heard, those who work in smaller 
firms with less than 100 employees make up 60 percent of the 
working uninsured and the problem is compounded in low-wage 
industries. In fact, only 34 percent of small employers in low-
wage businesses--those where the median wage is $9.50 an hour 
or lower--are able to offer health insurance to their workers
    Many small employers do indeed tell us that they want to 
provide health coverage but that, surprisingly, cost is not 
their only obstacle. There are legal barriers, market barriers, 
and the threat of fraud. All of these hurdles prevent a lot of 
small employers from being able to take care of their workers 
the way that they would like.
    Association health plans are aimed squarely at filling this 
coverage gap that exists among small businesses. AHP will break 
down many of the barriers that small employers face that 
currently discourage them from offering health care insurance 
or perhaps make it impossible for them to do so.
    As I said, cost is not the only hurdle but it is probably 
the most significant. Small company premiums are about 20 to 30 
percent higher than those of large self-insured companies and 
that is because small businesses must take on significant 
administrative overhead costs when they decide to offer health 
coverage. They must bear the cost of insurance company 
marketing and underwriting expenses. Furthermore, State benefit 
mandates also present more cost for the small group market.
    All of these factors drive up costs for small firms that 
offer health insurance to their employees, although many are 
discouraged from offering coverage at all.
    Small businesses are also especially vulnerable to 
insurance fraud, which drives up the cost for everyone and robs 
small employers of the funds that they could otherwise use to 
pay for stable, reliable coverage. Small employers are at 
constant risk of wasting scarce resources on insurance scams 
that collect premiums and default on their promise to pay 
claims.
    At the Department of Labor, we are engaged in aggressive 
efforts to combat pernicious health insurance fraud. Many scams 
are operated as multiple employer welfare arrangements. It is 
important to point out that not all of these multiple employer 
welfare arrangements, or MEWAs, are fraudulent, but they have 
historically been difficult to regulate due to jurisdictional 
uncertainly.
    Due to our enforcement efforts almost $9 million was 
recovered in the last fiscal year alone to help fraud victims 
cover their unpaid medical expenses. At the end of fiscal year 
2002, the Department was pursuing 90 civil and 17 criminal 
investigations of fraudulent health plans and we are not 
letting up.
    In addition to enforcement, however, we are also providing 
a lot of information to employers to help them manage their 
health plans. I have recently written to over 80 business 
association leaders asking them to distribute a Department of 
Labor publication entitled ``How to Protect Your Employees When 
Purchasing Health Insurance''. I also have with me a copy of 
the publication that the Department has put together on 
association health plans to help small employers know how AHPs 
could offer their employees affordable quality health plans. 
These tips are also on our web site and they offer a lot of 
tips for small employers.
    In addition to our ongoing education efforts, the 
Department continues to work in close contact with State 
insurance departments and the National Association of Insurance 
Commissioners to protect workers and their families.
    One important benefit of AHP legislation is that it will 
give Federal and State regulators much clearer lines of 
authority to regulate small employer health insurance. But it 
is also going to break down legal and market barriers to make 
it more attractive for small businesses to offer health 
insurance to their employees.
    Under AHPs, small businesses would enjoy greater bargaining 
power, economies of scale, and administrative efficiencies as 
well as the benefits of a uniform Federal regulatory structure. 
To combat fraud, AHPs would have to meet Federal certification 
standards and comply with the Department's ongoing oversight.
    So by grouping small employers together to purchase 
coverage, AHPs will be able to act like large employers and 
offer low-cost coverage to employees and their families.
    AHPs will also give small businesses the benefits, again, 
of a uniform oversight system instead of having to comply with 
50 different regulatory schemes. For AHPs that offer fully 
insured coverage, State insurance commissioners will be 
responsible for the solvency of the insurance company issuing 
the policy just as they are responsible for insurance policies 
issued to fully insured group health plans today. At the same 
time AHPs would be subject to both Federal and many State 
consumer protections.
    I see that the red light is on. I ask that my full 
statement be placed in the record. I know, Madam Chair, that 
you are very concerned about this issue, and I commend your 
leadership in holding this hearing that talks about a very 
important issue surrounding health care, and one that 
potentially will offer great benefits to the millions of 
uninsured.
    [The prepared statement of Secretary Chao follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.216
    
    [GRAPHIC] [TIFF OMITTED] T1137.217
    
    [GRAPHIC] [TIFF OMITTED] T1137.218
    
    [GRAPHIC] [TIFF OMITTED] T1137.219
    
    [GRAPHIC] [TIFF OMITTED] T1137.220
    
    [GRAPHIC] [TIFF OMITTED] T1137.221
    
    [GRAPHIC] [TIFF OMITTED] T1137.222
    
    [GRAPHIC] [TIFF OMITTED] T1137.223
    
    [GRAPHIC] [TIFF OMITTED] T1137.224
    
    [GRAPHIC] [TIFF OMITTED] T1137.225
    
    [GRAPHIC] [TIFF OMITTED] T1137.226
    
    [GRAPHIC] [TIFF OMITTED] T1137.227
    
    [GRAPHIC] [TIFF OMITTED] T1137.228
    
    [GRAPHIC] [TIFF OMITTED] T1137.229
    
    Chair Snowe. Thank you. Thank you, Secretary Chao. I 
thought your testimony certainly gives credence to the 
significance of this issue and how important it is for small 
businesses and the role that obviously Department of Labor will 
play.
    I thought the purpose of this hearing would be to sort 
through some of the issues, some of the concerns that have been 
raised with respect to this legislation. I know there have been 
concerns raised about whether or not the Department of Labor 
will have the sufficient resources and personnel to oversee the 
requirements of association health plans with respect to the 
certification process which you referred to, as well as the 
solvency standards.
    I was wondering if you could share with the Committee, 
because this is an essential dimension to the whole issue and I 
think obviously one of the primary concerns that has been 
raised, whether or not the Department of Labor will be in a 
position to provide the kind of oversight that States do 
currently in regulating these plans: making sure that a problem 
is identified before the plan becomes insolvent, that the 
reporting is not essentially voluntary but that you have the 
strength of the statute to make adjustments in the event that 
it is essential with respect to the stop loss or to the 
solvency requirements.
    If you could just share with the Committee some of the 
ideas that you have and how the process works currently, 
because you oversee 67 million American workers under current 
plans that are managed by the Department of Labor in the self-
insured plan. I would appreciate your views on this because 
obviously it is going to be one of the central issues that we 
will have to explore and address.
    Secretary Chao. I would be happy to.
    First of all, I have absolute confidence that the resources 
that are needed, should this become law, would be there. We 
have a full commitment to ensuring that association health 
plans will be administered in a way that will ensure the 
maximum benefits to uninsured working families and that any 
steps necessary to prevent fraud will absolutely be available.
    So I am very confident about the resource issue. I think 
that is a red herring. This is the President's proposal. If 
this does become law, we will have the requisite resources and 
if not, we will ask for it and I am confident that we will 
receive it.
    Chair Snowe. How does the current process work with those 
that you oversee now under the ERISA program?
    Secretary Chao. I mentioned in my statement that the 
private sector employer-based, job-based benefits that 
employees, workers currently receive far exceeds the amount of 
people and benefits covered under Medicaid and Medicare 
combined. So our country has a very strong and long-standing 
history of a job-based employer-based benefit program.
    Americans who receive employer-based health benefits, are 
protected under ERISA and ERISA is administered by the 
Department of Labor. As you mentioned, 67 million Americans--
that is only a portion. Over 130 million Americans are covered 
by ERISA health plans and 67 million are in self-insured plans 
regulated solely by the Department of Labor.
    We have a long history of protecting workers under ERISA. 
In addition, there have been a number of Federal health care 
laws that amended ERISA and gave the Department significant new 
responsibilities in recent years. They include, for example, 
HIPAA, which talks about portability, nondiscrimination, pre-
existing conditions. We have the infrastructure to ensure that 
compliance takes place.
    Additional health laws enacted that we are responsible for 
helping to ensure compliance with are the Mental Health Parity 
Act of 1996, the Newborns and Mothers Health Protection Act of 
1996, and the Women's Health and Cancer Rights Act.
    So we have the structure and the infrastructure and people 
already who have the expertise and the experience in seeing 
these health care programs. On top of that we have experience. 
We are the primary agency with experience in administering 
ERISA, which again oversees employer-based health benefits and 
other employer-based benefits at the worksite.
    Chair Snowe. Do you think this legislation would require 
any strengthening with respect to the potential for fraud, 
which is obviously another concern that has been identified 
given the previous experience back in the 1980s, most 
especially with the multiple employer welfare associations?
    Secretary Chao. I think fraud has to be attacked on three 
fronts. One is clearly education. We, in the Department, are 
working with other groups outside of government, as well as 
State and local governments to ensure that employers and 
employees understand the problems that they may encounter in 
purchasing health care. We want to make sure that they are 
smart consumers and that they make wise choices and that they 
check out the people they are doing business with when they 
purchase health care.
    So we have launched a major education program to help 
health care consumers--the employers and the employees--to know 
how to purchase health care. The second prong of that strategy 
to fight fraud is enforcement, strong enforcement. We have over 
100 cases pending. We have collected over $9 million dollars in 
the last year alone from fraudulent organizations that have 
used Ponzi schemes to entice employers to enter into their 
health care plan. So we have a very aggressive enforcement 
effort ongoing and under way to ensure that bad actors are 
rooted out, that they are put out of business, that new 
trustees are instituted, and that we try to recover as much as 
we can for those who have lost money through fraudulent 
schemes.
    The third part of the strategy to prevent fraud is to ask 
for passage of association health plans, because the third part 
of the strategy is to make sure that there is a standard 
Federal regulation that is easier to understand and easier to 
administer so that we can catch some of these fraudulent 
organizations. Because these organizations are now preying upon 
the fears of so many Americans and they are growing regionally, 
they exceed the ability of any one State to catch them. So, in 
fact, association health plans with Federal regulatory 
standards will actually be much more helpful in fighting these 
fraudulent organizations.
    Chair Snowe. Thank you.
    Senator Levin.
    Senator Levin. Thank you, Madam Chair. I would like to make 
reference to a letter that I received from Blue Cross-Blue 
Shield of Michigan which has some very deep concerns about the 
AHPs. I just want to read a part of that letter and I would ask 
that the letter be made part of the record.
    Chair Snowe. Without objection.
    [The letter follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.230
    
    [GRAPHIC] [TIFF OMITTED] T1137.231
    
    Senator Levin. One of the statements that they make in this 
letter is that the passage of some form of AHP legislation 
would increase the cherry-picking and adverse selection. AHPs 
will weaken the existing insurance pool by allowing small 
businesses and individuals to opt for bare bones benefits 
packages in order to save money, switching back to Blue Cross-
Blue Shield whenever they were in need of more comprehensive 
coverage.
    As the carrier of last resort, this is a critical concern 
to us. We are the only health care carrier in Michigan who must 
accept applicants year-round regardless of health status. As a 
result the healthy will obtain coverage through AHPs while the 
unhealthy will obtain coverage through Blue Cross-Blue Shield, 
thereby destroying the basic concept of insurance pooling, 
balancing risk. Could you comment on the cherry-picking problem 
that AHPs create?
    Secretary Chao. The concern that they point out about 
cherry-picking is one that I am very cognizant of and we would 
not want to see this happen. The whole point of having an 
association health plan package would be that we would allow 
small employers to pool their risks, to come together and pool 
their employees together so that the risk and cost of 
administering a health care program can be spread over a large 
number of people.
    We want healthy workers to opt into the system as well. 
Because what is happening now is that the health care premiums 
are getting so high that healthy workers are saying, ``I am 
pretty healthy, the risk of my having an illness is pretty low. 
So I am going to take a chance and I am not going to go and get 
health care insurance.'' That is not good. That is why we want 
to lower the cost of health care so that we can encourage more 
healthy workers to come back into the system. Cherry-picking 
would discourage this, would make it so that it is very costly 
and we would not want that to happen.
    This is still legislation in the works and we want to make 
sure that as we go forward that cherry-picking does not occur 
and that people are not opting out of a program. We want to 
make sure that a larger pool of people would be included 
because after all, that is the purpose of the association 
health plans.
    Senator Levin. There are lots of ways in which cherry-
picking can occur. One way would be for a pool to be created, 
for instance, which would attract mainly the young and healthy 
workers by having very high copays.
    Secretary Chao. We would not want to see that happen 
either. As I mentioned, this is a bill that is going forward 
hopefully, and so let us work on that. I would want to work 
with you on that to make sure that this does not happen because 
we want to make sure that everyone is covered and we do not 
want those who are less healthy to be isolated.
    Senator Levin. At a hearing in 1997, the Assistant 
Secretary of Labor at that time said that the Department of 
Labor did not have the resources to regulate the AHPs. This is 
one sentence from her testimony. Based on our investigative 
experience, we could review each pension plan once in 170 
years. If you include health plans, once in 300 years. She said 
that an infrastructure adequate to handle the new 
responsibilities, replicating the functions of 50 State 
insurance commissioners, simply does not exist.
    Now you indicated that you are confident the resources 
would exist.
    Secretary Chao. Yes, I am.
    Senator Levin. We have, of course, in legislation and 
public statements, given assurances to all kinds of people over 
the years that resources would exist to carry out various 
programs. We have a special education commitment, the Federal 
Government will pick up 40 percent of the cost of special 
education, impose mandates, and we are nowhere near 40 percent. 
We have done the same thing now with the Department of Homeland 
Security. We have got commitments that we have all made that 
come nowhere close in the budget request, and other kinds of 
commitments which are made.
    I know your intention there. I do not doubt that. I know 
you and I have no doubt about your honesty and sincerity when 
you make that statement. But what would the resources be? How 
many dollars would be required to regulate this program, in 
your judgment?
    Secretary Chao. First of all, let me emphasize again that 
the Employee Benefits Security Administration formerly called 
PWBA, Pension Welfare Benefits Administration, has a great deal 
of experience in this field already because we do administer 
ERISA and we do have the infrastructure with which to ensure 
compliance with a lot of the recent health care legislation. So 
for those who question the Department on that, I want to set 
the record straight.
    We have begun to take a look at how much resources we need. 
We have some figures but I feel that it is a little premature 
to specify at this point. But we already do certification. We 
will need to beef up our enforcement a little bit.
    I am confident that the resources will be made available 
and they will be readily obtainable.
    Senator Levin. My time is up. If you can perhaps supply 
that to the Committee for the record when you have an estimate 
as to the cost of administering the program.
    Secretary Chao. I can give you an answer to that.
    Senator  Levin. Would you just say hello to Mitch for all 
of us.
    Secretary Chao. I sure will. Thank you.
    Senator Levin. Thank you, Madam Chair.
    Chair Snowe. Senator Talent.
    Senator Talent. Thank you, Madam Chair.
    I want to thank you for allowing me to be here today. This 
is a subject that I have worked on for some time and I do 
appreciate your allowing me to sit in.
    Madam Secretary, thank you for your support of this. I 
think it is very meaningful to people in Missouri, particularly 
those who work for small businesses.
    Of course, the Department already regulates today, does it 
not, all the plans covered under ERISA, the big company plans, 
the union plans?
    Secretary Chao. It sure does.
    Senator Talent. There are hundreds and hundreds of those 
plans, are there not?
    Secretary Chao. Hundreds of thousands, covering tens of 
millions of people.
    Senator Talent. I do not know how many association health 
plans would develop but the reserve requirements and the stop 
loss requirements are so great that my sense is that only the 
largest trade and professional associations, maybe the Chamber, 
NFIB, the Restaurant Association and a few others would be able 
to do it. So maybe we are talking about adding another, I do 
not know, maybe 15 or 20 plans to your regulatory burden. That 
is what we are talking about, is it not? I mean, it is hard to 
estimate.
    Secretary Chao. Yes. First of all, I have to commend the 
Senator for your previous work in association health plans and 
also in the health care sector overall. I know that you are 
quite an expert in this area.
    Senator Talent. Officially, I will agree with you. For the 
record, I will agree with you.
    [Laughter.]
    Secretary Chao. But you are right that the Department has a 
great deal of expertise. ERISA covers provided health benefits, 
and is under the Department of Labor. So we do have the 
experience. We have the people. They are available.
    It may require some additional resources but I am 
confident, as I mentioned to the Senator, that we will have 
those resources.
    Senator Talent. An incremental increase in your regulatory 
burden, at best. As you say, you are already regulating plans 
that cover millions of people. These would be a few more plans. 
It is hard to say exactly how many would develop over time but 
not that many.
    Now the cherry-picking argument, and this keeps coming back 
and back. It is like some kind of a monster from fiction. No 
matter how many swords you jam in it, it keeps coming back. But 
let me just tell you something that I did and do when I am on 
the stump talking about this or out in town hall meetings. I 
want to ask you if this surprises you.
    I will explain association health plans to a group of 
people, usually those who are working for a small business, and 
I say to them now look, if you had an ongoing medical problem, 
a chronic problem, if you were a sick person in the sense that 
you had diabetes or kidney disease or something like that, and 
you had a choice between working for a very big company or a 
small company and the only factor in your mind was health 
insurance, and knowing nothing else about it, how many of you 
would want to work for the very big company?
    You know what, Madam Secretary, nobody, when I have asked 
that question has ever said, knowing only that and controlling 
it in the way that I did, that they wanted to work for the 
small company. Does that surprise you?
    Secretary Chao. No, it does not and that points to a big 
problem.
    Senator Talent. The idea that the healthy people will go 
into the association health plans is, I think, exactly the 
opposite of the reality. It is the folks who have a problem who 
are now relegated to a market where health insurance is very 
expensive and is not very good, they are the ones who are going 
to want to go to association health plans, do you not think?
    Secretary Chao. You are absolutely right.
    Senator Talent. I especially like that Blue Cross is 
telling a lot of people that the healthy people will go to the 
bare bones AHPs and then if they get sick run back to the 
tremendously low cost, high quality Blue Cross-Blue Shield 
policies, which certainly is not the experience that I have had 
talking to people in small businesses around the State of 
Missouri.
    Let me ask you one other thing. Does the Department have 
figures as to how much of the business in the small group 
market is controlled by a few big carriers? Do you have those 
figures? Possibly not, because that is State regulated so you 
may not have that.
    Secretary Chao. I can get that for you, but you can imagine 
what the answer is.
    Senator Talent. I would be interested in seeing that 
because I think those carriers would probably stand to lose 
some business if association health plans were passed. What do 
you think? Maybe you do not want to answer that.
    Secretary Chao. I think that certainly is a concern of 
theirs.
    Senator Talent. I thank you and I see my time is up. Thank 
you, Madam Chair.
    Chair Snowe. Thank you.
    Senator Pryor.
    Senator Pryor. Thank you, Madam Chair.
    Let me say it is an honor to be on your Committee and I 
look forward to getting a lot of great things done here.
    Thank you, Madam Secretary, for being here today. It is 
great to have you here and I know this is an issue that you are 
very passionate and very concerned about. As I travel the State 
of Arkansas, and it does not matter if I am talking to a member 
of a union or a small business owner, or a small family farmer, 
or an officer in a very large Fortune 500 company, immediately 
what they want to talk about is the high cost of health care. 
It is something that is growing at a rate that they just cannot 
keep up with. It is a very, very serious problem.
    As I understand the proposal today, is that what you are 
trying to address is the high cost of health care and the 
access to health care?
    Secretary Chao. I am.
    Senator Pryor. Let me point out something that I know that 
the Members of this Committee are aware of and I know that you 
are aware, and I would just like to hear your thoughts on this. 
That is last year the Congressional Budget Office studied the 
AHP legislation that was introduced last year and determined 
that AHPs would likely provide health care coverage to about 
4.6 million people. That sounds good.
    However, all but about 330,000 of them are already covered 
today. So in other words, this proposal, based on what the CBO 
is saying, if I understand their report correctly, does not 
really expand health care coverage but will primarily go to 
members of our society who are already covered by health care. 
Is that your understanding of that?
    Secretary Chao. No, that is not really true because the 
spiraling cost of health care is an issue that we all need to 
be concerned about, because it is not static. It increases. So 
long as health care costs continue to increase, in fact, more 
and more people will opt out because of the high cost of health 
care.
    So the association health plans will contribute to 
decreasing the cost of health care, by 13 percent or perhaps as 
much as 25 percent on average. In addition, the number of 
people covered will increase as well. So I disagree with those 
figures.
    Senator Pryor. So what is the flaw in the CBO's logic or 
the flaw in their process?
    Secretary Chao. I think that is a static analysis. 
Basically, if health care continues to increase upward there 
will be those who will find it increasingly unaffordable. So 
let us say they are paying--I was looking for one figure. The 
average small business has seen an increase in their health 
care cost from about 11 percent to 18 percent. It is a 
magnitude that large.
    Senator Pryor. I hear it every day when I go out. I hear it 
every day.
    Secretary Chao. So when health care cost increases that 
much, there is going to be a concern obviously with the number 
of employers that would be able to offer that to their 
employees.
    Senator Pryor. The other problem the CBO report points to, 
and again, I would like to hear your comment on this, is that 
you create a kind of haves and have-nots situation or may 
exacerbate the problem that already exists. That is that the 
AHP legislation would, in fact, benefit some people. It would 
allow some people to get health care they do not already have. 
It would allow some to keep it and they might otherwise not be 
able to.
    But also the downside might be that it might make health 
care more expensive for about 20 million other Americans that 
cannot get into an AHP. Do you have any thoughts on that?
    Secretary Chao. Our aim is to allow the association health 
plans to be a real option for a maximum number of Americans. 
The association health plan is not the only solution to the 
rising cost of health care in our country. It is one solution, 
a very effective solution I might add as well. But other 
solutions include medical malpractice reform. The high cost of 
litigation these days is shooting the cost of health care 
upward.
    Senator Pryor. It sounds like it is going up about 1 
percent because of that, as I understand it.
    Secretary Chao. There are other components of the program 
that we suggest, as well. For example, tax credits, expansion 
of medical savings accounts, and association health plans.
    Association health plans is not the only solution, but 
again it is a very important part of our nation addressing the 
rising cost of health care. As for these individuals who may 
have--let me just say something else about people who have to 
purchase individual insurance. Individual insurance may be 
available to some, but as you well know that is the most 
expensive form of health insurance. So that is not the most 
desirable.
    Senator Pryor. One last follow-up on that if I may, Madam 
Chair. There is something that Senator Levin alluded to a 
minute ago that you said that is not the intent of this and you 
hope it would not happen. That is the prospect of very high 
copays. What assurance can you give me and what assurance can 
you give this Committee that that will not happen?
    Secretary Chao. I think the cost share the employee bears 
is dependent upon the high cost of health care. Most employers 
want to provide health care insurance and benefits for their 
employees. If the cost of health care is low, they are going to 
take up a larger portion of it. If the cost of health care 
increases, they will of economic necessity be forced to have 
their employees take a larger portion. But that is not the 
desired route. That is why holding down the cost of health care 
is important.
    Small companies in particular, have premiums about 20 to 30 
percent higher than large self-insured companies with similar 
claims per covered employee. So association health plans is a 
way to help smaller employers spread their risk and get the 
cost down and therefore allow a large number of employers to 
offer health care to their employees.
    Senator Pryor. Thank you, Madam Chair.
    Chair Snowe. Thank you. Now, I would like to welcome 
Senator Kerry. You missed all the nice things I said about you 
earlier.
    Senator Kerry. I will give you a chance to say them again.
    [Laughter.]
    Chair Snowe. You know, the thing that is interesting, 
Senator Kerry and I are Chair and Ranking Member of another 
Committee--Ocean and Fisheries Subcommittee. So he is going to 
see me more than he bargained for.
    But it is a delight to work with you, Senator Kerry, on 
this Committee and I am looking forward to working with him and 
your stewardship of small business. I know you have been a 
strong proponent of small-business.

   OPENING STATEMENT OF HON. JOHN F. KERRY, A UNITED STATES 
                   SENATOR FROM MASSACHUSETTS

    Senator Kerry. Thank you very much.
    Madam Chair, thank you very much. It is nice to work with 
you. We have had a great tradition here. I thought we were 
going to end it for a while with me in the ascendancy, but we 
have had a great tradition of flipping back and forth in the 
Chairs and it has always been a pretty bipartisan Committee 
that has worked very effectively. So I look forward to working 
with you. I really do.
    I welcome our new Members. On our side, Senator Pryor. I 
know he is not a Member of the Committee but I welcome Senator 
Talent. Jim Talent has worked hard on this.
    Senator Talent. Would you just yield for a second, Senator 
Kerry?
    Senator Kerry. Sure.
    Senator Talent. If I could just say what a pleasure it was, 
when I did Chair the Committee in the House, to work with you 
in all capacities and with your staff.
    I cannot, because of our conference rules, be a Member 
because Senator Bond is already on the Committee and does a 
great job. But it is just a pleasure to be on the same dias 
with you.
    Senator Kerry. Thank you very much and I look forward to 
continuing that relationship and I appreciate your interest in 
being here today.
    Madam Secretary, thank you for being here today and I join 
with our colleagues in wishing Mitch well.
    Secretary Chao. Thank you.
    Senator Kerry. We are glad to have you here today.
    I did want to take--if I can use my time also as Ranking 
Member--to make my opening as I ask a question or two.
    I disagree with you about what is happening in the 
marketplace with respect to ``most businesses want to provide 
insurance.'' The trend appears to be that most businesses in 
the country are moving away from defined benefit to defined 
contribution. It is a reflection of the effort to push off some 
of that responsibility and ask employees to go out into the 
marketplace and pay more of the burden, fend for themselves to 
a certain degree.
    Now they are still helpful, it is still critical, they are 
still the massive base of our insured in the country. I think 
any solution to the current woes of the health care system is 
going to require building on the employer-based system to the 
degree that we can.
    This hearing is obviously geared towards figuring out how 
we do that in a thoughtful, intelligent way that does not 
create other distortions in the marketplace. That is my 
concern.
    More and more workers are telling us how they are being 
squeezed downwards. They are being squeezed downwards by the 
defined contribution requirements. They get a piece but it is 
never enough to keep up with the rate of increase, so they have 
to kick in more and more, essentially a pay decrease for them.
    Also, the benefits that they were receiving are 
increasingly being squeezed.
    I think that is the concern that a number of us have about 
the AHPs as currently proposed. I am for purchasing pools 
because you want to spread the risk. Insurance is inherently 
based on the notion of spreading risk. You try to figure out 
how broadly you can spread it in a way that maximizes the risk 
assumption and therefore minimizes cost, providing insurance 
geared to serve the group as a whole.
    If you look at the problem of health insurance in America 
today, we have 41 million Americans that we know are uninsured. 
Eighty percent of them are in households with at least one 
employed worker. Half of these individuals are either self-
employed or working for small businesses that employ 50 or 
fewer workers. But less than half of those small businesses now 
offer insurance, compared with almost 100 percent of the large 
employers.
    So we have been working, in this Committee, for a number of 
years to try to narrow that gap. I recognize that is the 
purpose of today's hearing on AHPs. But these numbers make it 
clear that if we could somehow figure out a way to really 
broaden the risk pool, we can bring a lot of people into 
insured status.
    It seems to me we ought to set principles up front of what 
kind of health insurance we want to offer people and then work 
from there. I think one principle is it has to be 
comprehensive; i.e., you do not shave down the benefits so much 
that people are not getting what really helps them.
    Other principles--insurance has got to be affordable, 
obviously, and stable. It has got to be there and have some 
continuity to it and people have to know they are getting what 
they paid for.
    That is what concerns a lot of us about the 
Administration's current proposal because there are two major 
disadvantages to it, I think, with respect to meeting those 
principles I just defined.
    No. 1, I think AHPs have the potential of placing consumers 
at risk because you exempt AHPs from the State patient 
protections, the solvency requirements, and oversight. Now I 
have heard the back and forth about how different individuals 
have a lot of experience in managing that, but the fact is the 
marketplace is failing today even under their management. An 
awful lot of our fellow Americans are complaining about the 
lack of accountability in the plans that they have.
    So you have to build protections into the structure from 
the beginning and not, I hope, rely on some unknown regulator 
in a regulatory climate that we have not really seen to be 
particularly effective in the last year.
    Secondly, with respect to the risk pool that I talked 
about, and I believe in the marketplace, I want to maximize 
competition and I want to maximize private enterprise capacity. 
But we all know that there are certain realities that drive the 
bottom line and determine profit. When you leave spreading risk 
to the marketplace, people try to avoid the most egregious 
payouts. It is a natural tendency. So there is the capacity, 
absent a structure that really pulls people in here adequately 
for AHPs, as proposed, to destabilize the small group health 
insurance market which in the end will result in higher 
premiums for those in other places.
    Now, what do I mean by these concerns? Because the AHPs are 
not subject to state consumer protections, including for 
instance assured access to emergency care or Ob/Gyns, 
specialists of various kinds, mental health services, mandatory 
grievance procedure of some kind, appeals timelines, certain 
rights with respect to cloture in the process of knowing what 
you do or do not have. All of these are consumer protections 
that the States have spent more than a decade putting in place. 
I know the National Governors Association and others are deeply 
concerned about AHP structure as put forward with respect to 
these protections.
    Secondly, because AHPs are allowed to self-insure and 
accept insurance risk not subject to state solvency 
requirements, you really do run the risk that the marketplace 
tendency to look for maximum profit, we have seen countless 
examples of fly-by-night companies that come along, they gouge 
people, and then when people's need is really there, they are 
gone. The money has been absconded with and there is no 
accountability. I do not think we should start out empowering 
entities to take advantage of people in the marketplace in that 
way.
    Further, it is the natural tendency for AHPs to go out and 
find the people who are going to be at lowest risk. What is the 
best business practice? Do not have heavy payouts. If you are a 
start-up entity and you insure a bunch of people with MS or 
diabetes or some other problem, you are never going to make a 
profit. You are going to be bankrupt before you begin.
    So your absolute tendency is to say we have got a bunch of 
young people over here working in this high-tech company. Let 
us grab them, that is a natural for us. Because their 
likelihood of getting sick is not very great. What happens is, 
as those people are pulled from the current small group system, 
you wind up leaving other people paying higher premiums because 
you no longer have the shared risk pool you had before.
    Now see, this is not me speaking. This is not partisan. The 
CBO has estimated that nearly two-thirds of the cost savings 
AHPs would offer result from attracting healthier members from 
the pool of existing workers. In CBO's analysis, 80 percent of 
workers would remain in traditional insurance and potentially 
be worse off if AHPs are created. That means 20 million 
employees and dependents of small employers could experience a 
rate increase under AHPs.
    So I think these are very important issues to work through. 
I think a number of witnesses here today are going to share 
thoughts about how you can do this, expand the pools, but do it 
in a way that hopefully is not going to wind up with some of 
the downsides.
    There is a philosophical question I want to ask. The 
Administration is currently proposing to give States more 
flexibility in the Medicaid and SCHIP programs, which a lot of 
people see as giving license to governors to squeeze downwards 
and follow the same trend that we just talked about because 
they are all under enormous pressure. They are going to be 
cutting Medicaid. Nobody knows how that is going to result. We 
are hearing stories of children who are now going to be 
withdrawn from the programs. So you are giving flexibility to 
the States at the same time that you are talking about 
federalizing much of the small group insurance market. I am 
wondering what the logic is, why it is desirable to increase 
State control for Medicaid and SCHIP while decreasing it for 
the small business health insurance?
    Secretary Chao. Medicare and Medicaid, as you know, are 
administered by the Department of Health and Human Services, 
and I think those questions are more properly directed to 
Secretary Thompson.
    Senator Kerry. I am not asking about the Administration, I 
am just asking about the contradictory philosophy.
    Secretary Chao. The SCHIP program is also administered by 
HHS. I will speak on several of the concerns that you have 
raised.
    First of all, I acknowledge in my prepared statement I 
submitted for the record that employees in small businesses do 
bear the brunt of cost increases in health care and the issue 
there is that we all want to see health care cost decrease. The 
association health plan is part of a multi-pronged strategy to 
do just that.
    So I think most employers do want to offer health care 
benefits for their employees, they want to see their employees 
happy, well taken take care of, healthy. It is good for them. 
But they are increasingly hard-pressed to do so when the cost 
of health care is spiraling upward so rapidly.
    Senator Kerry. We passed a tax credit, as you know, which 
is going to take full effect. So we do not yet know whether 
that, fully expanded, might be able to empower employers to 
offer health insurance without this downside impact.
    Secretary Chao. Well, the association health plan is one 
part of the solution. Other parts can be tax credits, expansion 
of medical savings accounts, and others.
    The second issue raised, about cherry-picking, we discussed 
previously, prior to your arrival, and I share your concern 
about that. This is an issue that we are discussing and 
hopefully it will result in bills into which we will all have 
input.
    I would be very willing to work with you and others. 
Several other of your colleagues have also mentioned concerns 
about that, as well. It is not our intention, I think any of 
our intentions, to have a plan that would exclude all but the 
healthiest.
    The third issue about the regulatory regime. The Department 
has a great deal of experience in ensuring compliance with 
ERISA and also a number of other health care regulations and 
legislation. We want the State structure largely to remain in 
place, which it will for fully insured AHPs. For self-insured 
AHPs, they will fall under a Federal regulatory regime. This 
clearer delineation of regulatory authority between State and 
Federal entities will help reduce fraud, such as has plagued 
NEWA's.
    Senator Kerry. I appreciate the observations you have made. 
I am not sure it really reflects the differential in the 
approach. I am also concerned that we keep coming at this with 
a piecemeal approach and we have a little band-aid here and a 
little band-aid there, and it starts to bleed somewhere else as 
a consequence.
    I look forward to working with you, and I hope we can find 
a way to avoid that unintended consequence law from taking hold 
here again.
    I apologize to you and others for having been late here. We 
had the Moscow Treaty and the AIDS bill in the Foreign 
Relations Committee and that is why I was not able to be here 
earlier.
    Madam Chair, I would ask that some letters with respect to 
this issue from a number of different groups be placed in the 
record, each of them major players in the insurance market, and 
all of them deeply concerned about the particular course that 
we are on at this moment.
    Chair Snowe. Without objection.
    [The letters follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.232
    
    [GRAPHIC] [TIFF OMITTED] T1137.233
    
    [GRAPHIC] [TIFF OMITTED] T1137.234
    
    [GRAPHIC] [TIFF OMITTED] T1137.235
    
    [GRAPHIC] [TIFF OMITTED] T1137.236
    
    [GRAPHIC] [TIFF OMITTED] T1137.237
    
    [GRAPHIC] [TIFF OMITTED] T1137.238
    
    [GRAPHIC] [TIFF OMITTED] T1137.239
    
    Senator Kerry. Thank you.
    Chair Snowe. Senator Bennett.

         OPENING STATEMENT OF HON. ROBERT F. BENNETT, 
               A UNITED STATES SENATOR FROM UTAH

    Senator Bennett. Thank you, Madam Chair and may I 
congratulate you on your assumption of the chairmanship of this 
Committee, and I look forward to your stewardship with great 
confidence.
    As I listened to this entire conversation I am moved to 
make an observation that I think all of us should pay attention 
to. The employee bears all of the costs. Let us understand 
that. This is not well.
    Having been an employer, I can tell you that if the value 
that comes from that employee's service is not sufficient to 
cover the cost of all of his so-called benefits, you do not 
hire him. We have the fiction in this country that the employee 
gets what he gets on his W-2 and that is what you have to 
cover.
    You cannot afford an employee who does not return enough 
economic value to cover both what he gets on the W-2 and what 
is accrued to him in health care costs and what is accrued to 
him in unemployment insurance and what is accrued to him in 
whatever other benefits there are. The term benefit is a 
misleading term. It is part of the employee's compensation. If 
the employee does not create enough economic value to the 
company to cover all cost of his compensation, regardless of 
how it is disguised, you do not hire that employee.
    So however we divide it up in accounting purposes, let us 
understand always it is the employee's money. The employee has 
earned it. The employee has generated enough economic value to 
the company to cover it. It is the employee who is paying for 
it.
    Senator Kerry. Would my colleague yield for a point? This 
is an important point.
    Senator Bennett. Surely.
    Senator Kerry. I am glad you are making it. I absolutely 
agree with you that the employee earns it one way or the other.
    The question is what does the employee know that he or she 
is earning? If you have a defined contribution, the employee 
knows they are getting say $5,000 or whatever it is. The 
employee has to go out on the marketplace or somewhere and fend 
for themselves to get the benefits. Often the benefits are less 
available and/or less defined or less clear to them.
    So in the negotiating process, this is where for a long 
time that they had a defined benefit itself. They knew they 
were getting 80 percent hospital cost, 20 percent contribution, 
Ob/Gyn services, emergency. You know what you are getting.
    Now of course, it is the value of their service, but the 
difference we are fighting for here is the difference of the 
power of the employee in the marketplace and the capacity to 
actually get what you think you are getting in return for the 
work you are providing.
    I would agree with you in terms of the definition but I 
think we have to keep our eye on what we are trying to protect.
    Senator Bennett. This is probably not the place to debate 
the issue, but at some point I would like to put on the table 
the idea that the employee should not only understand what he 
is getting, the employee should control the money. If, in fact, 
the employee--and we tried to do that in the business that I 
ran--the employee was in the position to say, ``Okay, my 
benefit package is worth X number of dollars and I get to 
decide how those dollars are spent.'' That is a radical idea--
that I get to decide how my dollars that I have earned for this 
company, that I am getting in a compensation package, are 
spent.
    At some point where we have more time and the clock is not 
running I would like to pursue that because I think it would 
change things enormously.
    The primary problem with health care, in my view, is that 
the consumer of the health care is not the purchaser of the 
health care. That means that the provider, be it a doctor, a 
hospital, a clinic, a PPO, whatever it might be does not view 
the patient as the customer. The customer is the insurance 
company or the AHP or the Government. The customer makes the 
decisions as to what the provider will do and will not do and 
the patient is left out of those negotiations. The patient is 
paying for it, but has no economic power to determine what will 
happen.
    That is the result of the third-party payment system that 
we are in. It happens whether the third-party payee is the 
employer or whether the third-party payee is the Government, 
which increasingly it is. Over 40 percent of our health care 
dollars spent in this country are controlled by the Government. 
The Government is the customer and the provider responds to the 
demands of the Government and the patient, very often, is left 
out.
    I have told this anecdote before but it is true. I will 
just talk briefly about the Government and its impact. A woman 
said to me,

          ``You know, I am a college graduate, I am a professional 
        woman, I think I am pretty smart. I handle my mother's affairs. 
        She is in her 80s. I have finally figured out how to deal with 
        Medicare. I throw away everything unopened and at the end of 
        each month I call the Salt Lake Clinic and say how much do I 
        owe you. It saves me all of the problems.''

    She said,

          ``Any thought that my 85-year-old mother could understand any 
        of these documents is just ridiculous.''

    She said,

          ``I cannot understand any of them, so I stopped reading them. 
        I just simply throw away everything unopened from Medicare and 
        then I call the provider once a month and say how much do I owe 
        you and it just saves me a tremendous amount of time.''

    If we have reached that point in the complexity of the 
third-party payee system, we are in serious trouble.
    Okay, my time is all gone in the debate of this 
circumstance but let me just say, Madam Secretary, I have 
received, as I am sure others have, but in my case I have 
received from the State of Utah a formal letter complaining 
about AHPs and telling us why they should be opposed. The 
legislation to which they refer is at the tail end of the last 
Congress and so the legislative numbers are wrong.
    Could I give you this and get a formal response from the 
Department of Labor to the objections that they raise, so that 
we can place side-by-side an analysis of where these things 
are?
    Secretary Chao. I will be glad to.
    Senator Bennett. I will submit that to you.
    Thank you for your appearance and for your service here. We 
have got to rework our way through this problem and I still 
feel the best way to get it done is to find some way to 
ultimately give the employee control over the employee's money 
that the employee has earned. With that kind of employee 
choice, I think market forces will assert themselves and the 
whole system will become more efficient because it is 
enormously inefficient today.
    Thank you.
    Chair Snowe. Thank you, Senator Bennett.
    I understand, Senator Talent, you have to leave. Would you 
like to make any additional comments?
    Senator Talent. I appreciate it, Madam Chair.
    I kind of like that you can make an opening statement when 
you are about to leave the hearing. I do appreciate the chance 
to put a couple of remarks on the record of that nature.
    I do agree with Senator Kerry, I think this is the place to 
begin debating these kinds of issues because there are real 
people who are really affected by what is going on out there.
    When I did a tour on this, I went to Horizon Screenprinting 
in Cape Girardeau where their health insurance costs have, I 
think they said doubled in the last 3 years. Or Virginia 
Dooley, who is a friend of mine, who is a dentist in Booneville 
and is having trouble keeping a receptionist because she cannot 
compete on health insurance.
    I have heard this story over and over again, they cannot 
compete with the big companies. The reason is the big 
companies, because they have big national pools, have much 
smaller administrative costs per employee than the small 
companies do. Then they have bigger purchasing power. They can 
self-insure so they can compete more effectively in the 
marketplace. All these efficiencies you get from having a 
national pool.
    All association health plans will do is empower small 
businesspeople to do what big companies are already doing, 
evidently without destroying the health insurance market 
because we all like to have health insurance, do we not?
    Now this argument about cherry-picking, the bill that we 
passed in the House, and the Chairman and others are going to 
put together a bill, it was ``must offer must carry''. So to do 
this, you had to be an association that existed for 3 years and 
then you had to offer health insurance to anybody who joined 
the association on the same terms as you offered it to anybody 
else.
    Now common sense tells you, under those circumstances, who 
will go to the bigger pool? What small businesses will seek to 
join the association health plans? Those that are having 
trouble buying it on the small group market because they have 
sick employees.
    So the cherry-picking argument is exactly the opposite of 
the truth.
    I believe it is small groups with the less healthy 
employees who will first seek to join the association health 
plans. They will be able to insure them for the same reason 
that the big companies can, that Emerson Electric can in St. 
Louis, and Sprint can in Kansas City, because they have a big 
pool to work from.
    Now one other point, Madam Chair, and I do appreciate your 
generosity, and maybe it is because we served together for a 
long time in the other body.
    This CBO report--we had a hearing specifically on the CBO 
report. The gentleman who did the report admitted in the 
hearing that their findings were based on the assumption that 
association health plans would offer less generous benefits 
then are now available on the small group market, which is 
clearly not true. It unravels their whole analysis. All the 
other studies that have looked at this have found, as common 
sense would tell you, that it would reduce the number of 
uninsured by millions of people.
    I will just close by saying, I should declare my own or at 
least familial interest in this. My brother runs a tavern in 
St. Louis. I like to talk about it, Madam Chair, and I hope you 
can come if you ever come to Missouri. It is called Chuck's Bar 
and Grill, and my brother's first name is, you will not be 
surprised to hear, Chuck.
    It is a great business and he has a number of great 
employees and he cannot offer them health insurance and not 
because he does not want to. It's because of the hassle to him 
and my sister-in-law, who run the place, of going out in this 
market and finding health insurance, much less the cost, just 
makes it prohibitive, impossible.
    If he could join the Chamber of Commerce or the NFIB or the 
National Restaurant Association, they send him the benefits 
that are available and he tells his employees, here is how much 
I can pay per month, you pick what you want. Would he get 
health insurance for his employees? The answer is yes. That is 
all that this bill is about.
    I thank you, Madam Chair, again for your generosity.
    Chair Snowe. Thank you. I appreciate your contributions and 
I appreciate the comments and insight offered by Senator 
Bennett, as well.
    Just to wrap up, I think obviously there are wide-ranging 
views on this subject and I happen to think that it is 
important to also look at the legislation that has been 
introduced. There are specific requirements and provisions in 
this legislation to address the issue of cherry-picking. It 
would require compliance with the Health Insurance Portability 
and Accountability Act that was passed back in 1996, which you 
mentioned, Secretary Chao, which is very important here. That 
would preclude adverse selection.
    We will hear additional panelists here today that perhaps 
could offer suggestions on how we can improve upon the 
language. But the point is not to do an end run around the 
current system. No one is suggesting that larger companies and 
unions who are currently self-insured and therefore exempt from 
State mandates and compliance with State regulation, are 
offering poor quality health insurance packages.
    In fact, to the contrary. From all the small businesses 
that I have talked to, they want to offer the very best policy. 
They just need to get the best price, the most affordable 
price. Because obviously as a small business the costs are very 
high. They pay a disproportionate increase in terms of 
administrative expenses. They will pay a higher cost because 
there are fewer to which to spread the risk.
    In my State, our experience is yes, we have state 
purchasing pools, except they are so small that they do not 
offer affordability. There are not enough employees in the pool 
to spread the risk. So that, in essence, becomes the problem. 
That is why they have opted for the idea of association health 
plans as another avenue as one of the many solutions to this 
national problem when it comes to the uninsured. Something is 
obviously wrong with the current system.
    I did not see, in looking at this issue, and I am new to 
this issue in terms of being Chair of the Small Business 
Committee, small businesses trying to do an end run around the 
current system. They would be more than happy to be able to 
access health insurance in their particular State. They cannot. 
It is a question of accessibility.
    So they are saying what else can we do, because we want to 
provide this benefit to our most valuable employees? They are 
what makes us competitive. Small businesses cannot compete with 
larger companies if they are not offering these health 
benefits. That is the problem.
    So I would hope in the ensuing debate on this issue that we 
look at the specifics of the legislation so that we can 
determine what is truth and what is false when it comes to 
charges, counter-charges, points, counterpoints. Because I have 
read about this cherry-picking and the legislation explicitly 
prohibits this practice because, as Senator Talent indicated, 
only bona fide associations in existence for 3 years for 
purposes other than for health insurance purposes will be able 
to offer AHPs. You cannot deny access to anybody because of 
their health status.
    So I am really sort of perplexed about some of these 
arguments and I am going to have to sift through them. We have 
claim reserves. That is required. That is absolutely a reserve 
sufficient for unearned contributions. We have aggregate excess 
stop-loss requirements, specific excess stop-loss, 
indemnification insurance, surplus, minimum 500,000, no greater 
than 2 million. But the legislation also states additional 
requirements of allowing additional reserves and excess 
surpluses, stop-loss insurance as may be deemed appropriate by 
the Secretary, taking into account the recommendations of the 
Solvency Standings Working Group by regulation and/or 
negotiated rule-making.
    Now I would hope that as we begin this debate that we can 
sort of decide what, in fact, are very good provisions, what 
needs to be strengthened. But in the final analysis, we all 
agree that small businesses should have access to additional 
options for health insurance that makes it affordable because 
as this chart behind us indicates with these rates of increases 
of premiums disproportionately affecting small businesses, we 
have a problem. We need to address that problem. There are many 
ways of addressing the uninsured and this happens to be one 
route towards that process.
    So when I hear there is no oversight, that is not true. I 
hear we are going to allow fraud because there will not be 
sufficient regulations to prevent that or oversight to ensure 
that we can guard against it. That is not true.
    But if there are other ways to improve the language in this 
legislation, I would tell my additional witnesses I welcome it 
because we want to really sort this out and to strengthen the 
legislation so that we can move forward.
    Secretary Chao. Madam Chair, thank you very much for 
summarizing it so succinctly. We are very committed to pushing 
forward association health plans. We want to work with you and 
your Committee on any issues or concerns that you may have.
    I might just add on a closing note, I do want to emphasize 
that there are so many solutions that have been suggested and 
recommended that we have seen there is no one-size-fits-all 
solution.
    I think there is one other principle that we need to keep 
in mind as we talk about accessing quality and affordable 
health care, and that is timely health care benefits.
    Chair Snowe. I could not agree more, Madam Secretary, and I 
truly appreciate the time that you have given us here today. I 
am looking forward to working with you on this legislative 
issue.
    Again, give our best to Mitch. Thank you.
    Secretary Chao. Thank you very much.
    Chair Snowe. Now I would like to welcome the SBA 
Administrator, Hector Barreto. Thank you for being here today.
    We appreciate it. Please proceed, and welcome to the 
Committee. We appreciate your patience and your willingness to 
be here to share your thoughts as a major advocate of small 
business, and to lend your perspective on this issue.

STATEMENT OF HON. HECTOR V. BARRETO, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Barreto. Thank you very much, Madam Chair.
    I very much appreciate the opportunity to be here and to 
talk about an issue that is so important to small business 
owners.
    I also want to thank Secretary Chao for her contributions 
to this discussion, this very important discussion, and 
identifying ways that we can increase access to affordable, 
quality health care for small businesses.
    I would also ask to submit my written testimony for the 
record as well.
    Chair Snowe. Without objection, so ordered.
    Mr. Barreto. Small business owners tell me all the time 
that this is one of the most important issues that they face, 
and that the problem of access to affordable health insurance 
has grown considerably for them in recent years.
    I know you have heard the numbers, devastating double-digit 
premium increases each year for small businesses. The steeply 
rising cost, added to a long list of other factors, have forced 
many small business owners to stop offering insurance coverage 
all together. For some, the expense has meant that it has never 
been an option.
    Is it any wonder that most of America's uninsured citizens 
either work for a small business or are self-employed 
themselves, or have a head of household who works for a small 
business? This impacts the ability of small businesses to 
compete for the skilled employees they need to grow and 
prosper. The availability and quality of health care benefits 
is often a deal breaker for employees when they are looking for 
a new job. Without prompt action, this crisis will only grow.
    The urgency of this issue cannot be underestimated, nor can 
the opportunity to do something about it be ignored.
    I have been exposed to this issue throughout my life in a 
very personal way. I grew up in a small business, I then worked 
for a small business. I became a small business owner myself, 
and finally I served as the head of a small business 
association. I have seen firsthand just how difficult it is for 
these businesses, which provide the backbone to our Nation's 
economy, to secure the health care that they and their 
employees want and need.
    As SBA Administrator, I have had the chance to visit with 
small business owners all over the country wherever I go. They 
inevitably ask me what can they do and what can the folks that 
represent them in Washington do to make health care more 
affordable for them. My job, as head of the SBA, is to help 
small business owners and their employees. My agency is the 
Government entity they look to when they are in need, and we 
are not able to help them when they ask about this, their 
greatest concern, the one that impacts their employees and 
their families so much.
    The SBA ought to be able to give small business owners an 
answer when they call and ask about health care. That answer 
ought to be credible referral to associations they can join to 
purchase health insurance at a lower cost. A key answer to the 
health care question for small businesses ought to be AHPs.
    Madam Chair, when you invited me to speak on this panel, 
you asked that I also speak specifically to the impact that 
high health care costs have on the Hispanic population. I 
regretfully report that the news is not good. Hispanics are now 
the largest minority group in the United States and they are 
also the least insured ethnic group. Approximately one-third of 
all Hispanics do not have any insurance at all, and another 15 
to 20 percent are underinsured. Millions of Hispanics are self-
employed or work for small businesses which are unable to 
provide them with the health insurance coverage they need.
    I would also report that this is very similar in many other 
emerging markets. African-Americans, Asian, women-owned 
business owners face the same problems.
    Given the staggering cost faced by all small businesses, 
President Bush has placed increased access to affordable health 
care at the top of his comprehensive small business agenda. The 
President wants to make it easier for small employers to pool 
together to offer their employees the same sort of affordable 
health coverage options that many large corporations and labor 
unions can currently provide. The President knows that this can 
be achieved through AHPs.
    Removing legal barriers and allowing AHPs to flourish would 
bring cost savings to small businesses by reducing daunting 
administrative cost and introducing the discounts that come 
with high volume purchasing. That common sense approach is 
backed by thorough research, including a recent report on AHPs 
by the Department of Labor, and a study from my Office of 
Advocacy released last week.
    Ultimately, AHPs will mean the expansion of access to 
health benefits for millions of uninsured Americans and more 
coverage choices for small firms. Once Congress passes 
legislation enhancing AHPs, SBA will be able to connect small 
business owners with the best solutions for providing health 
insurance to their employees, while the Department of Labor 
will implement the necessary programmatic structure. I look 
forward to the supporting role that the SBA will play.
    I want to thank Secretary Chao again for the leadership 
that she has shown on AHPs. Her commitment to this issue has 
been admirable and I know that small business owners struggling 
to make ends meet are appreciative of her efforts.
    I hope that Secretary Chao and I, on behalf of President 
Bush, can work closely with you and all Senators this year so 
that small businesses and the 57 million Americans who work for 
them can gain access to better, more affordable health 
coverage.
    Until we come up with a solution that crosses State lines, 
I do not think we can solve this problem. The time to act is 
now. Continuing to do nothing to address this crisis is 
unacceptable.
    Thank you, Chair Snowe and Ranking Member Kerry for 
affording me the opportunity to speak to you today about this 
very important topic and I look forward to answering your 
questions.
    [The prepared statement of Mr. Barreto follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.240
    
    [GRAPHIC] [TIFF OMITTED] T1137.241
    
    [GRAPHIC] [TIFF OMITTED] T1137.242
    
    [GRAPHIC] [TIFF OMITTED] T1137.243
    
    [GRAPHIC] [TIFF OMITTED] T1137.244
    
    Chair Snowe. I appreciate it, Mr. Barreto.
    You heard some of the issues that were raised here this 
morning, and I would appreciate your response to some of these 
issues. I know that Blue Cross-Blue Shield held a press 
conference yesterday and indicated their position that AHPs 
allow cherry-picking; and that the Department of Labor cannot 
handle AHPs. This is again going back to the issue of oversight 
and stringent regulations; they bring no savings, 
administrative or otherwise, to small business.
    Again, we want to pass the right legislation in this 
respect. As I said earlier, we are not trying to circumvent the 
current system. I have not certainly detected from small 
businesses their interest to avoid providing a quality health 
care package at an affordable rate to their employees.
    That is the mystifying part about this because small 
businesses want to have access to a package that they otherwise 
do not have currently because they do not have choices and they 
certainly do not have the kind of price that they can afford to 
provide this kind of benefit to their employees.
    Can you get through some of the fact and fiction here, from 
your perspective, on this issue?
    Mr. Barreto. Absolutely and thank you for the opportunity, 
and thank you for the question, Madam Chair.
    I am very familiar with Blue Cross-Blue Shield. As you 
know, I used to own an employee benefits company and worked 
with that fine company. I have not spoken to Blue Cross-Blue 
Shield since they made that announcement. I did speak to the 
Chief Counsel of Advocacy who actually put together the report 
that was referenced by some of the comments that were made 
yesterday and I can tell you what he has told me.
    As you know, the Office of Advocacy is a very important 
function for small businesses. They are an independent agency. 
They are responsible for doing a lot of the research on the 
issues that are important to small businesses. They have told 
me, and the Chief Counsel has assured me, that their research 
indicates that AHPs will actually do those things that you 
mention, provide more access to health care and lower the cost 
of health care.
    That is very, very important. They will also allow the 
opportunity for a lot of those folks that we mention, 60 
percent of those uninsured are small business people or work 
for small businesses, to get access for the very first time.
    So their understanding and sense and perception of what 
that report said is very different than some of those comments 
that were made. They wholeheartedly believe that AHPs will be a 
very good solution, not the only solution, but a very important 
solution for a lot of those small businesses who, for lack of a 
better word, are suffering, truly suffering, and have been 
suffering for some time now.
    Chair Snowe. It appears to me that we certainly have to 
work through some of these issues so that we can rebut and 
refute some of the inaccuracies because I do think that that is 
critical.
    Frankly, as I said earlier, if I think we can identify some 
weaknesses in this legislation then I want to address it. But I 
have been looking at this legislation and reading the 
provisions that do prohibit cherry-picking, adverse selection. 
They cannot just pick a certain group of people to be part of 
that association. It has to be open to all members, regardless 
of health status, regardless of pre-existing conditions.
    In terms of lower administrative costs, AHPs have been 
studied in the past, but the fact is they will yield lower 
costs for small businesses because obviously, it does not stand 
to reason, they cannot spread that cost in their own business. 
It is very difficult. It is much more cumbersome, much more 
arduous for small business to go through all of the paperwork, 
to search out different entities and options for health care. 
It becomes a major burden for small business, and trying to 
undertake that at the time they are managing a small firm with 
very few employees.
    Mr. Barreto. It truly is, Senator Snowe. It can be a 
devastating situation. I cannot help but notice that chart and 
I was in business during a lot of that time, working with small 
businesses, helping them try to get access to health care. I 
can tell you that about the time that those premiums started 
increasing is about the time that there was less choice for 
small businesses, the time that large insurance companies 
started merging together, the time when some insurance 
companies got out of the market altogether and did not provide 
any option for small businesses.
    So what we know very dramatically is that when there are 
not options, when there is not competition, the exact reverse 
happens. Less people get insurance and the cost of being able 
to provide that insurance for the people that want it goes 
dramatically up.
    It is impossible to be able to run a business when you are 
getting double-digit increases in your health insurance 
premiums every single year whether you are sick or not. You are 
absolutely right, Senator, you cannot pass those costs on to 
your businesses.
    Finally, what it does is put small businesses in the role 
of giving the bad news to their employees. They are constantly 
giving the bad news, we have to change plans, we have to change 
doctors, they reduced our benefits this year. Finally, we 
cannot provide any health insurance for you at all anymore.
    So this is something for which it is now time. As you said, 
it is not a new idea. These are concepts that have been talked 
about for a long time. But when I travel around the country, 
small business people are looking to us to provide that 
leadership and to come up with a solution for them at this 
time.
    There can never be a better time to do so than right now, 
especially when those businesses are struggling as much as they 
are.
    Chair Snowe. I think this graph behind me certainly does 
illustrate the sum total of the problem. With the top line 
being obviously the rise in health insurance premiums and then 
the second line is the medical inflation. You can see the gap 
in that, just how much higher health insurance premiums have 
increased compared to medical inflation. Then overall inflation 
and then, of course, workers earnings and then overall 
inflation.
    You can see the huge gap that exists and the fact is health 
insurance premiums are on a very disturbing trend and its 
upwards. That is the problem.
    I have heard from small businesses who tell me that they do 
not have any claims on their policies and they are going up 
with major percentage increases every year, that is making it 
very difficult.
    What will your role be as Administrator of the SBA in 
conjunction with the Department of Labor in overseeing 
association health plans?
    Mr. Barreto. We will work very closely with Secretary Chao 
and obviously the Department of Labor will come up with the 
protocols and be responsible for the implementation of any 
legislation, should legislation be passed. But we see our role 
as very much an advocate for those small businesses.
    We get millions of small businesses that come to us every 
single week. I will give you an example, our web site right 
now, we get 1.5 million visits to that web site. Not hits, 
visits.
    Of course, we have an incredible network of district 
offices in every State in the union. We have incredible 
resource partners, thousands and thousands of resource partners 
and offices.
    We would use our network to communicate with and educate 
small businesses. I oftentimes say that small businesses do not 
know what they do not know, and especially with an issue as 
important as health care.
    So we would play, I think, a very important role in 
facilitating the information. Once solutions are brought 
forward, to be able to help people access those solutions, 
identify those solutions, refer those solutions, we would play 
that role, as well as others, in working together with our 
partners on this Committee and also with the Secretary of 
Labor.
    Chair Snowe. Obviously you could play a role in education, 
could you not, in terms of what is offered in the benefits and 
so on? Again, guarding against what happened in the 1980s 
concerning multiple employer welfare associations and the fraud 
that emerged.
    Do you think that the requirements in this legislation, 
calling for an association that has been organized for 3 years 
and been in existence for 3 years, helps to guard against the 
type of fraud and corruption we have seen in the past?
    Mr. Barreto. Absolutely, and I would say that AHPs are very 
different than MEWAs. Obviously, MEWAs can be organized to 
provide benefits and they do not have district requirements 
that are going to be required of the AHPs. At the end of the 
day I know that something that is very important in the 
legislation is that bona fide organizations are going to be the 
ones that are providing these benefits. In other words 
organizations that do other things other than just provide 
health benefits.
    If there was not this dramatic need, I venture to say that 
many of these large organizations, organizations like NFIB with 
600,000 members, the U.S. Chamber with hundreds of thousands of 
members and employees that are represented by their companies, 
would not even be looking at this issue.
    But they are hearing the same things that we are hearing, 
that their members are desperately in need of a solution and 
these organizations will be on the front lines. Obviously they 
will be held to very strict standards. I think the legislation 
that is being developed and that is being proposed will ensure 
that these types of fraud and these types of problems that have 
occurred in the past with other types of entities do not occur 
in AHPs.
    Chair Snowe. Do you think that the Department of Labor will 
be in a position to provide stringent oversight in monitoring 
these activities and preventing the type of fraud that did 
exist in the past so that small businesses are not a victim? I 
think that is one of the issues. Can we protect consumers from 
fraud? Will fraud emerge from this? Or do we have sufficient 
protections in this legislation that will not either allow or 
cultivate that kind of a circumstance?
    Should we be giving more resources to the Department of 
Labor with respect to this? Does it require additional 
personnel?
    Now some would suggest the Department of Labor cannot be as 
responsive as local governments and State governments can be to 
these types of activities and obviously they have had many 
years of history regarding that oversight. But the Department 
of Labor has had more than 30 years, in terms of the self-
exempt plans.
    Mr. Barreto. I agree with many of the comments that were 
made today by Secretary Chao and Senator Talent. I think they 
made a very compelling case for the important work the 
Department of Labor has already done in regulating some of the 
largest plans in the country, the work that they do with 
regards to pensions.
    They have protected the interest of Americans for many, 
many years. I do not see that being any different as they go 
forward. There is a high level of commitment and understanding 
about this issue.
    I think also what was stated is that we are not talking 
about hundreds of thousands of AHPs. Probably at the end of the 
day, with the standards that are going to be brought forward, 
there will not be that many AHPs. We do not know the exact 
number but when you have organizations like, as I mentioned, 
large Chambers of Commerce, the Restaurant Association who 
represent millions of small businesses, they will really be on 
the front line.
    So I have every confidence that the Department of Labor and 
all of those responsible for making sure AHPs do their job will 
be up to the task.
    Chair Snowe. You obviously had an experience as a 
businessman. It has just been my impression, in talking to a 
number of small business people, and with your past experience 
can you comment on the suggestion as well, that somehow 
businesses are just looking to provide the lowest common 
denominator when it comes to health care coverage? Would you 
address that?
    Mr. Barreto. Absolutely, I would be happy to comment on 
that.
    I think that when I hear that, I see that sometimes as a 
symptom of a greater problem. What I mean by that is that for 
many years now small businesses have just been throwing up 
their hands and saying we cannot deal with this anymore. Now we 
have to make a choice of whether we are going to keep our doors 
open or not.
    So when you hear things like they are passing more of these 
costs on to the employees or they have decided not to offer the 
coverage anymore, it is not out of desire.
    Actually, I have heard some surveys that have been done in 
large organizations that say that if we could provide a better 
way to access it, a more consistent cost that they could plan, 
a comprehensive set of benefits, they would be very interested 
in doing it.
    I would also say, and I think this point has been made, is 
that it is good business for them to do it. When they are 
competing for employees, oftentimes the first question that a 
very talented employee asks coming in the door is, ``tell me 
about your benefits package''. Almost before they talk about 
what the salary is going to be and what vacation is, I want to 
know about your benefit package.
    That oftentimes puts small businesses on the defensive. 
Sometimes, they do not have an answer to that. Sometimes, they 
do not have a benefits package to offer. So if they could do 
it, if there was an opportunity through AHPs where they could 
offer this kind of coverage, I believe that many of them would 
take advantage of that opportunity, some because they feel so 
strongly about it, and some because it is just good business.
    When small businesses are creating two-thirds to three-
fourths of all the net new jobs, this problem is only going to 
get larger if we do not do something about it. So I believe, 
and my experience working with small businesses is, if we can 
provide them a solution they will step up to the plate and they 
will do what they need to do to cover their employees.
    Chair Snowe. I appreciate it, Mr. Barreto.
    I am looking forward to working with you on this issue and 
obviously with the small business community and others. 
Obviously, I think we should attempt to address any concerns 
that have been addressed in the development of this legislation 
to ensure that it meets its objectives.
    I hope that we can continue to work on this issue and 
obviously, the feedback that you get from the small business 
community nationally would also be appreciated as we proceed.
    I certainly am very grateful for your input and leadership 
that you have given on this issue and understanding the 
concerns of small business with respect to providing this 
invaluable benefit, incalculable to employees of small 
business.
    I think given the size of the uninsured, the working 
uninsured, I think most people think the uninsured are 
unemployed when it is not so. It is predominantly the working 
uninsured and predominately in small businesses and their 
families.
    So we really have to tackle this issue without, I think, 
undercutting the current system that does exist but offering 
other choices in addition to other proposals that have been 
offered to address this very vital issue.
    Mr. Barreto. Thank you very much, Madam Chair. I also look 
forward to working together with you and I commend you for your 
leadership in putting the focus on such an important issue for 
small business. I congratulate you for a very auspicious start 
of your Committee.
    Thank you very much.
    Chair Snowe. Thank you.
    Now we will bring forward the third panel, Ms. Kathie 
Leonard, Co-founder and President, Auburn Manufacturing in 
Mechanic Falls, Maine; Ms. Anne Valentine who is President of 
SmartCatalog from Portland, Maine; Mr. Jack Faris, President 
and Chief Executive Officer, National Federation of Independent 
Business; Ms. Terry Neese, President and Co-Founder of Women 
Impacting Public Policy; Mr. Harry Alford, President and Chief 
Executive Officer of the National Black Chamber of Commerce; 
and Mr. Cliff Shannon, President, SMC Business Councils, 
representing the National Small Business United and SMC 
Business Councils.
    Welcome. We will start with you, Kathie. I want to ask each 
of you to summarize your statements and we will include the 
entire text of your statement in the record.

   STATEMENT OF KATHIE M. LEONARD, CO-FOUNDER AND PRESIDENT, 
       AUBURN MANUFACTURING, INC., MECHANIC FALLS, MAINE

    Ms. Leonard. Thank you, Madam Chair, and Members of this 
Committee. I am grateful for the opportunity to explain how 
impossible the task of offering good health care insurance 
coverage has become for small businesses like mine. I have been 
in business for 23 years and the health care financial burden 
we shoulder has grown tremendously over the years.
    Today we find ourselves in a crisis situation that we did 
not create and that we cannot control. It is frightening to 
even think about but we may not be able to continue offering 
this benefit if present trends persist.
    My company, Auburn Manufacturing Incorporated, makes 
industrial textiles that save energy and protect people, 
plants, and equipment from high heat, substituting safe 
textiles for those once made with asbestos. We began with a 
small two-person operation in 1979 and now employ about 50 
people in our two Maine manufacturing plants. We believe we are 
successful because of our innovative approach to manufacturing, 
marketing and administration.
    Employee benefits are no exception. We offered a tax-
deductible child-care plan in the early 1980s. We built fitness 
centers in both of our plants in the mid-1980s, and we even 
bought a company-owned lakefront lodge in Maine in 1989 for 
employees and their families to enjoy through the use of a 
lottery system.
    Health insurance benefits were added with some innovation, 
as well. Our first plan paid 75 percent of the premium for both 
the employee and his or her family, which was unheard of at the 
time. We wanted employees to participate in the cost of health 
care insurance so that they would perceive it as a benefit. By 
paying for the majority of premiums for both the employee and 
his or her family, we were contributing to the family's health 
which we believed would help maintain a stable and productive 
work force.
    That was back in the mid-1980s when an individual premium 
ran about $650 a year. While all the other benefits mentioned 
above are still intact at much the same cost as when they were 
introduced, health care insurance costs have spiraled out of 
control despite our best efforts to slow the trend over the 
years.
    These two graphs quickly point out how dramatically these 
costs have risen over more than 15 years. The first graph 
tracks annual health insurance premiums per employee since 
1985. We can see that the cost has risen from about $650 per 
year to $3,400 per year. That is a five-fold increase or an 
average of almost 25 percent per year for the 17-year period. 
These cost increases averaged about 22 percent over the past 10 
years and 18 percent over the past 5 years. So the growth rate 
has reached alarming levels, regardless of where we begin to 
gauge the trend.
    To make the changes even more dramatic, I note that the 
benefit has been ratcheted down from a full choice indemnity 
plan with no deductible in the 1980s to an HMO in the 1990s to 
a preferred provider plan with a $250 deductible today. So we 
are not even comparing apples to apples, but rather more like 
apple cores to apples.
    The second graph tracks the company's cost as a percentage 
of sales since 1988. Back then, this benefit accounted for 
about .6 percent of our sales, whereas today it consumes 1.2 
percent of our revenue dollars. I was not so alarmed about this 
until I was presenting on this topic last year along with a 
major employer with 10,000 lives in their self-insured plans. 
During that presenters remarks he shared with the audience the 
fact that his company's health care insurance costs were about 
.6 percent of sales then. He then stated that if those costs 
ever approached the 1.2 percent level, which is the way they 
were trending, the company would not be able to afford the 
benefit. His comments confirmed for me the reality of this 
situation which is that while big business is struggling with 
these high costs, too, they are only now approaching the level 
of plight that small business was enduring almost 15 years ago. 
It is not surprising to see why we are ready to throw in the 
towel.
    One more number to consider is this, health insurance 
premiums now represent about 20 percent of our payroll costs. 
Because we only pay 60 percent of the premium today, that 
brings the actual cost of the benefit to about 12.5 percent of 
our payroll with the employee picking up the other 8 percent.
    The employer's share of Social Security, at 7.65 percent 
now looks like a real bargain by comparison.
    The blame for high health care costs is shared by many 
interests. The Federal Government, for Medicare reimbursement 
shortfall to States, (the State of Maine, for instance, gets 
reimbursed only 88 cents for every dollar spent on Medicare 
patients); The pharmaceutical industry, the insurance 
companies, doctors, hospitals, State-mandated benefits, and 
large numbers of uninsured consumers of health care services.
    You will note that business, large or small, is not a 
contributor to the high cost. We simply began offering health 
insurance benefits as a way to maintain a competitive work 
force.
    Now we are spending huge amounts of our time and money 
researching health plans every year and making decisions about 
health insurance that seriously impact the health and wealth of 
our employees and their families. No matter how hard we strive 
to improve employee health, our costs will not decline thanks 
to community rating which tosses us in a pool with everyone 
else.
    Small business finds itself in a hopeless situation with a 
few grim choices left. No. 1, to drop the benefit entirely. No. 
2, to continue to reduce the benefits as premiums increase, or 
No. 3, to self-insure, an option for some of the larger of us 
small businesses. Our company has adopted that plan, which has 
helped to lessen increases somewhat.
    In my opinion, this voluntary business-subsidized health 
care system we have now is broken and the real fixes must come 
from the Federal Government since it holds the purse strings on 
Medicare and Medicaid. The establishment of national 
association health plans is a good first step, since these 
plans would supersede the State-mandated benefits and community 
rating systems that unfairly burden small business.
    If premium increases can be reduced in the short-term with 
these association health plans, we may be able to hang on a 
little longer while other national long-term approaches are 
developed.
    I very much appreciate being invited to speak to you about 
the health care crisis as it affects my business and I truly 
hope that my experience will help you to develop some 
desperately needed ways to lessen the financial burden of 
health care costs which unfairly falls on the shoulder of small 
business.
    Thank you.
    [The prepared statement of Ms. Leonard follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.245
    
    [GRAPHIC] [TIFF OMITTED] T1137.246
    
    [GRAPHIC] [TIFF OMITTED] T1137.001
    
    [GRAPHIC] [TIFF OMITTED] T1137.002
    
    Chair Snowe. Thank you.
    Anne.

STATEMENT OF ANNE VALENTINE, PRESIDENT, SMARTCATALOG, PORTLAND, 
                             MAINE

    Ms. Valentine. Thank you.
    Madam Chair, thank you for focusing today's hearing on 
affordable health insurance for small businesses. I consider 
testifying before you a unique opportunity and a uniquely 
American privilege.
    I am a small business owner in Portland, Maine. My company 
publishes college course catalogs on paper and online. I 
started off in a simple way, in the basement of my home as a 
matter of fact. I had no venture capital, just a little money 
to buy a computer and put in a second phone line.
    We are still a small company and mostly self-funded but we 
have a national client base and a recognized brand that we have 
worked hard to develop through service, excellence and 
perseverance. Growing my business has been an organic process, 
one which more often feels like growing costs than revenue.
    For example, the first time I rented office space, I could 
not sleep for days worrying about how I would pay the rent. Now 
that is the least of my worries. Each time you take on a new 
cost it seems insurmountable but within a few months the income 
will catch up and costs that seemed impossible become part of a 
normal check run, except for health care.
    That is a cost whose growth outstrips my business's ability 
to catch up. You never get out in front of that one. Just when 
you think you have a handle on it, the premiums go up.
    In 2001 I bought our first group health insurance, a PPO 
from Anthem Blue Cross. I contribute 50 percent to an 
individual premium and three out of four of us participate. At 
the time of the initial purchase the only viable plans 
presented by our agent to us were the Anthem Blue Cross 
options.
    Last year, that policy came up for renewal. When I reviewed 
the numbers it became clear that we could not simply renew at 
the current rate. Were we to do so, the monthly premium would 
increase 20 percent. Only after choosing an alternate plan from 
the same insurer and incurring twice the deductible and double 
the copay, were we able to cap the premium increase at 8 
percent. Bear in mind that we have never had a major claim on 
our policy.
    The effect that such increasing costs have had on our 
actual coverage and sense of well-being is significant. When 
you combine a high deductible and rising premiums with the 
typically modest salaries of small business, what you have left 
is catastrophic coverage. Quality metrics, physician networks 
and advances in medical technology are meaningless if they are 
above the reach of the deductible.
    My staff is small but wonderful. In fact, any customers 
listening to this today would be surprised that the company is 
not much bigger than it is. They do such a good job and 
constantly amaze me with their talents.
    Unfortunately, I am powerless to protect them from the 
trends in the health care market, trends which create a psychic 
break with employees where one did not exist before. After all 
their hard work, it is heartbreaking to have a discussion about 
benefits which will negatively impact their income. It is not 
just a lessening of compensation, it is a withdrawal on the 
ledger of employee trust.
    Further, health insurance cost put me at a disadvantage in 
retaining staff in a competitive labor environment. No matter 
what the unemployment statistics are, good people are hard to 
find and expensive to train. Small businesses like mine have no 
dead weight. If you have a staff of three, one person leaving 
is a crisis.
    Early on, I lost a valued account because of staff 
turnover. The value of that account over a few years would have 
easily paid for another position but they left for a job which 
included benefits I could not offer.
    I am not an expert in the health care or health insurance 
field and I do not want to be. I run a publishing company. 
Buying insurance is very stressful for small business people 
because you are never quite sure if you have got the best deal. 
You suspect there is something better but do not have the 
resources or time to find out what it is.
    When I am not wearing the hat of a business owner, I serve 
on the board of our local Chamber's health purchasing alliance. 
We are group of small businesses who decided to band together 
to purchase health insurance like a large business. It was our 
original intent to leverage the larger numbers on our rolls to 
get a better deal from insurers.
    Last year the alliance sent out a request for proposals to 
three insurance carriers operating in Maine. Of those carriers, 
one simply opted not to bid at all because of the small 
population we represent. One responded that they do not sell to 
associations. The remaining provider may or may not be able to 
offer a significant savings on our premiums.
    Small business people want to do the right thing and the 
best thing for their employees. No one wants to offer bare 
bones plans, nor can we be competitive in hiring if we do. But 
in markets with limited choice and no viable association plans 
to turn to, we have been relegated to a virtual single-payer 
system that cannot support our need for stable premiums with 
decent benefits.
    Were we able to work with other businesses across State 
lines and follow one set of rules, we would clear many of the 
current obstacles and problems in one sweep. Association health 
plans can significantly help me and other small businesses 
purchase more affordable health care.
    First, with increased bargaining clout and following one 
set of rules and regulations, we would be able to create robust 
benefit packages that are competitive with those of larger 
firms.
    Second, we would be able to compete more effectively for 
skilled workers and even keep some of our young people from 
leaving the State for better jobs.
    My business model has been described as the perfect mix of 
bricks and click technology that can thrive in the post dotcom 
world. Our success is proof that you can build on a good idea 
without investing huge amounts of capital. The jobs in my 
company are not many, but they are completely new jobs to 
Maine. Since our customers are all out of state, the income we 
bring in is completely new income to Maine.
    I am proud of that achievement. Yet despite our reach into 
a national market, the local landscape of health care costs 
impedes my ability to create new positions at home and grow my 
company.
    When I landed my first big account as a businessperson, I 
thought I had experienced the best part of entrepreneurship. 
But that is not really the best part about owning a business. 
Creating a new job is. Telling a hopeful applicant that they 
have the job and knowing that you have contributed not just to 
that individual but to the well-being of their family is worth 
all of the work.
    Unfortunately in Maine, the limits on our health care 
options keep people from being hired, from staying in our 
State, and from reaching for a higher educational attainment. 
It also reduces our ability to attract new businesses to the 
State who are used to a more competitive health care market.
    We need the kind of alternatives that association plans 
represent, choices that result in new jobs which are at the 
core of a healthy community and a sustainable future.
    Thank you, Madam Chair, for the opportunity to present my 
story. I look forward to your leadership on tackling this 
issue.
    [The prepared statement of Ms. Valentine follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.247
    
    [GRAPHIC] [TIFF OMITTED] T1137.248
    
    Chair Snowe. Thank you very much.
    Mr. Faris.

STATEMENT OF JACK FARIS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
 NATIONAL FEDERATION OF INDEPENDENT BUSINESS, WASHINGTON, D.C.

    Mr. Faris. Madam Chair, thank you for the opportunity to be 
here today and thank you for putting my written statement in 
the record.
    Chair Snowe. Absolutely.
    Mr. Faris. The bottom line is if Wal-Mart employees have 
it, why cannot Sarah's Hardware Store have it? It is a matter 
of fairness, and that is what association health plans are all 
about.
    There is a great need in the small business community which 
we hear over and over again because we bear the burden of so 
many of the uninsured who work for small companies. All of our 
research tell us the No. 1 reason why companies cannot cover is 
cost. What drives cost? Administrative costs drive it. Almost 
30 percent, in some States over 30 percent, of the cost of 
health care premium is administrative costs. It is because of 
our small size.
    When it comes to benefits, we look at mandates, and over 
1,500 new mandates in the States have been added in the last 
few years. Every time a mandate is passed, we get more costs. 
For every 1 percent of cost increase, 300,000 lose health care 
coverage.
    We would like to do what we did with Governor Clinton in 
Arkansas many years ago in 1989, when he agreed to a starter 
insurance policy for small business in that State. We would 
like a starter insurance policy for all Americans. In the State 
of Arkansas, 1 out of 30 employees work for Wal-Mart and 
nationally 1 out of 23 retail employees work for Wal-Mart. If 
it is fair for Wal-Mart, why is it not fair for Sarah's 
Hardware?
    When it comes to association health plans, we hear all of 
the negatives on the health care plan. They are primarily in 
the red herring category because they have not read the 
legislation that we are proposing and we are supporting and 
promoting.
    Criticisms like cherry-picking based on pre-existing 
conditions, or portability, non-discrimination, special 
enrollment and renewability provisions--they are all in the red 
herring category. When you look at the problems with MEWAs in 
the past, we do not have that. We have a Federal consumer 
protection under AHPs, certified by the Department of Labor, 
who have been supervising all of the ERISA plans of all the 
major companies.
    If a mechanic who fixes the Chevy pickup truck cannot get 
insurance, why should the person who works on the line or the 
chairman of General Motors get the same insurance? It is not 
fair.
    The anti-consumer folks are saying that competition is 
going to drive up costs. Somebody has not read economics 101. 
Competition historically drives down costs and increases 
quality.
    Why then would people be opposed to association health 
plans? They are voluntary, private market. They spread the 
risk, provide more Federal coverage, and more coverage for even 
liabilities that are criminal in nature that the States do not 
currently have, yet take no tax dollars.
    Why would somebody be opposed? We found three groups 
opposed. No. 1, we have found that Blue Cross-Blue Shield 
opposes it. They have 85 percent of the market. We call that a 
``duh'' factor, Senator.
    If I owned a bank and I had 85 percent of the banking 
business in America, I would not want another bank to be able 
to start.
    So all of the red herring issues in their press release 
yesterday and press conference, you need to go to the web site 
and see how they spend most of their time talking about the 
evils of mandates and how much they increased coverage. If I 
had 85 percent of the market, I would not want a competitor. So 
frankly the Blue Cross arguments, I do not listen to that well.
    No. 2, insurance commissioners, some of them. I understand 
that. We talked about it. That is the reason that in the bill 
being proposed, in the work we are working on, we support even 
more stringent regulations than any State today has on 
financial solvency and the fair treatment of those covered. It 
also means that the coverage is even more stringent than what 
is required of the labor unions and the Fortune 100 self-
insured health plans.
    Why do we want small business to have more stringent 
requirements? Does it mean we think that they are out to 
defraud, whereas big business and big labor would not? I do not 
think so.
    What about the third group? The third group are those 
people not only in this city but other places, who want a 
government-run system. They do not want a successful private 
system.
    Why then would they be opposed to something like AHPs? 
Because it can be successful. Not covering every American with 
health insurance, but causing the small business marketplace 
where the uninsured work to have the possibility, voluntarily, 
of getting insurance. That is why we are here today.
    Medical savings accounts? Yes, they need to be expanded, by 
being able to have portability of all of the deductible plans 
that we have been proposing, and that the President has put in 
on flexible spending accounts. To be able to take moneys and 
roll those dollars over, $500 over to the next year, is very 
important. Individual tax credits are very important.
    These things we can do. What we do not want to do is take 
the patient who is very ill and do radical surgery. We talked 
about it in 1993 and 1994, that is not a course for this 
country to take.
    This is a believable, doable plan. If, in fact, there are 
problems with it, the unintended consequences, we can correct 
them, we can identify them, and we can fix them. Those who do 
not want to give us a chance should not go back home for 
reelection saying they are for small business.
    Thank you for the opportunity to be here today and join 
with these others. When we hear small business owners from your 
State, the independent State, talking about how important this 
is, it is what resonates in every small business around the 
country. Not just our 600,000 members, but all 23 million small 
businesses.
    Thank you again.
    [The prepared statement of Mr. Faris follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.249
    
    [GRAPHIC] [TIFF OMITTED] T1137.250
    
    [GRAPHIC] [TIFF OMITTED] T1137.251
    
    [GRAPHIC] [TIFF OMITTED] T1137.252
    
    [GRAPHIC] [TIFF OMITTED] T1137.253
    
    [GRAPHIC] [TIFF OMITTED] T1137.254
    
    [GRAPHIC] [TIFF OMITTED] T1137.255
    
    [GRAPHIC] [TIFF OMITTED] T1137.256
    
    [GRAPHIC] [TIFF OMITTED] T1137.257
    
    [GRAPHIC] [TIFF OMITTED] T1137.258
    
    [GRAPHIC] [TIFF OMITTED] T1137.259
    
    [GRAPHIC] [TIFF OMITTED] T1137.260
    
    [GRAPHIC] [TIFF OMITTED] T1137.261
    
    Chair Snowe. Thank you.
    Ms. Neese.

   STATEMENT OF TERRY NEESE, PRESIDENT AND CO-FOUNDER, WOMEN 
        IMPACTING PUBLIC POLICY, OKLAHOMA CITY, OKLAHOMA

    Ms. Neese. Good morning, Madam Chair.
    As you know, I represent Women Impacting Public Policy. In 
case you cannot see them all behind me, there are 330,000 women 
and minorities that are pushing me this morning, African-
Americans, Hispanics, Native Americans, Alaskan Natives, Pan-
Asians, and they support this testimony.
    There are 6.2 million women business owners today and we 
employ 9.2 million according to the Center for Women's Business 
Research. Congressman John Boehner of Ohio raised the alarm in 
citing the following appalling statistics. Nearly 130 million 
Americans, almost 80 percent of all workers, get their health 
insurance coverage through their workplace. Another 43 million 
have no health coverage at all.
    Why is this appalling? Because premium rates for small 
plans three to nine employees increased 12 to 16 percent per 
year according to the Kaiser Family Foundation, with some small 
businesses experiencing up to 50 percent.
    WIPP members are experiencing anywhere from 12 to 72 
percent increases in their premiums this year. For example, 
Terry Neese Personnel Services just received our increase for 
the year. It was 12 percent and I was happy that it was 12 
percent and only 12 percent.
    A WIPP member in Virginia, Dot Wood, CEO of JDNW, just 
received her rate increase. It was 72 percent.
    Another WIPP member, Dr. Karen McGraw from Marietta, 
Georgia, told us the lack of reasonable health insurance costs 
has been the major barrier to her growth and ability to hire 
good people. ``We are a small certified women-owned business 
with two full-time employees. Due to growth and contracts won 
during the last 2 years, we had planned to hire two mid-level 
individuals, key mid-level individuals. Because his would 
require that we be able to offer good benefits we investigated 
group health insurance and were stunned by what we found. Our 
broker indicated that most firms did not even want to talk to 
firms our size, especially since the two owners are husband and 
wife. The two quotes we received were well beyond what we felt 
we could afford, $1,100 per month just for the husband and 
wife. We have work and we need help, but we put our hiring 
plans on hold hoping that legislative action could improve 
things for us.''
    In a recent survey to WIPP members, providing this benefit 
is the most important benefit they can give to their employees, 
for both moral and economic reasons. Small businesses must be 
able to provide Fortune 500 benefits to their employees.
    Hewitt Associates, a prominent benefits firm, estimates 
that the annual amount employees will pay in premiums and other 
costs will rise by an average of $342 to $1,753. Employee 
raises are being eaten up by the rise in premiums, leaving them 
less disposable income to spend on goods and services. That is 
bad news for the economy. If consumers are not spending on 
goods and services, small business will not see any reason to 
expand and the economy will further stall.
    Not only are premium increases a problem but also finding a 
provider, having choices, managing high administrative costs, 
growth in litigation, fraud and abuse are problematic. 
According to the SBA, insurers of small health plans have 
higher administrative expenses than those who insure larger 
companies. Administrative expenses for insurers of small health 
plans make up 25 to 27 percent of premiums and 33 to 37 percent 
of claims. This compares with about 5 to 11 percent of large 
companies' self-insurance plans.
    WIPP supports association health plans and we have for a 
decade now. AHPs have the potential to lower insurance premiums 
for small firms by freeing employers from direct and indirect 
State taxation, some mandated benefits, and the cost of 
compliance with multiple State regulations.
    In terms of job growth, with the potential lowering of 
premium costs to the business owner, the possibility of using 
those costs to create one job in every small business could be 
huge for this economy.
    The States have not been able to solve the health insurance 
crisis. Current AHPs under labor unions and Fortune 500 
companies operate under ERISA regulations so why cannot small 
businesses have the same access, the same options, and the same 
opportunity?
    Recently, I had a meeting with the Oklahoma insurance 
commissioner. He supports association health plans because of 
the lack of solutions coming from the States. He owned his own 
insurance company in his other life before he became insurance 
commissioner of Oklahoma.
    WIPP would like to be able to offer association health 
plans as benefits to our members. We want to increase our 
membership. We do not want to cause any harm to our members and 
we believe AHPs are the key to increase our membership and get 
people off the uninsured list.
    Madam Chair, our members have been working on this issue 
for almost a decade now. We believe we have got some momentum 
with you as Chair of this Committee and many others in the 
Senate. We look forward to working with you. Let us go make it 
happen.
    [The prepared statement of Ms. Neese follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.262
    
    [GRAPHIC] [TIFF OMITTED] T1137.263
    
    [GRAPHIC] [TIFF OMITTED] T1137.264
    
    [GRAPHIC] [TIFF OMITTED] T1137.265
    
    [GRAPHIC] [TIFF OMITTED] T1137.266
    
    Chair Snowe. Thank you, Terry.
    Mr. Alford.

   STATEMENT OF HARRY ALFORD, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, NATIONAL BLACK CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Mr. Alford. Thank you, Madam Chair, for allowing the 
National Black Chamber of Commerce to be here and to enter our 
written statement into the record.
    The National Black Chamber of Commerce is the largest 
business association that concentrates on the concerns, needs 
and best interests of African-American businesses in the United 
States, of which there are many. We have 191 chapters located 
in 40 states, and in eight nations.
    We proudly want to voice the concerns of African-American 
businesses and tomorrow we launch what is known as the Gazelle 
Index. The Gazelle Index is a statistical sampling of the 
opinions and concerns of African-American businesses, which 
will be published every quarter from now on. ING Corporation is 
responsible for this and we are glad to be partners with them. 
The issue of health care and association health plans will 
certainly go into the survey in the short-term.
    African-American businesses have been growing at a faster 
rate than any other segment. We have a million businesses. Ten 
years ago we had half that much.
    The major reason for the growth has been the Civil Rights 
Act which has brought on the babyboomers, the first generation 
of college-educated people to be trained and to have tenure 
with Fortune 500 companies. We have people who are ready, 
willing and able to enter into the entrepreneurship market. It 
is growing well.
    There are two major challenges for these entrepreneurs. One 
is capital access. We deal with that by working with the banks, 
with Wall Street, with the Federal Government. We encourage 
international trade which opens up venues such as the World 
Bank, IMF and other entities. We are working on capital access.
    The second biggest challenge is health care costs. We are 
up against the wall. Our members cry out for us to do something 
about rising health care costs. We have met with insurance 
agents and brokers and they have all tried to come up with the 
solution of a health plan that can be affordable and accessible 
for our members.
    It is like curing cancer. The first one who does it is 
going to be a hero and a very wealthy person. But so far it has 
not happened. It is also impossible under the current 
circumstances, the laws, the decentralization, the 50 State 
rules that you have to deal with, 50 insurance commissioners. 
It does not happen, it will not happen and it is broken, tore 
up. We need to fix it and good government is going to be the 
only way.
    I think what you and certain Members of the Committee are 
doing is admirable. We support you to the fullest. Association 
health plans probably is going to be the key to this. If we do 
not allow it to progress and become a reality, not only do we 
have a crisis, we have a shame.
    I think in this global market for America to be able to 
compete, the small business is going to be the link in the 
chain that must be the strongest. Thank you.
    [The prepared statement of Mr. Alford follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.267
    
    [GRAPHIC] [TIFF OMITTED] T1137.268
    
    [GRAPHIC] [TIFF OMITTED] T1137.269
    
    [GRAPHIC] [TIFF OMITTED] T1137.270
    
    Chair Snowe. Thank you.
    Mr. Shannon.

 STATEMENT OF CLIFF SHANNON, PRESIDENT, SMC BUSINESS COUNCILS, 
    REPRESENTING THE NATIONAL SMALL BUSINESS UNITED AND SMC 
          BUSINESS COUNCILS, PITTSBURGH, PENNSYLVANIA

    Mr. Shannon. Good morning, Madam Chair. My name is Cliff 
Shannon. I am the President of SNC Business Councils, an 
independent, non-profit small business association 
headquartered in Pittsburgh with a regional office in 
Harrisburg.
    On behalf of SMC's 5,000 member companies and their more 
than 100,000 employees, thanks for the opportunity to testify 
today. Thanks, too, on behalf of National Small Business 
United, with which SMC and several other nationally respected 
small business groups are affiliated, including the Council of 
Smaller Enterprises in Cleveland and the Small Business 
Association of Michigan.
    SMC's group purchasing of health insurance is our most 
widely subscribed program. It dates back to the 1970s and about 
3,500 of our member companies participate today. SMC's members 
will encounter an average health insurance premium hike in 2003 
of more than 20 percent. This comes on top of several years of 
annual increases in the mid-teens, which doubled coverage costs 
during the preceding 5 years. We are now in a new cost cycle 
and average premiums are forecast to double in just 3 or 4 
years.
    But simply citing overall premium trends does not tell the 
full story. Adverse risk selection as practiced in different 
guises by health insurers in every State is roiling the 
marketplace, and it is adverse selection that needs to be 
addressed more precisely in AHP legislation.
    What does risk selection consist of? Under Pennsylvania law 
a non-profit insurer sets an employer's premiums according to 
demographic factors including the average age of covered 
employees. I am 51 and I contribute to SMC employees having a 
relatively high average age. So coverage for me and my family 
costs SMC more than $900 per month. If the SMC average age was 
10 years higher, the premium would be $1,100 per month. On the 
other hand, if we were all fortunate to be an average of 10 
years younger where I work, the premium would drop to about 
$700 per month.
    Pennsylvania law permits for-profit insurers, however to 
set premiums for individual companies via medical underwriting. 
Coverage may not be denied, of course, but employees medical 
profiles are used to determine employer's final health 
insurance rates.
    How does this work? An SMC member company recently received 
from its non-profit carrier a 25 percent premium increase 
proposal for 2003 to a little over $400 a month for employee-
only coverage. The employer sought a competing quote from a 
for-profit managed care plan that offered complementary 
benefits in network. The initial quote from there was less than 
$400 per month for employee. But after medical underwriting the 
for-profit carrier's final quote was $3,500 per month.
    Under the umbrella of State regulations, rate regulations 
and mandates, this is the current marketplace, gradually 
segmenting into the actuarially fortunate small employers and 
employees for whom coverage is affordable and the actuarially 
unfortunate who are being priced out of coverage. Federal 
deregulation of this market via association health plans will 
accelerate this process.
    I do not believe any of my counterparts who are gathered 
here today or their organizations would engage in predatory 
risk selection. But let us just say I am not quite so high-
minded. I would go out and first look for a bona fide, 
qualified, financially strapped business association in a State 
that allows medical underwriting--Pennsylvania, for instance.
    Next would be finding an insurer with which to partner. I 
am confident that national carriers would entertain AHP 
participation, as well some health insurance companies that few 
or none of us have ever heard of.
    Should my AHP in the making be self-insured or fully 
insured? Fully insured, I think, as a financial requirement for 
self-insured AHPs are problematic in my view. All that would 
remain then would be selecting several populous States with 
expansive coverage mandates for the initial marketing thrust 
and finalizing a profitable benefits and rate-setting strategy.
    My AHP would offer high deductible coverages only, with 
explicit limitations on expensive services like maternity care, 
neonatal care, no reimbursement for diabetes supplies, cancer 
exclusions or limitations and so on.
    My AHP would also cover no more than 50 percent of 
prescription drug costs with an annual dollar cap, and 
preventive care would not be covered at all. A participating 
employer could, of course, establish health reimbursement 
accounts to pay for health care expenses that would not be 
covered but I would use medical underwriting and corresponding 
pricing to winnow out groups with relatively sick populations 
and high medical claims.
    Thusly sustained by rigorous risk selection, my AHPs rates 
would be far less than those paid by companies that remained in 
the State-regulated environment. My AHP would pay out 
correspondingly far less in covered benefits and my partners 
and I would make lots of money. That is unless or until 
Congress decided to step in and regulate the marketplace.
    In the meantime, among the remaining majority of small 
businesses, most of whom these days are owned Babyboomers, 
health insurance premiums would rise faster and faster. Total 
health care costs within State-regulated pools would be spread 
among a smaller, less healthy population in which diabetics, 
leukemic children, sickle cell victims, people over 50, women 
of child-bearing age, and so on would be concentrated.
    These unintended consequences cannot be prevented with at 
least some rate regulation and some consideration of minimum 
benefits.
    In my written testimony are some alternative ideas for 
lessening the burden of health insurance coverage costs for 
small employers, which time prevents detailing now.
    But please know, Madam Chair, I am in some serious pain 
here. I believe that association-based purchasing group 
purchasing is a fundamentally good concept. I am tortured by 
the thought that I am sitting here criticizing that, even 
though I am doing so for good reason.
    What I hope is that we can work out an arrangement to 
improve the legislation, to close some of what I think are 
fairly glaring holes in it and strengthen existing group 
purchasing programs, encourage new ones, particularly in States 
that have no such arrangements today.
    [The prepared statement of Mr. Shannon follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.271
    
    [GRAPHIC] [TIFF OMITTED] T1137.272
    
    [GRAPHIC] [TIFF OMITTED] T1137.273
    
    [GRAPHIC] [TIFF OMITTED] T1137.274
    
    [GRAPHIC] [TIFF OMITTED] T1137.275
    
    [GRAPHIC] [TIFF OMITTED] T1137.276
    
    [GRAPHIC] [TIFF OMITTED] T1137.277
    
    [GRAPHIC] [TIFF OMITTED] T1137.278
    
    [GRAPHIC] [TIFF OMITTED] T1137.279
    
    [GRAPHIC] [TIFF OMITTED] T1137.280
    
    [GRAPHIC] [TIFF OMITTED] T1137.281
    
    [GRAPHIC] [TIFF OMITTED] T1137.282
    
    [GRAPHIC] [TIFF OMITTED] T1137.283
    
    Chair Snowe. Thank you, Mr. Shannon.
    What do your members say about the health care crisis and 
what options do they prefer?
    Mr. Shannon. I think that many of them are asking 
themselves exactly where is it written down that private 
employers should provide health care benefits to employees. I 
think that is something that is permeating the business 
community from top to bottom right now.
    Former Treasury Secretary O'Neill, former CEO of ALCOA, is 
a very, very outspoken health care policy person in my 
hometown. He asks frequently exactly what is the business? What 
is the requirement? What is the origin of the practice of small 
businesses, large businesses, mid-size businesses being 
obligated to provide health care benefits for their employees?
    I think that is the prevailing view these days and it is 
emerging with ever more clarity as prices drive up, for small 
businesses, premiums towards or past what amounts to a monthly 
mortgage payment for employees.
    Chair Snowe. But do you not think that is a good goal, for 
businesses to want to offer a benefit to their employees? It 
has been historic and it creates a competitive tool. Obviously, 
as you heard from others who represent hundreds of thousands in 
the small business community, and I have heard from individual 
small business owners and others who want to provide it.
    So there is nothing wrong with that. I mean, you described 
an AHP that you would design, but then what would be the point? 
Who would be attracted to that, in terms of your members? In 
fact, I would suggest you would lose members. The idea is to 
attract more people into the association and you do not do that 
by offering poor choices, higher prices and lousy coverage.
    Mr. Shannon. If my objective was to make profits, and in 
this economy and the system in which we work that is the 
objective, the AHP that I described is absolutely going to get 
created under the legislation as it is currently written.
    If you will trace the recent history of managed care plans, 
in their initial incarnations, managed care plans went pell 
mell as fast as they could go to grab market share, to in 
effect recruit more members, to expand the geographic reach, 
the total dollar volume of their business.
    In the current incarnation, having disappointed their 
shareholders with returns, I think you find managed care plans, 
for-profit and non-profit, much, much more preoccupied, almost 
exclusively preoccupied I would state these days, with how they 
can manage risks so as to earn profits. That is it.
    I think if you could somehow or other get the people who 
are responsible for managing health insurance in this country 
in the room and get them under oath in a way that would be 
meaningful, that that is the answer you would extract. It is 
not just a foible in my imagination that I can sit and look at 
actuarial analysis that drives this kind of risk selection and 
say more than anything else it belongs on the curriculum of the 
Hogwarts School for Wizards and Witches. It is a true dark art.
    As practiced in today's marketplace, it is absolutely 
penalizing those who have need for health care services and it 
is rewarding, if you will, or providing favorable treatment for 
those who do not.
    Single white males, they are the coin of the realm in 
health insurance these days because they can go 10 years 
without going to the doctor. People who have health care needs 
though are being rapidly priced out of the ability to afford 
coverage.
    Chair Snowe. Mr. Alford.
    Mr. Alford. Madam Chair, I think that is the Darth Vader 
approach to AHPs and I would think someone would have to be 
insane to do business with such a company. I think what we are 
looking for is a nice bourbon, not necessarily a fine scotch. 
What was just described was rotgut.
    I do not think it is being realistic, with all respect.
    Chair Snowe. That is very descriptive but it makes the 
point.
    I think the issue, as I see it, is having options and 
having access. In many parts of the country there are not those 
options and there is not that access. So it is not a question 
of choosing among a variety of affordable quality plans, it is 
either having no choices or maybe one choice or two choices 
that become unaffordable.
    Mr. Shannon. I do not want you or anyone else to take away 
the impression that I am opposed to association-based health 
insurance purchasing. I am not. I am absolutely not. I think it 
is a signal virtue in the market today in the States in which 
it functions well.
    So one of the primary goals of this legislation is 
obviously to try and spread that virtue to other States. My 
worry is that as currently, or at least in the last iteration 
as written, the legislation honestly begs out for abuse in 
certain areas. Risk selection is the primary one.
    If you can headquarter your AHP in a State that permits 
medical underwriting, you would be able to run a 50-state AHP 
that enforced medical underwriting in order to set rates. It is 
something that I do not think many people in Congress grasp, 
that in the immediate wake of HIPAA, which guaranteed 
portability, which guaranteed coverage in the event of a pre-
existing condition, that the entire insurance industry shifted 
to medical underwriting as fast as it could. Because at the end 
of the day, in order to make money, the actuarial departments 
and the managers have decided that they must risk select.
    The non-profit companies like the Blues that are, in most 
cases, restricted by State law from refusing coverage and 
restricted further in terms of how they can set their rates, 
are particularly concerned, I think, about AHPs as currently 
iterated because medical underwriting practiced by their for-
profit competitors would put them at a significant 
disadvantage.
    I am not here today to make an apology for Blue Cross-Blue 
Shield affiliates. Lord knows I have enough problems with them 
every day in my State. But it is a valid concern that medical 
underwriting will turn the community-rated pool within the 
States that are affected into something that more or less 
concentrates the less healthy people that I described. That 
loophole, which is very large from where I sit, needs to be 
closed.
    Chair Snowe. Why is there such a variance in opinion on 
that subject?
    Mr. Shannon. I do not know the answer to that. I can only 
suggest to you that--
    Chair Snowe. It is not happening in large firms and unions 
and other large organizations that are self-insured. We have 
not heard those kind of severe scenarios that you have 
described about AHPs. So I am not sure I understand what is the 
basis for your concerns and objectives here.
    Mr. Shannon. Let me describe it this way.
    Within, let us say H.J. Heinz Company, which is 
headquartered in Pittsburgh, the benefits policy that is 
offered to employees needs to be a relatively Cadillac policy 
because there is a huge diversity of people located within that 
company. Older, younger, relatively sicker, relatively 
healthier, and so on.
    Within a group purchasing coalition like mine, I will tell 
you that there is a fair amount of disagreement and a fair 
amount of revolving in and out of my group purchasing plan on 
the basis of what the particular health care needs are of many 
relatively small populations of small employers.
    If I had nine employees and I had no diabetics, I would 
think paying the 2 percent increment let us say in premium 
applicable to providing or covering diabetic supplies was a bad 
idea. If I employed nothing but guys in their 20s, I would 
think covering maternity care in a significant way, which my 
association's policy do, would be a poor expenditure of my 
health care dollars. So on and so on.
    We are talking about thousands of disconnected employers, 
each of whom have a general interest in healthy employees and 
decent coverage, but taken individually have widely varying 
needs for coverage for their employees.
    On that basis, I think you are seeing in the marketplace in 
my State and in several other States serious disintegration of 
the marketplace into segments of relatively healthier and 
segments of relatively less healthy people as expressed by 
individual employment groups.
    Chair Snowe. Kathy and Anne, in Maine for example, can you 
tell us what your options were in the final analysis? Were 
there any options at all?
    Ms. Leonard. The last year before we went into this quasi-
self-insured plan, we had two choices in our company, either 
Anthem--which bought out Blue Cross so it is now a for-profit 
organization, it is no longer Blue Cross-Blue Shield as a non-
profit--and I believe Aetna had a plan.
    Both had exorbitant rate increases to us. I think something 
like 60 percent, something along those lines. It was just 
prohibitive.
    So that was it. We were down to two choices, both very, 
very poor choices. The competition has gone out of the system 
in the State of Maine because of community rating, whereby we 
have no control over the health of our plan. I can offer all of 
these healthy lifestyle options for my employees but it does 
not lower our rate because we are paying for everyone else in 
the system.
    That is the key difference between small business and large 
self-insured. That is why they have not been feeling the pain 
until more recently. We are now all feeling pain because the 
system is in a state of hyperinflation, certainly. But we have 
been feeling it a lot longer.
    So the choices were very minimal years ago and that is why 
we opted out of that. It is also interesting to note that when 
I first started tracking these figures back in the mid-1980s, 
it was not--I lost my thought. I got caught up on the fact that 
I have been tracking these numbers since the mid-1980s. It is 
hard to believe that we are paying this much attention to it.
    I have lost my thought. I am going to go to Anne and I will 
come back to it.
    Chair Snowe. I know, Anne, that you were talking about 
looking at State purchasing pools and I know that people have 
suggested that as an option. Obviously it was and still is 
perhaps in some States. But it is not really a viable option 
for many. It was not for you.
    Ms. Valentine. Not at this point. We have been at it a 
year-and-a-half and we have yet to formalize a deal. In my own 
business I had presented to me three options but they were 
three Anthem options. Then there are two other options that 
people do not want to talk about but they are in the back of 
the mind of small business owners, the option to contribute 
much less, to participate much less, and the option to opt out 
altogether and not do anything. A lot of small businesses are 
going that route.
    Ms. Neese. Could I speak to that for a second?
    Last year, Terry Neese Personnel Services were canceled 
three times, by our insurance carrier. The last time we were 
canceled--and by the way, when you are canceled, you literally 
take someone off working a desk for a good month to find 
another carrier.
    So this person that we had taken off of a desk creating 
some income for us was searching for another carrier. Our last 
carrier said they were no longer going to be writing small 
group employer insurance in the State of Oklahoma. Blue Cross-
Blue Shield has 90 percent of the market in Oklahoma.
    So as my person tried to find another carrier, there was a 
marketing call that came into our office from an insurance 
agency wanting to provide us health insurance. So the person 
said, ``Boy, I will take that call immediately.''
    She began to talk to the person about our health insurance 
needs and got down to making an appointment to actually see 
this person face-to-face. It was the insurance agency that had 
just canceled us that said they were no longer writing small 
group insurance in our State.
    So the choices are interesting, to say the least, in how 
they decide they are going to pull out of a State but then turn 
around and our marketing to sell insurance in that same State.
    If I could also speak just a moment to women business 
owners specifically, and the fact that they really want to 
provide health benefits and a lot of other benefits to their 
employees. As women, in terms of flexibility in the workplace, 
it is very important to us because we are not only taking care 
of our families but many times we are taking care of our 
mothers and dads along with that, and all of the various and 
sundry things that we do in running a household.
    What we hear from our women business owners more than 
anything is that they want to provide the very best benefits 
that they can for their male and female employees because they 
know what it is like to try to juggle 50 things at one time.
    I just want to put a plug in for all small business owners 
out there that really want to provide the very best care for 
their employees, so they know they retain them and they retain 
that talent and do not lose them to big businesses.
    Ms. Leonard. I would like to redeem myself and finish the 
thought that I lost a few moments ago.
    When I started looking at this issue back in the 1980s and 
discovered that there was this difference between self-insureds 
and those of us who were not self-insured, I said, ``Well, why 
do we not self-insure as small business people?'' I was told 
no, no, no, you cannot afford to do that. You have to have at 
least 100 lives in a plan in order to self-insure, so that was 
the big prohibition.
    Well, here I am in 2001 with 50 employees, able to self-
insure because the premiums have gone up so precipitously that 
I can now afford to be self-insured. So now a small business 
such as mine at 50 people, still very small, can leapfrog those 
state-mandated benefits as well as being in the pool and go to 
the ERISA standards which regulate us?
    So what we are finding is that small businesses--I cannot 
be the only one out there doing this--there are more and more 
of us getting out of those State plans anyway. We are going to 
find a way out of there.
    Chair Snowe. Just one other question, Mr. Faris. Obviously 
you all represent associations and large memberships. Has there 
been any concern expressed about the fact that your members 
could be subject to consumer fraud with the creation of these 
association health plans? Is that a concern of yours? Is that 
something that has been raised at all? Do you think that the 
consumer protections and the requirements of the Department of 
Labor and the pre-certification standards for creating these 
association health plans, and the monitoring will be sufficient 
to guard against any type of fraudulent activity?
    Mr. Faris. Thank you.
    Secretary Chao and I have discussed this at length. The 
last thing we want in small business is to have fraud in a 
system that we will end up having to pay for. When you have six 
employees in a firm, 2.2 have the same last name. We are not 
talking about some distant situation of ownership. We are in it 
every day whether it is 50 employees, 5 employees, or what.
    The guidelines for unions and big business have been 
covered under the DOL, the Department of Labor, for all of 
these years. They are supervising it and I cannot believe that 
the NFIB or WIPP or the restaurant association, or any other 
large broad-based membership in 50 States who has been around 
60 years, who has a strong reserve, would be more prone to 
fraud and abuse than a Fortune 100 company or the unions. This 
really smacks of how we feel about entrepreneurs.
    There are those in this town that really think that they 
should not trust people on Main Street to do the right thing 
for their employees, that if you do not work for the 
Government, then the Government should make that decision.
    So no, there is not cry or concern. The cry or concern is 
that basically we have got to have some relief. If, in fact, we 
pass legislation and find out later that we have got a problem 
here or a problem there, then let us identify it and correct 
it.
    We need a successful program. We need help. Give us the 
opportunity. Give us a chance. Give us the opportunity to have 
competition. If we can do it, fine. If we cannot, let us look 
for other solutions.
    I go back again to the motivation that people bring up 
about fraud and abuse. We are talking about historical cases 
with MEWAs and other things that have been set up. We can learn 
from those. We can learn from fraud and abuse we read about on 
the front page of the papers with big business and big unions. 
What we want to do is to say give us a fair and level playing 
field. We will even take more supervision, more restrictions 
than the unions do and big General Motors does.
    Why not give us a chance to correct our own problems at 
home? The fact is that we want to provide coverage. There is 
not anything in the Constitution that says this is required. It 
came out of World War II with wage controls. It came out of 
President Nixon in 1971 with price controls and wage controls. 
That is when business generated health care.
    We are not saying do away with it. What we are saying is 
let us have a level playing field. Right now it is tilted. Who 
is suffering are the very people that we are supposed to be 
trying to help, the working uninsured.
    Chair Snowe. Thank you.
    I appreciate all of you being here today and taking your 
time to share your experiences and perspectives on this 
legislation. Obviously, this debate is going to continue. I 
thank you.
    One last panel. We have the fourth panel, Ms. Judith 
Lichtman, President, National Partnership for Women and 
Families; the Honorable Sandy Praeger, Commissioner of 
Insurance for the State of Kansas, representing the National 
Association of Insurance Commissioners; and Mr. Len Nichols, 
Vice President of the Center for Studying Health System Change.
    Thank you for your patience. I appreciate it very much. I 
know the time is late and I am going to be going into another 
hearing shortly, not here, another Committee. But I do 
appreciate you taking the time to be here and sharing your 
thoughts. So please begin, Ms. Lichtman.

     STATEMENT OF JUDITH L. LICHTMAN, PRESIDENT, NATIONAL 
PARTNERSHIP FOR WOMEN & FAMILIES, WASHINGTON, D.C.; ACCOMPANIED 
                         BY ALICE WEISS

    Ms. Lichtman. Thank you so much. Thank you for your new 
acquired leadership. We are honored to testify today.
    I am Judith Lichtman and I am the President for the 
National Partnership for Women and Families, a non-profit, non-
partisan, public advocacy organization that promotes fairness 
in the workplace, policies that help women and men meet the 
competing demands of work and family and access to quality 
health care.
    As I know that you are aware, we have a much more complete 
testimony that we have filed and I am assuming that that will 
be accepted into the record.
    Chair Snowe. Yes, without objection, it will be included in 
the record.
    Ms. Lichtman. Today's health care crisis disproportionately 
affects women and small businesses. As many of the previous 
witnesses testified, it occurred to me that there is really an 
enormous coincidence and consistency of agreement of the fact 
that there is a problem. There is a problem. We all agree.
    What the disagreements are about really are, and they are 
considerable probably, on how to solve the problem.
    The cost of private health care insurance has been 
increasing steadily and small businesses are experiencing the 
worst of this problem. Women are disproportionately likely to 
be either the owners of or the workers for very small firms. So 
most often, it is women who pay the price.
    A survey of low wage, mostly smaller employers conducted 
for the Partnership and the Kaiser Commission on Medicaid and 
the uninsured demonstrates the problems that small firms and 
their workers face. These firms are less likely to offer 
coverage. When they do, it is often less generous with long 
waiting periods and higher cost sharing.
    In the face of the crisis, it is critically important for 
Congress to act to provide access to affordable, quality health 
care coverage. We have developed a set of principles to help 
evaluate those proposals and we offer them as a way to solve 
the problems.
    I want to say that sitting next to me is my colleague from 
the National Partnership, Alice Weiss, the Director of our 
Health Programs.
    Proposals must cover the uninsured. With 41 million workers 
and their families now uninsured, any legislation has to be new 
coverage, not only shifting already insured from one type of 
coverage to another.
    They must ensure access to affordable, comprehensive 
coverage. Low income workers have to be able to afford the new 
coverage and it must be comprehensive enough to cover the 
health care needs of the uninsured.
    Three, they cannot ignore those who are most in need. One 
in four uninsured Americans has at least one chronic condition 
that puts them at greater need for coverage and at risk for 
discrimination. Legislation must help individuals who need 
coverage the most, not only the healthy.
    Four, finally it has to preserve strong consumer 
protections. All 50 States and D.C. have passed tough consumer 
protections that have stabilized the small group health 
insurance market. Strong protections are needed to lessen the 
likelihood of a new trend of fraud and abuse.
    Association health plans have been posed as a solution. But 
the AHP proposal offered in the last Congress is not the right 
policy option. Because there is no current bill now pending, my 
comments today are going to refer to the most recent House-
passed version, H.R. 2563.
    This proposal fails to meet every one of the principles I 
just set out. It simply offers no solution to the problem of 
the uninsured, and I refer back to the CBO study that says only 
about 330,000 of the uninsured will get new coverage. That is 
less than 1 percent of the 41 million uninsured today. In some 
ways, we worry that AHPs will make the problem worse, driving 
up cost for four out of five small business owners and their 
workers.
    It fails to ensure access to affordable comprehensive 
health coverage. Because AHPs will try to save money by 
offering narrow benefits and providing coverage to only the 
healthiest of individuals, the cost of covering those left 
behind in the State-regulated market will increase and less 
comprehensive benefits will be available. In this way, the AHP 
bill will actually increase health costs for the majority of 
small businesses and their workers and coverage will actually 
be less comprehensive.
    Under the AHP legislation, healthy people win while those 
in need will lose. AHPs would leave older, disabled, and 
chronically ill individuals behind without any help. Women will 
also lose, losing coverage for services they need that are now 
mandated under State law, including coverage for maternity, 
breast and cervical cancer, mental health and contraceptive 
services to name only a few.
    Most importantly, the bill undermines strong consumer 
protection. Virtually all State oversight, including benefit 
mandates, rating laws, fraud and insolvency protections and 
direct enforcement was replaced with minimal Federal oversight 
and weak solvency standards.
    For example, the bill would allow the AHPs own actuary to 
certify its solvency, a practice that would make even Enron 
executives blush. This lack of meaningful assistance or 
protections would create a new wild, wild west of insurance 
regulations for consumers.
    By loosening the reins of oversight, the AHP legislation 
would increase the risk of fraud already rampant and on the 
rise. Last year alone, 55,000 workers and their families were 
left without health insurance due to association health plan 
scams amounting to $65 million in unpaid medical claims and 
millions more in health insurance premiums paid for coverage 
that consumers never got.
    Although many small business owners and their workers are 
uninsured now, under the AHP legislation they could be paying 
for the privilege. While we are not saying that the concept of 
AHPs could never work, the bills offered so far fail to meet 
our criteria. If AHP legislation were to be crafted that 
addressed the criteria we outlined, we would gladly support it 
as a viable solution to the problems we face.
    There are other ways to address the current small business 
health care crisis as well, and I am going to give you just 
quickly a few examples.
    A small employer tax credit and new pooling. We would 
create a new tax incentive for small businesses to offer 
coverage and would be paired with Federal grants to encourage 
new State-regulated pooling arrangements enabling small 
employers to come together into larger groups, which some of 
your witnesses have already said they are very interested in 
seeing happen, to purchase health insurance.
    An FEHBP or State employee pools. This would enable self-
employed individuals and small business owners to buy into 
existing risk pools at the Federal and State level.
    Three, and finally, building on public programs and that 
would build on existing programs like Medicaid and SCHIP and 
Medicare to cover the uninsured and could be more efficient 
than the purchase of private health insurance.
    The health insurance access problems facing the small 
employer community today are a major concern for women and 
families. Despite the urgent need for legislative action in 
this area, we urge policymakers to take a cautious approach to 
new legislation.
    As I have mentioned today, the AHP legislation that we have 
seen and has been proposed in the past is not the right 
solution. The proposed AHP legislation will likely do more harm 
than good to small employers and their workers alike without 
helping to address the problem of the uninsured.
    For AHP legislation to work, it would have to provide 
meaningful assistance for the uninsured, prohibit wrongful 
discrimination and cherry-picking, and create an effective 
oversight and enforcement mechanism including strong solvency 
standards as well as sufficient authorized and appropriated 
resources to fund such oversight. Mere oratory language that 
pretends to address these concerns but that do not create flaws 
in the legislation that will be enough so that it could win our 
support.
    Our legislative options exist. As I mentioned, all should 
be evaluated as you consider possible solutions to this 
enormous problem.
    We thank you for your leadership and hope that we can work 
with you to solve the problem of the uninsured and the problems 
that small business employers face in coverage of themselves 
and their workers.
    [The prepared statement of Ms. Lichtman follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.284
    
    [GRAPHIC] [TIFF OMITTED] T1137.285
    
    [GRAPHIC] [TIFF OMITTED] T1137.286
    
    [GRAPHIC] [TIFF OMITTED] T1137.287
    
    [GRAPHIC] [TIFF OMITTED] T1137.288
    
    [GRAPHIC] [TIFF OMITTED] T1137.289
    
    [GRAPHIC] [TIFF OMITTED] T1137.290
    
    [GRAPHIC] [TIFF OMITTED] T1137.291
    
    [GRAPHIC] [TIFF OMITTED] T1137.292
    
    [GRAPHIC] [TIFF OMITTED] T1137.293
    
    [GRAPHIC] [TIFF OMITTED] T1137.294
    
    [GRAPHIC] [TIFF OMITTED] T1137.295
    
    [GRAPHIC] [TIFF OMITTED] T1137.296
    
    [GRAPHIC] [TIFF OMITTED] T1137.297
    
    [GRAPHIC] [TIFF OMITTED] T1137.298
    
    [GRAPHIC] [TIFF OMITTED] T1137.299
    
    Chair Snowe. Thank you very much.
    Ms. Praeger.

STATEMENT OF SANDY PRAEGER, COMMISSIONER OF INSURANCE, STATE OF 
  KANSAS, REPRESENTING THE NATIONAL ASSOCIATION OF INSURANCE 
              COMMISSIONERS, KANSAS CITY, MISSOURI

    Ms. Praeger. Thank you, Madam Chair and good afternoon. It 
is a privilege to be here.
    My name is Sandy Praeger and I am the newly elected 
Commissioner of Insurance for the State of Kansas. I have 
served in the Kansas legislature for 12 years, most recently as 
Senate Vice President.
    While I am a new commissioner, I am not new to this issue. 
It is one we have grappled with for the last decade in our 
State.
    I am testifying this afternoon on behalf of the National 
Association of Insurance Commissioners. The primary objective 
of insurance regulators is to protect consumers and it is with 
this goal in mind that I comment today generally on the small 
business health care crisis and, in particular the proposal to 
create association health plans.
    At the start, I would like to emphasize that the States 
recognize the importance of ensuring that health coverage is 
affordable and available for small businesses. We offer the 
full support of the NAIC in developing legislation that will 
reach these goals.
    States have acted aggressively over the past 10 years to 
stabilize and improve the small group market. The destabilizing 
effect of AHPs on this market would be disastrous. Are we ready 
for AHPs to replace the small group market?
    States have enacted small group market reforms to pool risk 
and have created purchasing alliances that provide more choice 
for employees in small groups. In 2000, Kansas created the 
Business Health Partnership to help small businesses with 
affordable coverage by allowing plans to deviate from mandated 
benefits and to place annual caps on hospitalization.
    Insurance regulators would like to work with the Chair and 
the Members of this Committee to develop legislation that would 
make insurance more affordable for small business and provide 
them with greater choices. But any such legislation must meet 
the following criteria.
    First, higher risk employees must not be forced out of the 
market. Before State small group market reforms were 
implemented, if an employee became sick, the employer was 
shifted to a higher risk pool and often priced out of coverage. 
State small group market reforms forced insurers to treat all 
small employers as part of a single pool and allowed only 
modest variations in premiums based on risk. This spreading of 
risk has brought fairness to the market and must be preserved 
for the sake of higher risk employers.
    Second, consumers must be protected from plan failures and 
fraud. Over 10,000 State employees nationwide oversee the 
business of insurance to ensure plans are able to pay claims. 
Through reporting requirements States receive the information 
they need to identify possible solvency problems and to force 
corrective action.
    Yes, State regulation is costly but it is costly because it 
provides real protection for consumers. Adequate Federal 
regulation, I believe, would also be costly.
    Insurance is a complicated business involving billions of 
dollars with ample opportunity for unscrupulous or financially 
unsophisticated entities to harm millions of consumers. The 
fact is each time oversight has been limited the result has 
been the same, increased fraud, increased plan failures, 
decreased coverage for consumers, and piles of unpaid claims.
    Crucial to the long-term viability of insurance plans is 
the maintenance of sufficient capital and reserves. In 
particular, the capital reserve requirement in the bill for any 
and all AHPs is capped at no more than $2 million, no matter 
the size of the plan. States require capital surpluses to grow 
as their plans grow.
    More troubling, even if the solvency standards were 
increased, oversight is almost nonexistent. Under the bill, the 
AHP would work with an actuary chosen by the association to set 
the reserve levels with little or no Government oversight to 
ensure the levels are sufficient or maintained. Also, the AHP 
would be required to self-report any financial problems.
    Who can even think of this type of self-reporting after the 
experiences of past corporate fraud?
    AHP plans should also be required, like other insurers, to 
contribute to State guarantee funds. These funds cover any 
unpaid claims should a plan go bankrupt. While the AHP 
legislation allows premium taxes to be collected, other 
assessments to finance guarantee funds or high risk pools would 
not be permitted, further shifting the burden to regulated 
products in the insured market.
    Finally, patient rights must be preserved. Included in the 
current AHP legislative proposals is the broad pre-emption of 
consumer protection laws. These would include internal and 
external appeals processes, policy forum and advertising 
reviews to prevent unfair or misleading language, privacy 
protection including the selling of lists. Those would be pre-
empted in the current AHP proposal.
    Furthermore, there would be no entity to complain to if a 
patient rights are violated by the plan. State insurance 
regulators act on millions of consumer complaints every year 
and work hard to protect the rights of patients. AHP 
participants should have the same access to the same 
protections and complaint process.
    In conclusion, all of us recognize that it is very 
important to make health insurance available to small 
employers. The States have addressed this problem and will 
continue to do. However, the problem is complex and does not 
lend itself to easy solutions.
    We request the opportunity to work with the Committee to 
develop effective reforms that will avoid the pitfalls of this 
legislation and effectively address both affordability and 
availability issues facing small businesses. Together we are 
convinced the Federal Government and the States can find real 
solutions to this critical issue.
    [The prepared statement of Ms. Praeger follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.300
    
    [GRAPHIC] [TIFF OMITTED] T1137.301
    
    [GRAPHIC] [TIFF OMITTED] T1137.302
    
    [GRAPHIC] [TIFF OMITTED] T1137.303
    
    [GRAPHIC] [TIFF OMITTED] T1137.304
    
    [GRAPHIC] [TIFF OMITTED] T1137.305
    
    [GRAPHIC] [TIFF OMITTED] T1137.306
    
    [GRAPHIC] [TIFF OMITTED] T1137.307
    
    [GRAPHIC] [TIFF OMITTED] T1137.308
    
    [GRAPHIC] [TIFF OMITTED] T1137.309
    
    [GRAPHIC] [TIFF OMITTED] T1137.310
    
    [GRAPHIC] [TIFF OMITTED] T1137.311
    
    [GRAPHIC] [TIFF OMITTED] T1137.312
    
    Chair Snowe. Thank you.
    Mr. Nichols.

 STATEMENT OF LEN NICHOLS, VICE PRESIDENT, CENTER FOR STUDYING 
             HEALTH SYSTEM CHANGE, WASHINGTON, D.C.

    Mr. Nichols. Thank you, Madam Chair. My name is Len Nichols 
and I am the Vice President of the Center for Studying Health 
System Change.
    Our center is a non-partisan health policy research 
organization funded solely by the Robert Wood Johnson 
Foundation. We survey households and physicians, and we monitor 
12 community's health systems quite closely as we watch 
national trends. This enables us to offer unique insights on 
developments in health care markets and their impacts on 
people.
    As an economist, I have personally studied the decisions of 
small employers to offer health insurance or not for the last 
10 years. My research ranges from statistical analyses with 
representative survey data to interviews with employers, 
coalitions, insurers, brokers, actuaries, regulators, 
legislators, and most recently site visit research conducted 
with my colleagues at the center.
    Research, and my two older brothers who run small 
businesses, have taught me over the years that there are three 
goals in relation to health insurance when small-business think 
about this. They want it to be affordable, they want it to be 
simple, and they want it to be stable over time. All small 
group reform proposals should be judged by these criteria.
    Employers offer health insurance to compete for workers who 
have enough market power to expect health insurance on the job. 
Most, but not all, of our workers fall into this happy 
category. Employers who do not offer health insurance by and 
large cannot afford it, mostly because their workers cannot 
afford to trade their already low wages for employer premium 
payments as their higher wage counterparts do at offering 
firms.
    I know you are very concerned about cost, Madam Chair. I 
take your graph there quite seriously. I will use it myself 
from now on. But I will say it is worth noting a typical family 
policy today costs 28 percent of a typical worker's earnings. 
That kind of sums up how big a problem we have got. As your 
previous panels have made clear, this problem is getting worse 
over time as health care costs grow faster than wages.
    We also know, as your opening remarks pointed out, small 
employers are much less likely to offer health insurance than 
are large firms. This disparity in offer rates is largely a 
function of cost, and also the types of workers each business 
needs to hire. Small firms do tend to pay lower wages and 
health insurance costs more for them because of the 
administrative cost reasons we have talked about before and as 
was mentioned I think this morning, administrative savings can 
be as much as 30 percent as a share of premium, which is quite 
substantial.
    So the real question today is: Can AHPs be part of this 
solution? I think it is fair to say they may offer some 
advantages to some small employers, but without key 
safeguards--and I appreciate your willingness to think about 
modifications to the legislation that might provide those 
safeguards--without these key safeguards AHPs also present 
significant risks to other employers and possibly to the small 
group market as a whole. As a result, I would encourage you to 
consider alternatives that may help small employers and their 
workers reach there common goals with much less risk and 
trouble.
    AHPs could lower cost if they became large enough and once 
set up could add simplicity to small employer's lives. As you 
heard, as my brothers have taught me, that is the main thing. 
However, they must achieve a critical mass in order to offer 
these economies of scale so like those purchasing cooperatives 
in Maine and elsewhere they have got to grow or it is not going 
to work.
    Plus, and this is a sad but I think true fact, they are not 
going to save as much from exemptions from benefit mandates as 
a lot of people seem to believe. I tend to agree with the CBO 
analysis that was done a few years ago, which cited an earlier 
study I had done by the way, which suggests that indeed 
mandates are going to save about 5 percent on average across 
the board.
    The greatest risk AHPs present however has to do with 
stability of premiums over time. Some insurers fear that any 
pool formed for the express purpose of buying insurance would 
retain only high-risk enrollees. Our site visit team was told 
just last week in Arkansas that no insurer would even make an 
offer to small employer purchasing groups there who could have 
been formed under 2001 law.
    Others fear the opposite kind of selection. Others fear 
that AHPs, since their advocates do seem to focus most on 
benefit mandates and State regulation, that AHPs would be the 
most appealing to low-risk firms credit in current small group 
pools. By attracting low risks alone, AHPs could ultimately, 
theoretically at least, force premiums outside AHPs to rise 
which could chase more good risks away from the commercial 
market.
    This is the key point, if AHPs can restrict entry, the 
commercial carriers are bound by guaranteed issue laws that are 
enforced by State regulators, this could be a recipe for a 
classic death spiral of the small group insurance market. So 
what you want to do is make sure that entry is easy in both 
directions. There are ways to do that, that we can talk about 
later.
    I do not really think a complete meltdown of the small 
group market is likely. I am old enough to believe inertia is a 
powerful force. But many may reasonably ask why take such a 
chance when there are alternatives that accomplish the 
objectives that may be much better and available.
    You could, for example, allow small firms to buy into 
existing large pools. For example, the State employee pool or 
even FEHBP. The State employee pool is usually the single 
largest buyer in any State. Employers could contribute what 
they want governed by their competitors in the labor market and 
employees would make up the difference. Or you could use 
Medicaid or SCHIP dollars to subsidize those who turned out to 
be eligible.
    With State employees as a base, the administrative cost per 
enrollee would be minimized, the enrollment apparatus would be 
very simple, and the risk pool would be very stable over time. 
This seems to me to be a way to combine all the goals you have.
    You could allow small firms to form purchasing coalitions 
for the purchase of health insurance. As you pointed out, and 
the Maine experience makes clear, they have not grown nearly as 
much as the advocates thought they would. So I think it is fair 
to say experience would suggest they are never going to grow 
without some kind of help. They are never going to grow without 
either compulsion for everyone to buy through them, which is 
typically unacceptable. Or they are never going to grow without 
some kind of big time subsidy.
    The third option would be to allow small firms to buy into 
Medicaid or SCHIP or some other hybrid State employer kind of 
combination. This one is particularly attractive for the lowest 
wage workers who may indeed be eligible for public programs 
today. This concept is similar to allowing employers to buy 
into the State employee plan. It is a bit more complex because 
the benefit package is more comprehensive in Medicaid 
generally, and Medicaid is going to be more complicated. This 
option requires employers to deal with Medicaid stigma issues, 
some of whom feel strongly about that. There are ways to deal 
with all these problems. But still, allowing small employers to 
opt in to the Medicaid purchasing apparatus would clearly offer 
administrative savings and a stable risk pool, compared to 
buying health insurance alone in the small group market.
    So in conclusion, I would like to assert and we would be 
glad to explain further, that the most efficient way to 
increase health insurance coverage would be to subsidize low 
income workers directly and let them take it where they want to 
go. Unfortunately, I am afraid that AHPs do not stack up so 
well on the affordability and stability dimensions that are 
both critical to long run small group reform success.
    I would encourage you to explore other options that permit 
small employers to buy into existing pools.
    I would be glad to answer any questions.
    [The prepared statement of Mr. Nichols follows:]

    [GRAPHIC] [TIFF OMITTED] T1137.313
    
    [GRAPHIC] [TIFF OMITTED] T1137.314
    
    [GRAPHIC] [TIFF OMITTED] T1137.315
    
    [GRAPHIC] [TIFF OMITTED] T1137.316
    
    [GRAPHIC] [TIFF OMITTED] T1137.317
    
    [GRAPHIC] [TIFF OMITTED] T1137.318
    
    [GRAPHIC] [TIFF OMITTED] T1137.319
    
    [GRAPHIC] [TIFF OMITTED] T1137.320
    
    [GRAPHIC] [TIFF OMITTED] T1137.321
    
    [GRAPHIC] [TIFF OMITTED] T1137.322
    
    [GRAPHIC] [TIFF OMITTED] T1137.323
    
    [GRAPHIC] [TIFF OMITTED] T1137.324
    
    [GRAPHIC] [TIFF OMITTED] T1137.325
    
    [GRAPHIC] [TIFF OMITTED] T1137.326
    
    [GRAPHIC] [TIFF OMITTED] T1137.327
    
    Chair Snowe. I appreciate that.
    First of all, I want to ask you, do you support the idea of 
AHPs or are you totally opposed? Obviously, as many have said 
earlier, it is a multidimensional problem that requires a 
multidimensional solution, frankly, in dealing with the 
uninsured. You have to break down the components of who is 
uninsured and how you are going to reach them and removing the 
barriers.
    So this seems to be one mechanism of addressing it. Now you 
have raised questions and obviously we are going to be looking 
at those issues and I will get to that in a moment. But the 
concept, are you opposed to the concept of AHPs?
    Ms. Lichtman. I am going to try my hand at this answer and 
say to you in advance that I do not mean to beg your question 
but I do not know how to answer it because I do not really know 
what the concept of an AHP is.
    If you are asking me do I opposed the legislation as 
proposed, I oppose it. If you are asking me is it possible for 
people of goodwill to sit down and craft a piece of 
legislation, I do not care what you call it, that meets the 
criteria that the three of us sat down, I would say let us have 
a conversation. Of course, let us make up a word. I could 
support something that met our criteria.
    But if the only thing I have to go on is what I have seen, 
and that is an AHP, I do not like it.
    Ms. Praeger. I do think pooling mechanisms, finding ways to 
allow more small groups especially to pool their employees is 
something we have all been striving towards and we have done 
some, I think, fairly innovative things in Kansas.
    The concern, I guess, with this current legislation is that 
it really does have the impact of destabilizing the market 
because, contrary to what some have said today, it is going to 
be the healthier groups that will look for more affordable 
coverage. They are the ones that will be able to find more 
affordable coverage and they are the ones that will pull out of 
the small group leaving the sicker in that small group and 
leaving us at the State level to try to figure out ways to deal 
with their----
    Chair Snowe. The current system denies most small 
businesses now, at least according to the testimony that we 
have received today and previously, that they do not have 
access under the current system. I mean, that is essentially 
the problem. Why would they not want to be able to get their 
choice in the State in which they are located? It seems the 
simplest approach to me, if I were small business, especially 
if you were a small business, fewer headaches.
    So why would it not be much more efficient for them to try 
to secure that in their own States? The only reason why they 
cannot now is because it is not affordable or they do not have 
many options. The State purchasing pool, for example, is not 
working. At least insofar as I have heard from small business. 
It is just not large enough. They are offering catastrophic 
coverage in some of the plans. The Maine Chamber, it is like 
$5,000 and $10,000 catastrophic coverage now because it is 
becoming so prohibitive.
    So the current system is obviously not working. They are 
looking for other options. Why cannot this be one dimension of 
that problem, looking at some of the issues? I am curious as to 
why some of the language in this legislation does not satisfy 
your concerns? The current system is not working.
    Mr. Nichols. Madam Chair, I think it is quite fair to 
characterize the current system as broken. I think you are 
right about that. Let us think about what are the elements of 
that brokenness, if you will. The fundamental problem here is 
cost. What people are searching for is a cheaper way to find 
health insurance. That very chart, that trend you are showing 
up there is all over the country. That is the one thing 
everywhere. The first thing people talk about is cost.
    They are looking for a solution to cost. I do not mean to 
be disrespectful at all to the strong advocates, but in some 
ways it is like fool's gold. What they are looking for is big-
time savings from benefit mandates. I submit to you they will 
not realize themselves. They are looking for big-time savings 
from pooling together. That could work if you pool together. 
But why would you want to pool together at a national level 
when you really want to pool together at the local level?
    What I have learned over these years, and our center has 
made clear, all health care markets are local. Kind of like 
politics, if I remember from Massachusetts. All health care 
markets are local.
    So the idea of pooling together, for example, just for 
purchasing power, it does not do you any good to have 1 percent 
of the national population, all the docs you want to treat 
small businesses are where small business workers live. So you 
need the pool to be local.
    What you need, therefore, is a way to get these pools to 
work together. The flaw in the small group market from the 
small business's perspective is they are not adequately pooled. 
They are not pooled together enough so that they have the same 
stability the large groups have.
    Chair Snowe. Why is that? Like Wal-Mart. Wal-Mart was cited 
as an example, the largest retailer in the world. Now why is 
that any different than the large pool of small businesses?
    Mr. Nichols. The Commissioner may be able to speak more 
definitely here, but I would just opine from the economist 
point of view, the issue is that people make money segmenting 
risk. It is much more efficient to sell insurance if you can 
sell the cheap policy to the healthy, the middle-sized policy 
to the middle risk, and very expensive policies to high risk. 
That is how you make money.
    Chair Snowe. But why are you saying that, because they 
cannot make the selection. So that is what I am curious about, 
why you are saying that. Because they are obviously prohibited 
in this legislation from denying access. They just cannot go 
around selecting based on health status. So why are you saying 
that?
    Mr. Nichols. Let us go back and think about it. I think you 
are right that the intent of the legislation is to have open 
access. At least my concern is on the part where it says you 
have to be a member of the association, and the association has 
to have existed for 3 years. What if you happen to be a 
business that was not offering now? You could not offer now 
because the rates you are quoted are very high, just like you 
just described. You want to join a new association. Well, the 
new association cannot qualify, it has got to be 3 years old. 
You are not a member now.
    So the question is: Can we put in the legislation rules 
that say new members can join and all members can have access 
to the pool just like an insurer is selling in a guaranteed 
issue environment has to take all comers? If you do that and 
you make it a true level playing field, then indeed there 
should not be near the risk selection problems.
    Chair Snowe. We have specific prohibitions. I always 
believe in looking at the legislative language because 
oftentimes we all talk rhetorically and one looks at it. I 
always ask the question did anybody read the bill? Because 
generally, that is overlooked in the process--oh by the way. So 
that is what I am interested in trying to resolve and I 
obviously cannot do it all here today.
    It says ``prohibition of discrimination against employers 
and employees eligible to participate.'' Then, of course, 
``under the terms of the plan all employees meeting the 
preceding requirements of this section are eligible to qualify 
as participating employers for all geographically available 
coverage options.''
    Obviously it would come under HIPAA, the Health Insurance 
Portability and Accountability Act. It would prevent or 
prohibit adverse selection. So that is not enough, it is not 
sufficient language?
    Ms. Lichtman. Can I attempt an answer? I am going to call 
upon my colleague, Alice, if I do not amplify this as well as I 
intend.
    The very language that you cite I had open here, so thank 
God I had read the right thing, and Alice had the right bill.
    That language sounds good. It does not prohibit insurers 
from deciding what is geographically available. So in the first 
instance it could decide that some health standards are not 
geographically available.
    Two, you have to read this with HIPAA. HIPAA prohibits 
discrimination against individuals, not groups. This piece of 
legislation defines a group as one person. So you could get 
around the antidiscrimination provisions in HIPAA by having an 
individual be a group in an AHP. What therefore AHPs would be 
allowed to do it is set rates geographically. They could target 
certain industries where people are healthier or not healthy. 
It would allow them to design benefit packages which is why you 
hear us say that we think this AHP language allows cherry-
picking, and you say, ``How can it allow cherry-picking?'' I am 
reading right here, it does not allow that.
    It is because HIPAA only protects individuals and this AHP 
language is pretty clear that a group could be a group of one 
person. That gets them out from under----
    Chair Snowe. That would be easily resolved, would it not? I 
mean, adjusting the language, I do not think that is obviously 
the intent of anyone regarding the legislation. Obviously, the 
intent is pretty clear. So it obviously could be adjusted in 
that sense if, in fact, that is a true interpretation of this 
legislative language. Lawyers have different opinions on this 
subject. I thought I would bring that up.
    Ms. Lichtman. I was just going to say I am not an 
economist, but when anybody ever says I am not a lawyer I 
always get very nervous. I am not an economist, but I want to 
say something.
    There are no cheap fixes, and I think that is what my 
economist and my insurance colleague is saying, that DOL's own 
guidance to small employers says if it is cheap, you better 
worry about it. I think what we are saying is these problems 
are so complex, crying out to be fixed, but if indeed this 
legislation is going to allow fixes that do not cost very much 
money it is not going to do what it sets out to do.
    The cherry-picking/discrimination part is one part, I 
think, of a larger constellation of problems that this sets 
out. Certainly we are terribly worried about the consumer fraud 
and the protections against solvency and God knows, lawyer that 
I am, I ought not to talk about that.
    Chair Snowe. I know that the Secretary has the flexibility 
under this legislation to adjust the solvency standards 
depending on the requirements. I mean, above the $2 million. 
There would be a rulemaking procedure here, as well, in 
governing this legislation. So many of those issues could be 
addressed. I am just saying it has a ways to go in the process 
even if it became law.
    The issue that I am saying is this is an option for small 
business, so what is the downside in allowing them to have 
access to this option for coverage?
    Ms. Praeger. Associations must take all members according 
to the legislation that is proposed and I agree with that. But 
they can rate-base on anything other than claims experience and 
the type of industry.
    So I get back to this destabilizing. The problem for the 
small group is that if a group can get a better rate, they will 
prove to the AHP. As their rates go up because of their health 
status and other rating factors that are allowed, then they 
will move back as is required by HIPAA into our small group 
market and we have to take them back.
    So I just think there is an incredibly destabilizing effect 
from the way it is currently crafted. I think putting 
additional solvency requirements is important, but again, if an 
AHP goes belly up, who pays the unpaid claims that are out 
there? Those are going to be costs that are shifted to other--
    Chair Snowe. Do you not agree small businesses are being 
treated differently though, from large businesses and other 
organizations that are allowed to be self-insured so they are 
exempt from State mandates?
    I think this is another dimension to this question, Why 
should Small Business not have the same options as a large 
company?
    Mr. Nichols. Could I just jump in? I would just say in 
general you are asking a very good question. Can legislation be 
written that would be a wise addition to the small group 
option? The answer is surely yes. What I have heard today is 
sincerity on the part of you and a number of Members that could 
make this happen.
    The question, though, is can you do something that would 
not add to a risk? The first do not harm kind of thing. The 
danger about allowing an option that was differential in its 
treatment of small business than existing markets is that it 
could skew the thing even worse than it is now.
    Yes, it seems like many of the features of the current 
legislation would provide options that large firms and union 
plans have. But at the same time you have to remember a 
fundamental difference in this kind of group and General 
Motors, as was invoked a number of times. When General Motors 
decides to self-insure, they insure all of their workers 
worldwide. When association health plans decide to self-insure, 
they insure a whole agglomeration of little bitty groups. Each 
little bitty group is always going to look for its own 
interest, and its own interest is going to find the cheapest 
way it can do it. That is what we want them to do. That is the 
way markets work.
    Therefore you want to have the playing field level and not 
skewed. If one sector can offer products that do not have the 
benefit mandates, and Lord knows there are benefit mandates 
that I would not have voted for and I am sure you would not 
have either. Some of those should be repealed tomorrow 
afternoon. But that is something for the States to work out, it 
seems to me, in conjunction with there full range of options.
    Ms. Lichtman. I want to say something about the enforcement 
point. You and I have worked together on civil rights 
enforcement, protecting discrimination against women, for 
instance, for more years than either one of us are going to 
count. You know better than I the debate that is raging right 
this second while we are sitting here about the failure of the 
Federal Government to enforce Title IX.
    So I am ascribing the best good will to Secretary Chao. But 
I am saying to you unless there are very, very strong 
enforcement provisions in this legislation and real commitments 
for appropriations and authorizations, I do not see where that 
is coming from when we have State enforcement mechanisms in 
place that work. You cannot switch from something that works in 
many places to a promise or to a belief in somebody's goodwill 
because we know that those are temporarily.
    Chair Snowe. The last point.
    Ms. Praeger. I think it is important, too, and Len made the 
point, that health care costs are going up. Our State employees 
health plan is the largest purchaser in the State. We are over 
80,000 employees and dependents, and we are seeing premium 
increases anywhere from 20 to 35 percent.
    So we have a real problem in this country with health care 
costs escalating and its being felt most particularly in the 
small group market.
    I applaud your efforts in trying to address the problem but 
I guess I just am concerned that we do not just create another 
problem in the process.
    Chair Snowe. I am sure that we will be discussing this 
issue in the days ahead. I would also recommend, if you have 
any suggested language, I certainly would be interested in 
seeing it. Because I think that would also be helpful to this 
discussion, as well.
    Obviously, this legislation has been around for the better 
part of a decade. So I think the question is whether or not we 
can move it through this process in addressing some of the 
issues that you have raised today.
    I think undeniably there is a crisis in this market for 
working uninsured. I would like to be able to do what I can to 
advance this effort in Congress.
    I would appreciate your suggestions on this issue and see 
if we can work through some of these issues. If you have some 
suggestions for legislative language that you think would be 
helpful, I certainly would like to look at them.
    I do not see AHPs as mutually exclusive from other options 
in addressing the uninsured. I think the question is whether or 
not this could be one of many tools in the toolbox to help 
address this issue.
    I appreciate your thoughts and input here today. It has 
been very helpful and insightful.
    Thank you. The hearing is adjourned.
    [Whereupon, at 1:35 p.m., the Committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T1137.003
      
    [GRAPHIC] [TIFF OMITTED] T1137.004
    
    [GRAPHIC] [TIFF OMITTED] T1137.005
    
    [GRAPHIC] [TIFF OMITTED] T1137.006
    
    [GRAPHIC] [TIFF OMITTED] T1137.007
    
    [GRAPHIC] [TIFF OMITTED] T1137.008
    
    [GRAPHIC] [TIFF OMITTED] T1137.009
    
    [GRAPHIC] [TIFF OMITTED] T1137.010
    
    [GRAPHIC] [TIFF OMITTED] T1137.011
    
    [GRAPHIC] [TIFF OMITTED] T1137.012
    
    [GRAPHIC] [TIFF OMITTED] T1137.013
    
    [GRAPHIC] [TIFF OMITTED] T1137.014
    
    [GRAPHIC] [TIFF OMITTED] T1137.015
    
    [GRAPHIC] [TIFF OMITTED] T1137.016
    
    [GRAPHIC] [TIFF OMITTED] T1137.017
    
    [GRAPHIC] [TIFF OMITTED] T1137.018
    
    [GRAPHIC] [TIFF OMITTED] T1137.019
    
    [GRAPHIC] [TIFF OMITTED] T1137.020
    
    [GRAPHIC] [TIFF OMITTED] T1137.021
    
    [GRAPHIC] [TIFF OMITTED] T1137.022
    
    [GRAPHIC] [TIFF OMITTED] T1137.023
    
    [GRAPHIC] [TIFF OMITTED] T1137.024
    
    [GRAPHIC] [TIFF OMITTED] T1137.025
    
    [GRAPHIC] [TIFF OMITTED] T1137.026
    
    [GRAPHIC] [TIFF OMITTED] T1137.027
    
    [GRAPHIC] [TIFF OMITTED] T1137.028
    
    [GRAPHIC] [TIFF OMITTED] T1137.029
    
    [GRAPHIC] [TIFF OMITTED] T1137.030
    
    [GRAPHIC] [TIFF OMITTED] T1137.031
    
    [GRAPHIC] [TIFF OMITTED] T1137.032
    
    [GRAPHIC] [TIFF OMITTED] T1137.033
    
    [GRAPHIC] [TIFF OMITTED] T1137.034
    
    [GRAPHIC] [TIFF OMITTED] T1137.035
    
    [GRAPHIC] [TIFF OMITTED] T1137.036
    
    [GRAPHIC] [TIFF OMITTED] T1137.037
    
    [GRAPHIC] [TIFF OMITTED] T1137.038
    
    [GRAPHIC] [TIFF OMITTED] T1137.039
    
    [GRAPHIC] [TIFF OMITTED] T1137.040
    
    [GRAPHIC] [TIFF OMITTED] T1137.041
    
    [GRAPHIC] [TIFF OMITTED] T1137.042
    
    [GRAPHIC] [TIFF OMITTED] T1137.043
    
    [GRAPHIC] [TIFF OMITTED] T1137.044
    
    [GRAPHIC] [TIFF OMITTED] T1137.045
    
    [GRAPHIC] [TIFF OMITTED] T1137.046
    
    [GRAPHIC] [TIFF OMITTED] T1137.047
    
    [GRAPHIC] [TIFF OMITTED] T1137.048
    
    [GRAPHIC] [TIFF OMITTED] T1137.049
    
    [GRAPHIC] [TIFF OMITTED] T1137.050
    
    [GRAPHIC] [TIFF OMITTED] T1137.051
    
    [GRAPHIC] [TIFF OMITTED] T1137.052
    
    [GRAPHIC] [TIFF OMITTED] T1137.053
    
    [GRAPHIC] [TIFF OMITTED] T1137.054
    
    [GRAPHIC] [TIFF OMITTED] T1137.055
    
    [GRAPHIC] [TIFF OMITTED] T1137.056
    
    [GRAPHIC] [TIFF OMITTED] T1137.057
    
    [GRAPHIC] [TIFF OMITTED] T1137.058
    
    [GRAPHIC] [TIFF OMITTED] T1137.059
    
    [GRAPHIC] [TIFF OMITTED] T1137.060
    
    [GRAPHIC] [TIFF OMITTED] T1137.061
    
    [GRAPHIC] [TIFF OMITTED] T1137.062
    
    [GRAPHIC] [TIFF OMITTED] T1137.063
    
    [GRAPHIC] [TIFF OMITTED] T1137.064
    
    [GRAPHIC] [TIFF OMITTED] T1137.065
    
    [GRAPHIC] [TIFF OMITTED] T1137.066
    
    [GRAPHIC] [TIFF OMITTED] T1137.067
    
    [GRAPHIC] [TIFF OMITTED] T1137.068
    
    [GRAPHIC] [TIFF OMITTED] T1137.069
    
    [GRAPHIC] [TIFF OMITTED] T1137.070
    
    [GRAPHIC] [TIFF OMITTED] T1137.071
    
    [GRAPHIC] [TIFF OMITTED] T1137.072
    
    [GRAPHIC] [TIFF OMITTED] T1137.073
    
    [GRAPHIC] [TIFF OMITTED] T1137.074
    
    [GRAPHIC] [TIFF OMITTED] T1137.075
    
    [GRAPHIC] [TIFF OMITTED] T1137.076
    
    [GRAPHIC] [TIFF OMITTED] T1137.077
    
    [GRAPHIC] [TIFF OMITTED] T1137.078
    
    [GRAPHIC] [TIFF OMITTED] T1137.079
    
    [GRAPHIC] [TIFF OMITTED] T1137.080
    
    [GRAPHIC] [TIFF OMITTED] T1137.081
    
    [GRAPHIC] [TIFF OMITTED] T1137.082
    
    [GRAPHIC] [TIFF OMITTED] T1137.083
    
    [GRAPHIC] [TIFF OMITTED] T1137.084
    
    [GRAPHIC] [TIFF OMITTED] T1137.085
    
    [GRAPHIC] [TIFF OMITTED] T1137.086
    
    [GRAPHIC] [TIFF OMITTED] T1137.087
    
    [GRAPHIC] [TIFF OMITTED] T1137.088
    
    [GRAPHIC] [TIFF OMITTED] T1137.089
    
    [GRAPHIC] [TIFF OMITTED] T1137.090
    
    [GRAPHIC] [TIFF OMITTED] T1137.091
    
    [GRAPHIC] [TIFF OMITTED] T1137.092
    
    [GRAPHIC] [TIFF OMITTED] T1137.093
    
    [GRAPHIC] [TIFF OMITTED] T1137.094
    
    [GRAPHIC] [TIFF OMITTED] T1137.095
    
    [GRAPHIC] [TIFF OMITTED] T1137.096
    
    [GRAPHIC] [TIFF OMITTED] T1137.097
    
    [GRAPHIC] [TIFF OMITTED] T1137.098
    
    [GRAPHIC] [TIFF OMITTED] T1137.099
    
    [GRAPHIC] [TIFF OMITTED] T1137.100
    
    [GRAPHIC] [TIFF OMITTED] T1137.101
    
    [GRAPHIC] [TIFF OMITTED] T1137.102
    
    [GRAPHIC] [TIFF OMITTED] T1137.103
    
    [GRAPHIC] [TIFF OMITTED] T1137.104
    
    [GRAPHIC] [TIFF OMITTED] T1137.105
    
    [GRAPHIC] [TIFF OMITTED] T1137.106
    
    [GRAPHIC] [TIFF OMITTED] T1137.107
    
    [GRAPHIC] [TIFF OMITTED] T1137.108
    
    [GRAPHIC] [TIFF OMITTED] T1137.109
    
    [GRAPHIC] [TIFF OMITTED] T1137.110
    
    [GRAPHIC] [TIFF OMITTED] T1137.111
    
    [GRAPHIC] [TIFF OMITTED] T1137.112
    
    [GRAPHIC] [TIFF OMITTED] T1137.113
    
    [GRAPHIC] [TIFF OMITTED] T1137.114
    
    [GRAPHIC] [TIFF OMITTED] T1137.115
    
    [GRAPHIC] [TIFF OMITTED] T1137.116
    
    [GRAPHIC] [TIFF OMITTED] T1137.117
    
    [GRAPHIC] [TIFF OMITTED] T1137.118
    
    [GRAPHIC] [TIFF OMITTED] T1137.119
    
    [GRAPHIC] [TIFF OMITTED] T1137.120
    
    [GRAPHIC] [TIFF OMITTED] T1137.121
    
    [GRAPHIC] [TIFF OMITTED] T1137.122
    
    [GRAPHIC] [TIFF OMITTED] T1137.123
    
    [GRAPHIC] [TIFF OMITTED] T1137.124
    
    [GRAPHIC] [TIFF OMITTED] T1137.125
    
    [GRAPHIC] [TIFF OMITTED] T1137.126
    
    [GRAPHIC] [TIFF OMITTED] T1137.127
    
    [GRAPHIC] [TIFF OMITTED] T1137.128
    
    [GRAPHIC] [TIFF OMITTED] T1137.129
    
    [GRAPHIC] [TIFF OMITTED] T1137.130
    
    [GRAPHIC] [TIFF OMITTED] T1137.131
    
    [GRAPHIC] [TIFF OMITTED] T1137.132
    
    [GRAPHIC] [TIFF OMITTED] T1137.133
    
    [GRAPHIC] [TIFF OMITTED] T1137.134
    
    [GRAPHIC] [TIFF OMITTED] T1137.135
    
    [GRAPHIC] [TIFF OMITTED] T1137.136
    
    [GRAPHIC] [TIFF OMITTED] T1137.137
    
    [GRAPHIC] [TIFF OMITTED] T1137.138
    
    [GRAPHIC] [TIFF OMITTED] T1137.139
    
    [GRAPHIC] [TIFF OMITTED] T1137.140
    
    [GRAPHIC] [TIFF OMITTED] T1137.141
    
    [GRAPHIC] [TIFF OMITTED] T1137.142
    
    [GRAPHIC] [TIFF OMITTED] T1137.143
    
    [GRAPHIC] [TIFF OMITTED] T1137.144
    
    [GRAPHIC] [TIFF OMITTED] T1137.145
    
    [GRAPHIC] [TIFF OMITTED] T1137.146
    
    [GRAPHIC] [TIFF OMITTED] T1137.147
    
    [GRAPHIC] [TIFF OMITTED] T1137.148
    
    [GRAPHIC] [TIFF OMITTED] T1137.149
    
    [GRAPHIC] [TIFF OMITTED] T1137.150
    
    [GRAPHIC] [TIFF OMITTED] T1137.151
    
    [GRAPHIC] [TIFF OMITTED] T1137.152
    
    [GRAPHIC] [TIFF OMITTED] T1137.153
    
    [GRAPHIC] [TIFF OMITTED] T1137.154
    
    [GRAPHIC] [TIFF OMITTED] T1137.155
    
    [GRAPHIC] [TIFF OMITTED] T1137.156
    
    [GRAPHIC] [TIFF OMITTED] T1137.157
    
    [GRAPHIC] [TIFF OMITTED] T1137.158
    
    [GRAPHIC] [TIFF OMITTED] T1137.159
    
    [GRAPHIC] [TIFF OMITTED] T1137.160
    
    [GRAPHIC] [TIFF OMITTED] T1137.161
    
    [GRAPHIC] [TIFF OMITTED] T1137.162
    
    [GRAPHIC] [TIFF OMITTED] T1137.163
    
    [GRAPHIC] [TIFF OMITTED] T1137.164
    
    [GRAPHIC] [TIFF OMITTED] T1137.165
    
    [GRAPHIC] [TIFF OMITTED] T1137.166
    
    [GRAPHIC] [TIFF OMITTED] T1137.167
    
    [GRAPHIC] [TIFF OMITTED] T1137.168
    
    [GRAPHIC] [TIFF OMITTED] T1137.169
    
    [GRAPHIC] [TIFF OMITTED] T1137.170
    
    [GRAPHIC] [TIFF OMITTED] T1137.171
    
    [GRAPHIC] [TIFF OMITTED] T1137.172
    
    [GRAPHIC] [TIFF OMITTED] T1137.173
    
    [GRAPHIC] [TIFF OMITTED] T1137.174
    
    [GRAPHIC] [TIFF OMITTED] T1137.175
    
    [GRAPHIC] [TIFF OMITTED] T1137.176
    
    [GRAPHIC] [TIFF OMITTED] T1137.177
    
    [GRAPHIC] [TIFF OMITTED] T1137.178
    
    [GRAPHIC] [TIFF OMITTED] T1137.179
    
    [GRAPHIC] [TIFF OMITTED] T1137.180
    
    [GRAPHIC] [TIFF OMITTED] T1137.181
    
    [GRAPHIC] [TIFF OMITTED] T1137.182
    
    [GRAPHIC] [TIFF OMITTED] T1137.183
    
    [GRAPHIC] [TIFF OMITTED] T1137.184
    
    [GRAPHIC] [TIFF OMITTED] T1137.185
    
    [GRAPHIC] [TIFF OMITTED] T1137.186
    
    [GRAPHIC] [TIFF OMITTED] T1137.187
    
    [GRAPHIC] [TIFF OMITTED] T1137.188
    
    [GRAPHIC] [TIFF OMITTED] T1137.189
    
    [GRAPHIC] [TIFF OMITTED] T1137.190
    
    [GRAPHIC] [TIFF OMITTED] T1137.191
    
    [GRAPHIC] [TIFF OMITTED] T1137.192
    
    [GRAPHIC] [TIFF OMITTED] T1137.193
    
    [GRAPHIC] [TIFF OMITTED] T1137.194
    
    [GRAPHIC] [TIFF OMITTED] T1137.195
    
    [GRAPHIC] [TIFF OMITTED] T1137.196
    
    [GRAPHIC] [TIFF OMITTED] T1137.197
    
    [GRAPHIC] [TIFF OMITTED] T1137.198
    
    [GRAPHIC] [TIFF OMITTED] T1137.199
    
    [GRAPHIC] [TIFF OMITTED] T1137.200
    
    [GRAPHIC] [TIFF OMITTED] T1137.202
    
    [GRAPHIC] [TIFF OMITTED] T1137.203
    
    [GRAPHIC] [TIFF OMITTED] T1137.204
    
    [GRAPHIC] [TIFF OMITTED] T1137.205
    
    [GRAPHIC] [TIFF OMITTED] T1137.206
    
    [GRAPHIC] [TIFF OMITTED] T1137.207
    
    [GRAPHIC] [TIFF OMITTED] T1137.208
    
    [GRAPHIC] [TIFF OMITTED] T1137.209
    
    [GRAPHIC] [TIFF OMITTED] T1137.210
    
    [GRAPHIC] [TIFF OMITTED] T1137.211
    
    [GRAPHIC] [TIFF OMITTED] T1137.212
    
    [GRAPHIC] [TIFF OMITTED] T1137.213
    
    [GRAPHIC] [TIFF OMITTED] T1137.214
    
    [GRAPHIC] [TIFF OMITTED] T1137.215
    
