[Senate Hearing 108-718]
[From the U.S. Government Publishing Office]
S. Hrg. 108-718
MEDICARE PRESCRIPTION DRUG CARDS AND ASSOCIATION HEALTH PLANS
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
APRIL 2, 2004--NORRISTOWN, PA
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
__________
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COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana
James W. Morhard, Staff Director
Lisa Sutherland, Deputy Staff Director
Terrence E. Sauvain, Minority Staff Director
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Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
JUDD GREGG, New Hampshire ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas HARRY REID, Nevada
TED STEVENS, Alaska HERB KOHL, Wisconsin
MIKE DeWINE, Ohio PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama MARY L. LANDRIEU, Louisiana
ROBERT C. BYRD, West Virginia (Ex
officio)
Professional Staff
Bettilou Taylor
Jim Sourwine
Mark Laisch
Sudip Shrikant Parikh
Candice Rogers
Ellen Murray (Minority)
Erik Fatemi (Minority)
Adrienne Hallett (Minority)
Administrative Support
Carole Geagley
C O N T E N T S
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Page
Opening statement of Senator Arlen Specter....................... 1
Statement of Hon. Stewart Greenleaf, State Senator from
Pennsylvania................................................... 1
Statement of Hon. John Fichter, State Representative from
Pennsylvania................................................... 2
Statement of Hon. Michael McMullan, Deputy Director, Center for
Beneficiary Choices, Centers for Medicare and Medicaid
Services, Department of Health and Human Services.............. 3
Prepared statement........................................... 5
Statement of Donna Uhler, Coordinator, Apprise Program,
Pennsylvania Department of Aging............................... 10
Statement of Bradford P. Campbell, Deputy Assistant Secretary,
Employee Benefits Security Administration, Department of Labor. 14
Prepared statement........................................... 16
Statement of Alexis L. Barbieri, Executive Deputy Attorney
General, Commonwealth of Pennsylvania.......................... 19
Prepared statement........................................... 21
Statement of Paul Zieger, on behalf of the National Federation of
Independent Business........................................... 22
Prepared statement........................................... 24
Statement of Ray Carroll, on behalf of the Pennsylvania
Restaurant Association......................................... 25
Prepared statement........................................... 27
Statement of Mary Beth Senkewicz, Senior Counsel for Health
Policy, National Association of Insurance Commissioners........ 28
Prepared statement........................................... 30
MEDICARE PRESCRIPTION DRUG CARDS AND ASSOCIATION HEALTH PLANS
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FRIDAY, APRIL 2, 2004
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Norristown, PA.
The subcommittee met at 12:15 p.m., in Courtroom ``C'' of
the Montgomery County Courthouse, Norristown, PA, Hon. Arlen
Specter (chairman) presiding.
Present: Senator Specter.
OPENING STATEMENT OF SENATOR ARLEN SPECTER
Senator Specter. Good afternoon, ladies and gentlemen. The
field hearing of the Appropriations Subcommittee on Labor,
Health and Human Services, and Education will now proceed.
I am joined today by State Senator Stewart Greenleaf and
State Representative John Fichter. This hearing was suggested
by Senator Greenleaf, who contacted me a few weeks ago and said
that there was a lot of interest in the Medicare prescription-
drug bill, a lot of information needed to be conveyed to the
people in Pennsylvania in his State Senate District. And I
compliment Senator Greenleaf for taking the initiative to
undertake the hearing.
When we decided to schedule the hearing, it was decided to
expand the hearing to include association health plans, as
well, because small-businessmen and -women are facing
tremendous problems on having adequate healthcare. It's very,
very costly for small-businessmen and small-businesswomen to
insure employees, and there has been a legislative proposal
which would authorize the formation of association health
plans, which would enable small-business people or individual
employers to band together and get lower rates, and we thought
that would be a good adjunct to this hearing.
It's not often that you have a hearing on the multi levels,
but there's no reason why we couldn't do that. And so here we
are.
Let me yield, at this point, to Senator Greenleaf.
STATEMENT OF HON. STEWART GREENLEAF, STATE SENATOR FROM
PENNSYLVANIA
Senator Greenleaf. Thank you very much, Senator Specter,
for being here. And you've always been concerned--I know you
almost live in Montgomery County, and you're from our area.
Senator Specter. Right across City Line Avenue is
Montgomery County. A lot of advantages. You don't get to pay
the city wage taxes.
Senator Greenleaf. But, anyway, we're happy you're here in
our courthouse and in the center of our town. I know you're
concerned about both healthcare for small-business people, and
also for prescription drugs, drugs for the elderly. And we know
you're very busy and have a lot of things, and the ranking
members of many, many committees, and we appreciate you taking
the time to be here, and being here in this county and talk
about an issue that not only affects us, but the rest of the
State, as well.
We, in Pennsylvania, passed a program recently to increase
the benefits for elderly citizens in Pennsylvania, increasing
the PACENET by, I think, over $31,000 a year for married
couples. And with Representative Fichter, in the House, and
myself, in the Senate, both parties and both bodies worked very
hard to have that passed. We have one of the best prescription
plans in the Nation. But now the Congress, with Senator
Specter's leadership, is able to have a drug-discount program
passed, and it's now pending, and it will start in the very
near future, for about a year and a half, and then go into a
permanent program. So we're hopeful we can combine the two,
combine the Pennsylvania program, which is funded by our
lottery funds, and then the Federal program. And I think we
will be very, very encouraged by that, the savings that
Pennsylvania will have in regard to the Federal program. We can
then take those monies and put them into additional benefits
and raise the income levels even higher.
In the suburbs, it's hard for people to qualify on their
income levels for the PACENET program. The program that the
Senator and others in Washington have been instrumental in
getting passed will add millions of dollars to our program, so
we can then increase the income limits for our constituents so
even more can qualify under the PACENET program. About 125,000
additional people will qualify for the new program. And we
hope, with additional monies, both in the indirect aid to
Pennsylvania and the additional people who qualify for the
Federal program, we should have the best program in the Nation.
So thank you for inviting me to be here today. Thank you
very much.
Senator Specter. Thank you very much, Senator Greenleaf.
I would turn now to distinguished State Representative, Mr.
John Fichter.
STATEMENT OF HON. JOHN FICHTER, STATE REPRESENTATIVE
FROM PENNSYLVANIA
Rep. Fichter. Thank you, Senator Specter, Senator
Greenleaf. Obviously being junior to both of these gentlemen in
seniority, and specifically being a member of the House of
Representatives, and not the Senate--anyway, following Senator
Greenleaf--he just about said it all, but I do want to thank
Senator Specter for coming to Norristown to highlight Medicare.
We've come a long way from July 1, 1965, when the President
signed the Medicare law. I remember that Part A was free, and
Part B was $3 a month. So now Part A, I think, is still free,
but Part B is $44 a month. But there's been a lot of
improvements to the program over the years, and basically for
the good of our senior citizens. And Arlen Specter has always
had a soft spot in his heart for the senior citizens. And,
Senator, just keep up the good work down there.
Thank you very much.
Senator Specter. Thank you very much, Representative
Fichter.
One note before we begin. I want to thank the Montgomery
County Court of Common Pleas and the Montgomery County
commissioners for permitting us to have the hearing in this
elegant courtroom. I am tempted to move across the street into
the county and run for judge with surroundings like these.
I note a little definition here of ``bodily injury'' and
``deadly weapon,'' the ingredients of a crime which apparently
had to be charged to the jury. It reminds me of the good old
days, when I used to be an assistant district attorney and I
handled these matters.
STATEMENT OF HON. MICHAEL McMULLAN, DEPUTY DIRECTOR,
CENTER FOR BENEFICIARY CHOICES, CENTERS FOR
MEDICARE AND MEDICAID SERVICES, DEPARTMENT
OF HEALTH AND HUMAN SERVICES
Senator Specter. Let us turn now to our first witness. With
the first facet of our hearing today being on the Medicare
prescription drug plans, our first witness is Ms. McMullan, Ms.
Michael McMullan, Deputy Director for Beneficiary Education at
the Centers for Medicare and Medicaid Services. She led the
formation of the Center for Beneficiary Services, and helped
design the national Medicare program, Medicare & You. She
received her B.A. in economics from Washington College, and a
master's in business administration from Loyola.
Thank you, Ms. McMullan, for coming from Washington, and we
look forward to your testimony. We will introduce Ms. Uhler in
just a moment.
We have set the time at 4 minutes for opening statements
from members of the panel, and 4 minutes for the witnesses.
That is set to allow the maximum amount of time for questions
and answers.
We had a memorial service for Ambassador Walter Annenberg
at the Academy of Music. And among the guest speakers were
former President Gerald Ford, Secretary of State Colin Powell,
and Governor Rendell, and I was one of the guest speakers, and
we were allowed 3 minutes. So I want you to know what a
generous allocation 4 minutes is.
Ms. McMullan, the floor is yours.
Ms. McMullan. Senator Specter, thank you for inviting me
here today to discuss the Medicare Drug Discount Program. This
is a voluntary program that will provide immediate relief.
Senator Specter. Would you pull the microphone right under
you. Senator Thurmond, when he chaired, said, ``Bring the
machine closer.''
Ms. McMullan. Many seniors will reduce the cost of
prescription drugs today. Today, people with Medicare who do
not have coverage for prescription drugs pay, on average, 20
percent more for their prescription drugs. The Medicare-
approved drug discount card is meant for this population; to
help them reduce their out-of-pocket costs for outpatient
prescription drugs. Very importantly, those people with the
greatest need, the low-income portion of the population, will
also qualify for a $600 credit. Enrollment in these programs
will begin as early as May 2004, and discounts will begin as
early as June 2004. These discount cards are administered by
private-sector organizations, and there will be at least two
choices in every State. There are more than that number of
choices in Pennsylvania.
Enrollment fees cannot exceed $30, and that's an annual
enrollment fee. The transitional assistance that we've talked
about, the $600 credit, is available in both 2004 and 2005 to
people who are at 135 percent of poverty. For an individual,
that is $12,569 and for a couple, that is $16,862. And if they
qualify for the transitional assistance, the enrollment fee is
waived.
They can enroll at any time. But once they are enrolled,
they are locked into the drug card that they select. There is
an open-enrollment period, November 15 through December 31. And
the reason for the lock-in is that the way the drug discount
card works is to collect as many covered lives as possible to
negotiate the best price possible from the pharmaceutical
manufacturer, as well as the pharmacy. This way the individuals
with the card get the best price at the pharmacy.
To help people with Medicare understand what their options
are, we have created on our web site, medicare.gov, an
interactive database that will include information about all of
the drug cards that are available, that an individual will
enter his or her eligibility information, information about
themselves, their income, and other information and their zip
code. If they have a favorite pharmacy, they can enter the name
of the pharmacy. If they just want to know how many pharmacies
are within 5 miles of their location, they can also enter that,
and we will narrow down their options and present that
information to them.
People who aren't able to use the Internet themselves can
call 1-800-MEDICARE, and a customer-service representative will
walk them through this process, and we will mail them the
information that has been tailored to them.
Additionally, at the end of April, we will mail to every
Medicare beneficiary household a short, two-page description of
the drug cards, so everyone will get this in their hands. And
the Social Security Administration will also be mailing, to
people who will potentially qualify for the $600 credit, a
letter explaining the importance of taking advantage of the
$600 credit.
I also want to note that we have a guide to choosing a
Medicare-approved drug-discount card that will be available
either by calling 1-800-MEDICARE or by going on the web site
and downloading it. This goes into extensive information about
the opportunity for the drug-discount card, how to enroll, the
types of questions people need to be prepared to answer. And
we'll be sharing this information, as well as additional aids
like tip sheets, and a CD-ROM explaining the web site, with
community-based organizations, including the State Health-
Insurance Assistance Programs and other community-based
organizations.
Our regional offices will be working with community-based
organizations to reach out to individuals in the greatest need,
those who have access barriers to information such as language,
location, literacy, and culture so that that population will
also get an additional amount of information and attention to
make sure that they know the opportunity exists both with the
drug-discount card for those that do not already have
outpatient prescription drug coverage and the $600 credit.
PREPARED STATEMENT
Just one last note. The card is not available to people who
have Medicaid coverage for outpatient prescription drugs, but
it is available to all other people with Medicare that are
enrolled in either Part A or B.
[The statement follows:]
Prepared Statement of Michael McMullan
Chairman Specter, Senator Harkin, distinguished Committee members,
thank you for inviting me here to Norristown, Pennsylvania, to discuss
the Medicare Prescription Drug Discount Card and the Transitional
Assistance Program, which were enacted into law on December 8, 2003, as
part of the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA). In May 2004, as an important first step towards
comprehensive Medicare prescription drug coverage, Medicare
beneficiaries will be able to enroll in a Medicare-approved drug card
program that will offer discounts on their prescription drugs. This
voluntary drug card program will give immediate relief to seniors and
persons with disabilities covered under Medicare to reduce their costs
for prescription drugs. In addition to the expected savings from the
drug discount card, certain low-income beneficiaries will qualify for
additional assistance in the form of a $600 annual credit. CMS is very
proud to have a significant role in this important first step towards a
comprehensive Medicare prescription drug benefit, which is slated to
begin on January 1, 2006. CMS is working diligently to meet the
aggressive deadline to implement the drug card and transitional
assistance program. To this end, the Secretary last week announced the
approval of 28 general and special cards, and 43 exclusive cards. We
are confident drug card sponsors will begin marketing and enrollment
efforts on May 3, 2004, with beneficiaries beginning to see discounts
beginning June 1, as scheduled. We are also launching aggressive
education campaigns to help beneficiaries choose the best card to fit
their needs, and are planning strict monitoring efforts to ensure that
card sponsors are not changing prices for unwarranted reasons.
BACKGROUND
Currently, Medicare beneficiaries who lack outpatient drug coverage
pay among the highest prices for prescription drugs, as much as 20
percent higher than people with drug coverage according to a study of
drug pricing prepared by the Department of Health and Human Services'
Office of the Assistant Secretary for Planning and Evaluation. Under
the Medicare Prescription Drug Discount Card Program, we expect
beneficiaries to save an estimated 10 to 15 percent off the retail
price on their overall prescription drug costs, and up to 25 percent on
some drugs. The drug card will pass savings on to beneficiaries in the
form of price concessions. While not a drug benefit, the voluntary drug
card program is an important first step in providing Medicare
beneficiaries with the tools they need to better afford the cost of
prescription drugs.
SPONSOR SOLICITATION
CMS has already begun implementation of the drug card program. We
received 106 applications by the January 30, 2004, deadline. Five
applications were withdrawn or merged by the applicants, leaving a
total of 101. To be considered for the program, organizations were
required to complete a detailed application concerning their
qualifications and the design of their proposed drug discount card
program. Applicants that did not receive our approval have a right to
request a reconsideration within 15 days from the notice of initial
determination. Any reconsideration determination will be final and
binding on the parties and not subject to judicial review.
CMS solicited applications by potential drug discount card
sponsoring organizations on December 15, 2003, and applicants were due
back on January 30. We evaluated each application against the
requirements to operate a drug card program, and the sufficiently
complete and correct applications were approved. A number of the
applications were disapproved if, for example, they did not fulfill
entirely a key requirement, such as providing a contract or letter of
agreement (signed by both parties) when the sponsor indicated a plan to
contract out a key function such as administering the $600 credit.
Because of the short timeframe to implementation, we are providing such
applicants with a two-week window to correct such deficiencies, and we
will review this information on a rolling basis to determine if these
applications can be approved.
We have approved 28 general card applications (of the 55 general
applications considered). As approved sponsors can offer more than one
card program, this results in 28 national approved programs and 19
regional approved programs. Twenty-seven potential sponsors were
rejected based on failing to completely satisfy fundamental
requirements of the solicitations, including liabilities exceeding
assets and the failure to demonstrate the capacity to manage
transitional assistance. CMS also approved 43 (of 44) exclusive card
applications, associated with 84 Medicare managed care organizations,
to provide the drug card as an integrated part of the Medicare
Advantage benefit package available to beneficiaries enrolled in those
plans. The recommended approvals allow for a manageable number of cards
from which people with Medicare will select, and reflects the high
standards attributed to the use of the Medicare name. The 28 general
card applicants represent card programs that would be administered by
insurers, pharmacy chains, and pharmacy benefit managers. We expect
that beneficiaries can begin to enroll in these card plans in May and
begin using their drug cards in June 2004.
We also awarded a ``special approval'' to: three applicants to
provide access to the $600 credit through long-term care pharmacies;
two applicants to provide discounts to residents of the territories;
and one applicant to service Federally recognized Indian tribe and
tribal organization pharmacies. The MMA requires CMS to have one
additional contractor for the tribal pharmacies. We have re-issued a
solicitation to receive additional applications to meet this
requirement, and several organizations have responded with a notice of
intent to submit a proposal.
All applications of contractors that currently administer State
pharmacy assistance programs will receive a Medicare approval,
covering: IA, IL, KS, MA, MD, MI, NH, NY, OH, OR, PA, RI, SC, VT, and
WV. States have the ability to exclusively contract with a Medicare
approved card program. If a State's current contractor did not apply
for an approval, the State may work with another (approved) card
sponsor.
To ensure that beneficiaries have convenient access to their
neighborhood pharmacies, card sponsors will not be permitted to limit
their services to mail-order programs. Instead, all approved cards must
include an extensive national or regional network of retail pharmacies,
which must meet minimum requirements. For example, in urban areas, at
least 90 percent of Medicare beneficiaries must live within two miles
of a participating pharmacy. In suburban areas, 90 percent of Medicare
beneficiaries must live within five miles, and in rural areas, 70
percent of beneficiaries must live within 15 miles of a participating
pharmacy.
Drug card sponsors will be required to provide information to
beneficiaries on the program's enrollment fee, which cannot exceed $30
per year, and to publish discounted prices available through their
cards. In addition, Medicare will ensure that beneficiaries have at
least two choices of approved general cards in each State, with the
State being the smallest service area permitted under this program. If
a card sponsor's service area includes additional States, the entire
additional State must be included. Medicare will also provide reliable,
easy-to-compare information that will show beneficiaries which programs
are in their area, and allow beneficiaries to choose the discount card
program that best meets their needs. Medicare will also inform
enrollees that prescription drug card sponsors must protect personal
and medical information consistent with the privacy requirements of the
Health Insurance Portability and Accountability Act.
BENEFICIARY ELIGIBILITY
To qualify for the drug discount card, Medicare beneficiaries must
be entitled to or enrolled under Part A and/or enrolled under Part B,
but may not be receiving outpatient drug benefits through Medicaid,
including 1,115 waivers. In addition to receiving discounts through the
drug card, beneficiaries with incomes that do not exceed 135 percent of
the federal poverty level ($12,569 for individuals, $16,862 for couples
for 2004) will get a Federal credit of up to $600 per year to purchase
their prescription drugs. The Federal government will also pay the full
annual enrollment fee, which is not to exceed $30, for these
cardholders with low incomes.
To enroll, beneficiaries will submit basic information to the
selected approved discount card sponsor of their choosing about their
Medicare and Medicaid status. Those beneficiaries requesting the $600
credit also must submit income and other information about retirement
and other health benefits to the card sponsor, and attest to
truthfulness of the information. CMS will verify this information and
notify the approved discount card program of the beneficiary's
eligibility and enrollment outcome. If a beneficiary is found to be
ineligible for a drug card, the card sponsor will send written notice
to the beneficiary explaining why he or she was found to be ineligible.
For beneficiaries who are eligible, sponsors will send a welcome
package, including their new drug card, so that they can begin
obtaining discounts and, if receiving the $600 credit, using these
funds to purchase prescription drugs, upon receiving their cards.
Individuals found to be ineligible for either the discount card or the
$600 credit may request reconsideration if they still believe they
qualify.
An eligible beneficiary can enroll in an approved discount card
program at any time. After the initial election in 2004, beneficiaries
will have the option, for 2005, of choosing a different card program
during the second election period between November 15 and December 31,
2004. In addition, a beneficiary may change cards under certain
circumstances if, for example, the beneficiary enters a long-term care
facility, moves outside of the area served by the beneficiary's
approved program, or enrolls in or drops a Medicare managed care plan
that is also providing an exclusive drug discount card program in which
the beneficiary was enrolled.
TRANSITIONAL ASSISTANCE PROGRAM
In addition to providing a discount off the price of prescription
drugs, MMA creates the Transitional Assistance program, which provides
up to $600 in an annual credit for Medicare beneficiaries whose incomes
do not exceed 135 percent of the federal poverty level ($12,569 for
individuals, $16,862 for couples for 2004). When applying the $600
toward prescription drug purchases, beneficiaries at or below 100
percent of poverty will pay 5 percent coinsurance, and beneficiaries
between 100 and 135 percent of poverty will pay a 10 percent
coinsurance. The credit, in conjunction with the discount card, will
give these most vulnerable beneficiaries immediate assistance in
purchasing prescription drugs they otherwise may not be able to afford.
For example, Medicare beneficiaries without prescription drug insurance
on average would pay about $1,300 for prescription drugs in 2004. The
expected savings of approximately 10 to 15 percent translates to $140
to $210. This savings added to the $600 credit will be of substantial
help to those who need it most.
EDUCATION
To help explain the drug discount card to beneficiaries and help
them navigate among cards to choose the card that best fits their
needs, CMS has a number of education and outreach efforts underway.
Print, radio, and television advertisements will highlight the upcoming
changes to the Medicare program, including the addition of the drug
discount card. The advertising campaign--presented in both English and
Spanish--also includes Internet-banner ads and a 10-minute pre-recorded
informational radio interview to educate beneficiaries about the
upcoming drug discount cards.
These advertisements will direct beneficiaries to 1-800-MEDICARE
and Medicare's website, www.medicare.gov, for more information. CMS is
working to ensure that customer service representatives at 1-800-
MEDICARE have up-to-date information on the drug card, as well as other
CMS programs. Based on our analysis, we estimate 1-800-MEDICARE will
receive 12.8 million calls in fiscal year 2004. This compares to an
fiscal year 2003 call volume of approximately 5.6 million calls. The
12.8 million calls include an estimated increase of 5.5 million calls
as a result of the new Medicare law and 7.3 million calls for routine
1-800-MEDICARE call topics. We plan to increase our CSR level at 1-800-
MEDICARE in May 2004 to handle the expected increase in call volume.
An additional feature of the website will be a new price comparison
tool, Medicare Price Comparison. Under the drug card program, card
sponsors will negotiate drug discounts with both pharmacies and drug
manufacturers. The new comparison tool will give beneficiaries, or
their representatives, the capacity to find the sponsor-negotiated
price for each drug or all their drugs at pharmacies in their area.
Pricing information will be available for brand name, generic, and
mail-order prescriptions offered through each card sponsor's program.
Drug card sponsors will be able to update the drug pricing information
on a weekly basis. Starting in late April, beneficiaries will be able
to use the comparison tool by going to www.medicare.gov or by calling
1-800-MEDICARE. Customer service representatives at 1-800-MEDICARE also
will be able to answer questions about the program, help them compare
drug cards on price and network pharmacies, and refer callers to other
appropriate resources. They will also mail the results of the
comparison to seniors.
CMS also has a number of beneficiary publications planned for 2004
to explain changes in the Medicare program. For example, HHS has
prepared a detailed ``Guide to Choosing a Medicare-Approved Drug
Discount Card'' for beneficiaries that explains the program, including
eligibility and enrollment information, and provides step-by-step
guidance for comparing discount cards and choosing one. The booklet
currently is posted at www.medicare.gov, and printed copies will be
available for free through 1-800-MEDICARE. CMS also will publish a
small pamphlet with an overview of the drug card program and an
introduction to the discount cards and the $600 low-income credit. In
addition, a brief document that introduces beneficiaries to the
discount cards and the Medicare-approved seal will be mailed directly
to beneficiary households. This mailing, which will correspond with the
television information campaign, is scheduled for late April 2004.
Also, as required by MMA, CMS will work with its partners at the Social
Security Administration to facilitate a mailing targeted toward low-
income Medicare beneficiaries detailing the drug card and transitional
assistance program.
To assist in beneficiary education and outreach, CMS increased
funding to State Health Insurance Assistance Programs' (SHIPs) grants
and REACH from $12.5 million last year to about $21.1 million for
fiscal year 2004--a 69 percent increase above the fiscal year 2003
total. In addition, HHS' budget plan for fiscal year 2005 allocates
$31.7 million to SHIPs--more than double the amount awarded in fiscal
year 2003. With the new funding, SHIPs will be able to expand their
efforts to work with and reach even more Medicare beneficiaries and
increase and enhance their volunteer staff through additional training
and resources.
To educate providers and pharmacists, as well as the States and
other stakeholders, CMS will sponsor conferences and conduct a number
of teleconferences to make the information available nationwide. For
example, in-person training will take place at the CMS-sponsored drug
card conference, which is scheduled for April 7-8. CMS staff will be
available to provide technical assistance and support as the program
begins.
COVERAGE
The discount card and $600 in transitional assistance can be used
to purchase nearly all prescription drugs available at retail
pharmacies. Syringes and medical supplies associated with the injection
of insulin, such as needles, alcohol, and gauze, are also included. It
is anticipated that many approved programs will use formularies to
obtain deeper discounts on prescription drugs. If an approved discount
card program uses a formulary then the drugs most commonly needed by
Medicare beneficiaries must be included. At a minimum, each program
must offer a discount on at least one drug in each of the 209
therapeutic categories of prescription drugs. However, even if a
prescription drug is not on the sponsor's formulary, the $600 must
still be applied to all the covered prescription drugs available at the
pharmacy if the beneficiary uses the discount card toward the purchase.
Drug card sponsors also may choose to offer discounts on over-the-
counter (OTC) drugs, but the $600 cannot be used toward the purchase of
OTC drugs. CMS made public on April 1, 2004 the enrollment fee for each
drug card on the PDAP website, and the discounted prices will be posted
at the end of April.
Medicare approved drug discount card sponsors will negotiate with
manufacturers and pharmacies for rebates and discounts off the average
wholesale price (AWP) for drugs covered under the drug card program. In
order to get the most competitive savings to beneficiaries, some cards
will use formularies, which can improve the negotiating leverage
sponsors have with pharmaceutical manufacturers.
Beneficiaries will be guaranteed a percentage savings (or discount)
on each purchase they make with their card. Individual prices may
change, as AWP moves up and down, but the discount rate to which the
card entitles them will not move, unless the sponsoring organization
can satisfactorily report to CMS a good cause for such a move. The
attached chart outlines how this process works. CMS expects to receive
detailed information from program sponsors concerning specific
discounts in the near future.
It is true that drug prices under the drug card may change. But
this is not different from the way drug pricing works in the market
place today. In typical industry practice, a pharmacy benefits manager
guarantees, by contract, a certain discount off of the average
wholesale price (AWP) to its payers. Within the universe of the
thousands of prescription drugs on the market, there are changes in AWP
in response to price shifts in labor and raw ingredients, as well as to
supply and demand. However, taken individually, the AWP for the vast
majority of drugs either does not change or changes several times a
year by a modest amount.
Once a card is selected, beneficiaries are committed to their card
for the calendar year (with a few exceptions). This is a key program
design feature to improve the discounts to beneficiaries under a drug
discount card. Historically, drug discount cards have not included
discounts from manufacturers because sponsors could not guarantee
market share. By having committed beneficiaries, Medicare approved
sponsors are able to guarantee a certain patient population. This
guarantee increases their negotiating leverage with manufacturers and
improves their ability to secure discounts and rebates, which are
passed on to the beneficiaries. Because approved programs will be
competing for Medicare beneficiaries to be able to increase their
negotiating power, the programs will have an incentive to pass
negotiated savings along to the beneficiaries in the form of the lowest
possible drug prices.
While approved discount card programs may update their prices and
lists of offered drugs on a weekly basis, CMS will monitor drug price
changes to ensure that prices do not deviate from expected market
changes, such as those in average wholesale price. While we do not
anticipate that sponsors will be changing prices for unwarranted
reasons, CMS will nonetheless closely monitor changes in prices over
time for each drug that a card sponsor offers:
--If a card sponsor's drug prices change in an amount that is not
consistent with the expected change due to AWP, then the
sponsor must report it and provide a rationale.
--Also, CMS will routinely check for price changes from week to week
compared to what is expected, based on changes in AWP. Price
changes that are not expected will be flagged and evaluated.
--If the price change is not due to legitimate changes in their
operating environment, such as losing a manufacturer contract,
or unexpected costs of operating the call center, then a card
sponsor could be sanctioned by CMS.
--Sanctions could include prohibiting further marketing and
enrollment, monetary penalties, and terminating the card
program.
FRAUD
Although the drug discount card program has not yet been
implemented, some Medicare beneficiaries have already received calls as
well as in-person solicitations from individuals/companies posing as
Medicare officials attempting to gain personal information from
beneficiaries for identify theft.
A beneficiary should NEVER share personal information such as their
bank account number, social security number or health insurance card
number (or Medicare number) with any individual who calls or comes to
the door claiming to sell ANY Medicare related product.
Beneficiaries who are contacted by these false card companies
should remember that Medicare-approved cards will not be available
until May. The names of approved card sponsors have been made public
and the companies will begin to market their cards through commercial
advertising and direct mail beginning this month. Medicare-approved
card sponsors will not market their cards door-to-door or over the
phone.
In response to these complaints, CMS is coordinating information
with customer service representatives at 1-800-MEDICARE, the call
centers at the Medicare contractors and the State Health Insurance
Assistance Programs (SHIPs). CMS has already informed the public
through a press release about how to protect themselves from fraud. OIG
referrals have been made for two complaints where we had specific
enough information to make a fraud referral.
CMS is continuing to explore methods to limit the scope of these
scams and develop a process to work with the appropriate law
enforcement agencies to avoid further spread of this type of activity.
CMS' office of Program Integrity is hosting a law enforcement fraud and
abuse meeting this month. The primary participants will include the
Department of Justice, Federal Bureau of Investigation, and the DHHS'
Office of the Inspector General. Participants from other agencies that
have dealt with issues of Prescription Drug fraud will also be invited.
The primary topic of this meeting will be the discussion of the drug
discount card program and how to prevent and deter fraud, waste and
abuse in this area.
CONCLUSION
Thank you again for the opportunity to testify today about this new
important transition toward a prescription drug benefit for Medicare
beneficiaries. This voluntary drug discount card program will provide
immediate assistance in lowering prescription drug costs for Medicare
beneficiaries until the new Medicare drug benefit takes effect on
January 1, 2006. We recognize the importance of the discount cards and
the low-income credit to Medicare beneficiaries, who, for too long,
have gone without outpatient prescription drug coverage. We at CMS are
dedicated to meeting the deadlines set out in the historic Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 and are
working expeditiously to satisfy the May 3 and June 1, 2004, effective
dates for enrollment and implementation, respectively. Thank you again
for this opportunity, and I look forward to answering any questions you
might have.
Senator Specter. Well, thank you very much, Ms. McMullan.
STATEMENT OF DONNA UHLER, COORDINATOR, APPRISE PROGRAM,
PENNSYLVANIA DEPARTMENT OF AGING
Senator Specter. We will defer questions until after we've
heard from Ms. Uhler.
We now turn to Ms. Donna Uhler, the Apprise Coordinator in
Montgomery County. Through their Montgomery County Agency on
Aging, the Apprise Program provides seniors and their families
in the country with information about Medicare and healthcare
options. She has an MBA from St. Joseph's University in
Philadelphia, a bachelor's degree from Millersville University.
We thank you for joining us, Ms. Uhler, and we look forward
to your testimony.
Ms. Uhler. Thank you for inviting me today.
The Apprise Program is the State health-insurance
assistance program, and subcontractor to the Retired Senior
Volunteer Program here in Montgomery County. We have 12
counselors who are specifically trained, receiving update
training twice a year by the State, 15 sites throughout the
county. We, as stated by Senator Greenleaf, are very lucky to
have the PACENET program here, which handles a good number of
the folks needing prescription assistance.
The drug-discount cards names the approved companies that
has been announced in the city papers, but I've not
particularly seen it in the local papers. We've had limited
individual calls at this time. We have received a number of
requests for presentations. Many times, they're asking for the
explanation of the whole modernization act. We've given at
least six so far, and have five scheduled in just the next 2
weeks, and I'm sure more to come. Most of the individual calls
come from two groups, those first turning 65 and those needing
prescription assistance. We handle about 1,200 calls a year,
plus those present at our presentations. The majority are of
the middle-income bracket, around the $25,000 limit, with drug
costs someplace in the $1,500 a year to $2,000 range.
We have one HMO here in Montgomery County, and that same
company provides a PPO. Those folks will get their card through
that company, and the company handling PACE has approved--has
been approved as a card sponsor, and they will automatically
assist members who are eligible for the $600 credit if they
decide to go with that drug-discount card company. The
government PPO type is provided by a company that has also been
approved as a card sponsor.
Questions are coming from the long-term care facilities,
which Senator Greenleaf is very familiar with since we were
requested to do a presentation, and their confusion is as to
how their long-term pharmacy groups are dealing with the
discount card; not the long-term care residents, but the
assisted-livings that are more independent, or the independent
residents living the long-term care setup, with one of the
issues being that part of their agreement, when they go into
these long-term cares, is some of their drug costs may be
covered by the admission agreement.
Most of the seniors we talk to have heard about the change,
but, quite honestly, they're not terribly trustworthy of the
change. You often hear, ``I know it's going to cost me more
money,'' and we don't get the money to cover the cost. We will
be providing presentations, doing health-fair participation,
news articles, news letter articles, and, most important,
handling the phone calls or meeting with the individuals.
People always appreciate the human voice and feel more
confident if someone looks at their choices.
The counselors we have are very dedicated and experienced,
and they're even doing some of their counseling in the evening.
We will be recruiting more counselors before the modernization
act in 2005 and 2006.
Thank you.
Senator Specter. Well, thank you very much, Ms. Uhler.
This is, I think, a very important step in acquainting the
seniors with the availability of this program. The statistics
are that some 2,100,000 Medicare beneficiaries in Pennsylvania
will have access to their prescription-drug benefit under the
new Medicare law. And it was a matter of familiarizing the
potential--the Medicare recipients with it. It is important to
note that the beneficiaries can keep the current plan if they
want to. It doesn't begin until the year 2006. Is that correct?
Ms. Uhler. Yes.
Senator Specter. But they have the option of going to the
HMOs, where the thought is, with competition, that there may be
a lowering of the cost of Medicare by giving physical
examinations to having significant emphasis on preventive
medicine, and making the availability of prescription drugs
where we will have the opportunity to keep seniors healthier
longer before it gets there, that we will be able to hold down
the costs.
There's been a lot of controversy, as we all know, about
what the program will cost. Congress has budgeted $400 billion
over 10 years. There have been some comments that the real
costs were concealed, that it would cost $150 billion more.
Nobody knows precisely what it will cost. We are investigating
to see if there was any material withheld, but the real
determination of the costs will depend upon how it works with
respect to the examinations, with respect to preventative care
and competition.
Let me ask you this, Mr. Uhler and Ms. McMullan, what is
the best way to get information to the seniors now about these
drug cards? Are those brochures that you held up, Ms. McMullan,
going to be mailed out to seniors?
Ms. McMullan. There are several things happening in late
April. We will mail, to every beneficiary household, a short
description of the drug card, and refer them to 1-800-MEDICARE
and to the web site for those people who use that, or whose
children or other caregivers use it on their behalf. In
addition, there's the Social Security mailing. We will be
having ads on television, advertising both the $600
transitional system and the drug card, and leading people to 1-
800-MEDICARE. We will be doing other outreach events through
pharmacies, physicians, and healthcare providers.
Senator Specter. Is there a number which the senior citizen
can call to get the information?
Ms. McMullan. 1-800-MEDICARE.
Senator Specter. What's the number?
Ms. McMullan. It's 1-800-633-4227.
Senator Greenleaf. 1-800-MEDICARE.
Ms. McMullan. 1-800-MEDICARE.
Senator Specter. It's very hard to spell ``Medicare'' on my
phone. Translate the number for the media who are here. To list
the number in any publication which goes out will be very, very
helpful.
Ms. McMullan. 1-800-633-4227.
Senator Specter. Ms. Uhler, how much will the reductions be
by using these Medicare cards?
Ms. Uhler. The anticipated reduction is total overall of
someplace between 10 to 15 percent, I believe, but there maybe
an individual drug that, itself, may be 25 percent off.
Senator Specter. Well, my red light went on, and I like to
observe the red light, so I'd yield now to Senator Greenleaf.
Senator Greenleaf. Thank you, Senator.
On the State level, in regard to the Federal program--and
you're going to be, obviously, involved in this very closely--
it would be very important if you could let us know, as you get
involved in these--in the two programs, to see how we can best
interface the two and to supplement each other, and to help to
increase the benefits that they now have to the maximum. And so
it would be really important, with your practical experience of
how to run it, and the practical changes we might be able to
make in Pennsylvania that could help to include additional
seniors in receiving the benefits; rather than have two
separate programs, having a little more working together.
I've heard some proposals where that $600 could be
reimbursed to the State, and then we would use that $600 to
increase our benefits. That is what I was referring to, things
like that might be helpful in helping Pennsylvania's seniors.
Ms. McMullan. There are discussions going on with the State
pharmacy assistance programs in order to figure out how best to
integrate the transitional assistance into the State pharmacy
assistance programs. We are dealing with each State
individually, and working through the issues on how best to do
that. But, indeed, those benefits and programs can be
coordinated. There's lots of opportunity to integrate the drug
card transition assistance into the State pharmacy assistance
programs.
Ms. Uhler. The people in the Montgomery County can call the
Montgomery County Apprise number, which is 610-834-1040,
extension 20. A counselor checks that line daily, and we will
get back to whoever calls.
Senator Greenleaf. Thank you.
Senator Specter. Thank you very much, Senator Greenleaf.
We turn now to Rep. John Fichter.
Rep. Fichter. Thank you, Senator.
Ms. McMullan, you talked about the enrollment period. Is
there any penalty if I missed signing up during the stated
enrollment period?
Ms. McMullan. An individual can sign up at any time. Once
they sign up, they are in for the year, and then they can sign
up during the November 15 to December 31 enrollment period for
another card in 2005. But you can sign up at any time, and
there is no penalty for late enrollment.
Rep. Fichter. It seems that every time the State starts a
program or gets involved in a State-run program, we always have
a problem finding everybody who's eligible for it. And I heard
your testimony, where you're sending things out, you're going
to do ads on TV, and various and sundry other things. How about
the lady or gentleman up in Tioga County, where there is no TV,
or the individual down on the Ozark Mountains, down in
Kentucky? In case they miss, is there any followup to contact
those people?
Ms. McMullan. What we're doing, in addition to the mailing,
which should go out to all of those individuals, because the
mail service reaches into rural communities, is ask our
regional office staff to make sure that they target those
individuals in the outreach, particularly low-income
individuals and people who have access barriers, to make sure
that we get the information out. We're also partnering with as
many organizations as possible in community-based
organizations, as well as pharmacies. And as an example of one
of those partnerships, Wal-Mart is going to have information
available to tell people about the prescription drug--Medicare-
approved prescription-drugs cards, and where to call to get
information. So in places like local pharmacies and other local
organizations, additional information will be out there. We are
trying to find every mechanism possible to get the information
into the community, into the grassroots, to the people in the
low-income groups that are most benefitted by the prescription-
drug card.
Rep. Fichter. Thanks very much.
Thank you, Senator.
Senator Specter. Thank you very much, Rep. Fichter.
Well, thank you very much, Ms. McMullan and Ms. Uhler. I
think that the presentation you have made here today is a very
important one.
This program will go into effect so that people can start
getting the discounts, estimated between 10 and 25 percent, as
of May of this year. And the cards cost no more than $30 for
the low-income brackets, and they may be obtained free.
Depending on the income level, the individuals may have a $600
credit for the first $600 of prescription drugs which are
purchased. And then in the year 2006, the major plans will come
into effect, where seniors can either stay with traditional
Medicare or exercise the option and go into an HMO.
There's been a lot of misinformation about the plan.
There's been a great deal of politicization of it with people
arguing whether it is good or bad--I think, fairly stated, in
an effort to gain political points.
What we want to do is to acquaint the seniors with what the
plan is, let the seniors be informed so they know what their
rights and opportunities are. Then they can make their choices.
They can take it if they wish to. They're not obligated to take
it. And then we will see how the plan works, emphasizing,
again, that seniors can retain the current coverage they have.
They don't have to go into the new plan, but they can do it if
they want to. And there are very substantial sums being
budgeted by the Congress to provide this prescription-drug help
at a time when prescription drugs are enormously expensive.
So we thank you very much for coming, and we expect your
telephones to be ringing more frequently now that there will be
greater awareness by the seniors on what the programs are.
We now turn to our second panel on the issue of association
health plans, and we would ask, at this time, that you to come
forward--Ms. Alexis Barbieri, Mr. Paul Zieger, Mr. Ray Carroll,
Ms. Mary Beth Senkewicz.
The issue on association health plans has been the subject
of legislation which has been produced in both the House and
the Senate. On March 6 of last year, Senator Snowe introduced
S. 545, the Small Business Health Fairness Act of 2003, which
would establish a regulatory framework and certification
process for associated health plans. Associated health plans
will allow small employers and self-employed to band together
to voluntarily form multiple-employer groups to enable small
business to offer health insurance to their employees.
We have Mr. Campbell, who has also joined us. Mr. Campbell,
you're on the top of the page.
STATEMENT OF BRADFORD P. CAMPBELL, DEPUTY ASSISTANT
SECRETARY, EMPLOYEE BENEFITS SECURITY
ADMINISTRATION, DEPARTMENT OF LABOR
Senator Specter. Our first witness will be Mr. Bradford
Campbell, who is the Deputy Assistant Secretary for Employee
Benefits Security Administration in the U.S. Department of
Labor.
Thank you very much for joining us, Secretary Campbell, and
we look forward to your testimony.
Mr. Campbell. Thank you very much, Mr. Chairman.
Good afternoon. My name is Bradford Campbell. I'm the
Deputy Assistant Secretary of the Employee Benefits Security
Administration.
I would like to ask that my full statement be submitted for
the record.
Senator Specter. Without objection, your full statement
will be made a part of the record.
Mr. Campbell. I would like to thank you for inviting me to
Norristown today to discuss the Administration's support for
the bill you referenced, S. 545, the Small Business Health
Fairness Act. On behalf of the administration, I would like to
thank you for your co-sponsorship of this legislation, which
will offer working Pennsylvanians and their families improved
access to affordable quality health benefits by establishing
association health plans, or AHPs.
This bill is a central element of the President's plan to
give workers better options in purchasing or securing
affordable health benefits through their employers. In his
State of the Union Address in January, President Bush called on
Congress to pass this legislation, and we, at EBSA, are
committed to working with you to enact this much-needed
legislation.
Despite being growth engines for the economy, creating two
out of every three new jobs, small businesses face significant
hurdles in providing health benefits to their employees. The
reality is that 85 percent of Americans without health
insurance are in working families. And of that, 60 percent are
affiliated with small business. While 98 percent of large
businesses offer health benefits, less than half of small
employers can afford to do so. These facts illustrate the
problem, but they also suggest a solution. If we can level the
playing field for small businesses, we will have gone a long
way toward solving un-insurance in America.
AHPs are squarely targeted to the health-coverage needs of
small businesses, and they address the two main threats they
face, cost and fraud.
First, cost. The fact of the matter is, small business pay
20 to 30 percent more than large businesses for similar
benefits. The reason is because Federal law allows large
employers and unions to pool their employees and members
together across State lines, something small businesses are
generally unable to do. The result is that small businesses are
denied the benefits of administrative efficiencies, economies
of scale, and greater bargaining power. By contrast, small
businesses are effectively isolated, trying to buy coverage for
5 or 10 employees at a time, instead of 5 or 10 thousand.
Moreover, in many States the marketplace is consolidated,
with one or two insurers coming to dominate the market. With
less competition comes less choice and higher costs. This
problem is exacerbated by the fact that each State has
different requirements for plan design. The complexity of
trying to craft an insurance policy that meets these different
requirements adds considerably to the cost, making it very
difficult to design an affordable insurance policy that can
operate in multiple States.
AHP legislation remedies this disparity in Federal law,
allowing small businesses to join together through their trade
associations to purchase health benefits in a way similar to
large employers and unions.
Second, fraud. In part because small businesses have fewer
healthcare options, they're more vulnerable to scam artists,
who try to prey on their need to have health coverage. This is
a significant area of enforcement at the Department of Labor.
And one of the key portions of our enforcement effort in
preventing fraud is association health plans. Before an AHP can
offer a benefit to a single employee, it will have to be
certified in advance by the Department of Labor as meeting the
requirements of the legislation that prevents this sort of
fraudulent behavior from occurring.
To the critics who claim that EBSA will be unable to
regulate these plans and protect consumers, I would like to
point out, Mr. Chairman, that we have 30 years of experience in
administering the Employee Retirement Income Security Act, or
ERISA, which provides us regulatory authority over 131 million
Americans in employer-provided health plans, of which 67
million Americans are in self-insured plans solely regulated by
the Department of Labor. And you'll generally find, I think,
both anecdotally and looking at the actual facts, that these
are widely regarded as some of the best health benefits
available in these plans that are regulated by the Department.
PREPARED STATEMENT
I would just like to conclude by saying that if you look at
the report from the Congressional Budget Office, AHPs are
estimated by them to provide new benefits to as many as two
million workers, and reduce premiums by as much as 25 percent
for small businesses.
With that, I would like to thank you for inviting me to
testify today, and I look forward to answering any questions
you may have.
[The statement follows:]
Prepared Statement of Hon. Bradford P. Campbell
INTRODUCTORY REMARKS
Good afternoon, Chairman Specter. My name is Bradford Campbell, and
I am the Deputy Assistant Secretary for Policy of the Employee Benefits
Security Administration. Thank you for inviting me to Norristown today
to discuss the Administration's staunch support for Association Health
Plans (AHPs), a key element of the President's plan to increase access
to quality, affordable health benefits for working Americans.
Mr. Chairman, I would like to thank you, on behalf of the
Administration, for your cosponsorship of S. 545, the Small Business
Health Fairness Act. S. 545 is the Senate version of the AHP
legislation passed by the House of Representatives on a strong
bipartisan basis. The President called on Congress to pass AHP
legislation in his State of the Union Address, and we appreciate your
support of the bill, which will give working Pennsylvanians more health
insurance options in what is becoming an increasingly concentrated
insurance marketplace.
I am testifying before you today on behalf of the Employee Benefits
Security Administration, or EBSA. EBSA is the federal agency that will
oversee AHPs. Our job is to protect the employer-provided health and
retirement benefits of millions of Americans, and I can assure you, Mr.
Chairman, that we are committed to working with the Congress to make
sure that AHPs are a secure and well-regulated option for employers
seeking to offer high quality and affordable health benefits. EBSA has
firsthand experience dealing with group health plan regulation as well
as combating insurance fraud. We administer the Employee Retirement
Income Security Act (ERISA), protecting approximately 2.5 million
private, job-based health plans and 131 million workers, retirees and
dependents. Of these, 275,000 plans covering 67 million individuals are
self-insured, and therefore are subject exclusively to EBSA oversight.
These include large, self-insured multiemployer plans (established and
operated jointly by a union and two or more employers), which cover
more than 5 million participants, not counting their covered
dependents.
SMALL BUSINESSES AND THE UNINSURED
Despite being the driving engine of our economy, small businesses
face many obstacles, and finding affordable health insurance is one of
the most significant. Secretary Chao has met with small business men
and women around the country, including here in Pennsylvania, and they
have consistently expressed to her their concerns about finding good
health insurance at a reasonable price. The numbers behind the
uninsured statistics highlight the need for AHPs--85 percent of
Americans without health insurance are in working families, and
approximately 60 percent of them work for small businesses with less
than 100 employees.\1\ That's why AHPs will be especially effective in
getting more Americans insured--they are targeted squarely at small
businesses who are trying to provide affordable health benefits.
---------------------------------------------------------------------------
\1\ Department of Labor estimates of working families' health
insurance status, based on the Census Bureau's annual March Current
Population Survey.
---------------------------------------------------------------------------
Although most working Americans receive health insurance from their
employers, firms with fewer than 100 employees find it particularly
difficult to offer benefits. Just 49 percent of these small businesses
offer insurance, compared with 98 percent of larger firms with 100 or
more employees.
Many small employers want to offer health insurance, but
circumstances make it difficult for them. Let me spend just a minute to
discuss the barriers small employers face when it comes to health
insurance. I will then describe how AHPs will help.
First, Cost.--For a variety of reasons, insurers typically charge
small firms more per employee than large firms for comparable coverage.
According to the General Accounting Office,\2\ insurers incur higher
marketing, underwriting and administrative costs when providing health
care coverage to small employers than to large employers--and they pass
those costs on to small firms. Small company premiums are 20 percent to
30 percent higher than those of large self-insured companies with
similar claims experience.\3\ And the cost of these policies continues
to rise--small businesses recently have faced double digit premium
increases from year to year.
---------------------------------------------------------------------------
\2\ U.S. General Accounting Office, Private Health Insurance: Small
Employers Continue to Face Challenges in Providing Coverage, GAO-02-8;
and Private Health Insurance: Number and Market Share of Carriers in
the Small Group Health Insurance Market, GAO-02-536R. Insurers must
market and distribute their policies to a very large number of
unconnected employers. Insurers also must compensate agents for each
small policy sold or renewed. Some costs, such as the cost of
collecting detailed medical histories for purposes of medical
underwriting, are layered on each time an employer changes insurers.
\3\ Actuarial Research Corporation. Cost drivers include small
businesses' administrative overhead, insurance company marketing and
underwriting expenses, adverse selection, and State regulatory burdens.
---------------------------------------------------------------------------
Second, Overhead.--When a small firm decides to offer health
insurance, it must take on administrative tasks, including identifying
available insurance policies; comparing their prices, benefit packages
and other features; assembling plan descriptions, enrollment materials
and other forms; and educating and enrolling its workforce. This takes
staff time and money.
Third, State Regulatory Burdens.--The States have been very
aggressive in regulating small-group insurance markets, overseeing
rates and imposing benefit mandates that leave employers without
affordable options, and a very limited ability to design benefits that
best suit their needs. Indeed, benefit mandates are responsible for one
of every five small employer decisions not to offer coverage.\4\ As a
result of different benefit mandates and policy approval processes
across the 50 States, small businesses generally are not able to join
together across State lines. It is expensive and difficult to develop
an insurance policy that meets the requirements of more than one State,
and the resulting costs from this complexity tend to make such policies
unaffordable.
---------------------------------------------------------------------------
\4\ Gail A. Jensen and Jon Gabel, ``State Mandated Benefits and the
Small Firm's Decision to Offer Insurance,'' Journal of Regulatory
Economics; 4:379-404 (1992).
---------------------------------------------------------------------------
Taken together, these factors put small employers at a big
disadvantage in the insurance marketplace. And because the cost and
complexity of offering coverage makes small employers eager to shop for
bargains, there is one more factor that hits them hard--health
insurance fraud.
HOW AHPS WOULD WORK
In an AHP, small businesses could join together across State lines
through their trade and professional associations to purchase health
benefits, reducing the market and financial barriers that they face.
Small businesses would enjoy greater bargaining power, economies of
scale, administrative efficiencies, and more uniform regulation, giving
them more access to affordable coverage.
To ensure that unscrupulous promoters cannot operate AHPs, only
bona fide trade or industry associations that have been in operation
for at least three years for purposes other than providing health
benefits will be allowed to sponsor these arrangements. Before an AHP
can begin operating, EBSA will examine the plan sponsor and certify
that they meet rigorous statutory eligibility standards, as well as the
applicable tough solvency and membership requirements.
Bargaining Power and Economies Of Scale.--By grouping small
employers together to purchase coverage, AHPs will be able to act more
like large employers and offer lower cost coverage to employers,
employees and their families. If the AHP chooses to purchase insurance,
it will be in a better position to negotiate with insurers regarding
the terms and costs of coverage than a small employer acting
individually. AHPs will also enjoy economies of scale in the
administration of plans. They will give insurers a vehicle to market
and distribute policies to many small employers at once. By offering a
well-selected and stable choice of policies to members, AHPs can help
slow small employers' otherwise costly movements from one insurer to
another.
Streamlined Regulation.--AHPs will allow small businesses to enjoy
a more uniform regulatory system. Just as large employers and unions
are able to offer the same health plan to their workers and members
regardless of which State they live in, AHPs will allow small
businesses to join together across State lines to purchase uniform
health benefits. It is important to note, however, that the pending AHP
legislation leaves in place major elements of State insurance
regulation. Much as in the current group health marketplace, insurers
selling policies to AHPs are regulated by the States. The AHP
legislation passed by the House preserves important State consumer
protections for these insurers, including solvency standards and prompt
pay laws. AHPs that offer self-insured coverage will be subject to a
single, effective, national certification and oversight process
administered by EBSA. The legislation provides strict new solvency
standards for these plans to protect consumers.
Pooling Risk.--AHPs will help ensure that small employers will not
be denied insurance coverage or be priced out of the market due to the
health of their employees. An employer with high claims experience
would be offered the same coverage options as other employers within
the sponsoring association. In fact, AHPs would generally be prohibited
from setting premium rates based on health status, severely restricting
AHPs' ability to engage in favorable risk selection, or so-called
``cherry-picking.''
Broader Choice of Coverage.--Associations will be able to fashion
coverage options that best meet their members' needs. By offering
broader choices, AHPs will encourage small business workers who are
currently uninsured to purchase coverage and pay into the premium pool.
Expanding health insurance coverage to include more of the uninsured
not only improves their lives, but it reduces costs across the system
by broadening the risk pool.
Cost Savings and Increased Coverage.--Small businesses obtaining
insurance through AHPs could enjoy significant premium reductions.
According to the Congressional Budget Office (CBO),\5\ the average
savings would be 13 percent and could be as much as 25 percent per
employer. CBO further estimated that, because insurance will be more
affordable, as many as 2 million Americans whose employers do not offer
insurance today will be brought into the employment-based health
insurance system.
---------------------------------------------------------------------------
\5\ Congressional Budget Office, ``Increasing Small-Firm Health
Insurance Coverage through Association Health Plans and Healthmarts,''
January 2000.
---------------------------------------------------------------------------
Wide Availability and Greater Access.--Dozens of well-known small
business groups are eager to offer coverage to their members, and
support enactment of AHP legislation, including organizations such as
the National Federation of Independent Business, the United States
Black Chamber of Commerce, the United States Hispanic Chamber of
Commerce, Women Impacting Public Policy, the American Farm Bureau, the
Associated Builders and Contractors, and the National Restaurant
Association, to name just a few.
PROTECTING WORKERS BY OFFERING BETTER OPTIONS
Because of the obstacles small businesses face in obtaining
affordable health insurance, they are especially vulnerable to scams
that promise low-cost health coverage but fail to deliver. Many of
these arrangements turn out to be multiple employer welfare
arrangements (MEWAs), although they are usually not marketed under that
name. MEWA is the legal acronym for arrangements that provide health
benefits to employees of two or more unrelated employers who are not
parties to a collective bargaining agreement.
MEWAs are subject to a mix of State and Federal laws and
regulations. While some MEWAs operate successfully and provide reliable
benefits to participating employers and their workers, unscrupulous
promoters have exploited complexities in their regulatory and oversight
structure to operate Ponzi schemes that collect premiums but
intentionally default on their obligations to pay claims.
Health insurance fraud artists take advantage of small employers by
marketing generous coverage using slick brochures and promising cheap
premiums. The scam artists delay State and Federal law enforcement
authorities by raising jurisdictional issues while they collect
premiums and sign up new customers. Sometimes these promoters present
themselves not as MEWAs, but as other ``ERISA plans,'' not subject to
State oversight. Fraud increases the cost for everyone, and the fear of
being taken in deters many small employers from offering coverage at
all.
EBSA employs a three-pronged approach to fighting insurance fraud.
First, we work hard to educate small employers about how to spot fraud
in the marketplace to prevent people from falling victim to scams in
the first instance. Second, we have a vigorous civil and criminal
enforcement program, conducting active investigations and cooperating
closely with State insurance regulators to find scam artists, shut them
down, recover monies to pay benefits, and send criminal perpetrators to
jail. Third, we support the enactment of Association Health Plan
legislation, which will provide a secure, well-regulated, and
affordable health coverage option for small businesses.
Let me be clear that we regard health coverage scams as a top
enforcement priority, and will continue to do so until these
unscrupulous operators are stamped out. The President's proposed budget
for fiscal year 2005 includes a request for 30 additional
investigators, 10 of who will be criminal coordinators in our regional
offices--their job will be to work with State and Federal prosecutors
and law enforcement entities to make it harder for criminals like these
to slip through the cracks.
In the end, however, the best way to protect the public from these
scam artists is to change the environment in which they operate. Small
employers are more vulnerable to fraud because they have few options
for health insurance in most States. High cost and limited choice make
employers more receptive to deals that are too good to be true. AHPs
will change this environment by providing an attractive, cost-effective
alternative to fraudulent health plans that is certified, regulated,
and closely monitored by the Department of Labor. There will be no
confusion over jurisdiction, and no question as to the Department's
authority to shut down bad actors. And, for small employers, the
Department's certification will serve as a ``stamp of approval''
signifying that an AHP will provide reliable, affordable health
insurance coverage. By making these real choices possible, AHPs make it
harder for scam artists to find people desperate enough to try anything
to get the coverage they and their workers need.
CONCLUSION
Thank you, Senator Specter, for the opportunity to testify today.
The Administration strongly supports AHPs, and stands ready to work
with you to help pass and effectively implement legislation that
expands access to affordable quality health insurance coverage for
working Americans and their families.
Senator Specter. Thank you very much, Secretary Campbell.
STATEMENT OF ALEXIS L. BARBIERI, EXECUTIVE DEPUTY
ATTORNEY GENERAL, COMMONWEALTH OF
PENNSYLVANIA
Senator Specter. Our next witness is the executive deputy
attorney general for the Commonwealth of Pennsylvania, Alexis
Barbieri.
If I may add just a personal note, which I do on rare
occasions when I see Ms. Barbieri, I note my longstanding
friendship with her father, Judge Alex Barbieri. He and I were
elected to the Committee of Censors of the Philadelphia Bar
Association together in 1964, and Judge Barbieri then became a
member of the Court of Common Pleas, Number 8, a very
distinguished court, with Judge McDevitt and Judge Spaeth. And
then Judge Barbieri became a Commonwealth Court judge and a
Supreme Court justice.
I tried a murder case, when I was district attorney, before
him, Frank Joseph Campbell--this is probably more than you want
to know--and without telling you about the case, the defendant,
Frank Joseph Mitchell, was victimized in a sheriff's van. And
Judge Barbieri then asked me, as district attorney, to lend him
a young assistant named Alan Davis, who was the special master,
and conducted a very intensive investigation into abuses and
prisons attacks on one prisoner against another. That was 1968,
and that was the first such investigation ever conducted.
Since that time--this was a long time ago, 36 years ago--
there have been many investigations, but that was a landmark
investigation. And ``60 Minutes'' was in its first year in
1968. They came to the sheriff's cell block to interview those
of us who were involved in that investigation.
So, Ms. Barbieri, you come from a very distinguished
lineage. And having used up all your time, Ms. Barbieri we will
now move on to the next witness.
Ms. Barbieri. Thank you, Senator. I think I will paraphrase
my testimony since my time is much more limited than I
anticipated.
Senator Specter. You have your full time, Ms. Barbieri.
Ms. Barbieri. Senator, in my capacity in the Attorney
General's Office, I was in the Public Protection Division. And
within that division is the healthcare section. The attorney
general is the chief enforcer in the Commonwealth of the
consumer-protection laws. And in the areas of consumer
protection that implicate healthcare, the healthcare section
investigates, mediates, and brings legal action against
entities that engage in unfair or deceptive practices in the
delivery of healthcare.
The pending legislation provides special exceptions for
health-insurance coverage sponsored by professional business
associations, known as association health plans. Health
insurance sold through or sponsored by these associations is a
coverage option available to the self-employed and small
business and others. Currently, these association health plans
must comply with all the applicable State insurance and
consumer-protection laws. The proposed Federal legislation
would allow them to escape State regulation and oversight,
which protects consumers by ensuring that these plans are
marketed in conformance with the consumer-protection laws.
State oversight and regulation is critical to protect
consumers from unscrupulous operators that sell phony health
insurance to unsuspecting businesses and individuals. The AHP
legislation, which promotes affordability and access to
coverage for small businesses and their employees, would exempt
them, unfortunately, from that comprehensive State oversight
and regulation that consumers have come to expect from their
health-insurance coverage. And eliminating the consumer
protection laws and State oversight will only harm the
consumers. And for that reason, 42 attorneys general across the
country have sent a letter in opposition to this legislation
because they were concerned about their continuing ability to
enforce State law. They know from past experience that
exempting these plans from State law harms consumers.
In the 1970s, Congress experimented with providing
exemptions for similar entities, multiple-employer benefit
arrangement, and the result was widespread fraud and abuse,
resulting in $123 million in unpaid medical claims and many
uninsured. Congress restored the States' authority to fully
regulate these entities in the 1980s, and the States have made
tremendous strides in combating healthcare fraud.
These States have been aggressive to take action against
unscrupulous operators, issuing 108 cease and desist orders
against 41 unauthorized entrants, and imposing civil and
criminal penalties. This legislation would not permit them to
continue in this enforcement pursuit.
Reemption of State laws would also leave the States
powerless to protect the plans that fail to deliver promised
benefits or engage in deceptive practices. Under the Federal
AHP legislation, protections that are taken for granted would
be eliminated.
PREPARED STATEMENT
While the attorneys general strongly support efforts to
increase access to affordable coverage for small businesses and
their employees, we believe that this legislation would make
the problem worse. Indeed, the U.S. Congressional Budget Office
found that AHPs would actually increase health insurance
premiums for the vast majority of small firms at a time when
businesses are experiencing double-digit increases in the
health insurance.
[The statement follows:]
Prepared Statement of Alexis L. Barbieri
Good Afternoon. First, I want to thank Senator Arlen Specter--the
senior Senator from Pennsylvania--for holding this field hearing on the
important issue of health care reform. Senator Specter, you have long
been a leader of efforts to improve our nation's health care system
through increasing funding for medical research (including doubling
funding for the National Institutes of Health); ensuring adequate
funding for prevention and public health programs; and, improving
access to high-quality, affordable health care.
My name is Alexis Barbieri, and I am an Executive Deputy Attorney
General and the Director of the Public Protection Division in the
Office of Attorney General for the Commonwealth of Pennsylvania. Within
my Division is the Health Care Section. The Pennsylvania Attorney
General serves as the principal enforcer of consumer protection laws
throughout the Commonwealth of Pennsylvania. In matters pertaining to
health care, the Health Care Section of the Attorney General's Office
is responsible for protecting consumers through vigorous enforcement of
patient protection laws including, but not limited to, the right to
independent external review of denied medical claims. The Attorney
General's Health Care Section investigates, mediates, and brings legal
actions against entities that engage in unfair or deceptive practices
in the delivery of health care. It also investigates and mediates
consumer complaints of coverage denials and fraudulent practices.
My testimony will focus on the pending legislation before the U.S.
Congress (H.R. 660/S. 545), Association Health Plan (AHP) legislation.
This legislation provides special exemptions for health insurance
coverage sponsored by professional and business associations, known as
association health plans (AHPs). Health insurance coverage sold through
or sponsored by associations is a coverage option currently available
to the self-employed, small businesses, their employees and others.
Currently, association health plans--which are engaged in the business
of providing health insurance--must comply with all applicable State
insurance and consumer protection laws. The proposed federal AHP
legislation would allow AHPs to escape State regulation and oversight,
which protects consumers by ensuring that these plans are financially
sound, fairly priced and cover important health benefits.
State oversight and regulation is critical to protect consumers
from unscrupulous operators that sell phony health insurance to
unsuspecting businesses and individuals. Regrettably, the AHP
legislation, under the guise of improving affordability and access to
coverage for small firms and their employees, would exempt AHPs from
the comprehensive State oversight and regulation that consumers have
come to expect from their health insurance coverage. Eliminating
consumer protection laws and State oversight will only harm consumers
and, for that reason, 42 Attorneys General across the country, strongly
oppose federal AHP legislation.
State oversight and regulation is the best way to ensure that
health insurance plans remain financially solvent and that consumers
are protected against fraud and abuse. We know from past experience
that exempting these plans from State laws harms consumers. In the
1970s, Congress experimented with providing exemptions for similar
entities--multiple employer welfare arrangements (MEWAs)--and the
result was widespread fraud and abuse, resulting in millions of dollars
in unpaid medical claims and more uninsured. Congress restored the
States' authority to fully regulate MEWAs in the 1980s, and the States
have made tremendous strides in combating health care fraud.
I am especially concerned about the prospect of federal preemption
in light of a new wave of health insurance scams that have left over
200,000 individuals and families uninsured and saddled with over $252
million in unpaid medical claims. The States have been aggressive in
taking action against unscrupulous operators--issuing 108 cease and
desist orders against 41 unauthorized arrangements, as well as,
imposing criminal and civil penalties. Regrettably, this legislation
would prohibit States from helping consumers by usurping their
authority and putting the U.S. Department of Labor (DOL) in charge of
regulating these entities. DOL has neither the resources nor the
expertise necessary to adequately protect consumers from health
insurance scams. According to the U.S. General Accounting Office (GAO),
DOL was only able to shut down 3 fraudulent entities out of 144
unauthorized entities identified by GAO over a three year period.
The AHP legislation would also put consumers at risk for unpaid
medical claims because of the bill's inadequate solvency standards.
Self-funded AHPs would be exempt from State solvency requirements and
instead, would have to meet minimal federal standards (capped at $2
million). This standard is far less stringent than State solvency
requirements and, thus, far less protective of consumers. Plan failures
are a major problem for these types of entities, which have a long and
troubled history of financial insolvency and even fraud. Indeed, the
assets of the association sponsoring an AHP would not be at risk in the
event of insolvency. Therefore, it is critical that the States be able
to apply and enforce their stronger solvency standards. Otherwise,
consumers would be victims of unpaid medical claims in the event of a
plan failure or insolvency.
Also, preemption of State laws would leave States powerless to
protect consumers from plans that failed to deliver promised benefits
or engaged in deceptive practices. Under federal AHP legislation,
protections that are taken for granted would be eliminated including;
limits on how much and how often premiums can increase; the right to
independent review of claim denials; coverage for important health
services (e.g. maternity care, preventive care, child immunizations,
cancer screenings, mental health services and treatment) and, consumer
marketing protections. Preemption from State laws and oversight will
ultimately do great harm to consumers by eliminating many of the
consumer protections that Pennsylvanians have come to rely on.
While the Attorney General's Office strongly supports efforts to
increase access to affordable coverage for small businesses and their
employees, we believe this legislation would actually make the problem
worse. Indeed, the U.S. Congressional Budget Office found that AHPs
would actually increase health insurance premiums for the vast majority
of small firms at a time when businesses are experiencing double digit
increases in their health insurance premiums.
Senator Specter. Thank you very much, Ms. Barbieri.
For the record, it should be noted that Ms. Barbieri has a
bachelor's degree from the University of Pennsylvania, a law
degree from Widener University School of Law, and a career as a
clerk to Superior Court Judge Vincent Cirillo, who used to be a
Montgomery County Court judge.
Senator Greenleaf. That was in this courtroom.
Senator Specter. I had a big case involving--with Frank
Perdue, the chicken man, who drove onto the Pennsylvania
Turnpike one night when it was under construction, and didn't
know that it was one-way, and pulled out to pass and had a
head-on collision with an oncoming car, and killed the other
driver. And Frank Perdue came to me--I had finished my tour as
district attorney and was a defense lawyer at that time--and
rather than take the 20 minutes to tell you how I got him off,
he was not guilty. It's not necessarily relevant to him getting
off.
STATEMENT OF PAUL ZIEGER, ON BEHALF OF THE NATIONAL
FEDERATION OF INDEPENDENT BUSINESS
Senator Specter. Back to the hearing. Our next witness is
Mr. Paul Zieger, whose family has been in the florist industry
for almost a century, 80 employees, and had his health
insurance premiums increase by more than 15 percent over the
last 4 years. Mr. Zieger has a bachelor's degree in physics
from Muhlenberg, and a certificate in business administration
from the Wharton School.
Thank you for joining us, Mr. Zieger. We look forward to
your testimony.
Mr. Zieger. My pleasure.
Good afternoon, Senator, members of the committee. Thank
you for inviting me to talk this afternoon about the important
issue of affordable and accessible health insurance, especially
for those of us who are working and owning small businesses.
I'm here on behalf of the National Federation of
Independent Business, the NFIB, which represents 600,000
members of small business people, like I, who face similar
challenges. I've been a member of that organization for 30
years.
My name is Paul Zieger, and I own and run a company, Zieger
& Sons, which is a wholesale florist. At Zieger & Sons, my
employees and I work together to sell and distribute flowers--
cut flowers, that is--to retail merchants over a five-State
area.
My grandfather started Zieger's in 1910, when he purchased
a greenhouse business in the Germantown section of
Philadelphia. He restored the greenhouses and developed the
business by growing a multitude of flowers and wholesaling them
to the local trade. His sons, Herman and Wilbur, took over his
dream, and the company grew from there.
As the company moved into the 21st century, the family
members decided that it would be best for the success of both
the growing and wholesaling divisions if they separated into
two companies. Thus, in August 2002, the descendants of Herman
Zieger opened Zieger Floral, Inc., for the growing division,
leaving the descendants of Wilbur Zieger to operate Zieger &
Sons as only wholesale. For those of you who are Montgomery
County residents, Zieger owns the warehouse.
At Zieger & Sons, we now have 80 employees. I, along with
most of the management team, have college degrees, while most
of my employees have high-school diplomas. Our employees range
anywhere from high-school graduates to late-50s. We have part-
time and full-time workers, and our payroll is divided among
hourly workers, commissioned salesmen, and management. Our
company has a family atmosphere, with low turnover, which is
why it is so important to me to be able to give my employees
the benefits they deserve. We are just as dedicated to our
employees as they are to us.
Like many entrepreneurs, I learned very early that if I
want to remain competitive, I must offer an attractive benefits
package. Since the early 1950s, our company has provided
comprehensive health insurance for our employees. We have seen
steady premium increases of at least 15 percent per year for
the last 3 years, and these premiums now rose by more than 19
percent this year. We have been lucky not to have had excessive
claims, which could have raised those premiums even more.
It has been an employee--I have an employee in Delaware who
now has to be covered under a policy of just one, because I
have no group coverage, since he is in another State. I have a
similar problem for anyone I might hire from the State of New
Jersey, because the insurance coverage is prohibitive. I will
keep this employee, even though it is expensive to me, because
he is important to me, and I certainly wouldn't want to
discharge anybody just because he was difficult to insure.
We changed our plan in 1994 from a PPO to an HMO because of
continually rising costs. We want to offer one plan to our
employees. And if they want dependent coverage, we charge them.
We used to pay 100 percent, but now the employees share 2
percent of that cost of the premium, and we're raising that to
3 percent as we move to try to control our continually rising
cost.
Every year, of course, we had to get together and decide
what plan we were going to offer to keep our cost under
control. We've already heard that our increases have been more
than 15 percent per year, and so we need association health
plans to help us do that. And we have always absorbed those
costs and looked to the future for Congress to help us to help
keep those benefits available to us. The bottom line is, I take
the risk of losing employees and dramatically increasing my
turnover costs as I struggle to deal with this.
I support businesses being successful, but when I'm faced
with double-digit increases every year, or when other small
businesses cannot provide health insurance to their workers, I
feel that the insurance industry is more worried about their
profits than our ability to afford healthcare. I have to
compete, so why shouldn't insurance companies? Simply put,
competition is needed in the small market.
It is for this reason I support the legislation endorsed by
the NFIB for the association health plans. And we've already
heard the testimony about how they would allow us the same
benefits that big companies and labor unions have.
Mr. Chairman, thank you for supporting this legislation and
for allowing me to share my experiences.
[The statement follows:]
Prepared Statement of Paul Zieger
Good afternoon Mr. Chairman and Members of the Committee. Thank you
for inviting me to talk about the important issue of affordable,
accessible health insurance, especially for those owning or working for
small businesses. I am pleased to be here on behalf of the National
Federation of Independent Business (NFIB), representing 600,000 members
who face a similar challenge. I have been a member of NFIB for 30
years.
My name is Paul Zieger, and I own and run Zieger & Sons, Inc., a
wholesale florist. At Zieger & Sons, Inc., my employees and I work
together to sell and distribute flowers to retail merchants over a
five-State area.
Ernst Zieger started Zieger & Sons, Inc. in 1910 when he purchased
a greenhouse business in the Germantown section of Philadelphia. He
restored the greenhouses and developed his business by growing a
multitude of flower varieties and wholesaling them to the local retail
trade. His sons Herman and Wilbur took over his dream, and Zieger &
Sons prospered. As the company moved into the 21st century, the family
members decided that it would be best for the success of both the
growing and wholesaling divisions if they separated into two separate
companies. Thus in August 2002, the descendants of Herman Zieger opened
Zieger Floral Inc., for the growing division, leaving the descendants
of Wilbur Zieger to operate Zieger & Sons as only wholesale.
At Zieger & Sons Inc., we now have 80 employees. I, along with most
of the management team, have college degrees, while most of my
employees have high school diplomas. The ages of our employees range
anywhere from just out of high school to late fifties. We have part-
time and full-time workers, and payroll is divided among hourly
workers, commission sales, and management. It is a family atmosphere
with low turnover, which is why it is so important to me to be able to
give my employees the benefits they deserve. We are just as dedicated
to our employees as they are to us.
Like many entrepreneurs, I learned early that, if I want to remain
competitive I must offer an attractive benefits package. Since the
early 1950's, we have provided comprehensive health care insurance to
our employees. We have seen steady premium increases of at least 15
percent per year for the last 3 years, and this year premiums rose by
19 percent. We have been lucky not to have had any catastrophic claims
or I am sure they would be much higher.
One of my employees lives in Delaware. He has been an employee for
six years and a very valuable one at that. Unfortunately, I pay quite a
bit more for his health benefits since he resides in another State.
Currently, there is no way to offer insurance across State lines;
therefore I have to pay for an individual policy. I will continue to do
that because he is an excellent employee, and it is worth it to me to
have him on staff. With 80 total employees, we are able to spread our
health risks a little, but they need to be spread over a larger group
to keep the costs down. I would like my employee from Delaware to be
included in the same pool, as well as any other employees I might hire
in the future from surrounding States.
We currently offer a Health Maintenance Organization Plan (HMO) to
our employees. We changed plans in 1994 from a Preferred Provider Plan
(PPO) to an HMO since many of the physicians were dropping out of the
PPO network and costs were continually going up. We offer one plan to
our employees and if they want dependent coverage they must pay for it
themselves. We used to pay 100 percent of their premium, but each year
we have had to ask the employees to pay more to allow us to continue to
offer health care coverage. New employees must wait 90 days before
becoming eligible, but after that period, the plan is offered to all
workers including part-time workers who work over 30 hours per week.
Every year I, along with our human resources person, research
different options for affordable health care for our workers. In
February each year, my benefits consultant and I go through the
painstaking work of getting bids from other insurance carriers or
researching different options to bring down the cost. For the past
three years, our health care costs have increased by 15 percent, and
this year they rose by 19.4 percent. Currently, we pay 98 percent of
the premium with the employee paying 2 percent. This year we will
increase the employee pay share to 3 percent and raise our co-pays to
bring our premium increase down to 14 percent. Seems to me that
insurance companies continue to subsidize their costs by raising our
rates. How is it that these companies have such high paid executives
yet claiming they must raise rates to survive?
Knowing that providing health insurance is necessary to me for both
business and personal reasons, and knowing that I cannot increase
prices to my customers an extra 20 percent in order to absorb the cost,
I continue to offer health insurance benefits, despite the growing cost
to the business. Our business has absorbed the added cost every year.
This company has run like a family operation for years, and I cannot
imagine denying my employees health coverage, but unfortunately we are
extremely worried about how the increases will look next year. The
bottom line is I take the risk of losing good employees and
dramatically increasing my turnover rate if we are forced to lower
coverage and increase employee contribution.
While I continue to struggle to provide affordable coverage, some
of the big insurance companies have announced record profits the last
few quarters. Are they making money off the backs of hard-working small
business owners? I support businesses being successful but when I'm
faced with double-digit increases every year or when other small
businesses cannot provide health insurance to their workers, I feel
that the insurance industry is more worried about their profits than my
ability to afford health care for my employees, which tells me the
system is broken. I have to compete so why shouldn't insurance
companies? Simply put, competition is needed in the small group market.
It is for this reason that I support legislation endorsed by NFIB
that would create Association Health Plans (AHPs). AHPs would allow
small business owners to band together across State lines to purchase
health insurance as part of a large group, thus ensuring greater
bargaining power, lowering administrative costs and easing the burden
of having to comply with 50 different sets of costly State insurance
mandates. Fortune 500 companies and labor unions already have this
right. AHPs will simply level the playing field and give small
employers the same privileges as their counterparts in labor and big
business.
Mr. Chairman, thank you for your support of the legislation and for
allowing me to share my experience with you and the Members of the
Committee. I look forward to the relief that will come from Congress by
enacting AHPs and I am happy to answer any questions that the Committee
may have.
Senator Specter. Thank you, Mr. Zieger. I compliment you on
your statement. I compliment you on handling all of those
papers. I've seen a lot of witnesses at a lot of hearings, and
I compliment you on doing an outstanding job. That's very
effective.
STATEMENT OF RAY CARROLL, ON BEHALF OF THE PENNSYLVANIA
RESTAURANT ASSOCIATION
Senator Specter. Our next witness is Mr. Ray Carroll, owner
of Ray's Restaurant & Malt Shop, located in East Norriton,
Pennsylvania. Mr. Carroll is a graduate of Florida
International University, with a bachelor of science and hotel/
restaurant management.
Thank you for joining us today, Mr. Carroll, and we look
forward to your testimony.
Mr. Carroll. Thank you for having me today, Senator Specter
and other members of the Committee.
One of the greatest challenges facing restaurants and other
small businesses today is the accessibility to affordable,
quality healthcare.
My name is Ray Carroll, and I am representing the
Pennsylvania Restaurant Association as a member of the board of
directors of the Philadelphia/Delaware Valley Chapter. I'm
involved in our community through my restaurant, which touches
over 100 nonprofit organizations in Montgomery County and the
Philadelphia area. As you know, I own Ray's Restaurant & Malt
Shop, since 1986, and employ 40 individuals.
There are over 870,000 restaurant locations in the United
States. The vast majority of these restaurants are small,
single-unit operations. And 7 out of 10 have less than 20
employees. The restaurant industry is also one of the largest
employers in the country, employing an estimated 11.7 million
people, making it the largest employer outside of government.
One of our primary obstacles to providing improved coverage
to more people is cost. Restauranteurs from around the country
are reporting that same staggering increases facing other small
employers. For each of the last 2 years, the average premium
increase for a table-service restaurant was 23 percent.
Unfortunately, analysts project similar increases for the
foreseeable future.
Employees of smaller companies also pay more to offer
healthcare than those of large employers. On average, a worker
in a firm with less than 10 employees pays 18 percent more for
health insurance than a worker in a firm with 200 or more
employees. Obviously, small businesses cannot pass on their
retail costs or menu prices of 18 to 20 percent every year, or
else we would be all out of business.
The cost encountered in today's small group health-
insurance market not only makes it difficult for employers to
find affordable coverage, it is forcing those who wish to
continue offering coverage to make difficult decisions. Many
employers are either having to reduce coverage, pass on a
higher percentage of their cost to their employees, or have to
discontinue offering coverage altogether.
Another challenge facing employers is the lack of choices
when shopping for a health plan. In many States, the small
group healthcare market only offers employers a small handful
of choices. It is clear to us that additional competition is
necessary.
If enacted, association health plans would decrease costs
and provided needed competition. But allowing employers to
consider the health plan of a bona fide trade association of
their choice, whether that be the Pennsylvania Restaurant
Association plan or a Chamber of Commerce plan, employers would
have more health plan options from which to choose. AHPs would
allow small businesses to take advantage of the same uniform
regulatory status, economies of scale, purchasing clout, and
administrative efficiencies that corporate and labor unions
current enjoy.
In addition, association health plans would provide quality
and reliable health coverage. Like corporate and labor unions,
AHPs would be fully regulated by the Department of Labor.
In September 2002, Secretary Elaine Chao issued a
comprehensive report detailing the Department of Labor's
readiness for assuming oversight of AHPs. Also in this report,
Secretary Chao emphasized the numerous safeguards in the AHP
legislation that are designed to protect consumers.
PREPARED STATEMENT
The Pennsylvania Restaurant Association and I, as a small
business owner, believe association health plans provide a
great way to increase access to the uninsured. By removing some
of the cost barriers and by instilling additional competition
into the small-group market, AHP legislation provides
employers, particularly small employers, the tools they need to
provide quality healthcare to more people.
Thank you for inviting me today to give my testimony.
[The statement follows:]
Prepared Statement of Ray Carroll
One of the greatest challenges facing restaurants and other small
businesses today is accessibility to affordable, quality health care.
Senator Specter and members of the committee, thank you for the
opportunity to present testimony today on the Association Health Plan
legislation which will provide quality health care coverage to more
individuals.
My name is Ray Carroll, and I am representing the Pennsylvania
Restaurant Association as a member of the board of directors of the
Philadelphia Delaware Valley Chapter. I am involved in my community
through my restaurant which touches over 100 non-profit organizations
in Montgomery County and the Philadelphia area. As you know, I have
owned Ray's Restaurant and Malt Shop since 1986 and employ 40
individuals.
There are over 870,000 restaurant locations in the United States.
The vast majority of these restaurants are small, single-unit
operations, and 7 out of 10 have less than 20 employees. The restaurant
industry is also one of the largest employers in the country--employing
an estimated 11.7 million people--making it the largest employer
outside of government.
One of the primary obstacles to providing improved coverage to more
people is cost. Restaurateurs from around the country are reporting the
same staggering premium increases facing other small employers. For
each of the last two years, the average premium increase for a table
service restaurant was 23 percent. Unfortunately, analysts project
similar increases for the foreseeable future.
Employees of smaller companies also pay more to offer health care
than those of large employers. On average, a worker in a firm with less
than 10 employees pays 18 percent more for health insurance than a
worker in a firm with 200 or more employees.
The cost encountered in today's small group health insurance market
not only makes it difficult for employers to find affordable coverage,
it is forcing those who wish to continue offering coverage to make
difficult decisions. Many employers are either having to reduce
coverage, pass on a higher percentage of the cost to their employees,
or have to discontinue offering coverage altogether.
Another challenge facing employers is a lack of choices when
shopping for a health plan. In many States, the small group health care
market only offers employers a small handful of choices. It is clear to
us that additional competition is necessary.
If enacted, Association Health Plans would decrease costs and
provide needed competition. By allowing employers to consider the
health plan of a bona-fide trade association of their choice--whether
that be the Pennsylvania Restaurant Association plan or a Chamber of
Commerce plan--employers would have more health plan options from which
to choose. AHPs would allow small businesses to take advantage of the
same uniform regulatory status, economies of scale, purchasing clout,
and administrative efficiencies that corporate and labor unions
currently enjoy.
In addition, Association Health Plans would provide quality and
reliable health coverage. Like corporate and labor union plans, AHPs
would be fully regulated by the Department of Labor. In September 2002,
Secretary Elaine Chao issued a comprehensive report detailing the
Department of Labor's readiness for assuming oversight of AHPs. Also in
this report, Secretary Chao emphasized the numerous safeguards in the
AHP legislation that are designed to protect consumers.
The Pennsylvania Restaurant Association and I as a small business
owner believe Association Health Plans provide a great way to increase
access to the uninsured. By removing some of the cost barriers and by
instilling additional competition into the small group market, AHP
legislation provides employers--particularly small employers--the tools
they need to provide quality health care to more people.
Senator Specter. Thank you, Mr. Carroll.
STATEMENT OF MARY BETH SENKEWICZ, SENIOR COUNSEL FOR
HEALTH POLICY, NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS
Senator Specter. Our final witness on this panel is Ms.
Mary Beth Senkewicz, senior counsel for Health Policy of the
National Association of Insurance Commissioners. Prior to
joining the association, she supervised the Consumer Affairs
Division of the Wyoming Insurance Department. A JD from St.
John's University, and a bachelor's degree in English and
philosophy from Cabrini College, right around the corner--are
you a native of this area, Ms. Senkewicz?
Ms. Senkewicz. I'm not, Senator. I was born in New York
City, but I went to Mother Cabrini High School and then to
Cabrini College.
Senator Specter. That makes you an adopted native.
Ms. Senkewicz. Thank you. And I'm on the board now. Thank
you.
Senator Specter. Thank you for joining us. We welcome your
testimony.
Ms. Senkewicz. Thank you, Senator.
I'm testifying this afternoon on behalf of the NAIC, which
represents insurance regulators in all 50 States, the District
of Columbia, and four U.S. territories, the National
Association of Insurance Commissioners. The primary objective
of insurance regulators is to protect consumers. And it is with
this role in mind that I comment today on the AHP legislation.
At the start, I would like to emphasize that the States
recognize the importance of insuring that health coverage is
affordable and available for small businesses. And we offer the
full support of the NAIC in developing legislation that will
reach those goals.
States have acted aggressively over the past 15 years to
stabilize and improve the same-group market. More must be done,
we agree. But unless the most basic underlying issue, the cost
of healthcare, is directly addressed, all efforts will have
limited results.
We would like to work with the Chair to develop legislation
that would make insurance more affordable and provide small
businesses with greater choices, but any 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 the
market. State small-group market reforms forced insurers to
treat all small employers as part of a single pool, and allow
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 and their
employees.
The AHP bill would dismantle the small-market reforms,
allowing plans to cherry-pick risk, leaving higher-risk
consumers with little or no coverage. The bill's proponents
claim to have addressed this issue, but that is not the truth.
AHPs would be encouraged to cherry-pick using four very basic
methods: benefit package design, service area, membership, and
rating. And the more underhanded plans could think of many more
ways to improve their risk pool.
Second, consumers must be protected from plan failures and
fraud. Over 10,000 State employees nationwide oversee the
business of insurance to ensure that plans are able to pay
claims. Through reporting requirements, States receive the
information they need to identify problems and force corrective
action. Yes, State regulation has a cost, but it has a cost
because it provides real protections for consumers. Adequate
Federal regulation would also have a cost.
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 in the past, 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 the capital surpluses to
grow as the plan grows.
More troubling, even if the solvency standards increased,
oversight is nonexistent. State regulators comb over financial
supports and continually check investment ratings to ensure
that any potential problems are identified and rectified
quickly. The AHP legislation would rely on self-reporting and
an under-funded Department of Labor to identify and correct
problems. The Department of Labor does not have the personnel,
the funding, or the expertise to provide adequate oversight of
the AHPs. The regulation of the self-funded ERISA plan is very
different from regulating an insurance company, which is
exactly what a self-funded AHP is. It is the creation of a
Federal insurance company. This should be of particular concern
to the committee.
PREPARED STATEMENT
Finally, patient rights must be preserved. The AHP bill
will broadly preempt State consumer protections, since the AHP
is self-insured, such as external appeals processes, policy and
advertising reviews to prevent unfair or misleading language,
networks, and utilization review standards, just to say a few.
Furthermore, there would be no entity to complain to if the
patient's rights are violated. States insurance regulators act
on thousands of complaints every year and work hard to protect
the rights of patients.
Mr. Chairman, thank you for inviting the NAIC to testify
today. I ask that my full statement be made a part of the
record.
[The statement follows:]
Prepared Statement of Mary Beth Senkewicz
INTRODUCTION
Good morning Mr. Chairman. My name is Mary Beth Senkewicz and I am
Senior Counsel for Health Policy for the National Association of
Insurance Commissioners (NAIC). The NAIC represents the chief insurance
regulators from the 50 States, the District of Columbia, and four U.S.
territories. 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 healthcare crisis, and in particular
the proposal to create Association Health Plans (AHPs).
At the start, I would like to emphasize that the commissioners
recognize the importance of ensuring that health coverage is affordable
and available for small businesses and offer the full support of the
NAIC in developing legislation that will reach these goals. States have
acted aggressively over the past ten years to stabilize and improve the
small group market. Many States have even implemented laws that allow
associations to provide insurance to their members. However, the
members of the NAIC remain strongly opposed to the AHP legislation that
has been offered in Congress. More can and must be done to make health
insurance more affordable for small business employees, but the AHP
legislation, as currently drafted, would do more harm than good.
what states and the naic have already done to address the problem
Throughout the 1990's, the States and the NAIC have devoted
significant attention to the problem of making health insurance
available to small employers. We have taken a variety of approaches in
this effort.
Small Group Reform
One approach the States have taken is small group reform. Before
the enactment of the Health Insurance Portability and Accountability
Act of 1996 (HIPAA), 46 States had enacted some kind of small group
reform based in varying degrees on NAIC models.
In 1992, the members of the NAIC adopted the Small Employer and
Individual Health Insurance Availability Model Act. It required the
guaranteed issue of a basic and standard health benefit plan by all
health carriers doing business in a State's small group market. It also
required guaranteed renewability, subject to certain exceptions, and
established rating bands to assure consumers are not priced out of the
market and risk is spread over a larger pool. In essence, the block of
small group business is treated much like large groups for rating
purposes.
In 1995, the NAIC refined this model. The 1995 version required
guaranteed issue and guaranteed renewability of all products offered by
a carrier in a State's small group market. It also required adjusted
community rating with adjustments permitted only for geographic area,
age, and family composition.
Today, our members are examining the impact of HIPAA and
determining what further efforts are needed by States to assist small
businesses in the provision of coverage.
Purchasing Pools
Allowing small businesses to form purchasing pools, sometimes
called purchasing alliances, is another approach that States have taken
to make health insurance more available to small groups. By joining
together, small groups can somewhat reduce their administrative costs,
provide their employees with more choice, and command better prices.
The NAIC has devoted considerable attention to health insurance
purchasing pools. In 1995 the NAIC adopted three model acts allowing
for the creation of purchasing alliances. These models represent the
NAIC's complete agreement with the concept that small employers should
have the opportunity to join together to purchase health insurance.
At least twenty-two States have either adopted legislation that
creates some kind of purchasing pool or have allowed purchasing pools
to operate without legislation. In 2000, Kansas passed legislation
creating the Kansas Business Health Partnership, which allows for small
groups to pool and establish their own set of benefits. It is not
comprehensive insurance but it is a low cost alternative for businesses
especially those with low wage workers.
Again, the NAIC agrees that more needs to be done to expand
coverage to small businesses. Reforms should be broad, addressing both
the affordability of insurance (bringing down the cost of coverage to
small businesses, possibly through financial incentives) and the
availability of insurance (expanding choice and promoting competition).
However, the AHP legislation is not the answer and would have the
effect of reversing many of the gains that have been made over the last
10 years.
SPECIFIC CONCERNS ABOUT CURRENT AHP LEGISLATION
The AHP Legislation Would Undermine State Reforms
Before State small group market reforms were implemented, the small
group market was fragmented into various pools based on risk. If a
small employer had healthy employees in a relatively safe working
environment the employer could easily find coverage at a good rate.
However, if one of the employees became sick, the employer would be
shifted to a higher risk pool and often priced out of coverage. Those
who started with sicker or higher risk employees were often priced out
of the market from the beginning.
State small group market reforms forced insurers to treat all small
employers as part of a single pool and allow only modest, and in some
States no, variations in premiums based on risk. This spreading of risk
has brought some fairness to the market. The AHP legislation in
Congress would undermine State reforms and once again fragment the
market. AHPs would be encouraged to ``cherry-pick'' using four very
basic methods:
(a) Benefit design.--S. 545 eliminates all State benefit mandates,
allowing plans to deny consumers costlier treatments;
(b) Service area.--S. 545 eliminates State service area and network
requirements, allowing plans to ``redline'' and avoid more costly
areas;
(c) Membership.--S. 545 permits associations to offer coverage only
to their members, allowing plans to seek memberships with better risk;
(d) Rating.--S. 545 eliminates State rating limits for most plans,
allowing them to charge far more for higher risk persons, forcing them
out of the pool.
While the AHP bill does make some effort to reduce ``cherry
picking'' the NAIC believes the provisions would be woefully
inadequate.
The AHP Legislation Would Lead to Increased Plan Failures and Fraud
Proponents of the AHP legislation claim that the Department of
Labor already has sufficient resources to oversee the new plans and
will be able to prevent any insolvencies or instances of fraud. This
simply is not the case. The Department of Labor has neither the
resources nor the expertise to regulate insurance products. The States
have invested more than 125 years in regulating the insurance industry.
State insurance departments nationwide employ over 10,000 highly
skilled people, and the combined budgets of State insurance departments
total more than $700 million. The AHP bill provides no new resources
for regulating these plans.
While we acknowledge State regulation does increase costs, it
exists to protect consumers. Insurance is a complicated business,
involving billions of dollars, with ample opportunity for unscrupulous
or financially unsophisticated entities to harm millions of consumers.
Unless oversight is diligent, consumers will be harmed.
This is not just speculation, but fact borne of years of experience
with Multiple Employer Welfare Arrangements (MEWAs), multi-State
association plans, out-of-State trusts, and other schemes to avoid or
limit State regulation. Within the last year, 16 States have shut down
48 AHP-like plans that had been operating illegally in the State, many
through bona fide associations. Association plans in several States
have gone bankrupt because they did not have the same regulatory
oversight as State-regulated plans, leaving millions of dollars in
provider bills unpaid.
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. Specifically, the NAIC believes
the following issues must be addressed:
SOLVENCY STANDARDS MUST BE INCREASED
While the solvency standards in the AHP legislation have been
increased over the years, they are still woefully inadequate. In
particular, the capital reserve requirement for any and all AHPs is
capped at $2 million--no matter the size of the plan. Almost all States
require the capital surpluses to grow as the plan grows, with no cap or
a far higher cap than that in the federal legislation. If a nationwide
AHP were offered to a large association, a capital surplus of only $2
million would result in disaster.
AHP FINANCES MUST RECEIVE GREATER OVERSIGHT
Even if the solvency standards were increased, oversight is almost
nonexistent in the bill. 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. As we have seen over the past year, relying on a
company-picked accountant or actuary to alert the government of any
problems can have dire consequences for consumers who expect to have
protection under their health plan.
State regulators comb over financial reports and continually check
investment ratings to ensure that any potential problems are identified
and rectified quickly. AHP plans must be held to the same standard.
Simply limiting participation in AHPs to ``bona fide trade and
professional associations'' and providing limited Department of Labor
oversight of self-reported problems will not prevent fraud and
mismanagement. Strict oversight is required and this will only occur if
all health plans delivered through associations are licensed and
regulated at the State level.
THE AHP LEGISLATION WOULD ELIMINATE IMPORTANT PATIENT PROTECTIONS
Included in the current AHP legislative proposals is the broad
preemption of consumer protection laws. Proponents of AHPs will argue
that State mandated benefit laws must be preempted so that AHPs do not
have to provide coverage for expensive benefits. However, States have a
complex regulatory structure in place for insurers. Not only will
mandated benefit laws be preempted, but other laws protecting patient
rights and ensuring the integrity of the insurers would be preempted as
well. A small sample of these laws and actions follows:
--Internal and external appeals processes.
--Investment regulations to ensure that carriers only make solid
investments instead of taking on risky investments such as junk
bonds.
--Unfair claims settlement practices laws.
--Advertising regulation to prevent misleading or fraudulent claims.
--Policy form reviews to prevent unfair or misleading language.
--Rate reviews. Insurance departments may review rates to make sure
the premiums charged are fair and reasonable in relation to the
benefits received.
--Background review of officers.
--Network requirements including provider credentialing and network
adequacy, to ensure that plans offer a provider network that is
capable of delivering covered services.
--Utilization review requirements to ensure that plans have
acceptable processes and standards in place to determine
medical necessity and to make coverage determinations.
While some of these protections may be offered by AHPs as a service
to their association members, there would be no requirement that they
do so, and no entity to complain to if a patients' 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 access to the same protections and
complaint process.
THE AHP LEGISLATION WOULD CUT FUNDS TO HIGH RISK POOLS AND GUARANTY
FUNDS
While the latest version of the AHP legislation would allow States
to impose premium taxes on AHP plans--to the extent they are imposed on
other insurance plans--it preempts other State assessments. States
often use health insurance assessments to fund such important entities
as high risk pools (which provide coverage to the uninsurable) and
guaranty funds (which help cover claims if a plan is insolvent.) Such
programs are vital to the stability of the small group and individual
markets and to the protection of consumers--they must not be undercut
by federal preemption.
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 so. However, the problem is complex
and does not lend itself to easy solutions.
The AHP legislation proposed in Congress would put consumers at
significant risk and disrupt the health insurance market. The illusion
of federal regulation based on company self-reporting of problems will
lead to extensive failures. The fragmentation of the small group market
will leave many small businesses with higher premiums, or no coverage
options at all.
The NAIC opposes AHP legislation as currently drafted and urges
Congress not to adopt it. History has demonstrated that AHP-type
entities have done more to harm rather than to help small businesses.
The federal government and the States need to work with healthcare
providers, insurers and consumers to implement true reforms that will
curb spending and make insurance more affordable to small businesses.
We stand ready to work with members of Congress to draft effective
reforms that will address both the affordability and availability
issues facing small businesses. Together, we are convinced, real
solutions to this critical issue can be found.
Senator Specter. Thank you, Ms. Senkewicz, for your
comprehensive testimony. Your full statement will be made a
part of the record.
Mr. Carroll, when you commented that small companies have
to pay 18 percent more than the larger companies, if the
smaller companies and restauranteurs, who you are speaking for,
could have that 18 percent reduction, would that bring those
policies within affordability for your restaurants?
Mr. Carroll. Much more affordability. And that trickles
down not only to offering employees that really enjoy the
restaurant profession and industry, that really care, it
trickles down to keeping those employees, retaining them, and
being able to offer new employees that are out there an
opportunity to work with you and to be a part of the community.
So absolutely it would.
I mean, it's staggering what the insurance rates have gone
up in our area. I would say sometimes it's been higher than 18
percent every year, so it's very difficult to manage.
Senator Specter. Mr. Zieger, you commented that, as I
understood your testimony, you've raised the employees' share
from 2 percent to 3 percent.
Mr. Zieger. Yes, we're just doing that, starting May 1.
Senator Specter. And that has been a considerable help to
your company, enabling you to pay for the increasing cost?
Mr. Zieger. Oh, yes. We changed our deductibles, we
increased our emergency-care co-pay from $50 to $100. We
increased our specialist co-pay from $30 to $40.
Senator Specter. So you made those modifications of
coverage, and you also increased the employees' share from 2
percent to 3 percent. Were your employees satisfied to see
those modifications?
Mr. Zieger. Yes, they are, because they read the newspapers
and see worse things out among their colleagues.
Senator Specter. It's interesting that they have been met
receptively in your program.
Ms. Senkewicz and Ms. Barbieri, you both have raised a
point about the issue of oversight. Ms. Barbieri, if the bill
was modified to permit the State attorneys general to have
oversight, would that solve a significant part of your
objection to the bill?
Ms. Barbieri. Yes, sir, definitely.
Senator Specter. Ms. Senkewicz, when you testified about
sufficient capital reserves, capped at $3 million, what would
you think the bill ought to provide to meet that very important
objection that you have raised?
Ms. Senkewicz. In the State--Senator, at the State level,
we use a concept that is called risk-based capital, which
assesses the risk of the entire company. And there are
different types of risk--insurance risk, business risk,
investment risk, and some others that I'm forgetting. But in
using the formula, then, you come up with an amount of money
that the company needs to have in reserve, which is going to
vary, then, according to the size of the plan.
Senator Specter. So you really think the Federal program
ought to be modified to take those actuarial items into
account. If we were able to do that, and exclude the higher-
risk--eliminate the cherry-picking, as you characterize it--
well, you raise good objections to deal with the fraud issues
and the patients' rights. Do you think the bill could be
restructured to meet the objections which you and General
Barbieri have raised, and allow small businesses to pool to get
the benefits of larger purchaser participation?
Ms. Senkewicz. Senator, we definitely would like to work
with the committee to look at restructuring of the bill. In
fact, Senator Durbin and Senator Lincoln recently dropped a
bill called the Small Employer Health Benefits bill that we are
presently studying. That structure, which is different from an
AHP structure because it uses insured plans only. Obviously
greater pooling risk is something that the States are aware of
and are working towards. States allow pooling now, but it is
only usually within State lines. We'd be happy to work with
you.
Senator Specter. Well, thank you for the invitation and the
suggestions. And you raise important objections, and we need to
deal with them.
Secretary Campbell, if this bill were enacted, two
questions for you. How many people do you think could be
covered among the now 40-million-plus Americans who are not
covered by health insurance? And how much would cost be
reduced?
Mr. Campbell. There are several different studies that
looked at that question. As I indicated, the Congressional
Budget Office found that there would be up to 2 million
Americans who previously had not had employer-provided
insurance who would get it, and that the average premium
savings would be up to 25 percent. There have been other
studies, including by CONSAD, that estimate more on the order
of 8 to 8\1/2\ million people with proportionately higher
savings, as well.
I would like to point out one thing. I think the Senator
has a very good point, which is, we can resolve the questions
that folks are raising, the concerns they have with this
legislation, through the legislative process. The question is
not whether this is a good or a bad idea; the question is: How
do we take this good idea and implement it to make it work even
better? And that is something we're committed to working with
you and the committee on, as well.
I would want to point out one important factor in this
debate that's been a little bit blurred. Most AHPs would be
purchasing insurance products from the State, and that
insurance product would be regulated by the State, with a
fairly narrow exception.
Senator Specter. So you're not going to cut out Ms.
Barbieri?
Mr. Campbell. No, sir. In fact, most of the consumer
protections that we're talking about would continue to apply to
insured products that an AHP is offering. But the narrow
exception is to the benefit design, and the purpose of that is
to allow uniformity so that benefits can be offered across
State lines, much as they are for large employers and union
plans. Our reading of the bill, and the reading of the bill by
the House Education and Workforce Committee in their committee
report, which I would certainly commend to the committee's
attention, points out that external reviews, solvency
standards, prompt pay laws, and a variety of other consumer
protections not affiliated with benefit design are, in fact,
preserved, and the States do still have the regulatory
authority under the legislation.
Senator Specter. Senator Greenleaf.
Senator Greenleaf. Thank you.
Mr. Zieger, you grow roses, don't you?
Well, that was part of Zieger & Sons, prior to August 2002,
but my cousin, David, under Zieger Florals company, does that.
Well, you've been an institution in the Willow Grove area.
And there must be a lot of pressure on you, with all that land
there, with the housing and commercial development there. It
must be difficult to continue as a small business there, and I
congratulate you on being able to do that. We all know that
small businesses hire and create more jobs than any other type
of business, and they hire more people than any other type of
business, and it is important for us to make sure that you have
a viable workforce, as well.
What are your costs in comparison to--and I guess this goes
to Secretary Campbell, as well--what are your actual costs, as
compared to other larger businesses? And what do they pay, as
far as actual premiums for health insurance? Obviously, it's
across the board, because it depends on what the benefits are,
what deductibles are. Maybe you could give us some idea of what
we're talking about as a comparison between those that are
allowed to join together and those that are not.
Mr. Campbell. The statistics that the Department of Labor
has indicate that small employers pay roughly 20 to 30 percent
more for similar benefits, and a large portion of that cost is
due to the administrative overhead, the lack of negotiating
ability. And all that's related to the inability to pool across
State lines to get like-minded groups. When you're bidding for
insurance for 5 or 10 people, and an insurer has to market that
product to each of you separately, that increases cost and
makes it much more difficult to provide the same benefits in a
cost-effective manner.
Senator Greenleaf. What about providing for oversight? Is
the small business able to, unlike a larger one that maybe has
thousands of employees, have a better oversight on what's being
used? I mean, obviously, we've become so distant from our
insurance that, you know, it's covered, it's paid; we don't
really look at the bill very closely, we don't challenge it if
it's wrong. Are there any things we could do to help that
situation, to maybe give the employee, as well as the employer,
a stake in the savings? Is that a factor in the cost of health
insurance? And is a small employer capable of implementing this
a little bit better than a larger one?
Mr. Campbell. Well, to the question of other proposals that
help get the actual consumer of the service, the employee, more
involved in the decisions that are made, the administration has
supported--in fact, the Congress has passed, in the Medicare
legislation, health savings accounts, which are a way to allow
persons to make those healthcare decisions with pre-tax
dollars, and then use that in conjunction with a sort of major-
medical insurance policy that has a lower premium. The result
being a consumer making the choices up front and having money
they can transfer from year to year and actually have ownership
of while still having a lower cost, but important health
benefits.
Senator Greenleaf. The health savings account is where
basically employers put up the savings account, and the
employee gets the benefits. If they under-use it, they have the
benefit of what's left over. What about just reversing that a
little bit and getting employees even more involved in it by
giving them the monies to take out to buy their insurance?
There's a set amount, and then it's their responsibility, not
the employer's, to go out and buy that insurance. Would that
add more cost savings?
Mr. Campbell. Two things. First of all, HSAs can be used by
individuals as well as employers. It's really an individual tax
benefit, so it goes in that direction that you're speaking of.
But as for the second point, employment provides a stable
pooling device that generally offers better rates and better
benefits than is available in the individual insurance market.
Generally speaking, employer-provided coverage is cheaper and
more comprehensive, which is one of the reasons that most
Americans get their health coverage through their employer, as
opposed to buying it on the insurance market for individuals.
Mr. Zieger. We were told by our consultant that the HSAs
are possibly the wave of the future. And I suppose it would
take the insurance factor out in many cases. That way, I would
have a health savings account and use the funds in that account
to just go pay a doctor for a visit or for my annual physical,
and get rid of the insurance cost. You would only be insured
for catastrophic illness, $2 or $5 thousand, whatever
catastrophic kind of thing, and you'd just pay for service on a
fee-for-service basis.
Senator Greenleaf. It just seems to me the more we get the
employee involved in the decisions, I think there will be cost
savings there, as well. There's a little--there's now little
involvement involving the employees. They're not the
gatekeepers; they're not the ones looking at what the costs
are. Then how we could save--whether there's double-billing or
mistakes in the bill.
Thank you.
Senator Specter. Thank you very much, Senator Greenleaf.
Rep. Fichter.
Rep. Fichter. Thank you, Senator.
Senator, before I ask questions, I just want to let you
know that Ray's Diner has the best eggs benedict in Montgomery
County.
Senator Specter. What time do you finish serving?
Mr. Carroll. There's always an open invitation. We serve
eggs benedict all day.
Rep. Fichter. Thank you.
Mr. Campbell, you have me confused. Basically, when you say
that when you have a large group or big corporations are going
to pay one cost, and then the small firms, with the same level
of benefits, are going to pay a higher cost than large
corporations, I'm having a problem trying to figure out how
that happens. Are you indicating that the small firms are
subsidizing the large firms? Is that what you're saying?
Mr. Campbell. No, sir. It goes to the nature of trying to
offer products to them. First of all, the small firm is only,
as I said before, 5 or 10 people. Clearly, when you have 5 or
10 people negotiating for any product, compared to 5 or 10
thousand, you're not going to get an economy of scale, you're
not going to get some cost savings associated with that. There
are several reasons for that. One is, an insurer has to go out
and find the small businesses, so there are marketing costs.
There are administrative costs going through the rating
processes for each of those businesses, which compound
themselves, so that the cost for an insurance policy for that
small business has a lot more overhead and those kinds of costs
built into it. When you have a larger plan, say a union plan,
and you're pooling them across these broad areas, you're able
to more competitively bid that out. You have one contact point,
which reduces your marketing cost, for example, and a variety
of savings in those ways.
Rep. Fichter. Well, taking it just one step further, if you
have a group--let's say U.S. Steel, back in the 1970s, when
they had thousands and thousands of employees, and they put a
level of benefits in the benefit program, negotiated or not,
and that having a group that large would spread the risk over
that entire group. In other words, x number of people have
heart attacks, x number of people have appendectomies in a
given year, so that's going to generate an experience, and
you're going to be experience rated on an annual basis.
Now, conversely, if you take the small firm, they don't
have the number of employees to spread the risk that the large
ones do, so that's basically why I'm having a problem with the
statistics that you're saying, that they're going to pay a
higher rate.
Mr. Campbell. I think the example you used, if you had a
firm, let's say, of five employees, versus U.S. Steel, if one
of those five employees gets cancer, the proportionate effect
on the rate for that group, depending on the State that they're
in and to the extent the laws allow it, would much higher than
it would be for U.S. Steel, as a whole. General speaking, the
principle of insurance is the larger the group size, the more
they're able to bear those kinds of risk and the less chance of
statistical anomalies having such a disproportionate effect on
the market. So that's another reason why small businesses have
more difficulty; being rated as individual units when they have
those sorts of events can dramatically affect their cost.
Rep. Fichter. You see, that's the beauty of this
legislation. It allows the small businesses to go from 10 to 20
to 30, across State lines. They can turn into thousands, also.
So the bottom line is, they could spread their risk over many,
many individual benefit programs.
Mr. Campbell. Indeed, sir, that's one of the primary
benefits.
Rep. Fichter. Thank you very much.
Thanks, Senator.
Senator Specter. Thank you very much, Rep. Fichter.
I just have one additional question. Ms. Senkewicz, there
was a famous football player from Georgia, Frank Senkewicz----
Ms. Senkewicz. No relation, unfortunately. I would have
loved to have been his niece.
Senator Specter. I think he spelled his name differently.
Ms. Senkewicz. He had an extra ``i'' in his name.
Senator Specter. My father and my uncle spelled their names
differently. My uncle spells his--my father spelled his name S-
p-e-c-t-e-r, and my uncle spelled it S-p-e-c-t-o-r. They
obviously spelled it incorrectly. But when people spell my name
with an ``or,'' I can tell--I went to law school, I was
followed by a fellow who spelled his name ``or,'' and I'm
certainly pleased that they misspell his name and started to
spell his name like my name.
Well, that concludes the hearing. And I think it has been a
very, very useful hearing. I think, on the Medicare program,
there's been a good bit of information disseminated about
prescription drugs and ways for seniors to find out how to
utilize the program. And this panel, I think, has produced a
lot of insight with small-businessmen here articulating the
issue and identifying ways to cut costs through larger
purchasing power. And the concerns raised by the attorneys
general and by Ms. Senkewicz and Ms. Barbieri point the way to
answering those issues.
We thank you for coming from Washington, Secretary
Campbell, with an overview as to the administration's support
for the bill and the way it can cut costs and increase the
coverage.
My instinct is that we're a lot close to the 8-million
mark, the small businesses, than the 2-million mark, among the
40-million-plus employees who are not covered. But healthcare
is a major capital investment, and the Congress will be looking
very, very closely at these issues as we proceed.
I, again, want to thank Senator Greenleaf for making the
suggestion, and Representative Fichter for joining us. And I
want to thank my staff for running another good hearing. We
have a high level of professionals who keep the Senate in
motion.
CONCLUSION OF HEARING
Thank you all very much for being here. That concludes our
hearing.
[Whereupon, at 1:37 p.m., Friday, April 2, the hearing was
concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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