[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                       THE HEALTH CARE CHOICE ACT

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




                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   on

                               H.R. 2335

                               __________

                             JUNE 28, 2005

                               __________

                           Serial No. 109-23

                               __________

      Printed for the use of the Committee on Energy and Commerce


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

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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                     NATHAN DEAL, Georgia, Chairman

RALPH M. HALL, Texas                 SHERROD BROWN, Ohio
MICHAEL BILIRAKIS, Florida             Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
BARBARA CUBIN, Wyoming               BART GORDON, Tennessee
JOHN SHIMKUS, Illinois               BOBBY L. RUSH, Illinois
JOHN B. SHADEGG, Arizona             ANNA G. ESHOO, California
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          TED STRICKLAND, Ohio
STEVE BUYER, Indiana                 DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania        LOIS CAPPS, California
MARY BONO, California                TOM ALLEN, Maine
MIKE FERGUSON, New Jersey            JIM DAVIS, Florida
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
SUE MYRICK, North Carolina           JOHN D. DINGELL, Michigan,
MICHAEL C. BURGESS, Texas              (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)






















                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    de Posada, Robert Garcia, Chairman/President, The Latino 
      Coalition..................................................    28
    Gratzer, David, Senior Fellow, The Manhattan Institute.......    43
    Kreidler, Mike, Washington State Insurance Commissioner, on 
      Behalf of the National Association of Insurance 
      Commissioners..............................................    31
    Limbaugh, L. Hunter, Chair, Advocacy Committee, American 
      Diabetes Association.......................................    35
    Matthews, Merrill, Jr., Director, Council for Affordable 
      Health Insurance...........................................    14
Additional material submitted for the record:
    Kreidler, Mike, Washington State Insurance Commissioner, on 
      Behalf of the National Association of Insurance 
      Commissioners, response for the record.....................    68
    Ness, Debra L., President, National Partnership for Women & 
      Families, prepared statement of............................    70

                                 (iii)

  




















                       THE HEALTH CARE CHOICE ACT

                              ----------                              


                         TUESDAY, JUNE 28, 2005

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2123, Rayburn House Office Building, Hon. Nathan Deal 
(chairman) presiding.
    Members present: Representatives Deal, Hall, Gillmor, 
Norwood, Cubin, Shimkus, Shadegg, Buyer, Myrick, Burgess, 
Barton (ex officio), Brown, Waxman, Pallone, Eshoo, Green, 
Baldwin, and Dingell (ex officio).
    Staff present: Chuck Clapton, chief health counsel; Bill 
O'Brien, legislative analyst; Eugenia Edwards, legislative 
clerk; Brandon Clark, Health policy coordinator; Bridgett 
Taylor, minority professional staff; Amy Hall, minority 
professional staff; and Jessica McNiece, minority research 
assistant.
    Mr. Deal. Good morning. I will call this hearing to order 
and welcome everyone here.
    We are pleased to have such a distinguished panel before 
us, and we look forward to hearing your testimony soon. If I 
talk fast enough and the other members talk fast enough, we 
will get to your testimony rather soon. But first of all, we 
have opening statements.
    Today, the subcommittee is here to examine H.R. 2355, the 
Health Care Choice Act of 2005. I want to thank Congressman 
Shadegg and his staff for their hard work, their cooperation, 
and their willingness to make some modifications to this 
initial legislation to accommodate some of the issues that we 
will hear raised, I think, even today.
    I commend you, Mr. Shadegg, and your staff for your hard 
work on this issue.
    I would also like to thank our panel of witnesses for 
appearing before us. We know that any time you take time out of 
your schedules to be here that it is an inconvenience, but you 
have points of view that we do wish to hear from, and we 
appreciate your sharing those with us.
    But the reason we are here today is that we are told that 
sometime during this past year 45 million Americans, 
approximately, were without health insurance. For most of us, 
we think this is an unacceptable number.
    Today, we are here to explore one suggestion as to an 
innovative way to try to reduce that number of uninsured. Of 
course, covering the uninsured is a complex issue, and probably 
no one simple answer is going to solve all the problems. It 
requires complex solutions as well. Perhaps today is a step in 
the right direction for finding some of those solutions.
    Again, I thank my colleagues for their work on this issue, 
and I know that there has been a cooperative effort within this 
subcommittee.
    With that, I will conclude my opening statement and call on 
my good friend, Mr. Brown, the ranking member, for his opening 
statement.
    Mr. Brown. Thank you, Mr. Chairman.
    And thank you to our witnesses for joining us, especially 
the insurance commissioner, Mike Kreidler, who was a member of, 
not this subcommittee, but the full committee back several 
Congresses ago. So, good to see all of you--especially you, 
Mike--thanks for coming.
    I want to thank Mr. Shadegg for contributing to the 
insurance debate. Although I cannot support the proposal he 
offers, we should commend him for focusing on this important 
issue.
    I see three basic arguments for this legislation, and I 
want to go through them one at a time. One, consumers need more 
choice, they should be able to pick the health plan that is 
best for them. This bill doesn't give consumers more choice, it 
gives certain consumers more choice, the ones who are in 
perfect health. As far as for the consumers who don't have a 
clean bill of health, maybe they can get on the waiting list 
for their State's high-risk pool if their State has one.
    When you let insurers snake out from under consumer 
protections, like guaranteed issue, coverage may be less 
expensive for some people; that is because it isn't available 
at all to others. The whole notion of choice is anathema to the 
basic idea of insurance.
    When high-risk consumers can pick the health insurance that 
is best for them, it is called adverse selection. The plans 
that attract a bigger share of high-risk employees--of high-
risk enrollees simply go out of business.
    When relatively low-risk enrollees can pick the insurance 
that is best for them, it is called favorable selection. Health 
plans that attract a bigger share of low-risk enrollees aren't 
really insurers; they are more like bookies, the odds are 
always in their favor.
    Adverse selection destabilizes insurance markets and leaves 
the people most in need of coverage without coverage. The 
second premise is that it is burdensome for health insurers to 
comply with 50 different sets of regulations.
    I have no doubt that is burdensome. There is always a 
tradeoff between Federal and State regulation. But does that 
mean insurers should be able to canvass the 50 States, choose 
which set of regulations they like best, and comply only with 
those?
    H.R. 2355 doesn't enhance flexibility, it makes the lowest 
State standard the de facto national standard. The third 
premise is that benefit mandates are bad because they make 
every enrollee pay for services that only a few people need. 
Insurance itself makes every enrollee pay for services that 
only a few people need. So let us talk about those evil benefit 
mandates.
    Steve doesn't take drugs, so why should he have to pay for 
someone else's drug abuse treatment? Okay. Steve does, however, 
struggle with depression, but Ann doesn't. So why should she 
have to pay for Steve's medication and therapy? Ann does, 
however, have diabetes, but Joe doesn't. So why should Joe have 
to pay for Ann's diabetes supplies? Joe however, does have 
terminal cancer, but Steve doesn't. So why should he have to 
help pay for Joe's cancer medication?
    In nearly all cases benefit mandates compensate for one of 
three problems in the health care market:
    One, the slippery slope. That is when society decides that 
some health care needs are legitimate and others aren't.
    Two, you could be next. That is when healthy people forget 
that their luck could in fact change.
    Three, not in my backyard. That is when you truly believe 
there should be coverage for high-risk individuals as long as 
they aren't in your plan.
    Maybe you believe in high-risk pools, but not in government 
programs. Individual tax credits, MSAs, association health 
plans, now the Health Care Choice Act: These aren't insurance 
proposals. Insurance isn't a gated community for the healthy; 
it is a safe harbor for the sick. Like MSAs, HPs and the like, 
this proposal seems to be based on the decisive and dangerous 
premise that some people matter and some people don't. When it 
comes to hurricanes, the sick should matter the most.
    Thank you, Mr. Chairman.
    Mr. Deal. Thank you, Mr. Brown.
    I will now call on Mr. Shadegg, the author of the 
legislation, for his opening statement.
    Mr. Shadegg. Thank you, Mr. Chairman. Let me begin by 
thanking you for holding this hearing on this innovative piece 
of legislation. I also would like to thank all of our 
witnesses.
    I particularly want to note former Congressman Mike 
Kreidler. It is always nice to have a former colleague come 
back. There is life after Congress.
    Today, as you noted, there are 45 millions without health 
insurance. Two-thirds of those uninsured have incomes below 200 
percent of the Federal poverty level. Most cite unaffordability 
as the top reason for why they are uninsured. We can do 
something about this problem. The Health Care Choice Act will 
both help reduce bureaucracy and harness market forces to lower 
the cost of hurricanes and, most importantly, reduce the number 
of uninsured.
    As Speaker Hastert said, we shouldn't be forcing people to 
buy a Cadillac when all they need is a Chevy. At this point, 
let me talk briefly about the opening comments of my colleague, 
Mr. Brown.
    Yes, mandates in some instances may be appropriate. Mr. 
Hastert's comment about forcing people to buy a Cadillac, not a 
Chevy, may be inaccurate in some regards. But New York, for 
example, requires the coverage of podiatrists. Eleven States 
require the coverage of acupuncturists. Four States require the 
coverage of massage therapists.
    There are, clearly, mandated benefits that are not 
necessary and are driving up the cost of health insurance. In 
1965, in America, there were only seven benefit mandates in all 
of the States. Today there are more than 1,800.
    In some markets this has helped create a situation where 
rates in one State can be as much as 75 percent higher than 
rates in the neighboring State, and people are shopping with 
their feet. They are literally going to a neighboring State, 
finding a friend or a relative, and registering as though--or 
applying for insurance as though they lived in that neighboring 
State. That simply doesn't make any sense and we need to fix 
it.
    For example, in New Jersey, the average cost for a single 
person to buy health insurance is over $4,000 a year. Right 
across the river in Pennsylvania, the average cost is less than 
$1,500 a year.
    This bill will give consumers the option of buying health 
insurance that meets their needs and is right for them. It also 
lowers health insurance costs by cutting red tape. The result, 
it will result in significant cost savings. A recent study 
found that consumers would save an estimated 77 percent in New 
Jersey, 22 percent in Washington, 21 percent in Oregon and 16 
percent in Maryland if those States eliminated just some of 
their mandates.
    It is important to note the Health Care Choice Act does not 
eliminate consumer protection or decrease it. I would like to 
make a point of what it does do.
    For example, insurers must be licensed in the primary 
State. They must get the insurance product approved by that 
State. They must meet all of that State's laws and requirements 
before they can sell in a secondary State. They must meet a 
risk-based capital standard for determining solvency. That is 
the NAIC's gold standard for determining solvency.
    They must provide all policyholders with access to external 
review, an issue that my colleague, Congressman Norwood, and I 
worked on in the Patient's Bill of Rights. They must 
incorporate significant disclosure, and this is the form they 
must provide not only when they sell the policy, but in each 
and every renewal notice. I think we are all very familiar with 
the renewal notices we get on a very regular basis; the 
disclosure must be in that document.
    They must provide each secondary State with a copy of the 
policy. They must provide written notice of their compliance--
to the secondary State of their compliance with of the laws of 
the primary State, and they must provide financial information 
on a quarterly basis to each secondary State.
    The secondary States may assess premiums and other taxes, 
including high-risk pool assessments, a companion piece of 
legislation, which I look forward to moving with this bill. 
They must conduct--they may conduct a financial review of the 
insurer if the primary State did not do so.
    They may require compliance with any lawful order which 
they issue. They may seek an injunction alleging that the 
insurer is in hazardous financial condition. They may require 
participation in the secondary States guaranty fund. They may 
require compliance with the secondary State's fraud and abuse 
laws.
    They may require compliance with the secondary State's 
unfair claims settlement practice laws. They may require that 
all insurance brokers and agents be licensed in their State, 
and they may stop the sale of insurance to groups or 
individuals not permitted or by an insurer in hazardous 
financial condition.
    I believe this bill strikes an appropriate balance, 
maintaining State regulation without moving that regulation to 
Washington DC, like other reform proposals that are on the 
table, while at the same time increasing consumer access to 
affordable health insurance.
    Finally, I would like to note that with the addition of Ed 
Towns of our committee, this legislation is bipartisan in its 
sponsorship. I hope it will ultimately be even more so. I 
believe this is an innovative idea that deserves examination.
    I look forward to the testimony of our witnesses, and 
again, Mr. Chairman, I would like to thank that you for holding 
the hearing.
    Mr. Deal. I thank the gentleman.
    I recognize the ranking member of the committee, Mr. 
Dingell, for his opening statement.
    Mr. Dingell. Mr. Chairman, thank you for your courtesy.
    Before I begin my statement, I would like to welcome an old 
friend of many members of this committee, a former colleague of 
ours on this committee and in the Congress, a distinguished, 
able and dedicated member of this body when he served here, the 
Honorable Mike Kreidler, who is going to be testifying before 
us today.
    Mike, welcome back.
    You follow, interestingly enough, in a distinguished office 
and another old friend of mine whose name you probably don't 
know, but Joel Lewnham, who is an insurance commissioner in 
your State also. So welcome back.
    And thank you for that, Mr. Chairman.
    Now, with regard to the specific legislation today, we are 
going to find today that there will be raised broad issues 
about health care costs as they rise, affordability of health 
care insurance, the coverage of Americans seeking individual 
policies and consumer protections that accompany that insurance 
coverage. Some of the witnesses who appear before the 
subcommittee today will believe that if insurance companies 
could limit the number of protections provided by States to 
their residents, the price of coverage would drop and more 
people would be insured.
    This argument ignores the broader picture. State regulation 
is vital to protect those who reside in that State from 
unscrupulous actors and to protect those who would otherwise 
have no protection.
    I want to make it clear that my opposition to this 
legislation in no way affects the high respect or the great 
affection I have for the author of the legislation. But this 
committee has studied these kinds of matters in earlier days; 
we went into the problems that exist with regard to State 
insurance regulation.
    The purpose of State insurance regulation is to assure, 
first of all, that the insurance companies are solvent; second 
of all, to assure that persons who are insured have the ability 
to have their claims adjudicated honorably and fairly. It is 
not really about price controls, and we have found that the 
insurance industry is very much plagued by irresponsible, evil, 
unprincipled, and scoundrelly individuals who traffic across 
State lines to the great disadvantage of everyone.
    We found that the State regulatory agencies are incapable 
of addressing these matters and that people would leave this 
country with suitcases full of money that they had stolen from 
ratepayers and from insurance policy owners, and that they had 
defaulted on the payment of bills in the most scandalous way. 
We found that there is great need, rather than to weaken State 
regulation to, in fact, strengthen State regulation for the 
protection of persons who are dependent upon these kinds of 
insurance for something which is of vital importance to them.
    Reduced insurance premiums for some people are little 
consolation for the consumers who, under this bill, would be 
left without coverage or left in the hands of State regulatory 
agencies, which would be incapable of affording those covered 
with the insurance which they desperately need.
    Reduced insurance premiums would mean little to the person 
who no longer has coverage for critically needed benefit such 
as diabetes care or maternity care or breast cancer treatment. 
Insurance companies would be empowered to avoid caring for the 
sick people who cut into their profit margin and, thus, to 
essentially select by a process of cherry-picking or cream-
skimming those who afford them the greatest opportunity for 
profit and the least opportunity for payoff and payout.
    This legislation would also greatly increase opportunity 
for mischief. To expect one State insurance commissioner to 
regulate the operations of an insurance company in 50 States, 
which may or may not even be located in the United States, but 
might be located offshore in one of the Caribbean islands is, I 
think, rather too much hope and trust for the situation that we 
have found to be the case in the insurance industry. Indeed, it 
would be a little bit like using one pat of butter for a whole 
loaf of bread.
    It would spread the coverage, the protection and the 
insurance too thinly to assure any good for anyone; and without 
adequate oversight, trouble is almost certain to arrive. As a 
matter of fact, all you have to do is look to see what is 
happening now in the industry to understand the parallel that 
exists with regard to persons if this were to occur. You will 
find that the State insurance commissioners are desperately 
fearful of this kind of legislation worsening the situation. 
There are already almost insurmountable tasks and burdens.
    I want to agree with my good friend and sponsor in his 
desire to make health coverage more affordable for the 
uninsured. I have introduced a number of bills on this matter, 
as have most of us in this Congress. But I am concerned that 
the solution proposed in the Health Care Choice Act may worsen 
the situation and not better it from the standpoint of 
consumers or from the standpoint of intelligent regulation 
which protects our people from serious wrongdoing and from 
rascals who have been able to exploit the weakness of the 
current system to their great economic success.
    We do need to address the issue of affordability of health 
insurance, but the solution lies in looking at health care 
costs, not taking away heartfelt consumer State protections 
from those who are sickest, weakest or who have the least means 
to address the problem.
    We also need to look more closely at the availability of 
health insurance coverage. With the number of uninsured on the 
rise, this problem is going to grow, as it is now. But 
insurance that does not cover the benefits you need is no 
better than having no insurance at all.
    I would hope that collectively we could find a better way 
to take care of our citizens than leaving them at the mercy of 
insurance companies' bottom lines, now inadequately covered by 
State regulation and covered under this legislation under still 
weaker and more unfortunate kinds of protections for the 
consumers.
    Thank you, Mr. Chairman.
    Mr. Deal. I thank the gentleman.
    I recognize my colleague from Georgia, Dr. Norwood.
    Mr. Norwood. Thank you very much, Mr. Chairman. I ask your 
indulgence this morning. I am testing a new medical device that 
would be very helpful to people who might need a little extra 
oxygen, but I am not sure what it will do to the microphones 
yet.
    I thank you for calling this hearing on the Health Care 
Choice Act. I wanted to start by stating my support for this 
legislation as a good discussion starter. We all believe in 
giving working-class Americans every opportunity to obtain the 
health care coverage that is sometimes just out of reach. But 
we need to become creative. It is refreshing and encouraging to 
see us thinking outside the box, and I commend my friend, Mr. 
Shadegg.
    As we all well know, the increasing cost of health care has 
affected millions of Americans. Across the board, the premium 
for health care insurance has skyrocketed. Congress now must 
act in a way that will increase the affordability and 
accessibility of health care to all of our citizens.
    The number of people without health insurance has been 
rising now for decades. Many do not have coverage through their 
jobs. Some of those that do can't afford their premiums. The 
number of uninsured Americans is obviously too high and 
underscores the need for a change in the way we think about 
delivering health insurance. And we can't forget the small 
businesses that simply cannot afford coverage at today's 
prices.
    Uninsured Americans face serious hurdles in entering the 
insurance marketplace. For most, the high cost of health 
insurance is all it takes to limit access. That is where tools 
like tax incentives and health savings accounts can be of real 
help, but we need to deal further. Right now, individuals can 
only purchase health insurance from companies whose policies 
are approved for sale in their State. This legislation would 
change that and would offer consumers much more choice.
    This bill will allow individuals to buy insurance from 
insurance companies based in other States who choose to market 
regionally or nationally. Such a change could spark some 
innovation in the insurance marketplace. If people could get 
health insurance cheaper across State lines, fewer people would 
go without it; consumers, not politicians, would help determine 
what policy benefits they wish to get in order to help get 
market forces moving.
    This legislation contains many protections to guarantee 
that an insurer has to follow all the laws of the State they 
are primarily established in, and that is a good start. They 
would also be responsible to the State insurance commissioner 
and would have to meet every requirement under every State law 
or under that State's law. Furthermore, the insurer is subject 
to regulation in each and every secondary State.
    However, we need to make sure that we don't end up limiting 
sicker patients and those with preexisting conditions to a few 
high-risk pools or insurers that specialize in such cases. 
First steps are made in that regard by outlawing re-
underwriting.
    Most importantly, all policies will include some safeguards 
not present in all States. This bill requires each policyholder 
to be able to appeal medical decisions to a panel of 
independent health professionals. It still baffles me that 
eight States do not allow independent review for policyholders. 
This bill does a lot of good in this area.
    But I would like to make this bill even better by getting a 
few more patient protections in it, including some more 
language dealing with external review provisions. That said, 
this bill is a great start, and I look forward to working with 
my friend, Mr. Shadegg.
    Mr. Chairman, I yield back.
    Mr. Deal. I thank the gentleman.
    I now recognize the gentleman from New Jersey, Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman.
    I want to voice my strong opposition to the Health Care 
Choice Act. It is a terrible bill in my opinion from a public 
health perspective, and would do nothing to lower the cost of 
health insurance or reduce the number of uninsured Americans. 
In fact, if enacted, the H.R. 2355 would only serve to worsen 
these problems.
    The bill seeks to allow insurance companies to select a 
State in which they want to be regulated and then sell their 
product in other States. Proponents of the bill would have us 
believe that this would result in a greater variety of 
insurance products for consumers to choose from at a lower 
cost. But in reality this bill will result in a race to the 
bottom as insurers try to set up shops in States with fewer 
consumer protections.
    Such a proposal would have a particularly disastrous effect 
in my home State of New Jersey, essentially rendering our 
consumer protections meaningless and destroying our individual 
insurance market.
    Every State in the U.S. has enacted insurance reforms that 
have been developed to provide stability and certain 
protections for consumers in the insurance market. Some States 
offer more protection than others.
    In my home State of New Jersey, we have enacted extensive 
reforms that go beyond what many other States offer, including 
guaranteed issue and renewal, community rating and 
standardization of benefit plans. Thanks to these consumer 
protections, New Jersey is able to ensure that its residents 
have access to quality individual insurance products. H.R. 2355 
will completely undermine that promise, in my opinion.
    In New Jersey, insurers cannot turn people away because of 
risk factors such as health status, age, gender, occupation or 
geographic location. Every New Jersey resident can access 
coverage at a similar price regardless of risk.
    In order for New Jersey to guarantee access to this kind of 
insurance, it must be able to spread risk throughout the 
market. That means pooling low and high risks together. If H.R. 
2355 were enacted, it would completely dismantle New Jersey's 
existing risk pool. Younger and healthier consumers would flee 
New Jersey's market in order to obtain cheaper policies that 
provide less coverage, leaving only high-risk consumers in the 
market.
    In addition, high risks residing in other States without 
generous consumer protections, like Arizona, for example, Mr. 
Shadegg's State, would probably select insurance plans 
regulated by New Jersey if there were any to remain at all. 
Without any low-risk left to cross-subsidize the high-risk, 
premiums would likely rise and become unaffordable. New Jersey 
could not sustain an individual market under these conditions 
and would likely be thrown into a death spiral, leaving our 
most sick and vulnerable citizens with few places to turn to 
get health coverage.
    Now, someone here today--and I think Mr. Shadegg was sort 
of alluding to that--will try to convince this committee that 
because of such consumer protections, individual insurance in 
New Jersey is expensive and unaffordable for many of its 
residents. Now it is true that the cost of insurance is 
slightly more expensive in New Jersey, but that is because it 
is a better product.
    Furthermore, according to the Kaiser Family Foundation, 14 
percent of New Jersey's population currently does not have 
health insurance. Now you compare that to Arizona, which has 
fewer consumer protections and presumably less costly 
insurance, but 17 percent of the population currently has no 
insurance in Arizona. So this leads me to believe that consumer 
protections are not the culprit behind the rising costs of 
health insurance, and circumventing them will not lower the 
price of insurance.
    I think, Mr. Chairman, that the bill we are considering 
today is simply a ruse. The bill would be more appropriately 
entitled the Health Care Choice Unless You Are Old and Sick 
Act. This bill does nothing to lower the cost of health 
insurance or extend coverage to the people who need it most. If 
enacted, it would only result in more people purchasing low-
cost health plans that offer limited coverage and carry big 
risks. While these people would be technically considered 
insured, it would be meaningless because their policies would 
not cover much if they ever got sick.
    If we are serious about lowering the cost of health 
insurance and extending coverage to the 45 million or more 
uninsured Americans, then we should address what is the driving 
cost of health care instead of enacting meaningless reform that 
would worsen matters. We should push for new laws that better 
control overall health care costs and expand access to quality 
health insurance for more Americans, especially our most 
vulnerable populations.
    I yield back.
    Mr. Deal. I recognize the gentleman from Indiana, Mr. 
Buyer.
    Mr. Buyer. I would just like to hear from the witnesses. I 
yield back.
    Mr. Deal. I recognize Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman.
    While applauding the author's intentions in offering this 
legislation, I have serious concerns about the bill that we are 
discussing today. I strongly believe that all Americans have a 
right to affordable, quality and comprehensive health care.
    As many on this panel have already emphasized, 45 million 
Americans are uninsured, and many millions more are 
underinsured. Earlier this month, the Commonwealth Fund 
released a study estimating that there are 16 million Americans 
who are underinsured, meaning their insurance did not 
adequately protect them against catastrophic health care 
expenses.
    That means 61 million Americans either have no insurance, 
sporadic insurance or have coverage that leaves them exposed to 
high health care costs. Sixty-one million Americans is nearly 
21 percent of our population, one in five. Clearly this is 
unacceptable, and I would very much like to have this committee 
search out ways to address this crisis.
    I do not believe that H.R. 2355 would do the job. While 
purporting to make health care more affordable, I believe it 
would create, as my colleague just said, a race to the bottom, 
where insurers will offer stripped-down health insurance 
products by evading consumer protections that have been put in 
place by the States. Consumers who choose these cheap products 
will be left without important protections while those who do 
not choose these products will see their own health care 
premiums rise due to adverse selection. We will end up with 
more uninsured and more underinsured Americans.
    Mr. Chairman, the underlying issues that we are talking 
about today--uninsurance, underinsurance, affordability and 
quality--are critical, and I hope our subcommittee will have, 
in the future, the chance to discuss other approaches to 
address these very severe problems.
    I yield back.
    Mr. Deal. Thank the gentlelady.
    I recognize Mr. Green from Texas for an opening statement.
    Mr. Green. Thank you, Mr. Chairman.
    Like my colleagues, I would like to welcome Mike Kreidler 
back. You know, it is interesting; we were elected, I guess, in 
1992, Congresswoman Eshoo; and again going from a Member of 
Congress to a Commissioner of Insurance in Washington, that may 
be a step up. I am wondering. Having served in the legislature 
in Texas for many years and dealing with our insurance 
commissioners at that time, it is almost as tough a job as any.
    But, Mr. Chairman, I want to thank you for calling the 
hearing on the Health Care Choice Act. Again, I, like my 
colleagues, want to thank our colleague, Mr. Shadegg, for 
introducing the legislation.
    We have long showed how best to provide affordable health 
insurance to all Americans to decrease the numbers uninsured in 
our country. My State of Texas has the unfortunate distinction 
of having the highest number of uninsured individuals in the 
Nation. There is always an increase in our utilization for 
nonemergency conditions while increasing health care costs for 
all individuals.
    In a recent study, Families USA concluded that the cost of 
treating the uninsured has led to an annual premium of $1,550 
for the average Texas family. Without question, Congress must 
act to provide affordable health insurance to the ununinsured 
and underinsured in our country.
    I question whether our enactment of this bill is the right 
action to take. By allowing an uninsured to set up shop in one 
State to provide health insurance to a beneficiary in another, 
this bill introduces a host of problems and risks for the 
consumer. There is a point at which inadequate health insurance 
may be just as bad as no health insurance at all for a 
consumer. This bill may open the door for that dangerous 
scenario to become a reality.
    I fear the Health Care Choice Act offers more choice to the 
health insurer than to the beneficiary. The bill gives health 
insurers the opportunity to shop around and settle in what 
State has the fewest consumer protections.
    It is really a simple business decision. Every business 
seeks to operate in the most favorable business climate, and 
this legislation would allow health insurers to do that. The 
problem is consumers lose out on the protections that been they 
may have been granted undertheir own State law.
    In Texas, if a Texan buys a policy regulated in Alabama, he 
is protected by Alabama laws and not Texas laws. If the Texas 
consumer protection laws are stronger, then that policyholder 
is out of luck. To make matters worse, he cannot use his voting 
power to help change those laws that protect him because his 
vote has no effect in Alabama.
    In my State of Texas we have some of the highest rates of 
diabetes in the country. We also have State diabetes 
requirements that mandate health insurance coverage of diabetes 
testing supplies, insulin, syringes and diabetes education.
    Under this bill, health insurers could easily leave the 
State of Texas, set up a shop in any one of four States without 
State diabetes requirements, leaving many Texans without the 
coverage for supplies and medication to help them manage this 
life-threatening disease.
    While this bill's overall goal is to reduce the number of 
uninsured, an unfortunate unintended consequence could be to 
increase the number of underinsured.
    I look forward to hearing from our witnesses. Hopefully, we 
can work it out. But I want to look at any avenue we can for 
increasing our opportunities to cover people with our insurance 
system, but also not make it to where they don't receive 
anything but a quality product for what they pay.
    Thank you, Mr. Chairman.
    Mr. Deal. I thank the gentleman. I recognize the chairman 
of the full committee, Mr. Barton from Texas, for an opening 
statement.
    Chairman Barton. Thank you, Chairman Deal, for holding this 
hearing today. Last year, 45 million Americans lacked health 
insurance for at least some part of the year. Millions went 
without health insurance because there was no policy that they 
could afford. This is not a new problem.
    Each year, when the Census Bureau announces its health 
insurance statistics, activists stampede to demand that the 
government take over and run the health care system. See, they 
say, the market doesn't work. Their view is, if only everybody 
could have something like Medicaid, America would be happier 
and healthier.
    They are wrong, America's health system doesn't have a 
market problem; it has a government problem. Both the system 
and the uninsured are afflicted by the consequences of years 
and years of government meddling at both the State and Federal 
level--too many regulations, too many subsidies, too many 
mandates and too many policies that are supposed to improve 
health insurance. These efforts have combined to distort the 
market and make it very difficult for average working-class 
Americans to purchase reasonably priced health insurance.
    Look at what happens when you compare the average monthly 
premiums in different States. In my home State of Texas, for 
example, the average premium for a single policy is $133 a 
month. In New Jersey, that same policy costs $340 a month. The 
difference is $2,400 a year.
    Some people might be able to reach in their pockets and 
just pluck out an extra $2,400, but not many working people can 
do that. They are the ones who most often resolve the problem 
by deciding that groceries and rent are more important than an 
insurance policy. So they buy their groceries and pay their 
rent and pray that they won't get sick or hurt. H.R. 2355, the 
Health Care Choice Act, addresses these problems by allowing 
people to buy health insurance across the State lines.
    I want to thank my good friend, John Shadegg, for 
introducing this piece of legislation. My understanding is that 
Congressman Ed Towns has also endorsed it and has become a 
sponsor of it.
    Allowing people to purchase a health insurance policy they 
can really afford goes a long way toward reducing the number of 
uninsured. It is a little less government, a little more 
freedom. That makes a big difference.
    I look forward to hearing from today's witnesses on this 
proposal. It is my hope that this hearing will allow us to 
examine the legislation and assess its impact on consumers, 
States and insurance markets and ultimately the cost of health 
insurance. If the hearing goes as well as I hope it goes, there 
is a good chance we could be marking this piece of legislation 
up in the very near future.
    Thank you, Chairman Deal, for holding today's hearing. I 
yield back the balance of my time.
    Mr. Deal. I thank the gentleman.
    I recognize the gentlelady from California, Ms. Eshoo, for 
an opening statement.
    Ms. Eshoo. Good morning, Mr. Chairman. Thank you for 
holding this hearing.
    And welcome to our, witnesses and most especially, our 
former colleague and good friend and classmate, Mike Kreidler. 
I am looking forward to hearing your testimony this morning.
    I think that we are all absolutely in favor of making 
insurance, health insurance, more affordable for people in our 
country. I think that that is the intent of the gentleman's 
legislation. But I do think that it has flaws in it. Whether 
it--I would say unintentionally--brings about some effect, I 
don't really think the American people are going to weigh in 
and say, This is really going to be terrific for us.
    The effects of the legislation, I think, would be rather 
harmful in many areas. First of all, it allows insurers to 
choose States that have the most lenient rules, which then 
would eliminate some of the most, I think, key consumer 
protections that States have seen fit to make part of what is 
offered to people and to protect them.
    It could eliminate coverage of screening of mammography and 
cervical cancer, coverage for cancer, clinical trials, direct 
access to OB/GYNs, mental health parity; and in my home State 
of California, the ability of California regulators to help 
resolve complaints by consumers who purchase coverage from an 
insurer licensed in another State. That could just be wiped 
out.
    So while I think that the gentleman's intention of enabling 
people to have health care insurance coverage and at a good 
rate, the language is really structured in a way that I think 
most people really would not weigh in and say, I want that.
    I really look forward to Commissioner Kreidler's testimony 
today on how he would protect consumers in his State of 
Washington from fraud and unpaid or disputed claims if the 
insurer is licensed by the laws of a second State and domiciled 
in a third State.
    You know, on the surface of these things, obviously, the 
advertising, so to speak, is really engaging, as well as it 
should be. But I think that we have to understand very clearly 
how this would work.
    I would also add--and this will be the last part of my 
statement--that States, I think, have filled in many situations 
the void that exists with a real national policy on health 
care, on insurance and on coverage for all people.
    In saying that, of course, it is more expensive to do 
business in New Jersey than it is in some mostly rural States 
because urban areas are simply more expensive to do business 
in. It is not just the cost of the insurance policy. Everything 
is more expensive.
    I can tell you that it is far more expensive in the San 
Francisco Bay Area than it is in the Central Valley, which is 
mostly agricultural, in the State of California. So there are 
differences in these markets that we need to take into 
consideration.
    Last, our distinguished chairman of the full committee 
said, a little less government and more freedom. I think that 
people--that the American people are all for freedom. But I 
also think that they want to be--have the protection, the 
consumer protections that have been hard fought and won in so 
many different places in the country; and most importantly, 
that those consumer protections have really made a key and 
profound effect in people's lives.
    So, thank you, Mr. Chairman, for having this hearing. I 
think that we have a very interesting debate here. I think that 
our witnesses are well chosen and are going to bring much to 
it. Thank you.
    Mr. Deal. I thank the gentlelady.
    I recognize Dr. Burgess for an opening statement.
    Mr. Burgess. Mr. Chairman, I will submit my statement for 
the record in the interest of time.
    Mr. Deal. I thank the gentleman.
    The chairman recognizes Ms. Myrick for an opening 
statement.
    Mrs. Myrick. I will waive. Thank you.
    Mr. Deal. Thank you, I believe that concludes our opening 
statements, I am pleased to introduce our distinguished panel 
members to the audience and to the members of the committee.
    First of all, Dr. Merrill Matthews, Jr., who is the 
Director of the Council for Affordable Health Insurance; Mr. 
Robert de Posada, who is Chairman and President of The Latino 
Coalition; of course, he has already been introduced several 
times, our former colleague, Mr. Mike Kreidler, who is now the 
Insurance Commissioner for the State of Washington and 
representing the National Association of Insurance 
Commissioners; Mr. Limbaugh, Mr. Hunter Limbaugh, who is the 
Chief of the Advocacy Committee of the American Diabetes 
Association; and Dr. David Gratzer, who is a Senior Fellow from 
the Manhattan Institute.
    Gentlemen, we are pleased to have you today. Your written 
testimony has been a made a part of the record.
    We will ask you for 5 minutes, if you would, to summarize 
the essence of your testimony. We will follow that with 
questions from the committee.
    Dr. Matthews, you are first.

   STATEMENTS OF MERRILL MATTHEWS, JR., DIRECTOR, COUNCIL FOR 
AFFORDABLE HEALTH INSURANCE; ROBERT GARCIA de POSADA, CHAIRMAN/
  PRESIDENT, THE LATINO COALITION; MIKE KREIDLER, WASHINGTON 
    STATE INSURANCE COMMISSIONER, ON BEHALF OF THE NATIONAL 
  ASSOCIATION OF INSURANCE COMMISSIONERS; L. HUNTER LIMBAUGH, 
 CHAIR, ADVOCACY COMMITTEE, AMERICAN DIABETES ASSOCIATION; AND 
     DAVID GRATZER, SENIOR FELLOW, THE MANHATTAN INSTITUTE

    Mr. Matthews. Good morning, Mr. Chairman and members of the 
subcommittee. I am pleased to be here.
    I want to thank the chairman of the subcommittee for 
calling this very important hearing today on the Health Care 
Choice Act. I commend your leadership for considering ways, 
innovative ways, that would allow millions of Americans, 
uninsured Americans, to have access to affordable health 
insurance.
    I am Merrill Matthews, Director of the Council for 
Affordable Health Insurance, which is a research and advocacy 
association of insurance carriers, active, individual, small 
group market, health savings accounts, senior markets and 
others. In summarizing my points, I would like to make three 
primary points.
    The growing cost of health insurance and its effect on the 
uninsured: Health care costs are growing. In a recent study 
from Health Affairs, health care spending is up by 8.2 percent 
in 2004, growing faster than the rate of inflation. When health 
care cost spending goes up, health insurance premiums go up, 
and that has a direct effect on the number of uninsured, 
leading to our 45 million Americans without health insurance.
    Frankly, the States have not been all that helpful in 
trying to address this problem. One thing they have done, 
already mentioned, is the health insurance mandates. Forty 
years ago, there was just a handful of mandates around the 
country. Today, according to our count at the Council, we find 
1,824 mandates around the country.
    We have, Mr. Chairman, over there I believe, a copy of our 
publication, which tracks each of the mandates in each of the 
States. We also went through and had a group of actuaries 
assess what they thought the basic cost of those mandates was 
and would be in general. Our estimate is that the mandates in 
the States increase the cost of health insurance roughly 20 to 
50 percent, depending upon the State that you live in.
    In addition, there are the guaranteed issue and community 
rating laws that eight different States have passed. That has 
made health insurance unaffordable in several States. New 
Jersey was mentioned earlier.
    If you go on the State's Web site, a Plan D policy, that 
is, a $500 deductible, 20 percent copayment, is going to cost, 
for a family, roughly $3,912 a month from Oxford Health 
Insurance. That is the least expensive policy. That is a 
monthly premium. It is on the State's Web site. If you want to 
look at Aetna's Plan D policy, family policy, $500 deductible, 
20 percent copayment, you are looking at $6,025 a month.
    You do have guarantees in New Jersey, but you don't have a 
guarantee that people can afford it, and they can't. High-risk 
pools, we believe, are a much better way of addressing that.
    Health insurance premiums vary by State. eHealthInsurance, 
which is an online marketer of health insurance, tracks the 
policies that are being sold through that Web site. When you 
look at that--and we have a chart over here; it is also 
reproduced in my testimony before you--New Jersey is the 
highest State, $4,080 a year. That is for a single individual, 
and that is their experience of what people are paying. That is 
different from what the State puts on the Web site.
    Contrast that with what you see in Iowa, $1,236 a year for 
an individual; Wyoming, $1,284. Is it a difference of where a 
person lives? The average in the country is $1,800, but even 
California is only $1,680. Expensive California is less than 
half what it is in New Jersey.
    Go across the State line in Pennsylvania, and you will find 
a health insurance policy for a third, maybe a fourth of what 
you would be paying for it in New Jersey.
    The health insurance marketplace is changing. What we are 
talking about is already beginning to happen in many ways. For 
example, I work at the Council. I actually live in Texas. I 
live in Dallas, so I am one of your neighbors there. I don't 
have the health insurance policy provided through the Council, 
which is based in Virginia. If I did, I would have a Virginia 
policy with Virginia mandates overseeing me in Texas. That 
already happens.
    In addition, individuals who are looking for individual 
policies out there are increasingly joining associations. Some 
of those associations are national; some of them are local like 
a State local Chamber of Commerce, that sell health insurance. 
Many States, even though they regulate those association 
policies, don't regulate them to the same extent that they do 
individual policies. As a result, millions of Americans are 
able to buy health insurance out there from a health insurance 
company that is domiciled in a different State that has some 
State regulation over that policy, but they are able to get 
less expensive policies because those health association 
policies don't always have the mandates included in them.
    The point is that despite concerns that the Health Care 
Choice Act could disrupt the current system and deprive States 
of their ability to oversee health insurance and protect 
consumers and generally undermine it, the market is already 
moving in the direction of trying to find more innovative ways 
for people to buy health insurance.
    What is going to be the impact of the Health Care Choice 
Act? Well, nearly 90 percent of the people who have private 
health insurance, that is, working Americans, get it through 
their employer. I expect this would have very little impact or 
no impact at all on them.
    There are also millions of Americans who currently buy 
health insurance in their State and are satisfied with it. My 
wife and youngest daughter, we live in Texas, we have a high 
deductible Blue Cross policy in Texas. We are satisfied with 
that policy. It is a fairly affordable policy. If the Health 
Care Choice Act were to pass, I doubt we would change what we 
are doing.
    That addresses the issue of whether or not this is going to 
be a race to the bottom. Consumers aren't like that.
    When we bought that health insurance policy, we had a range 
of different policies we could have bought there in Texas. We 
chose a Blue Cross policy. If the Health Care Choice Act 
becomes law, we might be able to find a less expensive policy 
in another State. I don't expect we will do that. We are 
satisfied with what we have.
    The key point is that uninsured Americans out there, 
especially those living in the high-cost States, would have 
access to affordable policies that they don't have access to 
now. Those are people outside the system. They are not being 
protected by any consumer laws because they aren't in the 
system, and this gives them a chance to move into it.
    We are not advocating the dissolution of the State 
regulatory system over health insurance. We are advocating an 
option and health care choices for millions of individual 
Americans who are currently uninsured because they cannot 
afford all the services and the protections prescribed by the 
State.
    Thank you, Mr. Chairman.
    [The prepared statement of Merrill Matthews follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Deal. Thank you.
    Mr. De Posada.

              STATEMENT OF ROBERT GARCIA de POSADA

    Mr. de Posada. Thank you, Mr. Chairman. Thank you, Mr. 
Brown. My name is Robert de Posada, and I am President of The 
Latino Coalition.
    I think most people, by now, realize that Hispanics are way 
more uninsured in numbers than any other ethnic group in the 
country. According to the U.S. Census Bureau and according to 
almost every study, you see Hispanics tend to be three times as 
likely to be uninsured, and predominantly, that is based on the 
source of employment and their income.
    In most cases, we are seeing Hispanics working for small 
businesses and earning a much lower income, which has put them 
in a very awkward situation, in being outside of a current 
system. Most Hispanics will be outside of the employer-based 
market.
    When you start looking at some of the States where 
Hispanics are predominant, you see in these situations, 
Hispanics tend to live in States that are heavily mandated and 
that you have very serious mandates; and their premiums are 
extremely high.
    I mean, I have been listening to Mr. Pallone when he talks. 
In New Jersey, it is a little more expensive--no, it is 10 
times more expensive than in neighboring Pennsylvania. So we 
cannot, you know, we are already seeing people from New Jersey 
going to Pennsylvania to see people purchase insurance.
    Somehow, I just don't understand how people could be 
supportive right now of reimportation of drugs from other 
countries yet have a serious concern over buying insurance 
across State lines.
    I live in Washington State and I am lucky enough to have a 
good State insurance commissioner that, under his leadership, 
we have actually seen improvement.
    I mean, in 1999, there was only one provider. Right now, we 
have about eight providers, but still there is no competition. 
We still have 84 percent of the consumers under two plans. I 
personally have uninsured trying to purchase insurance, I can 
purchase insurance in Virginia three times cheaper--the same 
insurance, three times cheaper than I can buy in my home State.
    So I think the whole concept of allowing people to have 
more choices--you know, if you live in New Jersey, you have 
that ability to go to Pennsylvania. But if you live in south 
Florida, if you live in south Texas, if you live in east L.A., 
you are stuck. You have absolutely no options.
    I think for anybody to tell me that if there is a history 
of diabetes in my family, that I am just going to go for the 
cheaper insurance and not look for insurance that would target 
my potential diseases. I think they are underestimating the 
intelligence of the consumer.
    Hispanics are desperately, right now, looking for 
opportunities, looking for options and choices to be able to 
have some basic coverage. That is what we don't have right now. 
In every single survey, every single poll that we have 
conducted shows affordability is the No. 1 issue for Hispanics.
    We tested this legislation late last year, and we found 
that 84 percent of Hispanics strongly supported the concept of 
this legislation, and 80 percent of Hispanics said they 
actually would purchase health insurance in another State if it 
was appropriate for them. So I think that you have a very 
strong level of support out there for some new alternatives, 
some new thinking outside of a box.
    You know, at first, to be quite honest, when we were 
approached about this legislation, we have serious concern 
because there is a lot of predators in the Hispanic community. 
When we saw the plans available under this legislation would 
have to be approved by the State insurance commissioner and 
they would be regulated by a State, at least that gives us the 
peace of mind that we are going to find something that is not 
predatory, that is, something that will provide choices to most 
of the uninsured Hispanics; and I think it would give us the 
ability to start educating the community into the ability of 
getting new options for them and being able to reduce that 
unacceptable level of uninsured that we have in the Hispanic 
community.
    So thank you very much, Mr. Chairman.
    [The prepared statement of Robert Garcia de Posada 
follows:]
 Prepared Statement of Robert Garcia de Posada, President, The Latino 
                               Coalition
    My name is Robert Garcia de Posada and I am the President of The 
Latino Coalition. The Latino Coalition was established in 1995 to 
address policy issues that directly affect the well-being of Hispanics 
in the U.S. The Coalition's agenda is to develop and promote policies 
that will enhance overall business, economic and social development of 
Hispanics.
    When it comes to health insurance, according to the U.S. Census 
Bureau, the highest uninsured rate in the U.S. is among people of 
Hispanic origin. Over one third, or 34.2% of Hispanics were uninsured 
compared with only 12% for non-Hispanic whites. U.S. Hispanics also 
have the largest percentage of the working uninsured at 37.9% compared 
to only 14.9% for non-Hispanic whites. Foreign-born immigrants were 
even worse off with more than half without health insurance. According 
to the Commonwealth Fund, in small- to medium-sized companies with 
fewer than 100 workers, 63 percent of white workers have health 
benefits compared with 38 percent of Hispanic workers.
    There is a strong relationship between un-insurance and the kind of 
employment a person has. The reason is simple: Most Americans get their 
health insurance through their place of work. Moreover, in getting 
their health insurance through the workplace, they are also eligible to 
get large and, under current law, unlimited federal tax breaks for the 
purchase of health insurance. There is no such tax relief for workers 
who get health insurance outside the workplace or for workers and their 
families who cannot get employer-based health insurance.
    Today, 65 percent of the uninsured are in working families where 
the breadwinner works full time. Because Hispanic workers are heavily 
concentrated in the service industry and in small businesses--working 
for firms that do not or cannot offer them health insurance coverage--
they are disproportionately found outside of the normal channels of 
health insurance in the United States.
    The health insurance market in the United States is uniquely job 
based. All Americans, both employers and employees, get tax relief if 
and only if they get their health insurance coverage through their 
place of employment. If the employer offers health insurance, the 
employer gets unlimited tax relief in the form of a tax deduction as 
part of the cost of doing business. Likewise, under this arrangement, 
employees also get unlimited tax relief for purchasing health insurance 
through their employer. But, instead of a tax deduction, an employee 
gets what is technically called a ``tax exclusion'' on the value of the 
job's health benefits. Self employed individuals also receive their 
health insurance tax-free. So the people who are left out of the tax-
free world of health benefits are people who have to buy their own 
individual plan; indeed, the federal tax code punishes workers who buy 
health insurance outside the workplace by making that worker buy health 
benefits with after-tax dollars. For most workers, this cost is a huge 
disincentive for obtaining health insurance on their own.
    The main reasons so many Hispanics do not have health insurance are 
they generally have lower incomes and they work for smaller firms. 
Employment and income level are the leading indicators of health 
insurance coverage in this country. The lower the income, the more 
likely a worker will not have coverage. If they are working 
independently or with a firm that does not provide health insurance, 
they simply do not have coverage because they cannot afford it. Small 
firms, with fewer than 25 employees, are the least likely to provide 
employment-based health insurance. Based on the 1990 Census, odds are 
that Hispanic workers--with a per capita income of only $10,773 and a 
solid majority employed by small businesses, particularly the service 
industry--will not be offered health insurance at the workplace and 
will not be able to afford it on their own.
    Low-skilled workers often do not work for large companies or 
command a wage that enables them to buy health insurance, and they get 
little if any government assistance in purchasing it. If a worker 
decides to purchase individual policies, they will soon realize it is 
prohibitively expensive. This is the problem facing America's working 
poor.
    Since most Latinos have to buy their own health insurance, they are 
faced with many obstacles to an affordable plan. All too often, state 
lawmakers have passed laws that require us to pay for benefits we may 
not want or need. While well intentioned, these mandates increase the 
cost of health insurance and push it beyond our means.
    And that's the main reason we strongly support H.R. 2355, the 
``Health Care Choice Act.''
    H.R. 2355 will be a great tool for many of these uninsured workers 
to have access to more affordable health insurance plans. This 
legislation will open the doors to affordable coverage for all 
uninsured Hispanics and allow us to buy a health plan that meets our 
needs.
    This bill is especially beneficial for those in the individual 
market. And most Hispanic workers fit that category. These are the 
workers who don't get the tax break like everyone else does; don't have 
an employer paying a significant amount of the cost; and have to buy a 
policy full of mandates which employers who self insure are able to 
escape. To add insult to injury, these workers have lower incomes, so 
they end up unable to afford these health insurance plans in the 
individual health insurance market.
    This legislation will provide them with a new tool to find better 
plans that will fit their needs and their budgets. If you live in 
states with excessive mandates or with guaranteed issue and community 
ratings the cost of any individual plan is out of the reach of most 
workers. Under this legislation, workers in those states will be able 
to shop for plans approved by a State Insurance Commissioner in other 
states where the prices might be more suitable for their budgets and 
their particular needs.
    Let me give you an example, if you are a family of four (husband 
and wife both age 35, two kids aged 10 and 9) living in Easton, 
Pennsylvania (right across the border), a health insurance plan will 
cost you $299.81 per month for a $1,000 deductible. That same family in 
New Jersey (any town because it costs the same throughout NJ because of 
community rating) it would cost $3,820.11 a month for a $500 
deductible, according to the New Jersey Department of insurance 
(January 2005).
    Many families in New Jersey have been buying insurance across state 
lines for years now. But what happens if you live in South Florida, 
South Texas or East Los Angeles and don't have the resources to travel 
across state lines? You are stuck with the very high cost insurance. 
This legislation will allow uninsured workers the ability to shop 
around for plans that meet their needs and fit their budgets.
    Personally, I am a healthy individual and I am currently uninsured. 
I wanted to purchase an HSA in my home state of Washington State. But 
it's too expensive. I can purchase that same plan in Virginia for quite 
a bit less. Why can't someone like me be able to shop around across 
state lines to find plans that fit my needs and my budget? As long as 
it is regulated by a State Insurance Commissioner, why is the 
government limiting my choices?
    That's why this legislation is enormously popular among Hispanics. 
In a survey we conducted in October 2004 among 1,000 Hispanic adults, 
84 percent strongly supported allowing people to buy an insurance 
policy from a different state as long as the health insurance product 
is regulated and approved by the state. The support was consistent 
across all sub groups: gender, age, party affiliation, national 
ancestry, registered and non-registered voters, ideology, and region. 
And a follow-up question showed that 84 percent would buy a health 
insurance plan from another state, as long as the plan was regulated 
and approved by the state.
    When we first heard the basic concept of this legislation, we had 
serious concerns because of the number of predators in the Hispanic 
market. But when we realize that the only plans available under this 
legislation would be plans approved by a State Insurance Commissioner 
and regulated by all insurance commissioners, we realized that this 
concern was seriously addressed.
    By no means do we believe that this is the silver bullet that will 
solve the uninsured crisis, but it's a great step in the right 
direction. This legislation, combined with 1) refundable tax credits 
for uninsured workers, 2) an increase in the number of community health 
centers, and 3) medical malpractice reform to eliminate provisions that 
prevent physicians from serving patients in underserved and low-income 
areas, among others.
    The Latino Coalition strongly commends this committee for 
addressing this issue, and we look forward to working with you to break 
down the barriers and build the necessary bridges to improve the access 
to affordable health coverage for the uninsured.
    Thank you.

    Mr. Deal. Thank you.
    Mr. Kreidler.

                   STATEMENT OF MIKE KREIDLER

    Mr. Kreidler. Thank you, Mr. Chairman. Good morning, and 
thank you for all of the kind words that have been expressed by 
you and the committee members. My name is Mike Kreidler. I am 
the Washington State Insurance Commissioner, and I am here 
today to represent the National Association of Insurance 
Commissioners, the NAIC, which regulates insurance in 50 
States, the District of Columbia and five U.S. territories.
    Just to show that we are a very bipartisan group, I should 
point out that the majority, about two-thirds of the State's 
insurance commissioners are appointed, almost always by the 
Governor, and the rest are elected. The majority of our 
membership would be much like this body, of Republican 
background either by appointment or election as opposed to 
Democrat.
    The NAIC is about consumer protection. With that in mind, I 
am here today to speak to the Health Care Choice Act of 2005.
    We clearly share the same concerns of the committee and the 
sponsors of this legislation about affordability and 
accessibility of individual health insurance. The NAIC has been 
very involved, as have the States, in trying to stabilize an 
increasingly fragile, individual small group of markets in our 
respective States.
    In the past 15 years, 31 States have approved high-risk 
pools. That helps to make sure that individuals who can't find 
insurance have an avenue for it. The truth is, though, that 
even in our State the vast majority, that are eligible for the 
high-risk pool and can't find other insurance, are screened in 
our State into the high-risk pool, but can't afford the 
premiums. As a consequence, it is a relatively small number 
that get it by virtue of participation in that pool.
    While we very much support and commend the sponsor of this 
legislation, Representative Shadegg, for his support of both 
the extension and the expansion of high-risk pools which he has 
done in the 108th Congress, we would like to urge this body to 
also take up the legislation in the committee. In the U.S. 
Senate's committee, the appropriate committee has already done 
so.
    Congressman Eshoo has already mentioned that States are 
frequently the kind of--where ideas are developed, and it is 
absolutely true. We are the incubators and the laboratories for 
new ideas, reinsurance, tax credits, subsidies, disease 
management, medical necessity, healthy lifestyles. All are 
issues that are being worked at the State level.
    Now, we have some concerns about the Health Care Choice 
Act. I need to express those. Our concern--well, wanting to 
work with the sponsor of this legislation, we see some serious 
risks here, disadvantages to high-risk individuals and the 
preemption of critical consumer protection as a part of this 
legislation. Just because you have health insurance is not a 
guarantee that you are going to have health insurance that has 
value.
    You wind up with adverse selection; if you need a 
comprehensive policy--and all those that need it go there, and 
those that don't need it, don't--you find that policy 
unaffordable. Or it goes out of business, either as a product 
that is offered or the company that is offering it. We need to 
make sure that we don't wind up fragmenting health care any 
worse than it already is, separating the healthier and younger 
from the less well and older; and this legislation would have 
that impact.
    Health care is very expensive in some States. We in 
Washington State would very much like to have the Medicare 
reimbursement of New Jersey and New York. We are far from that. 
So would California, I am sure. We are afraid that this is 
going to be a race to the bottom from the standpoint that the 
States that do offer health insurance are going to be those 
with the least regulation, are going to be those with the least 
resources to aid consumers, and we as States being preempted 
from our authority, being able to intervene for consumers, are 
going to be left not able to represent them.
    We will also find that there is going to be a disadvantage 
to our State and our regional health insurers who are going to 
wind up in a position of not having to compete with national 
insurers that are offering very weak products and rate 
deregulated.
    The real issue is, how do we balance the interests of the 
consumers, how do we make sure that we have the ability through 
licensing of our health insurers to make sure that they are, in 
fact, living up to the full efforts of the law?
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Mike Kreidler follows:]
  Prepared Statement of Hon. Mike Kreidler, Commissioner, Washington 
  State Office of Insurance, on Behalf of the National Association of 
                        Insurance Commissioners
                              introduction
    Good morning Mister Chairman. My name is Mike Kreidler, 
Commissioner of the Washington State Office of Insurance. I am 
testifying today on behalf of the National Association of Insurance 
Commissioners (NAIC). The NAIC represents the chief insurance 
regulators from the 50 States, the District of Columbia, and five 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 current uninsured crisis, and in particular the 
``Health Care Choice Act of 2005.''
    To begin, I will emphasize the commissioners' recognition of how 
important it is to ensure affordable, available health coverage for all 
Americans and offer the full support of the NAIC in developing 
legislation that will reach these goals. States have acted aggressively 
over the past fifteen years to stabilize and improve the individual 
health insurance market. Most notably, thirty-one States have created 
high-risk pools, providing a safety net for over 170,000 people with 
chronic illnesses and other pre-existing conditions. The State high-
risk pools collect almost $650 million pear year in premiums and pay 
over $1 billion in claims. This subsidized coverage has proven critical 
to individuals and families with high medical expenses and to the 
stability of the individual health insurance market.
    As an aside, the NAIC continues to support legislation at the 
federal level that would expand and extend the high-risk pool grants 
created in the Trade Act of 2002. We applaud Representative Shadegg for 
introducing such a bill in the 108th Congress. The Senate Health, 
Education, Labor and Pensions Committee has already acted this year on 
legislation--we encourage the House act soon on what has become an 
important subsidy for high-risk individuals.
    States continue to experiment with other strategies for making 
health insurance more affordable for individuals, including: 
reinsurance, tax credits, subsidies, basic health plans, and programs 
to promote healthier lifestyles and manage diseases. As always, States 
are the laboratories for innovative ideas. It is critical that the 
federal government and the States work closely with healthcare 
providers, insurers and consumers to implement true reforms that will 
curb spending and make insurance more affordable.
               concerns about the health care choice act
    The nation's health insurance regulators cannot support federal 
legislation that would disadvantage higher-risk individuals or preempt 
critical consumer protections. This is why the NAIC opposes Association 
Health Plan legislation and why we do not support the Health Care 
Choice Act of 2005, H.R. 2355. While we appreciate attempts by the 
author to preserve some level of State oversight, we must emphasize 
that it is poor public policy to allow the sale of health insurance in 
a State without oversight of the resident regulator. Such a policy is 
an open invitation to fraud and abuse.
    As currently drafted, H.R. 2355 would allow an insurance company to 
choose a single State in which to license its individual health 
insurance product and then sell it in any other State, avoiding that 
State's laws and regulations. This would clearly promote a ``race to 
the bottom'' as insurers would be greatly rewarded for licensing their 
individual products in States with less regulation and fewer personnel 
to oversee what could be a large influx of new products.
    State insurance commissioners acknowledge there are many challenges 
facing the individual health insurance market. In response, many States 
have adopted NAIC model laws that provide strong consumer protection 
and product standards that ensure consumers receive value for premiums 
paid. Unfortunately, not all States have adopted these models. 
Therefore, we are concerned that health insurers will seek those States 
with lower standards for their product approvals. In essence, this bill 
would undermine efforts by States to improve insurance coverage. Speed 
to market is important, but valueless products do more harm to 
consumers and the market overall.
    For example, most States have enacted laws limiting preexisting 
condition exclusions. Many States have implemented rating limits to 
ensure the higher costs of sicker consumers are spread across the 
population. Some States have created reinsurance mechanisms to spread 
the risk among insurers. States have also enacted important consumer 
protections to ensure access to providers. H.R. 2355 would undermine 
all of these protections, wiping out any progress that has been made on 
behalf of consumers.
    In addition, if H.R. 2355 were enacted State regulators would be 
unable to assist their own constituents, leaving consumers to seek 
assistance from the insurer's home State. While that may be a 
theoretical possibility, in the real world of tight State budgets it 
will be virtually impossible to assist a nonresident consumer in a 
distant State. And the home State of the consumer will be unable to 
assist, as it has no jurisdiction over a company not licensed in the 
State. Also, the fragile individual health insurance market would be 
disrupted, as properly licensed insurance companies would be forced to 
compete on an unlevel playing field. Specifically, small and regional 
insurers would be disadvantaged by large national companies entering 
States with inferior products and unregulated rates.
    While we understand the desire of the bill's supporters to make 
health insurance more accessible to individuals, we remain concerned 
that this bill would do great harm to those who need insurance the most 
and would leave many consumers without assistance when they need it 
most. Unlike group insurance consumers, individuals shopping for 
coverage do not have the sophistication of an employer when making 
coverage decisions. Consumers in the individual market need the 
protections afforded by State regulation.
                  naic's principles for federal reform
    In their search for effective solutions, the nation's insurance 
regulators have identified seven basic principles by which federal 
health insurance reform legislation can be analyzed. These principles 
are intended to keep the focus on the needs of consumers and the true 
causes of the current crisis. These principles are:
    Principle 1: The rights of all consumers must be protected. States 
already have patient protections, solvency standards, fraud prevention 
programs, and oversight mechanisms in place to protect consumers; 
unless new federal standards equal or exceed existing State standards 
and enforcement they should not be preempted. Any new insurance 
arrangement purporting to increase the number of people with health 
insurance will be a failure if the insurance arrangement is not solvent 
and cannot pay the claims of those who have placed their trust in it. 
Further, all new proposals must preserve access to sufficient grievance 
and appeals procedures, and also assure that benefits and provider 
networks are adequate. Consumers must always be protected from fraud 
and misinformation.
    Principle 2: Existing State reforms and assistance programs must be 
supported, not degraded. As you know, States have already enacted small 
group purchasing pools, high-risk pools, and other reforms to increase 
the availability and affordability of health insurance. Federal reforms 
must not erode these successful efforts by permitting good risk to be 
siphoned off through manipulation of benefit design or eligibility for 
benefit provisions.
    Principle 3: Adequate consumer education must be provided. Federal 
reform will be complicated, creating new insurance choices for many 
Americans. The federal government must coordinate with existing State 
consumer education programs to ensure consumers are able to make 
informed choices.
    Principle 4: The overarching issue of rising healthcare costs must 
be addressed. Federal efforts to increase access to insurance will not 
be successful over time unless the overriding issue of rapidly rising 
healthcare costs is also addressed. Insurance is a mechanism for paying 
for health care and has had only limited success in controlling costs, 
but insurance is not the cause of those skyrocketing costs. There are 
multiple drivers of healthcare costs, and they in turn are driving up 
the cost of health insurance. To bring long-term stability to the 
healthcare system efforts must include provisions to address cost 
drivers and control rising healthcare costs.
    Principle 5. Current cost shifting must not be exacerbated. 
Inadequate reimbursement payments have led to cost shifting to the 
private sector. Unfunded federal mandates to States have shifted costs 
onto State governments. The cost of providing care to the uninsured is 
also shifted, driving up rates for insurance consumers. These actions 
have resulted in higher overall costs and decreased access for many 
consumers. Federal health insurance reform legislation must address 
cost shifting.
    Principle 6: The position of less healthy individuals must be 
protected. Both State and the federal governments have begun the 
process of reforming tax structure and other financial policies to 
encourage individuals to be more responsible consumers of health care. 
Emerging industry trends reflect developments in benefit and plan 
designs that create incentives for responsible consumer behavior in 
health care purchasing decisions. Public policy decisions must assure 
that new designs do not shift costs to such an extent that insurance no 
longer offers meaningful protection to the sick or discourage 
appropriate care. Federal legislation should encourage appropriate 
usage of the health care system without inappropriately withholding 
needed health care services to the sicker patient.
    Principle 7: Public policymakers should be wary of allowing the 
creation of insurance companies without appropriate oversight. 
Remember, legislation that allows alternative risk-bearing arrangements 
must acknowledge that it is allowing the creation of new insurance 
companies. A mere change in the name of the arrangement does not 
transform its essential insurance nature and function--the acceptance 
and spreading of risk. To allow such new insurance companies to be 
formed outside the existing regulatory structure will create an unlevel 
playing field that is unfair to existing insurers and potentially 
harmful to consumers. To do so without providing adequate additional 
federal resources to ensure sufficient oversight of new entities will 
be disastrous.
                      alternatives for real reform
    As mentioned earlier, States are experimenting with a variety of 
strategies for reducing the number of uninsured. A majority of States 
have created high-risk pools to assist ``uninsurable'' individuals. 
Several States are utilizing reinsurance mechanisms, with various 
degrees of success. The most recent effort by the State of New York in 
its Healthy New York program has used a retrospective reinsurance 
mechanism, subsidized by State tax dollars, that has resulted in about 
70,000 new insureds, all low wage workers who were formerly uninsured.
    As another example, in Maine, the State enacted the Dirigo Health 
Plan, intended to provide coverage for 180,000 State residents. The 
plan has two components: 1) expansion of Medicaid and SCHIP to parents 
with incomes up to 200% of the federal poverty line and to everyone 
earning less than 125% of the federal poverty line; and 2) 
establishment of a public/private plan to cover business with 2-50 
employees, the self-employed, and unemployed and part-time workers. The 
plan is in its early stages of implementation, and State policymakers 
have high hopes for its success.
    All of these reforms have been carefully crafted, weighing the 
needs of all populations and preserving key consumer protections. The 
federal government should look to these and other State programs for 
possible solutions to the uninsured crisis, not proposals that sweep 
aside State innovations and reforms in favor of injurious federal 
policies.
                               conclusion
    All of us recognize that it is very important to make health 
insurance available all Americans. The States have begun to address 
this problem, and will continue to do so. However, the problem is 
complex and does not lend itself to easy solutions.
    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. We stand ready to 
work with members of Congress to draft effective reforms that will 
address both the affordability and availability issues facing 
individuals. Together, real solutions to this critical issue can be 
found.

    Mr. Deal. Thank you.
    Mr. Limbaugh.

                 STATEMENT OF L. HUNTER LIMBAUGH

    Mr. Limbaugh. Mr. Chairman and members of the committee, 
thank you for the opportunity to speak to you today. I am 
Hunter Limbaugh, volunteer chairman of the American Diabetes 
Association's national advocacy committee. More important to 
me, I am the father of an incredible, beautiful and brilliant, 
and exasperating 10-year-old little girl, who was diagnosed 
with diabetes at the age of 6.
    We are facing a crisis in this country. The diabetes 
epidemic is one that, regrettably, I don't believe Congress has 
yet come to terms with. There are 18.2 million Americans with 
diabetes, and every year there are an additional 1.5 million 
people diagnosed with the disease. That extrapolates or 
interpolates, one or the other, to about 42,000 per 
congressional district.
    Next time you are at a function in your district and look 
around the room, it is safe to say that about half the people 
there either have diabetes, or their mother, father, sister, 
brother or child has it. The CDC says one-third of Americans 
born will be diagnosed with diabetes at some point in their 
lives.
    In our minority communities, the incidence is even higher; 
in fact, our Latino Diabetes Action Council recently toured the 
South Texas border region. In Starr County, where the 
population is essentially 100 per Latino, 30 percent of the 
population has diabetes; and they have the highest incidence of 
lower limb amputation in the country.
    The human, societal and financial cost of these numbers is, 
or ought to be, shocking. To illustrate the financial cost of 
the disease, let me remind you that diabetes costs this country 
$132 billion per year, and that number will grow commensurate 
with the growth of the disease.
    Unfortunately, the fact that you are seriously considering 
legislation, H.R. 2355, the Health Care Choice Act, that would 
likely undermine efforts to manage and mitigate these costs 
suggests that Congress has yet to fully understand the scope 
and nature of the diabetes crisis in America. The days when my 
daughter's diagnosis would likely have consigned her to a 
greatly reduced length and quality of life likely to have 
included complications such as kidney disease, blindness, lower 
limb amputation, heart disease, et cetera, should be behind us. 
It is now possible for people to manage diabetes in such a way 
as to greatly reduce the chances of developing the 
complications I just mentioned.
    It has been definitively proven that failure to adequately 
control the disease results in a 50 percent increase in the 
likelihood of developing those serious complications. However, 
in order to do what is necessary to control the disease, people 
with diabetes must have access to adequate health insurance 
coverage. I emphasize the word here ``adequate.''
    As has already been mentioned, adequacy is at least as 
important as accessibility. I would analogize it to, I can 
afford to buy a car, but if that car breaks down halfway to 
work every day in the worst most crime-ridden part of town, I 
have got a car, but the darned thing is going to get me killed 
one of these days; so I am not sure I am any better off.
    It is for that reason that the association has spent the 
past 10 years convincing legislatures and Governors of both 
parties in 46 States of the need for mandated diabetes coverage 
in insurance policies. In fact, former Governor and HSS 
Secretary, Tommy Thompson, was the first to sign one in 1991.It 
exists in Georgia. It exists in Arizona. It exists in my State 
of South Carolina.
    As a former Republican legislator myself, I have to say I 
am very troubled by the notion that Congress should be 
substituting its judgment in this area for that of the 
legislatures of 46 States. I can assure you that the notion 
that diabetes mandates are responsible for increasing the cost 
of insurance is simply wrong.
    Numerous States have studied the costs of these mandates 
and concluded that their costs are de minimis. For example, 
Louisiana determined that the diabetes mandate accounted for 
six one-thousandths of 1 percent of the monthly premium. Utah, 
after a similar analysis, satisfied itself that there was no 
cost at all and strengthened its mandate.
    The danger inherent in H.R. 2355, however well intentioned 
it may be--and I am sure is--is that insurers will be free to 
domicile in one of the four States that do not have a diabetes 
mandate, thereby undermining the will of the 46 States that 
have determined that such a mandate is in the best interests of 
their citizens. The ability of Americans to manage their 
diabetes will be greatly eroded to their personal detriment and 
to the detriment of the country as a whole.
    This is a time when we need to be exploring options for 
expanding coverage for people with diabetes. It is past time to 
be treating diabetes as the human health care and financial 
crisis that it manifestly is. Giving people the tools to manage 
their diabetes, the most important of which is adequate 
insurance coverage, must be our focus; and the American 
Diabetes Association continues to stand ready to work with you 
to achieve that.
    Thank you for your time, and I am happy to try to answer 
any questions you may have.
    [The prepared statement of L. Hunter Limbaugh follows:]
      


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Deal. Thank you.
    Dr. Gratzer.

                   STATEMENT OF DAVID GRATZER

    Mr. Gratzer. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, members of the committee--
subcommittee. I am honored to testify today on these hearings 
on the Health Care Choice Act before the Committee on Energy 
and Commerce Subcommittee on Health.
    My name is David Gratzer. I am a physician and a Senior 
Fellow at the Manhattan Institute in New York City. The views I 
present today are my own and do not necessarily represent those 
of The Manhattan Institute.
    As many of you are well aware, insurance premiums vary 
greatly State to State. eHealthInsurance, leading online 
insurance brokerage, recently compared the cost of a standard 
family insurance policy, $2,000 deductible, 20 percent 
coinsurance across the Nation's 50 largest cities. That 
comparison involved some 4,000 insurance plans and 140 
insurance companies.
    The results are startling. Consider a nonemployer-based 
policy for a family of four in Kansas City, Missouri, costs 
about $170 a month, while similar coverage in Boston tops more 
than $750 a month. In my written statement, you can see a table 
which illustrates the broad range of pricing.
    Why the price difference? Many States dictate the type of 
services and providers. New York, for instance, requires that 
the services of a podiatrist be covered. Now, as you know, it 
is a commonly quoted statistic that the average person walks 
about a 150,000 miles in a lifetime. And I am hoping that the 
majority of your journey, Mr. Chairman, is on healthy, bunion-
free feet. But should every insurance policy in the Empire 
State really be required to include the services of a 
podiatrist? Acupuncturists are mandated in a full 11 States; 
massage therapists, as Congressman Shadegg pointed out, in 
four; osteopaths in 24; chiropractors in 47. Each of these 
mandated providers drives up the price of even the most basic 
insurance plan.
    Now, as I am sure you are aware, some States have gone much 
further. Laws force insurers to sell to any applicant, 
guaranteed issue, at the same price regardless of age or 
health, community rating. Faced with higher premiums for 
insurance they seldom use, the young and healthy drop their 
coverage, leaving an insurance pool of older, sicker people, 
and even higher premiums. After a decade of such political 
meddling, the average monthly cost of a family policy in New 
Jersey bests, frankly, the monthly lease of a Ferrari.
    In such an environment, many insurance carriers choose not 
to do business. In Vermont, for example, just three companies 
sell to the individual market.
    What are the consequences of the regulatory burden? I think 
there are three. Let me go through each one.
    Higher premiums: The regulatory burden means, in effect, 
massive health tax for citizens in dozens of States. This 
hidden tax unfairly discriminates against the self-employed as 
well as small and medium-size businesses. Large corporations, 
after all, aren't forced to follow State mandates since many--
in fact, most--self-insure. As you are aware, some spend more 
than two-thirds less than the national average for the healthy 
employee by using no frills plans.
    Another consequence is that we have more uninsured 
Americans. It makes sense that the higher the premium, the more 
people will opt out of buying insurance. The Congressional 
Budget Office looked at the data and estimated for every 1 
percent increase in the cost of insurance, roughly 200,000 to 
300,000 more Americans are uninsured. David Cutler has 
subsequently gone back and his figures are a little bit more 
conservative at 150,000, but it is still a great number of 
Americans.
    And the third consequence is reduced labor mobility. In a 
recent study University of Wisconsin economist Scott Adams 
demonstrates that 20 to 30 percent of nonelderly men choose to 
stay put a job with health benefits. No wonder, since potential 
employers may not offer insurance and individual policies are 
so pricey, particularly in cities like New York and Boston, 
labor mobility suffers as does American entrepreneurship.
    A remedy? Allow out-of-State purchasers of health 
insurance, as the Health Care Choice Act proposes. The Federal 
McCarran-Ferguson Act of 1945 empowers States to regulate the 
business of insurance, quote, unquote, but nothing, however, 
prevents Congress from allowing interstate sales.
    The foundation of such a bill would be the Constitution's 
commerce clause; individuals would then be able to shop around 
and find a low-cost policy, if they chose, an affirmation of 
free market principles since interstate regulations now leave 
many Americans at the mercy of a small number of local health 
insurance carriers.
    Allowing a competitive market for health insurance would be 
a major budgetary expense, but it may prove priceless to the 
cause of advancing market reforms to better American health 
care.
    Let's be clear. The Health Care Choice Act will not single-
handedly correct the problems of American health care. It does, 
however, Mr. Chairman represent a step in the right direction.
    [The prepared statement of David Gratzer follows:]
        Prepared Statement of David Gratzer, Manhattan Institute
    I am honored to testify today in these hearings on ``The Health 
Care Choice Act'' before the Committee on Energy and Commerce's 
Subcommittee on Health. My name is David Gratzer. I am a physician and 
a senior fellow at the Manhattan Institute in New York. I'm speaking 
today in support of Congressman Shadegg's efforts. The views I present 
are my own and do not necessarily represent those of the Manhattan 
Institute.
    As you may know, insurance premiums vary greatly from state to 
state. eHealthInsurance, a leading online insurance brokerage, recently 
compared the cost of a standard family insurance policy ($2,000 
deductible with a 20% co-insurance) across the nation's 50 largest 
cities, involving some 4,000 insurance plans and 140 insurance 
companies. The results are startling. Consider: a non-employer-based 
family policy for four in Kansas City, Mo., costs about $170 per month 
while similar coverage in Boston tops more than $750 a month. (Please 
see the accompanying table, which further illustrates the range.)
    Why the price difference? Many states dictate the type of services 
and providers. New York, for instance, requires that the services of a 
podiatrist be covered. It's a commonly quoted statistic that the 
average person walks about 150,000 miles in a lifetime. Let's hope the 
majority of this journey is on healthy, bunion-free feet. But should 
every insurance policy in the Empire State really be required to 
include podiatric services? Acupuncturists are mandated in 11 states, 
massage therapists in 4, osteopaths in 24, and chiropractors in 47, 
driving up the price of even the most basic insurance plans.
    Some states have gone further. Laws force insurers to sell to any 
applicant (guaranteed issue) and at the same price, regardless of age 
or health (community rating). Faced with higher premiums for insurance 
they seldom use, the young and healthy drop their coverage, leaving an 
insurance pool of older, sicker people--and even higher premiums. After 
a decade of such political meddling, the average monthly cost of a 
family policy in New Jersey bests the monthly lease of a Ferrari. In 
such an environment, many insurance carriers choose not to do business; 
in Vermont, for example, just three companies sell to the individual 
market.
    The consequences:

 Higher premiums. The regulatory burden means, in effect, a massive 
        health tax for citizens in dozens of states. This hidden tax 
        unfairly discriminates against the self-employed, as well as 
        small and mid-sized companies. Large corporations, after all, 
        aren't forced to follow state mandates (many self-insure); some 
        spend two-thirds less than the national average on heath 
        coverage per employee by using no-frills plans.
 More uninsured. It makes sense that the higher the premium, the more 
        people will opt out of buying insurance. The CBO estimates that 
        every 1% increase in insurance cost results in 200,000 to 
        300,000 more uninsured.
 Reduced labor mobility. In a recent study, University of Wisconsin 
        economist Scott Adams demonstrates that 20% to 30% of non-
        elderly men choose to stay put at jobs with health benefits. No 
        wonder: Since potential employers may not offer insurance and 
        individual policies are so pricey (especially in cities like 
        New York and Boston), labor mobility suffers, as does American 
        entrepreneurship.
    A remedy? Allow out-of-state purchases of health insurance, as the 
Health Care Choice Act proposes. The federal McCarran-Ferguson Act of 
1945 empowers states to regulate ``the business of insurance.'' Nothing 
prevents Congress, however, from allowing interstate sales. The 
foundation of such a bill would be the Constitution's Commerce Clause. 
Individuals would then be able to shop around and find a low-cost 
policy--an affirmation of free-market principles since interstate 
restrictions now leave many Americans at the mercy of a small number of 
local health insurance carriers.
    Allowing a competitive market for health insurance won't be a major 
budgetary expense--but it may prove priceless to the cause of advancing 
market reforms to better American health care.
    Let's be clear: the Health Care Choice Act will not single-handedly 
correct the problems of American medicine. It does, however, represent 
a step in the right direction.

              Monthly Premiums for Family Health Insurance
------------------------------------------------------------------------


------------------------------------------------------------------------
Kansas City, MO............................................      171.86
Long Beach, CA.............................................      180.00
Tuscon, AZ.................................................      184.88
Philadelphia, PA...........................................      265.80
Chicago, IL................................................      359.01
Seattle, WA................................................      410.00
Minneapolis, MN............................................      529.00
New York, NY...............................................      712.77
Boston, MA.................................................      767.30
------------------------------------------------------------------------
Source: eHealthInsurance


    Mr. Deal. Thank you.
    I will lead off with questions, and we will follow across 
the committee makeup here.
    Let me address one of the underlying concerns that has been 
expressed both in opening statements and in some of the 
statements of the panel today, and that is the possibility of 
adverse selection taking place.
    I have four children. My youngest is my only unmarried, in 
her 20's, who is an actress and on the road all the time. She 
called me this week and said, Daddy, I just can't afford to 
renew my health insurance policy.
    I think what we have currently is an adverse selection of 
young people who are healthy and who simply say, I can't afford 
the premium that it is going to cost me now. But I hear the 
arguments being that we will adversely select those who are the 
sickest and the poorest.
    Now, if they are poor, they are probably going to be 
covered in some form or fashion under Medicaid. If they are 
sick, and they didn't have a health insurance policy before 
they got sick, they are not going to be able to buy a health 
insurance policy that does not exclude the illness which they 
have, whether it be diabetes or whatever else as a preexisting 
condition.
    Now, aren't we already in a situation, because of the cost 
of health insurance, where we find that the ones who are a 
large portion of the uninsured are actually maybe the younger 
and maybe even the healthier ones; and that they are the ones 
who may, in fact, choose a policy that is less expensive? Am I 
wrong in my analysis? Would anyone care to comment?
    Dr. Matthews.
    Mr. Matthews. Yes, sir, you are absolutely right. The young 
healthy individuals, those who are just out of high school, 
just out of college, tend to be the highest makeup, the highest 
percentage of the people who are uninsured. They are just 
getting off school, they are starting their careers, many times 
they are in lower income jobs, oftentimes service sector jobs 
that don't provide health insurance. Usually by the time they 
hit 30 or a little older, they have moved on into a job that is 
going to provide health insurance.
    When New York passed its guaranteed issue legislation in 
1993 or 1994, I actually got calls from students in New York 
who said, I have got health insurance, but this new law is 
going to force my premiums up so high, I can't afford them. And 
I am a young healthy person; of course, I have been trying to 
do the right thing, but I can't afford to keep my insurance. 
With these new premiums coming in, I am going to have to drop 
it.
    I have no advice to offer. With the Health Care Choice Act, 
we would be able to have some options for them.
    Mr. Deal. Mike, you wanted to comment, but let me ask you 
if you would--at the same time, would you comment about your 
understanding of the way this legislation is drafted if a 
policy is written in one of the 46 States that Mr. Limbaugh 
alluded to that currently mandate diabetes coverage?
    Is it your understanding that if this were the law, that if 
the policy were issued in one of those States, they would still 
have to comply with that mandated coverage if they were from 
one of those 46 States? That, plus commenting on the question I 
raised earlier.
    Mr. Kreidler. The answer is yes, you would be able to if 
all 46 mandates were equal and you had a policy that came from 
a company from that State, you would have then--clearly have to 
be approved to provide diabetic coverage.
    However, you could pick one of the other four States, and 
as a consequence, you would have the diabetic program in those 
States where they were required to offer diabetes coverage, 
competing then with programs that say, Well, I don't have 
diabetes, nobody in my family does. So then you wind up 
gravitating with all of the people with diabetes going over to 
where those policies offer coverage as a consequence, because 
diabetes coverage is not cheap. Particularly, in certain 
stages, you wind up in fragile types of diabetes, you wind up 
with them being very expensive, and it is that dislocation of 
care.
    It is much like maternity coverage. Not all States require 
and mandate maternity coverage, but if the only people who buy 
maternity coverage are those who are likely to have need of 
that coverage, it becomes cost prohibitive.
    It really is a social issue. How do we balance what we wind 
up providing in care? It is the difference, as we have talked 
about: care where we are talking about younger and healthier 
versus less well and older. It is a balance between the two of 
them. And States have made the conscious decision, and some 
States more so than others to balance it; then you see the 
difference in pricing.
    Mr. Deal. Five seconds, Dr. Gratzer.
    Mr. Gratzer. How old is your daughter?
    Mr. Deal. 25.
    Mr. Gratzer. She is just slightly below average. The 
average age of the uninsured in America is about 30.
    Mr. Deal. My time is up.
    Mr. Brown.
    Mr. Brown. Thank you Mr. Chairman.
    Mr. Kreidler, talk to us a little bit about the incentive 
for insurance companies to choose to locate in States with the 
least amount of protection, least amount of oversight. Will 
that cause insurers to rush to sell products in that single 
State with the least possible consumer protections? Talk that 
through if you would.
    Mr. Kreidler. The answer is, yes, they would. If you are an 
insurance company, a national insurance company, and you want 
to sell a particular product that you couldn't get approved in 
many other States, you are going to seek out those with the 
least regulatory authority.
    They are typically going to be the States with the least 
resources to be able to answer consumer questions. So if you 
are in the other 49 States and you have had this product sold 
from this particular State, the ability to have your consumers 
get answers to their questions is pretty weak because, 
typically, they have barely the resources to deal with their 
in-State residents, much less all of the inquiries that come 
externally. And they are the only ones that are going to deal 
with consumer issues.
    Mr. Brown. I would like to follow again, Mr. Kreidler--
follow up again on Dr. Matthews' reference to the New York-New 
Jersey health insurance premiums being expensive because of 
numerous State mandates and legislation.
    I would like, Mr. Chairman, to enter into the record a 
response to concerns--not specifically Dr. Matthews' 
statements, but to concerns that others have raised, response 
from Wardell Sanders, Executive Director of the New Jersey 
Individual Health Coverage Program board, if I could. I would 
like to ask you to enter that into the record.
    Mr. Deal. Without objection.
    [The information referred to follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Brown. Mr. Kreidler, I would like you to talk about 
those protections that you enforce. For a lot of the public 
that is pretty technical. But if you could kind of run through 
for people not so immersed in insurance law what kinds of 
protections, what kinds of regulations could insurers avoid if 
the Shadegg bill were enacted and what that would mean for the 
average person and his or her health care.
    Mr. Kreidler. Thank you, Mr. Brown. We are going to take a 
look at a product that we have licensed in our State, which 
this legislation would essentially remove us from, because we 
wouldn't license them anymore. But we will take a look at it 
and make sure that they are going to--that they actually have 
providers that will recognize this particular health plan, that 
they will actually offer services under that health plan.
    We are going to make sure that they have financial 
resources backing up that particular health insurer, which if 
that State is perhaps not as diligent in doing it, you have 
concerns that that could be a real Jeopardy question.
    We don't have a guarantee fund, so it obviously means our 
providers and patients are going to be the ones that suffer if 
a company fails in another State. These are the kinds of 
problems that we run into.
    And if the consumer comes to us and says, this company 
isn't doing this, it isn't providing a service that the 
contract calls for, that they are not paying their bills, there 
are some protections that have been put in the bill. But the 
ultimate one that gives States authority is the question, the 
issue of licensure. And that is what we lose essentially to a 
State with weak regulation of insurance.
    Mr. Brown. Thank you.
    Thank you, Mr. Chairman.
    Mr. Dean. Thank the gentleman.
    Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. I thank you, Mr. 
Chairman. I appreciate it.
    Let me begin, Mr. Matthews, with you. Minnesota has, I 
guess--what is the variation from highs to lows in terms of 
mandates by the various States?
    Mr. Matthews. I believe Minnesota is the highest with 62, 
and I think Idaho is the lowest with 13, my recollection is.
    Mr. Shadegg. Washington, DC, how many in Washington, DC?
    Mr. Matthews. Has relatively few, I think, so 16, 17. I 
would have to look at my chart here, but Washington, DC, is 
relatively Low.
    Mr. Shadegg. Mr. Green, I noted in his testimony, was 
concerned that they have a very high number of uninsured in his 
State, the State of Texas. Do you know how many mandates they 
have in the State of Texas?
    Mr. Matthews. I do. It is 38.
    Mr. Shadegg. Have you done an analysis or had an analysis 
done saying how much those mandates raise the cost of health 
insurance.
    Mr.  Matthews. Yes. We have that in the chart we have 
available here.
    We went to a group of actuaries who have been working on 
this area for some time, and we went down the list of the 
mandates. And we did an estimate of the impact of the costs.
    Now, because the cost varies, the legislation varies from 
State to State. So you might have a mandate in one State saying 
that, for instance, chiropractors must be covered at the same 
rate as a medical doctor; another State might say, we will 
cover chiropractors, but only five visits a year or at 50 
percent.
    So they all have that same--we track it as a mandate, but 
it may vary from State to State. So we try to get an estimate 
based upon these people who do the tracking going on in the 
States.
    The vast majority of them, we would argue, affect the cost 
of health insurance premium less than 1 percent. Most of them 
do not have a major impact. What we have tried to argue, 
though, is that it is the cumulation of them, when you start 
hitting 30 and 40 mandates, that you start adding significantly 
to the cost of the health insurance policy.
    And interestingly, and I think your point is well taken, it 
would be interesting to see if people in Idaho, we just simply 
don't see in the newspapers people dropping dead in the streets 
in Idaho because they don't have as many mandates they have in 
Minnesota.
    Mr. Shadegg. Mr. de Posada, you made the point you think 
consumers can make intelligent choices; you made the strong 
point about diabetes.
    I think the testimony of Mr. Limbaugh has been interesting 
on diabetes. I would note that Mr. Kreidler just said diabetes 
coverage is expensive. Mr. Limbaugh made a major thrust it is 
not that expensive. But we will put that issue aside.
    Are you aware of a study by, I believe, it is My eBay that 
shows, when given a chance to purchase either comprehensive 
policies or bare bones policies, the vast percentage of people 
buy some form of comprehensive policy and need something in the 
neighborhood of 90-plus percent to buy a more comprehensive 
policy?
    Mr. de Posada. Yes, absolutely, and they will--consumers 
will look for the product that best fits their needs. But the 
most important thing is what best fits their budget.
    And when the chairman addressed the issue of the adverse 
selection, we are talking about, in my community, one out of 
three individuals is uninsured. If that person has diabetes, 
that person has absolutely no coverage, and he has no options 
because the cost is so prohibitive. And if they don't take care 
of it now with a basic plan, you know, it becomes extremely 
expensive as time goes on.
    Mr. Shadegg. Do you suppose they might be able to deal with 
a policy that didn't cover acupuncturists or massage therapists 
or podiatrists, as are mandated in many States?
    Mr. de Posada. I think most people in south Arizona would 
agree with that.
    Mr. Shadegg. I would like to ask Mr. Gratzer, there has 
been testimony here about kind of the race to the bottom. Mr. 
Brown is deeply concerned about the race to the bottom. And Mr. 
Kreidler made the point that the NAIC is, if nothing else, 
concerned about consumer protection.
    I make a pitch to Mr. Kreidler and his association that we 
didn't do very well with that when we passed ERISA and took the 
States totally out of regulating insurance. And we are not 
doing that with other forms that are on the table. I am trying 
to keep them in the business of doing some regulation, but what 
do you make of the case of the race to the bottom?
    Mr. Gratzer. Not much.
    Look, it is always a concern with regulations, getting the 
balance right. It is a cost/benefit analysis. I think in many 
States--not all States, but in many States, the pendulum has 
swung way too much under the auspices of consumer protection. 
But there is not much protection to a consumer if you can't 
afford a policy.
    I would also point out, incidentally, where you do have 
competitive markets and not a lot of regulations, that policies 
actually tend to be more comprehensive. I think what you get 
rid of is the ridiculous cost differentials, like New Jersey, a 
family of four, having to pay more than the lease of a Ferrari 
for a month.
    I also think in today's day and age that the best consumer 
protection is not regulation and not regulators, but 
transparency. You know, when Wendy's has a finger show up in a 
bit of chili in San Francisco, we know about it all across the 
country. Word of mouth and reputation of insurers, I think, 
will be the strongest protection to consumers despite what our 
regulator friends might suggest.
    Mr. Shadegg. Let me ask one more question, if I might, on 
the issue of chronic diseases such as diabetes and the issue of 
insurance coverage, basic coverage, or other alternatives.
    Mr. Gratzer. I think that the best thing for people who 
suffer from chronic illness, frankly, is a health savings 
account. Why? Because it gives them the dollars to spend as 
they so choose.
    The world of diabetics will soon be revolutionized. Pfizer 
has a product before the FDA allowing aerosolized insulin; I 
think the FDA will approve it in next couple of years. I think 
some insurance plans will choose not to cover that. However, if 
you have a health savings account, you can spend your own money 
on it.
    Unfortunately, in New York, New Jersey, Connecticut, as 
well as other States, you can't buy a health savings account. I 
think this bill will allow people with chronic illness, whether 
it be diabetes or anything else, to pick and choose a State 
which best matches their needs in terms of regulations and 
choice of coverage.
    Mr. Shadegg. I yield back my time.
    Thank you, Mr. Chairman.
    Mr. Deal. Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. Along with 
affordability, we need to be absolutely sure that whatever 
policy a person purchases actually provides coverage to that 
person when they need it.
    We have struggled as a Congress with this issue in a 
related arena before, with the Patient's Bill of Rights, where 
a person believes they are fully covered, they faithfully pay 
their premiums, and when in need, they find their coverage does 
not provide what they thought they had purchased. But in this 
arena, we need to make sure that a person who gets diabetes, 
for example, will have insurance that covers the costs of 
treatment, counseling, testing materials, as Mr. Limbaugh 
testified.
    We need to make sure that after a person has a heart 
attack, the insurer doesn't deny benefits claiming that such a 
person should have known they were going to have a heart 
attack. We need to make sure that a woman of child-bearing age 
get a policy that allows her to receive maternity care if and 
when she needs it. And we need to make insurance affordable for 
all, not just the young and healthy person who thinks that they 
are invincible.
    All of these are just a few examples of mandates and State 
laws that protect people with the policies that they buy. And 
health insurance is not something that the average person, 
especially one in the individual market, can negotiate.
    A State should be able to protect their citizens without 
being undermined by a lack of regulations in other States. I 
cited this in my opening statement, that a Commonwealth Fund 
study earlier this month found there are already 16 million 
adults who were underinsured in the year 2003; and we don't 
want to make this problem any bigger.
    Mr. Kreidler, can you talk to us a little bit about the 
dangers of underinsurance for the person buying the insurance 
and for other individuals in the State?
    Mr. Kreidler. Thank you for that question.
    The real dangers with underinsurance--in fact, it is true 
for the people that are uninsured--is that you wind up with 
significant cost shifting that takes place in the overall 
system. That cost is picked up by the other ratepayers; it is 
built into our rates. That is why it is incredibly important to 
have more and more people insured. And, in fact, universal 
coverage would be preferable, rather than having individuals 
outside the system and coming into the system when they have 
health needs.
    But a real problem exists if you buy an insurance policy 
that meets your needs from the standpoint you had some special 
needs, that you are more at risk, and the healthier and younger 
wind up going over and buying a policy that doesn't have that 
coverage. When you go to this policy, you find it cost 
prohibitive and you don't buy it. That means more of it is 
shifted to you and me because of cost shifting that happens in 
the system that we have built into our rates and it has the 
adverse effect of actually driving up the number of uninsured.
    Ms. Baldwin. Thank you.
    When most people think about individuals who can't get 
health insurance because they are sick, they think about 
individuals with catastrophic illnesses like cancer or AIDS or 
multiple sclerosis; however, in fact, I think individuals with 
diabetes also face difficulties in accessing coverage in some 
States. And I am wondering, Mr. Limbaugh, could you please 
comment on that? Is it true that individuals with diabetes have 
difficulty getting insurance because of their medical 
condition?
    Mr. Limbaugh. Yes, ma'am, it certainly is true. And it is 
certainly more true in the four States that have not adopted 
the diabetes mandates that I spoke of earlier.
    I wanted to clarify something, if I could.
    I certainly--if I did suggest, I certainly didn't mean to 
suggest at any point in my testimony that diabetes insurance 
coverage was not expensive. In fact, it is expensive. Our 
concern is that it will be even more expensive, if this bill 
passes and people migrate away from the pools that now include 
the people with diabetes, that the costs will be even higher.
    But, yes, it is difficult in many instances for people with 
diabetes to find adequate insurance. And I cannot stress 
strongly enough how crucial it is that the insurance be 
adequate for people with diabetes, that it cover the tools that 
they need to manage their disease.
    And it is to their benefit, it is to society's benefit, it 
is to the benefit of the pool of people that have insurance in 
that program because if you don't manage your disease, the 
costs are astronomical down the road.
    Ms. Baldwin. Thank you.
    Mr. Deal. Thank you.
    Chairman Barton.
    Chairman Barton. Thank you, Mr. Chairman, I want to give 
everybody a little tidbit of Texas history before we get to the 
questions. On this day in 1918, the Texas senate passed the 
19th amendment, which gave the women of Texas the right to 
vote. We became the first southern State to do that; and my 
grandmother--who was not yet my grandmother; she was still 
unmarried--and her sister, my great aunt, were school teachers 
in Bosque County, Texas, at Spring Creek, and they promptly 
went out and registered to vote. And in the next election they 
voted in the Democrat primary and they voted straight Democrat 
on the national level.
    Of course, there was no Republican Party in Bosque County 
in 1920, so that kind of begs the question.
    A little bit of history. I am going to give you all a 
little bit of Texas history every now and then.
    I want to ask Mr. Kreidler a question. Mr. Shadegg's bill 
does not remove State regulation. So all the State insurance 
commissioners would still have the right to enforce regulation 
of the policies, but it would allow a policy that what was 
issued in another State to be sold across State lines and it 
would give the consumers of the States the right to choose what 
the best policy is for them.
    What part of that is bad? What is wrong with, in your home 
State of Washington, if a Texas insurance company wants to sell 
a policy, and it is licensed in Texas and it has all the 
mandates that Texas has--Mr. Matthews says there are 38--what 
is wrong with giving people of Washington a choice between a 
Washington-based insurance policy and a Texas-based insurance 
policy?
    Mr. Kreidler. Thank you, Mr. Chairman.
    Let me say that there really are two major issues that are 
at risk here. No. 1 is that if a consumer has a problem, we 
have to tell them in my State, if it is a company that they--it 
is licensed in another State and so it is authorized by that 
State, licensed in that State, not my State, they are in a 
position where they are going to have to call--and hopefully it 
is a 1-800 number--and hope that that State has the resources 
to address the needs of a non-State resident with problems 
associated with that.
    Chairman Barton. If Barton Insurance Company in Arlington, 
Texas, sells a policy to former Congressman John Miller in 
Spokane, Washington, and former Congressman Miller files a 
claim with Barton Insurance and Barton Insurance doesn't honor 
the claim, and it is should be covered, you have the right as 
Insurance Commissioner to either, A, cause Barton Insurance to 
pay the claim, or B, prevent Barton Insurance from issuing any 
further insurance, don't you?
    Mr. Kreidler. I do have the authority to take them to court 
and get an injunction against that particular insurer. But it 
is a far cry from the standpoint of a consumer who has a 
complaint. There is often a back-and-forth--you haven't paid 
this bill, whether you submitted it right, resubmit the bill, 
you didn't check the right boxes, we don't--we are not in a 
position----
    Chairman Barton. You have staff. As I understand the 
Shadegg bill, the only thing you can't do is say, before you 
sell in Washington State, you have to cover everything that our 
State law says you have to cover. And I understand--I listened 
to Ms. Baldwin and Ms. Eshoo and Mr. Brown, and I understand 
the willing--the need to cover as many conditions as we can.
    But, you know, markets are about giving people choices; and 
as long as the two products are portrayed honestly and you are 
there to make sure that whatever they say they are going to 
cover, they do cover, why can't a consumer make an honest 
choice? Why should a consumer have to take, in the most extreme 
case of Minnesota or New Jersey, policies that cover everything 
under the sun, that they simply can't afford, so they have no 
choice, so they have no insurance.
    Mr. Kreidler. Mr. Barton, because we are specifically 
preempted in being able to do that representation for that 
consumer who has bought a product licensed in another State, we 
do not have the ability to do what you are saying.
    Chairman Barton. You have the ability to enforce the 
policy, unless I misunderstand.
    Mr. Shadegg. Would the gentleman yield?
    With all due respect, Mr. Kreidler, you are just simply 
wrong and you need to more carefully read the bill. You can, in 
fact, require compliance with all of your State's fraud and 
abuse laws, and you can require compliance with all of your 
State's unfair claims and settlement practice laws; all of 
those are granted to you.
    There is a whole list of other things that I have been over 
before. You can--as you already referred to, you can require 
compliance with any lawful order, and you can seek an 
injunction.
    So there is a whole list of consumer protections. You may 
be reading the bill which was introduced last year which was 
dramatically fewer than these, but these are, in fact, the 
bill.
    Chairman Barton. My time has expired, but I would really be 
interested from the insurance commissioner's suggestions about 
how to strengthen the enforcement section of compliance. I am 
very interested in that.
    I think Mr. Shadegg has a great idea, that we let insurance 
be sold across State lines; that is going to provide consumers 
a lot more choice. Having said that, we don't want to let a lot 
of fly by-night insurance companies come into existence that 
nobody oversees, so that you pay for the policy, but you don't 
get any coverage at all.
    Mr. Shadegg. Will the gentleman yield?
    In my discussions with the NAIC a week ago, after we had 
filed the bill, one discussion was this issue of their ability 
to revoke the license of an insurance company engaged in 
improper conduct.
    What we did discuss with them and have not yet put in the 
bill is the issue of specifically allowing them to prohibit the 
sales of the policy; that is to say, if they find any violation 
of any of their laws that cover this policy or any law of the 
primary State that covers the policy, to issue an order 
stopping the sales, which would be similar to revoking 
licensure. And it is something that would go along the lines of 
what you were discussing.
    Chairman Barton. I thank the chairman for letting me go 
over my time.
    Mr. Deal. Mr. Kreidler, I would ask as a follow-up to that, 
if--from the Association of Commissioners viewpoint if they 
would review the changes that have been made to the bill and 
make recommendations of any other tightening or changes that 
you all would suggest in that regard.
    Mr. Kreidler. Thank you, Mr. Chairman, we are always 
pleased to work with the members.
    Mr. Deal. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman.
    One of the arguments that we are hearing today, and I think 
this is a healthy debate, because there is a recognition of 
some of the pitfalls. And I think I just heard Mr. Shadegg say 
that he is considering adding some things to the bill to 
address them if, in fact, they exist. And I think some of them 
do.
    One of the arguments that we are hearing today is that 
consumers want bare bones policies, that some insurance is 
better than none. That is one of the things that I think I am 
hearing. You know, it sounds plausible until you start looking 
at some of the statistics nationally, that there are more 
people that are bankrupted, who are insured, because they are 
not covered properly with their policies.
    Now, I don't know, maybe we need to examine coming up with 
another tier of insurance in the country nationally; and just 
say that ``This is,'' just up front, ``the cheapest policy that 
anyone can buy; and this is the minimum amount of coverage''; 
and that you advertise it that way. And, you know, buyer knows 
and buyer beware. And that is a form of competition. Because it 
seems to me that there are more people that want policies that 
really have embedded them--embedded in them a higher degree of 
coverage.
    For all the reasons that we have the various advocates that 
we have at the table, that the chairman has seen fit to include 
in this debate; so anyone that wants to comment on that--I 
mean, I would welcome your comments.
    You know, the idea, the last of the gentlemen to the far 
right, saying earlier that we have kind of overconsumered 
things; well, that sounds fine in general until it comes to you 
specifically. Consumers are not some massive gel. It is each 
one of us, and the standards that we have in our country.
    But I do think the whole notion of those that are not able 
to buy insurance--you used the example of your daughter, Mr. 
Chairman--that is something that we need to grapple with; and 
if that can be done fairly and squarely across the country, I 
am open to that. But I don't think we should confuse one with 
the other. I really think there are two distinct issues here.
    So who would like to comment on that? Mike?
    Mr. Kreidler. Thank you for the question. And I think one 
of the real concerns is, because it has been stated that, you 
know, we have to do something for the younger and healthier 
person in making sure that they have health insurance. The 
problem, of course, is what if they get sick? What if they get 
married and have a baby, and maternity isn't covered, or an 
illness.
    Ms. Eshoo. That is what I said, a real bare bones policy, 
whatever that policy is that makes it really eminently 
affordable, but that is not advertised as something that is 
more than it really is. Is that possible in this country?
    Is it possible to offer--I mean, I think it is possible. I 
think anything is possible. We are America. We are Americans.
    Mr. Kreidler. We want to make sure it has benefit and that 
you are buying insurance that isn't insurance in name only; and 
you want to make sure that it has real coverage that is 
associated with it.
    Unfortunately, what is frequently talked about is that the 
bare bones would not cover diabetes. It would not cover 
maternity. It would not cover preexisting conditions. And as a 
result of that, you wind up with certainly something that is 
very cheap, but would it ever meet your needs?
    And that is the concern.
    Mr.  Matthews. Let me address the Representative's 
comments.
    Some States have passed legislation to create, in essence, 
bare bones policies.
    Ms. Eshoo. How many?
    Mr.  Matthews. A handful of them, I believe. The 
interesting thing is, very few people have chosen the bare 
bones policies. And that goes to your point as to whether or 
not we ought to create this policy because that is what people 
want.
    I don't think most people want a bare bones policy. Most 
people want good, adequate coverage, but they want to be able 
to cover most of the traditional medical problems that they 
might have. And my understanding, I am not aware of any 
insurance company that doesn't cover diabetes. There are things 
within diabetic care like self-management and some of those 
things that the States have passed laws for--some diabetic 
supplies. But traditional health insurance is going to cover 
diabetes.
    What we are talking about is people in the individual 
market; and those people have to generally pay that policy out 
of their own pocket, and they make tradeoffs.
    Most of us would like to have the most benefits we can, but 
we ask, How much can we afford, given the fact that we are 
buying the policy, and how much are we going to be able to get 
included in that.
    What most people in the individual market do right now is 
they will move to a higher deductible $2,000-$2,500 deductible, 
but then they have full coverage above that, because that 
becomes a much more affordable policy. And I expect you would 
find people moving to variations of that, and different types 
innovative policies, but I would be very surprised if you find 
a lot of people moving to what we call a ``bare bones policy.'' 
They are available now and a lot of people just don't want 
them.
    Ms. Eshoo. I think we need more data on that, Mr. Chairman, 
on this issue of the bare bones policy, what States offer, what 
that policy actually covers, so that we know what is in play 
out there. Because one is not going to substitute for the other 
in my mind.
    But I appreciate this. I think it has been a worthwhile--
more than a worthwhile hearing.
    Mr. Deal. Thank the gentlelady.
    Dr. Norwood.
    Mr. Norwood. Thank you, Mr. Chairman.
    Mrs. Eshoo, I agree with you. Ms. Eshoo, ma'am, I agree 
with you.
    Ms. Eshoo, I agree with you on the basic health care 
policy. I am not sure that means bare bones; bare bones and 
basic aren't necessarily the same thing. But I do hope we--I 
have thought about that a lot. I just can't imagine getting any 
10 people in the world in the room to agree on a basic policy. 
But there is a place for that.
    Mr. Matthews, let me ask you a couple of questions.
    Do the State legislators in your research and in your work 
evaluate the cost of each and every mandate before they 
implement it? Do you know the answer to that.
    Mr.  Matthews. It is a good question.
    Many States have moved to legislation that requires them to 
evaluate the cost of a health insurance mandate before they 
implement it--in some cases, if my recollection serves me 
correctly, even requiring the State employees to have it for a 
certain amount of time before, to evaluate the cost of it. So 
some States are moving in that direction simply because they 
are finding out that the mandates had been passing.
    Mr. Norwood. Are they looking at the cumulative effect? Do 
Texas and Georgia look at all 38 mandates and determine, hey, 
this is costing X amount on a premium? Are people thinking that 
out?
    Mr.  Matthews. You have some State legislators who do, but 
typically no.
    What they are looking at is the cost of each individual 
mandate, and then the debate is over whether or not this 
mandate actually costs people more or saves more. And I can 
guarantee you there is not one special interest group out 
there--and I don't mean that in a pejorative sense--that 
doesn't say, if you cover our particular provider, supplies, 
service, it will lower the health insurance cost.
    Mr. Norwood. I have got a lot to ask, Mr. Kreidler. How 
about insurance commissioners, do they think like that the all? 
What is the cost? What is the cumulative cost of mandates?
    Mr. Kreidler. The answer is, yes, we do think about it. But 
a lot depends on how you define what mandates are. Is it a 
mandate, a requirement that the insurer can't take into account 
preexisting conditions?
    Mr. Norris. A mandate is when a legislature tells an 
insurance company, if you want to sell insurance in my State, 
this has got to be in your policy. That is what a mandate is.
    Mr. Kreidler. And frequently we wind up hearing mandates 
talked about, whether it is acupuncture, chiropractic and other 
types of services.
    Mr. Norwood. Nobody is saying they are all bad. A lot of 
people are saying there are a lot of bad ones in there.
    Mr. Limbaugh, there are four States--did I understand you 
to say there are four States that don't have a----
    Mr. Limbaugh. Yes, sir, diabetes mandate.
    Mr. Norwood. Diabetes mandate?
    Mr. Limbaugh. Yes. Yes, sir.
    Mr. Norwood. Now, my understanding of this bill--and I will 
direct this to Mr. Shadegg.
    Does that mean that the other 44 States, Mr. Shadegg, will 
still have diabetes mandates when this bill is passed?
    Mr. Shadegg. Will the gentleman yield?
    Absolutely, they will still have the mandates and people 
will still be able to buy the policy that has those mandated 
coverages.
    Mr. Norwood. Do you agree with that, Mr. Limbaugh?
    Mr. Limbaugh. I agree that, in theory, it is possible that 
there will be insurance companies that continue to domicile in 
one of those 46 States. I am not convinced that any right-
thinking insurance company wouldn't domicile in the State that 
has the fewest regulations and mandates and work from there.
    Mr. Norwood. Well, they do now, they presently are in, you 
say, 46. Is that correct, 46 States? So my suggestion is, the 
thing to do is work on these four States that don't have 
mandates, rather than work on this bill.
    Mr. Limbaugh. We are working as hard as we can on both, 
Congressman.
    Mr. Norwood. Dr. Matthews, are there some critical benefit 
mandates in your work that you have come across, A, B, and C 
that are critical?
    Mr.  Matthews. When you say ``critical,'' I think it is 
fair to say that insurance companies--there has sort of been 
the impression that insurance companies are going to not pay 
for something even if there is a cost/benefit in paying for it.
    Insurance companies that are covering individuals want to 
be able to reduce the cost of the care that those individuals 
are having to receive. If preventive care, screening and other 
things help with that, it is much better, it is more cost 
effective, as has been commented on, for the insurance 
companies to provide the care on diabetes rather than have 
various types of hospital incidents.
    Mr. Norwood. Well, does emergency services--would that be 
considered a critical mandate, in your mind?
    Mr. Matthews. My recollection is most emergency services, 
when you show up at a hospital and you need care, it is covered 
by traditional insurance.
    Mr. Norwood. I am talking about the insurance policy--as a 
State legislature mandating in that policy that you cover 
emergency services; is that critical to a policy?
    Mr. Matthews. Yes, it would be critical to a policy. I 
think most insurance companies do it anyway.
    Mr. Norwood. But some States don't have that mandate.
    Mr. Matthews. I am not aware of a person going into an 
emergency room and not having----
    Mr. Norwood. No, that is not what I am saying. I am talking 
about the mandate in the policy.
    Pennsylvania, for example, does not mandate that the 
insurance companies practicing in their State have that 
mandate. Yet we don't hear that outcry from the State of 
Pennsylvania that nobody is being taken care of.
    My point is that some critical mandates are already being 
tended to.
    Mr. Matthews. That is my point.
    Mr. Norwood. I yield.
    Mr. Deal. We have agreement on something.
    Dr. Burgess, you are recognized for 8 minutes.
    Mr. Burgess. Thank you. Thank you, Mr. Chairman.
    Mr. Kreidler, there are, I have been a big believer in MSAs 
and HSAs for a long time. And I think that HSAs have shown a 
good deal of promise in helping people who are uninsured.
    The chairman alluded to his daughter. Ten years ago, my 
daughter, in a similar situation, same age, 25, elected not to 
work and decided she didn't need health insurance; and I could 
not purchase a policy. At the time, I was a practicing 
physician willing to write a big check to get her health 
insurance, and I couldn't find it. No one would sell it to me 
at any cost.
    Now a 25-year-old can go on the Internet, type in ``health 
savings accounts'' and suddenly there is a panoply of insurance 
policies available to them that are very affordable with a high 
deductible. But on the concept of HSAs, one insurer has 
reported that 18 percent, in electing an HSA, were previously 
uninsured, which is a pretty powerful piece of information if 
we are truly concerned about bringing down the number of 
uninsured.
    But HSAs are not available in all 50 of the States. Do you 
know why that is?
    Mr. Kreidler. No, I couldn't explain why other States 
don't.
    But let me say that HSAs, I think, are a reasonable 
product, as long as you wind up having the kind of major 
medical, that you have that kind of backup to it, so that you 
can guarantee that when you go past a certain threshold you are 
going to have coverage, so you have a major medical backing it 
up. If you do that, that works well.
    I think the challenge that we face is, too many people wind 
up, when they are healthy and younger, saying they want an HSA. 
If they develop some kind of chronic disease or when they get a 
little older, they are less inclined to want to make that 
investment, particularly if they are less well at that point. 
It is trying to find the balance of making sure that the people 
that are in there can cover the costs.
    And insurance companies have clearly found that it 
sometimes is very expensive in offering that package to an 
individual because they are getting people when they are 
younger and healthier, and they are keeping the money as 
opposed to the others that wind up then having more costs, 
opting out and going toward the broader coverage.
    Mr. Burgess. The brief period of time when I had an MSA, 
which is when they were first allowed by Chairman Archer in 
1997, up until the time I came to Congress in 2003, a 
significant amount of cash accrued in that policy. And if there 
is one thing that I took away from that lesson was, it is 
possible for a person to put away money for their medical care 
for future needs. And even though I am covered under one of the 
plans here in the House now, and we don't have it now, 
unfortunately, an HSA available to us in the House; that money 
still sits there and grows year over year with simple compound 
interest; and that will basically be my prescription drug plan 
when I go on Medicare.
    Dr. Gratzer, did you have something you want to say about 
that?
    Mr. Gratzer. I just want to add to your point. There was an 
article in the Wall Street Journal, written by Susan Locke 2 
days ago--I believe she won a Pulitzer prize on health 
reporting--and she was talking about this issue of health 
savings accounts being this new innovative policy passed by 
Congress as part of the Medicare Modernization Act, very 
attractive to young people--unless you happen to live in a 
State like New York, New Jersey or Connecticut where the 
regulatory malaise is so bad you can't get a policy.
    One of the great things about this act isn't just the cost 
savings to young people, which a lot of people have talked 
about and I talked about in my original statement, that 
effectively these mandates are a hidden tax--as all 
regulations, I suppose, are--but what you find in States like 
New York is that the competitive market for health insurance 
doesn't exist.
    I hope, if you are a New Yorker, you like managed care 
because if you are in the individual market, your choices are 
managed care, managed care, or managed care; you can't get a 
health savings account. And I think that really speaks to the 
fact that there has been regulatory overdrive in many States, 
and a competitive market means that you ought to be allowed to 
go to New York and, if you are a New Yorker, buy a managed care 
package for a whole lot of money; but you also ought to have 
the right to buy out of State, the way you buy out of State in 
terms of banking and mortgages. And I think health savings 
accounts are part of the solution.
    Let's not overstate it. They are not going to solve all the 
problems of American health care. What a great step in the 
right direction. Let's make sure it applies to people in all 
the States.
    Mr. Burgess. I couldn't agree more, Dr. Matthews.
    On the concept of the race to the bottom that people will 
short themselves on health care, I think NCPA in Dallas several 
years ago did a study on just that one issue with MSAs, looking 
at pharmaceuticals what might be considered lifestyle drugs--
Ritalin, and the actual utilization of Ritalin went down among 
people who were using a MSA;whereas another drug, such as 
Fosomax that would prevent osteoporosis, the utilization went 
up. That is, people were willing to invest in their care for 
the long term if it was in their best interest.
    Have I accurately summarized that?
    Mr.  Matthews. You have. And the broader point of what you 
are suggesting is, we are moving into an age in which we are 
leaving a doctor-directed health care system to more of a 
patient-directed health care system, where patients have more 
access to information, more--they are more concerned about 
this. It is a growing consumer market in health care. We can't 
stop that.
    Mr. Burgess. Mr. Limbaugh, do you have any evidence that 
would suggest that programs like disease management in 
diabetics would fall by the wayside if Mr. Shadegg's 
legislation were to pass? You made the point, talking about 
diabetes--of course, no differentiation between Type 1 and Type 
2 diabetes--where, in fact, there are some lifestyle changes 
that they could encourage in people who will develop maturity-
onset or adult-onset diabetes.
    I think, Dr. Zerhouni, when he was here, was talking about 
that--from the National Institutes of Health--said that if he 
could convince people to lose 5 to 7 pounds, we would save just 
a ton of money in this country as far as the management of 
diabetes. And obviously that is not a savings that we want to 
walk away from, but you seem to have some concern that if this 
type of program were to become law that that activity would 
fall by the wayside; and I wondered if you have any evidence to 
that effect.
    Mr. Limbaugh. Well, I don't have any evidence of what--I 
don't have any evidence of what the future is going to bring. I 
mean, what I do know is, in the 46 States that have made the 
decision to mandate diabetes coverage for people who manage 
their disease, that not one of the States has ever repealed the 
mandate. Some States have strengthened it after they passed it.
    And my concern is--as I have said, is that the mandates 
that we have adopted in those 46 States will be threatened by 
this legislation because an insurer can domicile in another 
State that doesn't have the mandates, and they won't be 
available.
    And it seems--it seems to me that these mandates were 
adopted for a good reason, a good public policy reason.
    In my real life, I do government relations in eight States 
in the South, and I have never been in a State capital where 
the diabetes lobby was stronger than the business and health 
care insurance lobby.
    Mr. Burgess. My time is up. I think Dr. Gratzer had 
something he wanted to say, to add to that. Did I interpret 
that correctly?
    Mr. Gratzer. No.
    Mr. Burgess. I would say to some extent we have that now. I 
know, from my life as a private physician, I know plenty of 
times I was on the phone from 1-800 Minneapolis to try to get 
my surgery approved or my patient's medication approved. We 
have that now. For the life of me, I didn't see that that was 
necessarily helpful in my daily practice of medicine. I will 
yield back.
    Mr. Deal. Out of curiosity, will you tell us who the four 
States are who don't mandate it?
    Mr. Limbaugh. It is Ohio, Alabama, Idaho and North Dakota.
    Mr. Deal. Nobody is going to locate an insurance company in 
those States anyway. We will recognize Mr. Waxman real quickly, 
because we are on a vote. We will back after the vote.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Kreidler, good to see you in our committee. You should 
be up here, in my view. I have heard it said in order to bring 
health insurance into the 21st Century we need to enact this 
legislation under discussion today.
    Supposedly, you could buy anything anywhere on the Internet 
free from State regulation, and I would like to understand if 
this is true. Mr. Kreidler, can a person living in one State 
buy disability insurance from an insurer regulated in another 
State to get a cheaper policy?
    Mr. Kreidler. No, they cannot.
    Mr. Waxman. Can a person in one State buy life insurance 
from an insurer regulated in another State to get a cheaper 
policy?
    Mr. Kreidler. No, they cannot.
    Mr. Waxman. Can one person living in one State buy 
homeowners insurance from an insurer regulated in another State 
to get a cheaper policy?
    Mr. Kreidler. Only if they are licensed in the domestic 
State, in the State in which it is issued.
    Mr. Waxman. Can a person living in one State buy auto 
insurance regulated in another State?
    Mr. Kreidler. No.
    Mr. Waxman. So health insurance isn't the only insurance 
which must be regulated in the State in which it is purchased. 
Would you say that the law requires almost all insurance to be 
regulated by the State in which it is purchased?
    Mr. Kreidler. That is correct.
    Mr. Waxman. Are there any exceptions to this rule?
    Mr. Kreidler. Yes, risk retention groups and surplus lines 
like Lloyd's of London where you are buying the very high cost 
that is not backed up by guarantee fund?
    Mr. Waxman. What recourse do individuals in the group have 
if these types of insurance go under?
    Mr. Kreidler. If they are licensed in another State, if 
they are licensed in a State where the policy was issued, they 
clearly have the authority of the regulator to keep--whether 
they keep their license or not, can bring an injunction against 
them, a cease and desist order. We do market conduct 
examinations. We are able to intervene on behalf of the 
affected consumer effectively.
    Mr. Waxman. That is somebody in the same State.
    Mr. Kreidler. Same State.
    Mr. Waxman. Do you believe it would be wise to change the 
way health insurance is regulated so it is more like the risk 
retention groups?
    Mr. Kreidler. No, I would clearly not. I would think it 
would be a huge mistake.
    Mr. Waxman. Do you believe that consumers would be at risk 
if carriers were allowed to choose which State it would be 
regulated in and then sell products internationally?
    Mr. Kreidler. Very definitely.
    Mr. Waxman. Proponents of this legislation believe it will 
lower health care costs through competition, but I don't 
believe there is much evidence that the number of carriers, 
licensed carriers in a State affects costs. Today, there are 53 
licensed health insurers in Montana versus 54 in New Jersey. 
This is according to the American Health Insurance Plan's 
website.
    All States have tons of licensed carriers, most of which 
sell only a tiny bit of coverage. In every State, three 
carriers comprise 50 to 100 percent of the market share, and 
half of all carriers comprise 4 to 8 percent of the market 
share. Most insurers compete on the basis of cherry picking, 
and you can only do that well if you have a small number of 
enrollees to keep track of.
    Additionally, studies show that the increasing cost of 
health care in our Nation is not because of growing State 
mandates in regulations. The cost drivers are in-patient 
hospital care, prescription drug costs, growth and spending on 
physician services. In-patient hospital costs accounted for 54 
percent of the increase in health care spending in 2004. 
Prescription drugs counted for 21 percent. Physician services 
accounted for 24 percent of the increase in health care 
spending in 2004, according to the Center for Studying Health 
System Change.
    Mr. Kreidler, do you believe that we will magically lower 
health care costs by any significant amount by enacting this 
legislation?
    Mr. Kreidler. No, we will not.
    Mr. Waxman. How would a single State be able to monitor and 
regulate the sale of insurance across all 50 States. Do you, 
for example, in your budget, have enough money to assist 
consumers in other States if a plan licensed in your State was 
causing problems for them elsewhere?
    Mr. Kreidler. Mr. Waxman, we received literally thousands 
of inquiries on a monthly basis. We do those for people that 
reside in our State. If, in fact, we are receiving those 
inquiries from the rest of the country, clearly we would not. 
Our first priority would be in-state at the expense of those 
out-of-state.
    Mr. Waxman. I would like to follow up on something Mr. de 
Posada said. A person in Washington State that wants the option 
of buying a cheaper policy from another State will not 
necessarily be able to get that same policy for the same cheap 
price, because the costs of providing the services in 
Washington State would be more expensive than the service costs 
in another State. Is that true?
    Mr. Kreidler. No, it is not.
    Mr. Waxman. So, you disagree.
    One last question in the 10 seconds I have. Wouldn't we end 
up with more sham plans on the marketplace and more consumers 
in trouble? For example, the experience with municipal welfare 
agencies or MWAs as they are often called is that the 
Department of Labor couldn't monitor the sale across the whole 
country. How can a State insurance department with even less 
staff adequately monitor what is going on, Mr. Kreidler?
    Mr. Kreidler. You are clearly right, Mr. Waxman. It would 
present a challenge that could not be matched by a State that 
had little or no regulation. They typically have little or no 
staff. They would not be able to do the kind of monitoring that 
is required.
    Mr. Waxman. Thank you.
    Thank you, Mr. Chairman.
    Mr. Deal. Mr. de Posada, would you like to respond?
    Mr. de Posada. Yes, I actually checked. I am uninsured. I 
was trying to purchase an HSA in Washington State. I compared 
it to Virginia. I would actually have to pay three times more 
in Washington State than I would in Virginia. Clearly, there is 
a price differential right now.
    The only thing I have right now is American Express travel 
insurance for emergencies when I am outside of Washington 
State. So there are substantial price benefits.
    Mr. Deal. The committee is going to stand in recess until 
after these votes. I think there are only two. We did have some 
members who had questions who have left, but they will be back, 
I think.
    So we are in recess. If you will stay with us, we will 
stand in recess temporarily.
    [Brief recess.]
    Mr. Deal. We will reconvene the hearing. Apparently, the 
absence has dissipated those who had questions otherwise from 
returning, unless Mr. Shimkus has questions, do you have 
questions, Mr. Shimkus?
    Mr. Shimkus. Is that yes? What do you want, Mr. Chairman?
    Mr. Deal. You are an agent of your own free will in this 
hearing.
    Mr. Shimkus. All right. Thank you. Not a question, Mr. 
Chair, just a short statement.
    Mr. Deal. All right.
    Mr. Shimkus. I apologize. Let me just say that I am very 
excited. I am glad to cosponsor Congressman Shadegg's 
legislation. I do think the interstate commerce clause in the 
Gramm-Leach-Bliley Act moves us to this ability for people to 
choose.
    You have got to be able to trust individual consumers, 
whether it is on the product itself or the services or the 
protections rendered by an insurance product in a certain 
State. I think, given those variables, we have a great 
opportunity to help decrease the number of uninsured. I am a 
big supporter of the health savings accounts, and I think we 
need to move forward, Mr. Chairman. My questions were going to 
be in that line. I will just do a statement.
    I yield back.
    Mr. Deal. I thank the gentleman.
    Mr. Limbaugh, now that we have all attacked Mr. Brown's 
home State, he wants to defend it, and I will recognize him to 
do that.
    Mr. Brown. Mr. Limbaugh, if you have any comments--no, I 
appreciate you bringing it up. Three years ago, a bunch of us 
worked with the Diabetes Association, a Republican from 
Cincinnati, a Republican from my district. I was involved in a 
lot of work in the legislature.
    The insurance industry stopped Ohio from being the 47th, I 
believe, State at that time. So I am a little embarrassed by 
it. We should do better. I would imagine that it has an impact 
in the State that we haven't been able to do it.
    Mr. Limbaugh. Yes, Congressman Brown, thank you. It 
certainly does. Our information is that there is something on 
the order of 750,000 people in Ohio who have diabetes and 
100,000 of them who have insurance but don't have diabetes 
coverage. It is--we are continuing to work in Ohio to try to 
change that.
    We, as I said, we have been successful in 46 States; I 
tried to say earlier. I think I fumbled it a little bit. I am 
not aware of any State where the diabetes lobby is stronger 
than the insurance and business lobby in this country. But 
notwithstanding that fact, we have been able to convince these 
legislatures of the importance of having a diabetes mandate.
    We will continue to try to convince the legislature in Ohio 
that we, in fact, have ongoing, as we speak, a very strong push 
again this year to try to get the Diabetes Cost Reduction Act, 
which is what we call the mandate, passed in Ohio.
    People who don't have adequate coverage, who have insurance 
but don't have adequate coverage and have diabetes are 
essentially paying for the privilege of being uninsured, as far 
as their diabetes goes. A person with diabetes is going to pay 
something on the order of $200 to $400 a month to manage their 
disease.
    When you are paying an insurance premium and you are not 
covered for that, it is a pretty aggravating situation, both 
personally and financially, because you are having to spend a 
lot of money out of your pocket. You are still not getting the 
insurance coverage that you need.
    Thank you.
    Mr. Deal. Thank you. I am sure Mr. Shadegg would probably 
add that if the four States get their mandated coverage in 
place. He would expect your support of his bill; is that right?
    Mr. Shadegg. Absolutely.
    Mr. Limbaugh. We would suggest, perhaps as a compromise, 
just including the mandate in the bill.
    Mr. Deal. Well, with that, we will conclude the hearing. 
Once again, thank all of you. It has been a very informative 
hearing. We appreciate all of your points of view. There may be 
some issues that you may wish to submit additional information 
to us on. We would welcome that. There may be some questions 
from some of the committee members who would ask you to respond 
to.
    Yes, Michael.
    Mr. Kreidler. Mr. Chairman, I would just like to correct a 
statement I made relative to the cost of health care insurance 
in one State being something that would be--and let us say it 
was cheaper in another State and then cost more in another 
State. You couldn't--what really drives it are the costs of 
medical services. So you wouldn't see the price from the 
cheaper State directly applied.
    Mr. Deal. I think we understood that. I think that is the 
reason you see Medicare and Medicaid reimbursement is higher in 
those States because of the cost of providing the care.
    Well, thank you all again.
    This hearing is adjourned.
    [Whereupon, at 12:45 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]




    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
 Prepared Statement of Debra L. Ness, President, National Partnership 
                          for Women & Families
    national health care advocate opposes the health care choice act
    Women need access to high quality, affordable health care for 
themselves and their families. We must consider a range of different 
options to resolve the health care crisis, but the Health Care Choice 
Act, H.R. 2355, is not the answer. We hope that today's hearing will 
reveal the deep flaws of the proposal and lead to consideration of real 
solutions to help Americans deal with the rising cost of health care 
coverage.
    The Health Care Choice Act would allow insurers offering individual 
health insurance plans to choose one state and its rules to regulate 
plans sold in all states. Insurers could select the state with the most 
lenient rules, and thereby circumvent state laws that protect consumers 
from unfair rates and rate hikes. These insurers would be exempt from 
other critical consumer protections such as guaranteed coverage for 
individuals with preexisting conditions, and required coverage of 
critical health benefits like mammography screenings and preventive 
care. Insurers could also avoid HIPAA-guaranteed access protections for 
those losing group coverage and moving into the individual market.
    In addition to the loss of consumer protections, there would be no 
effective enforcement mechanism to protect consumers against abuses by 
insurance companies and assist them with remedies. Today, individuals 
seek recourse through their own state's insurance commissioner, who 
regulates the policies they purchase. Under this bill, their state 
insurance commissioner will have no jurisdiction or ability to enforce 
rules for a policy issued through another state, leaving a regulatory 
vacuum for consumers.
    The National Partnership urges members of the Subcommittee to 
reject this proposal that would harm people in the already volatile 
individual market. The Subcommittee should consider real solutions to 
expand access to affordable and comprehensive coverage, help those most 
in need, provide strong consumer protections and offer meaningful 
solutions for covering the uninsured.
    The National Partnership for Women & Families is a nonprofit, 
nonpartisan organization that uses public education and advocacy to 
promote fairness in the workplace, quality health care, and policies 
that help women and men meet the dual demands of work and family.

                                 
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