[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 102-000
HEALTHCARE AND SMALL BUSINESS: REAL OPTIONS FOR COLORADO BUSINESSES
=======================================================================
FIELD HEARING
before the
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT & GOVERNMENT PROGRAMS
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, AUGUST 10, 2006
__________
Serial No. 109-63
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
_____
U.S. GOVERNMENT PRINTING OFFICE
30-356 PDF WASHINGTON : 2006
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government
Printing Office Internet: bookstore.gpo.gov Phone: toll free
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
SAM GRAVES, Missouri DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire ED CASE, Hawaii
STEVE KING, Iowa MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan RAUL GRIJALVA, Arizona
RIC KELLER, Florida MICHAEL MICHAUD, Maine
TED POE, Texas LINDA SANCHEZ, California
MICHAEL SODREL, Indiana JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Deputy Chief of Staff/Policy Director
Michael Day, Minority Staff Director
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND GOVERNMENT PROGRAMS
MARILYN MUSGRAVE, Colorado Chairman DANIEL LIPINSKI, Illinois
ROSCOE BARTLETT, Maryland TOM UDALL, New Mexico
BILL SHUSTER, Pennsylvania DANNY DAVIS, Illinois
MICHAEL FITZPATRICK, Pennsylvania RAUL GRIJALVA, Arizona
LYNN WESTMORELAND, Georgia MELISSA BEAN, Illinois
THADDEUS McCOTTER, Michigan GWEN MOORE, Wisconsin
JEB BRADLEY, New Hampshire
Joe Hartz, Professional Staff
(ii)
C O N T E N T S
----------
Witnesses
Page
Fries, Mr. Matt, President & CEO, Professional Document
Management..................................................... 6
Roberts, Mr. Dale, Chairman, Loveland Chamber of Commerce........ 8
Boesch, Ms. Chris, Exodus Moving & Storage....................... 9
Liske, Mr. Fred, General Manager, American Eagle Distributing
Company........................................................ 10
Hillman, Mr. Mark, Former State Senator.......................... 12
Cletcher, Dr. Jack............................................... 14
Tamlin, Ms. Deb, Broker, ZTI Group............................... 16
Jensen, Mr. R. Allan, National Association of Health Underwriters 18
Snyder, Ms. Gail, Snyder Insurance Agency........................ 20
Appendix
Opening statements:
Musgrave, Hon. Marilyn....................................... 32
Prepared statements:
Fries, Mr. Matt, President & CEO, Professional Document
Management................................................. 36
Hillman, Mr. Mark, Former State Senator...................... 39
Cletcher, Dr. Jack........................................... 44
Jensen, Mr. R. Allan, National Association of Health
Underwriters............................................... 47
Snyder, Ms. Gail, Snyder Insurance Agency.................... 51
(iii)
HEALTHCARE AND SMALL BUSINESS: REAL OPTIONS FOR COLORADO BUSINESSES
----------
THURSDAY, AUGUST 10, 2006
House of Representatives
Subcommittee on Workforce, Empowerment, and
Government Programs
Committee on Small Business
Washington, DC
The Subcommittee met, pursuant to call, at 1:00 p.m., in
Loveland City Council Chambers, 500 East 3rd Street, Loveland,
Colorado, Hon. Marilyn Musgrave [Chairman of the Subcommittee]
presiding.
Present: Representative Musgrave.
Also Present: Representative Shadegg.
Chairman Musgrave. The hearing on the Subcommittee on
Workforce, Empowerment, and Government Programs will come to
order. Thank you all for being here today. We appreciate that
so very much. We are going to examine healthcare choices for
America's small businesses, their employees, and working
families.
Before I begin, I would like to thank my friend and very
respected colleague for joining me here today, John Shadegg. Of
all days to be flying, John. This has been a most interesting
one and I am glad it went well. I want to thank you very much
for making the effort to be here.
Mr. Shadegg. My pleasure.
Chairman Musgrave. John was first elected in 1994 and he
quickly established a reputation in Congress as a leading
advocate for reduced government spending, federal tax relief,
and the re-establishment of state and individual rights. He has
proven to be a leader on healthcare issues.
From 2000 to 2002 he was the Chairman of the Republican
Study Committee, the largest conservative organization in the
House of Representatives. Under his leadership there was
dramatic growth from 40 to more than 70 members and it has
become the most influential and respected force in the U.S.
House shaping conservative policy for the country.
In 2005 John was elected by his peers to serve as Chairman
of the House Republican Policy Committee, the fifth ranking
position in the House leadership from 2005 to 2006. At the time
he was the only member of the Republican class of 1994 serving
in House leadership. Again, I just want to thank you for being
here as we address this important topic today.
All Americans want reliable, high-quality, and reasonably-
priced healthcare that will be there when they need it. One of
the most stressing statistics we hear each year is the rising
number of Americans who live without health insurance currently
estimated at 45 million people. Of those without health
insurance about 60 percent are small business owners, employees
of small businesses, and their families.
As healthcare costs continue to rise, fewer employees and
working families will be able to afford coverage. In Congress
we must look at this pressing problem and find solutions that
will create an environment so that those who need health
insurance cannot only find the coverage they need but, more
importantly, afford it. We need to be working towards the
healthcare delivery system method that works best, not just
what we have always done.
A simple look at the current health landscape shows that
the system is not working. The thing that we will focus on
today will be four proposals that this Congress has begun to
work on to help Americans get the coverage they need at a price
they can afford.
These proposals are the establishment of Association Health
Plans, as we call them AHPs, increasing the availability, use,
and ease of Health Savings Accounts, we call those HSAs,
reforming the medical liability system, and examining
Congressman John Shadegg's common sense legislation H.R. 2355.
He will tell us all about that, the Healthcare Choice Act.
On July 26, 2005, the House of Representatives passed H.R.
525, the Small Business Health Fairness Act of 2005. That was
legislation that would establish federally regulated
Association Health Plans with a strong bipartisan vote. That
was the 7th time the House had passed such legislation. I am
confident, though, that real progress on this legislation will
be made in the Senate this year.
AHPs would allow small businesses to band together across
state lines through their membership in an association to
purchase more affordable health insurance. Unions and large
corporations already have the ability to do this so it makes
sense to me that we should allow small businesses to have the
same opportunity.
Health savings accounts are a new way that people can pay
for a medical expense not covered by insurance or other
reimbursements. Eligible individuals can establish and fund
those accounts when they have a qualifying high-deductible
health plan and no other health insurance with some exceptions.
These accounts have significant tax advantages. The
contributions are deductible. Withdrawals used for medical
expenses are not taxed, and account earnings are tax exempt and
unused balances can accumulate without any limit.
President Bush has proposed several improvements to HSAs
such as allowing Americans who HSA qualified insurance policies
on their own to have the same tax advantages as people who
obtain health insurance through their employers and eliminating
all the taxes on out-of-pocket spending through HSAs.
An additional area that Congress and the President have
worked on together is tort reform for the medical community.
American patients are losing access to healthcare because of
the nation's out-of-control legal system enforcing physicians
in some areas to retire early.
I was an elected to Congress with three doctors and some of
the most poignant testimony you will hear are from doctors that
come from states that have enormous problems with the tort
system.
Right now it is estimated that we have 21 states that are
in a full-blown medical liability crisis and in 2002 there were
12 so we see the growth. In these crisis states patients
continue to lose access to care. The rural areas of the 4th
District, like many other districts around the nation, people
have to drive over long distances, especially in the area of
OB/Gyn when women have babies having to drive 200 miles to see
a doctor it gets very burdensome.
Meanwhile, the high-risk specialists no longer can provide
trauma care or perform complicated surgical procedures. This
excessive litigation and high medical malpractice rates have
added to employers' healthcare costs and have spurred some
providers to err on the side of caution that comes at the
expense of both health plan dollars and patients receiving
unnecessary service.
This issue isn't just about physicians. It cuts across the
healhcare sector. Hospitals need physicians to admit patients.
Companies that manufacture medical devices and pharmaceuticals
need physicians to use and prescribe their products. Similar to
the AHP legislation, the House passed more healthcare related
issues in H.R. 5 that help efficient accessible low-cost timely
healthcare, or Help Act of 2005, and that happened in July of
2005. The Senate is continuing to debate this critical
legislation.
Another proposal to help Americans find and afford
healthcare is legislation introduced by my colleague, John
Shadegg, H.R. 2355. Again, that is the Healthcare Choice Act of
2005. Under this legislation consumers would no longer be
limited to purchasing policies dictated by their state's
regulations and mandated benefits. Instead they can pick from a
variety of insurance policies qualified in one state but
offered for sale in multiple states.
When I served in the Senate with Mark Hillman we dealt with
many mandates in committees and we saw the policies in Colorado
loaded up. This would be a solution to that problem that drives
up the cost of the policy. We know, there is not one solution
to a problem that is as complicated and as complex as what we
are facing with 45 million Americans without health insurance.
Small businesses and their employees are in a critical
situation with finding new ways to increase health insurance
coverage and we will look at many proposals today that have
been offered. I am eager to hear from our witnesses today. I
thank you very much for being here.
Our first witness is Mr. Matt Fries. He is President and
CEO of the Professional Document Management from Fort Collins,
Colorado. I think I will just introduce all of you, if I may,
Mr. Fries.
Excuse me. You know what I forgot? My Congressman from
Arizona that came to be with us. I'll introduce the witnesses
in a moment. Forgive me, Mr. Shadegg.
[Chairman Musgrave's opening statement may be found in the
appendix.]
Mr. Shadegg. The order doesn't really make much of a
difference.
Thank you very much, Madam Chairman. I want to commend you
and the Full Committee Chairman, Mr. Manzullo, for your focus
on healthcare. This is a critical issue that faces our entire
nation. I have a written opening statement which, with your
permission, I will put in the record and just briefly kind of
summarize a few comments.
Both you and Chairman Manzullo have been leaders on the
issue of healthcare reform. I have a passion for healthcare
reform because it is affecting so many American businesses and
it is damaging our economy. Indeed, as I think you will recall,
just before we left Washington for the August district work
period, the Chairman of the Committee, Mr. Manzullo, made an
impassioned plea for America to deal with the problems
confronting small businesses and, in particular, the rising
cost of healthcare. He talked about a personal story. His
brother, who is in the restaurant business, was forced out of
business by rising healthcare costs. I want to commend you as a
leader in this field.
As you mentioned in your opening statement, there is no one
answer to this problem. The four bills that you have picked for
this hearing, I think, are key parts of the solution to this
problem. I would like to thank all the witnesses for being
here. I would like to thank the people in the audience who are
paying attention and looking at this issue.
Association Health Plans are an idea whose time has come
and we simply, as you pointed out, need to get the Senate to
reflect the will of the American people. It is a device by
which small employers could get together and buy insurance by
pooling together and getting the larger purchasing mechanisms
thereby bringing down the cost of their health insurance and
making them more competitive.
Health Savings Accounts, I think, go to the heart of one
part of the problem which is we have told the American people
that they are not personally responsible for their own
healthcare and for the cost of that healthcare. HSAs put them
back in the driver's seat which is a key part of what I hope to
do in healthcare reform.
There are many pieces to this puzzle. Liability reform, as
you mentioned, is a huge one. Unfortunately, we have tried and
tried again to address the problem of liability reform in
Washington again with no success, kind of steadfast opposition
from those who believe the current tort system is serving the
interest of the American people. I am one of those who believes
that an injured patient should be able to recover, but I also
believe that we have an out-of-control tort system. I might
note you kindly did not mention my prior occupation. I call
myself a recovering lawyer, though I did not practice tort law.
I will just briefly try to, if I could, mention the
Healthcare Choice Act. It is an idea that not many people are
familiar with. I will take a couple of minutes to describe its
advantages and strengths. I would suspect that it having gotten
very little attention in the national media, probably many
members of even your panel haven't heard of this notion or the
idea behind it. If I could, I will try to just briefly
summarize how it would work.
The insurance market, and I think everyone knows, is
divided into different segments. Most Americans get their
insurance through their employer. In addition, many Americans
get their insurance or their healthcare through government
programs, either Medicaid or Medicare. But there is a segment
of our population that buys their health insurance in what is
called the individual market. That means they don't get it from
their employer and they have to go out and buy it individually.
Right now that is the segment of the market that is still
regulated by the states. I guess as a states rights person and
someone who believes that the federal government located as it
is far away in Washington, D.C. isn't the best regulator. When
looking at the healthcare reform issue I decided we ought not
move more of healthcare reform regulation or healthcare
regulation to Washington, D.C. Let's try to lead it with the
states.
At the same time, as you pointed out, the current system
for individual health insurance sales is overburdened by state
regulatory practices and by mandates. Just a handful of years
ago there were across America some 50 to 200 mandates, benefit
mandates. Things like you must cover podiatry or you must cover
various types of care, emergency room care, cancer screening,
those kinds of things.
As you pointed out, the state legislatures have been
inundated with demands for more and more mandated benefits. I
doubt if many people realize that, for example, today podiatry
is required to be covered by any insurance policy sold in the
state of New York. Acupuncture must be covered in any policy
sold in 11 different states, California, Florida, Montana, and
on.
Massage therapy is a mandated benefit in the policies sold
in five different states. Everyone might say it is a good idea
to cover these kinds of services but the problem is every time
you mandate an additional benefit that must be covered by an
insurance policy, you raise the cost of that policy.
The other issue is that because in the current individual
market an insurance policy must be filed with and qualified for
each state's laws, any insurance company that wants to sell a
policy in all 50 states has to write that policy, has to write
a policy that meets the state laws of any state they want to
sell in. If they want to sell in my home state of Arizona, they
have to write a policy that meets Arizona law. If they want to
sell in Colorado, they must write a policy that meets Colorado
law.
That means a huge regulatory burden of meeting the laws of
all 50 different states. The concept behind the Healthcare
Choice Act is pretty simple and straightforward. Given that
most state's insurance laws are relatively similar, it says
that an insurance company can take a policy, bring it to
Colorado, for example, qualify it for sale under Colorado law,
and then take that policy to any one of the remaining 49
states, simply file with the insurance commissioner in that
state and then offer that policy for sale.
There is a huge regulatory burden that is lifted. But being
interested in having consumers protected by local enforcement
or local regulatory protection, we then said that if a policy
was written to comply with Colorado law and then taken and
filed in Arizona and sold in Arizona, the Arizona insurance
commissioner could enforce the terms of the policy on behalf of
Arizona consumers.
What this would really mean is that the regulatory burden
for getting a policy in the market would come down
dramatically. The number of mandates included in a basic policy
would go down quite dramatically lowering the cost of health
insurance and, yet, consumers would remain protected because
their own insurance commissioner could protect them.
In most states, and I believe this is true of Colorado, the
number of insurance companies selling policies on the
individual market is a handful, three to five. There is
virtually no competition. Were you to enact the Healthcare
Choice Act, which I hope we will get a vote yet this year in
Congress, and has passed the Commerce Committee on which I
serve, there would be literally dozens more policies for sale
here in your congressional district because it would be so much
easier to bring a policy to the market and, therefore, more
competition hopefully producing lower cost.
That gives people a little bit of an idea what the
Healthcare Choice Act does. It did clear the Energy and
Commerce Subcommittee and it is waiting for further action so
we are anxious. I want to thank you for continuing to support
healthcare reform so that Americans can get high-quality
healthcare at an affordable price.
Chairman Musgrave. Thank you. I remember when you came into
my office to ask me to co-sponsor that legislation. You got a
little bit out of your mouth and I said, ``Does it get us out
from under all the mandates?'' You said, ``Yes.'' That is what
I wanted to hear right away. Thank you for being here.
I would like to introduce the witnesses and then we will
start with Matt. Again, the first one is Mr. Matt Fries,
President and CEO, Professional Document Management from Fort
Collins. Then we have Chris Boesch, Exodus Moving and Storage
from Fort Collins. There you are. Thank you.
Next up is Mark Hillman. I served with Mark in the state
legislature. It is very good to see you and I know that you
were very knowledgeable and worked very hard on bringing down
the cost of healthcare. I appreciate those efforts.
Deb Tamlin. It is good to see you. I thank you for being
here today, a broker from ZTI Group in Fort Collins. Gail
Snyder down there on the end, Snyder Insurance Agency,
Loveland, Colorado. Dale Roberts from the Loveland Chamber,
Loveland, Colorado. Fred Liske, General Manager, American Eagle
Distributing Co. It is very good to see you. Dr. Jack Cletcher.
We are happy to have you here today from Berthoud, Colorado.
And Allan Jensen, Colorado Association of Health Underwriters.
I think we will just actually go in the order that you are
seated. That will be fine. Matt, we will start with you. We
will adhere to the clock so Mr. Shadegg can get off to DIA and
fight the good fight to get back to Arizona. Thank you.
STATEMENT OF MATT FRIES, PROFESSIONAL DOCUMENT MANAGEMENT
Mr. Fries. Very good. Good afternoon Chairman Musgrave. It
is a pleasure to see you. Welcome to Northern Colorado
Congressmen Shadegg. Thank you for holding this hearing and for
your leadership to find ways to make health care coverage
affordable to small businesses.
My name is Matt Fries, and I am the owner of Professional
Document Management located in Fort Collins. My company is in
the paper and electronic records storage and destruction
business, and we employ 13 people, 10 full-time and three part-
time.
Like most small, independent business people, I don't
typically look to Washington, D.C. to solve my problems. Most
of us generally operate from the point of view that less
government is the best government. And when it comes to
affordable healthcare, government provided healthcare known as
universal care is absolutely not the answer.
Yet, the current health care coverage system isn't working
all that well, especially for small businesses. My company is
pretty typical. The people employed at PDM work very hard and
do a great job. They care about our customers and serve them
well and for their success, they deserve to have access to
first rate health and medical care when they need it.
However, due to the high cost of health insurance premiums,
that is extremely difficult for me, if not financially
impossible. Currently, we are unable to provide any level of
health care insurance for our employees.There is a direct
relationship between the increase in health care and the cost
of health care coverage. New medical technologies and new
procedures can lead to increases; however, from where I sit
there appear to be two major cost-drivers. One is litigation
and the other is state mandates.
Because my business serves the medical community, I know a
lot of physicians, and they struggle with crushing malpractice
insurance rates. Excessive litigation and consequent high
medical malpractice insurance rates cost all of us. Caps on
non-economic damages and punitive damages would go a long way
to stem rising costs. This is beyond the scope of H.R. 2355 but
deserves your further attention.
Regarding mandates, they are a major cost factor. For
decades states have micro-managed the health insurance
industry. State legislators require insurance companies or
health plans to cover specific services and by doing so they
drive up costs for all of us. The worst offender is Minnesota
with over 60 mandates. We are fortunate in Colorado to ``only''
have 19. According to the Council for Affordable Health
Insurance, state mandates add between 20 and 50 percent to the
cost of health insurance.
This leads to another cost-driver: lack of competition.
Price and competition are inextricably tied together. A few
large insurance companies dominate the state markets meaning
that there is very little real competition in thehealthcare
insurance coverage marketplace. Where little competition exists
in any industry, there is no incentive to keep prices down. I
think H.R. 2355 could have the effect of creating a national
health insurance market. New competition will drive down costs.
Another issue is lack of flexibility in the health
insurance marketplace. Even in my small company employee needs
vary widely. The younger employees tend not to care much about
health and medical insurance, while middle-aged and older
workers do. It is difficult for us to qualify as a ``group''
when the young workers don't want to pay to participate in an
expensive one-size-fits-all plan with features they don't want.
Also, consumer-driven options like Health Savings Accounts,
while a huge step in the right direction, need to be detached
from employer-provided policies. HSA purchasers should be
allowed to purchase any type of health plan and get a tax
credit for doing so.
The concept in H.R. 2355 concerning ``small business health
plans'' is excellent. By allowing small employers to purchase
coverage through bona fide associations, small guys like me
will have the same advantages that unions and big employers
have. By banding together, small businesses will realize
economies of scale, increased bargaining power, savings from
administrative efficiencies due to having just one set of
rules, flexibility in the design of the coverage and increased
competition in the health insurance markets.
Small firms and their employees will see lower insurance
premiums as risks are spread across a larger pool of people.
Small Business Health Plans would give the little guys the same
preemption from costly state mandates now enjoyed by the big
guys under the Employee Retirement Income Security Act (ERISA).
I am convinced that fostering interstate commerce in the
health insurance market will increase competition and improve
consumer choices just like interstate banking has done.
In summary, small employers like me want to provide health
insurance to our employees without the cost and inflexibility
of expensive state mandates. We want to encourage further
development of consumer-driven health plans like Health Savings
Accounts. We want to see choices for our employees in terms of
coverage they want rather than being forced to buy one-sized-
fits-all coverage.
Chairman Musgrave. If you could just wrap up.
Mr. Fries. You bet. In closing, as a small employer, as
stated earlier, I don't look to Washington, D.C. to solve my
problems. I don't look to you for handouts. Congress can help,
however, by improving the health care market. H.R. 2355 is a
big step in the right direction. Thank you again for your
leadership on this issue and for listening to my testimony.
[Mr. Fries's testimony may be found in the appendix.]
Chairman Musgrave. Thank you for your good testimony.
Now we will hear from Mr. Roberts representing the Chamber
of Commerce from Loveland.
STATEMENT OF DALE ROBERTS, LOVELAND CHAMBER OF COMMERCE
Mr. Roberts. Yes. Thank you all for taking your time to be
with us today. My name is Dale Roberts. I am Executive Vice
President of Front Range Bank. Today my hat being worn is the
Chairman of the Chamber of Commerce here in Loveland.
Chairman Musgrave. Could I ask you to pull your microphone
a little closer if that is possible?
Mr. Roberts. Okay. Is that better?
Chairman Musgrave. Thank you.
Mr. Roberts. Okay. My speech won't be five minutes. I just
wanted to share with you the issues that our Chamber is
involved with and the things we have been trying to do possibly
looking to you to give us some other guidance and leadership.
The Loveland Chamber actually has become a bona fide
association as spoken to a little bit by Matt. We are currently
working with local healthcare providers to try to get something
going with them to provide insurance coverage for small
businesses.
As a matter of fact, it is kind of frightening in some
ways. Loveland seems to be a big city. However, of our 850
members in the Loveland Chamber of Commerce, 85 percent of
those are four employees or less. We are concerned because we
have a lot of those companies who are frankly running uninsured
We don't currently know any other way than try to make the
Chamber, if you will, a bona fide association tying our Chamber
membership into some kind of a healthcare program. Hopefully
with state laws and others we will be able to solve that
problem and use our association to help that very small
businessman.
Again, thank you for my testimony and thank you for being
here.
Chairman Musgrave. Thank you.
Now we will go to Ms. Chris Boesch from Exodus Moving and
Storage, Fort Collins. Thank you for being here before the
Committee today.
STATEMENT OF CHRIS BOESCH, EXODUS MOVING & STORAGE
Ms. Boesch. Thank you. I want to also thank you all for
being here and having this very important discussion. We have
60 employees. We do not provide health insurance. We do provide
dental for $11 per month per employee which is fabulous. We
give our guys a few dollars a month towards preventive
maintenance such as vitamins, to go to a gym, that sort of
thing.
The profit margin in our industry is four percent. The
lowest healthcare that is available out there, Anthem recently
went from $100 to $50 as a minimum that an employer can
contribute to an employee. You can have a 60 percent amount of
employee participation instead of 75 percent. That is supposed
to be good news.
Unfortunately, it is not good news. The reason being that
with 60 employees $50 a month you are looking at $3,000 a month
and that is if it doesn't go up next year and the year after
that. That is over one percent of my income and I have a four
percent margin.
Not to mention that it is about $200 a month per employee
and there is no way that my guys that make between $9 and $16
an hour are going to be able to afford $150 a month. It is a
very difficult situation. They would like healthcare even
though they are young for both them and their families.
I am just going to throw out kind of an ad question that I
don't expect you to respond to right now, but how is it that
healthcare became the responsibility of businesses.
Chairman Musgrave. That is a good question.
Ms. Boesch. Okay. I think if we could go back to that
basic and talk from that point of view, I think that would be
very important.
Secondly, I am going to offer kind of a pie in the sky
resolution. I believe in pie in the sky ideas because I think
if you don't reach, you can never attain. One of the things we
all know that in addition to water, food, shelter, and
education everyone should have access to a doctor. We also know
that our European counterparts have managed to do that for
their citizens. We are a richer country and we don't seem to
have that which is really, I think, sad.
I think there is no reason why Colorado can't be a pioneer.
One of the things that I would suggest is that health insurance
companies, like many companies, are there to make money. I
don't think they are necessarily there to help patients or help
hospitals. The local hospital here 60 to 70 percent of their
income comes from the foundation from Medicare and from
Government subsidies.
Thirty to 40 percent comes from healthcare insurance and
healthcare insurance and healthcare insurance companies don't
tend to pay the full price of the services that the hospitals
provide so the hospitals get short-cutted when working with
health and insurance companies, not mentioning all the
different types of people that everyone has to go through to
make that happen.
What about the idea of getting rid of the middleman? I am
going to the concept of a partnership between businesses,
residences, and the hospital. Perhaps there is a monthly fee
that is charged to every resident based on their income that is
a percentage base. Also health tax could be connected to a
property tax so that, again, you are looking at a fairness
factor, if you will.
But not to be completely ignorant in that if we have a huge
train wreck or some big horrible catastrophe, somehow the
cities or the state would have to be covered for something
massive so have a huge umbrella policy through an insurance
company along those lines. That is just kind of my pie in the
sky idea that I wanted to throw out.
I think that is all I have to share. Thank you very much.
Chairman Musgrave. Thank you very much. We discussed that
we might talk about tax rates in those European countries, too,
because somebody does pay for it.
Fred, I am glad to have you here today and we are looking
forward to hearing from you.
STATEMENT OF FRED LISKE, AMERICAN EAGLE DISTRIBUTING COMPANY
Mr. Liske. Thank you. My name is Fred Liske and I am
General Manager of American Eagle Distributing. I am honored to
be here today because this is a very timely topic for our
company and everybody on the panel's company. We just came off
of renewing coverage for our employees so we are fresh off the
fax.
I am going to tell you a little bit about our business to
start with, the industry that we participate in, and then we
will just kind of move forward from there.
American Eagle Distributing has been around a long time. It
is about a 30-plus-year business in the community. We are one
of 1,900 American beer distributors across this country.
American beer distributors are generally family-owned,
independent companies, relatively small business, generally 50
employees, about $14 million a year revenue. We have a million
dollar payroll.
We are a little bit bigger here than the average
wholesaler. We have about 120 employees, $50 million a year in
annual revenue, and about $4.7 million in payroll. Ironically
we are a member of the National Beer Wholesalers Association
and one of the hot topics of discussion right now is healthcare
for our employees. It is absolutely crushing us when we take a
look at the cost. We just recently, like I said, renewed our
policy.
What I want to do is take you through real quickly a little
bit about us as a company. We haven't had an issue with getting
insurance for our employees. We have been around a long time
and we have been pretty good at that but we are having an issue
as far as cost. We have to contain those costs and they have
gone up substantially year over year.
As we just renewed our healthcare benefits, some of the
things that we looked at were the benefits and costs of
multiple insurance products, the availability of in-network
providers, the deductibles and the maximum amount for our
employees, co-pays, specific stop loss maximums, allocation of
premiums for commissions, fees, and administration expenses.
I will speak up a little. Anyway, as general manager I got
to kind of see everything and I think like most small
businesses we have a handful of staff or executive members that
have to do everything. That is a lot of things that we have to
review. We are not experts in all these and a lot of issues
that we have to deal with in communicating insurance to the
employees.
Moving on, prior to shopping, bargaining and increasing our
insurance we had to increase our stop loss amounts this years.
We did that also last year. What I specifically mean by that is
we are partially self-insured. That means as a company we
continue to take more and more of the risk.
Now, what we are hedging on is that we don't have a
calamity or a series of employees that have serious illnesses
or injuries because that will definitely impact our bottom
line. The reason we chose to do that as a company, it was the
only way of keeping our insurance costs in line for our
employees to afford.
To give you an example, the increase in the cost of our
insurance from 2002 to 2006 was basically 9.7 percent. We kept
that in the 6 percent range as a company by again being
partially self-insured and raising the stop loss protection for
our employees. In 2005 our healthcare benefits represented 10
percent of our overall payroll cost. If you figure about $4.7
million in payroll, $470,000 for healthcare costs for the
employees.
We feel that again we work, just as Chris alluded to, on a
very slim margin. Extremely slim. We continue to see margins
going down in our industry. As we do that, we look at the
$460,000 as being obviously an extreme cost of doing business.
There is something else that we want to bring up that we
found is very interesting, and that is while we offer insurance
we know a lot of small employers don't. Something that we
found, especially with our younger employees, they don't
understand the benefit of the insurance that we offer. As a
company and working with other beer wholesalers we have to
educate.
We have a lot of young employees, as you can imagine, that
are putting the beer away doing that type of stuff and they
will literally jump ship for 50 cents an hour to another
competitor that doesn't offer insurance benefits. Again, when
they get a little bit older and they actually use the benefits,
they see the value but that is just something that we thought
we would bring up because it is something we deal with in the
company every single day.
I thought I would bring up just a couple things also in
closing. We try to stay pretty active in the community and we
got some statistics which we included in our packet for NCMC,
Northern Colorado Medical Center. The interesting thing that we
brought up, and I want to read this. For 2005 their bad debt
was 9.7 percent of their total operating revenue. Basically
what they are telling us is 20 percent of the people that walk
in their door to the emergency room have insurance.
If we as a company--and remember we are a $50 million
company. If we as a company had bad debt of 9.7 percent of our
operating revenue, we would be out of business. Doors would be
closed and we would be gone. Again, something to bring up also
as a point.
Kind of in closing I wanted to bring up that we think that
the interstate commerce and health plans and the potential
larger pooling would be absolutely phenomenal for us because
what we look at is obviously we think it would reduce the
insurance administrative cost. We think it would add more value
focused in a network of providers. Obviously increases
competition. We might be able to have more like companies such
as beer distributors within a pool. We feel that in the long
run that may help keep costs within the realm.
Anyway, that is what we had in closing and then in the
packet we include some backup data. Thank you.
Chairman Musgrave. We will submit all of that to the
record. Thank you.
Mark Hillman, we are very glad to have to have you with us
today. We look forward to hearing your testimony.
STATEMENT OF MARK HILLMAN, FORMER STATE SENATOR
Mr. Hillman. Thank you, Madam Chairman, and Congressman
Shadegg from Colorado. My name is Mark Hillman. I am the owner
and operator of Hillman Farms at Burlington and former Colorado
Congressman.
It has been said that insanity is doing the same thing over
and over again and expecting different results. That maxim
could certainly apply to attempts by lawmakers and regulators
to ``fix'' the health insurance market. If I could wave a magic
wand and compel Congress do absolutely anything to the health
insurance market, I would simply ask them to undo everything
Congress has done to the health insurance market.
In fact, apart from licensing insurers to require financial
stability, even most state level regulations simply replace old
problems in the marketplace with well-intended but politically-
driven marketplacedistortions. These distortions replace old
problems that could be affected and corrected by the choices of
millions of consumers and erect political obstacles that are
exceedingly difficult to correct.
Colorado's small group market for health insurance has been
struggling for many years. In 1994, 84 carriers offered small
group coverage in Colorado. Today, 10 carriers constitute 96
percent of our market. From 2000 to 2005, the number of lives
covered in the small group market declined from 538,000 to
358,000 and the number of employer groups enrolled in small
group plans fell from 70,000 to 46,000.
Much of this decline finds its roots in so-called
``reforms'' of the past beginning with: Community rating. Prior
to enactment of ``community rating'' in Colorado premiums were
directly related to the health of each consumer. Legislators
enacted community rating in order to protect small business
from wildly fluctuating premiums and to keep insurance
affordable for consumers with pre-existing health problems.
Unfortunately, this replaced wildly-fluctuating costs with
rapidly-increasing costs and disproportionately shifted costs
to healthy consumers, causing many of them to simply leave the
market.
Look at it this way. If you and I go to lunch everyday and
we both pay $10 and I get an $18 steak and you get a $2 cheese
sandwich, how long are you going to like to subsidize my steak
and be satisfied with your cheese sandwich? That is exactly
what the community rating does.
It gets worse, because when healthy consumers leave the
market, the high-risk consumers who remain now must bear an
even higher cost. In 2003, Colorado took a modest step toward
restoring market based premiums by allowing insurers to offer
discounts of up to 25 percent to employer groups, thereby
making premiums more affordable for health groups. As the
sponsor of that legislation, however, I will tell you that we
need to give insurance carriers even greater flexibility,
perhaps up to 50 percent, in order to allow them or require
them to compete for consumers' business and to attract healthy
consumers back into the market.
The second distortion is guaranteed issue. Congress
compounded the problems associated with state-level community
rating by mandating ``guaranteed issue'' to anyone whose
employer provides group health insurance. The rationale for
this was simple, that no one should be denied health insurance
coverage because of preexisting conditions.
The distortion this created is that employees can now
decide to forego health insurance coverage until they actually
need health care. For young people it makes perfect sense for
them to drop their health insurance until they have an
outstanding need.
Lastly, mandated coverage. Everyone who purchases health
insurance through the small group market in Colorado is
required to pay for, by some counts, 17 and by others as much
as 24 mandated coverages, regardless of whether they want or
need them.
My favorite example is that by law everyone, that is
everyone, men, women who plan not to have children, and women
who are beyond child-bearing age have to purchase pregnancy and
maternity coverage. Incidentally, pregnancy and maternity
coverage for an ordinary pregnancy with no complications is now
mandated by federal case law so consumers cannot choose to pay
for this out of pocket.
This illustrates perhaps the biggest problem with mandated
coverage. Most mandates require coverage for things like
prostate or breast examinations. From a preventative
standpoint, those precautions are certainly wise. However, the
purpose of insurance is not to be a compulsory savings plan for
medical expenses that can be anticipated. The purpose is to
share the risk for ``insurable events'' costs that are
unanticipated, unavoidable and difficult or impossible to
budget. Mandating coverage for preventative maintenance simply
requires us to use the middle man which increases those costs.
Lastly, if I were to make a few suggestions, I would
suggest that we make health insurance premiums fully tax
deductible for everyone. Most business owners or managers do
not want to be in the position of choosing benefits for their
employees. The only reason they have to do that is because of
the uneven treatment by the Internal Revenue Service code. This
is manipulative, not to mention economically insane because it
removes the ability to make choices about cost and coverage
from the very people to whom the market should respond.
I think a refundable tax credit would be even a better
step. Lastly I would suggest that you leave regulation of
health insurance to the states. Although I am intrigued by the
prospect of congressional legislation to allow consumers to
purchase health insurance from carriers in any state, the one
concern I do have is that Congress will then be unable to
resist the temptation to meddle in this new national market and
instead impose costly mandates and burdensome regulations at
the national level which then will be virtually impossible to
reform. Thank you.
[Senator Hillman's testimony may be found in the appendix.]
Chairman Musgrave. Thank you, Mark.
Now we will hear from Dr. Jack Cletcher. Thank you for
being here today.
STATEMENT OF DR. JACK CLETCHER
Dr. Cletcher. Thank you very much. It is a great honor to
be here, Congressman Musgrave and Congressman Shadegg. It is a
great pleasure to have the opportunity to talk to you. That is
basically what I am going to do. I have written my testimony.
It is in here. I chose to testify on my own behalf from my own
experience. I do have, however, a great background in some of
these issues having been a member of the House of Delegates,
the American Medical Association for several years.
I have been integral in the development of the physician
and patient advocacy of the Colorado Medical Society. I have
served various positions in the State Medical Society and the
County Medical Society. I am also an representative of the
American Academy of Orthopedic Surgeons at the AMA and on
various other councils serving on their ethics committee for a
long time. All of these things are very familiar to me.
Actually, my testimony as written is somewhat moot because of
Congresswoman Musgrave's excellent summary of the problem
covering most of the issues that I think are contributory to
the cost of healthcare. I will focus my testimony again as an
individual on the issue that I was asked to do which is the
contribution of the cost of medical liability to the increase
in the cost of medical care in the United States.
Briefly, it is a well-documented fact that the cost of
medical liability insurance has risen exponentially in the past
20 years. It affects everybody involved in the healthcare
production. Equipment manufacturers, doctors, nurses,
hospitals, any provider has experience an enormous increased in
their cost of liability insurance at all levels. People don't
realize the cost to them.
For example, the cost of a total hip charged to the patient
is $6,000 or $8,000 for just the piece of iron that they put in
there. The liability on the manufacturer of that product is
undisclosed. You can't get any of the manufacturers to really
tell you how much it is but I know from private conversations
it is probably close to 40 percent of that cost purely for
liability issues.
Who pays for this? Well, it is YOU, the patient. You pay
for it. Any care that you get and any service that you get,
materials that you receive in the healthcare industry through
the health insurance that you buy and everything you ultimately
pay for whether it is out of your pocket or perhaps your
employer would have been able to pay you a great deal more
money had they not had the mandate before issuing insurance.
It is a benefit that is not exactly calculated in cost but
it is there.
How big is the problem? It is enormous. Anyway, in
physician services the dramatic costs of liability are
malpractice insurance, speaking of that specifically, on
healthcare cost is a matter of crisis. I will just say that.
You have already said it.
Colorado has very good tort reform laws. They have helped
keep healthcare costs down in comparison to many other states
by limiting liability awards with ``caps'' on ``non-economic''
damages such as pain and suffering and other subjective claims
that are difficult if not impossible to document.
This is not the case in many other states whose
legislatures have refused to pass tort reform laws similar to
Colorado and California. For example, in Nevada, malpractice
premiums rose to levels where the Las Vegas Hospitals had to
close their Emergency Rooms because there were no doctors who
could afford the insurance required to staff them. Big time
change.
Obstetricians in many parts of the Country are giving up
delivering babies because of the cost of malpractice insurance.
In some cases the premium was higher than their previous years'
gross income so what choice did they have? Surgeons in some
areas are refusing to do high-risk procedures. Doctors are
leaving practice or moving to other States because of the
malpractice climate.
Neurosurgeons, already in short supply, are leaving areas
where premiums and claims are notoriously high.
There was a sign at the north end of Mississippi at one
time that said, ``Please drive carefully. The next neurosurgeon
is 500 miles away.''
The result is not only are cost of health care increased by
high law suit awards and the resultant increased liability
insurance premiums, but access to quality health care is
dramatically affected.
I have only scratched the surface. Much needs to be done.
There are many causes for the alarming increasing costs of
healthcare, as we have heard by the previous testimony, in the
United States and in other countries, too. It is very hard to
control. The contribution of this one can be slowed if not
totally controlled by appropriate and prompt tort reform laws
as has been shown in California and Colorado. This is one thing
we have a little control over.
Federal legislation to establish parameters for tort reform
has been passed in the House of Representatives, I have in my
records, nine times and the Senate has failed to confirm the
wisdom of the House in each and every case. States have been
slow to face the problems through legislation or good
legislation has been passed only to be overturned by the
courts. The voters in Texas were so frustrated that they passed
a Constitutional Amendment to establish caps on non-economic
damages with the result of sharp decreases in insurance costs.
Other measures are necessary to approach this ever-
worsening problem. Because many regard a malpractice claim as a
``Gold Mine'' many non-meritorious claims are filed in hopes
that a settlement will be made to avoid the cost of fighting a
claim. In Colorado over six million dollars a year is spent by
one malpractice insurance carrier to fight non-meritorious
claims. A non-meritorious claim is one which was either thrown
out of court, was dropped by the plaintiff, or was agreed in
some way to not be worth pursuing.
Chairman Musgrave. I will ask you to just wrap up now.
Thank you.
Dr. Cletcher. Okay. The Medical Profession feels strongly
that a patient who has been injured should be compensated
fairly. The fact is that the actual amount the patient receives
is so often much less than the actual award because of the
legal fees and other costs of obtaining a judgment.
In summary, we are faces with a problem that can be greatly
improved. The problem is the significant increase in healthcare
costs due to large liability judgments and the attendant
increase in insurance premiums across the board for healthcare
providers and industry at all levels.
It can be improved by enacting fair and effective tort
reform laws in each state or, in their absence, by the federal
government; reducing the number of non-meritorious lawsuits by
the use of ``Blue Ribbon'' panels or Healthcare Courts; by
placing more healthcare decisions in the hands of the patient
and their physician; by the use of Health Savings Accounts and
establishing a good doctor/patient relationship with more
comfortable insurance environments; and by removing the legal
roadblocks that prevent the truly injured patient from
receiving fair compensation.
[Dr. Cletcher's testimony may be found in the appendix.]
Chairman Musgrave. Thank you very much.
Deb Tamlin, you are up next. Thank you for being here
today.
STATEMENT OF DEB TAMLIN, ZTI GROUP
Ms. Tamlin. Thank you. Chairman Musgrave, Congressman
Shadegg, I want to personally thank you for your work on this.
I know both of you have been real committed the last several
sessions to pass something and we hope that the Senate will
agree one day.
My name is Debbie Tamlin and I am a realtor in Fort Collins
and I own my own real estate company. I am speaking on behalf
of more than a million members of the National Association of
Realtors. NAR is the largest trade association in the United
States. We have members that are engaged in every type of real
estate profession. I do commercial real estate myself
personally. We have a lot of residential members.
I appreciate the opportunity to share thoughts on the
challenges that face small businesses and the smallest of the
small business, the self-employed in finding affordable health
insurance coverage.
Unlike other issues that NAR has testified in the past,
NAR's members' interest in this is personal. It is not one for
the consumer and a lot of the other issues professionally that
we work on. Real estate sales is the prototypical small
business. I am a small business person. I have five employees
and I do offer healthcare coverage for each of them.
It is tough sometimes to sit down and try to be evenhanded
with it when you have older people that require higher
expensive insurance as opposed to the young people starting. I
try real hard to be evenhanded with how we give out our
benefits.
Real estate agents are independent contractors. They are
not employees of firms of which they are affiliated but, in
fact, usually a firm of one. Our shareholders are our families.
We are not large businesses. As a consequence, real estate
agents are typically forced into the individual insurance
market, a market that is basically a take it or leave it
proposition. There is no leverage and there is no negotiation.
Today 28 percent of realtors, more than one in four of our
nation's 1.2 million to do have any health insurance. In seven
years the percentage of uninsured NAR members more than doubled
going from roughly 13 percent of the members in '96 to 28
percent in 2004. By comparison the percentage of the U.S.
population without health insurance coverage was estimated to
be 15.7 percent in 2004. The percentage of uninsured realtors
is almost double that of the nation.
Twenty-eight percent of our membership are individual
members. If each of these individuals is uninsured, it is
likely that the other 1.6 persons are spouses and children and
an average realtor householder also uninsured. Therefore, we
could expect that as many as 873,000 members and their
dependents are uninsured, as well as all of our employees. I
was uninsured for seven years. It is a tough place to be and I
thank heaven that I have health insurance.
When asked why they are uninsured 74 percent site the cost.
We publicly support and will do what we can wholeheartedly to
help you pass the Healthcare Choice Act. Thank you Congressman
Shadegg very much. I think we have been there trying to push
back in D.C. In fact, the last time I saw Congresswoman
Musgrave we were working on that very issue.
Madam Chair, NAR members believe that powers granted to
trade organizations should be the equivalent granted to large
employers or trade unions when it comes to negotiating for
quality and uniform national health plans for the constituents
regardless of where they live. As a result, NAR members
strongly support the small business plan including House Bill
525, Senate Bill 406, and more recently Senate Bill 1955.
Small business health plans are by no means the silver
bullet that will solve the nation's health insurance problems.
It is important that we all sit down and work together to have
a solution. We are heartened by the fact that this is exactly
the approach that Senators Enzi and Nelson have set down and
tried to put opponents and proponents together.
This addresses most of the concerns that traditionally have
been raised including state regulatory oversight mandates and
fiscal insolvency. NAR is committed to working to advance what
we believe can be very effective insurance delivery systems. If
SBHPs are approved, we will be one of the first to be in the
discussions with insurers to craft a quality health insurance
package for our realtors members nationwide.
Once again, thank you for giving NAR the opportunity and
myself a place at the table. Thank you.
Chairman Musgrave. Happy to have you here today.
Now we will hear from Allan Jensen from the Health
Underwriters. Welcome to this hearing today.
STATEMENT OF R. ALLAN JENSEN, NATIONAL ASSOCIATION OF HEALTH
UNDERWRITERS
Mr. Jensen. Thank you, ma'am, and Congressman Shadegg. Good
afternoon. As a sidebar, Congresswoman Musgrave, I would like
to thank you and your staff for entertaining our group in
Washington at the end of March. We had a nice chat with your
staff. Unfortunately, you weren't there. We were watching you
on the TV down on the floor.
Chairman Musgrave. At least I have an excused absence.
Thank you.
Mr. Jensen. Again, my name is Allan Jensen. I am an
independent broker of health, life and senior insurance
products. In my health insurance practice I specialize in
individual and small group insurance sales. I have been a
licensed health insurance agent in Colorado for 15 years.
My colleagues and I deal directly on a daily basis with
thousands of consumers of health insurance and the carriers
that provide those products. In fact, we also deal with
providers often in their roles as consumers of health
insurance. All together we get to hear and discuss first hand
the needs and desires of American consumers probably more than
any other organization. We are the integrators and educators
within the health insurance industry.
I will bracket my remarks by noting that healthcare is not
expensive because of the cost of health insurance, rather it is
health insurance that is expensive because of the cost of
healthcare, and not coincidentally because of the costs of
mandates placed upon these products.
The Colorado State Association and the National Association
of Health Underwriters seek to address these questions of cost
while also striving to maintain consumer choice and the
viability of a vigorous private market of health insurance
products.
I will take a page from Mark Hillman's testimony because,
as you will see in the written remarks, everything that he said
is going to be in there, too, so I will skip down a few pages
on the market reform issue.
I will bring up the fact that beginning September 1st as
one example of market reform a major national carrier here in
Colorado is introducing an entirely new set of plan designs for
the small group market very competitively priced to secure
major market share. There are a host of other examples.
New and innovative concepts in the design of health
insurance products will also help improve competition and
buttress the overall strength of the small group marketplace.
One such innovation was proposed in this past Colorado
legislative session where a simple two-word modification of
existing statute allows carriers to alter the participation and
contribution requirements. In less than four months we have
seen the introduction of improved choice options from multiple
carriers with lower price points.
Vigorous competition, new and creative plan design, and
consumer choice are working together to improve and stabilize
the small group market. Our association is always welcoming of
greater competition and would like nothing better than to see
more carriers enter our market. Without such competition,
healthcare costs would surely rise more rapidly.
A key element in promoting healthy markets and competition
is the availability of easily accessible information regarding
price and quality. The lack of good information in these areas
plagues the consumers of healthcare. In the last legislative
session in Colorado a bill was passed requiring hospitals to
post an annual report card.
This is one good step but more needs to be done to make
pricing and performance data broadly transparent. Many
insurance carriers are voluntarily beginning to post cost data
on their websites. Some efforts at the federal level in both
Medicare and Medicaid show promise and other proposals before
Congress need to be advanced in this regard. This will all play
into the business of consumerism.
Regarding Association Health Plans, not all health coverage
ideas are good for the market or useful to consumers. NAHU
specifically opposes proposals to create Association Health
Plans that are exempt from health insurance benefit mandates
and state rating laws, or are exempt from fully insured
requirements. We are concerned because unregulated AHPs would
have a pricing advantage over the fully insured small group
markets already operating in the states, thus creating a
distorted playing field.
One unintended consequence from unregulated AHPs might well
lead to the reduction of choice for consumers by driving fully
insured carriers from the market. Two specific areas of concern
with AHPs would be the elimination of requirements at the state
level for capital reserve requirements as well as claim reserve
requirements. NAHU does not have a formal position on H.R. 2355
as our membership is split nationally on the idea of allowing
the sale of individual health insurance products across state
lines.
This attempt to provide relief for states primarily in the
Northeast where individual markets are hampered by both
guarantee issue and community ratings doesn't necessarily help
in other states. There are a number of significant issues that
cannot be overlooked, not the least of which is the state
oversight of insurance.
The bill attempts to ensure the integrity of this
oversight, but the problem of complaint resolution for people
in one state appealing to another state's insurance oversight
authorities is highly problematic. Though a particular state
might be a good place to domicile for business purposes, could
or would that state be willing to oversee consumer complaints
from other states in a manner that is as consumer-friendly as
in the local model.
In Colorado individual health insurance products are not
required to be sold on a guaranteed issue basis and medical
underwriting and exclusion riders are allowed. In tandem with
this we have a high-risk insurance pool in the form of
CoverColorado to provide guaranteed access to individual health
insurance coverage for people who are ``uninsurable'' in the
private marketplace.
Recent improvements passed by this year's legislature
allows greater rating flexibility in CoverColorado which should
lead to lower rates promising guaranteed coverage to a much
larger pool of uninsureds.
Another positive development in the arena of health
insurance products has been the advent of Medical Savings
Accounts in the late 1990s and now with the improved benefits
offered with Health Savings Account qualified plans. These
insurance products--
Chairman Musgrave. If you could wrap up, please.
Mr. Jensen. --are an important product for consumers. I
will reiterate what Dr. Cletcher said about medical liability
reform. That is kind of a word-for-word conclusion here. We
would like to thank you for this opportunity to talk to you
today and I will stand to answer any questions you might have.
Thanks.
[Mr. Jensen's testimony may be found in the appendix.]
Chairman Musgrave. Thank you. To all the witnesses, all of
your testimony will be in the written record if you didn't get
to give it all.
We will hear from Gail Snyder now. Thank you for being
here.
STATEMENT OF GAIL SNYDER, SNYDER INSURANCE AGENCY
Ms. Snyder. Thank you so much. Allow me to introduce
myself. I am Gail Snyder and I have the pleasure and honor of
working for my husband, Bob Snyder, through his farmer's agency
as a specialist in life and health insurance primarily working
with individuals and small business.
The three areas that I would like to touch on are the
Health Savings Accounts, Association Health Plans, and the
Healthcare Choice Act. Since the introduction of Health Savings
Accounts, HSA's, the health insurance industry has undergone
several changes as has the insured community. The industry is
seeing a tremendous increase in the number of businesses and
individuals purchasing these qualifying high deductible health
plans and an increase in the opening and funding of these
accounts.
Employers are saving between 20 and 40 percent off their
monthly premiums and many are passing some of that savings on
to their employees by assisting in funding the employees'
accounts. For employers who are already offering health
insurance to their employees as a benefit this has become a
viable cost containing effort. I commend the creativity and
foresight that brought these to the industry. Thanks. It is
becoming a very useful tool.
Regarding Association Health Plans, the Association Health
Plans that I would like to speak directly to are small
associations, something along the size of our local chamber. At
first glance they can be appealing. However, once the plan is
in place there is a high probability of rapidly increasing
costs and diminished participants. Individuals wanting health
insurance are typically better served through individual
policies where there are fewer mandates in coverage and,
therefore, lower premiums.
If these individuals are unable to obtain insurance on
their own due to pre-existing medical conditions, they seek
alternatives such as Group Insurance. When evaluating the cost
of Group Insurance, small business owners oftentimes see the
premiums as unaffordable and cry out for an Association Health
Plan, under the misconception that there will be lower
premiums.
These types of plans need to be entered into with
tremendous caution. The benefit Group Insurance has over an
Association Health Plan is the risk pool is much larger. There
again, I am speaking towards the smaller associations. An
insurance carrier can offer a group plan to a state-wide
audience of tens of thousands, whereas an Association Health
Plan may be offered to only a few hundred. The rates are based
upon participation and claims.
A single catastrophic health condition, such as a premature
baby, can be tolerated much better at the group level than it
can for an Association Health Plan. A single shock claim could
raise the Association Health Plan premiums to the degree that
participation would rapidly decrease. This leaves an even
smaller risk pool behind to bear the cost of healthcare. It
becomes a death spiral for this plan.
Any type of national Association Health Plan could create a
guaranteed issue coverage similar to the Business Groups of One
here in Colorado. It has proven to be disastrous. When Business
Groups of One came in, as Mr. Hillman stated, we had 84
carriers. Business Groups of One guaranteed issue we now have
10. It has proven disastrous. Other states that have tried
guaranteed issue insurance find that part of the problem here
is adverse selection and fraud.
Allow Business Groups of One to purchase Association Health
Plan coverage would prove equally problematic increasing the
likelihood of plan failure and resulting in significant cost
increases for all the state small group market participants.
A potential alternative would be for professional business
associations to be considered a ``group'' such as the local
chamber if we use that size as an example if they are
considered a group for the purpose of purchasing health
insurance. I don't recommend this either, though. The
association would then bear the responsibility as an employer
rather than an association having all of the liabilities put
upon the association which those liabilities could then cause
the association itself to default.
Under that evidence there is no specific evidence that
states Association Health Plans would have lower premiums. I
would not encourage that action. I would also caution, however,
that nationwide large corporate insurance plans, such as what
you are recommending, could be offered. But what would make
them greater as an offering than what the unions or our larger
retail chains are offering their employees? What specifics will
those plans contain that make them a viable plan?
The last point would be healthcare choice, H.R. 2355. It is
my understanding that this legislation is being considered for
the purpose of allowing individuals to purchase health
insurance across state lines. There are several states that
have passed overburdening legislation for the health insurance
industry and have caused crisis situations for their respective
states.
This legislation has been conceived as a mechanism to bail
them out of their own mire. I do not believe this is the
solution. We get back to the magic wand. If we could raise that
wand and undo the things that have created those crisis in
those states, they then can solve their problems. Each of these
states needs to recognize the situation they have put
themselves into and attempt to reverse those misconceived
health insurance initiatives.
Chairman Musgrave. If you could just wrap up, please.
Ms. Snyder. To every legislator who believes he or she has
a new very important mandate to add to the insurance industry,
mandates come with a cost and that has been said multiple
times. For the consumer this particular legislation has even
greater potential problem. In order for it to be successful
each insurance carrier must have access to a nationwide network
or go back to a reasonable and customary so that you are not
seeing someone out of network because your state insurance
happens to be through Arkansas while you live in Colorado.
The other issue with this is insurance licensing. In order
for me as an insurance agent to sell into a state plan that is
not a Colorado state plan, do I then need to be licensed in all
50 states, or does there become a national insurance broker
producer licensing system. Thank you so much.
[Ms. Snyder's testimony may be found in the appendix.]
Chairman Musgrave. Thank you very much.
As you can tell, the witnesses here have differing opinions
and I think that is very good that we bring our ideas to the
table.
Congressman Shadegg, I know you have just been ready to
question here so go ahead. You go first.
Mr. Shadegg. You are going to let me go first.
Chairman Musgrave. Yes.
Mr. Shadegg. Okay. Well, I will simply start by saying I
think you have an extremely well-informed and knowledgeable
panel. I appreciate the testimony of all of them. Quite
frankly, I am not certain how many questions I have. I may have
a series of comments. Let me just go through some that occur to
me immediately.
I think Chris Boesch raises a great question. That is, how
is it that we decided as a nation that it is the employer's
function to provide health insurance or provide healthcare. I
have been answering the question for a long time, or looking at
the answer to that question for a long time.
Before I give the answer, however, of how we got there, let
me talk about how anomalous it is. I would bet there is not a
person in this room who is provided by their employer, or if
there is there is only one, their auto insurance policy. You
don't typically go into your job and say, ``I want to apply for
a job. Oh, by the way, if I get a job here what are you going
to provide me in auto insurance?''
Same is true for homeowners insurance. You don't go to your
employer and say, ``Now, if I take a job here, how are you
going to cover my home?'' We have decided that the American
people can buy auto insurance on their own. They can buy
homeowners insurance on their own. They can buy disability
insurance on their own. How is it that we have decided that
they cannot buy or should not buy health insurance on their
own?
I believe there is consensus on this point. There are
disagreements on some of the other issues in healthcare reform
but there is consensus on this point. The reason that most
health insurance in America is employer based is an historical
anomaly. It comes out of War World II. At a point during War
World II the federal government stepped in and imposed wage and
price controls. They said to all American businesses, ``You may
not give wage increases and you may not have price increases on
your products without going to the federal government and
asking for approval.''
American business being ingenious as it is, particularly
small business, but all American business being entrepreneurial
in nature, went to the government and said, ``Well, wait a
minute. How are we going to attract and retain the best and the
brightest in our business? What if we decided instead of giving
them wage increases we instead gave them a benefits package?''
The federal government mulled this over and came back and
said, ``Yes, you may give them benefit packages and you may do
that without government approval.'' Suddenly American business
was told, ``If you want to give your employees a thousand
dollar a month or a thousand dollar a year increase, the
government has got to sign off on that. If you want to give
them a benefit package (and at this time if was any kind of
benefit, but healthcare rapidly became the most attractive
benefit in America) you do not have to go to the government for
approval to give that benefit package.''
The second thing is that employers then immediately went to
the IRS and there is an IRS ruling which I can provide to you
which answers this question and said, ``If we do decide to give
our employees $1,000 a year healthcare benefit package, are you
going to tax that?'' The federal government in an IRS ruling
that is still on the books today came back and said, ``You know
what? We won't tax that. The cost of that benefit package will
be an expense to your company deductible as any other expense,
but it will not be income to your employee.''
It didn't take American business very long to figure out,
``Oh, my gosh. If I hand my employee--after World Ward II they
could give out wage increases. ``If I give them a thousand
dollar salary increase, the government is going to tax that and
it is going to take at least a third of it.'' In some instances
we all know it is two-thirds of it. ``But if I give them $1,000
in healthcare benefits, the government is going to tax zero of
it.''
Not only did American businesses quickly figure out, ``This
is a great idea. We will hand out benefits,'' but American
employees figured out and American unions figured out, ``If we
negotiate for an extra $1,000 for our employees, they will get
maybe $700. If we negotiate for an extra $1,000 in healthcare
benefits, they will get $1,000 in healthcare benefits.'' That
is how we got to the situation where healthcare in America is
the responsibility of employers.
I strongly believe, and there is not time here to go into
it, that we need to challenge that concept. We have raised the
belief in America that the only appropriate pooling mechanism,
and we have had some discussion here about pooling mechanisms
and the dangers of having a too small pool or a pool that was
created without careful thought of who could get into that
pool, and somebody used the phrase ``death spiral'' which is a
term used to describe a pool that becomes too small and is
populated only by the sick and the healthy leave it, we have
created this notion that the only pooling mechanism can be
employers. I suggest that is something that in this debate we
ought to reexamine.
I guess the next point I want to make is I want to go,
Mark, to your point about refundable tax credits or about
deductibility. It is outrageously unfair in America that we
treat big business different than small business. It simply is
unjustifiable. You heard some testimony here about people who
say, ``Yes, there are ideas that would put small business on
the same playing field with big business when it comes to
health insurance.'' Association health plans is an idea to do
that.
Two witnesses criticized Association Health Plans because
they think that might be a mechanism to try to place small
businesses on the same playing field as big businesses and
those criticisms could be valid. I, for example, agree that
moving more regulation of the healthcare market to the federal
government, which Association Health Plans does, is a bad idea.
It is an aspect of AHPs I don't happen to like. But it is
really unfair to say if you are General Motors or you are
Honeywell or you are Intel, you can offer a fantastic plan to
your employees no matter where they are in all 50 states. You
heard a couple of people say when we do that, we are taking
them out from under state regulation. I have a flash. Every big
employer who offers healthcare benefits to their employees in
Colorado is regulated by the State of Colorado Insurance
Commissioner to the extent of zero.
If you work for General Motors in Colorado or Delco or
General Electric or you pick any other large national employer
and you have a problem with your healthcare plan, don't waste
your time driving down to the Colorado Sate Health Commissioner
because he will tell you, ``It is not my problem.'' Federal
government took this one away a long time ago under a law that
I believe you mentioned, or somebody mentioned, ERISA.
But it is simply outrageously unfair to say the big guys
get a break, little guys don't. Think about this one. We say as
a nation to every American, ``You really should be insured.''
There was a discussion here about, I think it was your comment,
Mark, the Northern Colorado Medical Center has a--no, I am
sorry. This was the gentleman from the beer industry--has a bad
debt ratio of 9.7 percent. You know what? It is not that they
are bad at collecting bills. It is that the United States
Congress has said to them, ``Anybody that shows up in your
emergency room gets free healthcare period.''
Now, let me see if we understand this. We don't want people
to go to the emergency room for free care. We want them to buy
health insurance but for everyone in this room who can't pay
their employees' health insurance, can't provide healthcare
coverage, we say to them, ``Here is what a good deal the
federal government is going to do for you.''
The guy next door, this woman that has just five employees
and she gives her employees healthcare, that is paid for with
pre-tax dollars. That is, the cost of the healthcare that she
gives to her employees is paid out before she pays taxes so you
don't pay tax on that. But anybody here whose employees don't
get employer based healthcare, they have to pay it after tax
dollars.
That means it is at least a third more expensive. It is
outrageously unfair. I personally have a bill called the
Patient's Healthcare Choice Act which would go at many of the
comments that were made here today.
It is different than the Healthcare Choice Act which goes
at an interstate market for healthcare but this instead talks
about giving a refundable tax credit to every American to
purchase healthcare so we would no longer have the anomalous
situation where if you are lucky enough to work for a big
employer, your healthcare is paid for with pre-tax dollars.
If you are unlucky enough not to work for an employer who
provides you healthcare, you have to use post-tax dollars which
need to cost at least a third more. I guess in a way I am just
kind of going left to right following through my notes.
Dr. Cletcher, you mentioned a number of things that can
deal with the extreme cost of litigation on the system. You
talked about the point of non meritorious claims. You did
mention that Colorado has passed some good tort reform. One of
the reforms I advocate looks at the issue of non meritorious
claims. The vast majority, for example, of medical malpractice
cases are dismissed outright. Either they are dismissed before
they go to jury or the jury finds for the defense making the
point that they were non meritorious claims.
Arizona, unfortunately, has not enacted healthcare reform,
litigation reform in the healthcare arena, or any other arena
because our constitution complicates that and would require a
constitutional amendment for us to enact caps or any other
reform that would go at litigation cost. Do you know if the
State of Colorado looked at the issue of loser pays?
Dr. Cletcher. Yes, they have. One of the best ways to avoid
non meritorious claims is to have a firm doctor/patient
relationship. If I have a doctor for 20 years and something
adverse happens, usually the doctor says, ``Look, this
happened. Let's talk about it.'' The patient will probably not
elect to initiate a claim. I think that is what has happened to
the system is we don't have that relationship anymore when
managed cares organizations and other entities will dictate the
choice of physician to a patient.
Corporate insurance is more or less what you would call a
captive insurance company for malpractice claims in the State
of Colorado. They have looked at loser claims but they have a
better program, I think, right now in that anytime an adverse
occurrence occurs the physician will notify the insurance
company and the insurance company with that physician will
contact the patient and try to work out the most comfortable
solution for that patient.
In other words, if they are missing work rather than take
that penalty which is a non litigated penalty, they will assist
them with living expenses and other assistance to work it
through. They will readily make a settlement in a claim where
there is clear malpractice so it does not enter into that. Even
in spite of that we still have $6 million worth of litigation
expense to handle non meritorious claims.
This isn't exactly an answer to your question about loser
pays. It has been suggested and, I think, Mark, you might know
more about that. There have been, I think, bills that have been
introduced into legislature that to my knowledge has never gone
anywhere. It is kind of considered not fair game. The Lawyers
Association don't like that too well. That is basically it. We
can go on and on with it but that is it essentially.
California was the one that introduced the first microlaw
which is the one that limited the caps on noneconomic damages
and things like that and was so successful there that other
states have tried to emulate it. Fortunately, Colorado is
probably pretty close to next in line on the whole thing.
The tragedy is that a lot of states have enacted some
really good laws, or at least in part, trying to solve this
problem and then the State Supreme Court will come along and
set it aside as being not constitutional in that state. That
battle goes on. Well, I won't reiterate it. I have a lot more
information on this.
Mr. Shadegg. Actually, for anybody on the panel, it sounds
to me like at least if Colorado has that kind of structure
where the insurance company and the doctor then contact the
patient who has alleged an injury, it sounds to me like there
must be something like an ``I'm sorry'' provision. Arizona does
not have an ``I'm sorry'' provision. Anybody here have
knowledge of what you have on that issue?
Mr. Hillman. Colorado in the same year that we closed a
couple of loopholes created by our Supreme Court actually
passed an ``I'm sorry'' provision to allow a doctor to have
that conversation with the patient and it not be used against
him later in a proceeding.
Mr. Shadegg. I think it makes a lot of sense. I have
supported it in Washington. It is kind of anomalous, it seems
to me.
I do agree, doctor, that the destruction of the physician/
patient relationship, which you have spoken about already, I
think does encourage lawsuits as the first mechanism to address
a grievance. I think the absence of an ``I'm sorry'' provision
does that as well. Lots of times people if they simply
understood that the doctor felt badly about something that may
have gone wrong, humans are humans and they are going to make
errors, you can go a long way towards solving this problem.
Yet, the tort system, for example, in my state where we
have no ``I'm sorry'' provision makes that near impossible. A
doctor can't even think about stepping forward directly or
through his lawyer and saying, ``We regret that this happened
and we are sorry that you are suffering,'' because that
immediately would come into court.
Dr. Cletcher. As regards to doctor/patient relationship, it
is pretty hard to sue somebody that you have known for 10 years
and trust. When you don't even know that person, when a patient
really has been treated by a doctor that maybe saw him once or
twice, never saw him again and can't even remember his name, it
is amazing how many people don't remember the name of the
doctor that took care of them. It is pretty easy to see
somebody like that because they don't really exist. They are
just an abstract figure.
Mr. Shadegg. I don't know what my time limit is but just a
quick comment on that point. As you and I have privately
discussed, I personally believe that employer-based healthcare,
at least where it is not an indemnity plan, your employer picks
the plan and assigns you to the plan, the plan picks the doctor
and assigns the doctor to the plan and the doctor you get is
not as a result of your choice and on any given day you can be
told, ``I'm sorry. The doctor you have been going to for the
last three years you may no longer go to,'' I think has done
immense damage to the physician/patient relationship and
encouraged this kind of litigation.
Dr. Cletcher. I will be honest with you. That is the key.
That is the secret. That is the touchstone that has destroyed
the healthcare system in the United States right there.
Mr. Shadegg. The legislation I have tried to introduce
tries to go toward consumer choice and patient choice and put
people back in the position where they can pick their own
doctor. One of the bills that I introduced that might be of
interest to a number of you, somebody on the panel said workers
don't appreciate the value of the insurance.
The broader legislation that I introduced called the
Patient Healthcare Choice Act would say to all employers in
America once a year when you are renewing your insurance
policy, or at some point in the calendar year, you would go to
your employees and you would say to them, ``We are spending
this amount on your health insurance,'' and you base that
calculation on their age, their sex, and their geographical
location because those are the major factors in the cost of
health insurance policy.
You would be obligated to say to the employee, ``This is
the amount we are spending on your health insurance. You have
90 days to go look for a policy. If you choose, you can take
that amount of money and you can go buy your own policy with it
and not take our insurance plan out of the company. If you
decide after that 90 day expiration period that you can't find
a better insurance policy, of course, then you will remain when
we renew it in our plan.
One of the advantages I see in that is that lots of
employees have no appreciation for how much health insurance
cost, how much you are spending on health insurance. A lot of
people say to me, ``Look, Congressman, in today's health
insurance market nobody is going to be able to go out and get a
better policy than they can get through their employer.''
I don't personally believe that is true. I believe that if
we gave them that possibility many of them would find more
attractive policies. Let us assume it is true. Can you imagine
if all your employees came back to you at the end of that
period and said, ``My gosh, you are giving me the greatest deal
in the world. I couldn't get anything close to it.''
I don't know how we are doing on time and I don't want to
abuse my privileges. Let me just conclude with a couple of
quick comments. I would be happy to discuss in detail some of
the issues raised here about the Healthcare Choice Act. A lot
of people do call it interstate health insurance purchase and
it really is not. That is a mischaracterization of the policy.
The policy would be filed in the state where it is to be sold.
It does under the bill have to be governed by a great deal
of the provisions of that state's law. For example, the
consumer fraud protections of the Colorado policy would apply
in whole exactly as they are. The Colorado law would apply to
the policy no matter where the policy had been originally
qualified. The notion that those consumer protection laws
wouldn't apply is incorrect.
In addition, the remedy, just to answer another question
that was raised, the remedy is with the insurance commissioner
of the state where the consumer lives. Let us say the Goodwill
Insurance Company filed a policy in, we will say, Illinois and
qualified it under Illinois law, they then bring it to Colorado
and they have to file it with the Colorado insurance
commissioner.
The Colorado insurance commissioner gets to look at it and
make sure that it satisfies those pieces of Colorado law it has
to satisfy and it satisfies the Illinois law. Then a consumer
buys that policy. They buy it here in Colorado. The answer to
the last question, they can only buy it from a licensed
Colorado insurance salesman so there would be no national
licensing of insurance salesmen.
You would sell that policy in the state under Colorado
licensing practices and continue to be governed by Colorado
licensing practices. Then the regulation if there were a
problem with the policy would be by the Colorado insurance
commissioner. It is, in fact, a completely new idea. It is a
way to try to bridge that point that was brought up a little
bit earlier about, ``Do you want federal regulation of health
insurance or do you want state regulation of health
insurance?''
In every respect where we could we tried to leave state
regulation in place, in part because of the point that both of
you make about association health plans. ERISA took all this
large employer health insurance out from under. People say,
``Oh, my gosh, Congressman. If Colorado had a benefit mandate
for acupuncture and an Illinois qualified policy were brought
here and sold and it didn't offer acupuncture, then you would
be saying to people in Colorado that they could buy a policy
that didn't cover acupuncture and they would be getting out
from under a Colorado state mandate.''
I have a flash for them. Everybody that gets their health
insurance from a large employer, General Electric, General
Motors, governed by ERISA, no Colorado benefit mandate is
covered under those policies. I guess I will conclude, Madam
Chairman, by saying that I actually share Mark's biggest
concern about the concept of allowing an insurance policy to be
brought here and sold here and that is once you let the federal
government into like you let the federal government into ERISA,
there is the danger that sudden wheels start mucking around and
saying, ``We didn't cover as a mandated benefit X when we first
passed it back in 2006 but now we think we really should have a
federal benefit mandate for whatever that is.
Chairman Musgrave. Thank you very much. I would just like
to say to Debbie Tamlin, you kind of put a face on realtors
that most people don't think about. I don't want to show
anything preferential here but, quite frankly, they see a Remax
sign or Century 21 and I don't think--I believe you said you
had five employees. They don't think about a small business
owner facing the obstacle of trying to come up with enough
money to provide health insurance for your employees. Could you
elaborate on that a little how it affects you when you are out
there as a small business owner?
Ms. Tamlin. I compete for my employees with HP and Bush and
these guys at Fort Collins so the larger companies can provide
benefits as a package. To get the quality employees that I want
to work with me, I want to be on a level playing field with the
larger employers so I work real hard to do that. Most all of us
are commission based. I took six weeks off from my company when
I had my neck fused and that meant there was six weeks nobody
was producing income from my company.
I had put the surgery off for 11 years, a long time until I
couldn't do it any longer because you are shutting down the
income producing function for your company. It is a huge thing
because my company is commission based. The income is not
regular and, yet, I have payroll to meet and I have benefit
packages that I want to compete with so I have the quality real
estate company that I do have. It is important.
Chairman Musgrave. Thank you.
Dr. Cletcher, I recently talked to other orthopedic
surgeons and, you know, now you hear a lot about hip
replacements and knee replacements. When we talk about these
prosthetic devices whether you have anchors in a shoulder when
you have rotator cup surgery or knee replacement, I don't think
a lot of people think about the liability associated just even
with the prothesis much less your actions as a surgeon. Could
you speak about that a little bit?
Dr. Cletcher. Let me put it very simply. Suppose I come up
with a new design for a hip replacement and it works pretty
good. Then somewhere down the line after having put in about
4,000 or 5,000 of them, they find that there is a design defect
which after five years has caused several of these to fail,
maybe as many as 20 percent or 25 percent. Now, these devices
are scrutinized to the ultimate. They are x-rayed.
They are put under stress. They are put in testing
machines. There is an enormous amount of effort that goes into
developing these devices to try to prevent this very thing from
happening. Say if you put in 6,000 of them and 30 percent of
them have failure rates of some degree may not be entirely due
to the prothesis itself. It may be to some other problem that
has arisen that has shown up in this number of cases.
Not only is the physician sued, the hospital is sued, but
the manufacturer is sued with settlements from the manufacturer
maybe in terms of let's say many, many thousands of dollars. I
am not going to say a million dollars because in some states
that is exactly what happens, $1, $2, $5, $10 million and that
sort of thing. Add that times 2,000, what have you got in
claims that can rise just from this one thing?
This is what I say about medical devices. Pacemakers,
another very, very precarious market where there has to be a
lot of insurance against the unforeseen happenings. Remember in
malpractice and in device failure it may not be through
anybody's fault other than the fact that there is a statistical
rate of failure in almost any medical procedure or
intervention.
If those are classified due to negligence or to some
manufacturing defect, that is one thing, but many times awards
are given in these cases because the jury feels sorry for the
person who has been unfortunate enough to have one of these
unforeseen unavoidable events. This is just another bunch of
beans that are poured in the pot and have to be mixed up, you
know, before you can get it all done.
Chairman Musgrave. Well, Mr. Shadegg, do you have any
closing remarks that you would like to make?
Mr. Shadegg. Just, again, I think this is an extremely
knowledgeable panel. You could wish that everyone's comments
were covered because I think it was a very good debate. All
Americans need to learn these issues. I think it was a very
informed debate and a good discussion of how we address these
concerns. I am very impressed with the panel and with your work
to try to address this problem which confronts every American
and every American small business.
Chairman Musgrave. Yes. We know the small business is where
most job creation takes place. Having been a small business
owner myself, I can identify with many of these issues. I
believe that Congress can come up with solutions to these
problems. My main concern is that we better come up with them
quickly with the input of people around the nation before we
move to a nationalized healthcare system.
Many of the problems that we talk about, patient choice,
and I really believe, Dr. Cletcher, it is a call on your life
when you go into medicine. We were even talking about your
father earlier today. I said did your father burn out and you
said no, you really don't get burned out but you do get tired.
I want doctors to be able to practice medicine and I want
patients to have choices. All the problems that we have now in
that area I believe would only be magnified many times over if
we went to a national system.
Go ahead.
Mr. Shadegg. I did think of one last thought, a point I
meant to make earlier. The media would have you believe and the
trial lawyers would have you believe that the rule in America
where each side bears its own cost regardless of the outcome of
the lawsuit so you can bring a lawsuit, you can sue somebody.
The lawsuit can prove to have been meritless, yet the
defendant, who has spent a lot of money, maybe the producer of
one of those manufacturing devices or a doctor defending
themselves against the meritless claim have to pay their own
cost and, therefore, there is the ability to extort a
settlement. The Trial Lawyers Association would have you
believe that the American rule is the rule in most of the
world.
The English have this notion of loser pay. I think most
American consumers don't know that is wrong. The reality is
almost the entire world has the concept of lower pay and the
provision that each side must bear its own cost is the
exception around the world.
The other point I want to make is a lot of us are looking
at losing lawyer pays. We all know lawyers share the recovery.
The point was paid earlier lots of time there is a large
recovery but the injured patient doesn't get near compensated
because so much went away in attorney's fees. I think we should
be looking at and a number of us are talking about it in
Washington. Not just loser pays but more importantly a losing
lawyer pays.
Nobody wants to punish the genuinely injured for bringing a
claim. If you have a lawyer who consistently brings meritless
claims to extort settlements, there has to be a remedy to that.
I have talked to some very, very good tort lawyers who say,
``Those of us that are good at this won't take a meritless case
and we have no problem with that kind of remedy.''
Chairman Musgrave. Good. That would be kind of a relief, I
believe, when we bash lawyers all the time to hear that some
would even go for that. I thank you for your testimony today. I
appreciate the diverse opinions that we have heard from our
panel but all very well founded. I wish we had more time. I
wish we could talk to orthopedic surgeons and talk about how
when they--I don't know, would $18,000 be right for a knee
replacement or something?
Dr. Cletcher. Are you talking about my knee replacement?
Chairman Musgrave. I didn't know you had a knee
replacement.
Dr. Cletcher. Oh, I do, yes. $40,000 is probably right at
the actual cost factors. Managed care will bargain it down to
probably half that. Of course, the hospital is working on a
very thin margin. Medicare works on a different scale and so
their reimbursement would be much less than the actual cost if
you went out and bought one yourself.
Chairman Musgrave. It is amazing when you think about
probably what the cost of the prothesis and all of the other
factors figured in, I guess, what the doctor would actually
earn performing one of those. Some on the panel have mentioned,
you know, why health insurance is so high. It is because our
healthcare is expensive. Also we would be remiss today if we
didn't say that it is expensive because it is the best
healthcare in the world.
I can see the doctor just has to say something. Go ahead.
Dr. Cletcher. I do because you talk about what the doctor
gets out of it. I can tell you it is about a third of about
what the prothesis cost.
Chairman Musgrave. See, those kinds of things would be
important for the American public to know. We need to know what
our healthcare cost and have that broken down so people can
have an understanding of why premiums are what they are. Of
course, we in Congress will do what we can to address these
issues. Thank you for being here with us today. I appreciate
each and every one of you.
Again, thank you Congressman Shadegg.
Mr. Shadegg. Thank you.
Chairman Musgrave. I would also like to thank the staff
that worked on this, Joe Hartz, Small Business Committee, and
Kristen Glenn from my staff. We appreciate you. We couldn't do
it without you. Thank you. The meeting is adjourned.
[At 2:50 p.m. the Subcommittee was adjourned.]
[GRAPHIC] [TIFF OMITTED] 30356.001
[GRAPHIC] [TIFF OMITTED] 30356.002
[GRAPHIC] [TIFF OMITTED] 30356.003
[GRAPHIC] [TIFF OMITTED] 30356.004
[GRAPHIC] [TIFF OMITTED] 30356.005
[GRAPHIC] [TIFF OMITTED] 30356.006
[GRAPHIC] [TIFF OMITTED] 30356.007
[GRAPHIC] [TIFF OMITTED] 30356.008
[GRAPHIC] [TIFF OMITTED] 30356.009
[GRAPHIC] [TIFF OMITTED] 30356.010
[GRAPHIC] [TIFF OMITTED] 30356.011
[GRAPHIC] [TIFF OMITTED] 30356.012
[GRAPHIC] [TIFF OMITTED] 30356.013
[GRAPHIC] [TIFF OMITTED] 30356.014
[GRAPHIC] [TIFF OMITTED] 30356.015
[GRAPHIC] [TIFF OMITTED] 30356.016
[GRAPHIC] [TIFF OMITTED] 30356.017
[GRAPHIC] [TIFF OMITTED] 30356.018
[GRAPHIC] [TIFF OMITTED] 30356.019
[GRAPHIC] [TIFF OMITTED] 30356.020
[GRAPHIC] [TIFF OMITTED] 30356.021
[GRAPHIC] [TIFF OMITTED] 30356.022