[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


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                      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.]
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