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




 
                        HEALTH SAVINGS ACCOUNTS

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 28, 2006

                               __________

                           Serial No. 109-66

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida                  MIKE THOMPSON, California
KEVIN BRADY, Texas                   JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York         RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory announcing the hearing..................................     2

                               WITNESSES

America's Health Insurance Plans, Karen Ignagni..................    11
Commonwealth Fund, Sarah H. Collins..............................    41
eHealthInsurance, Gary Lauer.....................................    25
Lutheran Social Services of Illinois, Larry Lutey................    37
Neighborhood Family Practice, Jean Therrien......................    69
U.S. Chamber of Commerce, and Buffalo Supply, Inc., Harold 
  Jackson........................................................    21
Wendy's International, Inc., Jeff Cava...........................     7

                       SUBMISSIONS FOR THE RECORD

Americans for Tax Reform, Grover Norquist, statement.............   117
Business Roundtable, and Deere & Company, Robert Lane, statement.   119
Coalition to Promote Choice for Seniors, statement...............   122
Consumers for Health Care Choices, Greg Scandlen, statement......   123
Consumers Union, Gail Shearer and William Vaughan, joint 
  statement......................................................   127
Council of Insurance Agents and Brokers, statement...............   132
Ethical Health Partnerships, Dawn Lipthrott, statement...........   134
Food Marketing Institute, John Motley, letter....................   139
Healthcare Visions, Inc., Ronald Bachman, statement..............   141
International Health Racquet & Sportsclub Association, Helen 
  Durkin, letter.................................................   142
National Association of Chain Drug Stores, statement.............   143
National Center for Policy Analysis, John Goodman, statement.....   144


                        HEALTH SAVINGS ACCOUNTS

                              ----------                              


                        WEDNESDAY, JUNE 28, 2006

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:38 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 21, 2006
FC-23

                      Thomas Announces Hearing on

                        Health Savings Accounts

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
Health Savings Accounts (HSAs). The hearing will take place on 
Wednesday, June 28, 2006, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 10:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include experts on health insurance issues, health 
savings accounts and members of the business community. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    On December 8, 2003, the President signed into law the Medicare 
Modernization Act (MMA, P.L. 108-173), which created tax-preferred 
savings accounts for health care expenses that utilize health plans 
with high deductibles and limitations on annual out-of-pocket expenses. 
These accounts are commonly referred to as HSAs.
      
    Under current HSA law, workers under the age of 65 can accumulate 
tax-free savings for lifetime health care needs if they have qualified 
health plans with a minimum deductible of $1,050 for self-only coverage 
and an annual out-of-pocket limit not to exceed $5,250. These amounts 
are doubled for family coverage. Individuals can make pre-tax 
contributions of up to 100 percent of the health plan deductible, and 
the maximum annual contribution is the lesser of 100 percent of the 
insurance deductible or $2,700 for individuals with self-only policies 
and the lesser of $5,450 or 100 percent of the overall deductible, with 
some exceptions, for families (indexed annually for inflation). 
Importantly, the individual owns the account, and the savings follow 
the individual from job to job and into retirement. Upon death, HSA 
ownership may be transferred to the survivor on a tax-free basis.
      
    The use of HSAs has grown rapidly since their inception on January 
1, 2004. Recently released statistics indicate that approximately 3.2 
million people are using HSAs to obtain health care coverage, determine 
how and where they spend their health care dollars, and save for future 
medical needs. This data also indicates many of the people using HSAs 
were previously uninsured prior to buying into their HSA plan, and that 
almost half of HSA plan purchasers have annual incomes of less than 
$50,000. Finally, some argue consumers should be provided with 
accurate, relevant data on quality and prices in order to make informed 
decisions on how to spend their health care resources and save for the 
future.
      
    In announcing the hearing, Chairman Thomas stated, ``For years, too 
many Americans have struggled with the rising costs of health care, and 
too many Americans are entirely without insurance. Health savings 
accounts are helping families and individuals gain better access to 
affordable, quality health care, while encouraging savings for medical 
costs through tax-deductible contributions. Various proposals to 
promote the continued development of HSAs have been offered, but 
obstacles remain in getting consumers relevant information. It is 
important to explore whether more can be done to give Americans access 
to affordable health insurance coverage.''
      

FOCUS OF THE HEARING:

      
    In continuing the Committee's consideration of health care 
financing, the hearing will focus on real world examples of people and 
businesses with experience using or providing HSAs. This real world 
experience will provide valuable insight in the Committee's future 
consideration of HSA adjustments. The panel witnesses will describe the 
key components of HSAs and HSA-eligible health insurance plans. Also, 
the witnesses will provide information on key demographic trends in HSA 
use, insurance premium costs and affordability, and health insurance 
benefit levels. Finally, witnesses will provide testimony regarding the 
impact of HSAs on consumers and business.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
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submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Wednesday, 
July 12, 2006. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
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    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
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Committee relies on electronic submissions for printing the official 
hearing record.
      
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and/or organizations on whose behalf the witness appears. A 
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company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
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with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Mrs. JOHNSON OF CONNECTICUT. [Presiding.] Good morning. The 
Chairman has been detained in traffic, so we are going to 
start; he will be along shortly.
    Today, the Committee will be exploring the growing 
popularity of Health Savings Accounts (HSAs). These tax 
preferred accounts are a tool created by Congress in 2003 to 
give consumers more control over their health care dollars and 
to help combat the rising costs of health insurance.
    Health Savings Accounts, created as part of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 
(P.L. 108-173) provided an opportunity to set aside money on a 
tax-free basis for health costs either now or in the future. 
Contributions can be made by the account owner and the 
employer. Not only is the money tax-free on the way into the 
account, but as long as it is used for health costs, it is also 
tax-free when it is spent. Most importantly, this account is 
the individual's own regardless of whether he or she changes 
jobs, is between jobs or doesn't work at all.
    To contribute to an HSA, you must also purchase a high 
deductible health insurance policy. This type of policy 
protects individuals from catastrophic costs.
    Despite the fact that these accounts have been available 
for little more than 2 years, they are increasingly popular. A 
recent census done by America's Health Insurance Plans found 
that almost 3.2 million people are now covered by HSA plans, 
triple the number a year ago. In addition, the Federal Employee 
Health Benefit Plan began offering an HSA option this year to 
thousands of Federal employees throughout the country.
    Health Savings Accounts can play a major role in reducing 
the number of uninsured Americans. They provide a more 
affordable insurance option without sacrificing quality of 
care. In fact, a recent study by eHealthInsurance found that 
HSAs have broad appeal. For example, it found that almost half 
of HSA purchasers have incomes of $50,000 or less and that 
individuals paid about $114 a month in premiums. Compare that 
premium with the Kaiser Foundation estimate of $335 per month 
for premiums in traditional health plans.
    The Chair believes these accounts can change the way 
Americans consume health care, the President agrees and has 
proposed ideas to increase the attractiveness of HSAs, such as 
making the health insurance premiums tax deductible. As this 
Committee looks at the successes of HSAs, we will explore this 
concept and other proposals.
    I would just like to comment that HSAs have a couple of 
unique strengths. One is that you can spend that money on 
anything under the Tax Code, which provides a far more generous 
series of options than any employer plan, even though in terms 
of what counts toward the catastrophic is constrained. So, it 
gives us a chance to enable families to tailor their health 
care choice to their own families' needs; and that is not a 
benefit to be underestimated in today's world. Fundamentally, 
it simply spends less money on insurance and more money 
controlled by families on health.
    I have had some outstanding experience with HSAs among 
small manufacturers in my district. Success depends on the 
seriousness of the employer in providing resources in the HSA 
account so the employee actually does have a chance to not only 
be kept whole, but also to experience the value of saving for 
large health costs that may come in the future.
    I would now like to recognize the gentleman from New York, 
Mr. Rangel, for an opening statement.
    Mr. RANGEL. Thank you, Madam Chairlady.
    I first would want the panel to know that our colleague, 
Richard Neal, will have to leave at some time before the 
hearing is over. He is going to Arlington to attend the funeral 
of one of our beloved warriors in Iraq that was killed at the 
site when his two colleagues were captured and, of course, 
beheaded; and as tragic as it is, he still is with us. When he 
does leave, that will be the reason.
    I want to thank you for having this hearing because it is 
going to help us find out just how effective these health 
saving plans are; whether or not the employees are indeed 
cooperating; how much would an employee have to save if they 
didn't have disposable income; and what is the cost of the 
medical insurance plans.
    So, helping me with understanding all of this, of course, 
is Peter Stark, and I would like to yield my time to him.
    Thank you, Mr. Stark.
    Mr. STARK. Thank you, Mr. Rangel.
    I think it is time that we had a reality check. These HSAs 
are very much like weapons of mass destruction, and I don't 
think that misinformation is necessarily a lie; it is usually 
just a lack of understanding.
    While it is true that there are over 3 million people 
enrolled in HSAs, the laughable part of that is, according to 
the Treasury figures, or the most recent ones we have, less 
than 100,000 of those 3.2 million people actually opened an HSA 
savings account. They just bought into a high deductible, but 
there wasn't anybody putting any money in their savings 
account, largely because 70 percent of the people who might 
qualify are in the income brackets below 10 percent and the tax 
deductibility wouldn't do that much good anyway, even if they 
had the money to put into it.
    Employers contributing to the HSAs, less than a third do, 
and of the two-thirds who contributed anything, they only 
contribute between 10 and 25 percent of the total deductible; 
and among low-income people, that basically leaves them unable 
to afford particularly the preventive care that they need.
    You have to go to the HSA Finder, Inc. This is some group 
that put out a primer for employers, and basically you score 
should you as an employer offer these things to your employees.
    I would like, Madam Chair, to make this a part of the 
record because it is something put out by the HSA promoters to 
employers, and it proves the point. If you have younger, high-
wage workers, go for it; and what happens, companies with older 
and lower-wage workers are stuck in traditional insurance where 
the rates will go up ever and ever faster. Providers will be 
underpaid, providers will get stuck with the bills, as we will 
learn later from the only witness I think who doesn't have a 
financial interest in these HSAs; and the Administration wants 
again to solve a plan by throwing extra dollars at the very 
rich and ignoring the middle class, as they have done so well.
    [The information is being retained in the Committee files.]
    I guess the only thing better to improve the health care of 
this country would be a constitutional marriage ban or a 
constitutional ban on burning the flag. That would do more than 
anything the Republicans have offered, and particularly more 
than hsas.
    I look forward to most of the nonsense we will hear from 
witnesses with big financial interests in this program.
    Thank you, Madam Chair.
    Mrs. JOHNSON OF CONNECTICUT. Now I would like to recognize 
Representative Beauprez to introduce Harold Jackson from 
Buffalo Supply, Inc., in Colorado. Mr. Beauprez.
    Mr. BEAUPREZ. Thank you, Madam Chair. It is a pleasure to 
have an acquaintance, a friend, a constituent of mine from 
Colorado, Mr. Harold Jackson. He is the President and CEO 
(chief executive officer) of Buffalo Supply in Lafayette, 
Colorado; they are a medical supply company. He actually has, I 
think, a very positive, very real, hands-on, practical story to 
tell us today about the success of participating with HSAs at 
his company and on behalf of, especially, his employees. So, I 
look forward to his testimony and welcome him to this 
Committee.
    Mrs. JOHNSON OF CONNECTICUT. I would like to recognize 
Congresswoman Tubbs Jones, who will introduce Ms. Jean 
Therrien, a constituent from Cleveland.
    Ms. TUBBS JONES. Thank you, Madam Chair.
    Good morning. Welcome to Capitol Hill. I am so happy; as I 
look at your face, I remember having visited the west side 
practice when you first opened up the new facility and how 
beautiful it was.
    I would like to let everyone know that Ms. Therrien is the 
Executive Director of the Neighborhood Family Practice, a 
family practice on the near west side of Cleveland.
    She has been a member of the practice since 2003 and takes 
an active role in meeting the health care needs of Cleveland 
residents as you will hear in her testimony. She has a degree 
from the University of North Carolina in Nursing and a Master's 
degree in Public Health from the Harvard School of Public 
Health and has completed a program at the Weatherhead 
Professional Fellows Program at Case Western Reserve 
University, my alma mater.
    Welcome to Capitol Hill, and we look forward to hearing 
your testimony.
    Mrs. JOHNSON OF CONNECTICUT. Thank you. I would like to 
recognize Representative Weller, who would like to introduce 
Larry Lutey of Lutheran Social Services of Illinois (LSSI).
    Congressman Weller.
    Mr. WELLER. Thank you, Madam Chair. It is a real privilege 
for me to welcome and introduce a gentleman from Illinois--who 
happens to be a constituent of the Speaker of the House--Larry 
Lutey, who is Vice President and Chief Human Resources Officer 
for LSSI.
    The LSSI is an affiliate of Lutheran Services in America, 
that serves 65,000 Illinois residents every year through 
behavioral health services, owns and manages senior housing, 
senior home care services, skilled nursing facilities, 
traditional and specialized foster care, domestic and 
international adoption services, developmental disability 
services, and a ministry with incarcerated women and their 
children.
    The LSSI has an annual operating budget of nearly $107 
million and employs 2,100 people in Illinois. It is a real 
privilege to have Mr. Lutey here, who is, of course, 
representing a very respected social service agency in 
Illinois.
    Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Weller.
    Let me just mention that there is a vote on. It is a single 
vote. Members will come and go to vote, but we will proceed 
with the panel.
    I would like to recognize Mr. Cava. Mr. Cava, I recognize 
you for 5 minutes.
    For all of the panelists, your entire statement will be in 
the record, but you each have 5 minutes to summarize your 
testimony.
    Mr. Cava, you have to pull the microphone quite close so we 
can hear you and be sure it is turned on.

 STATEMENT OF JEFFREY CAVA, EXECUTIVE VICE PRESIDENT OF HUMAN 
   RESOURCES AND ADMINISTRATION, WENDY'S INTERNATIONAL INC., 
                          DUBLIN, OHIO

    Mr. CAVA. Yes. Thank you.
    Mr. Chairman and Members of the Committee, I am Jeff Cava, 
Executive Vice President of Wendy's International, Inc. Thank 
you very much for your invitation to testify today. It is an 
honor to be here on behalf of our great American company to 
discuss an issue about which we feel so strongly.
    We have a passionate respect for our employees' ability to 
make good decisions about things that are important to them and 
their families. Competitive employee benefits are a top 
priority for Wendy's in our ongoing effort to be both 
innovative and become an employer of choice.
    Wendy's International is one of the world's largest 
restaurant companies. We are an enterprise of more than 9,900 
restaurants and three quality brands--Wendy's Old Fashioned 
Hamburgers, Tim Horton's and Baja Fresh Mexican Grill. Wendy's 
was founded by Dave Thomas in 1969 and has grown to more than 
6,700 restaurants in North America and internationally. We are 
a heavily franchised system with about 80 percent of Wendy's 
independently owned and operated by over 430 franchise 
entities.
    Three years ago we began to explore the idea of introducing 
consumerism principles in our health plan. We sought a better 
way to spend valuable resources for health care, manage our 
costs, but more importantly, engage our employees and their 
families to adopt consumerism principles. We had to increase 
their level of involvement, unique to their personal needs, in 
the health care decisions that they make.
    After exploring a variety of approaches, we knew a full 
replacement, high deductible health care plan with HSAs was the 
answer. The HSAs would allow our employees to fully own their 
accounts. While the company would contribute, plan participants 
may, but would not be required to, make contributions. 
Especially important is that these funds would carryover from 
year to year, allowing an employee to buildup a reserve for an 
unexpected injury or illness.
    In a business with frequent turnover, portability was also 
important, and HSAs would allow employees to set aside money 
for postretirement health care expenses that stayed with them 
regardless of where they were working.
    Offering a high deductible health plan as an option to an 
existing managed care plan would have limited our ability to 
address the issue of consumerism head on. To continue to offer 
a quality health care benefit, we had to change quickly, so we 
made the decision to fully replace our plan; and it was the 
right decision. With a decentralized workforce, it was 
imperative to deliver clear and concise information so our 
employees would select the best plan to fit their needs. We 
wanted to support changes in behavior necessary for them to 
become better health care consumers.
    This communications piece was an enormous project. Our 
communications strategy included a multilingual information 
call center, web-based enrollment with modeling tools, and a 
comprehensive written guide. Our field human resources team was 
trained to hold informational meetings for employees and their 
families. For some employees, health care decisions are often 
made as a family, and we wanted to be sure to include family 
members who desired to learn more about their options.
    The Wendy's plan includes HSAs and offers several choices. 
To each HSA, we contribute approximately 60 percent of the 
deductible. Importantly, our plans cover preventive care at 100 
percent. This includes annual routine physicals, flu vaccines, 
child care immunizations, Pap smears, mammograms, prostate 
exams and colonoscopies.
    In 2004, approximately 50 percent of our employees 
indicated this they received an annual physical. In 2005, the 
first year of our consumer health plan, that increased to 75 
percent. Also, we had a significant increase in employee use of 
our online health care information and management of their 
health plan, exactly the type of result we were looking for.
    Our participation levels have remained essentially 
constant, at approximately 84 percent of those eligible since 
we introduced our new plan in 2005, and approximately the same 
participation rate as we experienced under our old plan. During 
2005, 60 percent of our participants contributed personal funds 
to their HSAs, and at the end of the year over 90 percent of 
our participants had a favorable account balance. Today, that 
figure is 95 percent.
    At the end of the year, the average account balance was 
$600; today, the average account balance is $760. At the end of 
2005, the combined funds in our employees' HSAs totaled 
approximately $4 million.
    Now, instead of paying premiums in traditional plans, 
participants may use their money to save for future health care 
expenses, again, the type of result we were seeking.
    Out of 10,200 eligible, the company insures approximately 
7,000 people, covering 20,000 lives. In the first year of the 
plan, Wendy's health care claims decreased by 14 percent. If 
you include company contributions to the employee HSAs, our 
costs increased by 1 percent in 2005 over 2004.
    There are four key areas we believe warrant government 
action as addressed in Congressman Cantor's bill: Modify the 
comparability rules to allow us to provide larger contributions 
to health care savings accounts for the chronically ill. This 
helps participants with recurring high claims to get the health 
coverage they need. We encourage an increase in the limits of 
out-of-pocket expenses beyond the deductible. This gives 
participants the option to fund their accounts at higher 
levels. There is confusion among our employees about the rules 
for Flexible Spending Accounts (FSAs) and how they relate to 
HSAs. We would like our plan participants to be able to 
integrate these accounts so unused FSA dollars may roll into 
HSA accounts without penalty or loss of contribution.
    Finally, as was permitted last year, allow a carve-out of 
prescription drugs from deductibles. This is a concern for our 
participants, particularly those who need specialty drugs or 
drugs for which there are no generic alternatives. To support 
our employees, this year we accelerated our company's 
contribution to their HSAs to help cover their drug costs up 
front.
    Mrs. JOHNSON OF CONNECTICUT. Mr. Cava, your time has 
expired, if you could conclude that sentence.
    Mr. CAVA. Thank you.

    [The prepared statement of Mr. Cava follows:]

Statement of Jeff Cava, Executive Vice President of Human Resources and 
       Administration, Wendy's International, Inc., Dublin, Ohio

    Mr. Chairman and Members of the Committee, I am Jeff Cava, 
Executive Vice President of Wendy's International, Inc. Thank you for 
your invitation to testify today. It's an honor to be here on behalf of 
our great American company to discuss an issue about which we feel so 
strongly. We have a passionate respect for our employees' ability to 
make good decisions about things that are important to them and their 
families. Competitive employee benefits are a top priority for Wendy's 
in our ongoing effort to be both innovative and an ``employer of 
choice.''

Company Profile
    Wendy's International is one of the world's largest restaurant 
companies. We're an Enterprise with more than 9,900 restaurants and 
three quality brands--Wendy's Old Fashioned Hamburgers, Tim Hortons 
and Baja Fresh Mexican Grill. Wendy's was founded by Dave Thomas in 
1969 and has grown to more than 6,700 restaurants in North America and 
international markets. We're a heavily franchised system with about 80% 
of Wendy's independently owned and operated by over 430 franchise 
entities.

A Full Replacement, Consumer Driven, High Deductible Health Plan Based 
        on Health Savings Accounts Work Well for Wendy's and our 
        Employees
    Three years ago we began to explore the idea of introducing 
consumerism principles in our health care plans. We sought a better way 
to spend valuable resources for health care, manage costs and engage 
our employees and their families to adopt consumerism principles. We 
had to increase their level of involvement, unique to their personal 
needs, in the health care decisions they make.
    After exploring a variety of approaches, we knew a full replacement 
high deductible health care plan with Health Savings Accounts was the 
answer. HSAs would allow our employees to fully own their accounts. 
While the company would contribute, plan participants may--but would 
not be required to make contributions. Especially important is that 
these funds would carry over from year to year, allowing an employee to 
build up a reserve for an unexpected injury or illness. In a business 
with frequent turnover, portability was important. Health Savings 
Accounts would allow employees to set aside money for post retirement 
health care expenses that stayed with them regardless of where they 
were working.
    Offering a high deductible health plan as an option to an existing 
managed care plan, would have limited our ability to address the issue 
of consumerism head on. To continue to offer a quality health care 
benefit, we had to change, fast. So we made the decision to fully 
replace our plan and it was the right decision.
    With a decentralized workforce, it was imperative to deliver clear, 
concise information so our employees would select the best plan to fit 
their needs. We wanted to support changes in behavior necessary for 
them to become better health care consumers. This communications piece 
was an enormous project.
    Our communications strategy included a multi-lingual information 
call center, web-based enrollment with modeling tools, and a 
comprehensive written guide. Our field Human Resources team was trained 
to hold informational meetings for employees and their families. For 
some employees, health care decisions are often made as a family. We 
wanted to be sure to include family members who desired to learn more 
about their options.

Profile of Wendy's Health Plan
    The Wendy's plan includes HSA's and offers several choices. To each 
HSA, we contribute approximately 60% of the deductible. Importantly, 
our plans cover preventive care at 100%. This includes annual routine 
physicals, flu vaccines, child care immunizations, pap smears, 
mammograms, prostate exams and colonoscopies. In 2004 approximately 50% 
of our employees indicated they received an annual physical. In 2005, 
the first year of our consumer health plan, that increased to 75%. 
Also, we had a significant increase in employee use of on-line health 
care information and management of their health plan. Exactly the type 
of result we hoped to achieve.

Enrollment Results and Other Key Findings
    Our participation levels have remained essentially constant at 
approximately 84% of those eligible since we introduced our new plan in 
2005 and approximately the same participation rate as we experienced 
under our old plan.
    During 2005, 60% of our participants contributed personal funds to 
their Health Savings Accounts and at the end of the year over 90 % of 
participants had a favorable account balance. Today that figure is 95%.
    At the end of last year, the average account balance was $600. 
Today the average account balance is $760. At the end of 2005 the 
combined funds in our employees' Health Savings Accounts totaled 
approximately $4 million. Now, instead of paying high premiums in 
traditional plans, participants may use their money to save for future 
health care expenses. Again, the type of result we were seeking.
    Out of 10,200 eligible, the company insures 7,000 covering 20,000 
lives. In the first year of the plan, Wendy's health care claims 
decreased by 14%. If you include company contributions to employee 
Health Savings Accounts, our costs increased by 1% in 2005 over 2004.

Suggestions to improve Health Savings Accounts
    There are four key areas we believe warrant government action. As 
addressed in Congressman Cantor's bill, modify the comparability rules 
to allow us to provide larger contributions to Health Savings Accounts 
for the chronically ill. This helps participants with recurring, high 
claims to get the health coverage they need.
    We encourage an increase in the limits for out of pocket expenses 
beyond the deductible. This gives participants the option to fund their 
accounts at higher levels.
    There is confusion among our employees about the rules for FSAs and 
how they relate to HSAs. We'd like our plan participants to be able to 
integrate these accounts so unused FSA dollars may roll into their HSAs 
without penalty or loss of contribution.
    Finally, as was permitted last year, allow a carve out of 
prescription drugs from deductibles. This is concerning for our 
participants, particularly those who need specialty drugs or drugs for 
which there are no generic alternatives. To support our employees this 
year we accelerated the company's contribution to their HSAs to help 
cover their drug costs up front. At a minimum, we encourage a modified 
approach such as using co-insurance for drugs in certain categories.
    As a separate but related health care policy matter we have no 
doubt that a serious, national effort must be made to achieve true 
transparency in our health care system. Americans deserve easily 
understood information about the price and quality of health care prior 
to receiving treatment when possible. We urge you to begin now to 
require medical providers and insurance companies to release this 
information. Congress can develop a system of more affordable, 
portable, transparent and efficient health care in this country by 
taking these steps.

Summary
    In summary, we honor the legacy of our founder Dave Thomas. He 
built Wendy's on the simple promise to ``Do the Right Thing.'' We 
firmly believe this is the right thing. The health and wellness of our 
employees and their families now and in the future will improve as they 
take more ownership of their health care decisions.
    This strategy is not just about efficiency in health care spending 
but most importantly, it is about creating a sustainable improvement in 
the health of our employees.
    We appreciate your focus on this important issue and welcome your 
questions.

                                 
    Mrs. JOHNSON OF CONNECTICUT. Mrs. Ignagni.

   STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, AMERICA'S HEALTH INSURANCE PLANS

    Ms. IGNAGNI. Thank you, Madam Chair, Mr. Rangel, Members of 
the Committee, we appreciate the opportunity to be here. I have 
two objectives this morning; one is to provide information on 
what we know about HSA coverage and, second, to provide 
recommendations on where we should go from here.
    First, the data that we have: We have surveyed all of the 
plans that are offering HSA coverage. They have all responded. 
We have a 100 percent sample. The number as of January 2006 was 
3.2 million people. We know that right now it would be higher 
than that, and we are in the process of resampling so we will 
be able to provide additional data.
    This is the third time we have surveyed the HSA offering 
plans. We did it once right after the regulations were issued 
by the U.S. Department of the Treasury. We did it the second 
time in March of 2005, and the numbers that we are reporting 
from January 2006 have indeed increased substantially since the 
March 2005 census.
    What do we know? In addition to the 3.2 million people, we 
know that the numbers of firms offering HSA coverage are 
doubling annually. Thirty-three percent of companies offering 
this coverage previously had not offered insurance. It is also 
exceeded by the 37 percent of individuals who are purchasing 
HSA coverage that were not previously insured.
    The age distribution is roughly even above and below age 
40. There is broad access to providers. Indeed, individuals 
purchasing HSA coverage are taking advantage of our member 
discounts in terms of episodes of care as well as individual 
particular services they are accessing.
    Premiums are 20 to 30 percent lower. About 50 to 60 
percent, according to the U.S. Government Accountability Office 
(GAO), have actually created accounts and 30 percent have 
incomes lower than $50,000.
    What do we know about utilization? Two important pieces of 
data: People are using preventive care, as you just heard from 
Mr. Cava. They are filling their prescriptions, in many ways, 
more than has been done under other types of coverage, 
particularly for chronic illnesses.
    You can--if you are interested, we have a Web site: 
www.healthdecisions.org. All of our members have listed their 
products there. They are listed by State, by company. We were 
asked by a number of individuals in the small business 
community to create an opportunity for one-stop observing and 
to look at how they could look across States, across plans and 
have a handy reference. So, we have endeavored to provide that.
    With the progress that is being made, we have identified 
five categories of opportunities. I will just highlight them. 
There are very specific details provided in our testimony, Mr. 
Chairman.
    First, the unintended consequences that should be 
addressed. Right now we are penalizing families. If a spouse 
has an FSA, you can't--the other spouse can't have a HSA.
    Second, we think there should be separate deductibles for 
individual family members. They may have different needs. Right 
now we are not able to do that. The second category of issues, 
we need more coordination between tax-based accounts--FSAs, 
HSAs and Health Reimbursement Accounts (HRAs). There should be 
rollovers that are allowed.
    Third, in our view, there should be more flexibility in 
three areas: first, allowing early retirees to purchase; 
second, seniors who would wish to purchase Medigap; third, 
veterans to wish to set up HSA accounts right now that cannot.
    The fourth category of issues, there should be a number of 
administrative changes. Let me just highlight two. We should 
increase the contribution limits so individuals can accumulate 
resources quicker. We should post cost of living adjustments 
(COLAs) midyear rather than waiting until November. There 
should be a special focus on how individuals with chronic 
conditions can more rapidly accumulate funds in their account.
    We have urged that the Committee continue to explore and 
prioritize the issue of providing subsidies for low-income 
individuals notwithstanding the type of insurance they may 
purchase. We think that that is something that definitely needs 
to be attended to. We have provided very specific examples of 
transparency initiatives, which go hand in hand with some of 
the new types of products being offered in the HSA arena, in 
the Preferred Provider Organization (PPO) arena, and in other 
types of arenas as well. We hope that will be useful to you.
    We have also highlighted an effort that we have under way 
with all of the physician specialty societies to come to 
consensus about performance, quality performance measurement, 
which is very, very important to have a uniform approach to 
that.
    I would be happy to answer any of your questions on any of 
these areas, Mr. Chairman. Thank you.

    [The prepared statement of Ms. Ignagni follows:]

  Statement of Karen Ignagni, President and Chief Executive Officer, 
                    America's Health Insurance Plans

I. INTRODUCTION
    Good morning, Chairman Thomas, Ranking Member Rangel, and members 
of the committee. I am Karen Ignagni, President and CEO of America's 
Health Insurance Plans (AHIP), which is the national association 
representing nearly 1,300 health insurance plans providing coverage to 
more than 200 million Americans. Our members offer a broad range of 
innovative health insurance products, including high-deductible health 
plans (HDHPs) that are compatible with Health Savings Accounts (HSAs).
    We appreciate this opportunity to testify on HSAs and their role in 
providing more Americans with access to high quality, affordable health 
care coverage that includes benefits for preventive care. We applaud 
Congress for authorizing this important new health care option as part 
of the Medicare Modernization Act of 2003 (MMA). Today, just three 
short years later, more than 3 million Americans are covered by HSA-
compatible health plans. This innovative approach to health care 
financing is helping a substantial number of previously uninsured 
consumers purchase coverage, accumulate savings for their future 
medical needs, and access preventive health care services.
    Our testimony today will focus on:

      the rationale for HSAs and their value as an option for 
consumers;
      consumers' initial experience with HSAs and HDHPs;
      opportunities for enacting legislation to further improve 
HSAs; and
      the need for greater transparency in health care prices 
and quality to help HSA account-holders and other consumers make 
informed health care decisions.

II. THE RATIONAL FOR HSAs
    While HSAs are commonly recognized as accounts that consumers 
establish in combination with high-deductible health plans, it also is 
important to emphasize that access to preventive care is a central 
component of this approach. The MMA addressed this priority by 
specifically providing that preventive care services may be covered by 
HSA-compatible health plans and do not count against an individual's 
deductible. As a result, consumers who establish HSAs are covered on 
``day one'' for a wide range of preventive health care services:

       routine prenatal and well-child care;
      immunizations for children and adults;
      periodic health evaluations, including tests and 
diagnostic procedures ordered with annual physicals;
      smoking cessation programs;
      obesity weight-loss programs;
      screening services for mammography, glaucoma, 
tuberculosis, etc.; and
      limited categories of medications that serve as 
preventive measures.

    Along with this strong focus on wellness, HSAs also include an 
opportunity for consumers to take an active role in deciding when and 
how much to contribute to their accounts (subject to an allowable 
maximum) and how to invest the dollars in their accounts. The funds 
that individuals withdraw from their HSAs to pay out-of-pocket health 
care costs are not subject to taxation. At the end of the year, any 
unspent funds in an HSA remain in the account and can be used to pay 
medical expenses in following years. Interest and other earnings on HSA 
funds accumulate in the fund and are also tax-free. This approach to 
health care financing creates incentives for consumers to make 
decisions about their health care while at the same time allowing them 
to accumulate assets to meet their future needs.

III. CONSUMERS' INITIAL EXPERIENCE WITH HSAs
    To learn more about consumers' experiences with HSAs, AHIP has 
conducted a comprehensive census of the HSA market three times in the 
past 21 months--in September 2004, in March 2005, and in January 2006. 
The most recent census \1\ was based on responses from 96 AHIP member 
companies, representing nearly all health insurance plans offering HSA-
compatible policies. This includes 53 companies offering plans in the 
individual market and 87 companies offering plans in the group market.
---------------------------------------------------------------------------
    \1\ AHIP,January 2006 Census Shows 3.2 Million People Covered by 
HSA Plans, March 2006
---------------------------------------------------------------------------
    We found that HSA-compatible HDHPs covered 3,168,000 people in 
January 2006. This reflects a more than three-fold increase in 
enrollment in HSA products since March 2005. This represents a strong 
start for a new health care option that was unknown to most Americans 
just a few years ago. By comparison, a previous effort to encourage 
health care spending accounts--the Medical Savings Accounts (MSA) 
demonstration program that Congress authorized in 1996--resulted in 
only 250,000 consumers establishing MSA accounts from 1997 through 
2001. While our census did not count the number of HDHP policyholders 
who have established HSAs, the Government Accountability Office (GAO) 
has reported \2\ that approximately 50 to 60 percent of people with 
HSA-compatible plans have established accounts.
---------------------------------------------------------------------------
    \2\ Government Accountability Office, Consumer-Directed Health 
Plans: Small but Growing Enrollment Fueled by Rising Cost of Health 
Care Coverage, April 2006
---------------------------------------------------------------------------
    A closer look at AHIP's census data reveals a number of significant 
findings:

      Many consumers choosing HSA/HDHP coverage were uninsured 
before choosing this option. In the individual market, 31 percent of 
enrollees previously were uninsured. In the small group market, 33 
percent of the companies offering HSA/HDHP coverage previously did not 
offer insurance coverage. This indicates that these options are 
achieving success in expanding coverage to the uninsured.
      The age distribution of people choosing HSA/HDHP coverage 
is evenly divided. In the individual market, 50 percent of enrollees 
(including dependents) were age 40 or older. In both the small group 
and large group markets, approximately 45 percent were age 40 or older.
      People who choose HSA/HDHP coverage have broad access to 
providers, much the same as persons with other types of health 
insurance. More than 90 percent of enrollees with HSA/HDHP coverage are 
enrolled in preferred provider organizations (PPO) that include both 
in-network and out-of-network coverage. Consumers with PPO coverage 
have access to the discounts these plans negotiate with health care 
providers, which allows them to keep their out-of-pocket costs low both 
before and after they reach the deductible under their HDHP.
      HSA/HDHP coverage accounts for a notable share of new 
health insurance in the individual market (23 percent), in the small 
group market (11 percent), and in the large group market (7 percent).
      The fastest growing market for HSA/HDHP coverage is group 
coverage, which has increased from approximately 20 percent of the HSA/
HDHP market in September 2004 to more than 60 percent in January 2006. 
This growth indicates strong employer interest in offering HSAs as an 
option for workers.
      Premiums for HSA-compatible plans are approximately 20 to 
30 percent lower than average premiums in the employer market. The 
tables on the following page show the average annual premium for both 
single and family coverage for HSA-compatible plans in the individual, 
small group, and large group markets.

[GRAPHIC] [TIFF OMITTED] T0705A.001

[GRAPHIC] [TIFF OMITTED] T0705A.002

    Additional research findings have demonstrated that HSAs are having 
a favorable impact on patient health and helping consumers to make 
cost-effective decisions. An analysis by Cigna \3\ found that 
preventive care visits for members of its Choice Fund, an HSA product, 
were 13 percent greater when compared to other health care consumers. 
Choice Fund members also were found to be more consistent in refilling 
medications that manage chronic conditions. Other findings of this 
analysis show that the use of cost-effective generic prescription drugs 
increased 19 percent among Choice Fund members and that overall 
pharmacy costs were 5 percent lower than for members with traditional 
health coverage.
---------------------------------------------------------------------------
    \3\ Cigna HealthCare, Choice Fund Results Analysis, March 2006
---------------------------------------------------------------------------
    Two other studies--one by the Employee Benefit Research Institute 
(EBRI), another by the Blue Cross Blue Shield Association (BCBSA)--have 
demonstrated that the health status of individuals with HSAs is 
comparable to the health status of those with other types of coverage. 
The EBRI study \4\ found that 86 percent of individuals with HDHPs and 
87 percent of individuals with non-HDHP coverage reported their own 
health status as very good or good. The BCBSA study\5\ yielded similar 
results, with 77 percent of individuals in both categories--those with 
HDHP coverage and those with non-HDHP coverage--describing their health 
status as very good or good.
---------------------------------------------------------------------------
    \4\ Employee Benefit Research Institute, Early Experience With 
High-Deductible and Consumer-Driven Health Plans, December 2005
    \5\ Blue Cross and Blue Shield Association, Consumer Survey Shows 
High Rate Of Satisfaction With HSAs, Cites Increased Reliance On 
Decision-Support Tools, September 2005
---------------------------------------------------------------------------
    The EBRI study also found that the income distribution is fairly 
similar for persons with HDHP coverage and with other types of 
coverage. According to EBRI, 31 percent of HDHP enrollees and 27 
percent of non-HDHP enrollees have annual household incomes below 
$50,000. Similarly, Assurant Health found that 29 percent of enrollees 
in its HDHPs have annual household incomes below $50,000. Other data 
\6\ from Assurant indicate that 43 percent of HDHP applicants did not 
have prior health coverage and, additionally, that 69 percent of HDHP 
purchasers are families with children and 62 percent are over the age 
of 40.
---------------------------------------------------------------------------
    \6\ Assurant Health, Quick Facts: Health Savings Accounts
---------------------------------------------------------------------------
Consumer Information at HealthDecisions.org
    Consumers interested in learning more about HSAs and HDHPs can 
visit AHIP's consumer-directed portal--HealthDecisions.org--which 
provides a national directory of health insurance plans. This site 
enables visitors to easily locate profiles of HDHP products in their 
state. The health plan information on this site is updated and re-
verified on an ongoing basis by the health plans themselves, thus 
ensuring that consumers have access to most current, accurate, and 
complete information.
    HealthDecisions also contains a wealth of easy-to-understand 
information in its ``Learning Center,'' including educational 
materials, an online library, and a glossary to help consumers and 
small businesses better understand available HSA options. Visitors to 
the site also will find our HSA ``Basics'' and ``Fast Facts'' sections 
and can browse our ``Question and Answer'' section outlining the most 
frequently asked questions accumulated over time by the Treasury 
Department and other sources. HealthDecisions.org is being visited each 
month by 20,000 to 30,000 people who are interested in learning more 
about HSAs and other types of health insurance.

IV. OPPORTUNITIES FOR FURTHER IMPROVING HSAs
    While HSAs are proving to be highly effective in helping many 
consumers meet their health care needs, there are a number of 
additional steps Congress could take. AHIP is recommending the 
following proposals to address the unique needs and circumstances of 
the chronically ill, early retirees, low-income persons, individuals 
without employer-based coverage, and many others for whom HSAs can be a 
valuable coverage option.

Expanding Coverage for the Chronically Ill
      Increase HSA Contributions: Congress should allow 
employers to assist employees or their family members who suffer from 
chronic conditions by permitting increased contributions into the HSAs 
of individuals who are enrolled in disease management or care 
coordination programs. These programs provide coordinated health care 
interventions and communications for populations in which patient self-
care efforts are significant and are used to improve the health of 
individuals with chronic conditions such as diabetes, hypertension, 
chronic heart disease, and obesity. This proposal will help patients 
with chronic conditions use after-tax money in their HSAs to pay for 
health care costs.
      Prescription Drugs: High-deductible health plans should 
be allowed to cover certain prescription drugs used to treat chronic 
conditions without the patient first being required to satisfy the 
minimum annual deductible on the HDHP. Currently, HDHPs may not cover 
prescription drugs unless the annual deductible has been satisfied or 
the prescription drug is used for a narrow category of preventive 
services. This proposal will help patients with acute illness or 
injuries access prescription drugs and assure that they do not forego 
their medications due to cost concerns.

Encouraging Families to Participate in HSAs
      Spousal FSAs: Individuals should be allowed to establish 
an HSA if their spouse has a Flexible Spending Arrangement (FSA). 
Individuals currently are disqualified from setting up an HSA if they 
have a spouse with an FSA. This rule unfairly limits consumer choice, 
particularly in instances where the individual's medical expenses are 
not being covered with funds from the spouse's FSA.
      Allowing Separate Deductibles for Individual Family 
Members: HDHPs for family HSAs should be allowed to include separate 
deductibles, also known as ``embedded deductibles,'' for individual 
family members below the family deductible set by the statute--but at 
least as high as the individual deductible set by the statute. Under 
current law, individual embedded deductibles are permitted only to the 
extent that they are not lower than the statutory family deductible. 
Allowing lower embedded deductibles for each family member will make it 
easier for families with HSAs to meet their health care expenses.

Helping Early Retirees and Seniors
      Retiree Health Coverage: Early retirees--those in the 55-
64 age category--should be allowed to use HSA funds to purchase retiree 
health coverage. This proposal would make transitional coverage more 
affordable for individuals who sometimes struggle with the high cost of 
health insurance in the years just before they become eligible for 
Medicare. It also would give the near-elderly more flexibility as they 
plan ahead for changing circumstances.
      Medigap Coverage: Seniors should be allowed to use HSA 
funds to purchase Medigap coverage. Current law, which prohibits this 
use of HSA funds, fails to recognize the high value offered by Medigap 
policies and the fact that millions of Medicare beneficiaries are well-
served by supplementing their basic Medicare benefits with Medigap 
coverage. Reversing this prohibition will make Medigap coverage more 
affordable for persons with HSAs.

Giving Employers More Flexibility in Offering HSAs
      Coordination With HRAs and FSAs: Employers should be 
allowed to combine HSAs with Flexible Spending Arrangements (FSAs) or 
Health Reimbursement Arrangements (HRAs) to cover medical expenses 
below the HDHP's deductible. Currently, employers face regulatory 
barriers that significantly limit their ability to combine these 
products. Allowing the coordination of these accounts will enable 
employers to develop innovative strategies for meeting their employees' 
health care needs.
      FSA and HRA Rollovers: Individuals with unspent funds in 
employer-based FSAs or HRAs should be allowed to transfer these funds 
into their HSAs. Current law allows such rollovers from Archer Medical 
Savings Accounts (MSAs), but not from other health care spending 
accounts. Allowing FSA and HRA rollovers would free up existing 
resources to help many individuals and families build up funds in their 
HSAs.

Promoting Tax Party and a Level Playing Field
      Above-the-Line Tax Deduction: Congress should enact an 
above-the-line tax deduction for all health insurance coverage, 
including HSA-compatible health plans, purchased in the individual 
market. This proposal would make health coverage more affordable for 
individuals by granting them the same tax-advantaged treatment that is 
available to Americans who receive employer-based coverage.
      Tax Credits: Congress should enact tax credits to help 
low-income persons purchase HSA-compatible health plans and other types 
of health insurance. Building upon the health care tax credits that 
Congress enacted in 2002, this proposal would put health insurance 
within the reach of many low-income Americans who are unable to afford 
coverage without assistance.
      Contribution Limits: The HSA contribution limits should 
be increased to allow consumers to contribute an amount equal to the 
out-of-pocket limits of their HDHP. Increasing this threshold will 
enable HSA account-holders to meet their health care expenses with 
after-tax dollars. Current law places an annual limit on the amount of 
funds consumers are permitted to deposit in their HSAs; this limit may 
be lower than the amount of the HDHP deductible.

Easing Administrative Complexities
      Align Deductibles and Contribution Limits for Mid-Year 
Enrollment: Current rules act as a disincentive for employees who want 
to enroll in an employer-provided HSA in the middle of the year. When 
employees establish an HSA in the middle of the plan year, they are not 
allowed to make a full year's contribution to the account--even though 
the employer is required to charge a full year deductible. This 
``mismatch'' between the deductible and the contribution amount is a 
hardship for employees who want to sign up for HSA coverage mid-year. 
Employees should have the opportunity to make the full annual 
contribution when they enroll during the middle of a plan year, or the 
employer should be permitted to charge a smaller deductible.
      Earlier Release of COLAs: The annual adjustment of 
deductible amounts, out-of-pocket expense limits, and contribution 
limits should be announced by the Treasury Department earlier during 
the year to give employers sufficient time to determine their plan 
offerings for the new year. Instead of being announced in November, the 
adjusted figures should be announced by June 1.
      Give Consumers More Time to Establish an HSA: The current 
HSA law punishes consumers who may wait to set up their HSAs by 
prohibiting the use of HSA funds for any medical costs incurred before 
the account was set up. Experience has shown that some individuals may 
wait several months to complete the paperwork needed to establish an 
account at a financial institution--thereby delaying when they can use 
HSA funds to pay for medical costs. Consumers should have until the end 
of the tax year (April 15) to set up the account in order to pay for 
health costs incurred during that year.Technical Change to ERISA COBRA 
Requirements: Congress exempted the HSA financial account from the 
COBRA continuation of coverage requirements by amending the federal tax 
code to make clear that the COBRA law does not apply to the account. 
Continuation coverage is not necessary because the money in the account 
is ``portable'' and goes with the employee when he or she changes jobs. 
The HSA law, however, failed to enact a similar amendment to the ERISA 
law and there continues to be some confusion regarding the application 
of COBRA to the account. Therefore, a technical change is needed to 
provide an exemption for HSAs under the ERISA rules for COBRA 
continuation coverage. This change would not affect the HDHP, which is 
subject to the COBRA continuation coverage requirements.
      HSAs for Veterans: Veterans who use VA health care 
facilities should be allowed to contribute money to an HSA. Under 
current law, any veteran who has accessed the Veterans Administration 
medical system within the past three months is prohibited from putting 
money into an HSA. This restriction hurts veterans--especially 
returning service personnel who have service-related injuries.

Progress at the State Level
    Having reviewed these opportunities for further legislative 
improvements at the federal level, we also want to acknowledge the 
positive steps many states have taken to expand consumer access to 
HSAs. At the time HSAs were enacted by Congress in December 2003, many 
state laws impeded the offering or approval of HSA-compatible high-
deductible health plans. For example, some state laws required coverage 
for certain types of benefits--or benefits for certain categories of 
individuals--before the minimum deductible amounts were reached. Other 
state laws prevented HMOs from offering HDHPs by either specifying the 
amount of deductibles and copayments or by interpreting requirements 
for ``reasonable'' deductibles or copayments as prohibiting these 
products. Still other states did not allow the HSA contributions to be 
deducted for state income tax purposes.
    In the intervening years, most states have taken action to remove 
these impediments. In fact, as of June 15, 2006, all states except 
Illinois, Missouri, and New York have passed legislation to remove 
impediments to offering an HDHP in connection with an HSA. Moreover, 
only Alabama, California, New Jersey, Pennsylvania, and Wisconsin have 
not acted to make HSA contributions deductible for state income tax 
purposes.

V. THE IMPORTANCE OF TRANSPARENCY
    Because HSAs provide an opportunity for consumers to be more 
actively engaged in their personal health care decisions, greater 
transparency--with respect to both the price and quality of health care 
services--is critically important in helping consumers and other 
purchasers make informed, value-based decisions. HSA accountholders are 
a catalyst for transparency and our efforts are evolving to meet their 
needs. AHIP and our members are strongly committed to making price and 
quality information more widely available and more easily understood 
for consumers with all types of health coverage.

Industry Efforts to Promote Transparency
    In addition to implementing plan-specific initiatives, our members 
are working with other key stakeholders to give consumers information 
that will allow them to assess physician and hospital performance. In 
September 2004, AHIP joined a broad coalition of stakeholders, 
including the American Academy of Family Physicians and the American 
College of Physicians, to form a collaborative effort to determine how 
to most effectively and efficiently improve performance measurement, 
data aggregation and reporting in the ambulatory care setting. This 
broad-based coalition, the AQA, is now composed of more than 125 
organizations representing physicians, consumers, employers, 
government, health insurance plans, and accrediting and quality 
organizations. In April 2005, the AQA endorsed a ``starter set'' of 26 
clinical performance measures for the ambulatory care setting that are 
already being incorporated into provider contracts. The uniform starter 
set includes preventive measures for cancer screening and vaccinations; 
measures for chronic conditions including coronary artery disease, 
heart failure, diabetes, asthma, depression, and prenatal care; and two 
efficiency measures that address the overuse and misuse of health care 
services. The AQA also has adopted new sets of measures for 
practitioners in the areas of cardiology (eight measures) and cardiac 
surgery (15 measures). These measures represent an important first step 
in establishing a broad range of quality standards to give consumers 
the information they need to make informed health care decisions.
    Over the next few months, the AQA will be working toward 
identifying a starter set of efficiency measures. These measures will 
assess physicians' resource utilization when treating select conditions 
over a period of time. The AQA will seek to align these measures with 
existing clinical quality measures and ensure that they are 
appropriately adjusted for risk and case mix.
    On another front, the AQA is receiving support from the Centers for 
Medicare & Medicaid Services (CMS) and the Agency for Healthcare 
Research and Quality (AHRQ) to launch a pilot program in six sites 
across the country to combine public and private sector quality data on 
physician performance. This pilot program will test various approaches 
to aggregating and reporting data on physician performance, while also 
testing the most effective methods for providing consumers with 
meaningful information that they can use to make choices about which 
physicians best meet their needs.
    This pilot program is being implemented in areas and through 
organizations that have a history of collaboration on quality and data 
initiatives among health plans and physician groups:

      California Cooperative Healthcare Reporting Initiative, 
San Francisco CA;
      Indiana Health Information Exchange, Indianapolis IN;
      Massachusetts Health Quality Partners, Watertown MA;
      Minnesota Community Measurement, St. Paul MN;
      Phoenix Regional Healthcare Value Measurement Initiative, 
Phoenix AZ; and
      Wisconsin Collaborative for Healthcare Quality, Madison 
WI.

    A highly respected advisory committee of leaders in quality and 
performance design selected these six entities because they have the 
infrastructure and experience needed to support the combination of 
public and private data and, additionally, are positioned to implement 
the pilots within a short timeframe. Ultimately, we anticipate that the 
results of this pilot program will lead to a national framework for 
measurement and public reporting of physician performance, which is an 
important step toward improving transparency and consumer decision-
making.

Plan-Specific Initiatives to Promote Transparency
    Individually, many AHIP members have taken steps to promote 
transparency. While plans use a variety of approaches, our industry is 
pioneering the next generation of consumer tools and resources to help 
Americans make value-based health care decisions. The following are 
examples of six plans that have implemented transparency tools to help 
their enrollees become better informed health care consumers.
    Aetna has developed a suite of tools, called Estimate the Cost of 
Care, that allows its enrollees to estimate average in-network and out-
of-network costs in the member's zip code for various health care 
services and products. These tools are a valuable resource for 
enrollees who are interested in cost information on prescription drugs, 
medical and dental procedures, office visits, medical tests, and a 
variety of diseases and conditions. For example:

      Prescription Drugs: Enrollees can access information 
about specific drugs, drug uses and interactions, and the cost of brand 
and generic prescription drugs at retail drug stores and through 
Aetna's mail-order program.
      Office Visits: Enrollees can receive estimates on the 
costs, by type and complexity level, for visits such as routine 
physicals and emergency room visits, and the potential cost savings if 
they choose participating physicians or hospitals.
      Diseases and Conditions: Aetna's Estimate the Cost of 
Care tools provide up to a year of estimated average total in-network 
costs for facility, doctor, pharmacy, and medical tests associated with 
specific diseases and conditions, such as asthma or diabetes, depending 
on their level of severity.

    Building upon these tools, Aetna recently announced that effective 
August 18, it will provide online access to physician-specific cost, 
clinical quality, and efficiency information in Connecticut, Maryland 
and Washington, D.C. and in portions of Florida, Indiana, Kentucky, 
Ohio, and Virginia. This initiative will provide physician-specific 
pricing for up to 30 of the most widely accessed services by specialty 
along with indicators based on adverse events, hospital re-admit rates, 
and overall efficiency. In addition, Aetna will provide pricing 
information in Kansas City, Las Vegas, and Pittsburgh. These 
enhancements will provide Aetna members with clinical quality and 
efficiency information for more than 14,800 specialists and pricing 
information for more than 70,000 physicians.
    Blue Cross and Blue Shield of Florida is broadening access to tools 
and resources to help its members find the information they need. With 
the following web-based, decision-support tools, members of this plan 
can access health care information, estimate health care costs, 
research a medical condition or procedure, and choose physicians and 
hospitals based on their needs.

      Hospital Advisor\TM\--With this tool, members of Blue 
Cross and Blue Shield of Florida can find and compare hospitals based 
on major health topics, procedures, and/or type of care; compare 
hospitals based on clinical quality, outcomes, patient safety 
standards, reputation, and characteristics; and retrieve health care 
data from over 50 public industry and government data sources.
      Healthcare Advisor\TM\--This interactive tool is designed 
to provide members access to personalized health care information to 
help them make well-informed health care decisions. Personalized 
information includes an educational assessment for over 239 medical 
conditions and procedures, questions to ask a physician about managing 
a condition or preparing for a procedure, and links to resources 
including websites organized by health care topic.
      Physician Selection Advisor\TM\--This tool provides 
members the ability to research and compare more than 700,000 
physicians from the American Medical Association and other reliable 
sources. Physician attributes include various demographic, educational, 
and professional statuses.
      Treatment Cost Advisor\TM\--This tool is designed to help 
members estimate the cost of specific health care services. It allows 
members to choose the type of service, provide some basic demographic 
information regarding age, region and gender and receive health care 
cost estimates.
    CIGNA offers its enrollees a range of tools to assist them with 
their decision- 
making:
      Hospital Value Tool: Provides star-based health care 
ratings for in-network hospitals' patient outcomes and cost efficiency 
for 19 procedures.
      Hospital Comparison Tool: Provides side-by-side hospital 
comparison data for 200 medical and surgical procedures based on the 
individual's needs and preferences. This tool contrasts a number of 
factors including patient volume, hospital mortality and complication 
rates, average length of stay, and patient safety.
      Prescription Drug Price Comparison Tool: Provides real-
time, actual out-of-pocket costs for brand name and generic 
prescription drugs, enabling CIGNA Pharmacy members to compare the 
actual costs charged by 54,000 retail pharmacies nationwide.
      DrugCompare\TM\ from WebMD: Allows members to make side-
by-side comparisons of medications or classes of medications for 
average drug costs, side effects, and drug interactions or 
contraindications.
      CIGNA Care Network: Offers members financial incentives 
for the use of select physicians who demonstrate superior health care 
outcomes. Members can access information on quality and/or efficiency 
for these specialists. Provider access is not limited as members can 
still select from any provider; however, members gain financial rewards 
for using providers within the CIGNA Care Network.

    Harvard Pilgrim Health Care's member web site includes a section 
called ``Understand Quality,'' which provides information, such as the 
Honor Roll, to help members make informed choices about their care. 
Harvard Pilgrim uses HEDIS measures to evaluate the quality of care 
provided by its contracted physician groups and has developed a 
Physician Group Honor Roll to recognize those groups that have provided 
outstanding care to Harvard Pilgrim members. Separate Honor Rolls are 
published for excellence in adult and pediatric care, and members are 
able to determine if an individual primary care physician is in a 
practice group that is on the Honor Roll. Harvard Pilgrim also promotes 
transparency in several other ways:

       An interactive on-line tool includes educational 
information about treatment options and what to expect for over one 
hundred different conditions and procedures. This tools allows members 
to rate the importance of various convenience, safety, and quality 
characteristics of hospitals and receive a display of hospitals that 
best fit their preferences.
      The Plan Cost Estimator allows Harvard Pilgrim members to 
estimate out-of-pocket expenses for themselves and their family 
members. Members enter projected utilization (doctor visits, 
prescriptions, etc.) based on history and expected utilization during 
the following year. They then indicate any chronic conditions, for 
which the Cost Estimator calculates typical expenses. The tool is pre-
loaded to include the employee's contribution to the premium and any 
employer contribution to a reimbursement vehicle (Health Reimbursement 
Arrangement or Health Savings Account).
      The Harvard Pilgrim Independence Plan (a PPO offered for 
Massachusetts government employees and retirees) features consumer 
cost-share differentials based on a two-tiered physician network. Five 
high-volume specialties--cardiology, dermatology, general surgery, 
orthopedics, and gastroenterology--are tiered based upon variability in 
cost-effectiveness. Quality information is not part of the tiering, but 
is disclosed separately to members.

    Humana has developed a SmartSummary Rx tool that is designed to 
assist consumers in planning for their future spending on health care 
services and prescription drugs. This tool, which is available through 
monthly paper-based or on-line statements, provides Humana's members 
with:

       personalized guidance about cost-saving drug 
alternatives and care options that are triggered by their specific 
prescription drug claims;
      details on the costs of their medications and the value 
of their plan, along with additional guidance tools that can enhance 
drug safety and medication-taking compliance;
      information showing where they are within the different 
stages of their prescription drug plan to help budget future out-of-
pocket costs;
      details on the amounts members have paid versus what the 
plan has paid, along with information on specific discounts and how 
much money they have saved; and
      the ability to track prescriptions, including dosage, 
previous refill dates, and information on the prescribing doctor and 
pharmacy.

    Independence Blue Cross has developed a number of tools to make 
information on provider performance and health care costs more 
transparent to its members. This includes:

      access to information on hospital quality and costs 
through a ``HealthGrades'' tool;
      a treatment cost estimator that allows people to estimate 
costs for management of conditions, diagnostic tests, office visits, 
and select procedures;
      a tool to compare the costs of various health plan 
options and to model HSA expenses;
      24/7 Health Coaching to help members make more informed 
health care decisions using a Shared Decision model, including coaching 
on chronic illnesses and more than 20 significant decisions regarding 
surgery for specific conditions, and other types treatments;
      a pharmacy cost estimator; and
      health risk appraisals, a full set of wellness and 
prevention tools, and access to general health information.

    Independence Blue Cross also is working with the Hospital 
Association of Pennsylvania, its local affiliate (the Delaware Valley 
Healthcare Council), and hospitals to create a state-wide hospital 
performance measurement system to enhance data on hospital performance. 
On another front, Independence is developing integrated quality and 
efficiency reports for twelve specialties. Data from this initiative 
will be shared first with physicians and later with members.

VI. CONCLUSION
    Thank you for this opportunity to testify about the value of HSAs 
and opportunities for further strengthening this important health care 
option. We appreciate the support many committee members have 
demonstrated for HSAs and we look forward to continuing to work with 
you to advance solutions for further expanding access to high quality, 
affordable health care.

                                 

    Mr. MCCRERY. [Presiding.] Mr. Jackson.

  STATEMENT OF HAROLD JACKSON, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, BUFFALO SUPPLY INC., LAFAYETTE, COLORADO, ON BEHALF OF 
                  THE U.S. CHAMBER OF COMMERCE

    Mr. JACKSON. Thank you, Chairman, Ranking Member Rangel, 
Members of the Committee. I am Harold Jackson, President and 
CEO of Buffalo Supply, a 20-employee, women-owned small 
business specializing in distribution of medical equipment and 
supplies. We are located in Lafayette, Colorado.
    I am pleased to be able to be here today to submit the 
following testimony for the record, and I am here on behalf of 
the U.S. Chamber of Commerce.
    As President and CEO of Buffalo Supply, one of my most 
important duties is to attract and keep highly qualified 
employees. Therefore, making changes to the health care 
coverage offering for me and my employees is one of the most 
challenging things that I face.
    In the spring of last year, I was faced with a difficult 
decision on how to address the health care insurance needs for 
our employees in light of a 21 percent projected increase in 
our current premium. At that time, we had in place a preferred 
provider option plan that had 80 percent reimbursement with a 
20 percent copay for the first $3,000 dollars per employee, or 
$6,000 per family. After that amount was used up in any year, 
the major medical picked up 100 percent.
    The annual premium for that policy ending May 31, 2005 was 
$102,000 for the 13 employees--that I have that opted for 
coverage. If I elected to renew that same policy, the price was 
going to be just over $123,000.
    After reading about the recently passed Federal provision 
known as HSAs, I asked my insurance broker to look into HSA-
conforming plans for our company. He came up with a high-
deductible conforming plan through United Health Care, which 
had a $2,000 per employee deductible and $4,000 per family. 
Once the deductible is met, it is 80 percent reimbursement with 
20 percent copay coverage, with a maximum out-of-pocket expense 
of $4,000 per person or $8,000 per family.
    I was surprised that the premium was only $75,300 for these 
13 employees, an astonishing 39 percent reduction over the cost 
if we had renewed our PPO plan. With the cost of the savings of 
the insurance premium on the HSA plan, I was able to have 
Buffalo Supply fund the savings accounts at a rate of $2,000 
per employee, or $3,000 per family, which equated to a $35,000 
cost. This effectively reduced the out-of-pocket maximum, when 
considering company contributions to the HSA, to $2,000 per 
person and $5,000 per family; that is, $1,000 in each category 
less than our PPO plan. So, Buffalo Supply was able to realize 
a 10.8 percent savings over renewing the PPO plan and provide 
better coverage to our employees.
    Early this spring, I polled my employees on what they 
thought of the HSA plan, and they overwhelmingly endorsed it 
and urged me to continue an HSA vehicle for our insurance 
coverage.
    As we start our second year with an HSA, we have an $1,100 
per employee deductible and $2,200 per family. After that 
deductible is satisfied, the employee or family has 100 percent 
coverage. There are no copays for prescriptions, doctor visits, 
hospitalizations. Our employees pick up the full cost of the 
deductible and bear the burden of contributing to the savings 
plan should they desire. Every employee opted to contribute the 
maximum amount possible.
    This year, the total premium is $115,400, slightly more 
than last year's cost, but we have one additional insured.
    My employees and I are delighted with the concept of HSAs 
that allow us to benefit from our health care spending 
decisions and using pretax dollars.
    While my employees and my family are very satisfied with 
the HSA-compatible health plan, I would like to take this 
opportunity to thank the Members of the Committee for working 
with the U.S. Chamber of Commerce and the HSA Working Group to 
introduce legislation that will improve HSAs, and I have some 
suggestions in my written testimony to make those improvements.
    Thank you.

    [The prepared statement of Mr. Jackson follows:]

     Statement of Harold Jackson, President, Buffalo Supply, Inc., 
       Lafayette, Colorado, on behalf of U.S. Chamber of Commerce

    Chairman Thomas and Ranking Member Rangel, members of the 
Committee, I am Harold Jackson, President and CEO of Buffalo Supply, 
Inc., a 20-employee, women-owned small business specializing in the 
sale and distribution of medical equipment and supplies located in 
Lafayette, Colorado. I am pleased to be able to submit the following 
testimony for the record. I am also here on behalf of the U.S. Chamber 
of Commerce. The U.S. Chamber of Commerce is the world's largest 
business federation, representing more than three million businesses 
and organizations of every size, sector and region. Over ninety-six 
percent of the Chamber members are small businesses with fewer than 100 
employees. I commend the Committee for its interest in having this 
hearing on the benefits of Health Savings Accounts.
    Buffalo Supply, Inc. has been in the medical equipment and supply 
business since 1983 and we are currently the exclusive source for 
Stryker, Gaymar Industries and Baxa Corporation products. I joined the 
company in 1990 at which time company revenues were at $1.2 million. By 
building a strong reputation for service with my customers, I have been 
able to grow our revenues to the current level of $45 million in 2005.
    As President and CEO of Buffalo Supply, Inc., one of my most 
important duties is to attract and keep highly-qualified employees. It 
is the employees of Buffalo Supply that carry the banner of our company 
and maintain the level of customer service that allow us to effectively 
compete in the marketplace.
    I find health coverage is the most sought-after benefit that an 
employer can offer. In many cases, both present and potential employees 
judge the organization on the quality of the health plan that a company 
provides. In some cases, I have seen the level and quality of health 
care coverage to be the major factor on whether or not an employee 
accepts a job with an organization.
    Indeed, the decision to make changes to the health care coverage 
offering for me and my employees at Buffalo Supply is one of the most 
challenging I face since it can have a dramatic impact on the level of 
employee satisfaction. On the one hand, like most small business 
owners, I am faced with continued soaring annual increases and must 
seek ways to contain these costs in order to stay competitive. On the 
other hand, I must be very careful in my decisions to pass on these 
increases by raising deductibles, lowering coverage, or by implementing 
a new coverage product that might not have the same appeal.
    In the spring of last year I faced the difficult decision on how to 
address the heath care insurance needs for the employees of Buffalo 
Supply in light of a projected 21 percent increase in my current 
premium. At that time, we had in place a standard preferred provider 
option plan that had 80 percent reimbursement with 20 percent co-pay 
for the first $3,000 per employee or $6,000 per family in coverage. 
After that amount is used in any given year, major medical then picked 
up 100 percent. The annual premium for policy year ending 5/31/05 was 
$102,119.28 for the 13 employees that opted for coverage. If I had 
elected to renew the cost would have been $123,647.04.
    After reading about a recently passed federal provision known as 
Health Savings Accounts, I asked my insurance broker to look into a HSA 
conforming plan for Buffalo Supply. He came up with a high deductible 
conforming plan with United Healthcare called their ``Definity HSA'' 
plan which had a $2,000 per employee and $4,000 per family deductible. 
Once the deductible is met there is 80 percent reimbursement with 20 
percent co-pay coverage--with a maximum out of pocket of $4,000 per 
employee or $8,000 family. I was surprised that the premium was only 
$75,369.48 for the same 13 employees, an astounding 39% premium 
reduction from the projected costs for the PPO plan.
    With the cost savings in the insurance premium of the ``Definity 
HSA'' plan, I was able to have Buffalo Supply fund the savings account 
portion at $2,000 per employee and $3,000 per family which amounted to 
$35,000. This effectively reduced the out of pocket maximum when 
considering the company contributions to the HSA to $2,000 per employee 
or $5,000 per family, which was $1,000 less in each category over the 
conventional PPO. Buffalo Supply was able to realize a 10.8% savings 
over the projected costs of the conventional plan and provide better 
coverage to our employees.
    Early this spring, as we approached our anniversary date of the 
United Healthcare's ``Definity HSA''plan at Buffalo Supply, I polled my 
employees on what they thought of the new plan. They all overwhelmingly 
considered the HSA plan a success and urged me to continue with this 
vehicle for coverage.
    We just started our second year with a $1,100 per employee 
deductible and a $2,200 per family deductible. After the deductible is 
satisfied the employee and family has 100% coverage--no co-pays for 
prescriptions, doctor office visits or hospitalization. The employee 
picks up the full cost of the deductible and bears the burden to 
contribute to the savings plan should they desire. Every employee has 
opted to contribute the full amount to the savings portion of the plan. 
This year the total annual premium is $115, 414.92, slightly more that 
last year's costs, but we are also insuring one additional person.
    My employees and I are delighted with the concept of Health Savings 
Accounts that allow us to benefit from our health care spending 
decisions with the use of pretax dollars. This type of health plan puts 
the consumer in charge of how he or she may elect to spend their health 
care dollars. The excess rolls over year after year, and employees can 
take it with them to a new job or if they retire. I understand that 
United Healthcare, the company that provides Buffalo Supply's plan and 
the nation's largest purveyor of HSA-compatible insurance, has over 
54,000 HSA-style accounts out of nearly 1 million enrollees in Colorado 
where I am located.
    On behalf of Buffalo Supply and our employees, I would like to 
thank this committee for the work you have done on enacting this 
legislation into law. Having Health Savings Accounts as a viable health 
care option allowed Buffalo Supply to stem the increases in our health 
care premiums while enhancing the coverage for my employees.
    While my employees and my family are very satisfied with the HSA-
compatible health plan, I would like to take this opportunity to thank 
members of this committee for working with the U.S. Chamber and the HSA 
Working Group to introduce legislation that will improve HSAs and to 
offer some suggestions to further strengthen the current law. This 
broad range of potential improvements to HSAs will make them more 
attractive to both consumers and employers.

      Increase the amounts individuals and employers may 
contribute to HSAs. The President's budget proposal includes an 
increase in HSA contribution limits to allow HSA participants to set 
aside more funds on a tax-free basis for their current and future 
health care needs. Under this proposal, HSA participants could 
contribute up to the out-of-pocket spending limits for their HSA-
eligible high deductible health coverage--limited by statute to no more 
than $5,250 for self-only coverage and $10,500 for family coverage in 
2006.
      Allow employees with HSAs to also participate in other 
tax-favored health care accounts such as health flexible spending 
arrangements (FSAs) and health reimbursement arrangements (HRAs).
      Permit up to $500 in unspent funds in flexible spending 
arrangements to carry forward to the following year or to be rolled-
over into an HSA.
      Permit employers to convert funds contributed to health 
reimbursement arrangements (HRAs) to employees participating in HSAs.
      Allow employers to contribute higher amounts to HSAs for 
their lower-paid employees.
      Permit individuals over age 65 to continue to contribute 
to their HSAs.
      Allow early retirees to pay for their health insurance 
needs on a tax-free basis with funds from their HSAs.

    I appreciate the opportunity to comment on Health Savings Accounts 
in front of the Committee. I especially applaud the Committee's 
interest in having this hearing. Thank you again, Chairman, Ranking 
Member and members of the Committee.
                                 ______
                                 
    The U.S. Chamber of Commerce is the world's largest business 
federation, representing more than three million businesses and 
organizations of every size, sector, and region.
    More than 96 percent of the Chamber's members are small businesses 
with
    100 or fewer employees, 70 percent of which have 10 or fewer 
employees. Yet, virtually all of the nation's largest companies are 
also active members. We are particularly cognizant of the problems of 
smaller businesses, as well as issues facing the business community at 
large.
    Besides representing a cross-section of the American business 
community in terms of number of employees, the Chamber represents a 
wide management spectrum by type of business and location. Each major 
classification of American business--manufacturing, retailing, 
services, construction, wholesaling, and finance--is represented. Also, 
the Chamber has substantial membership in all 50 states.
    The Chamber's international reach is substantial as well. It 
believes that global interdependence provides an opportunity, not a 
threat. In addition to the
    U.S. Chamber of Commerce's 105 American Chambers of Commerce 
abroad, an increasing number of members are engaged in the export and 
import of both goods and services and have ongoing investment 
activities. The Chamber favors strengthened international 
competitiveness and opposes artificial U.S. and foreign barriers to 
international business.
    Positions on national issues are developed by a cross-section of 
Chamber members serving on committees, subcommittees, and task forces. 
More than 1,000 business people participate in this process.

                                 

    Mr. MCCRERY. Thank you, Mr. Jackson. Mr. Lauer.

       STATEMENT OF GARY LAUER, CHIEF EXECUTIVE OFFICE, 
          eHEALTHINSURANCE, MOUNTAIN VIEW, CALIFORNIA

    Mr. LAUER. Good morning, Mr. Chairman, Members of the 
Committee. Thank you for the opportunity to testify today. I am 
Gary Lauer, the CEO of eHealth. We are the parent company of 
eHealthInsurance, the Nation's leading online health insurance 
for individuals, families and small businesses.
    We market and sell health insurance in all 50 States and 
the District of Columbia. We have partnerships with over 140 of 
the Nation's leading health insurance carriers, and we offer 
more than 5,000 unique health insurance products nationwide 
online. We serve families, individuals and small businesses as 
they search for quality, affordable health insurance solutions.
    Our strategy and business model has always been to present 
products in an unbiased, objective way. Our goal is to help 
people find the health insurance product which best meets their 
needs.
    Several years ago we found that policymakers and 
influencers have a real need for accurate information about the 
cost and benefits of health insurance offered and purchased in 
the marketplace. Consequently, we survey our national member 
base on a semiannual and annual basis to ascertain what people 
are really spending on health insurance and what they really 
get.
    Last month, we released the most recent of several reports 
providing a snapshot of the national HSA market, defined as 
HSA-eligible plans purchased through our company, 
eHealthInsurance, by individuals and families.
    I am encouraged and, frankly, somewhat surprised by the 
growing acceptance of HSAs in the market across many age and 
income brackets. When HSAs were first introduced in January of 
2004, many believed these products would be for the young and 
the wealthy. The results of our most recent survey show they 
have a much wider appeal.
    If somebody could turn the projector on for me. Can you 
see----
    Chairman THOMAS. [Presiding.] Do we have our very 
expensive, high-tech digital equipment available?
    Mr. LAUER. While we are doing that, why don't I keep 
moving. What you will find in the written testimony are several 
charts from our study. The first shows that in 2005, 
nationwide, 42 percent of all purchasers are at least 40 years 
of age, and in fact, the age distribution of HSA purchasers in 
2005 closely approximates the age distribution of the 
population across the United States.
    Secondly, 45 percent of purchasers have household incomes 
of $50,000 or less----
    Chairman THOMAS. Are you referring to the charts you 
included in your testimony?
    Mr. LAUER. Yes.
    Chairman THOMAS. So, if anyone wants to follow them 
notwithstanding the failure of the high-tech digital equipment, 
they are in the testimony included by Mr. Lauer.
    Mr. LAUER. In fact, on that point, I am on chart 3 right 
now. Twenty-five percent of purchasers, or one in four, earned 
$35,000 or less annually. Overall, 41 percent of purchasers 
were uninsured previous to buying their HSA plan; and 
interestingly, the lower the income level, the higher the rate 
of people being uninsured previously.
    Nationally, individual purchasers paid $114 monthly in 2005 
for an HSA plan; a family paid $261. Contrast that to premiums 
paid in 2004, which were actually more expensive than 2005.
    Seven out of 10 Americans cite affordability as the main 
reason they are uninsured. Any action that makes health 
insurance more affordable, we believe will result in more 
uninsured people finding coverage. I believe our data supports 
this.
    I have three quick ideas today on the affordability issue. 
First, employers are allowed to deduct the cost of health 
insurance from their taxes, yet individuals who purchase their 
own health insurance cannot. Individuals and families should be 
able to deduct the cost of health insurance from their taxes 
just like businesses do. This would make health insurance more 
affordable for individuals and families who purchase health 
insurance on their own. It seems to us that equal tax treatment 
here is about fairness and equality.
    Secondly, provide tax credits to low-income people who buy 
their own health insurance but don't earn enough to make the 
tax deduction a financial benefit. This refundable credit 
should be provided regardless of the type of health insurance 
they buy. The point here is to simply get families covered who 
were previously uninsured.
    Finally, almost 57 percent of small businesses don't offer 
any health insurance coverage to employees. They would be, 
maybe, willing to make a contribution to their employees' 
health coverage, but many small businesses don't want the 
hassle of offering employee benefits or find it is too 
expensive to offer.
    Today, both employers and employees can contribute to an 
HSA tax-free, but the savings of the HSA account cannot be used 
to pay for individual health insurance premiums. Allowing 
employees to use this money to pay for health insurance that 
they buy would encourage more small businesses to provide 
simple, affordable and predictable funding to their employees 
who would then have the opportunity to use their savings 
account to pay for health insurance they buy.
    We think it is a simple and affordable solution for small 
businesses to get back in the game of helping to fund health 
care for employees. It is also my understanding that this 
solution is potentially tax revenue neutral.
    The debate over how to provide cost-effective health care 
for all Americans continues. I don't see a universal solution 
to this problem. I also don't pretend to believe that HSAs will 
solve the problem for everyone, but clearly HSAs appear to have 
broad appeal to a large segment of the American population. 
Thank you very much.

    [The prepared statement of Mr. Lauer follows:]

  Statement of Gary Lauer, Chief Executive Officer, eHealthInsurance, 
                       Mountain View, California

Introduction
    Chairman Thomas and Congressman Rangel, thank you for the 
opportunity to testify today and let me thank you both, and the Members 
of this Committee, for your interest in, and work on behalf of, the 
nation's small businesses and uninsured. I am present today to tell you 
about the experience of eHealthInsurance with Health Savings Account-
eligible health insurance plans and to provide information to help you 
address enhancements which may assist more individuals, families, and 
small businesses in taking advantage of these new plans.
    If I may, I'd like to take just a moment to tell you my background 
and the reasons I saw such great opportunities at the intersection of 
the Internet and health insurance. I come from a long background in 
technology. I spent many years with IBM, Silicon Graphics, and Meta 
Creations before becoming CEO of eHealth almost seven years ago at the 
company's beginning. I have seen advanced technologies bring new 
efficiencies to old industries, and provide expanded access to new 
products and services for consumers who may have been excluded from 
markets in the past.
    At eHealthInsurance's inception, we saw the opportunity to use the 
Internet to reach people who previously may not have known where to go 
to get health insurance, or who assumed health insurance was just too 
expensive. I became passionate about the chance to be part of the 
solution for one of the most debated issues confronting our great 
nation today. Just as I've come to believe that eHealthInsurance can be 
part of the solution by helping consumers find the right health 
insurance, I also believe that Health Savings Accounts can be a viable 
solution for many small businesses and families who are looking for a 
simple and affordable health insurance option. HSAs allow these small 
businesses and families to take more control over how and where their 
health care dollars are spent.

Helping Real People in Need
    eHealthInsurance is the leading online source of health insurance 
for individuals, families, and small businesses. We are licensed to 
market and sell health insurance in all 50 states and the District of 
Columbia. Given our unique experience marketing various types of health 
insurance across the nation, we have been invited here to share our 
experience with HSA-eligible health insurance plans. As a company, we 
have invested significant time and resources in building a scalable, 
proprietary e-commerce platform, and we have developed partnerships 
with over 140 of the nation's leading health insurance carriers, 
enabling us to offer more than 5,000 health insurance products online. 
Our e-commerce platform can be accessed directly through our Web site 
addresses at www.eHealth.com and www.ehealthinsurance.com, as well as 
through our broad network of partners. We organize and present 
voluminous and complex health insurance information in a user-friendly 
and understandable format, enabling individuals, families, and small 
businesses to research, analyze, compare, and purchase health insurance 
products that best meet their needs.
    Forty percent of the people who purchase plans through 
eHealthInsurance state on their application that they have been 
uninsured for a significant period of time. A number of people approach 
eHealthInsurance with the misperception that health insurance is 
prohibitively expensive, but when they see the range of options, 
starting with some very low prices, many of them find they can afford 
health insurance.
    After using our Web site to find and compare various HSA plans, 
many of our customers have become champions of this innovative 
solution.

Here are some of their actual stories:
    1. Greg Heloski, 37-year old construction worker from Philadelphia, 
knew he was throwing the dice for more than four years when he didn't 
have heath insurance. He was concerned something ``major'' would happen 
but thought the high cost of health insurance outweighed the benefits. 
Greg has seen accidents on the job and even on the neighborhood 
basketball court where he plays regularly. Greg was surprised to find 
an HSA-eligible plan for $120 a month with a $2,600 deductible. Greg 
has put enough money away to cover his deductible. So far, he hasn't 
needed his HSA funds, but he's comforted knowing they are readily 
available should he need to cover any qualified expenses before his 
deductible is met.
    2. Mark and Noreen Eccleston from Greenwood, Ark. bought their own 
health insurance ever since Mark left his job to start his own 
business, some 20 years ago. They found a low-cost plan through an 
association for the self-employed. Over the years, the Ecclestons saw 
their premiums rise from $250 per month to $1,000 per month.

    Now in their 60s and sick of the spiraling costs, they went to 
eHealthInsurance.com to shop for individual policies. They chose an 
HSA-eligible plan with a $2,500 deductible for about $330 a month and 
are making tax-favored contributions to their Health Savings Account to 
pay for out-of-pocket expenses. Because they've had few medical 
expenses since buying the policy, they've been able to save money they 
can use over the next few years, even after they qualify for Medicare.

    3. Bill Lomel, who owns a roofing company in Atlanta, Ga., was an 
early convert to HSAs. ``I was just so discouraged about the cost of 
health insurance,'' he told Kiplinger's. He was already struggling to 
pay $750 a month for insurance for himself and his three children when 
he got a notice that the cost of the group policy for his employees was 
going to soar. ``I thought, `There's no way I can charge enough for 
anything in my business to cover that expense. I want to offer good 
competitive benefits to my employees, but I can't.' ''

    Now he knows that he can. Bill started by searching 
eHealthInsurance.com for his options for his family. He selected an 
HSA-eligible plan, and is currently paying $250 per month for himself, 
his wife and three children. The deductible is $5,000 per year, but 
Bill is saving at least $6,000 a year in premiums from his previous 
health insurance. In more than two years of fully funding his HSA, Bill 
has saved about $8,000 in his Health Savings Account. He uses the HSA 
to pay for some extra out-of-pocket expenses, but since his family has 
been healthy, he is mostly using it to save for future healthcare 
expenses.
    Bill was so impressed with his HSA experience that he offered an 
HSA-eligible insurance plan as an option to his employees alongside a 
``traditional'' health insurance plan. For the majority who selected 
the HSA-eligible insurance plan, he gave them the money saved on the 
premiums plus some additional money to help fund their HSAs to use for 
out-of-pocket costs, or savings for the long term.

    4. Roman Botcharnikov of Maryville, Tenn., is the business director 
for his family-owned hair salon. Roman was concerned about the rising 
cost of healthcare and when he kept receiving increases to his family 
health plan, he decided to shop around. Roman's prior health insurance 
that he had more than two years ago covering himself, his wife and his 
teenage son, was $485 a month, totaling $5,820 per year.

    Roman went on eHealthInsurance.com in early 2004, learned about 
HSAs and purchased a health insurance plan. Today he pays $305.23 a 
month, or $3,662.76 a year, to cover his family with a $3,600 
deductible plan. He contributes the maximum amount to his HSA bank 
account. Roman remains a staunch HSA supporter, appreciative of his 
health plan's simplicity and opportunity for savings. ``I go to the 
dentist and I just write him a check from the HSA account, and I don't 
have to mess with the insurance,'' he said. Last year, Roman was 
especially grateful to have his HSA when his wife needed surgery. While 
it required them to use money from the HSA to pay the deductible, after 
that their health insurance paid 100% of the bills, saving thousands of 
dollars.
    Roman has advocated switching his employees to HSA plans, but 
admits it's been a tough sell gaining support for change in something 
as complex as health insurance. In particular, Roman said his employees 
in lower-income brackets don't yet see an advantage in switching to 
HSAs.
Real Data about Real People Purchasing HSA-Eligible Health Insurance
    eHealthInsurance serves individuals, families, and small businesses 
as they search for quality, affordable health insurance solutions. Our 
strategy and business model has always been to present products in an 
unbiased, objective way. Our goal is to help people find a health 
insurance product which best meets their needs. Because of this, we 
have had a keen interest, for many years, in the development of public 
policy and legislation related to health insurance, and the plight of 
the uninsured in America.
    Several years ago we found that policymakers and influencers 
seeking to help uninsured individuals, families and small businesses 
have a real need for accurate information about the cost and benefits 
of health insurance offered and purchased in the market. Consequently, 
we survey our national member base on a semi-annual and annual basis to 
ascertain what people are really spending for health insurance, and 
what benefits they really get.
    When HSAs were first introduced and the market was responding with 
new products following HSA guidelines, we knew it would be beneficial 
to those same policymakers and influencers to have information 
available on the adoption of HSA-eligible plans. Therefore, we have 
produced semi-annual and annual reports on the characteristics of those 
individuals and families across the U.S. purchasing HSA-eligible plans 
from eHealthInsurance since they were first introduced to the market.
    This leads me to new information I would like to share with the 
Committee today. In May 2006, eHealthInsurance released its most recent 
report providing a snapshot of the HSA market, defined as HSA-eligible 
plans sold by eHealthInsurance to individuals and families from January 
1 through December 31, 2005. This report was created:

      To identify and compare key demographics of HSA-eligible 
health insurance plans;
      To present and compare the monthly premiums for HSA-
eligible health insurance plans;
      To outline the health insurance benefit levels included 
in the HSA-eligible plans purchased by consumers from January 1, 
through December 31, 2005; and
      To compare the latest figures to those provided 
previously, highlighting key changes in 2005.

    The report is based on a sample of more than 12,000 HSA-eligible 
plans purchased between January 1 and December 31, 2005 through 
eHealthInsurance.com by individuals and families across the United 
States. In our report, an HSA-eligible health insurance plan is defined 
as those health insurance plans designated by health insurance 
companies to be in concurrence with the U.S. Department of the 
Treasury's HSA guidelines. In 2005, these included:

      Deductibles of a minimum of $1,000 for individuals and 
$2,000 for families; and
      Out of pocket limits of $5,100 for individuals and 
$10,200 for families per year.

    Premium data included in the report is based on actual premiums 
paid by the individuals and families who purchased plans through 
eHealthInsurance. The premiums shown in this report are not quoted 
premiums, but represent what real people paid in real premiums.
    This report does not address consumers' participation in the Health 
Savings Account banking portion of the HSA solution, although my 
company is presently working on compiling survey results on our 
customers' HSA banking activities. We will, of course, make that 
information available as soon as it is ready.

HSA-Eligible Plans in 2005
    Characteristics of HSA-Eligible Plan Purchasers
    I am encouraged and somewhat surprised by the growing acceptance of 
HSAs in the market across many age and income brackets. When HSAs were 
first introduced in January 2004, many believed these products would be 
for the young and the wealthy. The results of our most recent study 
show HSAs have a much wider appeal.
Across 2005:
      42% of purchasers are at least 40-years-old
      45% of purchasers have household incomes of $50,000 or 
less
      25% of purchasers have household incomes of $35,000 or 
less
      Overall, 41% of purchasers were uninsured previous to 
buying their HSA plan. Note, the lower the income level, the higher the 
rate of being previously uninsured.
      Nationally, individual purchasers paid $114 monthly in 
2005 for an HSA plan, and a family paid $261. I'd also like to note 
that premiums paid in 2005 were less than premiums paid in 2004.

    I realize that HSAs may not be for everyone. For those in the 
lowest income brackets these products may not be the solution without 
some kind of subsidy, but certainly these data indicate that HSA 
products can serve the needs of a broad segment of the American 
population.

Age Distribution of HSA-Eligible Plan Purchasers

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Overall, 41% of 2005 HSA-eligible plan purchasers did not have prior 
        health insurance.
The $35,001--$75,000 income brackets showed the largest increase in 
        previously uninsured HSA plan buyers.

Percent of Previously Uninsured HSA-Eligible Plan Purchasers By Income 
        Category HSA-Eligible Plan Costs and Benefits
    Key findings on pricing also indicate some encouraging news. 
Individuals paid 17% less for their HSA coverage in 2005 than consumers 
buying plans in 2004. These savings were achieved because more plans 
were introduced into the market, which provided individuals and 
families more choices and lower premium rates. In 2005, many consumers 
chose higher deductibles which resulted in lower monthly premiums.

             Average Monthly Premiums for HSA-Eligible Plans
------------------------------------------------------------------------
                                     Average      Average
                                       2004         2005     % Change in
                                     Premium      Premium       Premium
------------------------------------------------------------------------
Plans covering Individuals          $138         $114         -17%
------------------------------------------------------------------------
Plans covering families             $277         $261         - 6%
------------------------------------------------------------------------

    The plans consumers purchased in 2005 continue to provide 
comprehensive benefits once the deductible is met. More than two-thirds 
of HSA plans cover regular office visits, and three-fourths cover OB/
GYN office visits at 100% after the annual deductible is met. Nearly 
80% of plans provide prescription drug benefits, and over 70% of plans 
cover benefits at 100% once the annual deductible is met.

                                Benefits Typically Included in HSA-Eligible Plans
----------------------------------------------------------------------------------------------------------------
                                      0% Co-        20% Co-       30% Co-       50% Co-         No
             Benefit                Insurance      Insurance     Insurance     Insurance     Coverage     Other
----------------------------------------------------------------------------------------------------------------
Office Visits                      69%            16%           3%            --            12%          --
----------------------------------------------------------------------------------------------------------------
Prescription Drug Benefits         71%             5%           3%            1%            17%          3%
----------------------------------------------------------------------------------------------------------------
Hospitalization, Lab and X-Ray     79%            18%           3%            --            --           --
 Services
----------------------------------------------------------------------------------------------------------------
OB/GYN Visits                      79%            18%           3%            --            --           --
----------------------------------------------------------------------------------------------------------------
Emergency Room Service             79%            18%           3%            --            --           --
----------------------------------------------------------------------------------------------------------------

Recommendations
    Seven out of ten uninsured Americans cite affordability as the main 
reason they are uninsured. (Source: Harvard School of Public Health, 
May 2004) Any action that makes health insurance more affordable, we 
believe, will result in more uninsured people finding coverage. I 
believe our data supports this.
    My ideas today are focused on the affordability issue:

    1.  Employers are allowed to deduct the cost of health insurance 
from their taxes, yet individuals who purchase their own health 
insurance cannot. I suggest equal tax treatment of health insurance 
premiums for everyone. All individuals and families should be able to 
deduct the cost of health insurance from their taxes, just like 
business can. This would make health insurance more affordable for 
individuals and families who must purchase health insurance on their 
own. It seems only fair that people who need the health insurance the 
most have the same tax treatment as employers.
    2.  Provide tax credits to low-income people who buy their own 
health insurance but don't earn enough to make the deduction a viable 
option. This refundable credit should be provided regardless of the 
type of health insurance they buy. The point is to get these families 
covered.
    3.  Finally, 56.8% of small businesses don't offer any health 
insurance coverage to their employees. (Source: Kaiser Family 
Foundation, 2003) They may be willing to make a contribution to their 
employees' health coverage, but many small businesses simply don't want 
the hassle of offering employee benefits or they find it is too 
expensive to offer. Many small businesses simply avoid employee 
benefits because they fear they will be exposed to double-digit premium 
increases in the future.

    Today, both employers and employees can contribute to an HSA tax 
free, but the savings in the HSA cannot be used to pay for individual 
health insurance premiums. Allowing employees to use this money to pay 
for health insurance they buy would encourage more small businesses to 
provide simple, affordable, and predictable funding to their employees, 
who would then have the opportunity to use their savings account to pay 
for their health insurance premiums.
    It's a simple and affordable solution for small businesses to get 
in the game of helping to fund health care for their employees. And it 
assists employees by providing an additional funding mechanism for 
their health insurance premiums. It is my understanding that this 
solution is essentially tax revenue neutral.

Conclusion
    The debate over how to provide cost effective health care for all 
Americans continues. I don't see a universal solution to the problem. 
While HSAs may not meet the needs of every American, they appear to 
have broad appeal to a fairly large segment of the American population. 
HSAs more and more appear to be a viable solution for many people and 
businesses looking to have affordable access to care, while insuring 
themselves against catastrophic financial loss.

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    Chairman THOMAS. Thank you very much. Mr. Lutey.

STATEMENT OF LARRY W. LUTEY, VICE PRESIDENT OF HUMAN RESOURCES, 
  LUTHERAN SOCIAL SERVICES OF ILLINOIS, DES PLAINES, ILLINOIS

    Mr. LUTEY. Chairman Thomas, Ranking Member Rangel, Mr. 
Weller, distinguished Members of this historic Committee, I am 
Larry Lutey, Vice President of Human Resources of LSSI, a not-
for-profit, and with some prayer and good management, a not-
for-loss social services agency in the beautifully diverse 
State of Illinois. I am privileged to be here today, 
representing the 2,100 employees who are the most effective and 
committed individuals I know doing social services in that 
State.
    The LSSI made the shift to a full replacement, high-
deductible plan with an HSA due to a health care death spiral 
that was leading our organization into uninsurability. As 
health care trends began to rapidly increase, we looked at our 
mix of high- and low-risk employees in our current Health 
Management Organization (HMO), and we shared, as the increases 
went up, those increases with our plan participants, reducing 
coverage, and were unfortunately in a position where we had to 
raise deductibles to a place that become unaffordable for many 
of our individuals.
    As our medical premiums increased 15 percent annually, 
employees began to leave the plan, primarily low-risk 
employees, leaving employees with significant health risk still 
in our plan. Once again, premiums soared, benefit levels were 
reduced, deductibles were raised and the cycle repeated itself.
    The unintended, but most significant negative impact of 
this cycle was on those in our organization who made less than 
$30,000 per year, who were left with the choice of choosing 
salary over and against health insurance. Today, 47 percent of 
our individuals who are still insured fall into that income 
category.
    Last July, I am pleased to say that the death spiral was 
broken, when we implemented a full-replacement HSA plan; and 
since that implementation, our annual rates have held to about 
5 percent each year. The LSSI employees received real back-to-
back cost-of-living increases as the agency was able to absorb 
the more modest increases in premiums.
    We moved to HSAs because we had to; we remain there because 
we choose to. The unexpected result is a new sense of 
partnership and collaboration around health care that we have 
not seen before. In honesty, as I am representing all of our 
employees, I must tell you the other side of the story as well.
    Some have found the plan expensive and difficult to manage 
and difficult to understand and have chosen to leave it for 
other options. Contrary to popular critique, this has little to 
do with income level or chronic illness.
    I would recommend three changes to effect greater success 
of HSAs for those who employ the working poor. First, allow me 
to contribute higher amounts of money into the HSA accounts of 
my lower-paid staff who can't afford pretax contributions into 
the plan. We contribute 50 percent of the deductible into the 
HSA for every HSA participant, but the problem is that for 
those who make less than $30,000, contributing the remaining 
half is still too much to ask.
    During orientation, the choice that my employees have is 
not between high plan or low plan; it is between health 
insurance and rent. While there is pending legislation to allow 
employers to place more dollars in the accounts of the 
chronically ill, it seems to me that HSAs can have an even 
greater impact if the comparability rules were also adapted to 
provide flexibility for the employer to make contributions on 
the basis of income level as well.
    Second, allow me to incentivize my employees to wellness. 
Help me to prevent large health claims from even fitting the 
system by opening up the rules around prescription drugs. I 
will have the ability to ultimately lower premium costs for my 
employees and share with them the savings by making higher 
employer contributions into their HSAs. That is simply the best 
way that I know to make this model of health care accessible to 
lower-income families.
    Finally, allow me the option to provide comparable coverage 
to the increasing number of retiring baby boomers who, instead 
of rocking life away on a porch, wish to contribute something 
back to their communities. I will be more than happy to hire 
those retiring baby boomers as they move from the work arena in 
their lives to the service arena, and I can do that if I can 
offer them health care in the form of an HSA that is 
complemented by their HRA, FSA or Medicare.
    While it is true that consumer-driven health plans may not 
be an end in and of themselves, I firmly believe that they are 
the best option available for employers such as LSSI. More 
importantly, I believe they can positively influence the 
adverse selection issue facing the uninsured working poor by 
allowing individuals, at any level, access to health care and 
prescription drugs and wellness.
    I would especially like to thank Representative Cantor this 
morning for his work and keen understanding of the changes that 
need to be made as reflected in H.R. 4511 and H.R. 5262. With 
these proposals and, I would suggest, a few additional tweaks, 
HSAs can have a positive impact on organizations such as LSSI.
    I would like to thank the distinguished Committee for this 
opportunity to speak to them about this very important issue.

    [The prepared statement of Mr. Lutey follows:]

 Statement of Larry Lutey, Vice President of Human Resources, Lutheran 
           Social Services of Illinois, Des Plaines, Illinois

    Chairman Thomas, Ranking Member Rangel, and distinguished members 
of the Committee on Ways and Means, I am Larry Lutey, Vice President of 
Human Resources of Lutheran Social Services of Illinois, a not-for-
profit, and with some prayer and good management, a not for loss social 
service agency in the beautifully diverse state of Illinois. We provide 
a full range of social services to 65,000 Illinois residents every 
year, through the dedicated work of our 2100 employees, on whose behalf 
I have the privilege to speak with you this morning.
    LSSI is affiliated with Lutheran Services in America, an alliance 
of national Lutheran church bodies and their health and human service 
organizations. LSA has more than 300 members providing services 
throughout all 50 states and the Caribbean. Its members deliver over $8 
billion in services to over one out of every 50 people in the United 
States. The network of organizations serves the elderly, children and 
families, people with mental and physical disabilities, refugees, 
victims of natural disasters, and others in great need. Through these 
efforts it is on the front lines of building self-sufficiency and 
promise in millions of lives.
    Lutheran Social Services of Illinois, LSSI, made the shift to a 
full-replacement High Deductible Health Plan with an HSA on July 1, 
2005 due to a health care ``death spiral'' that was leading our 
organization to uninsurability. Seven years ago, LSSI had a workable 
mix of low and high risk individuals covered under our traditional HMO 
health plan. As health care trends began to rapidly increase, LSSI, 
like many organizations, shared the premium increases with plan 
participants, reduced coverage, and raised deductibles to what became 
unaffordable levels.
    As our medical increases reached double digits, for 7 consecutive 
years, the result was that employees began to leave the plan. Each 
year, more and more low-risk individuals shifted coverage to a spouse's 
plan, or purchased insurance on their own, while the higher risk 
employees remained. Our experience rates thus deteriorated, premiums 
went up, benefits continued to decline, and the cycle repeated itself. 
The death cycle for insurance coverage, is what we came to call it.
    For seven years, we experienced a shift to providing coverage to a 
pool of high-risk participants, who, as costs escalated, had little 
alternative but to drive up experience ratios for our agency.
    Contributions for both the employer and the employee escalated 
between 12 and 15% annually. The impact? You know it. Turnover, morale 
issues, pay increases absorbed by benefit expenses--but this too. The 
greatest impact was on those in our agency who made less than $30,000 
per year. Over the seven year time frame, LSSI's participation in the 
plan dropped from 1320 participants, to 696 participating families 
today. Of the 696 families still insured, 90% of them still earn less 
than $50,000 annually, and 49% of those families earn less than 
$30,000.
    New Employee orientation for benefits was not a conversation about 
whether the new employee would take the high plan, or the low plan, but 
rather, whether they would take health insurance, or pay for rent. In 
all honesty, we contributed to the pool of uninsured Americans in ways 
we did not intend, nor could control. As the July 1, 2005 benefit 
renewal period came to pass, the choice for us was not to provide a 
choice between HMOs and HSAs. The choice was between health insurance, 
and nothing.
    Will Rogers once said, ``Even if you are on the right track, you 
will get run over if you just sit there.'' The dangerous track LSSI was 
on, was a track leading to uninsurability, disparate impact for the 
working poor employed by our agency, and no relief for future cost 
containment.
    On July 1 of 2005, the death spiral that was affecting LSSI was 
broken. Moving to a full-replacement HDHP with an HSA, premiums for 
last year, and the coming fiscal year, have been held to 5% annually. 
For the first time in 6 years, and now for the second consecutive year, 
LSSI employees received a pay increase while the agency was able to 
absorb the more modest increases in premiums. For 2 years, employees 
received a true cost of living increase. Turnover has begin to decline. 
That means jobs were not eliminated. It means programs were not cut, 
and it means employees had a viable option for quality heath care that 
was beginning to become affordable.
    We moved to HSAs because we had to. We remain there because we 
choose to. Participation in the LSSI health plan has begun to 
stabilize. As our first open enrollment period ended only two weeks 
ago, I was eager to see how many of our employees would opt to leave 
HSAs, and how many, if any, would choose to come back to the plan after 
leaving the former model. 42 participants left. 33 returned. In short, 
our plan has begun to stabilize.
    And while the process of education, promotion, and communication 
are continuous, there is a new sense of partnership and collaboration 
around health care that we have not seen before. LSSI moved from a 
parental health care plan to a collaborative effort of employer and 
employee working together to manage health care costs for our agency.
    For us, it's not an employer thing. It's a partnership thing. To be 
frank, ultimately, I do not believe that HSA's are the magic solution 
to managing health care costs for our agency. Reducing claims, while 
still maintaining health is ultimately the solution. With this new 
model, every employee has a vested interest in making sound health care 
decisions, utilizing the nurse-care support services, health 
assessments, and other tools available to our staff. The plans works, 
not because employees are spending dollars of which they perceive they 
have a greater ownership, but rather because they value their own 
health, and now have resources to manage it. And the gains we make--
together, employer and employee, are not money in our pocket. It is 
money shared with employees through increasing contributions to the 
HSA. That's the win, you see. For both of us.
    To say it simply, HSAs have changed our focus. Wellness is 
understood as our primary tool for healing. Our communication and 
employee education strategy is simple: ``One Employee At A Time,'' and 
to be honest, that's what open enrollment feels like when implementing 
an HSA. As well it should. For the focus is the person, not the group. 
That's what works for us in this plan.
    But in truth, there is another side to this story as well. I don't 
want to leave you with the impression that our employees have fully 
embraced this plan, nor that they are completely satisfied and 
supportive. I'm here today to also speak for those who are dissatisfied 
with the plan, who find it expensive, and complex. If my position were 
an elected one, I would not have remained in office the second year of 
our HSAs.
    Some have found it difficult to manage, difficult to understand, 
difficult to access, and have chosen to leave the health plan for other 
alternatives. Contrary to many critics of HSAs, this has had nothing to 
do with income or chronic illnesses. Yet, their reasons are just. And I 
think we need to learn from them, what it is that can be done to 
improve these plans in the future.
    LSSI contributes 50% of the high deductible into the HSA plan for 
every participating employee. For us, that's a $2500 investment in 
every employee's wellness. For those in the agency who are compensated 
more highly than others, who have discretionary income, this is a 
manageable set of circumstances. They withhold the balance from their 
paychecks to cover the remaining high deductible.
    But for the 50% who make less than $30,000 annually, contributing 
the remaining half through pre-tax contributions is not attainable. The 
critics of the HDHP with the HSA say that the plan hurts lower income 
individuals, while assisting higher income individuals prepare a nest 
egg for future health needs.
    And while there is pending legislation to allow employers to bend 
the comparability rules to place more dollars in the accounts of 
chronically ill employees, it seems to me that this can be a far more 
effective tool, if the comparability rules were also adaptable to 
income levels, especially for the working poor. It seems to me that 
this is, in fact, the very intent of HSAs: to provide savings for 
future health care needs for everyone.
    Allow me to contribute more money into the HSA accounts of my lower 
paid staff, and lesser amounts into accounts of highly compensated 
employees, who can better afford their own contributions to the plan, 
and this model can work. Adjust the comparability rules, careful not to 
benefit higher paid employees, but rather assist lower income 
employees, and I believe that we can tame the disparate impact that is 
still far too present.
    Allow me to incent my employees to wellness. Help me to prevent 
large health claims from even hitting the system by opening the rules 
around prescription drugs for preventive care. This is the best way I 
know to make this model of health care accessible to lower income 
families. Allow lower income individuals to acquire preventive 
medications as part of the preventive care component of HSAs, and I can 
then teach them how to use HSAs to save for more catastrophic health 
issues in the future. As an employer, I would much rather pay for the 
cost of preventive drugs in my premiums than pay for the escalating 
cost of significant health issues resulting from individuals perceiving 
they cannot afford to purchase and take preventive care prescriptions.
    Help me to address the problem of lower income employees choosing 
to avoid taking basic, preventive medications because the negotiated 
discount rate between pharmacies and insurance companies is still not a 
discount for my staff when the cost comes out of their pocket because 
they cannot afford their half of the deductible. Allow my employees to 
manage their hypertension, cholesterol, diabetes and other diseases by 
making their drugs prescriptive preventive care items to be covered 
100% from dollar one, and I'll have the ability to ultimately lower 
premium costs for all my employees, and share with them the savings in 
pay increases by making higher employer contributions to their HSAs.
    Allow me to provide comparable coverage to the increasing number of 
retiring baby-boomers, who instead of rocking life away on a porch, 
wish to contribute back to their communities by serving LSSI and other 
employers as caregivers and valued employees.
    Allow me to contribute to HSAs for our employees who are such an 
integral part of our organization, who happen to be 65 or older, and I 
will show you intergenerational communities who foster health in more 
ways than I can speak today. I'll be more than happy to hire those 
retiring baby boomers, as they move from the work arena to the service 
arena in their lives. And I can do that, if I can offer them health 
care in the form of an HSA that is complimented by their HRA, FSA or 
Medicare.
    I am aware of the initiatives that have been brought to this 
distinguished House, specifically HR 4511 and 5262, and I would like to 
thank Representative Cantor for his work and understanding of the 
changes that need to be made. With these proposals, and I would 
suggest, a few additional tweaks, HSAs can truly impact the number of 
uninsured poor in our communities.
    While it is true that Consumer Driven Health Plans ultimately may 
not be the end, in and of themselves, I firmly believe that they are 
clearly the best option available, and have the greatest potential, to 
assist employers in addressing the growing number of uninsured 
employees in our workforce, in reducing disparate impact around health 
care for the working poor, and ensuring stability of organizations that 
seek to serve both our clients, and caregivers by allowing us to manage 
health care costs while still providing a quality health benefits plan 
at an affordable price. Affordable--for everyone. HSAs can do this.
    I sincerely appreciate your investment of time in listening to 
these words, and I thank all of you who have worked to make the good 
things happen for my employees over the past two years. I eagerly seek 
to move into our future as an organization equipped for tomorrow, 
having learned from today.

                                 

    Chairman THOMAS. Thank you, Mr. Lutey. Dr. Collins.

STATEMENT OF SARA R. COLLINS, PROGRAM FOR THE FUTURE ON HEALTH 
    INSURANCE PROGRAM, COMMONWEALTH FUND, NEW YORK, NEW YORK

    Dr. COLLINS. Thank you, Mr. Chairman, Ranking Member 
Rangel, Members of the Committee, for this invitation to 
testify on HSAs. The Committee is to be commended for focusing 
attention on the manifold problems currently confronting the 
U.S. health care system, steady growth in the number of 
uninsured, rising health care costs and premiums, wide 
variation in the quality and cost of care and inefficiencies in 
the delivery of care.
    Some maintain that HSAs, coupled with high-deductible 
health plans are an important part of the solution for the 
cost, quality and insurance problems that plague the health 
system. Asking families to pay more out-of-pocket, the 
reasoning goes, will create more prudent consumers of health 
care, driving down growth in health care costs and improving 
the quality of care as providers compete for patients; and the 
tax incentives of HSAs will lure previously uninsured people 
into the individual market, reducing the numbers of families 
without coverage.
    While it is comforting to believe that such a simple idea 
could solve our health care problems, nearly all the evidence 
gathered today about HSAs and high-deductible health plans 
point to the contrary. Indeed, there is evidence that 
encouraging people to join the plans might exacerbate some of 
the very maladies that undermine our health care system's 
ability to perform at its highest level.
    Americans already pay far more out of pocket for their 
health care than citizens in any other industrialized country, 
and real per capita spending has been steadily rising over the 
last decade. When you combine that with sluggish growth in real 
incomes, families are spending increasing amounts of their 
income on medical costs. High out-of-pocket costs lead patients 
to decide against the health care that they need and reduce 
their ability to save for the future.
    The early experience with HSA-eligible high-deductible 
health plans reveals low enrollment, low satisfaction, high 
out-of-pocket costs and cost-related access problems. Few 
people are currently enrolled in the plans; those who are 
enrolled are much less satisfied with them than those in more 
comprehensive plans. People in the plans allocate substantial 
amounts of income to their health care, especially those who 
have poor health or lower incomes. They are far more likely to 
delay, avoid or skip health care because of costs, and problems 
are particularly pronounced among those with poor health or 
lower incomes.
    People in the plans are more cost-conscious consumers of 
health care. They are more likely to ask for lower-priced drugs 
and to discuss treatment options and the cost of care with 
their doctors, yet few Americans in any health plan currently 
have the cost and quality information they need to make 
decisions.
    Moreover, it is unrealistic to expect that even with 
adequate information and patient financial incentives, the 
transformation of the health care system will be driven by 
patients' choice of provider. Patients are in the weakest 
position to demand greater quality and efficiency.
    Most health care costs are incurred by very sick patients, 
often under emergency conditions. Shopping for the best 
physician or hospital is impractical in such circumstances. 
Payers, Federal and State Governments, accrediting 
organizations and professional societies are much better 
position to insist on high performance.
    Health Savings Accounts will not solve our uninsured 
problem. Under current law, fewer than 1 million currently 
uninsured people are expected to gain coverage as a result of 
HSAs. This is primarily because 71 percent of uninsured 
Americans are in a 10 percent or lower income tax bracket and 
would benefit little from the tax savings associated with HSAs. 
In fact, new proposals to expand HSAs may actually fragment 
group insurance markets and increase the number of people 
without coverage.
    So, what needs to be done? We need to focus on more 
promising strategies for expanding coverage, improving 
affordability and lowering costs, and improving quality. These 
strategies include expanding group insurance coverage like 
employer-based coverage; eliminating Medicare's 2-year waiting 
period for coverage of the disabled; letting older adults buy 
into the Medicare Program; and building on Medicaid in the 
State Children's Health Insurance Program to cover low-income 
parents, young adults and single adults; ensuring affordable 
coverage for families by placing limits on health care costs as 
a percentage of income; greater transparency with regard to 
provider quality and the total cost of care; pay-for-
performance incentives to reward health care providers that 
deliver high quality and high efficiency; development of value 
networks of high performing providers under Medicare, Medicaid 
and private insurance; high cost care management and disease 
management; improved access to primary care and preventive 
services; and investment in health information technology. 
Thank you.

    [The prepared statement of Ms. Collins follows:]

Statement of Sarah R. Collins, Ph.D., Assistant Vice President, Program 
  for the Future on Health Insurance Program, Commonwealth Fund, New 
                             York, New York

Executive Summary
    Thank you, Mr. Chairman, for this invitation to testify on health 
savings accounts (HSAs). The Committee is to be commended for focusing 
attention on the manifold problems currently confronting the U.S. 
health care system: steady growth in the number of uninsured Americans, 
rising health care costs and premiums, wide variation in the quality 
and cost of care, and inefficiencies in the delivery and administration 
of care.
    Some maintain that HSAs, coupled with high-deductible health plans 
(HDHPs), are an important part of the solution for the cost, quality, 
and insurance problems that plague the U.S. health care system. Asking 
families to pay more out-of-pocket, the reasoning goes, will create 
more prudent consumers of health care, driving down growth in health 
care costs and improving the quality of care as providers compete for 
patients. And the tax incentives of HSAs will lure previously uninsured 
people into the individual market, reducing the numbers of families 
without health insurance.
    But while it is comforting to believe that such a simple idea could 
help solve our health care problems, nearly all evidence gathered to 
date about HSAs and HDHPs points to the contrary. Indeed, there is 
evidence that encouraging people to join such health plans might act as 
salt on a wound, exacerbating some of the very maladies that undermine 
our health care system's ability to perform at its highest level.

Higher Patient Cost-Sharing Is the Wrong Prescription
      Americans already pay far more out-of-pocket for their 
health care than citizens in any other industrialized country.
      Real per capita out-of-pocket spending has been steadily 
rising since the late 1990s. Combined with sluggish growth in real 
incomes, families are spending increasingly more of their incomes on 
medical costs.
      There is considerable evidence that high out-of-pocket 
costs lead patients to decide against getting the health care they 
need.
      Rising out-of-pocket costs reduce people's ability to 
save for the future.

Earily Experience with HSA-Eligible HDHPs Reveals Low Enrollment, Low 
        Satisfaction, High Out-of-Pocket Costs, and Cost-Related Access 
        Problems
      Few people are currently enrolled in HSA-eligible HDHPs; 
those who are enrolled are much less satisfied with many aspects of 
their health care than adults in more comprehensive plans.
      People in these plans allocate substantial amounts of 
income to their health care, especially those who have poorer health or 
lower incomes.
      People in HDHPs are far more likely to delay, avoid, or 
skip health care because of cost. Problems are particularly pronounced 
among those with poorer health or lower incomes.
      People in these plans are more cost-conscious consumers 
of health care: they are more likely to ask for lower-priced drugs and 
more likely to discuss with their doctors different treatment options 
and the cost of care.
      Few Americans in any health plan have the information 
they need to make decisions. Just 12 to 16 percent of insured adults 
have information from their health plan on the quality or cost of care 
provided by their doctors and hospitals.

Patients' Use of Information Alone Is Not Likely to Dramatically Reduce 
        Health Care Costs or Improve Quality
      It is unrealistic to expect that even with adequate 
information and patient financial incentives, the transformation of 
health care system will be driven by patients' choice of provider. 
Patients are in the weakest position to demand greater quality and 
efficiency.
      Most health care costs are incurred by very sick 
patients, often under emergency conditions. Shopping for the best 
physician or hospital is impractical in such circumstances.
      Payers, federal and state governments, accrediting 
organizations, and professional societies are much better positioned to 
insist on high performance.

HSAs Will Not Solve Our Uninsured Problem
      Economists Sherry Glied and Dahlia Remler estimate that 
under current law, fewer than 1 million currently uninsured people are 
expected to gain coverage as a result of HSAs. This is primarily 
because 71 percent of uninsured Americans are in a 10-percent-or-lower 
income tax bracket and would thus benefit little from the tax savings 
associated with HSAs.

New Proposals to Expand HSAs May Fragment Group Insurance Markets, 
        Increasing the Number of Uninsured
      Additional tax incentives proposed by the 
Administration's 2007 fiscal year budget aim to equalize the tax 
treatment of HSAs in the individual market to those in the employer 
market, with premium tax deductibility and tax credits. Economist 
Jonathan Gruber estimates that the Adminstration's proposals would 
actually increase the number of uninsured Americans by 600,000. While 
3.8 million previously uninsured people would become newly insured 
through HSA-eligible HDHPs in the individual market, many employers, 
especially small employers, would drop coverage. Some 8.9 million 
people would lose their employer-based health insurance.

What Needs to Be Done
    We as a nation should focus on more promising strategies for 
expanding coverage, improving affordability, and lowering costs. These 
strategies include:

      Expanding group insurance coverage, with costs shared 
among individuals, employers, and government. This could be done by 
expanding employer-based coverage, eliminating Medicare's two-year 
waiting period for coverage of the disabled, letting older adults ``buy 
in'' to Medicare, and building on Medicaid and the State Children's 
Health Insurance Program (SCHIP) to cover low-income parents, young 
adults, and single adults.
      Ensuring affordable coverage for families by placing 
limits on family premium and out-of-pocket costs as a percentage of 
income (e.g., 5% of income for low-income families).
      Greater transparency with regard to provider quality and 
the total costs of care.
      Pay-for-performance incentives to reward health care 
providers that deliver high quality and high efficiency.
      Development of ``value networks'' of high performing 
providers under Medicare, Medicaid, and private insurance.
    High cost care management and disease management.
      Improved access to primary care and preventive services.
      Investment in health information technology.

HEALTH SAVINGS ACCOUNTS:
WHY THEY WON'T CURE WHAT AILS U.S. HEALTH CARE
Sara R. Collins, Ph.D.
    Thank you, Mr. Chairman, for this invitation to testify on health 
savings accounts (HSAs). The Committee is to be commended for focusing 
attention on the manifold problems currently confronting the U.S. 
health care system and our collective need to find solutions to solve 
them.
    National health care spending is climbing by more than 7 percent 
per year and is expected to continue to outpace growth in the economy 
by a substantial margin.\1\ The average annual cost of family coverage 
in employer-based health plans, including employer and employee 
contributions, topped $10,880 last year, more than the average yearly 
earnings of a full-time worker earning the minimum wage (Figure 1).\2\ 
Many employers, particularly small companies, are coping with rising 
premiums by passing along more of their costs to employees or 
eliminating coverage altogether (Figures 2 and 3).\3\
---------------------------------------------------------------------------
    \1\ Stephen. Heffler, et al., ``U.S. Health Spending Projections 
for 2004-2014,'' Health Affairs Web Exclusive 23 Feb 2005; C. Smith, et 
al., ``National Health Spending in 2004,'' Health Affairs (Jan/Feb 
2006): 186-196.
    \2\ Jon Gabel et al., ``Health Benefits in 2005: Premium Increases 
Slow Down, Coverage Continues to Erode,'' Health Affairs 24 (September/
October 2005): 1273--1280.
    \3\ Ibid.
---------------------------------------------------------------------------
    Consequently, the number of people without health insurance in the 
United States is climbing steadily: in 2004, nearly 46 million people 
were uninsured, an increase of 6 million over 2000 (Figure 4).\4\ An 
additional 16 million people could be considered ``underinsured'' as a 
result of their high out-of-pocket costs relative to income.\5\ 
Americans, meanwhile, experience significant variation in the quality 
and cost of their health care, depending on where they live and where 
they go for care. Adding to these problems are inefficiencies in the 
delivery and administration of care.
---------------------------------------------------------------------------
    \4\ C. DeNavas-Walt, B.D. Proctor, C.H.Lee, Income, Poverty, and 
Health Insurance Coverage in the United States: 2004, Current 
Population Reports (Washington, D.C.: U.S. Census Bureau) August 2005.
    \5\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren, ``Insured 
But Not Protected: How Many Adults Are Underinsured?'' Health Affairs 
Web Exclusive, June 14, 2005, W5-289--W5-302.
---------------------------------------------------------------------------
    Some maintain that HSAs, coupled with high-deductible health plans 
(HDHPs), are an important part of the solution for the cost, quality, 
and insurance problems that plague the U.S. health care system.\6\ 
Asking families to pay more out-of-pocket, the reasoning goes, will 
create more prudent consumers of health care. As patients shop around 
for the cheapest, and best, providers, the market for health care 
services will ultimately look more like the market for other goods and 
services, driving down growth in health care costs and improving the 
quality of care as providers compete for patients. And the tax 
incentives of HSAs will lure previously uninsured people into the 
individual market, reducing the numbers of families without health 
insurance.
---------------------------------------------------------------------------
    \6\ R. Herzlinger, Consumer-Driven Health Care: Implications for 
Providers, Payers and Policy Makers, Jossey-Bass, 2004.
---------------------------------------------------------------------------
    While it might be comforting to believe that such a simple idea 
could solve our collective health care problems, nearly all evidence 
gathered to date about HSAs and HDHPs points to the contrary. Indeed, 
there is evidence that encouraging people to join such health plans 
might act as salt on a wound, exacerbating some of the very maladies 
that undermine our health care system's ability to perform at its 
highest level.

Higher Patient Cost-Sharing Is the Wrong Prescription
    Increasing patient cost-sharing is a misguided solution for reining 
in U.S. health care costs. The claim that Americans spend too much on 
health care because they are protected from the real cost simply is not 
borne out by evidence. Americans already pay far more out-of-pocket for 
their health care than citizens do in any other industrialized country 
(Figure 5).\7\ Furthermore, real per capita out-of-pocket spending has 
been steadily rising since the late 1990s (Figure 6).\8\ Higher 
spending on health care, combined with sluggish growth in real incomes, 
also means that families are spending increasingly more of their 
earnings on medical costs. A Commonwealth Fund report by Mark Merlis 
found that the percentage of households spending 10 percent or more of 
their income on out-of-pocket costs rose from 8 percent during the 
years 1996--97 to 11 percent in 2001--02 (Figure 7).\9\ Including 
premiums, 18 percent of all families spent more than 10 percent of 
income on health care.
---------------------------------------------------------------------------
    \7\ B.K. Frogner and G.F. Anderson, ``Multinational Comparisons of 
Health Systems Data, 2005,'' The Commonwealth Fund, Forthcoming.
    \8\ C. Smith et al., ``National Health Spending in 2004: Recent 
Slowdown Led by Prescription Drug Spending,'' Health Affairs 25, no. 1 
(January/February 2006).
    \9\ M. Merlis, D. Gould and B. Mahato, Rising Out-of-Pocket 
Spending for Medical Care: A Growing Strain on Family Budgets (New 
York: The Commonwealth Fund) February 2006.
---------------------------------------------------------------------------
    There is considerable evidence that high out-of-pocket costs lead 
patients to decide against getting the health care they need. The RAND 
Health Insurance Experiment found that greater cost-sharing reduced the 
use of both essential and less-essential health care.\10\ Similarly, a 
study by Robyn Tamblyn and colleagues found that increased cost-sharing 
reduced the use of both essential and nonessential drugs, and it 
increased the risk of adverse health events (Figure 8).\11\ In 
addition, a review by Rice and Matsuoka of more than 20 studies 
examining the impact of cost-sharing on health care use and the health 
status of people 65 and older found that increases in cost-sharing 
nearly always reduced the health care use and/or the health status of 
this population.\12\ Cathy Schoen and colleagues, using data from the 
Commonwealth Fund Biennial Health Insurance Survey, found that insured 
people with out-of-pocket costs high relative to income were nearly as 
likely to report not accessing needed health care because of costs as 
were people without any coverage at all.\13\
---------------------------------------------------------------------------
    \10\ J.P. Newhouse, ``Consumer-Directed Health Plans and the RAND 
Health Insurance Experiment,'' Health Affairs 21(6):107-113, November/
December 2004.
    \11\ R. Tamblyn et al., ``Adverse Events Associated With 
Prescription Drug Cost-Sharing Among Poor and Elderly Person,'' JAMA 
285, no. 4 (2001): 421--429.
    \12\ T. Rice and K. Y. Matsuoka, ``The Impact of Cost-Sharing on 
Appropriate Utilization and Health Status: A Review of the Literature 
on Seniors,'' Medical Care Research and Review 16 (December 2004): 
415--452.
    \13\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren, 
``Insured but Not Protected: How Many Adults are Underinsured?'' Health 
Affairs Web Exclusive (June 14, 2005): W5-289--W5-302.
---------------------------------------------------------------------------
Early Experience with HSA-Eligible HDHPs: Low Enrollment, Low 
        Satisfaction, High Out-of-Pocket Costs, and Cost-Related Access 
        Problems
    Given that American families are already spending large shares of 
their income on health care, it should not be surprising that 
enrollment in HSA-eligible HDHPs remains low. These health plans 
currently comprise a very small share of the insurance market. The 
Employee Benefit Research Institute (EBRI) and Commonwealth Fund 
Consumerism in Health Care Survey (2005), a national online survey of 
adults ages 21 to 64, found that as of October 2005, just 1 percent of 
the adult population had a HDHP and an HSA or health reimbursement 
arrangement (HRA) (Figure 9).\14\ An additional 9 percent had an HSA-
eligible HDHP but had not yet opted to open an account. Other studies 
have found similarly slow take-up. The General Accountability Office 
(GAO) found that as of March 2005, only 7,500 federal employees, 
retirees, and dependents out of 9 million covered lives had opted to 
enroll in the HDHP/HSA product offered by the Federal Employee Health 
Benefits Program (FEHBP) (Figure 10).\15\ A recent study by America's 
Health Insurance Plans estimates that there are currently about 3.2 
million people enrolled in HSA-eligible HDHPs, though the study did not 
indicate how many people had opened an account.\16\ The U.S. Treasury 
Department estimates that under current law only 14 million people will 
ever enroll in HSA-eligible HDHPs--still a relatively small share of 
the overall market.\17\
---------------------------------------------------------------------------
    \14\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund) December 2005. The EBRI/Commonwealth Fund Consumerism in Health 
Care Survey was a national online survey conducted in Fall 2005 of 1200 
adults ages 21-64 and an oversample of those in HSA-Eligible HDHPs with 
and without savings accounts that can be rolled over year to year (both 
HSAs and Health Reimbursement Arrangements or HRAs). There were 1061 
people in comprehensive plans, 463 in HSA-eligible HDHPs without a 
savings account, and 185 in HDHPs with either an HSA or an HRA.
    \15\ Government Accountability Office, Federal Employees Health 
Benefits Program First-Year Experience with High-Deductible Health 
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006; 
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
    \16\ America's Health Insurance Plans, January 2006 Census Shows 
3.2 Million People Covered by HSA Plans, March 9, 2006; C.L. Peterson, 
Data on Enrollment, Premiums and Cost-Sharing in HSA-Qualified Health 
Plans, Congressional Research Service, CRS Report for Congress, May 13, 
2006; E. Park, Informing the Debate About Health Savings Accounts: An 
Examination of Some Misunderstood Issues, Center on Budget and Policy 
Priorities, June 13, 2006.
    \17\ U.S. Department of the Treasury, Fact Sheet: Dramatic Growth 
of Health Savings Accounts (HSAs).
---------------------------------------------------------------------------
    Reflecting the fact that people in higher income tax brackets have 
the greatest tax benefits associated with HSAs, HDHPs have 
disproportionately attracted people who have higher incomes. In 
addition, higher deductibles have also attracted those who are in 
better health. The GAO study of enrollment in FEHBP's HDHP/HSA product 
found that 43 percent of those enrolled in the HDHP/HSA plans had 
incomes of $75,000 or more, compared with 23 percent of those in all 
FEHBP plans (Figure 11).\18\ Rates of enrollment in the plans were 
higher among federal employees under age 54 than among those ages 55 to 
64 (Figure 12). In the EBRI/Commonwealth Fund Survey, people with HSA/
HDHPs were slightly more likely to be in excellent or very good health 
than those with more comprehensive insurance.\19\
---------------------------------------------------------------------------
    \18\ Government Accountability Office, Federal Employees Health 
Benefits Program First-Year Experience with High-Deductible Health 
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006; 
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
    \19\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund) December 2005; General Accounting Office, 2006.
---------------------------------------------------------------------------
    Yet, unlike federal employees, most workers who were enrolled in 
HSA-eligible HDHPs in the EBRI/Commonwealth Survey did not have a 
choice of plans: less than half of those enrolled in the plans had a 
choice (Figure 13).\20\ Among those in the plans who did have a choice, 
lower premiums and the ability to open a savings account were the 
primary reasons for selecting the plan. Those in comprehensive plans 
chose them for low out-of-pocket costs.
---------------------------------------------------------------------------
    \20\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund) December 2005.
---------------------------------------------------------------------------
    Low satisfaction with plans. Few Americans who are currently 
enrolled in HDHP/HSA plans are satisfied with them. The EBRI/
Commonwealth Fund survey found that people with HDHPs, both with and 
without accounts, were far more likely than people in more 
comprehensive plans to report dissatisfaction with quality of care, 
out-of-pocket costs, and overall satisfaction with their plans (Figures 
14-15).\21\ More than half of those in the plans were not satisfied 
with their out-of-pocket costs. Moreover, one-third of those in the 
plans would change plans if they had the opportunity to do so, and only 
one-third or less would recommend the plan to a friend or co-worker 
(Figures 16-17).
---------------------------------------------------------------------------
    \21\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund) December 2005.
---------------------------------------------------------------------------
    High out-of-pocket costs. The high rates of dissatisfaction with 
the costs of HSA-eligible HDHPs likely stem from the substantial amount 
of income people in these plans allocate to their health care, 
particularly those individuals with health problems or in lower-income 
households. The Kaiser/HRET Employer Health Benefits Survey 2005 found 
that employer costs of HSA/HDHP products are lower relative to other 
plans offered, but the costs to their employees are higher relative to 
other plans (Figure 18).\22\ The EBRI/Commonwealth Fund survey found 
that two-thirds of adults who are enrolled in a HDHP with an HSA or HRA 
and who have incomes of less than $50,000 spent 5 percent or more of 
their income on out-of-pocket costs and premiums--twice the rate of 
those with similar incomes in more comprehensive plans (Figure 19). 
People with health problems in HSA-eligible HDHPs, both with and 
without accounts, were also vulnerable to spending large shares of 
their income on out-of-pocket costs and premiums: more than half (53%) 
of those in HDHPs without accounts and 38 percent of those in HDHPs 
with an account spent 5 percent or more of their income on out-of-
pocket costs.\23\ People with health problems in comprehensive plans 
were much better protected by comparison: 17 percent spent 5 percent or 
more of their income on out-of-pocket costs.
---------------------------------------------------------------------------
    \22\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a National Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.
    \23\ Health problem was defined as reporting fair or poor health or 
one of eight chronic health conditions: arthritis; asthma, emphysema or 
lung disease; cancer; depression; diabetes; heart attack or other heart 
disease; high cholesterol; hypertension, high blood pressure or stroke.
---------------------------------------------------------------------------
    The majority of those in HDHPs have deductibles substantially above 
the level required for HSA eligibility. According to the EBRI/
Commonwealth Fund survey, nearly three of five adults (59%) who had 
individual HDHPs with accounts had deductibles of $2,000 or more.\24\ 
Among those with family coverage in HDHPs with accounts, two-thirds 
(67%) reported a deductible of $3,000 or more; 24 percent had a 
deductible of at least $5,000.
---------------------------------------------------------------------------
    \24\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund) December 2005
---------------------------------------------------------------------------
    Cost-related access problems. The early experience with HSA-
eligible HDHPs reveals that their high deductibles are leading many 
enrollees to delay, avoid, or skip health care. The EBRI/Commonwealth 
Fund survey found that one-third of those in HDHPs with and without 
accounts had delayed or avoided getting health care when they were sick 
because of cost, nearly twice the rate of those in more comprehensive 
plans (Figure 20). People with health problems or incomes under $50,000 
reported particularly high rates of avoiding care. Nearly half of 
adults in HDHP/HSAs with incomes of less than $50,000 reported delaying 
or avoiding care; this was nearly twice the rate of people in the same 
income group in more comprehensive plans. People enrolled in HSA-
eligible HDHPs without accounts were more likely to skip doses of their 
medications, in order to make them last longer, or to not fill their 
prescriptions at all. The rates of skipped medication were highest 
among people with health problems (Figures 21 and 22).
    Risk of medical debt. When people with high-deductible health plans 
access health care, they are at risk of accumulating medical debt. 
Karen Davis and colleagues examined data from the Commonwealth Fund 
Biennial Health Insurance Survey (2003) and found that adults with 
deductibles of more than $500 were more likely than those in lower-
deductible plans to report that they had problems paying medical bills 
or that they were paying off medical debt over time (Figure 23).\25\ 
Medical bill problems included not being able to pay bills, being 
contacted by a collection agency about medical bills, or having to 
change your way of life in order to pay bills.
---------------------------------------------------------------------------
    \25\ K. Davis, M.M. Doty and A. Ho., How High is Too High? 
Implications of High Deductible Health Plans (New York: The 
Commonwealth Fund) April 2005.
---------------------------------------------------------------------------
    Other research has found that rising out-of-pocket costs are 
reducing people's ability to save for retirement. The 2005 EBRI Health 
Confidence Survey found that 29 percent of insured adults under age 65 
reported that they financed increased health care spending by using up 
all or most of their savings, while 45 percent had decreased 
contributions to other savings (Figure 24).\26\
---------------------------------------------------------------------------
    \26\ R. Helman and P. Fronstin, ``2005 Health Confidence Survey: 
Cost and Quality Not Linked,'' EBRI Notes (Washington, DC: EBRI), 
November 2005, Vol 26, No 11.
---------------------------------------------------------------------------
Information Currently Available to Enable Patients to Make Informed 
        Choices Is Inadequate
    The theory most central to the consumerism in health care movement 
is that prudent choices in the use of health care will drive the health 
services market to look more like markets for other goods and services, 
lowering costs and improving quality as providers compete for patients. 
But patients' ability to make informed choices is dependent on the 
extent to which they have access to useful information.
    The EBRI/Commonwealth Fund survey finds that Americans, regardless 
of the health plan they are in, continue to encounter a yawning gap 
between the cost and quality information they need to make decisions 
and what is actually available. Just 14 to 16 percent of insured 
adults--whether enrolled in a comprehensive plan or a high-deductible 
health plan--had information from their health plan on the quality of 
care provided by their doctors and hospitals (Figure 25).\27\ 
Similarly, 12 to 16 percent had cost-of-care information for their 
doctors and hospitals.
---------------------------------------------------------------------------
    \27\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund), December 2005.
---------------------------------------------------------------------------
    There is evidence that people in HSA-eligible HDHPs are more cost-
conscious consumers of health care than those in more comprehensive 
plans. The EBRI/Commonwealth Fund survey finds that three of five of 
those enrolled in HDHPs, both with and without accounts, said that they 
had checked whether their health plan would cover their costs prior to 
receiving care, and about one-third checked the price of a doctor's 
visit or other health service (Figure 26). People in HDHPs also 
appeared to be somewhat more willing than those in comprehensive plans 
to discuss the cost of their care with their doctors or ask them to 
recommend a less costly prescription drug.

Patients' Use of Information Alone Is Not Likely to Reduce Health Care 
        Costs Dramatically or Improve Quality
    It is unrealistic to expect that even with adequate information and 
patient financial incentives, the transformation of health care will be 
driven by patient choice of provider. Patients are in the weakest 
position to demand greater quality and efficiency. Payers, federal and 
state governments, accrediting organizations, and professional 
societies are much better positioned to insist on high performance.\28\ 
Most health care costs are incurred by very sick patients--those with 
heart attacks, strokes, cancer, mental illness, fractures, and 
injuries--often under emergency conditions. Ten percent of the sickest 
patients account for about 70 percent of all health care spending 
(Figure 27).\29\ Shopping for the best physician or hospital is 
impractical in such circumstances. Moreover, to the extent that 
consumer-driven plans encourage people to skimp on preventive care or 
chronic disease management, they could fuel growth in health care costs 
over time.
---------------------------------------------------------------------------
    \28\ See also S.R. Collins and K. Davis, Transparency in Health 
Care: The Time Has Come, Invited Testimony, Energy and Commerce 
Committee, Subcommittee on Health, U.S. House of Representatives, 
Hearing on ``What's the Cost?: Proposals to Provide Consumers with 
Better Information About Healthcare Service Costs,'' March 15, 2006.
    \29\ A.C. Monheit, ``Persistence in Health Expenditures in the 
Short Run: Prevalence and Consequences,'' Medical Care 41, supplement 7 
(2003): III53--III64.
---------------------------------------------------------------------------
    Patients are also unaccustomed to seeking information on price or 
quality, or trusting the information that is available. The EBRI/
Commonwealth Fund survey found that the most trusted source of 
information on the quality of providers is the patient's own physician 
(Figure 28).\30\ The least trusted sources of information are health 
plans and government agencies--with only one of 20 trusting those 
sources of information. Yet health plans and government agencies are 
far more likely to be able to assemble the required information.
---------------------------------------------------------------------------
    \30\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth 
Fund), December 2005.
---------------------------------------------------------------------------
    Still, studies regularly find that public information on quality is 
not used by patients. New York and Pennsylvania were pioneers in 
publishing information on cardiac surgery mortality by name of surgeon 
and hospital, yet few patients in these states avail themselves of this 
information.\31\ The data were valuable because hospital CEOs 
investigated the reasons for poor performance and took necessary 
action--not because patients voted with their feet.\32\
---------------------------------------------------------------------------
    \31\ M.N. Marshall, P.G. Shekelle, S. Leatherman and R.H. Brook, 
``The Public Release of Performance Data: What Do We Expect to Gain? A 
Review of the Evidence,'' JAMA 283, no. 14 (April 2000): 1866--1874.
    \32\ M.N. Marshall, P.G. Shekelle, S. Leatherman and R.H. Brook, 
``The Public Release of Performance Data: What Do We Expect to Gain? A 
Review of the Evidence,'' JAMA 283, no. 14 (April 2000): 1866--1874.
---------------------------------------------------------------------------
    Provider response to public information is, in fact, one of the 
strongest arguments for public reporting. The National Committee for 
Quality Assurance has found that those managed care plans that report 
their quality data publicly are more likely to improve.\33\ Hospitals 
that report such information take steps to improve the care they 
deliver.\34\ And a recent study found that the top-performing medical 
groups were those that reported quality data publicly, either 
voluntarily or because of local reporting requirements.\35\
---------------------------------------------------------------------------
    \33\ National Committee for Quality Assurance, The State of Health 
Care Quality, 2005 (Washington, D.C.: NCQA, 2005).
    \34\ J.H. Hibbard, J. Stockard and M. Tusler, ``Hospital 
Performance Reports: Impact on Quality, Market Share, and Reputation: 
Evidence from a Controlled Experiment,'' Health Affairs, July/August 
2005 24(4):1150-60; J.H. Hibbard, J. Stockard and M. Tusler, ``Does 
Publicizing Hospital Performance Stimulate Quality Improvement 
Efforts?'' Health Affairs, March/April 2003 22(2):84-94.
    \35\ S.M. Shortell, J. Schmittdiel, M.C. Wang et al., ``An 
Empirical Assessment of High-Performing Medical Groups: Results from a 
National Study,'' Medical Care Research and Review 62, no. 4 (August 
2005): 407-434.
---------------------------------------------------------------------------
HSAs Will Not Solve Our Uninsured Problem
    The combination of HSAs and HDHPs will not significantly reduce the 
nation's growing number of people who are uninsured. The Commonwealth 
Fund Biennial Health Insurance Survey of 2005 found that more than one-
quarter (28%) of U.S. adults ages 19 to 64, or 48 million people, were 
either uninsured at the time of the survey or had experienced a time 
without coverage in the previous 12 months (Figure 29).\36\ Lack of 
insurance coverage continues to be highest among families with incomes 
under $20,000, with more than half (53%) uninsured for at least part of 
2005. But uninsured rates are climbing rapidly among adults in 
moderate-income families--those with incomes between $20,000 and 
$40,000 (under 200 percent of poverty for a family of four)--rising 
from 28 percent in 2001 to 41 percent in 2005. Young adults ages 19 to 
29, meanwhile, are the fastest growing age group among the uninsured, a 
reflection of two factors: their loss of dependent coverage on their 
19th birthday, or more importantly in terms of sheer numbers, their 
reclassification as adults at 19 by Medicaid and the State Children's 
Health Insurance Program (SCHIP).\37\ Nearly 70 percent of uninsured 
young adults are in families with incomes under 200 percent of poverty 
(Figure 30).
---------------------------------------------------------------------------
    \36\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren, 
Gaps in Health Insurance: An All-American Problem, Findings from the 
Commonwealth Fund Biennial Health Insurance Survey (New York: The 
Commonwealth Fund) April 2006.
    \37\ S.R. Collins, C.Schoen, J.L. Kriss, M.M. Doty, Rite of 
Passage? Why Young Adults Become Uninsured and How New Policies can 
Help (New York: The Commonwealth Fund) updated May 2006.
---------------------------------------------------------------------------
    Because HSAs allow people to use pre-tax dollars to pay for out-of-
pocket expenses not covered by health insurance, they are expected to 
draw previously uninsured people into the individual insurance market. 
People without insurance coverage have always had the option of 
purchasing a HDHP in order to lower their premium expense. Indeed, the 
majority of people in the EBRI/Commonwealth Fund Consumerism in Health 
Care Survey who had purchased an HSA-eligible HDHP, but not opened an 
account, had done so because of the lower premium.
    The marginal effect of HSAs on the overall number of uninsured 
Americans depends on the degree to which uninsured individuals realize 
enough tax savings on out-of-pocket spending to make insurance 
affordable relative to their income. This will depend on expected out-
of-pocket expenditures and marginal income tax rates, as well as 
savings from Medicare and Social Security taxes for employer-based 
plans. Research by Sherry Glied and Dahlia Remler found that 71 percent 
of uninsured Americans are in a 10-percent-or-lower income tax bracket. 
Indeed, more than half (55%) of people without coverage have no income 
tax liability at all (Figure 31).\38\
---------------------------------------------------------------------------
    \38\ S.A. Glied and D.K. Remler, The Effect of Health Savings 
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund) 
April 2005.
---------------------------------------------------------------------------
    Using data from the Medical Expenditure Panel Survey, Glied and 
Remler calculated expected tax savings as a share of premiums, finding 
that savings associated with HSAs ranged from zero percent for those in 
the zero-percent tax bracket, to 6 percent for middle-income people in 
employer plans. Assuming a range of take-up rates in response to such 
savings, the authors estimated that the tax savings associated with 
HSAs would help cover fewer than 1 million previously uninsured 
people--even under their most generous assumptions of price sensitivity 
and not taking into account the effect of existing medical savings 
accounts, such as flexible spending accounts. In short, the major 
beneficiaries of the protective tax status of HSAs will be healthier, 
higher-income, insured taxpayers, who can afford to fund their accounts 
and afford the financial risk posed by higher-deductible health 
insurance plans.

New Proposals to Expand HSAs May Fragment Group Insurance Markets, 
        Increasing the Number of Uninsured
    In its most recent 2007 fiscal year budget, the Administration 
proposed additional tax incentives for people to purchase HSA-eligible 
HDHPs in the individual market. The proposals, which aim to equalize 
the tax treatment of HSAs in the individual market to those in the 
employer market, would allow a tax deduction for premiums associated 
with HSA-eligible HDHPs in the non-group market, along with a tax 
credit of 15.3 percent to offset the premium cost. Or, low income 
individuals and families could opt for a tax credit of $500 per child 
and $1,000 per adult, and up to $3,000 per family premium.\39\ The 
proposal also includes a 15.3 percent tax credit to be applied to HSA 
contributions, which are already tax-exempt.
---------------------------------------------------------------------------
    \39\ These tax credits would be phased out at incomes between 
$15,000 and $30,000 for individuals and between $25,000 and $60,000 for 
families.
---------------------------------------------------------------------------
    Jonathan Gruber, an MIT economist, estimates that the 
Adminstration's proposals would actually increase the number of 
uninsured Americans by 600,000.\40\ While 3.8 million previously 
uninsured people would become newly insured through HSA-eligible HDHPs 
in the individual market, many employers, especially small employers, 
would respond to the equal tax treatment of some policies in the 
individual market by dropping coverage. Consequently, Gruber estimates 
that 8.9 million people would lose their employer-based health 
insurance. While some people who lose their coverage would buy 
insurance in the individual market, about 4.4 million would become 
uninsured.
---------------------------------------------------------------------------
    \40\ J. Gruber, The Cost and Coverage Impact of the President's 
Health Insurance Budget Proposals, Center on Budget and Policy 
Priorities, February 15, 2006.
---------------------------------------------------------------------------
What Needs to Be Done?
    Armed with the right information, patients can contribute in a 
small way to better care by exercising and eating well, by getting 
regular preventive care, by becoming educated about the risks and 
benefits of elective procedures, and by sharing their medical history 
with all their providers to reduce duplication of tests. But placing 
greater financial burdens on the sickest and poorest patients is not 
the right prescription for what ails the health care system. Nor is it 
the right prescription for people when they are ailing. High-deductible 
health plans increase the risk that patients will fail to get care 
early on, before a health condition becomes serious, and fail to get 
medications that could control their risk factors and chronic 
conditions.
    Health care costs are high because of the fragmented way we 
organize and deliver health care, and because we provide the wrong 
financial incentives to hospitals and doctors. If we want to transform 
the health care system, we will need to make fundamental changes in 
current payment methods. Medicare's physician group practice 
demonstration (Figure 32) is a step in the right direction and should 
yield valuable insight into whether gains in efficiency and quality can 
be achieved simultaneously. Some state Medicaid programs, particularly 
Rhode Island's RIte care (Figure 33), have had excellent results in 
both slowing the rate of increase in premiums and improving 
quality.\41\ A Fund-supported evaluation of the PacifiCare pay-for-
performance initiative in California also found promising results.\42\ 
Yet, these programs are just the beginning, and Medicare, Medicaid, and 
private payers need to do much more to change financial incentives for 
providers so that they systematically reward high quality and 
efficiency.
---------------------------------------------------------------------------
    \41\ S. Silow-Carroll, Building Quality into RIte Care: How Rhode 
Island Is Improving Health Care for Its Low-Income Populations, The 
Commonwealth Fund, January 2003.
    \42\ M.B. Rosenthal, R.G. Frank, Z. Li et al., ``Early Experience 
with Pay-for-Performance: From Concept to Practice,'' Journal of the 
American Medical Association, October 12, 2005, 294 (14): 1788--93.
---------------------------------------------------------------------------
    To achieve transparency in quality and costs in our health system, 
Medicare needs to take a leadership role in making total cost and 
quality information by provider and by patient condition publicly 
available. Medicare should also forge public--private partnerships to 
create a multi-payer database, uniform quality metrics, and transparent 
methodologies for adjusting quality and costs.
    Conflicting quality metrics used by different parties, however, 
have the potential to add to administrative burden on providers. The 
Institute of Medicine has called for creation of a National Quality 
Coordination Board located within the U.S. Department of Health and 
Human Services to set priorities, oversee the development of 
appropriate quality and efficiency measures, ensure the collection of 
timely and accurate information on these measures at the individual 
provider level, and encourage their incorporation in pay-for-
performance payment systems operated by Medicare, Medicaid, and private 
insurers.\43\
---------------------------------------------------------------------------
    \43\ Institute of Medicine, Performance Measurement: Accelerating 
Improvement, National Academies Press, Washington, DC: December 2005.
---------------------------------------------------------------------------
    Investment in health information technology is essential to ensure 
the right information is available at the right time to patients, 
providers, and payers. While many have called for such change, the 
current state of affairs is inadequate. Only about one of four 
physicians has electronic health records, demonstrating that the 
benefits of modern information technology (IT) are far from being 
realized.\44\ Some private insurers have begun to build rewards for IT 
into their payment systems. Medicare and Medicaid should consider doing 
the same, at least on an initial basis, to encourage the adoption and 
utilization of IT.
---------------------------------------------------------------------------
    \44\ A-M. Audet, M. Doty, J. Peugh, J. Shamasdin, K. Zapert and S. 
Schoenbaum, ``Information Technologies: When Will They Make It Into 
Physicians' Black Bags?'' Medscape General Medicine, December 7, 2004
---------------------------------------------------------------------------
    But we will never achieve a high performing health care system when 
millions of Americans are without adequate health insurance coverage. 
The Commonwealth Fund Biennial Health Insurance Survey (2005) finds 
alarming evidence that adults without health insurance who have chronic 
conditions are far more likely to skip medications or not fill 
prescriptions for controlling their conditions. They are also far more 
likely than their insured counterparts to have gone to the emergency 
room or to have spent the night in the hospital (Figure 34).\45\ 
Uninsured adults are also far more likely to report inefficiencies in 
their care, such as receiving duplicate tests (Figure 35).
---------------------------------------------------------------------------
    \45\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren, 
Gaps in Health Insurance: An All-American Problem, Findings from the 
Commonwealth Fund Biennial Health Insurance Survey (New York: The 
Commonwealth Fund) April 2006.
---------------------------------------------------------------------------
    Health care needs to be made more affordable--not less affordable--
for patients. We need to cover the nation's 46 million uninsured, 
building on group forms of coverage that we know pool risk and provide 
affordable, meaningful protection to people.
    The individual market is not a solution for our uninsured problem. 
The administrative costs of individual coverage comprise 25-40 percent 
of each premium dollar compared to 10 percent of group coverage.\46\ 
This means premium dollars buy fewer benefits in the non-group market 
than they do in employer group markets. Research has shown that few 
plans in the individual market, even with low deductibles and higher 
premiums, provide maternity benefits without a special rider.\47\ A 
report by the Commonwealth Fund found that of adults who had considered 
purchasing individual insurance coverage, 35 percent said that it was 
very difficult or impossible to find a plan that met their needs.\48\
---------------------------------------------------------------------------
    \46\ J. Gabel, et al., Are Tax Credits Alone the Solution to 
Affordable Health Insurance? Comparing Individual and Group Insurance 
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
    \47\ S. R. Collins, S.B.Berkson, D.A. Downey, Health Insurance Tax 
Credits: Will They Work for Women? (New York: The Commonwealth Fund) 
December 2002; J. Gabel, et al., Are Tax Credits Alone the Solution to 
Affordable Health Insurance? Comparing Individual and Group Insurance 
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
    \48\ L.Duchon and C. Schoen, Experiences of Working Age Adults in 
the Individual Insurance Market: Findings from the Commonwealth Fund 
2001 Health Insurance Survey (New York: The Commonwealth Fund) December 
2001.
---------------------------------------------------------------------------
    In addition, to remain competitive and to be responsible to their 
shareholders, insurers in the non-group market necessarily estimate 
risk and set premiums sufficiently high to cover risk. Unless we can 
tolerate our sick and old neighbors, friends, and family members being 
charged far more than the healthy and the young, or being left out of 
the market altogether, it is imperative that we pool risk.\49\ New 
forms of pooling are needed to allow people who lose, or have never had 
access to, employer-based coverage an affordable place to buy 
meaningful coverage. Particularly promising are strategies that expand 
employer-based coverage, eliminate the two-year waiting period for 
coverage of the disabled under Medicare, let older adults ``buy in'' to 
Medicare, and build on Medicaid and the State Children's Health 
Insurance Program to cover low-income parents, young adults, and single 
adults.\50\
---------------------------------------------------------------------------
    \49\ S.R. Collins, C. Schoen, M. M. Doty, A. L. Holmgren, S, K. 
How, Paying More for Less: Older Adults in the Individual Insurance 
Market (New York: The Commonwealth Fund), June 2005.
    \50\ K. Davis and C. Schoen, ``Creating Consensus on Coverage 
Choices,'' Health Affairs Web Exclusive, April 23, 2003.
---------------------------------------------------------------------------
    In many cases, patient cost-sharing is far too high and deters 
access to needed care. Approximately 16 million adults in the U.S. are 
underinsured and report difficulty obtaining needed care as well as 
heavy financial burdens.\51\ Rather than insisting on minimum 
deductibles of $2,100 per family, our nation's health policy should be 
geared toward setting maximum limits on family cost-sharing, for 
example, 5 percent of income for those in the lower tax brackets and 10 
percent of income for those in higher brackets. Guaranteeing 
affordability of care for all Americans will help ensure that patients 
receive appropriate preventive care, detect serious conditions in early 
stages, and control chronic conditions that would otherwise undermine 
health and functioning and lead to higher costs later in life.
---------------------------------------------------------------------------
    \51\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren, 
``Insured But Not Protected: How Many Adults Are Underinsured?'' Health 
Affairs Web Exclusive, June 14, 2005, W5-289--W5-302.

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    Chairman THOMAS. Thank you very much. Ms. Therrien.

 STATEMENT OF JEAN THERRIEN, EXECUTIVE DIRECTOR, NEIGHBORHOOD 
                FAMILY PRACTICE, CLEVELAND, OHIO

    Ms. THERRIEN. Thank you, Mr. Chairman, Ranking Member 
Rangel, and Members of the Committee. My name is Jean Therrien; 
I am Executive Director of Neighbor Family Practice, a 
federally qualified community health center on the west side of 
Cleveland in a very densely populated urban neighborhood.
    I appreciate the opportunity to present this testimony 
before the Committee today on the topic of HSAs, and especially 
their impact on low-income Americans and the safety net 
providers, like Neighborhood Family Practice, that serve these 
individuals.
    As a nurse and public health professional, I am deeply 
concerned about the growing number of Americans who have high-
deductible health plans under the HSA design. These patients 
have no coverage for primary health care and prescription 
medication.
    I believe one of our goals in health policy should be 
healthy children and a healthy workforce. Americans who are at 
low income, like our patients, cannot afford to pay for care up 
front. Patients in high-deductible plans in my area do not have 
any savings accounts and are seeking care from safety net 
providers because this represents their only choice.
    I will describe some of the unintended consequences of the 
policies that promote high-deductible plans.
    Cleveland is one of the poorest cities in the country and 
one that has experienced a longer-than-average economic 
downturn. Cleveland is filled with low-income families, many 
unhealthy citizens, and struggling small businesses.
    High-deductible plans are receiving a lot of discussion and 
contribution in Cleveland as companies seek ways to control 
rising health care premiums and stabilize those costs. Many 
employers are offering high-deductible plans as their only 
health insurance option for employees, and in most cases they 
are not able to contribute anything to those employees' HSAs. 
The plans being marketed locally are also not covering 
preventive services and they do not provide prescription drug 
coverage.
    Our experience at Neighborhood Family Practice is that we 
are seeing more and more of these patients each day.
    In our 25 years, we have a rich history of providing 
medical care to families.
    We became federally funded in the year 2000, and we want to 
sincerely thank the Congress for their support, their 
bipartisan support, of the Federal Health Centers Program. It 
is the only reason that our organization is currently 
surviving.
    In 2006, we served over 11,000 patients, most below 200 
percent of Federal poverty guidelines. A large number of young 
families and working adults come to us for care; a growing 
number of these have lost their health insurance and are now 
uninsured, and a growing number of them are now underinsured 
and have been switched to these high-deductible plans.
    The number of uninsured patients has doubled in the past 2 
years from 1,200 to 2,500 in the year 2005. I do not yet have 
any statistics for 2006, but I imagine it will be even 
significantly higher and a significantly higher percentage of 
our population. We do not turn away anyone because they cannot 
pay for medical care, and that would include insured and 
uninsured patients.
    Every day new patients are seen at our health centers with 
stories about how their prior provider of care would no longer 
take them as a patient unless they put the cash up front. Those 
who seek care at our health center, who are enrolled in high-
deductible plans and those who are uninsured have the same 
coverage when they arrive at our health center; they have no 
coverage for that primary care visit. That means they don't 
have any insurance coverage to pay for the office visit, any 
laboratory testing that may be required, or any prescription 
drug that they may need. Yet, many of the patients who are 
enrolled in high-deductible plans are counted as insured in our 
statistics and are a hidden cost to us.
    The ability of Neighborhood Family Practice to provide 
charity care is because of our Federal grants. The discounts 
provided to these poorly insured patients are draining needed 
dollars from the increasing number of completely uninsured 
patients, and as the numbers of these patients have grown, our 
funding has remained the same over the past 5 years.
    We are also not able to offer the same types of financial 
assistance to underinsured patients that we would to uninsured 
patients. The Cleveland Free Clinic is experiencing something 
similar, with 15 to 20 percent of its adult patient volume 
being patients from high-deductible plans because they cannot 
afford medication.
    Health insurance models that do not provide preventive care 
increase health disparities. A bill of even $100 is 
overwhelming for many low-income families.
    Two recent stories at our health center: one, a woman 
arrived at the window in tears; she had been just switched to a 
high-deductible plan and could no longer afford the 
prescription medication for her severely mentally ill son. 
Another patient was just hospitalized after deferring care for 
a recurring condition.
    I would like to mention quickly a couple of implications 
for health policy. I would suggest, with respect, that there be 
thought given to exempting preventive and primary health care 
services from the high deductible, establishing mechanisms for 
all low-income individuals to obtain needed medication, 
especially for chronic illnesses and infections; and requiring 
employers to fund the HSAs of low-income individuals and also 
investigate strategies to help provide financial stability for 
safety net providers like ours that are overwhelmed with under- 
and uninsured patients.
    Thank you, and I would be happy to entertain questions.

    [The prepared statement of Ms. Therrien follows:]

  Statement of Jean Therrien, Executive Director, Neighborhood Family 
                       Practice, Cleveland, Ohio

    Mr. Chairman and Members of the Committee:
    My name is Jean Therrien. I am Executive Director of Neighborhood 
Family Practice (NFP), a Federally Qualified Community Health Center in 
an urban neighborhood on the West Side of Cleveland, Ohio. I appreciate 
the opportunity to present testimony before the Committee today on the 
topic of Health Savings Accounts, and especially their impact on low-
income Americans and the safety net providers who serve them.
    As a nurse and public health professional I am deeply concerned 
about the growing number of Americans who have high deductible health 
plans (HSA design). These plans do not provide coverage for primary 
health care and medications. With the growth in total health care 
costs, policies that discourage families from seeking care to stay 
healthy are short sighted. Plans designed only for the financial and 
tax impact without examination of the impact on the public's health are 
harmful in the long run. Health policy needs to keep in mind the goals 
of healthy children and a healthy workforce. Policies also need to 
consider the long term economic income of increasing health disparities 
between low and high income Americans. Furthermore, Americans who are 
low income and cannot afford needed primary care are overwhelming 
community safety net providers. They seek the ability to take care of 
themselves and their families and to obtain the medication they need. I 
will describe for you some of the unintended consequences of the 
policies that promote high deductible health plans. I will refrain from 
referring to these plans as Health Savings Account plans, because for 
the patients in my community there is no savings account, only more 
health care bills.

The Reality of High Deductible Health Plans in Cleveland
    As one of the poorest cities in the country and one that has 
experienced a longer than average economic downturn, Cleveland is 
filled with low income families, unhealthy citizens and struggling 
small businesses. High deductible plans are receiving a lot of 
discussion and consideration in Cleveland as companies seek ways to 
control rising premiums and stabilize their costs. COSE, the Council of 
Smaller Enterprises, a small business coalition that markets health 
insurance has been ``pushing'' these types of plans. One small business 
owner that does work for our health center mentioned that she had 
reviewed the plans. She considered the plan because of the cost 
savings. A local insurance broker I spoke with stated that many of his 
clients are considering these plans. According to him, the average 
deductible chosen by the firms that have selected this option are $2500 
individual and $5000 for a family. However, he has seen plans selected 
with up to a $10,000 deductible. Many of the employers offer the high 
deductible plan as their only health insurance option for employees, 
and--in most cases--do not contribute anything to a savings plan to 
cover these high deductibles. In fact, the savings account plan does 
not exist to cover the high deductibles. While the company benefits by 
stabilizing their costs, they pass the risk for escalating health costs 
to their workers. Further, none of the plans being marketed locally 
covers extensive preventive services. In a few cases, a well women exam 
and equivalent male checkup are included. However, no plan has well 
child or maternity care included prior to satisfying the high 
deductibles. He states, ``But the reason many of my clients do not take 
the plan is that no prescription card is included, even after the 
deductible is met.'' Even after the employee meets the deductible they 
must pay for their prescriptions up front and then submit documentation 
for reimbursement through their carrier. ``Most people don't have the 
discretionary income to do that, even middle income people.''
    The health center where I work, Neighborhood Family Practice, has 
faced the same pressures as many of the small employers referenced 
above. We have seen double digit percentage increases in our health 
insurance costs each year. Almost half of our employees make less than 
$14/hour and support families. Because many of our employees and their 
families receive care at our health center, we never want to be put in 
the position of economically rationing care for our co-workers. 
Therefore, as an organization we have tried to keep deductibles low 
enough that they would never create a financial catastrophe for an 
employee's family. However, we have had to shift to higher co-pays for 
office visits and pass more of the premium cost to the employees to 
balance our budget the past few years.

Neighborhood Family Practice Background
    Established over 25 years ago, Neighborhood Family Practice (NFP) 
became federally funded in 2000, and has grown rapidly since that time. 
We sincerely appreciate the strong, bipartisan Congressional support 
for the Federal Health Centers program. In 2006 we served over 11,000 
individuals, the vast majority of who live within Federal poverty 
guidelines. We serve a large number of young families and working 
adults, a growing number of whom are uninsured and underinsured. We 
have a philosophy of access and best practices. We are not just a 
``clinic,'' but a medical home. In that spirit we have become actively 
involved in solving problems presented by our ``underinsured'' patients 
and advocating for changes to benefit their health. We do not turn 
anyone away because they cannot pay for needed care.

Problems for Safety Net Providers with Increasing Use of High 
        Deductible Health Plans
    Low income patients who are enrolled in high deductible plans are 
increasingly turning to safety net providers for assistance. Every day 
new patients are seen at our health center. Many tell stories about how 
their prior provider of care began demanding cash up front for the cost 
of the visit in order for them to obtain needed care. Patients at our 
health center who have difficulty paying for medical services and are 
within Federal Poverty guidelines are offered discounts under our 
sliding scale fee policies. The patients who seek care at our health 
center who are enrolled in high deductible plans and those that are 
uninsured are indistinguishable from one another in their inability to 
pay for needed services. They do not have first dollar coverage for 
preventive care, office visits, lab testing and prescription drugs. 
Yet, they are counted as insured in our statistics.
    Because our organization has a philosophy of access and services 
delivered without regard to ability to pay, we work with patients to 
help them access the care they need. This first includes offering them 
a discount consistent with our policies. In the past we have considered 
not offering ``insured'' patients the sliding scale discount. But then 
the choice is to deny the care if they do not have the money or bill 
the patient and have more bad debt. Then the patients who seem to need 
it most do not come for needed care.
    The ability of Neighborhood Family Practice to provide extensive 
charity care is because of our funding as a Federally Qualified Health 
Center. Many of the patients enrolled in high deductible plans are 
below 200% of poverty which is defined as up to $19,600/year for a 
single person and up to $40,000/year for a family of four. We discount 
the cost of the office visit from 60-95% per our policies. Most of our 
patients are below 150% of Federal poverty guidelines. The discounts 
provided to these underinsured patients drain needed dollars from the 
growing burden of the completely uninsured patients. The number of our 
uninsured patients has risen from 1223/year in 2003 to 2548/year in 
2005 (doubled!) while our overall volume has grown from 8886 total 
patients in 2003 to 11,070 patients in 2006 (25% increase). The amount 
of our Federal grant has not increased anywhere near this amount, from 
$665,322 to $706,066 in 2006 (6% increase). (For 2006 NFP received the 
mandated 1% Federal program cut, so our funding actually decreased.) 
The ``base grant adjustments'' that we have received have been largely 
based on increases in the number of uninsured, which does not include 
the growing number of underinsured.
    Other difficulties are presented for the patients because they 
technically have insurance. If the patient is not aware of the high 
deductible, the billing staff has to work more closely with them. The 
patients may need extensive help identifying medications they can 
afford and where they can obtain specialty and diagnostic care. We are 
not able to access State funding for the uninsured to cover their 
visits. We are also not able to provide the same discounted reference 
lab work. Lastly, these patients are not eligible for prescription drug 
assistance programs offered by the drug companies in the same way that 
uninsured patients are. Yet, the organization must devote its time and 
financial resources to help the patients get their medications and stay 
healthy.
    Neighborhood Family Practice is not the only Federally Qualified 
Health Center with a growing concern about this trend. Another health 
center executive states that she sees the number of patients with these 
types of plans is growing. She believes this represents a shifting of 
the burden from private sector to government funded organizations. The 
most notable financial impact is that fact that the ``collection'' of 
money is now the risk of the provider. Many companies are encouraging 
their employees not to pay for services until it is clear that the 
insurance plan is denying the charge as a part of the deductible. This 
means cash flow is really delayed and the health center incurs the cost 
of billing (at least once if not many times) to collect directly from 
the patient. So, payment from patients is not always forthcoming due to 
lack of money. They have patients who have high deductible plans that 
are only funded by the patient, not their employer. So, for these 
people there is often no money to cover cost. She states, ``I 
understand the concept that these accounts should make healthcare 
consumers more ``involved.'' The real issue is who gets stuck with the 
risk. At this juncture, I say we do.''
    A Cleveland free clinic is overwhelmed by new ``underinsured'' 
patients. The Medical Director estimates that between 15 to 20% of the 
adult medical visits are by people who are ``underinsured.'' This 
totaled almost 1500 adults last year. He mentioned that this is a 
growing concern to the Board of the organization and they are beginning 
to evaluate their policies about these patients. While their 
organizational mission is to provide health care services to patients 
that cannot afford them, they see an increased burden of ``insured'' 
patients who cannot obtain needed medications. ``They may have gone to 
their regular doctor, who may have given them a discount on the 
visit,'' he said, ``but then they can't afford their medication and 
they do not know where to turn.''
    The majority of safety net providers are reeling financially from 
the growing number of uninsured Americans. The addition of underinsured 
families to their patient populations is further weakening the 
stability of these organizations.

Problems Presented by High Deductible Plans for Our Patients
    Health Insurance models that do not cover preventive care increase 
health disparities and further marginalize the health of low income 
Americans. It is well demonstrated that patients who seek care early 
for chronic illness and take care of the health care needs of their 
children in a timely way are healthier and more productive citizens. 
Healthy children do better in school. Healthy workers have less 
absenteeism. This can result in a lower use of the emergency room and 
lower hospitalization rates. In this way, high deductible plans are a 
barrier to the health of our patients. These patients are facing 
difficult choices given that they are in low-income families with 
limited resources. Similar to uninsured patients they defer care that 
is needed for chronic illness and do not fill necessary prescriptions. 
A bill of even $100 is overwhelming for many of our low--income 
families. Here are some of the examples of health care costs subject to 
the high deductible under health savings account plans:

      Prenatal care visits for pregnant women
      Office visits for childhood illnesses
      Office visit portion of well child visits that include 
immunizations
      Annual gynecologic exams including Pap smears
      Medication for chronic illness such as diabetes and high 
blood pressure
      X-rays for broken bones

    Last week one woman appeared at the registration window in tears. 
Her employer had just switched her health plan to a high deductible 
plan. Her teenage son, who had a diagnosed serious mental health 
condition, was on two medications, which cost over $500 per month. She 
had no way of filling the prescriptions from her low wage job. Another 
of our patients was just hospitalized with a serious blood clot in his 
leg. This is a recurrence of a problem from a year ago that almost cost 
him his life. Because he has a $2000 deductible and no savings, he 
waited for a week to seek treatment, even though the signs were there 
that the condition had returned.
    The free clinic shared two recent stories. One of a woman who had 
come directly from a breast biopsy at a large local hospital. ``She was 
literally bleeding through her blouse.'' She had just received a 
diagnosis of breast cancer but was told that she could not be scheduled 
for surgery until she got her blood pressure under control. She had 
been unable to afford her prescriptions under her new insurance plan. 
The hospital, as most in Cleveland, did not provide any assistance with 
obtaining medication. The second story is of a local hot dog vendor, 
with a high deductible plan, who was discharged from the hospital with 
a diagnosis of heart failure. He needed additional treatment and 
studies but was told they were not available to him unless he brought 
in a cashiers' check for $1000. ``It might as well have been a 
million!,'' he exclaimed.

Implications for Policy
    When the Health Savings Account legislation was considered and 
adopted, the themes of consumer choice and fiscal responsibility were 
central. However, the patients seen at Neighborhood Family Practice do 
not have Health Savings Accounts. They only have bad insurance! They do 
not have any choice but to seek out safety net providers that will use 
their time and resources to help them keep themselves and their 
families healthy. People living in poverty have even fewer choices 
under these plans because many medical providers will not give them 
care unless they pay the full charges up front. Why does a rich nation 
such as ours continue to ask its citizens to choose between needed 
primary health care and basic necessities of life? Why would we 
sacrifice the public health of many urban neighborhoods by further 
promoting a plan that discourages those with the least from learning 
how to keep themselves and their families healthy? I ask thoughtful 
consideration of the following:

      Exempt preventive and primary health care services from 
the high deductible
      Establish mechanisms for all low income individuals to 
obtain needed medications including those for chronic illness and 
antibiotics
      Require employers to fund the health savings accounts for 
low income individuals and their families up to the amount of the 
deductible
      Investigate strategies to provide financial stability for 
primary care safety net providers such as Federally Qualified Health 
Centers who are overwhelmed with uninsured and undersinsured patients

    Thank you for your time and attention, Mr. Chairman and Members of 
the Committee. I would be happy to answer any questions you may have.

                                 

    Chairman THOMAS. Thank you very much. I want to thank all 
of you. I apologize; occasionally, the real world creeps into 
our lives, and I had to deal with it. Were I here at the 
beginning, I would have complimented all of you.
    I think this panel provides us with an opportunity--with 
the various positions that you bring to the discussion--to 
allow for, hopefully, some discussion among the panel members. 
I hope, as some statements were made, some people felt 
motivated; and as other statements were made, others felt 
motivated. Sometimes, rather than our just asking the 
questions, the discussion among yourselves is more enlightening 
to us in terms of the various arguments.
    For example, Ms. Therrien, I appreciate your examples. I 
was most interested in the local hot dog vendor in terms of 
your outlining his situation; and the question that immediately 
came to mind was the hospital that told him he had to have a 
cashier's check for $1,000, a not-for-profit hospital?
    Ms. THERRIEN. Yes, sir, I would imagine that would be the 
case.
    Chairman THOMAS. You need to turn the microphone on.
    Ms. THERRIEN. I apologize. That was a story that was 
related to me by a colleague at the Free Clinic, so I am not 
aware of the hospital; but there are no for-profit hospitals in 
the city of Cleveland.
    Chairman THOMAS. That means a not-for-profit hospital said 
to a low-income person that they had to show up with a 
cashier's check for $1,000 or they wouldn't get needed 
treatment.
    You are aware that the not-for-profit hospitals don't have 
to pay income taxes on the basis of their serving low-income 
and indigent, so I think perhaps as we address hearings on not-
for-profit hospitals, that your example will be presented.
    In fact, I will find out the hospital, and we will pursue 
that because those are not the kind of responses you are 
supposed to get from tax-advantaged hospitals.
    Ms. THERRIEN. Thank you, Chairman Thomas. I would be happy 
to provide you with additional information.
    Chairman THOMAS. I appreciate that. Dr. Collins, I always 
appreciate your testimony. I guess my big problem is, it almost 
sounded like HSAs were not in law, and people before you 
testified of the increasing numbers, notwithstanding the 
difficulty of fitting this new structure in, that your 
statements were kind of a priori what we heard prior to HSAs 
becoming law.
    Both of you, are you aware of the Treasury Department 
Notice 2004-23? The purpose of the notice provides a safe 
harbor for preventive care benefits allowed to be provided by a 
high-deductible health plan without satisfying the minimum 
deductible under section 223(C)2 of the Internal Revenue Code.
    For those individuals who have the high deductible, that 
aren't getting the kind of preventive care--perhaps you heard 
testimony from others in which that is one of the key things 
they have done is to create a wonderful, preventive care 
structure; and especially it should be available to the low 
income.
    You might check on the Internet. There may be somebody who 
has information on the Internet. I believe there was testimony 
to such effect that these people could be directed to the kind 
of policies that you say are deficient. They certainly could be 
provided, because they are being provided, and it is now in 
statute that you have this safe harbor in terms of preventive 
care.
    Notwithstanding the fact that we have try to move forward, 
Mr. Lutey, I especially appreciate your testimony. One of the 
problems I have seen most often is that we aren't--it is not 
that we aren't spending enough money for health care in this 
country; it is the maldistribution of who gets the benefits 
from health care.
    We have heard the plea for individuals. We have got the 
employer benefits. We have tried in the past to at least create 
a reasonable cap above which decisions are going to have to be 
made on a hierarchical basis.
    If I just went down the line, and mindful of my time and 
others, if you could give me a rough ``yes'' or ``no.'' Or if 
you have to add a word or two qualifier, that is fine:
    Would you be supportive of a reasonable cap on the employer 
deduction, savings from which could be redirected to the low 
income as a subsidy, so that they could get some of the 
benefits, notwithstanding their employers aren't able to 
provide that kind of a deduction? Mr. Cava, yes or no?
    Mr. CAVA. I believe so, Mr. Chairman.
    Chairman THOMAS. Obviously, the number is critical. 
Probably somewhere around 10,000 now. We tried at 5,000, years 
ago. At some point, you don't keep letting folks run it up and 
others have no opportunity. Ms. Ignagni?
    Ms. IGNAGNI. We would be concerned about that, Mr. 
Chairman.
    Chairman THOMAS. I understand why: Cash flow and adding 
additional benefits which are then paid by a tax-preferred 
structure are really a sweetheart deal for collectively 
bargained arrangements.
    You heard about individuals trying to make their way, and I 
think it makes sense if you are going to begin to augment 
through subsidies or tax credits that you don't leave an open-
ended program open-ended. Mr. Jackson?
    Mr. JACKSON. I think I would support it, sir.
    Chairman THOMAS. Thank you. Mr. Lauer?
    Mr. LAUER. Anything we can do to help people who can't 
afford health insurance is a good thing. My concern, however, 
would be that we are seeing a trend where there are large 
employers not offering health benefits because of the rising 
costs. I think this could actually perpetuate that.
    Chairman THOMAS. The key is to control the rising costs, 
not just to leave it open-ended so nobody has to feel the pain 
of a decision to create a priority of what you want. If it is 
open-ended, you don't feel it. Mr. Lutey?
    Mr. LUTEY. I believe I would support that, Mr. Chairman.
    Chairman THOMAS. Dr. Collins?
    Dr. COLLINS. I think we have to be concerned about breaking 
up the group market. It is the only form of risk pooling that 
works well.
    Chairman THOMAS. That is a good point, but you will be 
amazed at how creative we are becoming. I lay in front of you 
the most recent effort by the State of Massachusetts, and I 
love to repeat that, State of Massachusetts, with a creative 
market arrangement where they took the fire hose of subsidy to 
hospitals, turned it toward the individuals in the insurance 
market and created a pooling, in essence, group arrangement by 
individuals through a State structure. Portions of that, I 
think, could be duplicated in a number of other States.
    Ms. Therrien, would be you interested in capping the 
employer deduction so all those folks that line up at your 
window have, without additional expense to the taxpayers, the 
ability to get some of those benefits?
    Ms. THERRIEN. I can't speak to the tax implications, but 
anything that would improve access for the patients that we 
serve, I would support.
    Chairman THOMAS. Thank you. I think I won a majority, but 
obviously it is not going to be unanimous.
    Those are the kind of decisions we need to begin to make.
    Do you allow one structure, completely open-ended, to 
continue to move forward and then complain that there are 
others who don't get benefits? You have to look at creating a 
balance and a harmonious relationship between one group that 
gets everything and another group that doesn't get anything.
    When you talk about low income, obviously they need help, 
they need subsidies. Don't talk as though they can't get 
preventive care and medicines without additional cost, because 
we have provided that in the law and enlightened providers of 
these kinds of insurance policies are available to allow that 
to occur. You heard that in testimony from others. You just 
have to be a little creative.
    The gentleman from California. Do you want the time or do 
you want me to move on? I can come back to you. Okay. The 
gentlewoman from Connecticut, the Chairman of the Subcommittee 
on Health.
    Mrs. JOHNSON OF CONNECTICUT. Thanks very much. Certainly, 
in my mind, a key to the success of the HSAs is some degree of 
employer contribution, because certainly the low-wage earners 
are not going to be able to contribute enough to this account 
to manage basic expenses.
    Certainly, the movement of the plans toward coverage of 
preventive benefits is very, very important and happening 
rapidly because employers are finding that that cuts the costs.
    Two things I would like to ask. First of all, those of you 
who have these kinds of plans, would you send the Committee the 
educational materials you use for your employees? This is a 
complete change of mind-set; it is different from our current 
health system which treats illness and focuses entirely on 
treating illness.
    Health Savings Accounts can help us focus on prevention, 
early identification of small symptoms so we can prevent people 
from getting sicker. It has enormous possibilities for the 
well-being of participants, but educational materials are key.
    Then on this issue of employer contribution, should we be 
having a requirement that employers who provide a high 
deductible also provide some contribution to an HSA; maybe not 
the same contribution every year, maybe starter contributions, 
but the law is silent on this aspect. I am looking to hear your 
comments on whether the law should remain silent on preventive 
benefits or on contribution.
    Ms. Ignagni.
    Ms. IGNAGNI. Thank you, Madam Chair. I think there are 
three things. One is that in order of priority we ought to 
think about a policy where employers can income-relate their 
contributions. That would do a lot for individuals at the lower 
end of the income distribution.
    Second, we think that it is very important for the 
Committee to take a very hard look at the issues emanating from 
chronic care. What more can we do to incentivize the provision 
of disease management and strategies of that sort?
    Third, I think that the Committee will have a discussion 
that should be a broad discussion, not simply in the HSA 
context, about individual responsibility, employer 
responsibility and government responsibility. We have a 
significant amount of cost-shifting now going on from 
underfunding, that recent data shows is becoming a much more 
serious problem.
    I think all of those needs should be looked at very 
broadly.
    We also join with many of my colleagues on the panel who 
have indicated a need for a level playingfield in terms of 
individual tax treatment as well.
    Mrs. JOHNSON OF CONNECTICUT. Thank you.
    Would anyone else like to comment?
    Mr. Jackson.
    Mr. JACKSON. In our specific case, in year one of our HSA 
plan, we funded almost all of the contributions to the savings 
accounts. Then we switched to our second year of having an HSA 
at the request of our employees. We are a small company, so we 
can sit down and talk about these issues, and they preferred to 
have a lower deductible, better policy where there were no 
contributions made by the company. Clearly, that should be able 
to continue to be an option. While we feel that it's important 
to give affordable insurance, I don't think making mandatory 
contributions is the answer.
    Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Cava, what kind 
of contribution do you make to your employees' plans?
    Mr. CAVA. Madam Chair, we contribute 60 percent of the 
deductible of each of the three types of funds that we offer. 
Even though we do and we feel that this is the appropriate 
amount at this point, we believe we should have more 
flexibility in terms of comparability to design plans that deal 
with chronically ill; and I think to that point, we would 
warrant the flexibility to offer plans with no employer 
contribution if, at some point, that is deemed to be the most 
appropriate mix of plans. That is not our plan at this time. 
Thank you.
    Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Lutey?
    Mr. LUTEY. I appreciate the question. First of all, I would 
strongly support some type of requirement for the employers to 
contribute. I feel that the plan would be in great jeopardy if 
there was not some sort of contribution by the employer. I 
would also suggest that the issue raises a number of other 
issues as well. The amount of money that our organization has 
put into the plan, is not something that we give to the 
employee, but is seen as that springboard for partnership. If 
we can work on the wellness of employees and ultimately reduce 
premiums, those are dollars that we can share with those 
employees in their HSAs, and ultimately, it is a win-win. This 
raises, for me, the issue of prescriptive drugs. If HSAs are 
truly designed to be preventive in nature, then I, as an 
employer, would be very happy to pay for some of those 
preventive drug costs for our employees by including those in 
the preventive care items rather than having it come out of the 
HSA account for employees.
    Mrs. JOHNSON OF CONNECTICUT. Thank you. Anybody else wish 
to comment? Oh, my time is expired. I am sorry.
    Chairman THOMAS. Anyone who believes they haven't got a 
chance to respond and you don't want to respond, the record 
will remain open, and you can provide us written comments. 
There is no way we can get into the depth that we need to in 
responses between questions, and the Chair would invite 
opportunities for cross-fertilization of the testimony. 
Gentleman from Washington wished to inquire?
    Mr. MCDERMOTT. Yes. Thank you, Mr. Chairman. I appreciate 
your having this panel here today. Since 1993, 1994, when we 
killed the last attempt to get universal coverage, when we had 
35 million people unemployed, we now have 46 million people 
unemployed, and if Ms. Collins is close to correct, we have 
another 16 million underinsured. So, we have got somewhere over 
50 million people in this country who do not have adequate 
health insurance.
    Now, I would like to ask those of you who are actually 
purchasers of health care, I think Mr. Cava and Mr. Jackson and 
probably Mr. Lutey, what percent of payroll do you spend on 
health care in your operation?
    Mr. CAVA. Mr. Chairman, Representative McDermott, I don't 
have the exact statistic as a percent of payroll but I can say 
that we spent approximately $40 million of the company's money 
last year for our employees' health care.
    Mr. MCDERMOTT. What is that, $40 million out of what? What 
is your intake or what is your expenses of the company? Do you 
have any idea at all?
    Mr. CAVA. Our general and administrative expenses?
    Mr. MCDERMOTT. Yes.
    Mr. CAVA. This would be a rough guess. Approximately less 
than 10 percent.
    Mr. MCDERMOTT. Less than 10 percent.
    Mr. CAVA. Yes, sir.
    Mr. MCDERMOTT. So, you wouldn't have a problem with 10 
percent if everybody was covered and you wouldn't have to deal 
with this at all, you would be willing to do it for 10 percent, 
somebody would do it for you?
    Mr. CAVA. May I think about that, Representative?
    Mr. MCDERMOTT. Okay. How about you, Mr. Jackson? What do 
you spend?
    Mr. JACKSON. Well, as I testified, our current premium is 
$115,000.
    Mr. MCDERMOTT. I want to know against what, what percent of 
your payroll costs goes to health care.
    Chairman THOMAS. Can the gentleman yield briefly? If you 
will just give us dollar amounts. One is $20 million. Yours is 
$115,000. We have no ability to relate that to the costs of the 
company carrying this unless we know what it is, as the 
gentleman from Washington is asking, a rough percentage. You 
don't need to be precise. Just kind of ballpark.
    Mr. JACKSON. I would guess it is in the 4 or 5 percentage.
    Mr. MCDERMOTT. Can I ask you, you have about 20 people. Are 
all 20 people covered?
    Mr. JACKSON. No. There are some employees who opt out 
because they have spousal coverage.
    Mr. MCDERMOTT. So, the President of the company is the 
professor of the University of Colorado of some sort or 
another, she covered under the University of Colorado plan?
    Mr. JACKSON. That is correct. Not the President, but she is 
the owner.
    Mr. MCDERMOTT. Her husband is also covered on that same 
plan?
    Mr. JACKSON. That is correct.
    Mr. MCDERMOTT. So, the top two people are not covered by 
your plan. Who else isn't covered? Where is their coverage 
coming from?
    Mr. JACKSON. We have a number of employees that some of 
them, their spouses are employees at Kaiser, and they have no 
cost insurance through Kaiser, so opt to do that coverage.
    Mr. MCDERMOTT. So, this is a plan basically for your low-
paid employees who don't have any spousal coverage anywhere 
else, don't have good insurance anywhere else.
    Mr. JACKSON. Well that includes me, and I don't consider 
myself one of the low-paid employees, but yes, it does 
primarily affect our lower-paid employees.
    Mr. MCDERMOTT. Okay. How about you, Mr. Lutey? What percent 
of payroll do you spend on health care?
    Mr. LUTEY. Depending on the plan, between 9 and 11 percent.
    Mr. MCDERMOTT. So, 10 percent wouldn't be too big of a bite 
for you to handle. So, if we could have universal coverage in 
this country and have everybody covered for 10 percent of 
payroll, why would the business community, rather, leave those 
51 million out there and try to dance around with the insurance 
companies and dodge the costs? Why do you want to do that? What 
is your objection to having universal coverage?
    Mr. LUTEY. If I may respond, sir, I believe that for me, 
the huge win in this is a collaborative nature toward wellness. 
A universal plan simply is, go to the doctor, get the pill, go 
home and get well. In the HSA, we have developed a sense of 
collaboration around doing things that make you well for the 
long term. There is a knowledge base that our employees have 
now that they didn't have before about medical conditions and 
what is going on with them. There is an investment that they 
have, which has nothing to do, by the way, with dollars. There 
is an investment about wanting to be well and doing things in 
the workplace to keep them well.
    Mr. MCDERMOTT. So, you've saved money up front? Dr. 
Collins, tell me what is going to happen long term here. They 
have saved money up front. You are telling us they are doing 
better, and they think they have got it all knocked. How's this 
going to work out?
    Dr. COLLINS. Well, there is evidence from the Employee 
Benefit Research Institute (EBRI) Commonwealth 2005 Survey of 
Consumerism in Health Care that people do skimp on care, and 
also I have to say, in terms of the preventive care exclusions 
and the deductible, the Kaiser Family Foundation and Health 
Research and Educational Trust (HRET) 2005 Survey of Employer 
Health Benefits found that only 30 percent of employers who 
offered HSA-eligible high deductible health plans in 2005 
actually did exclude preventive services from the deductible. 
So, we really do have to be concerned about giving people 
incentives that are going to cause them not to get preventive 
care, not to manage their chronic conditions, and perhaps end 
up with very expensive health conditions down the road. So, it 
really doesn't address the major cost problems in our system.
    Mr. MCDERMOTT. So, it is sort of penny-wise and pound 
foolish to save money on not paying for preventive care, not 
the Pap smear and then wind up with the cancer that comes with 
it.
    Dr. COLLINS. That is right.
    Mr. MCDERMOTT. Mr. Chairman, I think it is time for us to 
talk to a real solution that is going to solve this for the 
American people. We are having more and more companies go into 
bankruptcy, and what they do is they take off their pension 
costs and their health care costs, and that is going to be a 
continuing problem. This is a Band-Aid at best.
    Chairman THOMAS. One of the things the Chair may need to do 
periodically is to make sure that, obviously, I read all the 
testimony, and statements are being made, and I want to try to 
go back, and I will try not to take a lot of time, but as I 
recall, Mr. Cava, in your testimony, given the size and scope 
of your company, moving in the direction that you have moved, 
you have actually increased--I believe your statement was you 
have increased the preventive care aspect. So, when comments 
are made that somehow HSAs in this structure denied preventive 
care as though that were a fact, then I have a problem when I 
read what I read in your testimony. What would you respond to 
that?
    Mr. CAVA. Mr. Chairman, thank you. We provide 100 percent 
coverage, preventive care, and I did list the specifics in my 
testimony, and that is part of our commitment. This isn't just 
a strategy for the more efficient spending of health care 
moneys. It is about the search for continuous and sustainable 
improvement in health. We have seen an increase in access to 
preventive care from 50 percent of our users to 75, 76 percent 
of our users. They have access to preventive care under our new 
plan. So, I am not quite sure where the information is coming 
from, but the information I have is pretty significant and 
pretty compelling that we are helping to change behavior.
    Chairman THOMAS. It may be an attitude as to how you 
approach this insurance. If you don't think it is any good, you 
don't look at the options and the various things that are 
available, and you are dismissing it rather than working with 
it. Mr. Lutey, I appreciate your comment as well. Now, I will 
call on Members. I don't want to abuse this, but it seemed to 
me that what you said was your experience completely 
contradicted some of the points that were being made about the 
lack of preventive care under this kind of insurance structure. 
Gentleman from Louisiana wish to inquire?
    Mr. MCCRERY. Yes, Mr. Chairman. Mr. Cava, I just want to 
follow up. I want to make clear what you just said. I thought I 
heard you say that since you have gone to the HSA high-
deductible plan, that more of your employees are taking 
advantage of preventive care. Is that what you said?
    Mr. CAVA. Mr. Chairman, Representative, yes, that is 
absolutely the case.
    Mr. MCCRERY. So, I assume you mean by that, that more of 
your employees who are now covered under the HSA high 
deductible plan are taking advantage of preventive care than 
those employees who took advantage of preventive care under the 
previous health care plan that was not high deductible in HSA. 
Is that correct?
    Mr. CAVA. That is correct.
    Mr. MCCRERY. Well, that is very curious. You mean, there 
are some non-HSA, non-high deductible plans that don't cover 
100 percent of preventive care?
    Mr. CAVA. That is absolutely--that is absolutely correct.
    Mr. MCCRERY. My goodness. Do you mean that it is up to the 
employer to decide how to structure the benefits in his 
employer-provided plan? It is up to the employer how to 
structure those benefits, what to purchase? Of course it is. It 
is just as easy for an employer to provide preventive care 
under an HSA high deductible as it is under some low deductible 
plan, just as easy. It is just amazing to me how we can have 
testimony from the real world time after time after time after 
time; not just from people who have an interest in making money 
off of this. Mr. Lutey is certainly not in that category, and 
then the last two witnesses have studies that refute all that 
real-world experience. That is amazing to me.
    Mr. MCDERMOTT. Would the gentleman from Louisiana yield?
    Mr. MCCRERY. I would be happy to yield.
    Mr. MCDERMOTT. If I can put this in perspective, I think 
the testimony is that you have 7,000 workers covered by this 
HSA, and you have 43,000 employees that are eligible for it or 
are not covered by it. Is that correct? Have I got my numbers 
right?
    Mr. MCCRERY. Reclaiming my time. I would be happy to yield 
for the gentleman to discuss this, but I am not going to give 
you another 5 minutes to ask questions of the witnesses.
    Mr. MCDERMOTT. I am just trying to get the facts.
    Mr. MCCRERY. The facts are that have been stated by various 
witnesses that the number of people opting for this coverage 
has tripled in the last couple of years. That is a fact. The 
facts are that about 31 percent of those in the individual 
market who have high deductible HSAs were previously uninsured. 
They had no insurance. So, they couldn't get preventive care 
unless they went to someplace that gave it to them. So, what 
they now have is some form of insurance. So, I just want to try 
to bring this back down to the real world here and get people 
to pay attention to facts that are being testified to by 
witnesses here today and the experience that people are having 
in the real world.
    Now, one of my colleagues in his opening statement said 
that some measly percentage of people with high deductible 
plans actually contributed to an HSA. I don't know where he got 
those figures. There is some Treasury Department data that 
could be interpreted that way that is about 2 years old, but 
the most recent Treasury Department data does not indicate 
that. So, even if employees are not contributing and there is 
no data yet to establish that, we know from testimony that 
employers are contributing to HSAs, and that gives them 
something to start with, and in the case of Mr. Jackson, he 
can--how much of the deductible for an individual do you 
contribute, Mr. Jackson, to his HSA?
    Mr. JACKSON. On last year's plan I contributed 100 percent, 
but this year when we reduced the deductible, they pay it 
themselves, and every employee opted to pay the full amount.
    Mr. MCCRERY. So, last year, you, the employer, contributed 
100 percent of the HSA, 100 percent of the deductible to the 
employees' HSA. So, it wouldn't have been very smart for him to 
contribute to the HSA.
    Mr. JACKSON. No. I don't think he would have been able to 
last year.
    Mr. MCCRERY. It wouldn't have been legal for one thing and 
for the other thing, why should he? This year, your testimony 
is, your employees are opting to contribute to their own HSAs. 
Is that right?
    Mr. JACKSON. That is correct. We offered them the option.
    Mr. MCCRERY. Another real world example of what is really 
happening out there and what choices people, intelligent 
people, whether they are rich or poor, are making in the 
marketplace, and that, I believe, is what we have got to 
continue to do is create a real marketplace in the health care 
industry, not by abdicating costs, not by hiding costs; by 
making the system more transparent, by making prices more 
transparent and by making consumers more aware of what they are 
doing. There is a lot more I would like to say, but I will save 
it. I yield back.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from California wish to inquire?
    Mr. STARK. Thank you, Mr. Chairman. Just to help my friend 
from Louisiana, in 2004, which is the last Treasury Department 
data available, there were perhaps a million people enrolled in 
HSAs, and only 90,000 of them had active HSA accounts. Whether 
there was any money in the accounts or not, we don't know; but 
it has never been all of the people taking advantage of it. I 
want to ask Dr. Collins.
    Chairman THOMAS. Gentleman yield briefly on my time? It 
won't detract from yours. I appreciate using Treasury data from 
2004, but what we have heard is----
    Mr. STARK. We used enrollment data from 2004 too.
    Chairman THOMAS. --in 2005 and 2006, we had a virtual 
tripling. At some point, Treasury's data will catch up with 
reality. So, I appreciate your citing Treasury, but if they 
were in the real world, as we know, they would be have been out 
of business a long while ago if you are looking that far in the 
past as to what decisions you are going to be making. Thank the 
gentleman. This will not come off your time.
    Mr. STARK. I thank the Chair. In the real world, where 
people have ever worked in the real world outside of the public 
trough, they might understand a little bit more about health 
care costs to employers. In the eHealthInsurance plan--I am 
puzzled; Dr. Collins, if you could help me. It seems to me that 
an individual who signs on to an eHealthInsurance plan would be 
$1,233 more out of pocket, if they had an HSA plan than a non-
HSA plan. For a family of three, they would be $2,300 more out 
of pocket than they would be if they bought the non-HSA plan, 
and even if you took the high amount that employers contribute 
of 25 percent, the poor folks who are $2,300 bucks more out of 
pocket, might have a $600 contribution but no tax savings if 
they are in the lower income.
    I am often puzzled--if you can explain to me whether your 
studies would shed any light on--except for the fact that you 
can't trust most insurance salesmen--why anybody would sign 
onto that kind of a plan. I am going to ask a series of 
questions, and maybe you can pick up on answering some of them. 
You mentioned the high administrative costs of purchasing 
insurance in the individual market. Perhaps you could elaborate 
to us why it is so important to pool risk and how the HSAs 
really undermine the pooling aspect and cause a highly adverse 
selection for people who need insurance most. Then could you 
just repeat what percentage of plans do provide preventive 
care. That is optional.
    I think Ms. Therrien testified that nobody in the Cleveland 
area has coverage for preventive care. So, perhaps you could 
tell us, Dr. Collins, across the country how many offer 
maternity care, which if you have to pay for that out of pocket 
eats up--does it count to your deductible and more than 
increase your out-of-pocket costs? Then Ms. Ignagni, showing 
the for-profit plans, as she does for high pay, but she won't 
ever let the plans come to testify, talks about HSAs taking off 
in the group market, and I wonder if that is something that we 
shouldn't be alarmed by because it means that as I understand 
the workers who are at risk of losing more comprehensive 
coverage and then explain to us what happens to the costs for 
more expensive group coverage as younger and healthier people 
move to HSAs. Can you kind of review those things for us as you 
choose.
    Dr. COLLINS. When the employer group market is really our 
only----
    Chairman THOMAS. Dr. Collins, you are obviously not going 
to have as much time, but he gets another minute and a half. 
These are important questions. We would hope they would be 
offered in written response to that, and any of you who want 
to--because this is a hearing that we are trying to lay a base 
for. I appreciate the gentleman's questions, and we will leave 
you some reasonable time to try to respond to some of those, 
but don't think the universe of response has to be in the 
minute and a half that the gentleman has left.
    Dr. COLLINS. The individual and employer group market is 
really our only natural form of risk right now that we have for 
private coverage. The individual market, by contrast, does not 
pool risk. The administrative costs are 25 to 40 percent of the 
premium costs. So, it actually buys many fewer benefits, 
including maternity benefits. If you go to 
ehealthinsurance.com, and we have actually done this at the 
Commonwealth Fund, there are very few plans in the individual 
market that actually offer maternity benefits without a rider. 
So, that benefit is basically not available to women in the 
individual or families in the individual insurance market. The 
other thing that the individual market does is it underwrites 
each person.
    So, this necessarily means that if you have a pre-existing 
health condition, if you have diabetes, if you have a chronic 
heart problem, it means that your premium will actually be 
higher than my premium, a relatively healthy person. So, I 
guess the question is, can we tolerate this kind of different 
pricing for people who are our neighbors, who are our family 
members, who are our friends simply because they have worse 
health conditions than we do?
    So, it is not a particularly good place for us to push 
everybody without insurance coverage into the market. We do 
notice that people in the individual market buy high deductible 
health plans. They have always had the option to buy it. It is 
nothing new. Thinking in terms of the tax incentives that would 
bring more people into this market, 31 percent was cited, but 
it is really not clear whether that 31 percent are long-term 
chronically uninsured--have they been uninsured for the past 3 
months, have they been uninsured for the past 3 years? So, it 
is really not clear what experience those people have had prior 
to buying coverage in this market.
    Chairman THOMAS. Thank the gentleman. My understanding is--
Mr. Lauer, in his testimony, indicated that his definition of 
uninsured was anyone who didn't have insurance for the last 6 
months. Dr. Collins, do you believe there is anything in this 
new Massachusetts plan that is new or creative in helping to 
create in essence a group market out of individuals with the 
central structure that has been provided by the State?
    Dr. COLLINS. Well, I think that Massachusetts should be 
commended for this effort and particularly on the protections 
of people under 300 percent of poverty. It is a lot less 
certain--although it has really received most of the bulk of 
the attention on what will happen to people above 300 percent 
of poverty--whether those premiums will actually be affordable 
to people, whether the individual mandate would be able to be 
applied.
    Chairman THOMAS. Well, I was hoping your remarks would 
focus on the point about the State creating a connector which 
produces group insurance by collecting individuals through a 
State-inspired structure, which would solve the problem of the 
individual market.
    Dr. COLLINS. It would help in terms of pooling, but again, 
it really remains to be seen how much that pooling will 
actually pull down premiums.
    Chairman THOMAS. Oh, exactly remains to be seen, and 
obviously, this is an ongoing change, and it will be modified 
as we go forward, and I appreciate the fact that you have 
indicated that the Massachusetts plan has a possibility of 
offering some solutions that otherwise were automatically 
rejected because the individual market couldn't solve problems. 
Creativity can solve a lot of problems rather than simply 
repeating the past. Gentleman from Pennsylvania wish to 
inquire?
    Mr. ENGLISH. Thank you, Mr. Chairman. I do. I want to thank 
the panelists for very thought-provoking testimony.
    Ms. Ignagni, your industry is playing a key role in 
developing insurance products that speak to the needs of some 
of those who choose to provide for their medical coverage 
through HSAs in addition to the traditional employer-based 
coverage. What we have heard is that those opposing the 
development of HSAs and consumer-directed health care options 
are arguing that adverse risk selection will result from 
younger, healthier consumers using the HSA option, and in turn, 
creating an adverse reaction in the risk pool. Is this a 
problem that you have seen developing? Is it a valid concern? 
Are your member companies seeing any actual evidence of adverse 
selection?
    Ms. IGNAGNI. I am very glad you asked the question. I have 
a number of pieces of data that I have before me, which I would 
like to submit for the record.

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    Ms. IGNAGNI. We have the most comprehensive survey not only 
on HSAs, but on the individual market and to the question that 
was just posed by Congressman Stark about coverage for various 
benefits, particularly pregnancy, I can tell you that the 
coverage is very comprehensive. Again, it is the most 
comprehensive survey. Would be delighted to submit it for the 
record, number one. Number two, when Dr. Collins--I read her 
statement last night and had an opportunity to look at the 
study to which she refers, I did notice that it is a study of 
Internet users who agreed to participate in the research. So, 
we are talking about a sample of 185 individuals. We have a 
sample of 3 million.
    I did have an opportunity to talk with--I saw it too late, 
unfortunately, and I apologize to Dr. Collins. I didn't have a 
chance to talk to all of our members, but I did talk to the top 
five members of ours that are the top five in the HSA market 
today--who are also, by the way, selling HMOs and PPOs, so they 
offer a range of coverage options. They all report that the 
preventive care utilization is up, that the prescription drug 
fill is up and very consistent with what the physicians are 
requiring, which is so important for disease management.
    We also know that health status right now, according to the 
data, and I can only talk to you about right now what we are 
seeing in the data, are roughly equivalent, and I think that is 
explained by the fact that those who are under and over 45 are 
roughly equivalent.
    So, there is a distribution age-wise that I think no one 
expected 3 years ago when we were talking about these products. 
On the back end, sir, I think this is also very important, our 
members are offering comprehensive coverage. This is a high 
deductible, meaning a roughly $1,000 deductible for the 
individual, $2,000 for the family. On the back end, there is 
complete comprehensive coverage, which is very important from 
the standpoint of protecting risk and providing a safety net, 
which individuals are interested in.
    So, from our perspective, it is not our choice to decide 
what people purchase. It is our responsibility to offer a range 
of products, and that is what we are trying to do.
    Mr. ENGLISH. Thank you. Dr. Collins, I was interested to 
read in your survey that the use of consumer-driven health 
plans appears to have led to greater cost awareness by 
consumers. You also state that individuals may have delayed or 
avoided health care due to cost, and yet there was also a 
finding, I believe, that these individuals are more cost 
conscious in their decisionmaking. I guess my question is, do 
markets work? Do you believe that cost-conscious decisionmaking 
can be a good thing in terms of injecting market discipline 
into the health care system and generating lower costs through 
higher competition for many procedures.
    Dr. COLLINS. Certainly we did find that consumers in these 
plans are more cost conscious. I also want to mention that this 
was a random survey. The EBRI Commonwealth Survey was based on 
a random national sample pulled from a 4-million member panel 
of online users who agreed to participate in surveys. So, we 
did--we did actually find that people are more cost conscious, 
but that they didn't have the information they needed to make 
decisions. Certainly giving people more information about 
quality of care, cost of care will contribute in small ways to 
improving the health care system and maybe lowering costs a 
little bit, but it is really unlikely to be transformational. 
It is not going to dramatically change the way we conduct 
business. We really need more focus on the provider, paying 
providers for efficient care, for high-quality care, coming up 
with quality measures so focusing on how we pay providers is a 
much more realistic and promising strategy to control costs in 
the system.
    Mr. ENGLISH. I don't think they are mutually exclusive, and 
I don't think HSAs have ever been offered as a panacea, at 
least I have never viewed them that way. My time is up, but Mr. 
Chairman, I appreciate the opportunity to pose these questions.
    Chairman THOMAS. Thank you. The usual answer is all of the 
above. Gentleman from Michigan wish to inquire?
    Mr. LEVIN. Thank you. Mr. Cava, let me ask you a few 
questions. I hope you don't think they are hostile. Our family 
goes to your establishment. We eat salads as part of our 
preventive care.
    Mr. CAVA. Thank you.
    Mr. LEVIN. Just so the record is clear, you say 10,000 in 
your statement, 10,200 are eligible. How many overall employees 
are there?
    Mr. CAVA. Mr. Chairman, Representative Levin, there are in 
our company, approximately 45,000 employees in the United 
States, which would obviously be eligible for U.S.-based 
benefits.
    Mr. LEVIN. So, there is 45,000 and so that means that less 
than 25 percent are eligible?
    Mr. CAVA. Yes, sir.
    Mr. LEVIN. Okay. By the way, we have asked the Treasury 
Department 2 years running for income distribution tables on 
HSA holders, and they have not given them to us. Mr. Chairman, 
we would appreciate if you would press the Treasury Department 
to do that.
    Chairman THOMAS. I will. Your phrase was that they have not 
given them to you. Part of the problem is they probably don't 
have them. That is one of the difficulties in trying to deal 
with government collection of information. I am asking all of 
you, although some of you will contradict yourselves or argue 
the others' information isn't accurate, whatever you give us is 
at least contemporary as opposed to the historical viewpoint 
from Treasury. So, I certainly will send these.
    Mr. LEVIN. I think that information is available. It is our 
understanding.
    Chairman THOMAS. I will join you in pressing them.
    Mr. LEVIN. Okay. Mr. Cava, in terms of preventive care, by 
the way, it is our understanding that 70 percent of the 
insurance plans under HSAs do not cover preventive care. So, if 
anybody has contrary information, I would like to have that. 
You are, therefore, in the minority. Quickly because I want to 
ask some other questions, what kind of preventive care do you 
cover?
    Mr. CAVA. Mr. Chairman----
    Mr. LEVIN. People don't have to use their deductible for?
    Mr. CAVA. That is correct. Mr. Chairman, Representative 
Levin, I have listed in my testimony, we cover annual physical, 
non-age qualified, you don't have to be a particular age. It is 
just an annual physical, associated preventative tests, Pap 
smears, prostate exams, different--mammography, vaccinations, 
childhood vaccinations. This is not a comprehensive list, but 
it is a good representation of the care that we provide.
    Mr. LEVIN. How about child care? Did you say it gets 
covered?
    Mr. CAVA. As it would qualify as an annual physical or as 
an annual visit, yes.
    Mr. LEVIN. Otherwise not?
    Mr. CAVA. Childhood vaccinations it does cover, yes.
    Mr. LEVIN. That is much more than that.
    Mr. CAVA. Yes.
    Mr. LEVIN. All right. So, I think before you log the 
preventive care, the results, you need to look at the whole 
picture.
    Mr. Lauer, our talented legislative expert has calculated 
for each of the examples what people have to pay before they 
get health care coverage, insurance coverage, and here is how 
it comes out.
    For Mr. Heloski, he would have to pay $4,040 out of pocket 
before he gets one dime. For the Ecclestons, they have to pay 
$6,460 before they get coverage. For Mr. Lomel, he could pay 
$8,000 without getting any coverage at all. Mr. Botcharnikov 
would have to spend--he was spending $5,820 in this plan. He 
could spend $7,262 before getting any help from insurance.
    Those are very high health care expenditures. Before 
anybody tries to applaud HSAs as an answer for the needs of 
most people, they had better look at this because in essence, 
what you end up with is high deductibles in so many cases and a 
tax benefit, and we need to look as to whom this tax benefit 
accrues.
    Mr. LAUER. I would agree with you that those are high 
numbers and I can't speak for each of them. I don't know 
whether that is through choice or not. I would assume it may 
be.
    Mr. LEVIN. When you say ``choice,'' meaning what?
    Mr. LAUER. Well, they may have chosen that they wanted that 
higher deductible because they had been paying for health care 
out of their pocket up to this point anyway, and wanted to fund 
against catastrophic or financial loss. That is not unusual.
    Another point I wanted to make, and I think it is an 
important one when it comes to businesses and several of the 
examples we cited in the written testimony, which you have 
talked about come from that. In the business environment, 
hopefully, we don't all assume that a business that provides 
employer-sponsored health coverage that everything is covered, 
because that is not the case in most cases. For example, in my 
company where we have pretty robust coverage, I have a wife and 
three children. We have a deductible for each individual in the 
family. I make a contribution out of every paycheck for the 
health insurance. We have copays for physician visits, 
prescription visits and so on. That is very common. It is not 
$7,000 or $8,000, by the way, that you just cited.
    Mr. LEVIN. How much is it? My time is up.
    Mr. LAUER. We are about $400 per individual.
    Mr. LEVIN. You are in a high income bracket.
    Mr. LAUER. That that is for every employee in my company, 
Congressman.
    Mr. LEVIN. In your case. So, you are talking about $400 per 
person. You multiply that by five?
    Mr. LAUER. Yes, $2,000.
    Mr. LEVIN. Okay. Compared to what exists for these people. 
Twice, three four times that. My time is up.
    Chairman THOMAS. Briefly, Mr. Cava, you seem to be the 
biggest employer around here. So, just to get an idea of why we 
are holding the hearing now. How many of your employees had 
HSAs 5 years ago?
    Mr. CAVA. None.
    Chairman THOMAS. How many had HSAs 3 years ago?
    Mr. CAVA. None, Mr. Chairman.
    Chairman THOMAS. How many had HSAs 2 years ago?
    Mr. CAVA. None, Mr. Chairman.
    Chairman THOMAS. How many had them last year?
    Mr. CAVA. Over 7,000.
    Chairman THOMAS. Okay. When someone cites a number, people 
need to realize, that is in 1 year and if we bring you back 
over the next 2 to 3 to 5 years, I think you'll begin to see 
the roles they are going to play. Thank you very much. 
Gentleman from Arizona wish to inquire?
    Mr. HAYWORTH. Thank you very much, Mr. Chairman, and to the 
witnesses assembled. Thank you all for taking time to join us 
today for a hearing that has been both informative and, I 
guess, Mr. Chairman, extending beyond the realm of the 
informational, perhaps just given the nature of our institution 
and perhaps where we are on the calendar, it, at times, becomes 
adversarial.
    The Chairman made mention of the fact that these changes 
don't occur in a vacuum; that this is a program that has 
really, for all intents and purposes, in the march of time, 
just really started. It is interesting with a tip of the 
rhetorical cap to the adversarial to hear the lament of the cup 
half full, or perhaps one-quarter full, but I don't believe the 
process of pouring has yet stopped, nor the process of 
calibrating or evaluating information. This is an ongoing 
process.
    To that end, let me welcome in particular my neighbor from 
comparatively nearby Colorado. Mr. Jackson, it is good to have 
you here and to hear of your real-life examples. Not only do we 
have a chance to hear the witnesses compare and contrast their 
different philosophies and their different experiences, but 
looking ahead, mindful of the fact that very seldom do we pass 
a new initiative without re-evaluating and attempting to offer 
some perfections.
    Mr. Jackson, let me just put it to you, are there any 
changes to HSAs that would make it easier for small businesses 
to participate in HSAs or high deductible health plans, such as 
a refundable tax rebate for contributions made to their 
employees' HSA or any other things. If you had to rank things, 
if you were writing the program again based on what you see and 
what you know of other small businesses, what would you 
suggest?
    Mr. JACKSON. Well, certainly, any tax advantages to the 
company to allow them to contribute to the employees' HSAs 
would be a significant benefit. One of the things--I don't know 
that it directly relates to HSAs, but the pooling arrangement 
is significant, and we either need associated health plans, 
small business health plans, a State-run pooling arrangement, 
we need some kind of arrangement so that small businesses have 
an opportunity. Obviously, my company of 20 employees can't 
compete price-wise on insurance with Wendy's with their number 
of employees.
    I would say that was one of the biggest issues that I see 
is one, allowing us some mechanism to pool our resources to get 
lower premiums in general. I would like to comment that writing 
the--the company last year funded my HSA. For the first time in 
my life, I was writing a check when I went to the pharmacy to 
get a prescription. Quite honestly, I was shocked. I just 
assumed that prescriptions were a little over $20. That is what 
I always paid. When I take out my checkbook and write a check 
for $400, it changed my way of looking. To that effect, in 
order for the HSAs to become effective, we have to offer them 
some mechanism to be able to shop. There is a couple of Web 
sites in Florida that I had mentioned to Mr. Beauprez that 
allow you to go online and shop for your specific prescription 
at various drugstores. I can tell you, I asked my drugstore 
what the price was and they said, ``we can't tell you that 
until we ring it up.'' If you want to make a purchase, we will 
tell you the price.
    I contacted my doctor's office and asked about the price of 
a simple procedure, and it was like they had never had that 
question presented to them before, and no one knew what to say. 
For HSAs to be effective, there has to be some mass media 
mechanism to allow--I absolutely believe that people will be 
good shoppers if we give them the opportunity to be good 
shoppers, and particularly when they are spending their own 
money because if they don't spend it, they get to keep it in 
their account.
    Mr. HAYWORTH. The power of the markets. Well, imagine that.
    Mr. JACKSON. Absolutely.
    Mr. HAYWORTH. I know there are tons of discrepancies 
between those academics that like to cite the empirical and 
somehow would like to deny the anecdotal, but I think your 
firsthand experience as versed as you are in the world of 
business is very instructional to us in terms of the fact that 
when it came to health care and the cost of prescription drugs, 
because you had not had real contact with the reality of 
pricing, your assumption was something far different from what 
the market brought to bear. I think that is very instructional 
to us all, and I think as we have made much of the fact that 
this is the information age, and as we see the health care of 
all utilizing the Internet, your suggestions are well taken, 
especially as a smart shopper. My time has expired, Mr. 
Chairman. I thank you for the opportunity to inquire.
    Chairman THOMAS. Thank the gentleman. Gentleman from 
California, Mr. Becerra, wish to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Thank you all for 
your testimony. Let me see if I can concentrate right now on a 
couple of questions to Mr. Cava. You are getting lots of 
questions regarding the establishments because I think so many 
of us are very familiar with Wendy's. My understanding, from a 
Securities and Exchange Commission (SEC) filing, is that that 
there are about 57,000 employees that Wendy's employs. Is that 
because some of these folks beyond the 45,000 are 
internationally based?
    Mr. CAVA. That is correct.
    Mr. BECERRA. In terms of health insurance, do you offer any 
of the 12,000 of those employees, that are internationally 
based, HSA accounts?
    Mr. CAVA. Mr. Chairman and Representative Becerra, no. We 
provide U.S.-based benefits according to sovereign law and 
regulation of the United States and for our non-U.S. employees, 
we are subject to the laws of those countries.
    Mr. BECERRA. Thanks for making sure we compare apples with 
apples. So, let me make sure I understand this: of the 45,000, 
10,200 are eligible for your health insurance coverage now, in 
the form of HSAs?
    Mr. CAVA. That is correct.
    Mr. BECERRA. The remaining 35,000 or so are not eligible 
for any type of health insurance coverage under Wendy's?
    Mr. CAVA. Not exactly. We have some specific markets that 
we do provide more traditional health care to in what we call 
our midwest and northeast markets, but not the HSA-based, not 
the high deductible plans.
    Mr. BECERRA. Of the 10,200, about 7,000 employees who are 
eligible for the HSAs have established an HSA account?
    Mr. CAVA. That is correct.
    Mr. BECERRA. Okay. In terms of the preventive benefits that 
you offer, are those--I want to make sure I am clear about the 
answers you gave to Mr. Levin from Michigan. You provide 
coverage for preventative care before or after the deductible 
is paid?
    Mr. CAVA. That is deductible free, so to speak. It is free 
care and it is not charged to the deductible.
    Mr. BECERRA. Good. Does that preventative care include 
paternity care?
    Mr. CAVA. It does not, in particular. It would only only 
cover the items which I had mentioned, and I would like to 
provide more information to you about the plans.
    Mr. BECERRA. Appreciate that if you would. Thank you. Of 
your 45,000 domestically-employed employees, how many are 
female?
    Mr. CAVA. I do not have that information.
    Mr. BECERRA. Would you provide that for us? Also, you might 
as well break it down for the 10,200 eligible for the HSAs and 
the 7,000 who have established HSAs, what percentage of female. 
Primary care.
    [The written response from Mr. Cava follows:]
    Chairman THOMAS. Would the gentleman yield briefly? If we 
are going to do that, then you want to break out the female 
group as those who are of child-bearing age versus those who 
aren't. There are a lot more senior employees.
    Mr. BECERRA. Good point. Primary care. Do you provide 
primary care services such as flu, fever visits that the family 
may have to make because a child has 103 fever, is suffering 
from the latest flu that is attacking the country?
    Mr. CAVA. The health care plan provides access to physician 
visits, it provides access for emergency care.
    Mr. BECERRA. Does it pay for them?
    Mr. CAVA. I am sorry.
    Mr. BECERRA. Does it pay for them?
    Mr. CAVA. After the deductible. Excuse me, Representative. 
We also contribute 60 percent of that deductible. So, in 
essence, it could end up costing the employee nothing.
    Mr. BECERRA. Well, after they have paid the deductible?
    Mr. CAVA. No, sir. It could end up costing them nothing. 
Our company provides----
    Mr. BECERRA. If I have a child who has the flu----
    Mr. CAVA. Yes.
    Mr. BECERRA. I go to a physician, physician says, well, 
this is not a preventive benefit that is offered through your 
HSA, I charge you $150 for this visit for your child, your 
deductible is $250, how much of that will you cover?
    Mr. CAVA. It could be nothing because the company has paid 
60 percent of that deductible, which would have exceeded that 
$150 into your account.
    Mr. BECERRA. Wait, if I have a $250 deductible and you 
cover 60 percent of a deductible----
    Mr. CAVA. No, sir, the HSA deductible is contributed at a 
rate of 60 percent.
    Mr. BECERRA. You are talking about the total deductible 
which could be--what could a deductible be?
    Mr. CAVA. It could be $1,500, $1,200.
    Mr. BECERRA. Before I get--if my child gets sick in 
February and I have not yet reached my deductible of $1,500 you 
won't cover it, I have to cover out of pocket for that flu 
visit?
    Mr. CAVA. Actually, it probably would have been contributed 
because we contribute it on a quarterly basis.
    Mr. BECERRA. February, the first quarter.
    Chairman THOMAS. Will the gentleman yield? It might be 
better, since we are using usual insurance terms, when you say 
deductible, the idea of an HSA is that you put money in a bank 
account and then you draw down that account, but you have to 
use your own money until the full 100 percent kicks in. The 
point the gentleman is making that he puts in 60 percent of 
that money, and he puts it in on a quarterly basis. If your 
doctor visit costs $150, you would take $150 out of the account 
and pay the doctor, but it could easily be the money that was 
put in by the company. Therefore, no money would come out of 
your pocket to pay for that. That is the concept of the HSA. 
Thank the gentleman. That doesn't come out of his time.
    Mr. CAVA. Thank you, Mr. Chairman. I am sorry. I apologize, 
I wasn't making that clear.
    Mr. BECERRA. No. I thank the Chairman for trying to bring 
some clarity to that. Let me ask this other question. This is a 
bit more personal. Mr. Lauer actually got into this. If you are 
interested in answering it, you don't need to, of course, if 
you don't wish to. How many of you have established HSAs?
    Mr. CAVA. I am sorry. I have one.
    Mr. BECERRA. Anyone else? I am just trying to figure out 
how many folks.
    Mr. CAVA. So does our CEO.
    Mr. LAUER. We are in transition to it.
    Mr. BECERRA. Okay. I have always heard people say, if you 
work for General Motors (GM), you should buy GM, not Ford. If 
you work for the manufacturer of Crest toothpaste, you should 
buy Crest, not Colgate. If you work for the manufacturer of 
Tide detergent, you should buy Tide, not All. I suspect 
probably the best source for the American people to know 
whether or not this HSA product is good is if the inventors and 
advocates, proponents of it, meaning the Members of Congress 
here, also have HSAs. I am not sure how many Members of 
Congress have taken up the opportunity to establish HSAs, but I 
would be very interested and intrigued to find out how many of 
my 534 other colleagues in the House and in the Senate have 
actually established HSAs to see how valuable they really are 
to the American public. With that, I will yield back the 
balance of my time.
    Chairman THOMAS. Gentleman from Illinois, Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman. I appreciate the panel 
being with us here. Mr. Lutey, my Illinois constituent, I am 
going to direct questions to you.
    You are not-for-profit; you are not in the business of 
making money. You are in the business of providing social 
services. So, you want to make ends meet, and you had indicated 
in your testimony you found HSAs to be, frankly, a successful 
way to reverse a trend that you had stated in your testimony, 
the trend 2 to 3 years ago was more and more the responsibility 
of the financial burden for health care coverage was being 
shifted to the employees.
    Mr. LUTEY. Correct.
    Mr. WELLER. As a result of using HSAs you reversed that, 
and you as an employer, as a not-for-profit, were able to 
increase your share of those costs and provided more as an 
employee, a benefit. As part of your testimony though, you--as 
part of our oversight, we are always looking for ways to make 
things better, and while you had some positive statements, you 
also had some recommendations about how you feel HSAs can be 
improved, both from an employer's perspective, but also for the 
health of the employee.
    One of the recommendations was dealing with comparability 
rules regarding income levels and the amount of contributions 
that you can make. You suggest contributing more to lower-
income employees because higher-income employees could afford 
to contribute more in their share. Can you further elaborate on 
that idea and how that would work from your perspective as well 
as the employees?
    Mr. LUTEY. I would be glad to, and I appreciate the 
question. We are doing this not because of tax advantages and 
we are not doing this because somehow we are going to be 
gaining from this process. We are doing it because we believe 
that this truly is a way that can promote wellness in our 
organization, and a way to truly affect the employee base and 
attract new employees to our company.
    In my organization, 90 percent of the employees in the plan 
make less than $50,000, and 47 percent of the employees in the 
plan make less than $30,000 a year. If I had the opportunity 
and the ability to put more money into the HSA accounts of 
those individuals who made less than $30,000, and individuals 
who had the ability to deposit more pre-taxed contributions out 
of their own salary, I would be better able to address the 
adverse impact issue. I would be able to address the issue of 
employees perceiving that the plan is too expensive when they 
are standing there at the pharmacy, wondering, how am I going 
to pay for this?
    As I said earlier, for many of my employees, the choice 
they make is not between high plan and low plan. It is between, 
``can I afford insurance or will I buy milk for my kids?'' So, 
if there are ways that I can increase the dollars that are 
available to them and have less out of pocket for them to pay, 
I believe the plan could truly be successful and impact 
positively those individuals who are uninsured and who are 
coming to us to work.
    Mr. WELLER. So, these lower-income workers for your not-
for-profit would be able to essentially have more take-home pay 
because they would be required to put in less because the 
employer would be putting in more?
    Mr. LUTEY. Exactly right. I know some of my colleagues may 
disagree with me here at the table, and to be quite frank, you 
may not hear this again from a witness: I am not asking you for 
more money. I am asking you to allow me to rebalance the 
dollars I have; to be able to put more money into the HSAs of 
low-income employees rather than the higher ones so the working 
poor who can have greater ability to use those dollars for 
health care needs.
    Mr. WELLER. You have also suggested greater flexibility and 
your point is, in the long term, we can prevent large health 
claims by encouraging better preventive measures, and one of 
those suggestions was opening the rules around prescription 
drugs for preventive care. Can you elaborate on that?
    Mr. LUTEY. Yes. One of the questions earlier--I believe Mr. 
English asked the question--what could happen to improve HSAs 
for me is, anything you can do to help describe preventive care 
with a broader definition. Anything you can do to assist 
employees to make good decisions around their health care would 
be beneficial. I would far prefer to pay for Lipitor and other 
preventative medications for my employees who have diabetes and 
other chronic diseases than to pay for the complications of 
those diseases when the employees choose not to take the 
prescribed medications because they don't believe they can 
afford it.
    So, whatever you can do to make preventative prescriptive 
drugs available for them would be helpful. In addition, if I 
may refer back to another question asked earlier, one of the 
key differences for us, that we talk about with our employees, 
is the reality that there are no lost dollars with an HSA. With 
HMOs you go in and you also have copays. Well, where do copays 
go? They just disappear into thin air. In our HSA plan, every 
dollar that an employee spends counts toward their deductible. 
Dollars are simply gone out the window. If I can help employees 
understand that better; if they are willing to make that 
investment in purchasing their prescription drugs. The plan can 
move forward.
    Mr. WELLER. I thank you for your testimony. I see my time 
has expired. Thank you, Mr. Chairman.
    Chairman THOMAS. Mr. Lutey, I really appreciate your ideas. 
You need to understand though, the fraternity of witnesses may 
not allow you to join if you continue to repeat that you are 
not here asking for more money. I just want you to appreciate 
the consequences of your statement.
    [Laughter.]
    Chairman THOMAS. Gentleman from North Dakota wish to 
inquire?
    Mr. POMEROY. Yes, I do, Mr. Chairman. I begin with a 
question of the Chair. Today's Roll Call has an editorial 
entitled Tax Exempt Corruption, and it includes in its first 
paragraph, ``It is time for the Ways and Means and Senate 
Finance Committees to follow up with probes of the misuse of 
tax exempt foundations.'' It goes on to call for hearings to 
expose the practice of using foundations as conduits for 
special interest political money. This gets to the kind of 
Abramoff schemes that detailed somewhat in the editorial, but 
publicized of late and it has been a matter of inquiry for the 
Senate Committee on Finance.
    I know the Chairman has been interested in tax exempt 
entities. We have had hearings on nonprofit hospitals, we have 
had a hearing on the credit unions and I have asked the 
Chairman whether hearings are anticipated on these nontaxed 
foundations that have been involved in the political corruption 
allegations.
    Chairman THOMAS. Would the gentleman yield?
    Mr. POMEROY. I yield.
    Chairman THOMAS. The answer's absolutely. We are stating--
we have begun as the gentleman noted a systematic study of the 
not for profits. We thought we would start with those that 
involve the most billions of dollars of taxpayers' money--that 
was the hospitals--and the second largest group was the credit 
unions and we will continue on down the line looking at all of 
the not for profits and their structures. This is going to be 
an ongoing investigation. It hasn't been done for a quarter of 
a century, and we will finish with then having some 
understanding of where we need to go back and make some 
changes. Clearly, if something shows up of immediacy, for 
example, somebody telling someone, go get a cashier's check for 
$1,000 before you can get services from a not for profit 
hospital, we will make corrections as we go forward, but the 
goal is to have a thorough hearing of the nonprofit area and 
move for changes.
    Mr. POMEROY. Reclaiming my--thank you, Mr. Chairman.
    Chairman THOMAS. This won't come out of the gentleman's 
time.
    Mr. POMEROY. Thank you. Then I would just add, even though 
the dollars relative to the class of foundations that Members 
have an interest in would probably be small relative to the 
broad array of nontaxed entities, because of the potential of 
corruption or undo influence related to those nontaxed 
foundations, I think it needs to play a much higher role than a 
systematic review of what is taxed and what is not taxed. This 
really gets to the integrity of the function of Congress. It 
involves squarely a tax issue and ought to be, as the editorial 
says, a matter of, in my opinion, immediate Committee on Ways 
and Means inquiry.
    Chairman THOMAS. Gentleman yield?
    Mr. POMEROY. Yes.
    Chairman THOMAS. That is always a possibility although when 
you talk about squandering money or corruption and 
misrepresentation, I invite you to the billions and billions of 
dollars involved in those entities we have already examined, 
and it is in the eye of the beholder, to a certain extent. Had 
we used some other structure, we would have been accused of 
going after particular groups. We could choose alphabetical. We 
could choose the dollar amounts involved, but I agree with the 
gentleman that clearly when something pops up and presented to 
us, we might be able to move them to the head of the queue. As 
was indicated by nonprofit hospitals that might have someone 
come up with $1,000 cashier's check, in a tax preferred 
mission, we should not allow that to happen. So, clearly the 
gentleman--reordering based on current events, and I think that 
will come out of the gentleman's time because of the focus on 
the current hearing.
    Mr. POMEROY. I thank the Chairman. I look forward to the 
hearing. Question for the panel: where I am very concerned 
about HSAs is where we are going from here. The Administration 
has proposed taking the amounts of HSAs up significantly 
higher, and then allowing those attempts to be used in 
individual health insurance. What I think we are seeing here is 
a move to try and move health coverage provided through the 
employer group format into a defined contribution type of 
contribution by the employer rather than the present defined 
benefit. Right now the employer buys a coverage. Whatever copay 
or deductible is allowed to the employee, the coverage is 
provided and pays the claims incurred.
    What I believe is afoot behind the Administration's 
proposals is to transition this type of group benefit into a 
fixed cash amount which would be given to the employee under a 
benefit structure and the employee is then responsible to go 
buy their own individually-sold health insurance.
    I used to be a State insurance commissioner. I believe this 
change would significantly short-sell individuals in the 
workforce. I believe it would ultimately lead to the demise of 
our private pay health insurance.
    I would ask Ms. Ignagni whether or not this transition from 
a defined benefit to defined contribution, from group coverage 
to individual coverage, albeit with some employer sponsorship 
is a trend that they support.
    Ms. IGNAGNI. Mr. Pomeroy, I think, as you know, our view is 
that employers and individuals should decide what products are 
best for them, point number one. Point number two, we don't 
think that anything should be done to exacerbate the burden on 
employers, which is why I answered the Chairman's question the 
way I did.
    At the same time we I think all recognize that the nature 
of work is changing. There are many individuals who are 
retiring relatively early who are doing consulting type of 
work, independent contractor type of work, and enter the 
insurance arena themselves as opposed to being sponsored by an 
employer.
    So, in that regard we believe in a level playingfield; that 
we ought to maintain what we have for employers but at the same 
time offer the same opportunities for individuals purchasing on 
their own who may very well be in that early retirement 
category, somewhere between 50 and 65, which is why we have 
testified to the fact that there should be a level 
playingfield.
    Right now if you are an individual purchasing--if you are 
in that category and unsponsored by an employer, you can't 
deduct that, of course, until you hit a certain percent, as you 
know, of adjusted gross income.
    Mr. POMEROY. I have worked long and hard for self-employed 
deductibility, but the transition of employer group coverage to 
employer-sponsored, individually purchased coverage by the 
employee I believe is a serious development and a very adverse 
one relative to health insurance.
    Ms. IGNAGNI. I want to make it very clear in terms of where 
we are. We are not advocating a product, we are not advocating 
a type of structure. Our job as insurance plans is to be there 
to offer the range of choices that employers and individuals 
want. We take that very seriously, we have tried to do that.
    I might say also to the question that was going back and 
forth about the numbers of people who have opened up accounts, 
the GAO has information about that: 50 to 60 percent of 
individuals in the HSA arena have opened up accounts. We have 
cited that in our testimony, which I think, Mr. Pomeroy, also 
bears on your question.
    Chairman THOMAS. The gentleman's time has expired but you 
may respond briefly.
    Mr. LAUER. Only an observation, but we are seeing more 
employees in companies coming into the individual market for 
various reasons. I think a lot of it is market-driven.
    We are finding, more and more, employers don't want to make 
the decisions for employees about how best to cover them; that 
they want the employee to make the decision.
    We are also seeing, for example, and you saw it this week, 
some 45,000 people that took the buyout from General Motors. 
Those people are coming in the way--this point was made, many 
are older, pre-retiree age, and they are going to need a good 
option.
    Chairman THOMAS. Obviously, if you are interested in 
preventive care and wellness, we can't have a paternally 
structured arrangement. You have to get the participation of 
the individual.
    The gentleman from Virginia, Mr. Cantor, wish to inquire?
    Mr. CANTOR. Mr. Chairman, thank you. First of all, I want 
to thank you and your staff for holding this hearing and for 
doing excellent work to get such a terrific panel. I have 
enjoyed the discussion. I think it has been tremendously 
helpful as we deliberate on the issue of health care, 
specifically HSAs today.
    I want to respond to my colleague and friend from North 
Dakota on the other side of the aisle about his concern of our 
move away from employer or group coverage. I have to agree with 
the panel that it really is being dictated by the marketplace.
    First we have to consider the cost on employers. Mr. Lauer 
testified that, frankly, we don't want to do anything to 
provide disincentives for employers to provide coverage because 
the fact is they are having a hard enough time trying to keep 
up with the escalation in health care costs. It is just the 
reality of the market.
    Several have testified as well that more and more 
individuals in independent contracting positions, retirees, and 
so forth, move into the market, obviously plans have gravitated 
in that way too.
    So, it really just concerns me as I hear some on the other 
side attack HSAs as somehow the evil incarnate that awaits us. 
I would say that, as the gentleman from Pennsylvania suggested 
earlier, HSAs are not a panacea. They are being utilized as 
just one more option in the buffet of health care options 
provided by employers and that hopefully are going to be chosen 
by individuals.
    To me it seems that some of the panelists have indicated 
opposition to HSAs. Why would you do that? The facts are 
clearly laid out for the individuals who have had this real 
world experience and that they are working and the demographics 
and distribution of population participating in HSAs don't seem 
that much different than the traditional plans.
    Now the purpose I see of expanding and liberalizing HSAs is 
to really try and change behavior; it is not immediately about 
saving money, although it will result. If I could quote Mr. 
Cava: There has to be a sustained change in behavior that leads 
to a sustained improvement in health. With this change in 
behavior we will begin to see more health conscious activity, 
and frankly, more value conscious patients. This will 
ultimately bring down costs. As we know, wellness participation 
will lead to less acute care utilization. Bringing down costs 
will increase access.
    Now I want to respond to some of the testimony having to do 
with emergency room situations or if someone experiences a 
heart attack and the notion that we are going to expect 
individuals to be consumers in that instance. Of course we are 
not. That is clearly not the issue. Health Savings Accounts 
provide against major medical expenses and they also provide a 
way for individuals to save tax-free for routine health care, 
and again, that is the bulk of health care activity, health 
care attention by individuals.
    So, if I could turn for a question to Mr. Cava on the 
ownership question, the question that we are providing a way 
for individuals to save and own their account, the notion of 
portability has been raised here. As an employer, can you share 
a little bit of insight as to your thinking on--you provide 
this money, and unlike traditional health care coverage with 
where the money is provided, the benefit is either used or not 
and the year is up and we go to the next, that an employee may 
take the money, take the benefit and leave.
    Mr. CAVA. Well, thank you, Mr. Chairman, Representative 
Cantor. This is a debate, it is an important debate, and I do 
believe it is about a long-term change in behavior and not just 
about saving a dollar or two today.
    What we have been excited about is that we have created 
ownership amongst 90 percent of our employees. They have 
positive balances in their HSAs. That is currently 95 percent 
in fact.
    We are a higher turnover business and it is encouraging to 
see that of those 90 percent, now 95 percent of the people who 
do have positive balances in their HSAs, that equals over $4 
million, closer, I think the latest, it is $5.6 million as of 
today, the latest statistics, that we have now transferred to 
our employees. That money would have gone somewhere else. I am 
not quite sure where, but I know it wouldn't have gone to our 
employees.
    They are accumulating wealth for the purpose of taking 
better care of their health. We are seeing changes in attitudes 
about behavior associated with preventive care, real measurable 
changes as a result of making people part owners in their 
health care. We are making it a number one priority like buying 
health insurance should be.
    These are folks in my business, general managers of 
restaurants, shift supervisors of restaurants who make 
decisions about renting houses, buying cars, who make decisions 
about sending their children to school, who make decisions 
about all the same things that everybody here makes decisions 
about. Now what they are showing us is they have the capability 
to make great decisions about themselves and their health care.
    It is about ownership, it is about partnership, and it is 
absolutely directionally where we need to go. Having said that, 
can we improve? Absolutely. There are some fixes that we can 
make to the HSA structure that could be helpful to us.
    Chairman THOMAS. Thank the gentleman from Virginia. Does 
the gentlelady from Ohio wish to inquire?
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Just for the 
record I want to be sure that the American people know that as 
Congresspeople working on health care, it is not about a 
paternally structured arrangement, it is about access to health 
care for all people in America, paternal, maternal whatever the 
heck you want to call it. It is about the people who are not in 
a position to make real decisions about health care coverage 
because they have no dollars to save. It ain't about paternal, 
it is about the need for us to put in a structure that will 
allow all people in America to have health care; the richest 
country in the world, where people come from all over the world 
to get health care and the people right down the street can't 
access it.
    I had to say it for the record because everybody else is 
talking about paternally structured and wellness participation 
and all this other stuff. It is about access to health care for 
all Americans, however we do it.
    Let me just quickly ask Mr. Cava, what is the wage you pay 
a student, or older worker that walks up to Wendy's and says I 
want a job? No experience. You use up too much of my time 
saying ``Mr. Chairman.'' Could you just answer the question?
    Mr. CAVA. Could you repeat the question, please?
    Ms. TUBBS JONES. The question is the person who walks----
    Chairman THOMAS. Will the gentlewoman yield? Any courtesies 
by Mr. Cava will not come out of your time.
    Ms. TUBBS JONES. Mr. Cava, someone walking up to Wendy's, 
getting a full-time job, how much do they make an hour?
    Mr. CAVA. It depends upon the position for which they are 
applying.
    Ms. TUBBS JONES. Entry level.
    Mr. CAVA. Entry level, crew level, our average wage for the 
system is somewhere $7.50 an hour.
    Ms. TUBBS JONES. $7.50 an hour. Of the 10 percent, 10,000 
who have an HSA or participate in HSA, how many of them are 
workers who make $7 an hour?
    Mr. CAVA. Very few.
    Ms. TUBBS JONES. Why is that?
    Mr. CAVA. Why is that?
    Ms. TUBBS JONES. Let me make it plain. Why is that?
    Mr. CAVA. That is a very global question, Representative, 
and let me think and reflect on that.
    Ms. TUBBS JONES. I think it is going to take too long to 
reflect with the minutes I have. Can you give me something back 
in writing? I guarantee you, Mr. Cava, most people making $7.95 
an hour can't access an HSA because they are paying $3 a gallon 
for gasoline, $3.50 for a loaf of bread, and so forth. It is 
not to say--all I am suggesting to you is it sounds like a 
great idea but if you are not making enough money to eat, 
sleep, saving for health care is a difficult process, even 
though they want to participate in wellness, because being 
well, participation is an expensive proposition and all the 
studies say that most low income people are not healthy because 
they can't afford to be healthy. I thank you for your testimony 
and I want to be as polite to you, Mr. Cava, as I can but I 
can't allow the stuff that is being said in this hearing to go 
without being challenged.
    I am going to go to my constituent. Please answer why most 
low income people or people at that level are not participating 
in HSAs and please respond as to what is the problem with your 
provision of health care through a practice with HSA. Who are 
you seeing, why are they coming to you?
    Ms. THERRIEN. The primary reason they would come to us is 
either that they are completely uninsured, which sounds like 
many of your workforce for whatever reason is uninsured, or if 
they have an HSA account and if there are no funds, or even if 
there were funds in the account, they would first need to come 
to us where we would offer them a discount, then later if they 
had any money in an account, which they wouldn't, they would be 
able to get to that money. So, the primary reason that folks 
are coming to us is simply because they have nowhere to turn. 
If they are making $8 an hour, they meet Federal poverty 
standards. Even as a single person they would meet Federal 
poverty standards. We would offer a discount on the sliding 
scale based on family size and income. It would be affordable 
to seek care at our place, and we have a very heavy emphasis on 
wellness and on prevention.
    Ms. TUBBS JONES. The other problem that is presented by 
creating individual health accounts is you reduce the pool of 
healthy people available for an employer to have to be able to 
provide health care for all.
    Ms. THERRIEN. I really can't speak to that.
    Ms. TUBBS JONES. I am going to go to the health care 
people. Answer that question for me.
    Ms. IGNAGNI. We do not see that happening because we have 
an equal distribution of people over and under 40, roughly.
    Ms. TUBBS JONES. How do you keep that equal distribution in 
place?
    Ms. IGNAGNI. What we do is we make sure that as health 
insurers--I can't speak to what the employers decide to offer, 
but I can tell you what we are providing for their 
consideration. You have a robust system of preventive care, 
including maternity, and you make sure that you have a 
structure where there is disease management and there is 
opportunities to handle----
    Ms. TUBBS JONES. Let me ask this question, in most health 
care programs the reason the employer has the ability to 
provide the health care is the risk is for the whole pool, not 
for an individual and that is what makes health care affordable 
for a pool of people, because you have both the unhealthy and 
the healthy.
    Chairman THOMAS. The gentlewoman's time has expired.
    Ms. TUBBS JONES. I guess you can't.
    Chairman THOMAS. You certainly can, and all of us are 
anxious to see the written responses to the various questions. 
Does the gentleman from Colorado, Mr. Beauprez, wish to 
inquire?
    Mr. BEAUPREZ. I do, and thank you for holding this hearing. 
It has been an exceptional panel and I think you have provided 
us very current information. I appreciate it very much. Mr. 
Cava, continue on that question. Did I understand right that 
your company provides a 60-40 match, so 60 percent of the 
contribution in HSA you are contributing, did I hear right, on 
a quarterly basis?
    Mr. CAVA. That is correct. We did contribute this last 
year, half of the entire amount on January 3.
    Mr. BEAUPREZ. So, that money would be there regardless?
    Mr. CAVA. That is correct.
    Mr. BEAUPREZ. The $7 an hour employee or somebody making 
more than that wouldn't have zero money, they in fact would 
have your contribution?
    Mr. CAVA. Mr. Chairman and Representative Beauprez, I wish 
I had time to respond.
    Mr. BEAUPREZ. There wasn't much time.
    Mr. CAVA. The hourly employee that works for us may indeed 
have coverage, and that is hard for people to understand. These 
are second jobs, they are second wage earners, they are part-
time employees who are covered by their parents or others. So, 
it is very misleading to suggest that they do not have 
coverage.
    Mr. BEAUPREZ. Exactly. Mr. Jackson, I believe you stated 
that a year or so ago your health care premium cost to Buffalo 
Supply was $102,000. I am rounding. A 21 percent increase would 
have gotten you to $123,000. I did just some simple arithmetic, 
but if that 21 percent continued for 3 more years, in the 
course of 4 calendar years your health care costs at Buffalo 
Supply would have way more than doubled.
    What is the single biggest reason for the drop in employer-
sponsored health plans, either the elimination of, or as I have 
heard from a number of companies that used to provide 100 
percent coverage, I can no longer do that, I am going to 
provide half coverage, I used to provide dependent coverage, I 
can no longer do that. So, the reduction or in some cases 
elimination, what is the single business reason?
    Mr. JACKSON. The cost.
    Mr. BEAUPREZ. Sooner or later you can't keep up. Now what I 
understand from my insurance commissioner back in Colorado, and 
this is very fresh information as of last Saturday morning, is 
that it is not 31, not 33 percent, but in Colorado, with 
current information, 41 percent of the people that have opened 
HSAs were previously uninsured. Now, by any measure, I think it 
is irrefutable that one of our objectives here in Congress 
should be to reduce the number of people that are uninsured and 
by at least my information this has been successful.
    I would submit to all of you, in the timeframe we are 
talking about, since HSAs have been made available, has there 
ever been anything that we have done, that we have created, 
that we have incentivized that has had a more immediate or a 
larger, more significant impact on reducing the ranks of the 
uninsured?
    Mr. JACKSON. No. I wouldn't think so.
    Dr. COLLINS. The State Children's Health Insurance Program.
    Mr. BEAUPREZ. This is a free market program. I think a 
point that has been made, and I would submit to you that some 
of us have a particular bias to incentivizng the marketplace to 
do what we have seen happen here. I think it was Mr. Lauer, Mr. 
Jackson, perhaps Mr. Lutey who spoke to the need of 
transparency, I think maybe Mr. Lauer spoke most profoundly to 
it, to empowering the individual to make choice. If I had no 
idea what this suit would cost, I wouldn't care, especially if 
somebody else was picking up the tab. I wouldn't care. I would 
just get another suit, put it on the tab, especially if it was 
the company tab.
    We are all concerned in bending the curve, aren't we? I 
hope we are, in the rising cost of health care. I think what 
you have pointed out, Mr. Lauer, is clear indication of one way 
to do that. Inform and empower the consumer, the end point, the 
utilizer of health care, whether that is a pharmaceutical drug, 
whether that is a medical procedure, to make that choice, to 
make that choice. I think that is one of the most dramatic 
cultural behavioral shifts we could have incentivized and 
witnessed, and frankly I am here to celebrate that. Any of you 
care to respond?
    Mr. LAUER. My only comment would be, we find in our 
membership base that when employees have information and 
knowledge they make good decisions.
    Mr. BEAUPREZ. I particularly thank the panel for the 
recommendations you have made to improve HSAs. I think it is a 
very, very good first step. I look forward to seeing them 
improved and utilized even greater. Thank you all. Mr. 
Chairman, I yield back.
    Chairman THOMAS. Thank the gentleman. The Chair also 
appreciates the panel. I think one of the things we need to 
focus on is it needs to be a multi-faceted approach, especially 
for low income people. We have got to talk about providing 
their ability to have the wherewithal to participate. The 
gentlewoman from Ohio is right. One of the things we need to do 
is double our efforts to make sure those people who are 
otherwise eligible for the low income programs on the book 
through Medicaid and others, we maximize the number of people. 
Now there are a number of people who are not utilizing those 
services. We have to make sure they are available.
    One of the points I hoped would occur in the discussion of 
this new tool, HSAs, is as someone has said, they are not a 
panacea. They weren't perfect coming out of the box. What we 
are trying to do is adjust options for people to make choices. 
I do believe, however, that as we move to preventive and 
wellness without full participation by the consumers with the 
wherewithal to make the choices and with transparency on the 
part of providers in terms of what the costs are, you will 
never be able to move forward and educate individuals. I don't 
expect people to be total experts in this area. We all have 
people who are experts available for advice. To assume 
individuals cannot make decisions for themselves, and if they 
have the information and the knowledge and the wherewithal, 
they can't make decisions that will improve the overall health 
care of Americans. This is not a panacea. It is an opportunity 
to begin to look at incorporating individuals into helping us 
control the costs rather than being simply consumers of a first 
dollar, third party program in which neither the consumer nor 
the provider has any idea of the cost.
    I want to thank you very much. We will be back 
occasionally. We do want to hear from the critics. We do want 
to make adjustments. We want to make these available, not to 
try to put this in a stark position, but to see and reflect how 
the changing marketplace requires us to respond with changing 
incentives.
    The Massachusetts program I think cannot be copied 
everywhere. There are some good ideas there, but more 
importantly, take a look at the government programs that have 
been out there for some time and somehow sometime, it seems to 
me, that there is a relishment in how many people are uninsured 
when in fact if we doubled our efforts to get them into the 
programs that are already there, you would see a dramatic 
reduction in the number of uninsured.
    So, I want to thank you again. The Committee stands 
adjourned.

    [Whereupon, at 1:03 p.m., the Committee was adjourned.]

    [Questions submitted from the Honorable Fortney Pete Stark 
to Sarah Collins and her responses follow:]

    Question: You mentioned the high administrative costs of purchasing 
insurance in the individual market. Why is it so important to pool 
risk, and how do HSAs in the individual market undermine this important 
aspect of an insurance market?
    Answer: The administrative costs of individual coverage comprise 
25-40 percent of each premium dollar compared to 10 percent of group 
coverage.\1\ This means premium dollars buy fewer benefits in the non-
group market than they do in employer group markets. For example, 
research has shown that few plans in the individual market, even with 
low deductibles and higher premiums, provide maternity benefits without 
a special rider.\2\
---------------------------------------------------------------------------
    \1\ J. Gabel, et al., Are Tax Credits Alone the Solution to 
Affordable Health Insurance? Comparing Individual and Group Insurance 
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
    \2\ S. R. Collins, S.B.Berkson, D.A. Downey, Health Insurance Tax 
Credits: Will They Work for Women? (New York: The Commonwealth Fund) 
December 2002; J. Gabel, et al., Are Tax Credits Alone the Solution to 
Affordable Health Insurance? Comparing Individual and Group Insurance 
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
---------------------------------------------------------------------------
    In addition, to remain competitive and to be responsible to their 
shareholders, insurers in the non-group market necessarily estimate 
risk and set premiums sufficiently high to cover risk. This means that 
people who are older, who are in poorer health, or have a chronic 
health problem like diabetes or heart disease will either be charged a 
higher premium than younger and healthier people, have their condition 
excluded from their coverage, or be turned down for coverage all 
together. Some states like Massachusetts, New Jersey and New York have 
strong individual market regulations that require community rating 
(everyone is charged the same premium regardless of age or health 
status) or impose age rating bands which limit the degree to which 
premiums charged to older people can exceed those charged to younger 
people.\3\ But in states that have less regulated individual markets 
such as Kentucky, Kansas, Washington and Iowa, there is no community 
rating and carriers can reject applicants based on medical underwriting 
criteria. In these four states Nancy Turnball and Nancy Kane found that 
as many as 30-40 percent of applicants in the case of some insurance 
carriers are rejected for coverage.\4\ In Kansas and Kentucky, carriers 
can impose permanent exclusions for pre-existing conditions. Turnball 
and Kane found that in Kentucky there is 14-17 fold difference in 
premiums for the same insurance product based on health and age. While 
a 25-year old Kentucky man could buy a $2,500 deductible plan for just 
$624 a year, a 63 year-old man would be charged $2,736 for the same 
product. If the 63 year-old had health problems and was eligible for 
coverage in the Kentucky's high risk pool, the lowest premium for a 
$1,800 deductible plan was $10,800 annually.
---------------------------------------------------------------------------
    \3\ Nancy Turnball, Nancy Kane, Insuring the Health or Insuring the 
Sick? The Dilemma of Regulating the Individual Health Insurance Market, 
Findings from a Study of Seven States, (New York: The Commonwealth 
Fund) February 2005.
    \4\ Nancy Turnball, Nancy Kane, Insuring the Health or Insuring the 
Sick? The Dilemma of Regulating the Individual Health Insurance Market, 
Findings from a Study of Seven States, (New York: The Commonwealth 
Fund) February 2005.
---------------------------------------------------------------------------
    In its most recent 2007 fiscal year budget, the Administration 
proposed additional tax incentives for people to purchase HSA-eligible 
high deductible health plans (HDHPs) in the individual market. The 
proposals, which aim to equalize the tax treatment of HSAs in the 
individual market to those in the employer market, would allow a tax 
deduction for premiums associated with HSA-eligible HDHPs in the non-
group market, along with a tax credit of 15.3 percent to offset the 
premium cost. But based on what we know about the individual market--
much higher administrative costs and pricing (and exclusions) based on 
age and health--it is unclear why we would want to encourage a shift 
away from natural risk pools like large employer groups to the 
individual market on either efficiency or fairness grounds. Individuals 
are covered by employer group coverage by virtue of taking a job, not 
because they incur, or expect to incur, a health problem. Such a 
leveling of the tax treatment will lead to higher costs in the health 
system and more uninsured people as employers, who no longer feel 
compelled to offer tax-advantaged benefits, drop coverage. Jonathan 
Gruber estimates that the Administration's proposals would actually 
increase the number of uninsured Americans by 600,000.\5\ While 3.8 
million previously uninsured people would become newly insured through 
HSA-eligible HDHPs in the individual market, many employers, especially 
small employers, would respond to the equal tax treatment of some 
policies in the individual market by dropping coverage. Consequently, 
Gruber estimates that 8.9 million people would lose their employer-
based health insurance. While some people who lose their coverage would 
buy insurance in the individual market, about 4.4 million would become 
uninsured.
---------------------------------------------------------------------------
    \5\ J. Gruber, The Cost and Coverage Impact of the President's 
Health Insurance Budget Proposals, Center on Budget and Policy 
Priorities, February 15, 2006.
---------------------------------------------------------------------------
    Moreover, if employer contributions to health benefits were made 
all or partly taxable, as some policy makers have suggested, this would 
burden lower-wage workers most as a percent of income. Thus it is 
regressive, not progressive, to partly or fully reduce the tax 
exemption for employer provided benefits when the benefit is correctly 
measured as a percent of income.

    Question: Ms. Ignani testified that HSA-compatible high-deductible 
health plans are taking off in the group market. Isn't this something 
we should be alarmed by? Doesn't this mean that workers are at risk of 
losing more comprehensive coverage?
    Answer: Yes, this means that people will have less comprehensive 
coverage depending on what services employers exclude from deductibles, 
and higher first dollar expenses, depending on the degree to which the 
employer funds their employees' HSAs. According to the Kaiser Family 
Foundation/Health Research and Educational Trust 2005 Survey of 
Employer Sponsored Health Benefits, a national survey of 3,000 
employers, employers who offered HSA-eligible plans in 2005 reduced 
their annual premium contributions for an employee's single coverage on 
average from $3,413 to $2,270.\6\ The average employee premium 
contribution in HSA-eligible plans was $431 compared to $610 for all 
plans. But the average deductible in HSA-eligible HDHPs was $1,901 
compared to $323 in PPO plans. Moreover, employers on average 
contributed $553 to employees' HSAs, just 30 percent of the deductible. 
This average contribution includes the 37 percent of workers who 
received $0 contribution from their employers. Thus workers' potential 
contributions to HSA-eligible HDHPs including deductibles minus the 
employer HSA contribution was $1,779 compared to $933 for all plans.
---------------------------------------------------------------------------
    \6\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a national Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.
---------------------------------------------------------------------------
    Though employers are able under the law to exclude preventive 
services from the deductible of HSA-eligible plans, the KFF/HRET Survey 
found that in 2005 just 30 percent of workers covered by an HSA-
eligible plan had some preventive services covered within the 
deductible.\7\ Also, the law does not allow for coverage of other 
important preventive services such as primary care visits or chronic 
disease management which could help prevent more serious and costly 
health problems from developing in the future.

    \7\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a national Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.

    Question: Can you explain for us what happens to costs for more 
comprehensive group coverage as younger healthier people move to HSAs?
    Answer: In the employer group insurance market, the average 
deductible for a single person in a PPO plan according to the Kaiser 
Family Foundation/HRET 2005 Survey of Employer-Sponsored Benefits was 
$323, far lower than the average for HSA-eligible high deductible 
health plans (HDHPs) of $1,901.\8\ When employers offer an HSA/HDHP as 
a choice among other plans they are most likely to be attractive to 
healthier, higher income employees. This is because these employees 
have higher marginal tax rates and thus derive the greatest benefit 
from the tax benefit. They also have higher saving rates, and will be 
less likely to draw down their accounts to pay for health services so 
that they will be able to accumulate balances over time.\9\ The General 
Accountability Office (GAO) found in a study of enrollment in the 
Federal Employee Health Benefits Program's (FEHBP) HSA/HDHP product 
that 43 percent of those enrolled in the HDHP/HSA plans had incomes of 
$75,000 or more, compared with 23 percent of those in all FEHBP 
plans.\10\ Rates of enrollment in the plans were higher among Federal 
employees under age 54 than among those ages 55 to 64.
---------------------------------------------------------------------------
    \8\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a national Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.
    \9\ S.A. Glied and D.K. Remler, The Effect of Health Savings 
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund) 
April 2005.
    \10\ Government Accountability Office, Federal Employees Health 
Benefits Program First-Year Experience with High-Deductible Health 
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006; 
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
---------------------------------------------------------------------------
    When an employer offers a product that is most attractive to 
healthier employees, a significant shift of those employees into the 
new product can leave an increasingly less healthy pool of employees in 
non-HSA/HDHP health plans.\11\ This can have the effect of increasing 
premiums in those plans, making them less affordable for employees in 
worse health, and with lower incomes. As Sherry Glied and Dahlia Remler 
point out, the worst case scenario is an escalating premium spiral that 
might ultimately lead to the disappearance of more generous health 
plans, even if they have been working efficiently prior to the 
introduction of the HSA/HDHP product.\12\
---------------------------------------------------------------------------
    \11\ S.A. Glied and D.K. Remler, The Effect of Health Savings 
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund) 
April 2005.
    \12\ S.A. Glied and D.K. Remler, The Effect of Health Savings 
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund) 
April 2005.
---------------------------------------------------------------------------
    Many small employers only offer one product--just one-third of 
insured workers in firms with fewer than 200 employees have a choice of 
health plan.\13\ If small employers fully replace more generous health 
plans with HSA/HDHPs, this will disadvantage lower income, less healthy 
employees who benefit less than higher income employees from the tax 
benefits of HSAs and are less able to contribute to, or accumulate, 
balances in HSAs.\14\ This increases the risk that lower income 
employees, facing tradeoffs from other living expenses, might drop 
coverage if the plans' total costs, including out-of-pocket 
expenditures, are higher than those of more comprehensive plans they 
were offered in the past.

    \13\ Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits, 2005 Annual Survey, (Washington DC: 
KFF/HRET) 2005.
    \14\ S.A. Glied and D.K. Remler, The Effect of Health Savings 
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund) 
April 2005

    Question: Is there any indication that savings employers are 
realizing from switching to HSA plans is being given back to employees 
in higher salaries?
    Answer: There is no evidence to date that I am aware of that this 
has occurred. National health care spending is climbing by more than 7 
percent per year and is expected to continue to outpace growth in the 
economy by a substantial margin.\15\ The average annual cost of family 
coverage in employer-based health plans, including employer and 
employee contributions, topped $10,880 last year, more than the average 
yearly earnings of a full-time worker earning the minimum wage.\16\ 
Employers are coping with rising premiums by passing along more of 
their costs to employees or eliminating coverage altogether. Many 
employers have turned to HSA/HDHP products as a way of lowering their 
health care costs. These plans alleviate the employer's cost-burden by 
increasing cost-sharing among their employees. It is not as if overall 
health care costs are declining, such that employers might be willing 
to capture the windfall in the form of profits, larger annual salary 
increases for their workers, or lower prices for consumers. Those 
employers facing rising premium costs have explicitly sought to share 
those increases with their employees in the form of much higher 
deductibles, and with low contributions to HSAs on average.
---------------------------------------------------------------------------
    \15\ Stephen. Heffler, et al., ``U.S. Health Spending Projections 
for 2004-2014,'' Health Affairs Web Exclusive 23 Feb 2005; C. Smith, et 
al., ``National Health Spending in 2004,'' Health Affairs (Jan/Feb 
2006): 186-196.
    \16\ Jon Gabel et al., ``Health Benefits in 2005: Premium Increases 
Slow Down, Coverage Continues to Erode,'' Health Affairs 24 (September/
October 2005): 1273--1280.
---------------------------------------------------------------------------
    It is an open question whether employers that experience year over 
year declines in health care costs because their employees are paying 
more out of pocket for their health care would increase their workers' 
wages. According to economic theory, employers who do not offer 
employee benefits compensate their employees through higher wages.\17\ 
Those companies that do offer health care benefits reduce wages such 
that the total compensation package is equivalent to that of similar 
workers employed by firms not offering benefits. In other words, the 
cost of non-wage compensation is fully borne by employees. Yet there is 
mixed empirical evidence that workers who do not have health benefits 
receive higher wages. Indeed, higher wage earners are far more likely 
to have health benefits through their jobs than lower wage workers.\18\
---------------------------------------------------------------------------
    \17\ J. Gruber ``Health Insurance and the Labor Market.'' NBER 
Working Paper no. 6762. (Cambridge, Massachusetts: National Bureau of 
Economic Research) 1998.
    \18\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren, 
Gaps in Health Insurance: An All-American Problem, Findings from the 
Commonwealth Fund Biennial Health Insurance Survey (New York: The 
Commonwealth Fund) April 2006; A. Monheit, M. Hagan, M. Berk, and P. 
Farley,``The Employed and Uninsured and the Role of Public Policy.'' 
Inquiry 22(4) 1995: 348-364.
---------------------------------------------------------------------------
    If health care costs for a firm are increasing, then companies that 
offer employee health insurance likely will pursue some combination of 
strategies that will help protect profits and shareholder earnings. 
Employers may shift costs to employees by limiting the size of salary 
increases or by scaling back other forms of compensation through 
benefit reductions or greater employee cost-sharing. Employers may also 
shift costs to consumers through price increases.
    If health care costs are falling, or if companies are offering less 
comprehensive benefit plans such as HSA-eligible HDHPs, employers might 
reduce prices to consumers, increase the generosity of other employee 
benefits, provide higher annual salary increases or increase profits. 
But we do not know with precision whether those savings will be 
provided equally to all workers, or just to workers who are younger or 
less likely to be sick or injured or pregnant, or if they will be 
diffused through a combination of higher wage growth, price reductions, 
or higher profits.Information costs about worker health risks, the 
minimum wage, and antidiscrimination laws likely preclude companies 
themselves from achieving a precise offset of expected health care 
costs with changes in compensation.\19\

    \19\ L.H. Summers, ``Some Simple Economics of Mandated Benefits,'' 
American Economic Review 79(2) (1989): 177-83.

    Question: Insurance industry studies have indicated that around 
one-third of the people enrolled in HSA-qualified plans were previously 
uninsured. Isn't this about the same number as the non-HSA individual 
and small group market generally? Are HSA-eligible plans actually 
contributing in any particular way to reducing the number of uninsured?
    Answer: It has always been true that a high percentage of people 
buying insurance in the individual market do so because they are 
uninsured, and a large share of people in the non-group market have 
high deductible health plans. According to the Commonwealth Fund 2003 
Biennial Health Insurance Survey, 30 percent of adults 19-64 with 
coverage in the individual insurance market had per-person deductibles 
of $1,000 or more.\20\ This was prior to the introduction of HSAs. 
Because a high percentage of people in the market were previously 
uninsured it's not surprising that America's Health Insurance Plans 
(AHIP) says that 31% of those buying individual coverage with high 
deductibles were uninsured. But the new tax incentives to purchase HSAs 
have little to do with this. The real way to judge the effect of HSAs 
on the uninsured is how much higher the percentage of previously 
uninsured in HDHPs in the individual market is than the historical 
pattern.
---------------------------------------------------------------------------
    \20\ S.R. Collins, M.M. Doty, K.Davis, C. Schoen, A.L. Holmgren, A. 
Ho, The Affordability Crisis in U.S. Health Care: Findings from the 
Commonwealth Fund Biennial Health Insurance Survey (New York: The 
Commonwealth Fund) March 2004.
---------------------------------------------------------------------------
    The individual insurance market has always served as a ``bridge'' 
or temporary home for individuals and families who could afford the 
higher premiums during insurance transitions as a result of a change of 
jobs, college graduates aging off parents' policies, people in waiting 
periods for job-based benefits, early retirement or other changes. As a 
result, in any given time period, a substantial share of new entrants 
to this market were previously uninsured--but they typically are moving 
through on the way to Medicare or group coverage. Klein, Glied and 
Ferry find that 53 percent of those in the private non-group market 
retain their coverage over a 2-year period compared with 86 percent of 
those with private group insurance.\21\ Thus, the AHIP ``flow'' 
statistics repeat the historical patterns in this market. Unless we 
start to see a decrease in the total number of uninsured, and an 
increase in the percent of high risk groups insured, the ``flow'' 
statistics tell us little about the net effect of HSA-eligible HDHPs on 
the total number of uninsured.

    \21\ K.Klein, S. Glied, D. Ferry, Entrances and Exits: Health 
Insurance Churning, 1998-2000 (New York: The Commowealth Fund) 
September 2005.

    Question: Prior to 2004, what were the median deductibles in the 
individual and group markets? How have these levels changed as a result 
of HSAs?
    Answer: Deductibles in employer plans have risen sharply over 2000-
2005, as employers have sought to share more of their costs with 
employees. According to the Kaiser Family Foundation/HRET 2005 Employer 
Health Benefits Survey, among companies that offer coverage with fewer 
than 200 employees, the average annual in-network deductible for a PPO 
plan more than doubled over 2000-2005, climbing from $210 to $469.\22\ 
The average out-of-network deductible for a PPO plan in small companies 
climbed from $383 to $676. For larger firms with 200 or more employees, 
average annual in-network deductibles for PPO plans grew somewhat more 
slowly than in smaller firms climbing from $157 to $254. Average out-
of-network deductibles in these larger firms rose from $319 to $510.
---------------------------------------------------------------------------
    \22\ J.Gabel, J. Pickreign, Risky Business: When Mom and Pop Buy 
Health Insurance for Their Employees. (New York: The Commonwealth Fund) 
April 2004; Kaiser Family Foundation and Health Research and 
Educational Trust, Employer Health Benefits, 2005 Annual Survey, 
(Washington DC: KFF/HRET) 2005.
---------------------------------------------------------------------------
    In 2005, the average deductible for an individual in an HSA-
eligible HDHP across all firm sizes was $1,901. This is relative to an 
average deductible in 2005 across PPO plans in all firm sizes of $323. 
This is an increase from an average of $187 in PPO plans in 2000.
    With so few workers enrolled in HSA-eligible HDHPs so far it is 
hard to assess how much of the overall increase in deductibles in 
employer group plans is attributable to more employees enrolled in 
these HDHPs. But the trend since 2000 in employer group plans is toward 
more employee cost sharing through higher deductibles especially in 
small businesses, with HSA-eligible HDHPs being the extreme form of 
such cost-sharing.
    It is harder to get data on average deductibles of health plans 
sold in the individual market. The Commonwealth Fund 2003 Biennial 
Health Insurance Survey found that 30 percent of adults 19-64 with 
coverage in the individual insurance market had per-person deductibles 
of $1,000 or more.\23\ New preliminary evidence from the Commonwealth 
Fund 2005 Biennial Health Insurance Survey shows only a slight increase 
in the share of adults in the individual market with deductibles of 
$1,000 or more. A large share of people in the individual insurance 
market have always purchased high deductible health plans in order to 
lower their premium costs. It is not clear whether the tax benefits of 
HSAs will increase enrollment in these plans in the individual market.

    \23\ S.R. Collins, M.M. Doty, K.Davis, C. Schoen, A.L. Holmgren, A. 
Ho, The Affordability Crisis in U.S. Health Care: Findings from the 
Commonwealth Fund Biennial Health Insurance Survey (New York: The 
Commonwealth Fund) March 2004.

    Question: How much of the reduction in premiums in HSA plans can be 
attributed to higher deductibles?
    Answer: According to the Kaiser Family Foundation/HRET 2005 
Employer Health Benefits Survey, the average premium in 2005 for HSA-
eligible high deductible health plans for single coverage was $2,700 
compared to $4,024 in all plans, or a $1,324 difference.\24\ The 
average deductible was $1,900 compared to $323 in all plans, or a 
$1,577 difference.
---------------------------------------------------------------------------
    \24\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a national Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.
---------------------------------------------------------------------------
    Employers who offered HSA-eligible plans in 2005 reduced their 
annual contributions to their employees' premiums for single coverage 
on average from $3,413 in all plans to $2,270.\25\ The average 
contribution to HSA accounts was $553 leaving the total employer 
contribution to the cost of their workers coverage of $2,823, still a 
$590 savings over their average contributions to single coverage in all 
plans. In contrast, the average employee premium contribution in HSA-
eligible plans was also reduced to $431 compared to $610 for all plans. 
But the reduced premium contribution for employees was more than offset 
by the higher average deductible of $1,901. The average employer 
contribution to the HSA of $553 was just 30 percent of the deductible, 
leaving worker's contributions to the cost of their care at $1,779 
compared to $933 in all plans, a $846 increase in employee costs.

    \25\ G. Claxton, et al., ``What High Deductible Plans Look Like: 
Findings from a national Survey of Employers, 2005,'' Health Affairs 
Web Exclusive, September 14, 2005.

    [Questions submitted by the Honorable Xavier Becerra to Mr. 
---------------------------------------------------------------------------
Cava and his responses follow:]

    Question: Thank you for appearing before the Committee on Ways and 
Means on June 28 to discuss Health Savings Accounts (HSAs). As we 
discussed, I have some specific questions about the health benefits 
offered by Wendy's and your employee population. Given that your 
business is frequently held out by proponents of HSAs as a model for 
others, it is helpful to have a full understanding of your plan, 
employees and other relevant data. Therefore, I would appreciate 
answers to the following questions by July 14, 2006. Unless otherwise 
specified, references to employees includes franchise employees and 
others in the total domestic workforce.
    1. As a percentage of your total domestic workforce for each year 
in question, how many employees do you insure this year versus 2005 and 
2004?
    2. What was/is your insurance plan deductible before and after 
adopting HSAs? What were/are premiums for self and family coverage 
before and after HSAs? What was/is the employee contribution toward the 
cost of premiums for self and family coverage before and after HSAs?
    3. During the question period, you said that Wendy's has 
approximately 45,000 employees in the United States. I would like to 
get a better sense of coverage among your employee base. Your testimony 
indicated that your 10,200 employees are eligible for HSAs and 7,000 
participate, correct? You mentioned during questioning that some 
additional U.S. employees have comprehensive coverage. Please tell us 
how many employees are covered in non-HSA plans, and therefore how many 
employees in total receive coverage through Wendy's.
    4. Of those who are covered, what percentage are self-only policies 
versus family coverage?
    5. How many of your approximately 45,000 employees are ineligible 
for coverage through Wendy's? Why aren't they eligible (e.g., minimal 
level of hours worked per week, salary v. hourly, waiting period or 
minimum required period of working prior to eligibility, and so 
forth.)? What are the eligibility requirements at Wendy's?
    6. Of those who are not covered, please provide, if you are able, 
the number who have coverage elsewhere through (1) a spouse, (2) 
individual coverage, (3) public programs such as Medicaid or Medicare, 
or (4) other.
    7. What is the average wage or income across all Wendy's employees? 
What is the average wage or income for those who are eligible for the 
HSA option? What is the average wage or income for employees who 
participate in the HSA? What about for those who contribute to their 
HSA?
    8. What is the average age across all Wendy's employees? What is 
the average age for those who are eligible for health coverage?
    9. On page two of your testimony, you cite some statistics about 
the number of your employees who have received a physical. Please 
clarify the claim--e.g., do you mean the percentage of all employees, 
those who are insured through Wendy's, or just among the 7,000 who 
participate in the HSA?
    10. What is the coverage or cost-sharing on your plan after the 
deductible (e.g., 80 percent, 100 percent, and so forth.)? Are 
enrollees required to use a network of providers designated by your 
insurer?
    11. During our discussions, you clarified that maternity benefits 
are not covered until the deductible is met, which prompted a 
discussion about the age and gender mix of your workforce. Please 
provide us with the percentage of women, differentiated by age, in your 
workforce versus those who participate in the HSA versus those who 
participate in the non-HSA coverage.
    Answer: Within the Quick Service Restaurant segment and in retail 
generally, hourly crew level employees are not typically eligible for 
health insurance although there are variances among industries and 
between markets. These are most often entry-level, part time jobs with 
high turnover and very low participation in employer provided health 
plans.
    Wendy's full time eligible workforce is approximately 10,200 
employees. Critics predicted large numbers of workers would decline 
coverage and enrollment would decrease dramatically when fully 
replacing traditional plans with Health Savings Accounts (HSAs). 
However, our participation rate varied only slightly and is currently 
96% of what it was before changing plans in 2005 (68%--2006, 71%--2005, 
70%--2004).
    It's not possible to fairly compare deductibles between plans. 
Before 2005, we offered a traditional Preferred Provider Organization 
(PPO) with lower deductibles and higher premiums like those currently 
offered by many employers. HSAs are required to be linked to a High 
Deductible Health Plan (HDHP) with minimum deductibles of $1,050 for 
single and $2,100 for family coverage.
    Each year, Wendy's gives about 60% of the deductible to our workers 
regardless of their plan choice or level of coverage (Le. single or 
family). We deposit these funds directly into the employee HSA bank 
account on a prorated basis at the beginning of the quarter. Wendy's 
makes these grants to employees on a pre-tax basis to their own account 
whether or not they contribute personally. Worker exposure to the 
deductible is relieved both by employer contributions and the tax free 
treatment of all contributions.
    When planning our benefit structure for 2005 we were experiencing 
our fifth straight year of double digit increase in health care costs. 
Offering the same plan would require us to continue imposing higher and 
higher deductibles, employee contributions and co-insurance rates so we 
took appropriate steps to break the cycle.
    Our current HSA plan has been a very good decision for our 
employees and our company. Never before have we had 3 years in a row 
where we've improved the benefit we offer employees at no additional 
cost to them. Each year since changing to a Consumer Driven Health Plan 
(CDHP) we've increased the amount the company gives employees for their 
HSAs, expanded no-cost preventive care options and hope to continue 
making more enhancements going forward.
    From 2000 through 2004 Wendy's had a traditional PPO. Every year 
employee deductibles increased 20-25% while worker contributions went 
up 5-10%. There was no probability the trend would change. To offer the 
same PPO type plan, employee contributions would have had to increase 
at least 15-20%, employee coinsurance up 10% and deductibles up 15-20% 
each year according to estimates.

    Contributions per pay period (14 davs/2 weeks) under the old PPO
------------------------------------------------------------------------
                                                Estimated
------------------------------------------------------------------------
Management & Administrative     2004           2006         2006
------------------------------------------------------------------------
  Single                        $36.00         $42.00       $50.00
------------------------------------------------------------------------
  Family                        87.00          101.00       120.00
------------------------------------------------------------------------
Shift
------------------------------------------------------------------------
  Single                        19.00          22.00        26.00
------------------------------------------------------------------------
  Family                        46.00          54.00        64.00
------------------------------------------------------------------------


    The contribution schedule below is for the new HSA. Rates are for 
2005, 2006 and estimated for 2007 and have not changed for 3 years.


                      2005--2006 and Estimated 2007
------------------------------------------------------------------------
                                       Management &            Shift
                                      Administrative     ---------------
                                -------------------------
                                  Plan A  Plan S  Plan C  Plan O  Plan E
------------------------------------------------------------------------
Single                           $ 43.00  $31.00  $21.00  $24.00  $15.00

------------------------------------------------------------------------
EE + CH                          95.00    71.00   45.00   56.00   36.00

------------------------------------------------------------------------
EE + SP                          98.00    74.00   48.00   59.00   39.00

------------------------------------------------------------------------
Family                           123.00   95.00   54.00   70.00   45.00

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

    Currently 68% of Wendy's 10,200 eligible workers are enrolled in 
the HSA plan.
    It's important to note that Wendy's does offer a traditional PPO to 
eligible crew level employees in two markets. Routinely, only 5-7% of 
newly eligible crew each quarter in these markets accept coverage. Of 
those who accept coverage, 75% elect single, not family coverage. 
Single coverage in this PPO plan costs the employee $8.00 per week 
which on average is nearly equal to the pay for 1 hour of labor.
    It is safe to assume that a portion of the employees who reject 
health coverage from Wendy's may already be insured through their 
spouse or family. When a worker declines our coverage, we respect their 
decision and especially their privacy and therefore do not require a 
reason. Comprehensive information about plan details is available from 
field management teams and the Human Resources Department. The company 
also gives employees, at no cost to them, the services of a national 
benefits administration vendor who has staff dedicated exclusively to 
Wendy's. They provide professional support through a toll-free call 
center. We want workers to make a well-informed decision in a 
confidential and private environment and the call center provides that 
option.
    On the whole we provide health coverage for 20,000 lives which is 
the total of our participating workers and their dependents.
    The average wage of HSA eligible workers didn't change after the 
introduction of the HSA program. It was implemented as a full 
replacement meaning everyone eligible for the previous PPO plan was 
eligible for the HSA plan. Eligibility for participation in our plan 
isn't based upon income.
    One of the most gratifying results from our CDHP strategy is the 
positive changes our employees are making to improve their own health. 
We surveyed HSA participants, from a statistically valid sample, on 
topics including previous preventive care practices. Just 50% had 
routine physicals in 2004 (the last year of the PPO). Following the 
introduction of the CDHP and HSA, 75% of the same respondents received 
a physical in 2005. A 25% increase is remarkable and an example of a 
preventive benefit that is free for workers in our plan. One which we 
believe will help them take steps to improve their own health.
    Employees are not required to use network providers and may go to 
any physician or facility they choose. In-network, they receive 
coverage at 85-90%. Non-network coverage is 60-70%.
    Health Savings Accounts and Consumer Driven Models can help more 
people make the best health care decisions about short and long term 
needs. We encourage Congress to consider these improvements to HSAs and 
to also enact Association Health Plans:

      Change or eliminate comparability rules so we can design 
better plans for the chronically ill
      Allow preventive medications to be carved out of HSA 
deductibles so co-insurance can apply immediately
      Permit moneys in FSAs to roll into established HSA 
accounts instead of being forfeited at the end of the year
      Allow Medicare eligible workers to opt for HSAs
      Permit veterans and their families to participate in HSAs
      Allow association health plans thereby facilitating 
effective creation of multi employer welfare associations across state 
borders
      Pursue the aggregation and access to reports on both the 
quality performance of health care providers and facilities and the 
cost of service including medications and prescriptions

    [Submissions for the record follow:]

         Statement of Grover Norquist, Americans for Tax Reform

    Chairman Thomas and Ranking Member Rangel, thank you for extending 
the opportunity for me to submit a statement for the official committee 
record.
    Americans for Tax Reform is a grassroots advocacy organization that 
supports lower taxes, less government, and more freedom.
    The most exciting and innovative product in health care today is 
undoubtedly the health savings account (HSA). In the just over three 
years since Congress created HSAs, over 3 million accounts have been 
opened, and another 3 million health insurance policies are HSA-
eligible, according to the Government Accountability Office. Human 
resources firms like Hewitt Associates and most employer groups have 
consistently said that HSAs are the direction that companies are moving 
in. The overwhelming majority of individual market policies are HSA-
compatible products.
    Testimony before this committee is likely to flesh out these and 
other extremely-beneficial details of HSAs with great skill and 
accuracy, so I won't be repeating them here. Instead, I wanted to share 
a cautionary note from history, by looking at another successful tax-
advantaged savings product, the Individual Retirement Arrangement 
(IRA). This product had a very popular early start, only to be crippled 
by excessive legislative interference and complexity.
    The IRA was created by Congress as part of ERISA in 1974, largely 
as a way for workers to roll vested pension benefits into a personal 
account if they terminated employment. A special provision was put in 
place to allow workers not covered by a workplace retirement plan to 
contribute the lesser of 15% of earned income or $1500.
    In 1981, the Economic Recovery Tax Act was signed into law by 
President Reagan. It increased the contribution limit to IRAs to the 
lesser of 100% of earned income or $2000, allowed a spousal 
contribution, and removed the requirement that a worker not have 
pension coverage.
    This led to an explosion of Americans contributing to IRAs. In 
1980, a little more than 2 million households contributed to an IRA. By 
1986 when this law was fully put in place and understood by the public, 
this number shot up to over 16 million households--an eight-fold 
increase in just six years.
    IRAs of the post-ERTA period were simple, easy products. If you had 
a job and made at least $2000, you could contribute to one. If you were 
self-employed, you could contribute even more (15% of net income from 
self-employment). Everyone got an immediate tax deduction which, given 
the marginal rates at the time, could have amounted to a tax subsidy of 
$0.50 on the dollar. If you touched the money before retirement (age 59 
and =), you had to pay taxes on it plus a 10% tax penalty. If you left 
a job, you could roll vested workplace retirement plan amounts into it. 
At age 70 and =, you had to start taking the money out. If you died 
with money in there, your spouse or heir would pay taxes on it.
    Importantly, the IRAs were not limited by income. There were not 
several kinds of them for several kinds of savings. Contribution limits 
did not go up and down with age. They were not related to workplace 
retirement plan coverage. As a result, banks and brokerage firms could 
take these simple products and market them easily. The fact that they 
could be contributed for a prior year at tax time was another benefit.
    Then, the world changed for IRAs. In 1986, Congress passed the Tax 
Reform Act, which severely curtailed IRAs. Americans not covered by a 
workplace retirement plan were unaffected. However, pension-covered 
Americans found themselves unable to make deductible IRA contributions 
if their income exceeded modest amounts. This resulted in having to 
keep a confusing record of ``basis'' in ``non-deductible IRA 
contributions.''
    In later years, policymakers took this once-simple product and made 
it even more confusing. Spousal IRA contributions were allowed, but 
contingent upon the income and pension coverage of each spouse. 
Education IRAs (later renamed Coverdell ESAs) were created, with their 
own set of contribution limits, withdrawal rules, and eligibility 
requirements. Roth IRAs (no deduction, but no retirement or death tax) 
were created in 1997, contingent on income. 529 College Savings Plans 
joined the mix, too. SIMPLE IRAs were created as replacements for the 
largely-failed SARSEP experiment of 1986. Medical Savings Accounts, the 
precursors to HSAs, were created with confusing eligibility rules, 
limits on the overall amount of the accounts, and other poison pills 
that doomed this worthy effort to failure.
    In recent years, catch-up contributions and changed limits on 
income led the entire tax-advantaged savings world to throw up their 
hands in confusion. Responses to these criticisms led to the Treasury 
Department's 2003 three-fold savings account model, and the somewhat 
more generous models of the President's Commission on Fundamental Tax 
Reform--both of which have been stalled.
    We fear that by putting these type of tax-increasing and confusing 
provisions into HSAs, we'll be doing to HSAs in 2006 what we did to 
IRAs in 1986. The chart below shows that IRA contributions shot up in 
1982 when they were made universal and simple. After 1986, when income 
thresholds limited deductibility, IRA contributions fell off the map 
and never recovered. In fact, contributions to IRAs declined by 40% 
from 1986 to 1987 even for families that were still eligible to 
contribute. For Americans making less than $25,000, the reduction in 
contributions was 30%.
    These facts of history demonstrate that when most Americans and the 
financial services industry see a complex tax-advantaged savings 
vehicle, they turn the other way and run. 1986 killed the golden goose 
of retirement savings that was the post-ERTA IRA. Imagine where our 
precarious Baby Boomer retirement savings situation would be today if 
the trend-line of IRA contributions had continued unabated until the 
present day.
    Does anyone doubt that HSAs, which are already a leap for many 
people to take from traditional health insurance, would be endangered 
if we raised taxes and/or imposed confusing new rules on them? Many, 
many people would use this as their excuse not to make the leap from 
traditional to consumer-driven health care--and all in the name of a 
payroll tax credit and recapture scheme that is considered by some in 
Congress and the Administration.

[GRAPHIC] [TIFF OMITTED] T0705A.057

    Source: Internal Revenue Service Statistics of Income data

    For a better approach to this, the committee should look at S. 
3488, the ``Tax Free Healthcare Savings, Access, and Portability Act'' 
introduced by Senator Tom Coburn (R-OK).
    If Congress is looking to expand HSAs in a way that will increase 
health insurance enrollment, encourage patients to act as consumers, 
and encourage Americans to save for their health care needs in 
retirement, it should limit itself to the following initiatives:

    1.  Raise HSA contribution limits to at least the level of the out-
of-pocket maximum annually. Ideally, there should be no limit to HSA 
contributions at all. It's good public policy to encourage people to 
save money for their health care and retirement needs.
    2.  Allow HSAs to be made portable from job to job and funded by 
employers.
    3.  Allow rollovers from health reimbursement arrangements (HRAs) 
and flexible spending accounts (FSAs) to HSAs.
    4.  Allow HSA funds to be used to pay high-deductible health 
insurance premiums.
    5.  Expand the definition of ``qualified medical expenses'' to 
include such items as gym memberships, exercise equipment, nutritional 
supplements, cosmetic surgery, non-prescription drugs, and other 
clearly-medical purchases by Americans.

    In conclusion, Congress needs to keep one overarching concern in 
mind when altering HSA policy--keep it simple. Complexity is what 
killed one of the most successful tax initiatives of the last century, 
the Traditional IRA contribution. Don't let complexity kill the most 
important tax initiative of this century, the health savings account.

                                 

       Statement of Robert W. Lane, Deere & Company, on behalf of
                          Business Roundtable

    Today, I am providing written testimony on behalf of my company, 
Deere & Company and on behalf of Business Roundtable. Business 
Roundtable is an association of 160 chief executive officers of leading 
U.S. corporations with $4.5 trillion in annual revenues. This testimony 
is presented on behalf of the Roundtable's Health and Retirement Task 
Force.
    Some 10 million people work for Roundtable member corporations--
with John Deere accounting for more than 47,000 employees. Counting 
employees and their families, Roundtable companies provide health 
coverage for about 25 million Americans. Business Roundtable's public 
policy priorities are to ensure a vibrant economy and a competitive 
workforce. These priorities go hand-in-hand with our goals of promoting 
a healthier workforce, strengthening the health care marketplace, and 
improving the value of our health care spending.
    I would like to first congratulate Congress for creating health 
savings accounts (HSAs)--a tool that has the potential to truly impact 
the rising cost of health care in America. Health Savings Accounts 
provide a way for our employees to gain considerably more value from 
their own health care dollars.
    However, I am here today to point out that we believe the use of 
health savings accounts will not become as widespread as Congress 
intended without some small, but important, enhancements. Health 
Savings Accounts have the potential to dramatically impact how 
employees spend their health care dollars. However, they need to 
deliver the same value to the employees of large and small businesses 
alike in order to have a positive impact on our health care system.
    This testimony provides background information and suggestions on 
four recommendations that would position health savings accounts to 
become a powerful tool for individuals as they continue to seek the 
most prudent way to spend their health care dollars.
Health Care Value
    Soaring health care costs are harmful to our nation's economic 
health and our ability to be globally competitive. At Deere, the annual 
salaried family premium for our most popular 100% HMO plan is $12,300. 
This represents a significant benefit cost as well as value to all of 
our employees, and especially for lower paid employees. Deere has been 
innovative in managing health care costs through the use of self-
insured plans, managed care networks, and disease management programs 
in order to provide this level of benefits to our employees.
    In a December 2005 Business Roundtable survey, CEOs cited health 
care costs as corporate America's number one cost pressure (42%) for 
the third year in a row. This topped energy costs (27%) and litigation 
costs (9%). Likewise, families across the country are looking for ways 
to deal with rising medical bills.
    Improving health care value does not rest with any single 
stakeholder. To the contrary, everyone involved in our health care 
system--employers, insurers, doctors, consumers and the government--
must find and help institute reforms that improve the value of health 
care expenditures. The key strategy for achieving this is to embrace 
policies that will make the health care system more efficient while 
keeping patients safe and healthy.
    The success we had in the 1990s using managed care plan designs was 
due to the efforts of insurers, doctors, and employers. Largely 
overlooked in the managed care plan designs were the preferences and 
decisions of patients. During the last two decades the managed care 
plan designs insulated the patients from the cost of health care 
services largely due to the very modest co-payments and nearly 100 
percent coinsurance plans.
    As a result, we have seen greater patient demand for more services, 
prescriptions and higher levels of technology with little understanding 
of cost, benefit or value of these services. Roundtable CEOs, for 
example, believe we can improve the value of health care and improve 
the system by empowering consumers with price and quality data; helping 
our employees take more control of their and their families' health 
care decisions; improving patient safety; and transforming the system 
through the use of technology. Business Roundtable companies provide 
health benefits because it is cost effective to deliver a portion of 
the employee's compensation in this manner, creating an employee value 
proposition that encourages health insurance enrollment and leads to a 
healthier, productive workforce.
    Of these objectives, I want to emphasize that one of the most 
important steps toward transforming our health care system is 
harnessing the power of our employees as consumers of the system. At 
Deere, we have some very simple guiding principles:

    1.  To create affordable, sustainable health benefit plans that 
encourage all employees to participate actively in their health and 
health benefits;
    2.  To reform the health purchasing process by changing the health 
care value equation at the point at which most health care consumption 
decisions are made--the point of care by the patient;
    3.  To support a benefit design that encourages and rewards 
employees for adopting healthy lifestyles and behaviors to have a 
greater impact on the future of health care benefits; and
    4.  To provide insurance protection.

Consumer-Centric Health Plans
    These plans--FSAs, HRAs and HSAs--have promoted greater engagement 
and understanding by our employees in purchasing health care services. 
The newest, Health Savings Accounts, is an example of health care 
reform guided by principle and good public policy. HSA plans seem to 
combine the best of managed care (networks, credentialed providers, 
outcomes reporting) with the aligned interests of the indemnity plan 
designs, while providing the much needed insurance protections. 
Business Roundtable believes that HSA plans are a powerful tool to 
improve the value and quality of care that Americans have come to 
expect out of our health care system.
    Philosophically, we need to agree on the role of the employee and 
in terms of deciding on their health and health care. Why? Because HSAs 
put health care consumers back in the driver's seat to select the 
health care benefits that they want and need, and therefore, have the 
potential to be transformational for the American health care system. 
At Deere, we speak of a shared responsibility with employees to manage 
their health and health benefits. The words ``potential to be 
transformational'' because we cannot transform our health care system 
without the active participation of Americans. As Americans, we are not 
likely to support a system of the government or health insurance 
companies deciding what is best for our own families. While the initial 
take-up rate for these types of consumer directed products is somewhat 
small, more needs to be done to make these plans more attractive to 
large employers and their employees if we are going to have a 
meaningful impact on provider reporting, outcomes and patient 
engagement.
    To that end, Business Roundtable seeks your support for the 
following four changes to reduce the tension between rising health care 
costs and our current competitive business environment.
    If we fail to bring about an improvement in health care value, then 
the impact may be felt in a variety of ways--from the limiting of 
covered services, loss of employer provided health care that will have 
the greatest impact on the lower paid employees, and even a loss of 
American jobs, both in the manufacturing and service sectors.
    As I stated earlier, health savings accounts are a powerful tool 
and Business Roundtable seeks these changes to increase the use of 
these accounts to the benefit of employees across the country.

First_Coordination with Existing Plans
    A significant disincentive is the inability of our employees to use 
widely available flexible spending accounts (FSAs) and health 
reimbursement arrangements (HRAs) in conjunction with their health 
savings accounts (HSAs). Employees often have concerns about how to pay 
for their out-of-pocket health care expenses if insufficient amounts 
are available under the HSA, especially early in the year when they are 
responsible for the deductible. The FSA may solve the budgetable 
concerns of our lower paid employees since they can have access to the 
entire FSA amount--while budgeting the expense over the entire calendar 
year. Without coordination of these accounts, employees may have to 
scramble for the payment of a maintenance prescription or the delivery 
of their child in January without the ability to pay under an HSA 
alone.
    In addition, employees have a familiarity with the rules and 
requirements and use of a FSA and HRA. As we all seek to encourage 
employees to become better consumers, consumers need flexibility to use 
FSAs and HRAs in conjunction with the HSA. Some employees today have 
FSA and HRA accounts--they have experience with them. Business 
Roundtable strongly encourages the Ways and Means Committee to support 
the changes that are included in H.R. 4511, the ``Flex HSAs Act'' and 
H.R. 5262, ``the Tax Free Health Savings Act of 2006,'' both introduced 
by Representative Cantor (R-VA). These bills would address the two most 
important obstacles to widespread adoption by our employees of these 
new plans: 1) the ability to budget the deductible expense over the 
entire year; and 2) ability to save dollars beyond the deductible to 
prepare for future unpredictable medical expenses.

Second_Contribution Limits
    We support lifting the current contribution limits to an HSA so 
that individuals and employers could budget up to their out-of-pocket 
expense into their health savings account. This is a critically 
important change if we expect Americans to be able to succeed at 
managing unexpected health care expenses and not merely drain their 
accounts with their expected health care costs from year to year. After 
all, the policy is intended to encourage employee engagement and 
planning.

Third_Contribution Amounts
    Business Roundtable supports regulatory efforts to permit employers 
to vary contributions to employees' HSAs when an employee is a low-wage 
worker or has a chronic illness. The Department of Treasury is 
reviewing comments on a proposed rule to permit such flexibility--we 
believe this is a necessary change to ensure that these plans can 
better address the special needs of these workers.

Fourth_FSA Rollover
    Business Roundtable also supports legislative changes to permit a 
limited carry forward of up to $500 in a flexible spending account 
(FSA) or a rollover into a health savings account (HSA). Today, the 
current FSA ``use-it-or-lose-it'' rule causes many individuals not to 
participate in FSAs or to incur unnecessary care at year end to avoid 
forfeiting their money. Allowing employees to carry forward these 
amounts aligns with the principle of consumerism. We thank the House of 
Representatives for consistently support a rollover provision like that 
contained in the House-passed version of the Pension Protection Act of 
2005 (H.R. 2830).

Other Health Care Priorities
    Business Roundtable Health and Retirement Task Force strongly 
supports other efforts to encourage workers to become better 
consumers--including greater access to information on cost and quality 
data, more efforts aimed at disease prevention and disease management, 
and arming the health care system with 21st century information 
technology.
    Business Roundtable believes that the disclosure of information is 
an important tool to help American consumers transform our health care 
system. We want to give our workers access to information about the 
cost and quality of health care services and the institutions, 
providers, and suppliers who deliver that care. While private sector 
disclosure of price and quality data is occurring, we believe that the 
Centers for Medicare and Medicaid Services (CMS) should release 100% of 
the Medicare claims database. This is essential to measuring cost 
efficiency and compliance coupled with nationally-endorsed clinical 
guidelines by providers and suppliers.
    We also support legislation to create a health information 
technology system with uniform interoperability standards. We must 
improve and deploy the health care system's information technology 
sooner rather than later. This is one change that can save 
administrative costs and greatly improve the delivery of health care 
services.

Conclusion
    As a representative of Business Roundtable and John Deere, we 
believe health savings accounts are valuable--they will increase 
consumers' access to quality health care services. Expansion of 
consumer-centric accounts is critically important in moving toward a 
system where we combine the best features of managed care with the 
positive aspects of individual control over health spending choices, 
enabling our workers businesses and our nation to remain competitive.

                                 

          Statement of Coalition to Promote Choice for Seniors
    The Coalition to Promote Choice for Seniors (``Medigap Coalition'') 
appreciates the opportunity to submit this statement for the 
Committee's consideration during its hearing on HSAs. The Medigap 
Coalition is comprised of national employers and insurers committed to 
ensuring seniors' continued access to Medicare Supplement insurance 
coverage (``Medigap''). To that end, the Medigap Coalition supports 
policies--such as the designation of Medigap premiums as HSA qualified 
medical expenses--that promote seniors' ability to choose Medigap 
coverage for their health care needs.
    Medigap's popularity among America's senior citizens is 
irrefutable. At least 10 million seniors, or one-in-four Medicare 
beneficiaries, currently rely on Medigap for protection against the 
out-of-pocket costs Medicare does not cover. In addition to the ability 
to budget their health care dollars, seniors enjoy the hassle-free, 
paperless delivery of benefits that Medigap provides. It is no wonder 
the Medigap Coalition found a 90% satisfaction rate among the Medigap 
policyholders it surveyed in 2005.
    Despite its clear value, current law discourages consumers from 
using their HSA funds to purchase Medigap. As enacted, the Medicare 
Modernization Act defines HSA qualified medical expenses to include the 
cost of coverage provided under a qualified long-term care insurance 
contract and any health insurance other than Medigap provided to 
Medicare eligible beneficiaries. HSA withdrawals used to pay premiums 
for Medicare Advantage plans or employer-sponsored plans are not 
subject to taxation. Of all the health insurance options available, 
only HSA withdrawals used to fund Medigap premiums are subject to 
taxation.
    The oft-stated goal of HSAs is to help individuals take more 
responsibility for their health care--an especially critical objective 
as Americans continue to enjoy longer lifespans (along with their 
accompanying health ailments). As Medicare covers less than 
approximately 50% of the medical costs seniors incur, Congress should 
encourage consumers to make appropriate arrangements to finance the 
difference. Congress should not discriminate between the types of 
health insurance coverage that HSA withdrawals may fund. Retaining this 
arbitrary exclusion punishes responsible consumers.
    As the Committee considers future HSA adjustments, the Medigap 
Coalition respectfully urges members to amend the definition of HSA 
qualified medical expenses to include Medigap premiums. To do so would 
be consistent with the Administration's efforts to offer seniors as 
many choices for their health care as possible, could make HSAs more 
attractive to all consumers before they reach their Medicare 
eligibility (which also could reduce the number of underinsured 
Americans), would encourage consumers to plan adequately for their 
future health care needs, and, most importantly, would assure that 
seniors can afford needed health care services. Removing the current 
exclusion is a simple yet essential remedy that our seniors deserve and 
a free market economy demands.
    We stand ready to assist in this important endeavor.

                                 

     Statement of Greg Scandlen, Consumers for Health Care Choices

    Thank you for the opportunity to share the experiences some real 
people have had in dealing with Health Savings Accounts (HSAs) and 
other forms of Consumer-Driven Health Care.
    Before doing that, let me take a moment to thank you personally, 
Mr. Chairman, for the leadership you have shown in this area. You have 
made a real difference in the lives of millions of Americans. You have 
made it possible for them to acquire health insurance when they could 
not before. You have given them the opportunity to be active 
participants, rather than passive recipients, in the health care 
system. You have allowed them to choose the health plan that works best 
for themselves and their families.
    I believe the enactment of HSAs has spawned a revolution in 
American health care. One that will lead to better quality, lower 
costs, improved efficiency, more accountability, and greater 
convenience for all Americans. It will also restore the patient-
physician relationship that is the essential moment in any health care 
encounter.
    But those system-wide effects are all in the future. Only time and 
experience will tell how profound the changes will be.
    Meanwhile, HSAs have already helped millions of people. The effects 
are often hidden from Washington-based policy experts and researchers 
who rely on population-wide surveys and national data.
    For instance, HSAs are an enormous help to people with surges of 
income--commissioned salespeople, seasonal workers, farmers, 
consultants, entrepreneurs, and the like. Washington rarely thinks 
about these people, assuming instead that everyone is on a bi-weekly 
payroll like federal employees are. But people who do not get a steady 
paycheck are the risk-takers and innovators of our economy. They find 
it very difficult to pay huge insurance premiums, month after month, 
year in and year out.
    HSAs enable them to minimize their monthly premium obligation and 
fund their HSA when the money is available. Instead of paying $600 a 
month, every month, they may be able to lower that to $300 or $400 a 
month, and then fund their HSA when they receive their commission 
checks--anytime from January of one year to April 15 of the following 
year.
    This kind of flexibility is essential to a dynamic economy. And it 
was you and this Committee who made it possible, Mr. Chairman.
    Here are some examples of people who have benefited from HSAs. 
These and more are available at our web site at--http://
www.chcchoices.org/testimonials.php

    Chris Krupinski of Fairfax, Virginia, is a self-employed graphic 
designer. She owns CK Art and Design. She writes:
    ``I am a widow with three children and have had my own business for 
about 10 years. Although I have kept insurance during that time, I 
could only stay with a company for about a year and a half before the 
policy would get too expensive and I would have to look again for 
another company. Before finding out about HSAs, I was paying $900 a 
month for a family plan that had a $2,000 deductible for every health 
event. That meant when I had two knee surgeries in one year--I owed 
$2,000 for each of them before my insurance kicked in.
    ``Then I heard about Health Savings Accounts. I now pay $350 per 
month for my family, with a yearly deductible of $3,500. Each month, I 
put aside another $350 into my HSA account. That HSA account is my 
money, and yet, I am still paying less per month than I was under the 
old policy.
    ``The beauty of the HSA is that if I have anything left over at the 
end of the year, that money is mine. It gives me options, and it is 
much better financially. Before, when I wrote those premium checks out 
each month, that money was just gone.''

    Lawrence Kneisley, MD, is a physician in Torrance, Califonia. He 
writes:
    ``My son Andrew, then age 16, broke his arm (distal radius and 
ulna) snowboarding in December, 2003. He was hospitalized for urgent 
surgery at Torrance Memorial Hospital. He was admitted in the 
afternoon, spent about 2 hours in the OR under the care of the 
orthopedic surgeon who performed an open reduction under general 
anesthesia using a C-Arm X-ray for alignment. He was hospitalized 
overnight on the pediatric ward and discharged at noon the following 
day. Total time in the hospital-about 20 hours. The hospital charge was 
$18,834.03! This did not include the orthopedic surgeon's fee. Our HSA 
(at the time an MSA from Medical Savings Insurance) determined that 
Torrance Memorial Hospital Medical Center's reasonable and customary 
charge to be $4961.64. This was based on the Medicare diagnostic 
related group (DRG) according to the diagnosis and procedure codes 
provided on the hospital bill.
    ``Medical Savings Insurance paid the hospital $2,019.36. I paid the 
remainder, $2,942.28. I felt this was fair and reasonable. After some 
investigation and discussion, the hospital accepted this amount as 
payment in full.
    ``The lesson I learned was that if Medical Savings Insurance had 
not investigated and challenged the claim amount that the hospital 
wanted to charge, I would have been forced to pay most of the inflated 
bill. I got educated to the fact that hospitals accept lower but still 
profitable rates from big insurers such as Blue Cross and various HMO's 
such as Health Care Partners and still make money. They then charge 
smaller insurers, and patients with MSA's (now HSA's) huge markups, 
some 350% in my son's case when compared to Medicare and the HMO 
contracted rate. Certainly if the Medicare payment rate and HMO payment 
rate are acceptable to a hospital then the self-paying patient deserves 
the same deal.''

    Ian Duncan, an actuary in Hartford, Connecticut writes:
    ``Susan and Clark Furlong own a small organic farm outside Phoenix. 
They supply local markets with fresh produce and sell their products on 
the Internet. They have three children: Tucker, 6, Will, 4, and Tess, 
2. Susan has a background in diabetes and lactation education, and 
works part time for Lotter Actuarial Partners. As a part-timer, she's 
not eligible for benefits, so she and Clark shopped around for a high-
deductible policy, eventually buying one from Fortis. Their policy 
covers 100 percent of medical costs after a $4,800 family deductible. 
The quarterly premium is $753, before contributions to the optional 
medical spending account. The Furlongs decided to forgo the optional 
drug rider, self-insuring their drug benefits because they're not on 
any maintenance medications.
    ``As parents of young children, the Furlongs have their share of 
emergency room visits. Recently, Will fell while playing a recorder, 
which scraped the back of his throat, resulting in a fair amount of 
blood and discomfort. The Furlongs wanted to have Will examined by a 
doctor. The first decision they faced was: hospital emergency room or 
walk-in medical center? The walk-in medical center was closer and 
likely to be cheaper, so that's where they went. Because the Furlongs 
didn't have comprehensive first-dollar insurance, the medical center 
wanted payment in advance before the doctor would see Will, so they 
paid the $200 fee. But the doctor decided that he couldn't help, and 
told the Furlongs they should go to the emergency room. Before they 
left the walk-in center, Susan negotiated her advance payment back.
    ``Two things immediately differentiate the Furlongs' response under 
the high deductible plan, compared with a typical insured's response: 
first, a cost-benefit evaluation of the clinic vs. emergency room 
setting, and second, getting their money back from the clinic.
    ``In the emergency room, the Furlongs faced a decision about having 
an X-ray, which they decided to do after discussing cost and benefits 
with the physician. Will was checked out and given a clean bill of 
health, although he was uncomfortable and couldn't swallow. His 
physician prescribed Augmentin (a name-brand antibiotic) and Lortab 
elixir (a brandname painkiller). Susan checked both of these carefully, 
particularly the antibiotic, which cost $94.99 per prescription. The 
painkiller cost $27.39. In the end, she chose a generic antibiotic 
(Amoxicillin) at $69.69 and a generic painkiller ($14.79). There wasn't 
much the Furlongs could do about the emergency room costs, but every 
other expense associated with the accident was checked carefully and 
evaluated. They made each decision before incurring the expense. How 
carefully would an indemnity plan member evaluate similar expenses?

    Jeffrey Dunham runs a trust and investment company in San Diego, 
California. He writes:
    ``We looked at (no . . . put through the ringer) the pros/cons of 
HSA's for at least a year perhaps two for the 45-ish employees of our 
trust and investment company. We looked at its effect on single folks, 
on married folks, on those with families, on older employees, on 
younger ones. . . . You get the picture. We heard every potential heart 
ache we could think of. Yet, in the end . . . I did it because it 
allowed (forced) the employees to have a vested interest in the health 
care choices they made. It touched everything from what they ate . . . 
to how much they exercised . . . to whether they needed to see the 
doctor . . . or not . . . and whether they needed the 2nd, 3rd opinion 
. . . or not. They got to have the care they wanted when they needed it 
. . . and benefit from the savings they created by good decisions. It 
was fair for them . . . fair for us. We all now had ``skin in the 
game'' . . . for what these costs would look like in the years ahead.
    ``At first there were many nay-sayers. What if this . . . what if 
that . . . yet, by the time enrollment came around the word began to 
spread that the company was doing something good for them . . . giving 
them more options--more choices. Far more than we thought signed up for 
the HSA option. I expect more to follow each open enrollment period. In 
short--it worked better than we had expected.
    ``It took some pushing to get it done. It was worth the effort.''

    Evelyn Preston recently purchased a non-group HSA in Michigan. She 
writes:
    ``I only have one prescription and knowing I will now pay for it 
with my HSA dollars, I checked on the prices. Before, this was not much 
of a concern to me as I would have paid my $15 copay for a prescription 
regardless of where I bought it. It turns out that Walgreens, where I 
had been having it filled, charges $18 more than Meijer. Of course, now 
I've switched my prescription to Meijer.
    ''I was talking to my son, married with 2 children. They pay $5 co-
pay so it doesn't matter to them where they get their prescriptions 
filled . . . again totally convenience. Now that the dollars are coming 
out of my medical savings I will look at price.''

    Kirby Nielsen is a broker in Worthington, Ohio. He writes:
    ``The critics of HRAs and HSAs have it about 180 degrees wrong in 
their assessment of chronic health problems and High Deductible Health 
Plans.
    I have ``Paraneoplastic Syndrome'' that involves the failure of my 
immune system. It is a rare disease that few physicians remember 
hearing about in Med School. In short, my immune system makes 
antibodies to fight cancer that (for me), has not yet appeared. In fact 
my antibodies are actually bad guys that are destroying my peripheral 
nervous system. My deterioration is progressing slowly due to my 
willingness to push immune suppression therapy to the limit.
    ``My annual medical bills run over $30,000 per year for the two 
years I have lived with this diagnosis (the amount approved by the 
insurance company). This year I have a high deductible health plan and 
it is so much better than my old traditional plan with a $250 
Deductible 80/20 to $10,000 with a physician's co-pay and an Rx card.
    ``The first thing with a chronic condition is not so much the 
advantage of choice (which would be an advantage to a healthy person) 
as to whether or not to have tests and other medical services; it is 
that all these expenses go directly to my deductible early in each plan 
year. Another way to put it is I get to fulfill my $4,000 deductible 
quicker.
    ``Secondly, when I reach my deductible, I have 100% coverage. 
Believe me; having met my deductible and having 100% coverage does not 
encourage more health care spending. A person who is chronically ill is 
tired of tests and medical services and would rather not get more 
health care. Our motive is only to find the underlying cause, treat 
symptoms, and relieve pain. I met my deductible 6 weeks into the plan 
year and now I have no more co-pays, no Rx card, and no hassles at all 
other than the disease itself.
     ``With the HDHP, I pay the same out of pocket as I used to pay, 
but I hope I have shown some of the reasons why a HDHP is really a good 
deal for a person with a complicated and expensive chronic health 
problem.

    Ben Cutler is President and CEO of USHealth Group in Fort Worth, 
Texas. He writes:
    ``USHEALTH Group is a small (under 200 employees) insurance company 
headquartered in Fort Worth, Texas. In March of 2005, we received a 
renewal notice from our group insurance carrier, UnitedHealthcare. The 
plan was costing $5,600 per employee prior to any rate increase. As 
expected, the renewal notice from United was hefty--a 19% increase 
which translated to a new cost per employee of $6,600!
    ``Fortunately, we had requested a quote from United for an 
alternative high deductible HSA qualified plan. Neither our broker or 
United recommended that we do a complete conversion, feeling it was far 
too radical a move. Against their advice, we decided to install an HSA 
programs featuring $2,000 individual, and $4,000 family deductibles. 
The premium savings were compelling; instead of a 19% increase, the 
high deductible premium was 28% less than we had been paying. That 
lowered our cost per employee from $6,660 to just under $4,000. These 
savings, combined with a small increase in the employee cost sharing of 
the premium allowed the company to contribute $1,750 for individual and 
$3,500 for family into the HSA account and match additional employee 
contributions up to the full deductible.
    ``We thought we were prepared for a sizable employee backlash, but 
we underestimated the level of employee objection. People were not at 
all happy with this change. Working with our broker and United, we 
prepared a comprehensive education and communication campaign that 
included several evening sessions where spouses were invited. Armed 
with a more comprehensive understanding of how the plan would likely 
impact them financially, employees grudgingly accepted the change.
    ``One big concern was the financial consequences of a sizable 
medical expense before sufficient funds were accumulated in the 
employees HSA. We agreed to provide an interest free loan up to the 
full HSA contribution if that occurred, with repayment coming from 
future employer contributions into the employees account. As it turned 
out, several employees took advantage of that financial bridge.
    ``As an additional employee incentive, First HSA, our HSA plan 
administrator, was able to provide 6.15% interest on employee account 
balances. The behavioral change occurred almost instantaneously. Now 
employees were spending their own money for healthcare services. Within 
a few weeks, the stories of what happened when employees became 
``shoppers'' and not just consumers of healthcare services began to 
emerge:

      Kim is a 42-year-old divorced mother of two. Her eldest 
son was diagnosed with ADHD. Neither Kim nor her daughter had health 
issues. Kim was quite concerned about how she was going to afford the 
expensive medications for her son on her $27,000 a year salary. She 
came to see USHEALTH Group's human resource officer Jan Fogg to find 
out how the new HDHP was going to work for her. Jan and Kim researched 
the costs of the required medications and applied them to a financial 
outlay model demonstrating how the plan could be used in situations 
like this. The answer to her particular problem was first and foremost 
a timing issue. She was able to get her son's first prescriptions 
filled on the previous plan and by the time she needed refills, she 
would have enough to pay for them out of her HSA. It was also important 
that she use the 90-day mail-in prescription method rather than monthly 
trips to the pharmacy which saved her quite a bit of money overall.
      Mary Jane is a 47-year-old employee who has bronchitis 
and asthma. She was quite skeptical about having the necessary funds in 
her HSA to pay for her monthly medications. When we implemented the new 
HDHP, Mary Jane immediately went to her doctor and explained how the 
plan worked and that she would not have enough money in the account to 
pay full price for her medications. Her doctor was able to supply her 
with enough samples that would last until her account had a sufficient 
balance to start paying for regular prescriptions on her own. Mary 
Jane's doctor further understands that not only medications, but office 
visit costs must be paid in full by the HDHP patient. It is her 
practice to not require any payment at the time of visit, but to allow 
the billing process to run its course through the insurance company for 
repricing and then issue a bill once the EOB has been created. The 
entire process can last nearly two months, allowing the patient to have 
delayed billing. For Mary Jane, the HSA plan works and she even has 
accumulated enough at the end of the calendar year to have money in her 
account for the next deductible year.
      Jerald is a 56-year-old employee and one of a handful of 
employees who has a chronic condition (diabetes) which requires several 
doctor office and lab visits per year in addition to maintenance 
medications. He has elected to pay for the costs from his personal 
checking account, leaving his HSA intact. By doing a cost comparison on 
the best method of purchasing his medications, he is able to manage his 
purchases through either the mail-order method or a monthly purchase at 
his local pharmacy. His HSA continues to grow and earn interest at 
6.15%. At 56, Jerald is hoping his HSA account will accumulate a 
sufficient sum to cover excess medical expenses when he retires.
      Jack, a 36-year-old employee with a family, did some 
research on his own during the weeks of education prior to the 
implementation of the HDHP and HSA and found that his doctor understood 
the issues Jack's family might have with the HSA and supported the idea 
of ordering maintenance medications at twice the strength to allow for 
pill-splitting and thus, a cost savings of almost 50% on his family's 
medications. Jack was ahead of his time. Several months into the plan 
year, the carrier issued a notice to covered employees that recommended 
pill-splitting. Several employees have been diligent about ``comparison 
shopping'' for healthcare services, such as x-rays or colonoscopy fees, 
and have shared that information with other employees who have also 
been able to realize a cost savings.

    ``The final piece of good news recently arrived in the form of 
UnitedHealthcare's 2006 renewal notice. The Company's broker was all 
smiles as he communicated that based on United's projection of a 67% 
loss ratio under the new plan, United was offering a mid single digit 
renewal increase!!! As USHEALTH Group's management had hoped, the new 
HSA plan was a huge success for all concerned ! ! !''

                                 

  Joint Statement of Gail Shearer and William Vaughan, Consumers Union

    Mr. Chairman, Members of the Committee:
    Consumers Union, the independent non-profit publisher of Consumer 
Reports, opposes more public expenditure of limited tax dollars on 
health savings accounts (HSAs).
    We believe that HSAs are harmful from a societal point of view and 
to those who most need help with health care expenses. While some 
healthier and wealthier individuals may benefit from HSAs, when Federal 
debt is increasing roughly $1,000,000,000 a day, this is not where 
additional health care dollars should be spent.
    The evidence is quickly mounting that HSAs are primarily attractive 
to upper income people and people who tend to be healthier.
    The tax shelter nature of HSAs is revealed by a GAO report \1\ that 
some people actually pay for medical expenses out-of-pocket rather than 
draw down their tax sheltered HSA accounts. This may or may not be good 
savings and tax policy for upper income people, but it has little to do 
with good health policy.
---------------------------------------------------------------------------
    \1\ GAO, ``Consumer-Directed Health Plans,'' April, 2006. GAO-06-
514.
---------------------------------------------------------------------------
    Polling by the Employee Benefit Research Institute and the 
Commonwealth Fund\2\ show that people with HSAs are

    \2\ EBRI Issue Brief No. 288, December, 2005.

      less satisfied than those with traditional insurance 
coverage,
      often forgo needed care,
      may actually spend more on health care and have higher 
out-of-pocket costs, and
      generally have a difficult time shopping for health care 
(finding hospital and doctor quality and cost data).

    In attachments #1 and #2, we discuss these issues in greater 
detail.
    To throw more money at this scheme when we are facing serious cuts 
in successful programs like the State Children's Health Insurance 
Program (S-CHIP) makes no sense. We urge this Committee to resist 
further tax expenditures on HSAs and instead save the revenues for the 
kind of health care programs that Americans really want. (We note that 
in picking Medicare Prescription Drug Plans, a great deal has been made 
of the fact that seniors have preferred the plans with the lower 
deductibles. The Part D experience should be a lesson about how 
consumers clearly favor low-deductible coverage; high deductible health 
insurance policies are being imposed on consumers in many cases.)
    So called ``Consumer-Driven Health Care'' is an Orwellian slogan 
designed to hide the fact that costs are being shifted onto the backs 
of consumers. And in the realm of health care, increased cost sharing 
means that the lower income in our society will go without--and their 
health and the health of their children will suffer. Instead of 
shifting costs to consumers when they are sick or as they age, Congress 
should help address the underlying causes of run-away health costs.
    HSA advocates forget the core fact that governs the world of health 
insurance: 50% of the healthiest people use 3% of the health care 
dollar; 10% of the sickest people use 70% of the health care dollar. To 
take money out of the health care insurance system (i.e., spend less on 
high deductible catastrophic insurance policies) and give that cash to 
the healthy half of the population to put into savings accounts means 
that the money will not be there for the very sick who need intensive, 
expensive care.
    For all these reasons, we urge the Committee to stop diverting 
money in an ill-advised experiement and return to the consideration of 
meaningful health care reforms and true cost containment strategies 
that the American public need and want.
Attachment 1, from Consumer Reports, May 2006
    False promises: `Consumer driven' health plans

    A promotional pamphlet for a health savings account (HSA) boasts, 
``If you plan correctly, you may find that you spend far less for 
health care than ever before.'' True, if you could plan to avoid 
cancer, being hit by a car, or growing older. But you can't.
    Three million Americans have signed up for high-deductible health 
plans, which are often paired with tax-advantaged HSAs designed to give 
them the funds they need to pay those deductibles. Proponents call this 
``consumer driven health care.'' They claim that patients who have to 
take on more of the costs themselves--annual deductibles range from 
$1,050 to a total deductible and costs of $10,500--will avoid 
unnecessary care and look for medical providers who deliver high-
quality care at the lowest price, thus driving down costs. The plans 
are touted by some, including President Bush, as a solution for the 
U.S. health-care crisis, with its 46 million uninsured.
    The reality is that these schemes shift increased financial risk to 
consumers and will surely weaken our already fragile health-insurance 
system. HSAs provide little assurance of affordable, quality health 
care to those with chronic illnesses, families with children, those of 
moderate incomes, or older Americans with more health-care needs. HSAs 
do nothing to address the factors that really drive up health costs: 
care for those with chronic diseases; overuse of technology; hospital 
care; prescription drugs; and end-of-life care.
Who benefits, who doesn't?
    HSAs may benefit young, healthy workers without dependents, who 
don't spend much on medical care. They're especially advantageous for 
the wealthy of all ages, since the higher the tax bracket, the more 
valuable the tax break. Contributions to HSAs are tax-deductible, the 
account grows tax-free, and money pulled out for medical expenses is 
not taxed. After age 65, money saved in the account can be used for any 
purpose, without a tax penalty. But the income level of the vast 
majority of uninsured Americans prevents them from reaping those tax 
benefits.
    A recent national survey by the Employee Benefit Research 
Institute, a nonprofit organization, found those currently in HSA-type 
plans were significantly more likely to spend a large share of their 
income on out-of-pocket health-care expenses than those in 
comprehensive plans. They were also more likely to skip or delay health 
care because of costs. And though HSAs work on the premise that 
consumers have access to reliable cost estimates and comparative 
information about providers, that information all too often does not 
exist. No surprise that the survey found those enrolled in HSAs far 
less satisfied than those with traditional, comprehensive coverage.
    So, who, besides the wealthy, benefits from HSAs? Employers do, 
since they are shifting health-care costs to their employees and are 
more able to predict health-care expenses. And financial institutions 
offering HSAs are poised to reap billions in profits from the fees they 
can charge in setting up those accounts.
    A health-insurance system can function only if costs and risks are 
spread among healthy and sick participants. But healthy employees who 
don't expect to need much medical care are the ones most likely to 
abandon traditional plans in favor of low-premium, high-deductible 
ones. Those left in traditional plans will be sicker and more risky to 
insure. That means a greater likelihood of steep premium increases, 
pricing coverage out of the reach of more workers and adding to the 
ranks of the uninsured.
    ``Consumer driven'' health plans, including HSAs, abandon the 
premise that the community has a responsibility to care for all 
members. The health-care system needs fixing, but HSAs are a sham 
substitute for comprehensive reform.
    For more on health savings accounts, go to www.consumersunion.org/
HSA.

    Attachment #2,: Health Services Research 39:4, Part II (August 
2004)
Commentary--Defined Contribution Health Plans: Attracting the Healthy 
        and Well-Off\3\
---------------------------------------------------------------------------
    \3\ ``Consumer-Driven Health Care: Beyond Rhetoric with Research 
and Experience,'' Health Services Research (vol 39, no. 4) August 2004, 
Part II, pp. 1159-1166.
---------------------------------------------------------------------------
by Gail Shearer
    Driven by a philosophy that favors unbridled faith in the free 
marketplace, the year 2003 may well go down in health care history as 
the year that the health care system officially abandoned the premise 
that the community has a responsibility to care for each member, 
replacing it with the philosophy that individuals should each look 
after themselves. The most visible change that nudges the system toward 
self-insurance is the provision in the Medicare bill that expands and 
makes permanent ``health savings accounts'' (HSAs) (formerly known as 
``medical savings accounts'' or MSAs). This provision allows most 
Americans to set up tax-advantaged savings accounts (no tax is paid 
when money is paid in or when paid out, an unprecedented new tax 
loophole), when they also have a high-deductible health insurance 
policy. These new accounts are likely to favor the healthy (who stand 
to benefit financially from a new tax shelter since their accounts need 
not be depleted on health care expenses) and the wealthy (the higher 
tax brackets mean higher tax benefits). 1 In his State of the Union 
address, President George W. Bush's proposal for a new tax deduction 
for premiums for high-deductible policies introduced the possibility 
that health savings accounts' penetration of the marketplace--and the 
demise of the employer based health care system--will be accelerated. 2 
The second development is the encroachment of so-called consumer driven 
health care plans (CDHC) into the employer-based health insurance 
marketplace. This new approach is dressed up with a consumer-friendly 
name, but in reality, as noted in Christianson, Parente, and Feldman 
(2004, this issue), this new approach is characterized by higher 
deductibles for employees. A more apt label, and one that seems to have 
been overtaken by CDHC, is ``defined contribution health care.'' As a 
gentle reminder to health researchers and policymakers that a consumer-
friendly name should not be used to mask a marketplace change that may 
be harmful to consumers, I will use the ``defined contribution health 
plan'' (DCHP) label to refer to these new plans. ``Defined 
contribution'' accurately connotes limited employer liability for 
health care costs. ``Consumer-driven'' implies that the consumer exerts 
considerable control--hardly an accurate portrayal of high-risk 
consumers' likely experience with a high-deductible plan. The two 
studies raise red flags about the potential for these new plans to 
appeal disproportionately to the healthy and those with high income. 
They contribute to the dangerous distraction of policymakers from the 
goal of working toward a health care system that provides affordable, 
quality health care to all by spreading costs broadly and fairly across 
the community.

COMMENTS ON STUDY 1 (UNIVERSITY OF MINNESOTA)
    Study 1 (Christianson, Parente, and Feldman 2004, this issue) 
considers the experience at the University of Minnesota, when 16,000 
employees were offered several health insurance choices, including 
policies that combine relatively high-deductible health insurance 
coverage, a personal care/health care savings account check, and a gap 
between the amount contributed to the account and the deductible, 
assuring that employees would face some out-of-pocket costs before 
their health insurance policy provided coverage. This study does 
nothing to make DCHP appear to be consumer-friendly and confirms 
concerns about what a shift toward DCHP will mean for the health care 
system. This section summarizes and considers some of the key findings. 
DCHP Appeals Disproportionately to People with Relatively High Income 
The average income for employees who enrolled in DCHP (and responded to 
the survey) was 48 percent higher than the income for employees who did 
not enroll in DCHP ($71,406 versus $48,148) (Christianson, Parente, and 
Feldman 2004, Table 1, this issue). This wide disparity lends strong 
support to the notion that higher-income individuals are more likely to 
enroll in a high deductible health insurance plan in which they could 
be at risk of large out-of-pocket costs before meeting a deductible.
DCHP Appeals Disproportionately to a Relatively Sophisticated 
        Population of Faculty Members and Does Not Appeal to Union 
        Members
    Thirty-six percent of DCHP enrollees were faculty members; only 14 
percent of non-DCHP enrollees were faculty members. Participants in the 
civil service/bargaining unit were more likely to favor non-DCHPs: 50 
percent of enrollees in non-DCHPs were civil service/bargaining unit 
members, while only 23 percent of DCHP participants were. The DCHPs 
appeal disproportionately to relatively sophisticated participants 
(Table 1).

An Overwhelming Majority (96 percent) of Employees Favor Low-Deductible
Coverage to DCHP, Based on Their Choices in the Marketplace
    The low participation rate in DCHPs indicates that there is no 
groundswell of consumer demand favoring a health care system centered 
on high-deductible health insurance: 4.3 percent of the eligible 
population participated in the DCHP program. (This assumes that 
families do not have more than one employee eligible for this coverage. 
A total of 695 employees--349 individuals and 346 families--enrolled, 
out of a total population of 16,000 employees.)

The Study Design Is Inadequate to Allow Conclusions about Risk 
        Segmentation by

DCHPs
    The study uses a self-reported measure of chronic illness to study 
the potential for risk fragmentation, and finds no significant 
difference among DCHP and non-DCHP enrollees. This measure is 
insufficient to draw a conclusion on risk fragmentation. A more in-
depth measure of health care costs, possibly a time series, for all 
covered individuals in each family is needed. The measure used does not 
take into account whether employees might anticipate certain health 
care costs in the future (e.g., a planned pregnancy, elective surgery), 
which would discourage enrollment in a DCHP for fear of high out-of-
pocket costs. Some health conditions might have regular costs 
associated with them, but respondents might not consider them to be a 
chronic illness (e.g., back pain) but more of a chronic condition. This 
is an area where further expansion of the underlying health status of 
respondents is critical.

The Satisfaction Level with DCHPs Is Not Impressive
    While respondents in DCHPs were somewhat less satisfied than 
respondents in other plans (7.46 versus 7.55, on a scale of 0 to 10, 10 
is best), the difference can be considered trivial even if technically 
statistically significant. Internet Support Tools, a Key Selling Point 
of DCHPs, Were Used Only Moderately. While 30 percent of respondents in 
DCHPs used provider directories, only 8 percent used disease management 
information, and only 12 percent used pharmacy-pricing tools. These 
numbers do not support the premise that DCHPs mobilize employees to 
comparison shop and access Internet resources to manage their care and 
control costs. Overall, the first study paints a picture of highly 
educated and high income faculty members gaming the health care system 
by selecting into the high-deductible plan if they believe that they 
will come out ahead financially. The limited measure of health status 
precludes drawing conclusions about the segmentation of the health risk 
pool, but overall there is nothing in this study to dispel the concern 
about risk fragmentation. Perhaps the strongest conclusion from this 
study is that DCHPs appeal disproportionately to highly educated, high-
income members of an employee group. They appeal to a tiny portion of 
employees. The small fraction of employees who enroll do not make full 
use of the tools that they offer, and are not particularly satisfied 
with the plans' performance.

COMMENTS ON STUDY 2: HUMANA EMPLOYEES
    Study 2 (Fowles et al. 2004, this issue) reports the results of a 
survey of 4,680 employees of Humana Inc., 7 percent of whom selected a 
new ``consumer defined health plan option'' (referred to as DCHC 
below). This is the epitome of a ``defined contribution health plan'': 
the employer would pay a fixed amount, 79 percent of the reference 
plan, for each employee. This study provides troubling confirmation of 
the potential of DCHPs to fragment the health risk pool to the 
detriment of the less healthy.

Those Selecting DCHP Are More Likely to Be Healthy
    The study found that enrollees in DCHP were ``significantly 
healthier on every dimension measured.'' This study used a more 
comprehensive measure of health status, including measures such as 
reported health status, likelihood of a covered member receiving 
regular medical treatment, likelihood of having a personal physician, 
and existence of a chronic health problem. Those who selected the DCHP 
were less likely to have a chronic health problem (54 percent) and more 
likely to have had no recent doctor visits (3.07). Enrollees in DCHPs 
were more likely to be in excellent health (31 percent versus 18 
percent) (Table 1). The study found that employees reporting that a 
family member had a chronic health problem were half as likely as 
others to select the DCHP.

Enrollment in the New Plans Was Modest
    Like the University of Minnesota employees, the Humana employees 
did not flock to the high-deductible coverage (despite the annual 
premium savings of $400 per year for an individual and $1,200 per year 
for a family): only 7 percent enrolled in the new plan. Individuals 
were more likely to enroll in a DCHP than families.

Sociodemographic Findings
    Those enrolling in DCHPs were more likely to be college-educated, 
white, male, and in positions exempt (from a union) than those who 
enrolled in other plans. The finding that blacks are about half as 
likely to enroll in DCHPs is troubling, and suggests that just as 
policymakers are waking up to the magnitude of disparities in our 
health care system, yet another policy that separates blacks (and 
presumably other minorities) from whites is created. Income is not 
listed as an independent variable, ruling out the ability to estimate 
the relative importance of race and income.
    This study clearly demonstrates that widespread expansion of DCHPs 
within the employer marketplace will fragment the risk pools in the 
employer based health insurance marketplace, one by one. Employer-based 
health insurance coverage has been held up as the one place in which 
risk pools tended to be unified, with costs spread among employees 
(albeit paid directly in large part by employers). DCHP's have the 
potential to unravel this important risk-spreading role. This study 
clearly demonstrates that risk segmentation, to the advantage of the 
healthy and the disadvantage of the less healthy, will be a reality 
should the role of DCHPs expand in the health insurance marketplace.

IMPLICATIONS OF THE STUDIES FOR PUBLIC POLICY
    Members of the public and policymakers should view these two 
studies as the proverbial canary in a coal mine. They raise red flags 
about the potential that DCHPs (like their cousins Medical Savings 
Accounts) appeal disproportionately to the wealthy and healthy. The 
first study shows that the income level of employees selecting DCHPs is 
48 percent higher than those not selecting them. The second study finds 
that those selecting DCHPs are healthier ``on every dimension'' than 
those not selecting them. The concern that this new model of health 
care will appeal more to the sophisticated who can ``game the system'' 
and shift costs to the sick becomes greater after reviewing these 
studies. They should set off alarm bells about the potential long-term 
threat to our health care system.
    The scope and design of these studies did not allow consideration 
of some of the most important issues that will affect the long-term 
impact of this new type of plan. Some important areas for future 
research include: To what extent will DCHPs merely shift cost to sicker 
employees, instead of truly lowering health care spending?
    Over time, will sophisticated employees ``game the system,'' opting 
out of DCHPs when they anticipate high health care expenses related, 
for example, to pregnancy or elective surgery? To what extent will 
employer's health care premium dollars be diverted from paying for 
health care expenses to paying to build health reimbursement accounts? 
To what extent do these new health plans create new financial barriers 
to health care for low-wage workers? Do consumers have the necessary 
information about quality of providers on which to make informed 
decisions?
    What are true consumer/employee preferences regarding deductible 
levels? To what extent will the gap between the health reimbursement 
account and the deductible pose a financial barrier to getting needed 
health care? Will anticipated cost savings occur, or will they fail to 
materialize since so much health spending is concentrated among those 
with catastrophic expenditures?
    Will the new high deductibles and sense of spending one's own money 
deter preventive care and early treatment for illness, ultimately 
leading to worse health outcomes and higher costs? The findings from 
these two studies are troubling for another reason: because of the 
nature of adverse selection, over time, DCHPs may drive lower-
deductible health insurance options out of the marketplace (Zabinski et 
al. 1999). Bolstered in the health care market with the enactment of 
the health savings account provision in the Medicare bill, in a few 
short years, it is very possible that unpopular high-deductible health 
insurance coverage will be the only choice that many employees may face 
for their coverage in the employer-based market. Those with high health 
care expenses will face higher out-of-pocket costs than they would in 
the absence of DCHPs. It is troubling that this type of change in the 
health care marketplace will take place in the absence of a public 
debate. Advocates of medical savings acccounts, for example, maintain 
that there should be a choice of plans. The reality is that over time, 
as adverse selection pushes the next ``relatively healthy'' group 
toward high-deductible plans, an insurance marketplace death spiral 
will result and ultimately will remove the very choice (a low-
deductible plan) that employees want.
    Both studies contribute to the body of knowledge about DCHPs, ``as 
a first, limited attempt to shed light on the important issues'' 
(Christianson, Parente, and Feldman 2004, this issue). In considering 
the health policy expertise and money devoted to these studies, it is 
important for health researchers and policymakers to ask fundamental 
questions about priorities for future health research. The buzz about 
DCHPs in health policy circles creates a sense that valuable dollars 
are being spent in an effort to rearrange the deck chairs on the 
Titanic. More resources should be devoted to charting the course to 
guarantee all U.S. consumers have guaranteed, quality, affordable 
health care. We should be moving full-steam toward this vision, not 
spending countless hours and resources analyzing new models that 
promise to split the healthy from the sick, shift costs to the sick, 
favor the highly educated and high-incomed, and grow the inequities on 
our system. The two studies confirm that DCHPs are a dangerous 
distraction from this mission; they undermine the important value of a 
communitywide approach to looking after one's neighbor in a health care 
system that would spread costs broadly in an effort to achieve 
affordable, quality health care for all.

NOTES
    1. In addition to benefiting from a higher tax bracket (and higher 
tax benefit from HSAs), the wealthy are more likely than the non-
wealthy to be able to risk the out-of-pocket costs of a high-deductible 
policy.
    2. Because healthy individuals may be able to get a lower premium 
for a catastrophic policy in the individual market, the new tax 
deduction available to individuals, when combined with the possibility 
that employers will increasingly ``cash-out'' health benefits when the 
healthy opt-out of coverage, could lead to rapid erosion of the 
employer-based health insurance market.

REFERENCES
    Christianson, J. B., S. T. Parente, and R. Feldman. 2004. 
``Consumer Experiences in a Consumer-Driven Health Plan.'' Health 
Services Research 39(4, part 2): 1123--40.
    Fowles, J. B., E. A. Kind, B. L. Braun, and J. Bertko. 2004. 
``Early Experience with Employee Choice of Consumer-Directed Health 
Plans and Satisfaction with
    Enrollment.'' Health Services Research 39(4, part 2): 1141--58.
    Zabinski, D., T. M. Selden, J. F. Moeller, and J. S. Banthin. 1999. 
``Medical Savings
    Accounts: Microsimulation Results from a Model with Adverse 
Selection.''
    Journal of Health Economics 18: 195--218.

                                 

          Statement of Council of Insurance Agents and Brokers

    On behalf of the Council of Insurance Agents and Brokers (The 
Council), thank you Chairman Thomas, Ranking Member Rangel, and members 
of the Committee for this opportunity to submit comments regarding 
Health Savings Accounts (HSAs).
    The Council has a unique role in the health insurance marketplace. 
Operating both nationally and internationally, Council members conduct 
business in more than 3,000 locations, employ more than 120,000 people, 
and annually place more than 80 percent--well over $200 billion--of all 
U.S. insurance products and services protecting business, industry, 
government and the public at-large, in addition to administering 
billions of dollars in employee benefits. Since 1913, The Council has 
worked in the best interests of its members, securing innovative 
solutions and creating new market opportunities at home and abroad. 
Towards this end, The Council is a strong supporter of HSAs as an 
option in the health insurance marketplace and actively works to 
encourage its utilization in a variety of means. These efforts include 
The Council's membership in the steering committee for the HSA Working 
Group, a coalition that supports legislative and regulatory 
improvements to increase accessibility and the long-term viability of 
health insurance products, like HSAs.
    To date, HSAs already have demonstrated success in the marketplace. 
According to a recent survey by America's Health Insurance Plans 
(AHIP), over 3 million people were covered by an HSA-qualified high-
deductible health plan as of January of this year--more than triple the 
HSA/High Deductible Health Plan enrollment of approximately one million 
that was reported by AHIP a year ago.\1\ Further, 31 percent of HSA-
qualified policies sold in the individual market were purchased by 
individuals who were previously uninsured, and in the small group 
market, 33 percent of businesses who have HSA-qualified high-deductible 
policies previously did not offer coverage to their workers.\2\ The 
study also found that HSA policies were purchased by all age groups.\3\
---------------------------------------------------------------------------
    \1\ America's Health Insurance Plans, Center for Policy and 
Research, ``January 2006 Census Shows 3.2 Million People Covered by HSA 
Plans,'' March 3, 2006, at http://www.ahipresearch.org/pdfs/
HSAHDHPReportJanuary2006.pdf
    \2\ Id.
    \3\ Id.
---------------------------------------------------------------------------
    While this arc of success is promising, certain adjustments to the 
current HSA rules could help encourage more employers to offer this new 
health plan design and encourage more employees to select HSAs. For 
these reasons, The Council proposes the following additional 
improvements to the current rules for HSAs.
The Council's Proposed Modifications to Current HSA Rules

1. Align the HSA contribution limit and the health plan deductible for 
        employees who enroll mid-year.
    If an employee joins the high deductible health plan (HDHP) and HSA 
mid-year, current rules require the HSA contribution limit to be pro-
rated, even though the employer may not prorate the deductible of the 
HDHP. This limitation creates a disincentive for new employees to elect 
the HSA when they start employment mid-year. This issue could be 
resolved by either: (a) allowing the full HSA contribution limit to be 
made consistent with the annual deductible of the HDHP; or (b) allowing 
employers to pro-rate the HDHP deductible to conform with the current 
requirements to pro-rate contributions.

2. Permit prescription drug coverage to be offered without a high 
        deductible.
    The current law for HSAs requires that prescription drug expenses 
be subject to the high deductible before coverage begins. Many 
employers, however, do not apply prescription drugs expenses toward 
their health plan deductibles, but instead require cost-sharing by an 
employee on each prescription they fill. Exempting prescription drugs 
from the high deductible is likely to encourage more employers to offer 
HSAs and more employees to enroll.

3. Permit individual family members to satisfy the individual 
        deductible for HSAs ($1,050) rather than the family deductible 
        (@$,100).
    Most employer-sponsored health plans begin providing coverage as 
soon as a family member meets the individual deductible for the plan 
rather than the full family deductible. Current HSA guidance only 
allows this practice if the individual deductible is at least the 
minimum deductible for family coverage ($2,100). Allowing coverage to 
begin after a family member satisfies the individual deductible amount 
would help encourage more employees to elect HSAs for themselves and 
their families.

4. Allow an employer with an HSA to offer Flexible Spending 
        Arrangements (FSAs) and/or Health Reimbursement Arrangements 
        (HRAs) that could pay for benefits below the high deductible.
    Many employers would like to combine HSAs with other similar health 
plan options, such as flexible spending arrangements (FSAs) and health 
reimbursement arrangements (HRAs). Current rules significantly restrict 
the ability of employers and employees to efficiently use these other 
arrangements alongside HSAs. By permitting the use of FSAs and HRAs for 
health expenses below the deductible, many employees are likely to find 
HSAs more attractive for meeting both their current and future health 
care needs.

5. Permit early retirees to pay for health insurance coverage out of 
        their HSA funds.
    The HSA law permits retirees age 65 or older to pay their employer 
retiree health plan premiums out of funds from their HSAs. Allowing 
funds from HSAs to be used by retirees, regardless of their age, for 
retiree health plan purposes would be a sensible change that also could 
make HSAs more attractive to many individuals.

6. Encourage employees to save for retiree health expenses. HSAs were 
        designed to be both a spending and a savings vehicle.
    Current contribution limits, which may not exceed the health plan 
deductible, are unlikely to create the level of asset accumulation 
during an employee's working career that will be needed for heath 
expenses in retirement. Allowing an individual or employer to make 
contributions above the amount of the health plan deductible would help 
many individuals save for their future health care needs in retirement.

7. Permit an employee to contribute to an HSA even if his spouse has an 
        FSA.
    Currently an individual may not contribute to an HSA if his spouse 
has an FSA, even if the individual never seeks to be reimbursed for any 
medical expenses from the spouse's FSA. This situation could be easily 
corrected by allowing the individual in the HSA to certify that he will 
not receive reimbursement for any health expenses from his spouse's 
FSA.

8. Permit employees over age 65 to continue contributing to an HSA.
    Active employees over age 65 are permitted to contribute to an HSA 
so long as the individual is not enrolled in Medicare. Individuals, 
however, are automatically enrolled in Medicare Part A (which covers 
hospital expenses) upon reaching age 65 even though their plan through 
their employer will typically continue to cover their medical expenses 
until they retire. Older workers who participate in HSAs should be 
allowed to continue to contribute to their accounts until they retire 
despite the fact that they were automatically enrolled in Medicare Part 
A at age 65.
    Thank you for considering this submission. If you have any 
questions about this submission or the matters addressed herein, please 
contact our counsel, Scott Sinder (202-342-8425), at The Scott Group, 
or Alysa N. Zeltzer (202-342-8603), at Kelley Drye Collier Shannon or 
contact The Council directly, Alycia Kiley (202-783-4400).

                                 

      Statement of Dawn J. Lipthrott, Ethical Health Partnerships,
                          Winter Park, Florida

    Health Savings Accounts are being proposed as an answer to help 
reduce the number of uninsured, reduce healthcare costs, and give 
patients more cost information and choice that will lead to lower 
spending. I have an HSA and have found that they fall far short of the 
claims used to promote them, especially in the area of affordability.
    In this statement, I will address, both from personal experience as 
a self-emplyed person with individual insurance through an HSA, and 
from published sources, the proposed benefits of Health Savings 
Accounts and health cost factors.

1. They will give many people the ability to obtain and afford 
        insurance coverage.
a. Premium costs of Health Savings Accounts increase at the same rate, 
        and sometimes more quickly, than standard plans. So the insured 
        ends up paying high premiums with a high deductible.
Personal experience:
    As a self-employed professional, here is what happened to my 
insurance premiums, both with a traditional HMO (blue), my first HSA 
(red) that quickly become just as unaffordable, and my current HSA 
(yellow) obtained this year.

[GRAPHIC] [TIFF OMITTED] T0705A.058

    I obtained a small group policy from Aetna, which I qualified for 
as an individual business owner. I have no employees. From 2001 to 
2003, my Aetna small group insurance premium more than doubled from 
$240 to $520 although I never used it except for a routine mammogram 
and no history of illness. My insurance agent told me that health 
insurance companies simply don't want to insure individuals and price 
them out. I decided to switch to an HSA since it was my only viable 
option.

HSA #1:
    In September of 2003, after giving all my medical information, I 
was quoted a price of $276 per month by Fortis insurance and in answer 
to my questions, was told that premiums in my county of residence 
increase an average of 10-12% per year. By the time I got my policy, 
they had raised the initial premium to $355 because I am above current 
weight standards, although they knew that when they gave me the quote.
The monthly premiums for individual coverage with an HSA increased as 
        follows:
    $355 initial premium. October 2003
    $413 1st year renewal date. October 2004
    $493 6 months after the first increase. May 2005
    $587 announced at the end of the second year, effective on the new 
renewal date of March 31st, 2006.
    The insurance company said it was due to regional increases. My 
premiums did not go up 10-12% annually as stated, but rather 20% and 
37%.

HSA #2:
    In February, 2006 the second insurance company quoted a premium 
rate of $264 after obtaining height weight and health status and so I 
enrolled. When I received the policy, the premium was actually $355 
because I am still overweight, which they knew at the time of the 
original quote. They also report that average annual increases will 
increase approximately 8-10% per year in my area. Time will tell how 
quickly these premiums increase.
Cost of Premiums vs. Health Cost Spending Increase:
    Health Affairs reports that national growth in healthcare spending 
was projected to slow nationally from a high of 9.1% in 2002 to an 7.4% 
in 2005 and future increase is predicted to be fairly stable for the 
next decade. (Source: Health Spending Projections Through 2015, Health 
Affairs W 62, February 2005) However, my premiums increased more than 
20% per year, sometimes more than 35%.
    HSA's do not provide affordable coverage.

2. Proponents repeatedly claim that HSAs will reduce rising health care 
        costs.
What the studies show:
    The leading professional journal on health policy, Health Affairs, 
published an article in December 2005, ``The Rise in Health Care 
Spending and What to Do About It,'' by Kenneth E. Thorpe, PhD, Chair of 
Emory University's Department of Health Policy and Management. His 
report added to the growing literature about the real drivers of health 
costs. And those factors reveal that Health Savings Accounts will be no 
more than a bandaid that will have little impact.
    Thorpe's article sums up the two main areas that contribute to 2/3 
of the rise in spending:
    a) the rise in treated disease prevalence, much of which is 
preventable (63% of rise in real per capita spending)
    b) changes in thresholds for treatment (lower standards for 
cholesterol levels, blood pressure, etc.)
    c) innovations in treatment, some of which are positive, and some 
of which are not cost-effective for the level of benefit they provide.
    He states that ``health behaviors like overconsumption of food, 
lack of exercise, smoking and stress accounts for approximately 40-50% 
of morbidity and mortality.'' ``80% of health care spending is traced 
to patients with largely predictable health care needs and expenses, 
the chronically ill.''

Obesity--an increasingly significant factor in rising health costs:
    Thorpe is one of many investigators who are documenting the effects 
of the rising incidence of obesity on healthcare spending.
    The rapidly rising prevalence of obesity puts people at greater 
risk for numerous serious illnesses such as certain forms of cancer 
(including breast, colorectal, and kidney among others), diabetes, high 
blood pressure, arthritis, cardiovascular disease and more. The 
combined prevalence of both overweight and obesity averages 53.6% 
across all categories and is largest for those enrolled in Medicare 
(56.1%). Obesity-attributable expenditures totalled $75,051,000,000 
from 1998-2000. (Sources: Estimated Adult Obesity-attributable 
Percentages and Expenditures by State (BRFSS 1998 to 2000). http://
www.naaso.org/statistics/obesity_exp_state.asp. Also: National Medical 
Spending Attributable to Overweight and Obesit y. Finkelstein, EA et 
al, Health Affairs. May 14, 2003.)

Patient non-compliance with treatment for chronic conditions such as 
        diabetes, high blood pressure and others:
    In 1992, the cost of medication noncompliance alone was $100 
billion ($45 billion in direct medical costs). $31.3 billion was spent 
on nursing home admission due to noncompliance, $15 billion was spent 
on hospital admissions due to noncompliance, and $1000 was spent per 
year per non-compliant patients versus $250 dollars spent per compliant 
patient. No doubt these costs have gone up considerably in 10 years 
since little has been done to address them. (Source: Compliance in 
Elderly Patients, University of Arkansas College of Pharmacy http://
www.uams.edu/compliance/; Also, Schering Report IX: The Forgetful 
Patient: The High Cost of Improper Patient Compliance. Also Standberg, 
LR, Drugs as a Reason for Nursing Home Admissions, American Healthcare 
Association Journal 10, 20, 1984))

5 Conditions contribute to 31% of healthcare spending:
    Of the top five diseases or conditions that make up one third of 
health costs, hypertension and other cardiovascular disease can be 
reduced by more focus on prevention and lifestyle change. It would make 
sense to focus energy and resources into reducing health costs instead 
of simply cost shifting.

Defensive medicine and inconsistency in awards
    A 2003 Department of Health and Human Services report states that 
finding ways to fix unreasonable jury awards could save $70-$126 
billion in health care costs per year. This does not have to mean caps, 
although that is one way. (Source: U.S. Department of Health and Human 
Services, Addressing the New Health Care Crisis, March 3, 2004)
    It can mean setting a schedule of recommended awards for avoidable 
injuries as is done in several other countries. Just 2 months ago, in 
Seminole County, Florida where I live, a jury awarded a woman $28 
million because she has to catheterize herself twice a day after having 
surgery for an incontinence problem. She has no ongoing medical 
expenses, continues to work, and has normal life expectancy. That $28 
million is not only inappropriate, it costs every one of us who obtain 
healthcare.
    It would make sense to explore meaningful alternatives to the 
current tort system for handling complaints and patient injury to 
reduce cost, improve patient safety, and avoid unnecessary tests and 
procedures.
``Our health costs are rising sharply. In the past 5 years, private 
        health insurance premiums have risen 73%.'' President Bush
    President Bush is absolutely on target. The statement about health 
cost drivers that I presented in #2 is part of what contributes to the 
rise in premiums. In addition to preventing and treating the health 
conditions mentioned, insurance companies themselves contribute 
significantly to the rising costs of insurance that make it more and 
more unaffordable for patients.
a. Insurance Profits Consistently Increase in Double-Digit Percentages:
    The nation's HMOs reported a $6.98 billion profit for the first six 
months of 2005, representing a $1.2 billion, or 21.2 percent, increase 
over the $5.76 billion earned during the same period in 2004, according 
to Weiss Ratings, Inc., the nation's leading independent provider of 
ratings and analyses of financial services companies, mutual funds, and 
stocks. (Source: Weiss Ratings, HMOs Earn $7 Billion in First Half of 
2005, http://www.weissratings.com/News/Ins_HMO/20060130hmo.htm)
    Here are the other headlines from Weiss Ratings about the 
profitablity of HMOs. (Weiss was named by the Government Accounting 
Office Report GAO/GGD-94-204BR as the most accurate rater of insurance 
companies,)
    1/30/2006--HMOs Earn $7 Billion in First Half of 2005
    10/24/2005--HMO Profits Jump 21% in First Quarter 2005
    8/8/2005--Nation's HMO Profits Increase 10.7% in 2004
    5/24/2005--Profitability Continues to Surge for the Nation's HMOs
    2/7/2005--50% of HMOs Financially Strong as Profitability Continues
    12/8/2004--HMO Profits Increase 33% in First Quarter 2004
    8/30/2004--HMOs Earn $10.2 Billion in 2003, Nearly Doubling Profits
    5/3/2004--HMO Profits Skyrocket to $6.7 Billion in First Nine 
Months of 2003

    Source: http://www.weissratings.com/News/Ins_HMO/
b. Insurance Executives Earnings:
    While patients and employers struggle with rapidly rising insurance 
premiums and physicians receive cuts in reimbursement, health plan 
administrators are rewarded with excessive amounts of compensation. 
Earning profits is the American way, but not in a manner that places 
undue burden on patients and their physicians while requiring 
government to scramble for solutions to the rising costs.

------------------------------------------------------------------------
                                                Cashed out   Unexercised
                                     Total         stock        stock
                                 Compensation     option       options
         2005 Earnings             including     exercises    remaining
                                 stock option      from         from
                                    grants       previous     previous
                                                  grants        years
------------------------------------------------------------------------
UNITEDHEALTH                    $36,988,014     $114,552,8  $1,142,202,7
  William W. McGuire, CEO                        32          69
------------------------------------------------------------------------
AETNA                           $6,108,475      $18,208,28  $164,722,382
  Ronald A. Williams, Chariman                   1
------------------------------------------------------------------------
WELLPOINT                       $11,725,513     $           $22,61,000
  Larry C. Glasscock, CEO
------------------------------------------------------------------------
HUMANA                          $3,849,338      $           $24,133,460
  Michael B. McCallister, CEO
------------------------------------------------------------------------
Source: SEC Filings

c. Merger bonuses and golden parachutes for insurance executives:
    In November, 2005, UnitedHealth acquired PacifiCare for $9.2 
billion in cash, stock and assumed debt. The agreement also would 
include $230 million in accelerated stock options and payments to 
PacifiCare executives and an additional $85 million in signing bonuses 
to executives who remain employed with the company after the 
acquisition (Kaiser Daily Health Policy Report, 10/18 and 11/05). The 
California Public Employees' Retirement System, which holds shares of 
PacifiCare and opposes the proposed payments to executives, voted 
against the acquisition. PacifiCare would not allow shareholders to 
vote separately on the proposed payments to executives.
    In addition to large bonuses for facilitating, and sometimes from 
preventing, mergers, health plan executives who retire often do so with 
``golden parachutes''. An article by Robert Kazel in AMNews in August, 
2004 states the following example, among others: In 1996 Aetna bought 
out US Healthcare. US Healthcare Chair, Leonard Abramson, was paid $2 
million per year plus benefits as an advisor, $1 million dollars per 
year for a noncompete agreement, $10 million as a merger bonus, and an 
IOU for $10 million when he left the company completely. He also 
received a $25 million airplane as a gift and $ 2 million per year to 
operate it.
d. Administrative Costs Per Insured Person:
    A report on Trends and Indicators in the Changing Health Care 
Marketplace.by the Kaiser Foundation shows a graph in Section 6 that 
administrative costs per insured person rose from $216 in 1998 to $421 
in 2003, an increase of 95%.
    Within the past 2 years, courts have found many of the largest 
health insurance companies responsible for unethical payment practices 
to physicians, and have ordered them to pay multimillion dollar 
penalties and payments, as well as change their practices. Insurance 
companies should also be held accountable for managing administrative 
costs, scrutinized for excessive premium increases, and held 
accountable for excessive pay that is passed on to the public burden. 
This is another important area of reducing health care spending.

4. Physician or hospital fee transparency does not influence decision-
        making or affect health costs, except for the uninsured or for 
        patients going out-of-network.
    ``Patients need to know in advance what their options are, the 
quality and expertise of the doctors and hospitals and how much their 
procedure will cost.'' President Bush
    Physician fee transparency does not help patients make informed 
decisions, nor does it do anything to control costs because insurers 
pay flat fees based on the current Medicare rate, no matter what the 
physician's stated fee is. The agreement with the insurance company is 
that the physician cannot bill for more than what is allowed by the 
insurance. That is the agreed upon rate that the physician will accept. 
What he or she charges does not factor into the payment by insurer or 
patient.
    Moreover, even if it did make a difference, I doubt patients would 
choose their surgeon or cardiologist because he or she is the cheapest 
in town.

5. People are increasingly choosing to purchase HSA plans because they 
        see the benefits.
Personal experience:
    Although I care deeply about healthcare and am very committed to 
getting information to make good decisions, I did not get an HSA for 
that purpose. I bought in HSA because I could no longer afford anything 
else. I bought a second HSA after only 14 months because I could no 
longer afford the increased premiums of the first one. When people like 
me are forced to frequently switch plans because of unaffordable 
premiums, larger gaps in coverage are created. A non-cancerous lesion, 
that only minimally increase the chance of breast cancer, leads to 
complete exclusion of any breast-related disease for a lifetime. I can 
only imagine the out of pocket expense I will have if that were to ever 
come to pass.
    Many people have `bought' HSA plans because more and more employers 
are shifting the cost to the employee because they can no longer afford 
to provide health insurance. Perhaps the premiums do not rise as 
quickly when obtained through an employer, but as in other plans, 
individual purchasers are priced out of the market. When you can't 
afford anything else, and you don't qualify for Medicaid or Medicare, 
it's the only option to being uninsured. It is not really about choice, 
informed or otherwise.

Saving for future medical costs:
    The Ways & Means Committee statement announcing this hearing states 
that almost half of the HSA plan purchasers have annual incomes of less 
than $50,000. To think that families with that level of income will, or 
can, put money into savings for healthcare, is not realistic. During 
the first two years I had my first HSA, I could not put any into the 
account because of what I had to pay out-of-pocket when I actually had 
to obtain care.

Conclusion and Recommendations:
    Kenneth Thorpe, writing in the journal, Health Affairs, reports 
that based on the studies of health costs, even if every adult had an 
HSA or similar plan, HSAs would most likely have only a limited impact 
on the level and growth of health care spending.
I therefore recommend the following as starting points for more 
        impactful areas of reform:
      Focus on prevention of obesity and lifestyle related 
disease that contributes to over one third of healthcare spending. 
These could include school and employer based programs, insurance 
sponsored educational and incentive programs for plan members, use of 
motivational programs for patients, and other initiatives.
      Improve chronic disease management and patient compliance 
with ongoing treatment.
      Create initiatives through professional associations to 
improve patient safety, including medication safety.
      Focus on meaningful insurance reform to reduce 
administrative and other non-care costs that would include:

    a) Creating more stringent review and oversight of premium 
increases at the state level, particularly in the individual market. 
Create Public Service Boards or the equivalent that would also 
participate in review of premium increase proposals.
    b) Reducing administrative costs for insurance. Simplifying codes 
and procedures would also reduce administrative time and costs for 
physicians and facilities.
    c) Create methods of accountability for excessive rewards and 
executive compensation, all of which is passed on to consumers.
    d) Explore alternatives to the tort system for resolution and 
compensation of avoidable patient injury. Health courts, no-fault 
approaches, apology laws, mediation with early offer, offer 
alternatives used by others.
    e) Create standardized guidelines and award schedules for non-
medical expense compensation for juries and judges to create 
consistency and fairness in any awards ordered.
    With increased utilization by a growing aging population and by 
others, health costs will be difficult to control. It is a complex 
system with numerous factors that impact cost. However, it seems 
essential to me, that we address one or two areas that have the 
potential for the biggest impact.

                                 

                                           Food Marketing Institute
                                                      June 28, 2006
The Honorable William M. Thomas
Chairman
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20510

Dear Chairman Thomas:

    On behalf of the Food Marketing Institute (FMI) \1\ and its 1,500 
member companies, I would like to thank you for holding this very 
important hearing on the role of health savings accounts (HSAs) in 
transforming health care in the United States.
---------------------------------------------------------------------------
    \1\ The Food Marketing Institute (FMI) conducts programs in 
research, education, industry relations and public affairs on behalf of 
its 1,500 member companies--food retailers and wholesalers--in the 
United States and around the world. FMI's U.S. members operate 
approximately 26,000 retail food stores with a combined annual sales 
volume of $340 billion--three-quarters of retail food store sales in 
the United States. FMI's retail membership is composed of large multi-
store chains, regional firms, and independent supermarkets.
---------------------------------------------------------------------------
    When President Bush signed the ``Medicare Prescription Drug, 
Improvement and Modernization Act of 2003,'' it was clear that the 
traditional model of employer-provided insurance through an HMO or PPO 
was pricing people out of the market and dramatically impacting both a 
company's bottom line and its employees' quality of care. The creation 
of health savings accounts in this legislation offered businesses--
particularly small businesses--a flexible and affordable new way to 
provide employees with health insurance.
    Since their introduction, HSAs have become an important option that 
companies--including a number in the supermarket and grocery store 
industry--have employed to try and control costs without sacrificing 
quality of care. And with insurance premiums continuing to rise,\2\ 
they are likely to be utilized even more often in the future.
---------------------------------------------------------------------------
    \2\ The Kaiser Family Foundation estimates that in 2005, the annual 
insurance premium for a family of four was $10,880, with the employer 
paying $8, 167 of this and the worker paying the remaining $2, 713. 
This is an increase of 9.2 percent from 2004. Information available at 
http://www.kff.org/insurance/7315/summary/ehbs05-summary-b.cfm.
---------------------------------------------------------------------------
    While HSAs can help consumers to take control of their health care 
decisions by bringing to bear market forces, the regulations governing 
their use have not kept pace with the changing nature of the health 
care market.
Recommendations for HSA Reform
    As part of his 2007 Budget Proposal, President Bush offered a 
number of reforms that would loosen current restrictions on HSAs and 
expand their use. Among the recommendations are:

      Increasing the limit on contributions to HSAs--President 
Bush would increase the contribution to a high-deductible health plan's 
\3\ out-of-pocket maximum;

    \3\ Under current law, in order to open an HSA, an individual must 
also purchase a high-deductible health plan to accompany it. These 
``catastrophic plans,'' as their name implies, have a high deductible 
that must be met before coverage begins. HSAs can be used to cover this 
deductible, but current law limits HSA contributions to either the HDHP 
deductible or $2,700 for self-coverage ($5,450 for a family), whichever 
is less.

      Allowing HSAs to be portable--among other things this 
would allow consistent coverage while freeing plans from an arduous web 
of state regulations;
      Allowing participants to retroactively pay for qualified 
expenses incurred during a calendar year, provided that an HSA is 
established by the tax filing deadline--under current law, funds can 
only pay for expenses incurred after the health savings account is set-
up.

    These proposed reforms are a positive step towards making health 
savings accounts more attractive to consumers and more practical for 
businesses to offer. FMI encourages the Committee to enact legislation 
to put them in place. A number of these reforms are already included in 
H.R. 5262, legislation proposed by Rep. Eric Cantor, which we feel 
would be an excellent vehicle for HSA reform.
    There are two additional changes that the supermarket industry 
believes are of such importance that we would like to draw your 
attention specifically to them:

    1.  HDHPs should be permitted to cover the cost of prescription 
drugs without requiring consumers to first meet the cost of the plan's 
deductible. The cost of prescription drugs accounts for a 
disproportionate share of many consumers' health dollar, and the fear 
that they will have to meet this cost out-of-pocket is one of the 
biggest impediments to our industry's expanding use of HSAs. While we 
acknowledge that adding prescription drug coverage may increase costs 
in the short-term, it is our belief that it will lead to cost savings 
and improved care in the long-run, if for no other reason than that it 
will encourage consumers to take the maintenance medications that can 
help prevent long-term complications and conditions. It is absolutely 
essential that this reform is implemented if we are to encourage aging 
and unionized workers to take advantage of consumer-driven, market-
based health care.

    2.  Employers should be permitted to contribute more to the HSAs of 
workers with chronic conditions than to the accounts of healthy 
employees, even over and above the current maximums. Consumers with 
chronic conditions or at risk for them express a tremendous amount of 
anxiety when faced with a shift to HSAs. Many of them worry that they 
will be faced with a significant increase in out-of-pocket expenses. 
Allowing their employers to contribute additional amounts to their 
health savings account helps to ease these concerns and encourages 
consumers with chronic conditions to seek the help they need. The long-
term costs of obesity, high blood pressure, diabetes, and a number of 
other chronic conditions can largely be mitigated by quality preventive 
care and ongoing maintenance programs. Allowing employers to contribute 
more to HSAs to cover the costs of these treatments, therefore, is not 
only sound public policy but offers the promise of long-term savings.

    These two reforms--prescription drug coverage and additional HSA 
funding for chronic care--are absolutely essential if health savings 
accounts are going to gain widespread acceptance and use in our 
industry.

Beyond HSAs--Providing for Maximum Flexibility
    Health savings accounts are clearly an important reform and a 
significant opportunity to empower consumers. But they are not a 
panacea. FMI strongly encourages the Committee to promote market-based 
solutions to health care reform that provide the maximum amount of 
flexibility to both employers and consumers. This includes not only HSA 
reform but also promoting and expanding the use of health reimbursement 
accounts (HRAs) and flexible spending arrangements (FSAs).
    Both HRAs and FSAs currently face regulatory restrictions that 
sharply limit their use, not the least of which are recordkeeping and 
paperwork requirements that force families to save shoeboxes of 
receipts and fill-out an endless series of forms. The IRS should pursue 
web-based technology solutions that can streamline the process and ease 
paperwork requirements.
    FSAs are also limited by their ``use it or lose it'' structure. 
Human resource managers within our industry repeatedly cite this as the 
biggest impediment to greater employment of FSAs. Employees are simply 
too concerned with the risk of losing unused contributions at year's 
end to enroll in these important programs, costing them savings from 
using pre-tax dollars to cover medical expenses. FMI strongly supports 
the $500 FSA rollover included in ``the Pension Protection Act'' (H.R. 
2830) and encourages Committee conferees to fight to keep this 
provision in a final conference report. We would also encourage the 
expansion of the $500 limit. Expanding the limit would increase savings 
to American families and encourage greater use of these health care 
vehicles.
    Looking at the supermarket and grocery store industry, it is clear 
that one size does not fit all in terms of health care. A number of 
companies have shifted their employees into HSAs and have seen 
resulting cost savings. Many will continue to offer health plans 
through an HMO or PPO, if for no other reason than that union contracts 
lock them into this for the foreseeable future.
    But changes to our current health care system need to be made that 
harness the forces of the free market and provide businesses and 
employees with as many options as possible. As indicated in this 
letter, there are a number of legislative vehicles and proposals that 
advance these reforms. We encourage the Committee to consider these 
bills and other proposals that have been put forward and to pass a bill 
that promotes genuine change.
    Thank you for your consideration of FMI's comments. If you have any 
additional questions or concerns, please do not hesitate to contact me.
            Sincerely,
                                                 John J. Motley III
                                              Senior Vice President

                                 

 Statement of Ronald Bachman, Healthcare Visions, Inc., Duluth, Georgia

    Laws and regulations matter. Insurers, employers, and other health 
service vendors can only operate businesses within the allowed 
parameters set in Washington, D.C. Millions, if not billions, of 
dollars are poised to create products and services to address the 
health care cost, quality, and access problems we face as a nation.
    Real change requires real change. Tinkering and tweaking the 
current system will not do. Transformation to a new approach is the 
only solution. Healthcare consumerism is the developing basis of a 21st 
Century Intelligent Health System. We are in the 3rd to 4th year of a 
dramatic transformation that began June 26, 2002 when Health 
Reimbursement Accounts (HRAs) were created by new Treasury guidelines. 
Health Savings Accounts (HSAs), part of the 2003 Medicare Modernization 
Act, are the fastest growing new health product designs. They offer 
affordable coverage by engaging employees in their own health and 
healthcare purchasing. Both HRAs and HSAs are a part of a broader 
movement to Healthcare Consumerism.
    It is difficult to see the forest for the trees. Who knew when the 
Renaissance was starting or when Communism began to fail? It is only in 
retrospect that we can see major transformations. I believe the future 
of Healthcare Consumerism has four developing generations. Current HSA 
laws support the foundational 1st generation that impacts mainly 
discretionary expenses of office visits, emergency room use, 
prescription drugs and some diagnostic tests. While these costs are 
generated by 80% of the covered members, they represent only 20% of the 
costs of healthcare. If we stop at this point the transformation will 
stall. We must develop a system that works for and address the sickest 
population with chronic and persistent conditions--the 20% of the 
population that generate 80% of the cost.
    True healthcare consumerism is about empowering the individual and 
creating ownership through an emphasis on personal responsibility. To 
allow the creative entrepreneurial market to develop the products and 
services behind an effective consumerism transformation, the market 
needs and has been crying out for the next generation of HSAs.
    Many saw the initial 2003 HSA legislation as a vehicle to move away 
from employer-based healthcare and support a transformation to 
individually owned portable health insurance. That was, and is, a 
laudable goal. Most sales of HSAs have been to individuals and small 
groups. Many also now see the real value of HSAs as creating ownership 
that empowers employees to control their demand for services. Ownership 
can occur in both individually-based and employer-based policies. If a 
viable individual market of insurance was developed, employers could 
more easily move to a defined contribution funding of healthcare.
    Employers have been asking for changes to expand the take-up rate 
of HSAs.

    1.  Increase HSAs to the out-of-pocket maximum of the associated 
High Deductible Health Plan.
    2.  Allow rewards and incentives for ``comparable employees'' for 
wellness and disease management program participants.
    3.  Allow HSA on a voluntary basis to be used only for healthcare 
expenses while employed.
    4.  Allow HSAs to be used to purchase health insurance, so that HSA 
accumulations can be used by early retirees and others to purchase 
insurance coverage.

    Insurance should consist of three parts--budgeting, risk sharing, 
and savings. For the first time in history, healthcare has a savings 
element. With proper HSA flexibility, plans can use both the carrot and 
the stick to change behaviors. At the end of the day, behavior change 
is what consumerism is supporting. Without behavior change that 
benefits the health of the individual, the use of high deductible plan 
designs will only create more cost shifting.
    Finally, if healthcare consumerism is truly transformational it 
must address our country's most difficult health problems. It must work 
for the sickest among us, there must be a consumer-centric Medicaid, a 
Consumer-centric Medicare, and a form of healthcare consumerism that 
addresses the uninsureds.
    Two current bills in the House of Representatives are critical to 
the development of the next generation of HSAs and healthcare 
consumerism. The Cantor Bill (HR 5262) and the Shadegg Bill are the 
next steps needed for creating the 21st Century Intelligent Health 
System. These bills will support healthcare ownership and the expansion 
of HSAs to a wider population.
    Every system is perfectly designed for the outcomes achieved. If 
you want a market-based solution to healthcare, and not a national 
universal insurance system, it is imperative that Congress continue 
what it started with the initial HSA legislation. It would be a shame 
to get this close to real change and be too timid to take the next 
step. For those who may want to wait for more evidence of success of 
HSAs, someone once said, ``It is never too early to do the right 
thing.''
    In conclusion, Congress can not control the budget deficits without 
addressing healthcare. HSAs have proven themselves to lower trends and 
the cost of healthcare. By lower just the increases in healthcare by 2 
percent, the federal government would increase revenue and lower health 
related expenditures by 10's of billions of dollars each year. The time 
for action is now. This is why we elect members of Congress--to make 
REAL CHANGE.
    Ronald E. Bachman FSA, MAAA is a Senior Fellow at the Center for 
Health Transformation, an organization founded by former U.S. House 
Speaker Newt Gingrich. Nothing written here is to be construed as 
necessarily reflecting the views of the Center for Health 
Transformation or as an attempt to aid or hinder the passage of any 
bill before the U.S. Congress.

                                 

             International Health, Racquet & Sportsclub Association
                                        Boston, Massachusetts 02210
                                                      July 10, 2006
The Honorable Bill Thomas, Chairman
House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Thomas:

    The International Health, Racquet & Sportsclub Association (IHRSA) 
would like to thank you for the opportunity to submit this written 
testimony as part of the Committee's hearing on Health Savings Accounts 
(HSAs). IHRSA is the leading trade association representing the private 
health and fitness industry, with over 7,000 members in 74 countries. 
Our members are committed to policy initiatives aimed at promoting 
exercise, preventing disease and improving the health of all Americans, 
hence our interest in HSAs.
    HSAs are becoming an increasingly important part of the American 
healthcare landscape and consumers who have access to these accounts 
can currently pay for prescription drugs, doctors' visits and other 
medical treatments with pre-tax dollars. This tax benefit helps ease 
the financial burden when Americans pay for medical treatment once they 
are sick. However, current law offers no tax benefit to help 
individuals and families take steps to prevent illness in the first 
place.
    IHRSA strongly believes that the current HSA system should be 
expanded to provide for more disease prevention by allowing expenses 
for exercise programs and related equipment to be payable out of HSA 
monies. Fortunately, legislation (H.R. 5479) is currently under 
consideration in the House which would do just that.
    Introduced by Ways and Means Committee member Jerry Weller (R-IL), 
the so-called Personal Health Investment Today (PHIT) initiative will 
allow fitness center dues, payments for some exercise equipment and 
other fees associated with programs of physical activity to be paid out 
of HSAs and other pre-tax medical savings vehicles.
    If enacted, PHIT would give parents the opportunity to pay for 
their children's soccer league fees out of their HSAs. They could join 
a fitness center and pay for the membership fees with pretax dollars or 
they could purchase a home gym to help them fight the onset of obesity, 
a primary risk factor for developing any one of several chronic 
diseases which are currently fueling the frightening increase in our 
national healthcare expenditure.
    Depending upon a consumer's individual income tax bracket, the PHIT 
initiative could help Americans save 25-30 percent on their exercise 
costs. Health experts agree that regular physical activity 
substantially reduces the risk and symptoms of numerous diseases and 
medical conditions and is associated with fewer hospitalizations, 
physicians' visits, and medications, resulting in lower healthcare 
costs. The PHIT tax incentive represents an important step to induce 
more people to get the levels of exercise they need to improve their 
level of fitness and help lower healthcare costs for all Americans.
    The Department of Health and Human Services predicts that spending 
on healthcare will consume 20 percent of the nation's gross domestic 
product by 2015 if current trends hold true. At this rate of growth, 
America is on track to spend roughly $4 trillion on healthcare within 
the next ten years. This level of spending for medical treatment is 
unsustainable and can only be curbed through efforts to prevent disease 
before treatment is necessary.
    During the hearing on June 26, some concern was expressed that many 
of the existing HSA arrangements offer little in the way of disease 
prevention due to varying levels of coverage offered by the high 
deductible health insurance plans tied to the accounts. By enacting 
PHIT, the Congress has the opportunity to address this issue 
independent of the insurance plans associated with the respective 
HSAs--a win-win for all concerned.
    Given the healthcare crisis we are facing in this country today, 
IHRSA and its members strongly believe that creative solutions are 
necessary to improve the nation's fitness levels. As the Ways and Means 
Committee considers future adjustments to the HSA system, we urge you 
to support legislation like the PHIT initiative, which would make 
expenses for exercise payable with pretax dollars.
    IHRSA and its members stand ready to help advance these kinds of 
initiatives aimed at improving the health of all Americans. Please let 
us know how we can work together to achieve this critical objective.
            Sincerely,
                                                       Helen Durkin
                                          Director of Public Policy

                                 

        Statement of National Association of Chain Drug Stores,
                          Alexandria, Virginia

    Chairman Thomas and Members of the House Ways and Means Committee:
    The National Association of Chain Drug Stores and its members 
support legislation which incorporates elements of the Bush 
Administration's Comprehensive Agenda for Affordable and Accessible 
Health Care designed to expand the use of health savings accounts 
(HSAs). We agree with President Bush that HSAs help to make health care 
coverage more affordable, while providing greater choices and 
flexibility for workers and their employers. We believe it is crucial 
to the health of this country's workers that the expansion of HSA use 
be strongly encouraged by the government.
    However, we urge that any HSA legislation enacted include a 
provision requiring that all prescription and non-prescription drugs be 
covered under the safe harbor for qualifying HSA-linked high-deductible 
health insurance policies. Currently, the IRS allows a safe harbor for 
prescription drugs covered during the policy deductible only if those 
drugs are used to prevent illness. This permits--for example--coverage 
of statins such as Lipitor, prescribed to treat high cholesterol and 
prevent heart disease. However, medications prescribed for an existing 
illness, injury, or condition that could be aggravated by non-treatment 
and neglect are not covered under the safe harbor. This is a short-
sighted policy that should be corrected. Policies should be permitted 
to cover all drugs--prescribed and over-the-counter--during the 
deductible, without disqualification.
    Otherwise, we particularly endorse the elements of President Bush's 
proposal that would expand the advantageous tax treatment of employer 
and employee contributions to HSAs, to cover all of an employee's out-
of-pocket expenses, up to the maximum out-of-pocket spending limit 
specified under the HSA-linked high deductible health policy.\1\ We 
also support provisions that would: (1) allow individual taxpayers a 
tax deduction for high deductible health plan premiums, a tax credit 
for employment taxes related to the payment of premiums, and a 
refundable tax credit for coverage costs under a high deductible 
policy: (2) permit payment of high deductible health plan premiums from 
HSAs; and (3) permit employers to make greater contributions to HSAs 
for employees with greater medical expenses.
---------------------------------------------------------------------------
    \1\ Under current law, the favorable tax treatment for annual 
contributions is limited to the lesser of the amount of the policy 
deductible or $2,700 for an individual or $5,450 for a family. This 
proposed change would increase the limit on favorable treatment of 
contributions to $5,250 for individual coverage and $10,500 for family 
coverage.
---------------------------------------------------------------------------
    Thank you for your time and your consideration of our concerns.

                                 

   Statement of John C. Goodman, National Center for Policy Analysis

Making HSAs Better
    Mr. Chairman and members of the Committee, even though Health 
Savings Accounts (HSAs) are having an enormously beneficial effect on 
the design of health insurance in this country by allowing more than 
one million people to manage some of their own health care dollars and 
partly self-insure through these account, they can be made even better. 
On behalf of the National Center for Policy Analysis, a leader in 
promoting private alternatives to government regulation and control, I 
offer several proposals to improve HSAs.
    Making Incentives Better. Not all medical services are the same. 
Patients can exercise discretion for many of their health care needs, 
and it is appropriate for them to do so. Take arthritic pain relief. 
The annual cost of brand-name drugs is typically $800 more than over-
the-counter substitutes and they are riskier. (Vioxx and Betra, for 
example, have been removed from the market.) Is the extra cost and risk 
worth the marginal improvement in pain relief offered by a prescription 
drug? Since drugs affect people differently, none of us can determine 
for another individual whether the tradeoff between cost and pain 
relief is worthwhile. So it is appropriate and desirable for people to 
make these decisions themselves, and reap the benefits and bear the 
costs of their decisions.
    By contrast, a semiconscious patient on a gurney is not in a 
position to make choices about alternative treatments. Even if he 
could, discretion in this setting is typically inappropriate. Or 
consider the case of a diagnosed schizophrenic. He may choose to stop 
taking his prescribed medication, but it's in our self-interest to make 
sure he is not encouraged to do so.
    Unfortunately, the HSA law treats all these cases the same. It 
requires a high, across-the-board deductible and requires the patient 
to bear the costs of purchases below the deductible amount. A better 
approach would allow insurers to design their plans so that different 
deductibles (and copayments) apply to different medical services. Where 
patient discretion is possible and appropriate, the deductible should 
be high. Where patient discretion is more difficult, and in any event 
inappropriate, the deductible should be low or nonexistent.
    Creating Opportunities for the Chronically Ill. The chronically ill 
are responsible for an enormous amount of health care spending. In 
fact, almost half of all health care dollars are spent on patients with 
five chronic conditions (diabetes, heart disease, hypertension, asthma 
and mood disorders). This is where HSAs have the greatest potential to 
reduce costs and improve the quality of care.
    Healthy people tend to interact with the health care system 
episodically. Once in awhile they go to the emergency room or take a 
prescription drug. On these occasions, they gain knowledge that 
improves their skills as medical consumers. But it may be several years 
before they use that knowledge again, by which time it may be obsolete.
    The chronically ill are different. Their treatments are usually 
repetitive, requiring the same procedures, visits and/or medicines, 
week after week, year after year. Consequently, cost-saving discoveries 
by these patients are not one-time events. Rather, they pay off 
indefinitely. Suppose a diabetic patient learns how to cut the costs of 
her drugs in half, by comparing prices, shopping online, bulk buying, 
pill splitting or switching to a generic brand. Such a discovery could 
be financially very rewarding to a patient who must pay these costs out 
of pocket.
    Numerous studies have found the chronically ill can reduce costs 
and improve quality by managing their own care. But health care 
management is difficult and time consuming. So patients should reap 
both health rewards and financial rewards from making better decisions. 
Insurers should be able to create versatile HSA accounts for patients 
with differing chronic conditions. They should be able to adjust the 
accounts' funding to fit specific circumstances. A typical Type II 
diabetic, for example, might receive one level of HSA deposit from his 
employer; a typical asthmatic patient another.
    The problem is: The HSA law requires employers to deposit the same 
amount to each employee's HSA account, irrespective of medical 
condition. This is a strange requirement because employers who give 
employees choices of health plans are risk-rating their premium 
payments whether they are aware of it or not. If the sickest employees 
all choose Plan B and the healthiest choose Plan A, then the employer 
will invariably pay more premiums per employee to Plan B. Although 
employers risk-rate their premium payments, they are not allowed to 
risk-rate HSA deposits.
    Letting Markets Work. The current HSA law's primary problem is that 
decisions the market should make have been made by the tax-writing 
committees of the U.S. Congress instead.
    What is the appropriate deductible for which service? How much 
should be deposited in the HSAs of different employees? How can we use 
these accounts to meet the needs of the chronically ill? In finding 
answers, markets are smarter than any one of us because they benefit 
from the best thinking of everyone. Further, as medical science and 
technology advance, the best answer today may not be the best answer 
tomorrow.
    Case Study: South Africa. HSAs (called Medical Savings Accounts) 
emerged in the 1990s in Nelson Mandela's South Africa and have now 
captured more than half the market for private health insurance there. 
Since the South African government never passed a law dictating an HSA 
design, their plans developed in a relatively free market. The South 
African ``free market HSAs'' are different, and in some ways more 
attractive, than what we have in this country. For example, one of the 
most popular plans there offers first-dollar insurance coverage for 
most hospital procedures--on the theory that hospitalized patients have 
little opportunity to make choices, and discretion is not appropriate 
in that setting in any event. A high deductible applies to 
``discretionary'' expenses, however, including most services delivered 
in doctors' offices.
    South Africa's more flexible approach also allows more sensible 
drug coverage. While a high deductible applies to most drugs, a typical 
plan pays from the first dollar for drugs that treat diabetes, asthma 
and other chronic conditions. The reason is obvious: It would be 
counter-productive to encourage patients to skimp on drugs that prevent 
more expensive-to-treat conditions from developing.
Conclusion
    Ideal reform in this country would allow unlimited contributions to 
HSAs and permit such accounts to wrap around third-party insurance--
paying for any expense the insurance plan does not pay. Barring that, 
we should at least allow flexible deductibles and risk-rated deposits 
to HSAs.

                                  
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