[Senate Hearing 109-110]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-110
 
                 SOLVING THE SMALL BUSINESS HEALTH CARE
                CRISIS: ALTERNATIVES FOR LOWERING COSTS
                       AND COVERING THE UNINSURED

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP


                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2005

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


 Available via the World Wide Web: http://www.access.gpo/gov/congress/
                                 senate
            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                              ----------                              
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                     OLYMPIA J. SNOWE, Maine, Chair
              JOHN F. KERRY, Massachusetts, Ranking Member

CHRISTOPHER S. BOND, Missouri        CARL LEVIN, Michigan
CONRAD BURNS, Montana                TOM HARKIN, Iowa
GEORGE ALLEN, Virginia               JOSEPH I. LIEBERMAN, Connecticut
NORMAN COLEMAN, Minnesota            MARY LANDRIEU, Louisiana
JOHN THUNE, South Dakota             MARIA CANTWELL, Washington
JOHN ISAKSON, Georgia                EVAN BAYH, Indiana
DAVID VITTER, Louisiana              MARK PRYOR, Arkansas
MICHAEL ENZI, Wyoming
JOHN CORNYN, Texas

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                    Weston J. Coulam, Staff Director
                 Naomi Baum, Democratic Staff Director


                            C O N T E N T S

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                                                                   Page

                           Opening Statements

Snowe, The Honorable Olympia J., Chair, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Maine..........................................................     1
Kerry, The Honorable John F., Ranking Member, and a United States 

  Senator from Massachusetts.....................................     4
Bond, The Honorable Christopher S., a United States Senator from 
  Missouri.......................................................     7
Landrieu, The Honorable Mary L., a United States Senator from 
  Louisiana......................................................    11
Burns, The Honorable Conrad R., a United States Senator from 
  Montana........................................................    14
Pryor, The Honorable Mark, a United States Senator from Arkansas.    18
Isakson, The Honorable Johnny, a United States Senator from 
  Georgia........................................................    21
Cornyn, The Honorable John, a United States Senator from Texas...    21
Thune, The Honorable John, a United States Senator from South 
  Dakota.........................................................    22
Talent, The Honorable James M., a United States Senator from 
  Missouri.......................................................    23
Lincoln, The Honorable Blanche, a United States Senator from 
  Arkansas.......................................................    53

                               Testimony

Chao, The Honorable Elaine L., Secretary, U.S. Department of 
  Labor, 
  Washington, DC.................................................    30
Barreto, The Honorable Hector V., Administrator, U.S. Small 
  Business 
  Administration, Washington, DC.................................    47
Newman, Doug, Newman Concrete Services, Inc., Hallowell, Maine...    86
Mansell, Al, President, National Association of Realtors, 
  Washington, DC.................................................    98
Haynes, Tom, Executive Director, Coca-Cola Bottlers' Association, 
  Atlanta, Georgia...............................................   107
Nichols, Len, Director, Health Policy Program, the New America 
  Foundation, Washington, DC.....................................   116
Morrison, John, Montana State Auditor, Commissioner for Insurance 
  and Securities, Helena, Montana, on behalf of the National 
  Association of 
  Insurance Commissioners........................................   127
Lindsay, William N., III, Past Chair, National Small Business 
  Association, Denver, Colorado..................................   141

          Alphabetical Listing and Appendix Material Submitted

Barreto, The Honorable Hector V.:
    Testimony....................................................    47
    Prepared Statement...........................................    49
Bond, The Honorable Christopher S.:
    Prepared statement...........................................     9
Burns, The Honorable Conrad R.:
    Prepared statement...........................................    16
Byrd, The Honorable Robert:
    Prepared statement...........................................    28
Chao, The Honorable Elaine L.:
    Testimony....................................................    30
    Prepared statement...........................................    32
    Answers to Post-Hearing questions from Chair Snowe...........   338
    Answers to Post-Hearing questions from Senator Burns.........   342
                                                                   Page

Durbin, The Honorable Richard:
    Prepared statement...........................................    80
Kerry, The Honorable John F.:
    Letter from Mila Kofman, Health Policy Institute, Georgetown 
      University.................................................    58
Haynes, Tom:
    Testimony....................................................   107
    Prepared statement...........................................   109
Landrieu, The Honorable Mary:
    Prepared statement...........................................    12
Lindsey, William N., III:
    Testimony....................................................   141
    Prepared statement...........................................   143
    Answers to Post-Hearing Questions from Chair Snowe...........   336
    Answers to Post-Hearing Questions from Senator Burns.........   337
Mansell, Al:
    Testimony....................................................    98
    Prepared statement...........................................   100
Morrison, John:
    Testimony....................................................   127
    Prepared statement...........................................   129
    Answers to Post-Hearing Questions from Chair Snowe...........   328
    Answers to Post-Hearing Questions from Senator Burns.........   330
Newman, Doug:
    Testimony....................................................    86
    Prepared statement...........................................    89
Nichols, Len:
    Testimony....................................................   116
    Prepared statement...........................................   119
    Answers to Post-Hearing Questions from Chair Snowe...........   332
    Answers to Post-Hearing Questions from Senator Burns.........   335
Pryor, The Honorable Mark:
    Prepared statement...........................................    19
Thune, The Honorable John:
    Prepared statement...........................................   326

                        Comments for the Record

Air Conditioning Contractors of America, prepared statement......   168
American Chiropractic Association on behalf of various health 
  professional organizations, letter to Chair Snowe..............   170
ASPPA, on behalf of SBCA, SBLC, ECFC, comments for the record and 
  press release..................................................   171
Associated Builders and Contractors, prepared statement and media 
  advisory.......................................................   180
Blunt, The Honorable Matt, Governor of the State of Missouri, 
  letter to Senator Snowe........................................   187
Fiore, Paul, Service Station Dealers of America and Allied 
  Trades, prepared statement.....................................   188
Gay, John F., International Franchise Association, prepared 
  statement......................................................   191
Graham, John H., IV, American Society of Association Executives, 
  letter with Comments for the Record............................   196
Hill, Eleanor, King & Spaulding LLP, letters to Chair Snowe and 
  Senator Kerry..................................................   199
Johnson, Derrell E., American Council of Engineering Companies, 
  prepared statement.............................................   202
                                                                   Page

Keffer, Jim, American Foundry Society, letter to Senator Snowe...   206
Keithly, Carter, President and CEO, Hearth, Patio & Barbecue 
  Association, prepared statement................................   207
Kerrigan, Karen, Small Business and Entrepreneurship Council, 
  prepared statement.............................................   210
MacDicken, Becky, Director of Government Affairs, The Tire 
  Industry 
  Association, prepared statements...............................   217
Matieu, Sandra J., Home Builders and Remodelers Association of 
  Maine, letter to Senator Snowe.................................   222
Mental Health Liaison Group, letter to Congressman Hastert and 
  Senator Frist..................................................   224
National Association of Wholesaler-Distributors, prepared 
  statement......................................................   227
National Funeral Directors Association, prepared statement.......   236
National Lumber and Building Material Dealers Association, 
  prepared 
  statement......................................................   239
National Restaurant Association, letter to Chair Snowe...........   241
Organizations and Public Officials Opposed to Federal AHP 
  Legislation, list submitted for the record.....................   253
Perkins Restaurant and Bakery, letter to Chair Snowe.............   242
Pound, William T., National Conference of State Legislatures, 
  letter to 
  Congressmen Boehner and Miller.................................   243
Printing Industries of America, Inc., prepared statement.........   244
Warner, The Honorable Mark R., and Huckabee, The Honorable Mike, 
  National Governors Association, letter to Senators Frist and 
  Reid...........................................................   247
Ness, Debra, National Partnership for Women and Families, letters 
  to Chair Snowe and Senator Kerry...............................   249
Professional Photographers of America, prepared statement........   280
Protect Your Healthcare, letter to Chair Snowe and Senator Kerry.   283
Rawlinson, David A., Textile Rental Services Association of 
  America, letter to Senator Enzi................................   286
Samuel, William, American Federation of Labor and Congress of 
  Industrial Organizations, letter to Chair Snowe and Senator 
  Kerry..........................................................   287
Schlicht, James, The American Diabetes Association, prepared 
  statement......................................................   289
Schmatz, Kathleen, President and CEO, Automotive Aftermarket 
  Industry Association, letter to Chair Snowe....................   292
Small Business Council of America, comments for the record.......   173
Smith, Daniel E. and Selig, Wendy K.D., American Cancer Society, 
  letter to Senator Kerry........................................   299
Stanton, Joseph M., National Association of Homebuilders, 
  prepared 
  statement......................................................   301
Twarog, Daniel L., North American Die Casting Association, letter 
  to Senator Snowe...............................................   303
United States Chamber of Commerce, prepared statement............   304
Westerfield, Donald L., Ph.D., National Center for Policy 
  Analysis, testimony submitted to HELP Committee................   309
Women Impacting Public Policy, prepared statement................   319


                   SOLVING THE SMALL BUSINESS HEALTH
                 CARE CRISIS: ALTERNATIVES FOR LOWERING
                    COSTS AND COVERING THE UNINSURED

                              ----------                              


                       WEDNESDAY, APRIL 20, 2005,

                              United States Senate,
          Committee on Small Business and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room 428-A, Russell Senate Office Building, the Honorable 
Olympia J. Snowe, Chair of the Committee, presiding.
    Present: Senators Snowe, Bond, Burns, Thune, Isakson, 
Cornyn, Kerry, Landrieu, Pryor, Lincoln, and Talent.

  OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, CHAIR, 
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A 
                UNITED STATES SENATOR FROM MAINE

    Chair Snowe. The hearing will come to order. Good morning. 
I want to welcome everybody to today's hearing to focus on the 
health care crisis facing small businesses.
    I want to most especially welcome Secretary Chao for being 
here today, for her long-standing championship of and advocacy 
for the creation of Association Health Plans to further the 
rights of hard-working Americans across this country. I also 
want to welcome Administrator Barreto, who is a former small 
business owner and knows all too well the difficulties of 
acquiring affordable health care for his employees. I want to 
thank you both for the leadership that you have given on behalf 
of this issue that is so central to the well-being of small 
businesses across this country.
    Finally, I want to thank all the small business 
representatives who will testify on the serious challenges to 
reduce health care costs and expand coverage and also to hear 
opposing views on this subject, so hopefully we can clarify 
some of the issues here today.
    As you may recall, we examined this issue 2 years ago 
during the very first hearing I conducted as Chair of this 
Committee, and regrettably, since then, the problem has only 
grown worse. Today, I want to probe deeper into solving this 
crisis and hopefully jump-start real action by Congress to 
enact solutions this year.
    This hearing will focus on Association Health Plans, which 
I strongly believe can play a major role in addressing this 
country's health care crisis. Touted by President Bush as one 
of his major initiatives, supported by over 80 million 
Americans, AHPs will bring necessary reform to insurance 
markets that have long trapped small businesses and their 
employees in a vicious cycle of escalating premium costs and 
fewer coverage options. AHPs are crucial to solving the small 
business health care crisis because they represent a fair, 
fiscally sound, and tested approach to reducing the ranks of 
the uninsured in this country at a nominal cost to the Federal 
Government.
    Of the nearly 45 million uninsured Americans, 62 percent of 
the uninsured are either employed by small business or 
dependent on someone who is. If we want to get serious about 
helping the uninsured, which I certainly think is long overdue, 
we should start by focusing on small business.
    USA Today recently identified health care insurance costs 
as the number one issue facing small business employers across 
the country, a fact confirmed in the National Federation of 
Independent Business's Small Business Economic Trends Monthly 
Report for March. Almost 30 percent of the small business 
owners surveyed responded that cost and availability of 
insurance was the single most important problem facing small 
businesses today. This was far and away their most pressing 
concern, and it is one that I have heard time and time again.
    Indeed, these surveys and studies mirror what we already 
hear today from small business owners across the country. 
Today, we will hear from one of my constituents, Doug Newman, a 
concrete company owner from Hallowell, Maine, who has described 
premium increases of almost 65 percent since 2000.
    The time has come for action, not words, to deliver small 
business owners relief from this crisis. AHPs accomplish this 
with a common sense approach that allows small employers to 
join together through bona fide associations to buy health care 
coverage. AHPs will level the playing field of employer health 
care coverage by giving participating small employers the 
advantages of Federal law currently enjoyed by large employers 
and unions.
    AHPs have the strong support, as I mentioned, of President 
Bush, as he has said repeatedly in his State of the Union 
addresses. The Majority Leader, Senator Frist, has indicated he 
would like to see floor action on AHPs this year, and I 
certainly welcome and appreciate his support.
    AHPs are supported by a coalition representing over 12 
million employers and 80 million individuals, and 
significantly, for the first time ever, tomorrow in the HELP 
Committee, Chairman Enzi is hosting his first hearing on AHPs.
    Moreover, as shown on Chart 1, a recent snapshot poll in 
USA Today asked 2,076 CEOs what changes to health care policies 
could be made that would have the greatest impact on your 
business? The number one response, at 56 percent, was 
consolidated group rates, pooling, just as recommended in the 
legislation that we have introduced with respect to Association 
Health Plans to help small businesses.
    Today, I want to examine the truth and the realities 
involved with AHPs and to finally, once and for all, drive a 
stake into the myths that opponents have put forward about AHPs 
over the years. AHPs allow small businesses to pool their 
employees together to receive the same bulk purchasing and 
administrative efficiencies already enjoyed by large 
corporations and unions. It builds on the success of ERISA's 
self-insurance plans, used by large employers, and the Taft-
Hartley plans available to union employers, which currently 
provides health benefits for 78 million people, more than half 
of the people who receive health insurance from their employer.
    Our aim is to inject competition in the marketplace and 
offer alternatives to small businesses trapped in the current 
system. Associations will be able to administer one national 
plan with lower administrative costs. And reducing costs for 
small businesses is why we are here today.
    Studies by both the GAO and the Small Business 
Administration's Office of Advocacy concluded that small 
businesses currently absorb a greater portion of their plans' 
administrative costs, paying as much as 20 to 30 percent more 
in total premiums than larger health plans. As a result, small 
businesses receive less generous benefits than larger employers 
while paying the same level of premiums. On both counts, small 
businesses and their employees lose.
    Now, here we have Chart 2. The Kaiser Family Foundation 
recently reported that between the spring of 2003 and the 
spring of 2004, health insurance premiums increased 11.2 
percent. This marks the fourth consecutive year of increases. 
As you can see from this chart, health insurance premiums have 
seen annual increases since 2000 of 10.9 percent, 12.9 percent, 
and 13.9 percent, respectively, a growth that far outpaced 
inflation and erased wage gains.
    AHP legislation will also provide a full range of benefits 
similar to what many States currently require. In many cases, 
large employers and unions, which are exempt from State benefit 
mandates, offer the most generous plans. Not surprisingly, many 
employees actually choose to stay in their jobs only to 
maintain that higher level of coverage. Like these larger 
plans, the bill's extensive new safeguards will ensure that 
health care coverage is available when employees need it as 
well as to prevent fraud.
    Contrary to opponents of this legislation who claim it will 
lead to cherry-picking of only the young and the healthy, this 
legislation specifically requires that Association Plans must 
be open to all Association members, and each employer who 
participates in the plan must offer the plan to every eligible 
employee at the risk of fines and even imprisonment of up to 5 
years.
    Finally, critics claim that the Department of Labor could 
not handle its responsibilities under this legislation. 
Frankly, I cannot imagine an agency better prepared than the 
Labor Department, which currently oversees 300,000 similarly 
structured plans, and that is why I am delighted to have 
Secretary Chao here today to testify to this issue. We rarely 
hear complaints about these plans failing and leaving 
subscribers without coverage. AHPs would not add an 
unmanageable burden to the Department of Labor, and as the 
Secretary of Labor will testify, sufficient resources will be 
available to ensure that the Department fulfills its 
obligations.
    AHP legislation is one excellent reform among myriad 
solutions to the health care crisis, but it is one that should 
be available to start making a difference immediately. This is 
not a radical new policy we are talking about here. We should 
also examine ways to use the tax code as a mechanism for 
increasing access to health care, and that is why I recently 
introduced legislation with Senator Bond and Senator Bingaman 
to enable more small business owners to offer choice of 
cafeteria plans, to allow employees to purchase health 
insurance with tax-free dollars.
    And with that in mind this morning, we will also review 
alternatives, including those put forth by the Administration. 
I know my colleagues have introduced various issues regarding 
refundable tax credits, expanded Health Savings Accounts, and 
so forth. I don't think all of these issues are mutually 
exclusive, but I think we should begin this process of starting 
to enact legislation. It is not without coincidence that 80-
million-plus Americans support this legislation and 12 million 
employers. We all know that small business is a job generator 
in America and it is in our central and national interest to 
make sure that we preserve their economic well-being.
    So with that, I will now turn to the Ranking Member, 
Senator Kerry, for any remarks he chooses to make.

       OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, 
           A UNITED STATES SENATOR FROM MASSACHUSETTS

    Senator Kerry. Well, thank you very much. I appreciate the 
opportunity to share some thoughts and also to try to make the 
most of this Committee's opportunity here to really deal with 
this issue. I welcome our panels and all those of you who are 
interested in this subject.
    Madam Chair, I thank you for bringing this Committee 
together to try to tackle this critical issue. I hope we will 
all make the most of it.
    I want to thank you also for extending courtesies to our 
colleagues, Senators Lincoln and Senator Talent, to join us. 
They have been working on this on the side, and I think it is 
good when committees can allow that to happen.
    We want to welcome all of the people here today who are 
going to testify on this. I want to thank State Auditor 
Morrison, who has joined us from Montana, and Bill Lindsay from 
Colorado, who is representing the National Small Business 
Association, and a special thanks to Len Nichols of the New 
America Foundation for agreeing to share his expert thoughts 
with us once again.
    The Chair has properly underscored how important this issue 
is to all of us. Health insurance premiums, we will all agree--
let us find the places we can agree first, obviously--we all 
agree that health insurance premiums are skyrocketing and they 
are squeezing our economy, squeezing businesses, squeezing 
individuals, and this is not new. This has been going on now 
for years, increasingly.
    I think average premiums for most Americans are up 
something like $3,500. There is no family in America whose 
income has gone up anywhere commensurate to the rise of health 
care alone, before you even get to the rise of gasoline prices, 
education costs, and the other costs of the average American 
family.
    The fact is that over the last 4 years, the average 
American family's income has gone down, and the wealthiest 
Americans have seen their income go up. The tax burden, when 
you add excise, property, sales, and all the other tax burdens, 
have gone up. So people are being squeezed and health insurance 
premiums are rising faster than wages. They have grown at 
double-digit increases for the last 4 years. No salaries of the 
average American have grown at double-digits, let alone single-
digits in many cases.
    Since 2000, healthcare premiums for family coverage have 
increased 59 percent, compared with inflation at 9.7 percent, 
and wage growth at 12.4 percent. Small businesses have 
obviously been hit particularly hard. Some have reported their 
premiums increasing by more than 70 percent in one year alone. 
As a result, the number of small businesses in 2004 that 
offered health benefits to their workers is only 63 percent, 
which is down from 68 percent in 2001.
    By contrast, 99 percent of businesses with 200 or more 
employees offer health benefits, though increasingly we see 
them moving from defined benefit to defined contribution, so 
there has been a transition even there. And if you talk to the 
auto manufacturers and others, they will tell you the greatest 
squeeze on competition today is the cost of health care at 
$1,200 to $1,700 per automobile.
    Of the 45 million uninsured Americans, 60 percent, 27 
million, are small business owners, their employees and their 
families, and that ought to be unacceptable in our country.
    For nearly 2 years, I had the privilege of traveling across 
this great country of ours and speaking with Americans of every 
stripe, of every level of income, about this issue of health 
care. Time and again, the conversation became one of almost 
desperation. People really are not sure where to turn and how 
to control this. It is obvious to all of us that it is one of 
the most pressing issues. In fact, I think the Secretary of 
Health and Human Services and others answered at our Finance 
Committee hearing on Social Security that far more pressing 
than Social Security, in fact, are Medicare, Medicaid and 
health care.
    Every time I would have the opportunity to talk about 
options, people's eyes lit up when I said to them, you know, we 
could have a program in America where small businesses and 
individual Americans have the right to buy into the same health 
care plan as Members of Congress give themselves, and I think 
many people in America like that idea and think it is very 
fair.
    When I spoke to the self-employed and small business 
owners, it was good to be able to explain to them how we could 
not only allow them an access to a range of plan choices--we 
could offer them all kinds of plan choices, not just one, but 
several different plan choices--and you could offer them the 
same consumer protections that are offered to us and to those 
other Federal employees who take part in the Federal Employee 
Health Benefits Program. So you could give them affordable 
options and the same protections at the same time, and you 
could give them the Federal reinsurance plan that would reduce 
premiums for everyone in America.
    You could make American businesses more competitive by 
reducing those premiums for everyone in America if we created a 
reinsurance pool to lower those premiums. And the minute you do 
that, you have a greater range of choices in the marketplace. 
All those who care about the marketplace, which we all do, the 
more choice you have, the more competition you have, the more 
you affect pricing, and we could do that with that kind of an 
insurance plan.
    These ideas, I believe, are real solutions. They are not 
real because I proposed them. They are real because they work 
and they are real because they have been tested and, in fact, a 
number of States are now moving on their own to embrace both 
reinsurance plans and other ways of lowering the cost of health 
care.
    The relief is real. Independent academic analysis has found 
that health care proposals such as that one would cover 95 
percent of all Americans, 99 percent of all children in 
America. We have 11 million children with no health insurance 
at all today. That is unacceptable. It would reduce health care 
premiums by at least 10 percent for every family in America.
    Is there a cost to it? Sure, there is a cost to it. There 
is a cost to everything here, and we make our choices, one 
priority versus another. If your priority is to give people who 
earn more than $1 million $32 billion in tax relief next year, 
you can't do this. But if your priority is to lower the cost of 
health care for all Americans, you can.
    The test is whether we are willing to give voice to our 
values and explain the choices to Americans and give them an 
important opportunity to have a choice during defining moments 
like these. So that is really what we are here to put to test.
    Now, beginning today, this Committee has an opportunity to 
help lead the Senate. There is a difference of opinion. It is 
an honest difference of opinion and I really look forward to 
exploring it here. If somebody can prove to me that the things 
that a lot of experts say that are negative won't happen, 
terrific. But for the moment, we have strong evidence that 
Association Health Plans just don't live up to their billing.
    We have expert testimony that suggests that they will cause 
premiums to rise for the vast majority of small businesses and 
their employees, that it will offer no help to many of the 
uninsured. It actually might even raise the uninsured rolls, 
according to some analyses, by an additional one million 
people, and in many cases will erode the benefits and consumer 
protections that are currently existing in the regulation of 
health insurance products and leave consumers at risk for 
unpaid claims as the result of plan failures, insolvency, or 
even fraud.
    Now, I am not alone in believing this. That is why over 
1,300 national and local organizations have spoken out against 
AHPs. It is nearly impossible to find an Attorney General, 
Governor, or insurance commissioner of either party--either 
party--that has not gone on record in opposition to these 
plans. Even our U.S. Secretary of Health and Human Services 
Mike Leavitt wrote a letter to Congress encouraging us to 
bypass this ill-conceived plan when he was Governor of Utah.
    Now, if you truly want to solve the small business health 
care crisis, and if we really want to engage in a dialog of 
alternatives for lowering the costs and covering the uninsured, 
then I welcome a vigorous discussion about not only AHPs, but 
about all these other ideas that have been advanced. Let us not 
make this just a one-topic discussion. Let us not make this a 
one-plan possibility. Let us really examine, with the same kind 
of openness we approached the Bolton nomination yesterday, and 
talk about what the possibilities are. It is my hope that we 
can draft legislation--I am drafting some now--that would 
provide a more complete picture of how we can proceed to do 
this.
    But the time to act is now. I hope we will find a real 
solution, and I welcome the testimony that we are about to hear 
and the effort to do that.
    Chair Snowe. Thank you, Senator Kerry.
    Senator Bond, who was my predecessor as chair of this 
Committee and who began this effort, I welcome you, Senator 
Bond.

   OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND, A 
        UNITED STATES SENATOR FROM THE STATE OF MISSOURI

    Senator Bond. Thank you, Madam Chair. It is good to be 
back. I see a lot of friendly faces again.
    We are talking about problems that are very important to 
small businesses across this country. When I first came on this 
Committee, small businesses were primarily concerned about 
excessive regulation and excessive taxation. I would like to 
think that this Committee, on a bipartisan basis, moved and 
moved effectively to deal with those problems, and we have made 
significant progress. We are delighted to have Administer 
Barreto here, who continues that fight.
    But now, as I go around and I talk to small businesses, the 
one thing they tell me is they are concerned about the cost of 
health insurance premiums, and that is why we also are 
delighted to have Secretary Chao here, because I believe that 
she is going to be able in her testimony to debunk some of the 
myths that have been put forth about Association Health Plans.
    There is no question that with approximately 45 million 
uninsured Americans, expanding access to quality, affordable 
health care must be a top priority for this Senate. Now, I was 
here back in 1993 and 1994 when they ran an idea for national 
health care up the flagpole. You know, they couldn't even get 
50 people to salute that one, because when you looked at it and 
you found that raising taxes to put more burdens on small 
business, and supposedly to give them a break on their health 
insurance, was no solution whatsoever.
    We know that the cost explosion the insurance companies are 
imposing on small businesses and how small business owners are 
finding it virtually impossible to provide the health care 
coverage that they, as well as other employees, need, we need 
to have better solutions.
    One solution--and there is no easy, simple solution to 
this--but one solution has been to expand community health 
centers, and I have been proud to work on expanding community 
health centers, which do provide access on a very affordable 
basis to locally controlled primary health care entities. But 
we are now today going to talk about something that would give 
small businesses the opportunity to provide for themselves and 
their employees a solution to the health care cost problems 
that knocks 25 to 27 million small business owners and their 
dependents out of health insurance. Small businesses cannot 
compete with the kind of health care plans that corporations 
and unions provide for their employees.
    Those people who get up on their high horses and say, well, 
the insurance regulators and the Attorneys General say they 
won't work. They are wrong. AHPs will work. Do you know why 
they work? Because they provide a broad basis of employees, a 
large pool, not only that provides better management of risk, 
it provides administrative savings to the small businesses. We 
are talking about giving small businesses the same tools that 
large corporations and large unions have.
    AHPs are not a new idea. They have been talked about and 
bandied about and compromised for almost a decade. During that 
period, what was once thought to be a manageable problem has 
become the crisis that we had today. Had we passed AHP 
legislation when it was first introduced, when people like my 
colleagues, Senator Talent and Senator Snowe, were first 
talking about it, we would not be seeing the problems we see 
today for small business.
    Yes, as a former Governor, I want to see State solutions 
where they work. But when you have national small businesses 
competing with corporations that are national in scope in the 
insurance market which is national in scope, then we know we 
have to have a national solution.
    The principle underpinning AHPs is simple, the same 
principle that makes it cheaper to buy your soda by the case 
instead of by individual cans. Bulk purchasing is why large 
companies and unions can get better rates for their employees 
than small businesses and it is about time that we bring 
Fortune 500-style health benefits to the Nation's main street 
small businesses and their employees.
    I commend Senator Snowe for taking the lead and using this 
position to advance the number one health care priority. With 
the support of President Bush, the Department of Labor, Small 
Business Administration, and over 100 small business groups, I 
hope this bill will move quickly. For the sake of small 
businesses throughout the country, their employees, and their 
families, we must pass AHP legislation.
    I thank Chair Snowe and Senator Talent for their 
leadership, dedication, and commitment on behalf of small 
business. I look forward to working with you, Madam Chair, to 
help pass Association Health Plans in this session of the 
Senate.
    [The prepared statement of Senator Bond follows:]

    [GRAPHIC] [TIFF OMITTED] T1830.001
    
    [GRAPHIC] [TIFF OMITTED] T1830.002
    
    Chair Snowe. Thank you, Senator Bond. I am looking forward 
to it, as well.
    Senator Landrieu.

 OPENING STATEMENT OF THE HONORABLE MARY L. LANDRIEU, A UNITED 
                 STATES SENATOR FROM LOUISIANA

    Senator Landrieu. Thank you, Madam Chair. I know you are 
anxious to get to the panel, so I am going to submit my full 
statement for the record, but I just wanted to make a very 
brief opening comment thanking you for your hard work. This has 
been a very difficult issue that you and I have worked 
diligently over the last couple of years. I thank Senator Kerry 
for his leadership and work in reaching out to small businesses 
in our country.
    I can only add this morning that the small businesses in 
our State are looking for relief. Ninety-seven percent of the 
people employed in my State are employed by businesses under 
500 people. Health insurance prices are too high; are making 
them uncompetitive, and are losing jobs. So a solution needs to 
be found.
    I think the solution, Madam Chair, that you have put 
forward has a great deal of merit. As you know, I have worked 
very closely with you as we have developed a lot of the ideas 
behind the bill. But I am still concerned about cherry-picking, 
that if not addressed completely in our effort could be the 
undoing of what we are actually trying to do and make the 
health crisis in our country worse instead of better.
    In addition to cherry-picking, Madam Chair, there are a few 
other vulnerabilities I see in the plan that has been laid 
forward that I would like to pursue in the line of questioning.
    Finally, I want to mention that the Durbin-Lincoln proposal 
called Small Employer Health Benefit Plan of 2005 is a 
different model, but I think it has a lot of promise. It tries 
to do and meet the same principles, giving options, more 
affordable options for small business.
    While I would agree that the proposal before us should be 
given a lot of attention, there are perhaps other methods of 
getting to the same end, which is giving needed relief to small 
business. So I will look forward to this panel.
    Thank you, Madam Chair.
    [The prepared statement of Senator Landrieu follows:]

    [GRAPHIC] [TIFF OMITTED] T1830.003
    
    [GRAPHIC] [TIFF OMITTED] T1830.004
    
    Chair Snowe. Thank you.
    An important Member of this Committee, Senator Burns.

 OPENING STATEMENT OF THE HONORABLE CONRAD R. BURNS, A UNITED 
            STATES SENATOR FROM THE STATE OF MONTANA

    Senator Burns. Thank you, Madam Chair, and I welcome my 
good friend from Montana this morning. I am looking forward to 
his testimony. I have a prepared statement. I would just like 
to make a couple of points, though.
    I think ever since I have been on this Committee, going way 
back to when Senator Bumpers was Chairman way back in the 
1990s, we were talking about health care, and we are still 
talking about it today. Senator Pryor, you have big shoes to 
fill on this Committee. And we accomplished a lot of things 
during that Committee, so you have got big shoes.
    But this issue comes up, and as you get comments from your 
State here in Washington and when you are back in the State and 
you have conversations, no matter what the event is, it seems 
like it goes from conversational chatter to screaming about 
doing something about the affordability and the accessibility 
to health care. And, of course, insurance premiums always come 
up in the series. So I held a series of roundtables in the 
State on this and asked what the possible solutions were.
    I was a small businessman. It wasn't planned to be that 
way, but that is the way it was. That was a long time ago, and 
even back then, we bought insurance for our employees, but 
Phyllis and I chose not to buy any on ourselves. So even back 
then, the concern of cost was very real.
    It is tremendous--the reason for the cost in health care, 
we have made tremendous technological advances and we all share 
in those costs and they come at a price.
    Now, I know there has been a lot of discussion on AHPs. It 
has been very contentious to some folks. And, of course, I have 
always had some reservation about it. I want to make sure I 
want to know what the role of the Federal Government should be. 
Should we be making decisions here in Washington, DC for people 
in Montana? I don't know. We pass a lot of legislation that one 
size fits all, and sometimes it doesn't and so we have some 
problems with that.
    With that said, I firmly believe that perfection should not 
be the enemy of the good. When health care costs spiral out of 
control, as they have done in these recent years, the American 
public needs relief, and one way to address this issue is 
through Congressional action. It may be the only action that we 
have to take.
    I know this. The Chair of this Committee, ever since I have 
been in the Senate and ever since she has been here, has worked 
tirelessly in health care issues and I applaud her for her 
work, and I plan on working with her. I am not a co-sponsor yet 
of this piece of legislation, but I think maybe it is narrowing 
down. We are coming to the choke point where we may have to 
act. And, just like I said, I have reservations about that, but 
nonetheless, small business cries out right now. Their ability 
to expand, provide jobs and economic growth is being stifled by 
this issue of high costs of health care premiums and 
accessibility to those plans.
    I look forward to the testimony. Madam Chair, 
congratulations for taking this on. It is a monumental task, 
but I believe that you are up for it and I thank you.
    Chair Snowe. Thank you.
    Senator Burns. I will make my formal statement a part of 
the record.
    [The prepared statement of Senator Burns follows:]

    [GRAPHIC] [TIFF OMITTED] T1830.005
    
    [GRAPHIC] [TIFF OMITTED] T1830.006
    
    Chair Snowe. Thank you very much, Senator Burns. I 
appreciate your willingness to work through some of these 
issues and for your comments and perspective on this important 
issue for small businesses. Thank you.
    Senator Pryor.

        OPENING STATEMENT OF THE HONORABLE MARK PRYOR, 
       A UNITED STATES SENATOR FROM THE STATE OF ARKANSAS

    Senator Pryor. Thank you, Madam Chair. I have a statement 
for the record and I don't want to take any more of the 
Committee's time. Thank you.
    [The prepared statement of Senator Pryor follows:]

    [GRAPHIC] [TIFF OMITTED] T1830.007
    
    [GRAPHIC] [TIFF OMITTED] T1830.008
    
    Chair Snowe. It will be incorporated in the record, without 
objection.
    Senator Isakson, welcome.

           OPENING STATEMENT OF HON. JOHNNY ISAKSON, 
       A UNITED STATES SENATOR FROM THE STATE OF GEORGIA

    Senator Isakson. Thank you very much, Madam Chair. I, too, 
will be brief, but I do want to tell you where I am coming 
from.
    Prior to my election to the U.S. Congress in 1999, I ran a 
residential real estate brokerage company. It had 200 employees 
and 900 independent contractors. The employees, I could provide 
with group medical insurance by virtue of ERISA. They paid 
part, I paid part as the operator of the company.
    But to the 800 to 900 independent contractors, by law, I 
could not provide them with benefits because of the IRS test on 
independent contractors, which so many small businesses deal 
with in construction and real estate and consulting and 
education and so many other areas. Of those 900 people that 
worked for me and produced the sales that produced the revenue 
that paid the taxes in support of this country, many were 
second or third career, single, divorced, or widowed women or 
individual single men who could not literally at that time--and 
this was 6 years ago--buy competitively in the marketplace 
health insurance. I tried as hard as I could without violating 
the IRS code to direct them wherever I could to be able to buy 
insurance, which was generally terribly excessive if even 
accessible.
    So one of the reasons I am so proud of your effort and that 
of Senator Talent is that you are filling probably the 
largest--or attempting to fill probably the largest single void 
that exists out there in small business, which is part of the 
most productive part of our economy. We have a crisis and these 
individuals have a crisis. Your Association Health Plan 
approach is a way to help fill that void and give them 
accessibility and some semblance of affordability by being able 
to pool together that, quite frankly for those individuals is 
just almost not available today, and I want to thank you and 
Senator Talent for your effort.
    Chair Snowe. Thank you very much, Senator Isakson, for 
offering that view and insight into your experience. I 
appreciate that.
    Senator Cornyn, thank you.

        OPENING STATEMENT OF THE HONORABLE JOHN CORNYN, 
               A UNITED STATES SENATOR FROM TEXAS

    Senator Cornyn. Thank you, Chair Snowe. It is good to be a 
new Member of this Committee. You and I have worked together as 
fellow members of our party's task force on the health care 
costs and the uninsured, and I think we all recognize that 
there is no more pressing issue confronting America today than 
dealing with health care issues--cost, access, and all the 
issues that follow from them.
    I support the goals of Association Health Plans, trying to 
make health insurance more affordable and more accessible. I 
also support other approaches that are designed to get us to 
those ultimate goals, such as market reforms and State mandates 
on health insurance coverage which make it unaffordable to many 
individuals. I think we made some good headway in 2003 with the 
Medicare Modernization Act when we created Health Savings 
Accounts, and I think they offer a lot of potential for 
individuals and employers to increase access and to manage 
health care costs. It is going to require some additional 
transparency by health care providers so consumers can actually 
make good choices and compare prices in a way that I think has 
great promise to bring costs down and increase access to health 
care.
    I, along with Senator Bond, agree that FQHCs, Federally 
Qualified Health Centers, are an important part of the 
solution.
    Another area that we have failed to act on in the Senate is 
medical liability reform and the defensive medicine that is 
attendant to our current medical liability crisis in the 
country, driving up costs in a way that prevent access to good 
quality care. In my own State, 100 out of our 254 counties 
could not offer an obstetrician, for example, to a woman who 
wanted to deliver a baby before we passed medical liability 
reform on the State level. And in high-risk medical specialties 
like neurosurgery and emergency room medicine, it was simply 
impossible to recruit qualified physicians to come work in 
those counties because of the medical liability situation.
    I hope to help contribute to this debate, because I think 
it is one of the most compelling issues confronting our country 
today. Our ability to compete and the ability of small 
employers, as has already been noted, to create jobs for the 
American people is dependent on our ability to provide 
employees with affordable, quality healthcare.
    Thank you for convening this hearing, and I look forward to 
working with you and the other Committee Members.
    Chair Snowe. Thank you. We have a great line-up of newly 
elected Members on this Committee with Senator Isakson, Senator 
Cornyn, and Senator Thune. Thank you.

        OPENING STATEMENT OF THE HONORABLE JOHN THUNE, 
     A UNITED STATES SENATOR FROM THE STATE OF SOUTH DAKOTA

    Senator Thune. Thank you, Madam Chair and Senator Kerry, 
for holding this important hearing. I also want to thank 
Secretary Chao and Administrator Barreto for being here, as 
well as the other panelists we are going to hear from.
    This is an incredibly important issue to the economy. It is 
clearly the one that I think, as you travel across the country 
and in my State of South Dakota, hear as much about if not more 
than anything else, maybe with the exception now being the cost 
of energy. But the cost of health care is enormously important, 
and again, it is, of the 45 million people who aren't covered 
in this country, half of them work for, or their family members 
do, for small businesses.
    I think the thing that gets missed in this debate is the 
people who work for larger companies, for big businesses, they 
have the benefit of economies of scale and that is not 
something that small businesses can benefit from. What I think 
this proposal simply tries to do is provide that group 
purchasing power, those economies of scale that are available 
to larger businesses to help drive down costs for small 
businesses.
    We have got 88,000 uninsured people in South Dakota. We 
have got 71,000 small businesses. Almost every business in 
South Dakota is, by definition, a small business. And so this 
is really an issue crying out for a solution. There have been a 
lot of--this issue has been kicking around for a long time. Jim 
Talent chaired the Small Business Committee in the House. I was 
a Member of that Committee. We voted this out of the House I 
think on more than one occasion when I was a Member of the 
House, 5-, 6-, 7-, 8-years ago, and we still haven't seen any 
final action on this, and furthermore, any effort, I think, on 
the Senate to get it on the floor for a vote.
    But in any case, it is time for this hearing. It is time 
for this issue to be addressed, and frankly, I am hopeful that 
we will be able to make progress on meaningful solutions to the 
cost of health care in this country. And whether or not you 
like Association Health Plans as a solution, I think it is an 
issue that has been debated and discussed around here. It is 
one that clearly has, I think, tremendous potential to help 
lower costs by giving small businesses access to group 
purchasing.
    I would certainly hope that this Committee could work 
constructively to get a bill out of here and to have a debate 
on the floor and then hopefully to do something that, in my 
view, at least would give small businesses out there another 
option. This is, with the appropriate safeguards for solvency 
and with the issues that have been addressed, I think, in this 
legislation with regard to giving our small businesses more 
choices, it is an approach whose time has come.
    So thank you, Madam Chair, for conducting the hearing. I 
look forward to hearing from the witnesses.
    Chair Snowe. Thank you, Senator Thune.
    Senator Talent, who is not a Member of this Committee, but 
we welcome him because he chaired the Small Business Committee 
in the House previously and was a leader and continues to be a 
leader on this subject and certainly has a very important point 
of view. So Senator Talent, thank you.

          STATEMENT OF THE HONORABLE JAMES M. TALENT, 
       A UNITED STATES SENATOR FROM THE STATE OF MISSOURI

    Senator Talent. I thank you, Madam Chair, and I want to 
thank the Ranking Member also, both for holding this hearing, 
for your leadership, for allowing me to come here and make a 
brief statement, and I understand that Senator Durbin and 
Senator Lincoln are going to do the same thing. I have chaired 
a Committee and I know that sometimes you feel like the Members 
not on a Committee who have an interest in the hearing are 
trying to hijack the Committee, and I think you have got a 
useful compromise, just allowing us to come and make a few 
statements.
    I do feel strongly about this because it is so important, 
and we all know that. I guess that is one thing we agree on, 
Senator Kerry. In fact, I think we probably agree on a lot of 
things.
    All the Association Health Plan idea does is allow small 
employers to do what large employers have been doing for many, 
many years. That is really all it does. And if you think about 
it, everybody in the United States, or virtually everybody who 
has health insurance, and there are a lot of people, 
unfortunately, who don't, but just about everybody who does has 
it as part of a big pool, a big national pool. In some cases it 
is private, like the big Fortune 500 companies or the labor 
union plans. It may be public, you know, Medicare and Medicaid, 
retired Federal employees, current Federal employees. They are 
all part of a big pool because there are economies of scale to 
insuring large pools. I mean, it is a matter of common sense. 
It costs less from an overhead and administrative standpoint to 
insure a pool of 300,000 people than it does a pool of 30 
people, much less three people.
    I don't understand why small businesspeople shouldn't have 
the same opportunity. When we came up with this idea, and the 
Chair has been working on it for a long time, too, one of the 
things I liked about it is I thought it ought to be attractive 
to everybody. It is fully within the philosophical mainstream 
of both parties and it really was in the House. We put this 
bill out of our Committee with strong support by Members on 
both sides of the aisle and it has passed in the House on 
strong bipartisan votes on a number of occasions.
    It empowers the little guy--I mean, if you want to think 
about it this way, it empowers the little guy and gal against 
the big insurance companies that currently dominate this 
market. It is a lot like the co-ops that grew out of the 
agricultural movements in the populus parts of the country. It 
just empowers people to do something on their own to reduce 
costs for themselves.
    It has a big advantage in these days of big deficits. It 
doesn't cost anything, if you read about a cost to associations 
and health plans, other than the money the Secretary of Labor 
may need to hire a few more people to regulate it, which is a 
very small amount of money. The only other cost that anybody 
will ever posit for this is the cost that happens when 
employers who haven't been insuring people in the past buy 
health insurance for them, because then money that they had 
been paying in wages, which are taxable, goes to a fringe 
benefit, which is not taxable. So the cost is the Government 
loses revenue because people get health insurance. That is a 
cost I don't mind. That means the number of uninsured are going 
down in the country. That is the only cost to Association 
Health Plans.
    One of the reasons I thought it wouldn't be so 
controversial is there is really no down side to it. We set 
them up. If we are wrong and people don't want them, they just 
won't buy them. We are not saying to insurance companies, you 
can't offer people insurance on a small group basis. Go ahead 
and do it. States can regulate that just like they are doing 
now.
    We are saying small business people ought to have another 
option, and I think they will use that option, and let me just 
say, the argument that is offered, and I have people come up to 
me with this argument that we shouldn't do this because only 
the employers who have healthy people will want to go into the 
Association Health Plan, that the employers who have sick 
people won't be able to go into the Association Health Plans. 
Madam Chair, as you know, that is not allowed under the bill. 
The bill requires that these associations--it is must offer, 
must carry.
    It is not possible. Think about how this will work. My 
brother has a small restaurant. If this were allowed, he might 
join the restaurant association to get the health insurance. 
They don't know about his employees. His employees could change 
overnight. How are they going to exclude people because they 
have sick employees working for them?
    In fact, I think the opposite is true. It is precisely the 
employer who has the sickest workforce who is the most 
desperately looking for an alternative. Now, they are going to 
go into these Association Health Plans so fast, if you blink, 
you are going to miss them. And I may just say, it is ironic 
when people raise that argument, Madam Chair, because we all 
know, because we all deal with constituents, it is the 
insurance companies now who are cherry-picking. They are the 
ones who are canceling insurance because somebody files a 
claim. They are the ones who are jacking up rates because 
somebody files a claim. It happens every day. It won't happen 
with Association Health Plans.
    Just very briefly--I am not going to punish you for your 
hospitality by going on forever, Madam Chair----
    [Laughter.]
    Senator Talent [continuing.] It has been raised that it 
won't be regulated by the States. We have talked about this. 
These are national pools. Believe me, I will say this to the 
State regulators, if there were some way to have national pools 
regulated by the States, I would do it. Just to get you on 
board, I would do it, but you can't. You can't have 50 
different sets of regulations for national pools. That is why 
we don't allow it for big companies, for labor union plans, 
because you can't--you just physically can't do it.
    I supported this, and originally we passed it--you 
remember, Madam Chair--as part of a patients' bill of rights, 
which was fine with me. I begged for people to pass it with 
this as part of it and it got held up in the Senate.
    Finally, I just want to say one other thing, Madam Chair, 
and there are lots of ideas out there and I am certainly very 
open to them. What I hope we don't do is let Association Health 
Plans get sucked into the polarizing ideological battles about 
the direction of health care. One of the things I like about 
Association Health Plans, it is not a global change in the 
direction of our health care policy. You may have one side that 
wants a national single-payer system or a government-run 
system. You have another side that really would like to 
eliminate the employer-based system and pass all the tax 
deductions down to individuals and have them go out and buy 
their own health insurance, and those are two very respected 
points of view. I don't begrudge anybody for having that point 
of view.
    But one of the genius of this is, it is not a revolutionary 
change on an ideological level in health care. It is a 
perfection of the employer-based system. It is a practical 
solution to the practical problems people confront, and I think 
that is what the American people want us to do. I don't think 
they are going to let us go into some whole new world for 
health care, but I do think they want us to help them help 
themselves where we can.
    That is what this is all about, and I am just grateful to 
you. Every time I hear you talk about this, Madam Chair, I 
become encouraged because I think you have really got the idea 
behind it. Thank you for letting me trespass and the time. I 
appreciate it.
    Chair Snowe. I appreciate that. Thank you very much.
    Senator Kerry. Madam Chair.
    Chair Snowe. Yes.
    Senator Kerry. Just before we go to this, I just want to 
say to Senator Talent, first of all, I want to assure him and 
the other Members of the Committee, and I hope we can work in 
the way that this Committee has normally worked, that there is 
no ideological predetermination on this side as to how we do 
this, number one.
    Number two, the split is not between a quote: Federalized, 
Government-paid, one-size-fits-all versus AHPs--that is not at 
all what we are talking about and I want to make that clear. 
The alternative I am talking about, among many alternatives, 
incidentally, is a completely market-based, not-Government-
paid-for plan, but incentivized system where people choose to 
get in it or don't choose to get in it. And I think it is very 
important that we approach this with a view to trying to find 
the most effective means of doing it.
    In fairness, however, when the Senator says this is so 
simple, and all we are trying to do is allow people to do this 
banding together, it is not that simple. I am for people 
banding together. I am for economies of scale. Yes, it is 
important that people be able to come in and find those market-
based economies of scale. The problem is that that is not all 
that it does. The fact is that you are allowed to band together 
today under the law. Nothing stops you from banding together 
today under the law. The question is, in what form.
    And when you say, must carry, must offer, the fact is that 
that is only if you are a member of the association. Who gets 
into the association? They have the power to say you don't join 
our association. And that is where some--so there are issues 
here.
    I want to work in good faith with the Senator. I want to 
work to try to get rid of those, and if we do, we ought to be 
able to find a common ground here where we can help deal with 
the problem of small business. But we can't be false in the 
packaging and say this is all it does or this is as simple as 
it is when there are serious issues of enforcement and 
structure and defining who gets what coverage and how is it 
enforced and so forth.
    Chair Snowe. I just want to make a point on that. But under 
this Association Health Plan, they have to offer it to all 
their members, so there is no exclusivity----
    Senator Kerry. But who gets to be a member?
    Chair Snowe. Well----
    Senator Kerry. That is a major issue. You can cherry-pick 
in who becomes your members. Sure, you can.
    Chair Snowe. To all of its membership. You can't.
    Senator Kerry. You can not let somebody be a member, so we 
will get at it.
    Chair Snowe. OK. We will.
    Senator Talent. I thank you again, and I thank Senator 
Kerry.
    Chair Snowe. We will look at legislative language.
    [Laughter.]
    Chair Snowe. Thank you.
    And before I begin, I am pleased to submit for the record a 
statement by Senator Byrd, who is a co-sponsor of this 
legislation, and so I ask unanimous consent that this statement 
be included in the record. Without objection, it is so ordered. 
We are delighted to have Senator Byrd as a co-sponsor.
    [The prepared statement of Senator Byrd follows:]

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    [GRAPHIC] [TIFF OMITTED] T1830.010
    
    Chair Snowe. So now it is your turn. We have a great team 
of leaders in support of Association Health Plans and hopefully 
we can talk about some of the issues that have been raised here 
today. They are both extremely knowledgeable and have been 
champions and advocates, and so Secretary Chao, let us begin. 
Thank you for being here. Thank you for your patience. Thank 
you both.

         STATEMENT OF HON. ELAINE L. CHAO, SECRETARY, 
                    U.S. DEPARTMENT OF LABOR

    Secretary Chao. Thank you, Madam Chair, and also Senator 
Kerry, for the opportunity to be here to discuss Association 
Health Plans. It has been very, very helpful for me and my 
staff to listen to the opening statements.
    Association Health Plans are indeed a key component of the 
President's plan to make quality affordable health care 
benefits available to all Americans and I really want to 
commend your leadership on the health care needs of small 
business workers and their families. President Bush strongly 
supports S. 406, the Small Business Health Fairness Act, and I 
look forward to continuing to work with this Committee as the 
Senate considers this much-needed legislation.
    Madam Chair, I do have a much longer statement which I will 
submit for the record, and if I could, I will just summarize 
the key points.
    Today, as we have heard, there are about 45 million 
Americans who lack health care insurance. Clearly, all of us 
care about how to solve the plight of these Americans. Sixty 
percent of the workers are employed by small businesses and 
their families, and small businesses, as we have heard, are 
only half as likely to offer health benefits as large 
businesses, due in part to the high cost that they face. A 
small business pays about 20 to 30 percent higher premiums than 
large organizations or labor unions.
    The Small Business Health Fairness Act, S. 406, addresses 
this problem by providing a level playing field for small 
businesses by allowing them to join together through their 
trade or professional associations. Small business owners and 
their employees will be able to access the same economies of 
scale, negotiating clout, administrative efficiencies, and 
uniform regulations enjoyed by big businesses and labor unions. 
AHPs will provide small businesses with new health care 
coverage options and foster competition in the small group 
insurance marketplace.
    This bill will also reduce the vulnerability of small 
businesses to health insurance scams by providing secure, 
affordable, quality health benefits. Before an AHP can offer 
health benefits to a single worker, the Department of Labor 
will have to certify that this organization meets the tough 
standards in this legislation.
    Small business employers obtaining insurance through AHPs 
will also enjoy significant premium reductions. According to 
CBO, the average savings will be about 13 to 25 percent. Even 
more significantly, CBO estimates that about two million 
additional Americans who are currently uninsured will be able 
to get coverage through AHPs.
    The Department of Labor's role is one that we are very 
serious about. The Department of Labor has extensive experience 
in regulating group health insurance and also in combatting 
insurance fraud. The Department of Labor currently administers 
ERISA. This Act covers approximately 2.5 million private 
employer-based, job-based health plans covering 135 million 
workers, retirees, and their families. Of these, about 300,000 
plans are self-insured plans, which means that they are 
exclusively regulated by the Department of Labor. These plans 
that the Department of Labor exclusively cover regulates about 
78 million people.
    ERISA has both civil and criminal enforcement authority to 
protect the benefits of workers in these plans, and in 2004, 
the Department reported about $3.1 billion in monetary 
recoveries from our enforcement efforts on behalf of employee 
benefit health plans. We have also had 121 criminal 
indictments. So our enforcement effort is strong and robust.
    In addition, we have a nationwide network of benefits 
advisors who answered roughly 160,000 inquiries from workers 
last year, nearly 60 percent of which concern health plans.
    Because of our responsibilities under the current law, the 
Department already performs many of the functions necessary to 
administer Association Health Plans and I am confident that we 
can and will protect the workers who are participating in 
Association Health Plans just as we currently protect the 
millions of workers in other kinds of group health plans in 
large business and organized labor plans. The Department will 
allocate the resources necessary to carry out the certification 
and oversight responsibilities of Association Health Plans, and 
we will do so with effective, efficient, and timely regulation 
and enforcement.
    So in conclusion, AHPs will reduce the health coverage 
barriers facing many small businesses. This bill will give them 
the tools to pool risk, enjoy administrative savings on behalf 
of their workers, and participation in nationwide health plans, 
and I ask that the Senate take a serious look at the 
Association Health Plan legislation and give this much, much 
needed relief to small businesses. Thank you.
    [The prepared statement of Secretary Chao follows:]

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    Chair Snowe. Thank you, Secretary Chao.
    Administrator Barreto.

             STATEMENT OF HON. HECTOR V. BARRETO, 
       ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Barreto. Good morning, Chair Snowe, Ranking Member 
Kerry, and distinguished Members of the Committee. Thank you 
for inviting me here to discuss with you a solution to the 
current health care crisis facing America's small businesses.
    I also want to thank you, Senator Snowe, for championing 
AHP legislation in the Senate. I echo Secretary Chao in 
supporting S. 406, the Small Business Health Fairness Act, and 
I look forward to continuing to work with you as the Senate 
considers this much needed legislation.
    The biggest concern for small business owners is their 
inability to access quality, affordable health care. As 
Administrator of the SBA, I see this every day as I travel 
throughout the country. Regardless of the discussion topic, 
small business owners inevitably focus the conversation on 
health care. They ask me what we in Washington can do to make 
health care more affordable for them, and I hear from them time 
and time again that their inability to access affordable 
quality health care is their biggest concern.
    Although businesses large and small have experienced rises 
in health insurance premiums disproportionate to inflation, the 
smallest businesses have been particularly hard hit. In 2004, 
premiums for companies with 3 to 24 employees grew 13.6 
percent. I think this was also illustrated in the chart that 
Senator Snowe shared with us at the beginning of her 
presentation.
    The administrative cost involved with insuring employees of 
small businesses pose a major stumbling block. In 2003, SBA's 
Office of Advocacy examined 19 health care plans in two States. 
It determined that administrative expenses for insurers of 
small group health plans range from 33 to 37 percent of their 
claims, versus 5 to 11 percent for larger self-insured plans. 
That is a difference of 22 to 33 percent between large 
businesses and small businesses, and that was one of the 
problems that has already been discussed and talked about.
    Many small business owners have been forced to stop 
offering insurance coverage altogether. According to the 2004 
Kaiser Family Survey, and I believe Senator Snowe talked about 
this, as well, the smallest firms are the least likely to offer 
health insurance. Only 52 percent of firms between 3 and 9 
workers offer coverage, compared to 74 percent of firms with 10 
to 24 workers, and 87 percent of the firms with 25 to 49 
workers.
    When small companies do offer health benefits, the prospect 
of picking between plans is a pipe dream and employees only 
hope they can afford the higher premiums they face simply for 
working at a small business. All in all, it is a terrible way 
to treat people who are keeping our economy afloat.
    Given the staggering costs facing small businesses, their 
employees are far less likely to have health coverage. The 
Department of Labor estimates show that people and families 
headed by self-employed and small firm workers make up 50 
percent of all uninsured Americans.
    The President wants all Americans to have access to high-
quality affordable health care. This is why the President 
supports lowering the barriers on Association Health Plans. 
Flourishing AHPs will expand access to health benefits to 
millions of uninsured Americans. Since small employers are 
forced to seek health insurance for their workers as separate 
entities, it is more expensive and often impossible for these 
firms to purchase insurance coverage. AHPs would allow small 
businesses to pool their resources together across State lines, 
affording them the benefits of uniform Federal regulation, 
greater economies of scale, and flexibility to design coverage 
options that large firms and labor unions currently enjoy.
    Today, small businesses that choose to pool their resources 
under current law must instead cope with the requirements of 50 
different State insurance regulators and State mandates 
rendering AHPs in their current State cost prohibitive. 
Legislation to enhance AHPs would have allowed small businesses 
participating in AHPs to save an average of somewhere between 9 
to 25 percent of the cost of their health insurance premiums. 
This is according to a study by the Congressional Budget 
Office. Three-hundred-and-thirty-thousand people without health 
insurance would have been covered had Congress passed that 
legislation.
    Lowering the cost of health insurance will also provide 
small businesses with better opportunities to recruit and 
retain the employees they need to grow and prosper. The 
availability and quality of health care benefits is often a 
deal breaker for Americans seeking employment. Strengthening 
AHPs will even the playing field for small businesses by 
allowing them to offer health benefit plans similar to those 
that are offered by their larger competitors.
    I again want to thank Secretary Chao for the leadership 
that she and the Department of Labor have shown on AHPs. Her 
commitment to helping small business owners overcome their 
biggest hurdle has been admirable. I hope that Secretary Chao 
and I, on behalf of President Bush, can work closely with you 
and all the Senators this year so that small businesses and the 
57 million Americans who work for them can receive access to 
better, more affordable health care through the strengthening 
of AHPs.
    Until we come up with an affordable solution that crosses 
State lines, I don't think that we can solve this problem for 
small businesses, but we need to act now. Continuing to do 
nothing to address this crisis is unacceptable for millions of 
small business owners struggling to make ends meet in the face 
of ever-increasing costs.
    Thank you, Chair Snowe, for the opportunity to speak to you 
today and the Committee about this very important topic. I now 
look forward to answering your questions.
    [The prepared statement of Mr. Barreto follows:]

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    Chair Snowe. Thank you, Administrator Barreto.
    Before I begin, Senator Lincoln, welcome. You are not a 
Member of the Committee, but we welcome you and your 
contribution. Thank you for being here. Do you want to make a 
statement? You are welcome to if you--go right ahead.

          STATEMENT OF THE HONORABLE BLANCHE LINCOLN, 
       A UNITED STATES SENATOR FROM THE STATE OF ARKANSAS

    Senator Lincoln. I want to thank you, Madam Chair, for the 
opportunity to be here and your graciousness in allowing me to 
come and be a part of your conversation.
    I have a special interest in this issue, as do you. I know 
how hard you worked for the solutions that we need to find 
here, and with the small business health care crisis that 
exists in our State and in your State, which have very similar 
demographics, it is undoubtedly our number one issue in 
Arkansas when I am traveling through the State and hearing from 
people.
    I am very pleased with your intent on looking at what the 
solutions can be for this problem. I am looking forward to 
working with you, and I will reserve my time to be able to ask 
a few questions. Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Lincoln. Thank you for 
being here.
    Let us begin, because obviously, we hear a number of 
concerns, the ones that have been repeated over time. I would 
like to systematically address them.
    I will begin with you, Secretary Chao, because we have 
heard, well, it is going to eliminate consumer protections 
under this legislation and this approach because the Department 
of Labor will not be able to provide the oversight for these 
Association Health Plans. It won't have the repeated 
circumstances of the MEWAs, the multiple-employer arrangements 
that subjected a lot of small businesses to fraud.
    We have established entirely different conditions in this 
legislation. It is a bona fide organization. They cannot 
discriminate against any of their members. They have to offer 
it to all of their members. They have to have been in existence 
for 3 years for other purposes other than health insurance. We 
provide reserves, solvency requirements, stop loss, 
notification, resources. In fact, CBO underscores what needs to 
be done in making sure the Department of Labor has at least 150 
people to oversee this, and I would like your comments on it.
    But I would like to hear from you this morning, Secretary 
Chao, what has been your experience as Secretary of Labor with 
respect to providing oversight in this instance compared to the 
instances for corporations and unions, because obviously we 
don't hear the similar complaints. I don't hear any 
frustrations, concerns about the fact that corporations or 
unions are offering less generous plans, that they are cherry-
picking, they are subjecting their members, employees, to 
discriminatory behavior. So we don't hear the same complaints 
and concerns about these plans that insure 78 million 
Americans, and yet what we are now hearing is that all of these 
complaints are going to be waged against small businesses if we 
allow them to engage in Association Health Plans on a national 
basis.
    So would you begin, Secretary Chao, and tell us, first of 
all, why don't we hear similar complaints about corporations 
and unions? Why doesn't it occur under those circumstances? And 
if it doesn't, then why are there concerns expressed about 
Association Health Plans for small businesses and why is there 
this disparate approach to these entities?
    Secretary Chao. Well, you are absolutely right. The 
Department of Labor currently oversees about 2.5 million 
private job-based health care plans, and again, that covers 135 
million people. About 300,000 plans are regulated exclusively 
by the Department of Labor, and most of that is with large 
businesses that are self-insured, and a lot of labor union 
organizations, that are again self-insured. We also have a 
nationwide network of benefits advisors. We field about 160,000 
inquiries a year. Over 60 percent of those are health care 
inquiries.
    So we feel very confident in our ability to regulate under 
the new AHP bill, should it be passed, the responsibilities and 
the authorities it would give to us.
    On the issue of State protections, as you well know, in S. 
406, there will be consumer protection provisions that will 
still be regulated by individual States. Those will still 
remain.
    And in terms of concerns about health fraud, your bill 
would strengthen protections against unscrupulous health plan 
organizations, because the Department of Labor will be 
responsible for regulating whether an AHP can come into 
existence or not, and the bill has very strong consumer 
protection provisions at both the State and Federal level, as 
well as solvency requirements at the State and Federal level.
    Chair Snowe. Administrator Barreto, would you answer this 
question, as well, because it is mystifying to me. We have an 
explicit prohibition in this legislation against cherry-
picking. We have language in here that does not condition 
membership, such as dues, payments, coverage, on the basis of 
health status-related factors with respect to the employees of 
its members or affiliated members or dependents. It does not 
condition such dues or payments on the basis of group health 
plan participation. It would be subject to the HIPAA 
requirements, some preexisting status. And the fact is, it is 
probably far superior in a lot of respects.
    So can you address the issue of cherry-picking, because 
again, we are talking about a dual standard here. One, 
corporations and unions. We don't hear those complaints. No one 
is saying, let us put them back in the State pool. We are not 
hearing that. We are seeing, keep small businesses in the State 
pool and we will leave them victims to the problems dealing 
with health insurance today, which essentially is leaving small 
businesses and their employees and their families uninsured or 
paying escalating prices beyond comprehension. Frankly, from 
all my small business owners in Maine, it is devastating. Maybe 
they get catastrophic coverage.
    Can you address this issue, because somehow, we have to get 
to the core of it. Obviously, none of us want to support 
adverse selection and cherry-picking, so if it is not happening 
with corporations and unions, why would it happen under this 
circumstance? Is there something we are missing here? I mean, I 
just really want to know because I can't--we have been 
discussing this for several years now and I have yet to 
understand how it would come about in this instance but it 
hasn't come about with corporations and unions.
    Mr. Barreto. It is a great point. If what we mean by 
cherry-picking is that we are going to pick winners and losers, 
we are going to choose which small businesses get health care 
and what small businesses don't get health care, I think 
Senator Talent brought up a great point and I think what he is 
saying is that is happening right now.
    You know, there was a time--I remember when I was in 
California leading a business association, there were 20 major 
insurance companies offering health care coverage to small 
businesses, and there were a lot of smaller players that were 
actually from outside of California that were offering it, as 
well. Today, small businesses are lucky if they have four or 
five choices. Oftentimes, those insurance plans are almost 
exactly alike. There is not a lot of difference between these 
insurance plans. Oftentimes, the premiums are exactly alike.
    Sometimes, insurance companies decide to quote on a piece 
of business, on a small business. Some years, they don't 
decide, and they don't tell you why. Some years, they raise 
your insurance premiums whether you use the insurance coverage 
or not. That is why small businesses are screaming. They are 
saying, this problem gets worse every single year. It doesn't 
matter if I use it or not. I know I am going to get a double-
digit increase.
    Also, the things that small businesses can't control, they 
can't control what is inside their insurance plan because of 
the State mandates. They can't control the administrative cost 
of those plans, which keep going up higher and higher. They 
can't control the cost of small prescription drug benefits. 
They can't control the cost that doctors have to pay for 
malpractice insurance, which drives their insurance premiums up 
and sometimes drives them out of the market, as well.
    So the things that are keeping small businesses from 
participating. The cherry-picking that is happening and the 
reason there are 45 million uninsured Americans, the reason the 
60 percent of people that don't have health insurance work for 
a small business. I mean is occurring right now, and I think 
what Senator Talent was alluding to and you have alluded to, as 
well, is that what we need to do is provide small businesses 
with more access, more choice, more control, and that is what 
we believe Association Health Plans will do.
    Chair Snowe. But I am trying to understand the difference 
between why it works well for corporations and unions, and we 
don't hear similar concerns or complaints or saying let us go 
back to the old way, and the Department of Labor is doing a 
very effective, efficient job, has historically, and Secretary 
Chao has spoken to it, about providing the aggressive oversight 
that is necessary, so we don't hear those complaints.
    I don't understand why it would be different for small 
businesses, and I think that that is really the challenge here, 
is to overcome that, because clearly, it seems to me, we ought 
to be able to draft legislation in a way that addresses these 
concerns and satisfy the issues that have been raised. They are 
legitimate concerns. We think we have addressed them. I keep 
adding more criteria and standards and insurances to guard 
against any ability for these associations to be other than 
bona fide organizations for the purposes in which they are 
intended and to offer this benefit to their members.
    Mr. Barreto. You are hitting a very important point, 
Senator Snowe. You know, when a large corporation has 100,000 
employees, or when the Federal Government has a million 
employees, or when a union has tens of thousands of members, 
they have got power. They have got clout. And if they don't 
like what is happening in their insurance plan, they can move 
it, and there is a lot more choice for them. They have a lot 
more control.
    And some of these companies or organizations get so big 
that they decide to self-insure themselves and the insurance 
company is really just administering the claims. So there are 
options for them.
    Small businesses don't have those options. Small businesses 
have take it or leave it. Here is the shelf plan. Here is what 
it costs if we offer it to you this year, and if not, you are 
out of luck, and that is the big problem and that is what we 
believe Association Health Plans can go a long way to solving.
    Chair Snowe. Senator Kerry.
    Senator Kerry. I hate to say it, but I think there is a lot 
of wishful thinking and we need to explore this. I have said to 
the Chair, I really want to work with her closely and see if we 
can patch some of these holes, but I think we have got to be 
honest about some of the holes and not just gloss over them.
    To that end, let me ask you, Secretary Chao, States 
currently have protection mechanisms in place that limit how 
much and how often premiums can increase. There is a right to 
an external review of denied medical claims and direct access 
to emergency care or specialty care or consumer marketing 
protections. All of these rights currently exist.
    The public needs to know that these rights only exist at 
the State level. There are no Federal premium protections, no 
Federal patient protections. And as you read S. 406 and H.R. 
525, these comprehensive protections will be eliminated.
    Now, let me just focus on one of these rights of the many, 
protections for patients when an insurance company denies their 
medical claim. Right now, 44 States require insurers to provide 
an external review for enrollees. A centerpiece of the AHP is 
to exempt insurance plans from State protections. So if AHPs 
were enacted, would patients have the right to an external 
review, external review when an insurer denies a medical claim? 
Can you show me how that right is guaranteed and enforced?
    Secretary Chao. Well, first of all, Senator, you are only 
talking about the fully-insured, which is only half of the----
    Senator Kerry. Well, I am talking about people.
    Secretary Chao. No, if I----
    Senator Kerry. It doesn't matter whether it is half or----
    Secretary Chao. It makes a difference, because if it is a 
fully-insured AHP, it is largely regulated by the State. If it 
is a self-funded plan, which many large companies, and many 
large labor unions have, it is regulated by the Department of 
Labor.
    Senator Kerry. I understand that.
    Secretary Chao. So there are two different plans here and 
the AHP proposal does not take away the external review State 
consumer protections at all.
    Senator Kerry. Every interpretation of it says it does.
    Secretary Chao. Self-funded plans already----
    Senator Kerry. So you would be willing to write into it--we 
can patch that hole, in other words. You are willing to 
guarantee that those rights of external review will be 
afforded, is that what I hear?
    Secretary Chao. We are willing to address what concerns you 
have, but there is a big difference between--right now, there 
is a whole group of organizations, companies, labor union plans 
which are not regulated by the States already----
    Senator Kerry. I completely understand that. I understand 
that.
    Secretary Chao. So let us keep that in mind----
    Senator Kerry. We will get to some of that----
    Secretary Chao [continuing]. ----because there is an 
inequity here, an unfairness that the AHP proposal is trying to 
address.
    Senator Kerry. Well, it doesn't create a fairness if it 
takes away rights that people currently have and need. Now, let 
me speak to that for a minute. There is a letter from Professor 
Mila Kofman at Georgetown University at the Health Policy 
Institute. I would like to ask that it be put into the record.
    Chair Snowe. Without objection, so ordered.
    [The information of Senator Kerry follows:]

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    Senator Kerry. Let me just read from one component of it. 
There are a lot of issues raised in it. But she writes to the 
Committee--she incidentally addresses it to you, also, Madam 
Chair. She says, ``In addition to an adverse impact on private 
health insurance under the Federal legislation, many consumers 
would face greater financial exposure when an AHP becomes 
insolvent. Since 2000, association insolvencies have left more 
than 66,000 workers and their families and thousands of 
participating employers responsible for $48 million in medical 
bills that should have been covered by the AHPs. The Federal 
proposal would make things worse by replacing State solvency 
standards with less-stringent Federal standards and regulation. 
AHPs have a long history of financial instability. The U.S. 
Department of Labor, which would regulate AHPs, has no 
experience in regulating the solvency of health plans. 
Inadequate standards and an inexperienced regulator would mean 
that participating small businesses may be stuck with unpaid 
medical bills when an AHP becomes bankrupt.'' Could you address 
that?
    Secretary Chao. I certainly can. There is an assumption 
that somehow a self-funded plan offers less generous benefits, 
but in reality, the record shows that self-funded plans, which 
are not regulated by the States, in fact, offer as good or 
better health plans, in part because their cost is so much 
lower. So with lower costs, they are able to offer more 
benefits.
    Senator Kerry. But that is not my question. That is not 
even what we are talking about.
    Secretary Chao. Yes, we are. We are, because we are talking 
about solvency and we are talking about plans and our ability 
to administer these. The solvency requirements put into AHPs 
will, in fact, strengthen the ability of the department to 
protect these plans, because right now, there are no Federal 
regulations on certification or solvency, and with AHPs, there 
will be. So that will be an added----
    Senator Kerry. You are saying to this Committee that in 
this legislation as written, the Federal solvency standards 
are, in fact, stronger than State standards? That is your 
testimony?
    Secretary Chao. There will be----
    Senator Kerry. No, my question is, are you saying that they 
are stronger now, because that is not the reading of----
    Secretary Chao. It varies from State to State, obviously--
--
    Senator Kerry. Correct, and there is no Federal----
    Secretary Chao [continuing]. And overall, the new 
protections put into the AHPs will require the Department of 
Labor to certify the solvencies of new self-funded AHPs that 
are being set up.
    Senator Kerry. According to what standards?
    Secretary Chao. The AHP legislation sets up a revenue pool 
that will provide a reservoir of indemnification insurance to 
AHPs. AHPs will not be offered except----
    Senator Kerry. Don't you think, Madam Secretary, that it is 
important for us to guarantee that there are strong solvency 
standards, Federal standards, with respect to who may be left 
holding the bag?
    Secretary Chao. Oh, absolutely, and I think the Federal----
    Senator Kerry. And if they are not there and it is not 
adequate, that is another hole we ought to plug, is that 
correct?
    Secretary Chao. I think the Federal provisions for solvency 
under the AHP legislation will be quite strong.
    Senator Kerry. Well, quite strong may not be as strong as 
current State standards.
    Let me go to the second paragraph of what she said, another 
paragraph.
    Secretary Chao. May I just address that, please?
    Senator Kerry. Sure.
    Secretary Chao. A fully-insured AHP will be subject to the 
solvency requirements of State law. There is no change from 
that, from current law. A self-funded AHP is both accountable 
under ERISA and subject to these new solvency rules. Self-
insured plans must make, under the legislation, detailed 
solvency requirements, including actuarially determined 
reserves sufficient to meet claims, additional cash reserves of 
up to $2 million, specific and aggregate stop loss insurance to 
protect against unexpectedly high claims, indemnification 
insurance to insure that a terminating plan pays all of its 
remaining claims, payment of an annual fee to a fund controlled 
by the Department of Labor to pay indemnity insurance premiums, 
and the regulations will allow the Secretary to increase these 
requirements, as necessary.
    Senator Kerry. So you are in agreement with me that if 
there is any discrepancy here with respect to State standards 
versus Federal, we ought to guarantee that we have the strong 
solvency standards that are in here?
    Secretary Chao. That is the goal, yes, but you also have to 
have balance. The overall goal is to be able to provide more 
insurance on a nationwide basis, and if you are just going to 
graft whatever is the State requirement onto the national 
Federal regulations, that really wouldn't work, either.
    Senator Kerry. She goes on to say, ``Finally, the AHP bill 
would increase opportunities for health insurance scams, which 
have been on the rise since 2000. Health insurance scams 
promoted through associations have left over 200,000 policy 
holders with over $252 million in unpaid medical bills between 
2000 and 2002. The bill would put the U.S. Department of Labor 
in charge of an area that is currently regulated by both the 
Federal Government and States, and by putting DOL in charge, it 
would prohibit States from helping consumers.'' Can you address 
that?
    Secretary Chao. Yes, I can. First of all, we are very 
concerned, as everyone here is, about these scams. And, in 
fact, the best way to fight these scams is to certify that 
these organizations are able to offer health insurance. That is 
an added new protection which is now in the Association Health 
Plans legislation.
    In terms of the question as to Federal regulations, I 
wonder who the writer thinks is regulating these health plans 
now? It is the Department of Labor. So it is an incremental 
change for us in terms of additional regulations. We already 
regulate over 300--actually, over 2.5 million health care 
plans, 300,000 of which are solely within the Department of 
Labor's jurisdiction. And we have an effective team of 
investigators and benefit advisors. So I think that this is, 
again, an incremental increase as most of the regulatory 
authorities we already have and we already exercise.
    Senator Kerry. I have a lot of questions. I know others 
have questions, too. I want to perhaps come back to them, but 
can I just ask you, at a hearing before the Health and Labor 
Committee in 1997, the then-Assistant Secretary of Labor in the 
Clinton Administration said that DOL did not have the resources 
to regulate AHPs. She said then, and I quote her, ``Based on 
our investigative experience, we could review each pension plan 
once in 170 years, and if you include health plans, once in 300 
years. An infrastructure adequate to handle the new 
responsibilities replicating the functions of 50 State 
insurance commissioners simply doesn't exist.''
    What has changed, and there is nothing in the budget that I 
have seen that shows an increase sufficient to be able to meet 
what a lot of people fear is just an already overburdened 
Department?
    Secretary Chao. Well, I can't speak for the witness who 
spoke at that time, but our responsibilities have not changed, 
and our staff has significantly increased.
    Senator Kerry. Well, the GAO, the CBO have all said that 
there is not an adequate capacity. I mean, this is not new. In 
fact, in 2002, the GAO report said that it would take DOL's 
current investigative staff 90 years to do a baseline 
assessment of non-compliance for pension plans alone. That is 
2002. That is the GAO report. What has changed? I mean, this is 
a continuum----
    Secretary Chao. I think citing those numbers is very 
misleading. The real issue is, are we able to do the job, and 
the answer is, I feel very confident that we can do the job.
    The CBO report said that DOL needed approximately an 
additional $55 million and 150 employees over the next 5 years 
to regulate AHPs. That is a very doable number. We have a 
budget of $60 billion, with $11.5 billion discretionary. Most 
recently, we implemented the Energy Workers' Compensation 
System under which we hired 300 people within about a 6-month 
period, as required by the statute. We have also given $60 
million in additional resources.
    Now, it is very difficult to predict exactly how much money 
or how much staff is necessary, but Association Health Plans 
are a Presidential priority and we will certainly make sure 
that the resources are there to carry out any of the 
incremental authorities that may be required.
    Senator Kerry. Well, Madam Secretary, I respect what you 
are saying, but I have to tell you, my experience in 22 years 
here has shown no matter what the Administration is, that when 
you Federalize these responsibilities, you are often way behind 
in terms of the staffing and adequacy of the capacity for 
oversight. And there is a reason the Attorneys General across 
the country and insurance commissioners and others are deeply 
concerned about the enforcement mechanism here, and I don't 
think we should kid anybody here that the resources are 
suddenly going to come pouring in. I would like to believe it, 
but it is just very difficult to assume when we see the 
difficulties already in exposing scams and in doing a lot of 
the oversight that ought to be done, but I will come back. I 
will let other colleagues----
    Chair Snowe. Thank you, Senator Kerry.
    Just a point on that, because the CBO did estimate last 
month in its analysis that it would require 150 workers 
regarding the implementation of these provisions, and 
obviously, the various estimates through 2010 and the costs.
    On the issue of fully-insured versus self-insured, I think 
it is an important clarification. We certainly could look at 
the solvency questions again in this legislation to address 
some of the issues you are raising, Senator Kerry. But it is my 
understanding on the fully-insured that it will continue to be 
subject to State solvency requirements and the State laws, and 
in fact, you will have the certification ability to determine 
whether or not the AHPs are meeting those standards within each 
State.
    With respect to the self-insured AHPs, again, ERISA has no 
solvency standards for these entities, but we have set forth 
solvency requirement standards in this legislation, in many 
cases will be much stronger than what exists for the self-
insured for corporations and unions, and so----
    Senator Kerry. Well, I respect that, but here is the 
problem. Look, I am not an expert, but I have to listen to 
experts. We all do. And the National Association of Insurance 
Commissioners has characterized the solvency standards in the 
bills as, quote, ``woefully inadequate.'' They stated that the 
bill's $2 million cap on reserves would, quote, ``result in 
disaster for consumers.'' Now, that is the warning to us. The 
American Academy of Actuaries concluded that the standards 
included in the bill would, quote, ``contribute to AHP 
insolvencies, resulting in consumers and providers being 
responsible for unpaid claims.'' So I am just listening to the 
experts tell us--woefully inadequate, not able to do it, and we 
will hear from other people over the course of time.
    But let me ask you, what steps could we take to guarantee 
and really assure that workers are not going to be left with 
unpaid claims? It seems to me we ought to be able to plug that 
hole, also, with language.
    Chair Snowe. And the reason for the cap, and I would be 
interested in hearing your point of view on this, but on the 
cap and what they are in the $2 million, we saw that the 
members were not unnecessarily paying higher-price premiums, 
that they are keeping larger and larger reserves for other 
purposes or just, you know, so that the premiums become 
punishing for no good reason. That was the reason. But, you 
know----
    Secretary Chao. But that is our responsibility.
    Chair Snowe. That is right.
    Secretary Chao. That is the responsibility of the 
Department of Labor, to protect workers and their health plans, 
and if there are unpaid claims, that is our responsibility to 
pursue them----
    Senator Kerry. What does that mean, you are going to pursue 
them?
    Secretary Chao [continuing]. To pursue them and to get it 
back. And last year, we recovered $3.1 billion in employee 
benefit plan claims for consumers.
    Senator Kerry. We can get into the scam part of it. I 
wanted to cede to another Senator, and I will do it----
    Secretary Chao. And the scam part----
    Senator Kerry [continuing]. But the scam record is not 
great. There are a lot of people left holding the bag, and we 
will go into that a little later.
    Secretary Chao. That is why additional regulations are 
required and that is where the Association Health Plan 
legislation with its certification provisions, will help to 
ensure that credible organizations are indeed offering these 
kinds of benefits.
    Chair Snowe. In fact, we strengthen them in this 
legislation----
    Secretary Chao. Yes.
    Chair Snowe [continuing]. With respect to these issues, but 
I would be glad to hear more.
    Senator Kerry. Maybe we can strengthen them even more.
    Chair Snowe. Absolutely.
    Senator Burns.
    Senator Burns. I am sitting here listening to this whole 
thing and you asked about all the questions that I wanted to 
ask this morning with regard to this. I hope we are recording 
this over here, this little debate going on.
    I would ask one question, I guess, and maybe it is for the 
next panel. You almost, if you are the regulator, you have 
almost got to have the capability of being the underwriter, it 
seems to me. Do you have that capability in the Department of 
Labor?
    Secretary Chao. To the extent that underwriting includes 
actuarial determinations, that is a part, as I mentioned, that 
we will have to----
    Senator Burns. Yes. In other words, you have got to make 
the decision that this is sound and it is safe, and how closely 
will you look at the required coverages and demands that are 
set in each State?
    Secretary Chao. Well, we will look at the solvency to 
ensure that these are financially sturdy organizations that are 
ready to provide this kind of benefit, and there will be, 
again, a setting up of insurance, of a reservoir, a pool of 
assets that will act as a backstop to shore up Association 
Health Plans for any unforseen circumstances. So this is an 
added layer of protection. But again, fully-insured plans will 
still have State-by-State solvency rules, so that will remain.
    Senator Burns. OK. That is all the questions I had. I just 
wanted to kind of go one step beyond yours, so thank you.
    Chair Snowe. Thank you very much, Senator Burns.
    Senator Lincoln.
    Senator Lincoln. Again, I would like to compliment Senator 
Snowe. She is a real problem solver and I always liked working 
with her, so I am looking forward to coming together to solve 
this problem on behalf of the uninsured, and particularly our 
small businesses.
    Our States are very, very similar, and truly, our small 
businesses, particularly in my State, are our largest 
employers. Unfortunately, because they are less likely to be 
able to afford health insurance, they are also the bigger 
component of the problem of the uninsured. These people are 
working hard and we want to be able to try to provide them as 
much as we possibly can in the way of health insurance, not 
only for the benefit of them and their families, but also for 
the fact that it helps us better manage the cost of health care 
overall. So again, Senator Snowe, I am pleased by your hard 
work on this issue and look forward to working with you.
    I guess my frustration has been that it seems like we 
always try to reinvent the wheel, and to me, there is no real 
need to reinvent the wheel. As I found myself traveling across 
my State and listening to people talk about my insurance plan, 
and I realized that the Federal Employees' Health Benefits Plan 
has been doing a pretty decent job for the last 40 years in 
allowing us to pool all the Federal employees, those that are 
the young, fearless single staffers that we all have who know 
no danger, to the families like myself, as well as the Park 
Ranger in the remotest parts of Montana, to be able to pool all 
of those different individuals and to increase their choice and 
hopefully, as we have been over the years, decrease the cost.
    So looking at that and trying to work from something that 
exists, I have been trying to come up with one of these 
solutions, as well.
    The FEHBP, which I have just described, our program, in my 
opinion, does not promote Government-run health care, but 
harnesses the power of market competition to bring down health 
costs and uses a proven Government negotiator.
    So I think as we look at all of the different options that 
are out there for small businesses, I hope we will bring the 
best of all these worlds together.
    Madam Secretary, we are pleased you are here, and certainly 
your wealth of knowledge and what you already do in helping to 
regulate and maintain insured individuals is critically 
important. When you talk about the solvency, that is a critical 
part of what we have to do, and I guess some of the concerns 
stem from the stipulations or the parameters that would 
probably need to be around this reservoir of resources that you 
mention, and I guess also the idea that the solvency--well, I 
guess the basis is whether or not under the AHPs that they have 
to be licensed in the States where they operate, and I don't 
believe the AHP requires that.
    Secretary Chao. The proposal is----
    Senator Lincoln. Both the national and the State plans.
    Secretary Chao. The proposal for the AHPs is to certify 
them. The whole purpose is to enable organizations to come 
together to pool their resources across State lines.
    Senator Lincoln. Right.
    Secretary Chao. So there will be these increased solvency 
requirements----
    Senator Lincoln. But would the AHP----
    Secretary Chao [continuing]. At the Federal level which had 
not been there before.
    Senator Lincoln. Right. Would the AHP plans, would they 
have to offer to every member in every area of the country? 
Would that be required of them?
    Secretary Chao. They cannot discriminate against any member 
in a group.
    Senator Lincoln. So they would be mandated to offer their 
plan in every area of the country?
    Secretary Chao. There is a difference between--I think 
there is a basic difference as we talk. When we talk about 
AHPs, I think the intent is we are removing a barrier. We are 
creating a level playing field.
    Senator Lincoln. It is a simple question. Are they required 
to be licensed in the States that they operate, and are they 
going to be required to offer to every member in every area of 
the country?
    Secretary Chao. They cannot discriminate against any member 
who wants to access those plans.
    Senator Lincoln. So you are saying they have to offer their 
plan to every member----
    Secretary Chao. Well, not to somebody who doesn't want it.
    Senator Lincoln [continuing]. In every area of the country?
    Secretary Chao. If it is someone who wants it, yes.
    Senator Lincoln. Every area in the country.
    Secretary Chao. Perhaps someone doesn't want it. Then they 
don't have to have it.
    Senator Lincoln. But, I mean, it needs to be offered in all 
those areas.
    Secretary Chao. All the Federal health protections would 
apply.
    Senator Lincoln. And the licensure in each State, is that 
going to be--are they going to be required to be licensed in 
the States where they operate?
    Secretary Chao. I don't think so.
    Senator Lincoln. Or serve?
    Secretary Chao. Fully-insured AHPs have got to file in each 
State, because again, they are the ones that are regulated by 
the States.
    Senator Lincoln. The national plans don't.
    Secretary Chao. The self-insured currently are not 
registered in each State.
    Senator Lincoln. Well, that is one of the things--in the 
Federal plan, they do. Both the State and the national plans 
have to be licensed in the States that they offer, and I think 
some of that has to do with some of the consumer protections 
that we talked about.
    Secretary Chao. Yes. We talked about the State consumer 
protections, which will still remain with AHPs, as will the 
solvency requirements.
    Senator Lincoln. But if it is a national plan and they are 
not licensed in that State, they are not subjected to that, is 
that correct?
    Secretary Chao. The State consumer protections apply to 
fully-insured AHPs across wherever they operate, across all 
States. The State solvency requirements and consumer protection 
requirements remain. That is my understanding.
    Senator Kerry. By virtue of what----
    Senator Lincoln. Without licensure, I don't think that is 
the--but that is something we should----
    Senator Kerry. We will work it out.
    Secretary Chao. Well, maybe we should discuss it.
    Senator Lincoln. Absolutely. That is something we should 
talk about.
    Secretary Chao. My understanding is that all the State 
consumer protection and solvency requirements apply to fully-
insured AHPs.
    Senator Lincoln. In terms of the solvency issue, the 
Department of Labor ensures the solvency at the beginning of 
the AHP. What is the process with which you maintain the 
integrity of that solvency? I mean, are there audits? The 
current law is that you audit every 3 to 5 years their annual 
financial exams. There are quarterly financial exams that allow 
for the compliance of solvency. Is any of that----
    Secretary Chao. I would imagine there will be annual 
reviews as to the quality of the portfolio by the Department of 
Labor.
    Senator Lincoln. Is that written into the law?
    Secretary Chao. That, I am not sure of.
    Senator Lincoln. I think that would be something that would 
provide assurances of knowing how the upkeep of the solvency is 
going to be guaranteed for these plans and not just the initial 
solvency. Obviously, when you from the Department of Labor 
would initiate an AHP, you are going to ensure its solvency 
from the beginning. But we as we are quickly finding out from 
Social Security and everything else, unless that continued 
solvency is monitored.
    Secretary Chao. We regularly monitor and regulate health 
plans now, so we wouldn't just look at it in the beginning and 
then neglect it. It is an ongoing responsibility to monitor 
these, and also to pursue malfeasant actors in providing these 
plans.
    Senator Lincoln. Well, I am not saying you don't have the 
capability.
    Secretary Chao. Right.
    Senator Lincoln. I am just asking, is that required in the 
law for you to do that? I am not saying that you don't have the 
capability or that you don't do it in what you do now.
    Secretary Chao. What I am saying, whatever is within the 
Department's practice of monitoring these plans. But, of 
course, I will be more than glad to talk about that with you 
because we have a plan for monitoring that.
    Senator Lincoln. Well, I think what is important is that it 
is written into the law of how the AHPs are governed, is that 
you not only have the capability but you are given the 
requirement and the authority to do that. So I think that is 
what the concerns may be in terms of the solvency oversight, is 
to make sure that those things are written into the law and 
required not just of you, which you may already be capable of, 
and it sounds like you are from what you already do, but that 
it is required of the AHPs in their practice and it is required 
of you as a statutory requirement of how they are going to be 
monitored, which gives people greater assurance, I think.
    And I think one of the concerns particularly about the 
solvency and the regulatory aspect is that it doesn't require 
the Department to regulate that particular plan in that State. 
It can regulate it by any State standards, not just the State 
that it is practiced in. And I may be incorrect in interpreting 
it that way, but I think that would be something that would be 
very important to look into, that you don't just use one 
State's law to regulate all of the AHPs in other States but 
that they are using the current law of the current State that 
they are actually practicing in, which is important, I think, 
for the people in those States.
    I know I have used an awful lot of my time, Madam Chair. 
Just I guess one of the last things is to Mr. Barreto. I guess 
if you could help us understand, because truly, our small 
businesses are our number one employers and we want to give 
them every benefit possible to access the health care market. 
What would the legislation do in addressing the rising costs of 
health care other than pooling individuals? We know that that 
is going to be an important part, and CBO, I believe, has given 
us some studies on what the small group market does, but are 
there other things that we need to do? I am not so sure that 
that is enough.
    Mr. Barreto. Well, it is not enough.
    Senator Lincoln. I believe that tax credits are very 
important.
    Mr. Barreto. It is not enough, but that is not all that it 
does. Not only does it provide small businesses more choices, 
because they will be part of a bigger pool which will attract 
more insurance companies interested in providing them 
insurance, but when you are not subject to the State mandate, 
you also have much more leverage to negotiate the benefits that 
you want.
    You know, there are a lot of small businesses in your 
State. They have to buy the insurance plan that is mandated 
inside that State. In other words, if there was another plan in 
another State, let us say in an adjoining State, let us say 
Texas, if they wanted to buy the plan there, they couldn't. 
Maybe they like the Texas plan better because there are more 
benefits that they like in that plan. They wouldn't have that 
choice.
    Also, when you start getting these larger pools, you are 
able to do a lot about the administrative cost. That is a huge 
cost of health insurance premiums. We have already talked about 
how larger pools, Federal employees, unions, large 
corporations, their administrative costs are half of what they 
are for small businesses. So for a small business, it is really 
the best of all worlds. They are part of a bigger pool. They 
have more buying power. They are going to pay less 
administrative costs. They have more flexibility to get the 
benefits that they want, not the benefits that they are told 
that they have to buy. So for them, this is a huge win.
    Senator Lincoln. We provide all that through the Federal 
employees' plan, too, that template we are using.
    Mr. Barreto. Yes.
    Senator Lincoln. But I guess my question to you is, is that 
enough? I mean, do you not think that small businesses need an 
extra help in paying----
    Mr. Barreto. Well, if they could save 25 percent on their 
insurance premium, and that is what is estimated as the 
potential, they could save 25 percent off their bottom line.
    Senator Lincoln. Is that enough of an incentive to get them 
into the marketplace?
    Mr. Barreto. That is huge. That is big. There are a lot of 
small businesses that aren't hiring people right now because 
they say, look, I need more employees, but I can't afford the 
health insurance premium so I am not going to hire anybody. 
There are small businesses that go out of business because they 
have a huge claim that comes in to them and they don't have the 
money to pay the claim because they can't afford the insurance.
    Senator Lincoln. So you don't think there need to be any 
other sweeteners to help get our small businesses into the 
marketplace?
    Mr. Barreto. I think that this is a good first step. This 
doesn't solve the health care crisis. The health care crisis is 
very complex. There are a lot of things that drive up health 
care costs. But what this does, it provides them access that 
they don't have. It provides them purchasing power that they 
don't have.
    Senator Lincoln. Do the low-income workers, I mean, without 
any kind of an incentive for their employer, is it going to be 
financially feasible without tax incentives for our----
    Mr. Barreto. A lot of those small businesses say to us, 
look, we think that our employees are the most important thing 
that we have and we don't think that this is just an employee 
benefit per se. We think that these employees have a right to 
have these insurance benefits. But we can't afford it.
    Senator Lincoln. You think it is going to fly on its own 
without the extra incentives that we need?
    Mr. Barreto. I think that this goes a long way to getting a 
lot more people insured that don't have insurance right now.
    Senator Lincoln. Thank you, Madam Chair.
    Mr. Barreto. And we do need to work on those other things. 
I think that is important. I think tax credits and other 
incentives are great. But if we can tackle this, the big 
problem that they have is that they don't have access. The big 
problem that they have is they don't have choice, they don't 
have control, and they don't have what large corporations and 
unions have, and that is what we want to provide small 
businesses. Small businesses are the only group that don't have 
this. Everybody else has it. Government employees like me have 
it. You know, if you are a member of a union, if you work for a 
large corporation you do. But if you work for a small business, 
you don't have it, and not just in your State, in all 50 
States. That is why it is such a big problem.
    Senator Lincoln. I do think they need a little more 
incentive, but thanks, Madam Chair.
    Chair Snowe. Thank you, Senator Lincoln.
    You know, it is interesting, the CBO report. Looking at the 
CBO report from last month, it said that the effects of the 
bill on Medicaid would result in estimated savings to States of 
$18 million over the 2006 to 2010 period, and $60 million over 
the 2006 to 2015 period. It also would increase their net 
revenues, too, over the long term.
    I think the point of it is it could have an important 
impact on some of the programs in the State, especially on 
Medicaid, in reducing the number of uninsured. I mean, whether 
it is going to be 600,000 or eight million, depending on the 
various estimates, the point is it is reducing it and it is 
offering an option. I think that is what we have to look at in 
terms of this issue.
    Plus, it doesn't cost any significant amount of money to 
the Federal Government. I mean, that is the other thing. It is 
a nominal cost to the Government, and that is why it becomes a 
very attractive option, in addition to the other issues that 
have been raised, if we could address some of these issues and 
working with Senator Kerry and all of you, because I think it 
could go a long ways toward helping give the States an option 
they otherwise do not have.
    Senator Kerry, do you have any other questions before we 
move on to the second panel?
    Senator Kerry. I do, Madam Chair. I am sorry about that, 
but I do, a few.
    Chair Snowe. OK. We have got five others on the second 
panel. I know the Administrator has to leave in a few minutes.
    Senator Kerry. I know we do, but let me come back to what 
the Administrator was just talking about with Senator Lincoln, 
and I want to thank Senator Lincoln for her work on this. She 
has been doing a terrific job in thinking about it and coming 
up with some solutions.
    Mr. Barreto, what you have chosen to do--first of all, you 
just said this does not fix the health care crisis. I suppose 
an obvious question is, why aren't you proposing something that 
fixes the health care crisis?
    Mr. Barreto. Well, I think this is part of starting to fix 
the health care crisis, especially for small businesses. You 
know, small businesses, they don't complain about the health 
care system in America. They complain that they don't have 
access to it. They complain that they don't have choice and 
they complain that they can't afford it. So that goes a long 
way. But we are also doing other things, too. We are trying to 
do something about the frivolous lawsuits and the cost of 
prescription drugs and trying to provide more incentives to 
small business, as well, with Health Savings Accounts and other 
incentives that small business can take advantage of.
    Senator Kerry. Well, in my judgment, there is a more 
effective way to try to do it. Madam Chair, what we are really 
talking about here is the choice of incentive. Right now, small 
business can pool. When you say they can pool, they don't. They 
can't pool because in many cases, they don't want to be subject 
to the State regulations because it is costly. It is a cost 
issue and a regulatory issue, right? And they can't afford it.
    Mr. Barreto. Right.
    Senator Kerry. OK. Your choice is to let them out from 
under the State regulation, which a lot of people believe winds 
up creating--sure, they will get access to something, but what 
is that something? Is it adequate? Is it going to protect 
people? Is it going to provide them the coverage they have 
today?
    Let me give you an example. You exempt them from State law, 
and that means there is no requirement for mammography 
screenings. There is no requirement for prenatal or maternity 
care or well baby care, well child care, or diabetes supplies 
and education, or cancer screenings and mental health services 
because AHPs are exempted from all those requirements.
    Mr. Barreto. But they could buy it if they wanted it. If 
they want that, they can negotiate with an insurance carrier to 
have that.
    Senator Kerry. But the whole issue here is what is going to 
be available and what is the quality going to be? Can they buy 
into something? Yes, they may be able to buy into something. 
But why should they be granted an exemption from those services 
which States have decided are really critical to the quality of 
care that is being provided in that State?
    Mr. Barreto. Because not every small business wants to buy 
it. Not every small business feels that they need--I mean, some 
of these things are just like a long menu that keeps gets 
adding onto which keeps rising the cost of health insurance. 
Let us say that, for example, there are some benefits on there 
that really don't apply to the small business's workforce. In 
other words, they don't need it. Let us say there were a lot of 
benefits there that are very important to women, but you have a 
small business that just has men inside of it. Maybe they 
wouldn't need all those benefits, and vice versa. Maybe there 
are benefits that favor men in a business that is run by all 
women. I mean, there are a lot of different choices.
    Here is the thing, is this is voluntary. If a small 
business likes the plan that they have, they don't have to 
change. Nothing has to change for them. They can stay exactly 
where they are at right now. But what we are talking about is 
this huge pool, millions of small businesses that have no 
choice, and what we are saying to them is we would like to 
offer them another option.
    And as Senator Talent said, if they don't work, they won't 
buy these plans. They won't go into these plans. And so for us, 
we think that this is, again, a step in the right direction to 
solve what they believe is one of their most critical 
problems--lack of options, lack of competition, and price.
    Senator Kerry. Yes, but to some degree the question is 
whether or not you want to try to establish a standard, which 
is what we have been fighting about for years, as to what might 
or might not be available at what kind of price.
    I mean, under this approach, no one disputes that an AHP 
can't deny coverage to somebody. I don't dispute that.
    Mr. Barreto. Senator, when you say the AHP cannot deny 
coverage, that is right. If they are a member of that----
    Senator Kerry. I am not disputing that. They can't 
discriminate.
    Mr. Barreto. Right.
    Senator Kerry. That is not the question. At least as it is 
written, they can't.
    Mr. Barreto. Right.
    Senator Kerry. But here is the problem. The premium that 
can be charged has no limit whatsoever. There is no regulation 
whatsoever with respect to a premium that can be charged. And 
an AHP could structure itself--I mean, according to good 
business practice, you could say, well, we want to attract a 
certain kind of client, and they could structure themselves as 
an association and only let people in who meet their particular 
structural requirements. They could do that.
    Mr. Barreto. They probably wouldn't do that.
    Senator Kerry. Why not? Why not if a best business practice 
was to find those kind of people because that is the way you 
make the most money and have the least sickness?
    Mr. Barreto. First of all, most of the organizations that 
are going to offer this are going to be Chambers of Commerce 
and business associations, organizations that specialize in 
meeting the needs of small businesses, and there is no 
organization that I have ever met in my life that wants less 
members. They want more members. And so I don't see them 
excluding people. But let us just say that they did----
    Senator Kerry. They want the right kind of client that 
meets their business profile.
    Mr. Barreto. Most--if it is a trade association, obviously, 
it is going to be anybody inside of that trade. If it is a 
Chamber of Commerce, it can be almost any kind of a business. 
But here is the thing. Most small business owners, I mean, the 
ones that are successful and are networking, belong to two or 
three organizations. They don't belong to just one 
organization. So if the organization that they belong to is not 
providing what they want, they are either going to get it from 
one of the other organizations that they join, or also 
competition is going to spring forward. There is going to be an 
organization out there, a Chamber of Commerce that gets it, 
does it right, and everybody else is going to flock to them.
    That is the reason that every major business organization 
in the United States--you know, we talked about experts. The 
experts on small business are the Chambers of Commerce, the 
NFIB and the Retailers Association. All of them have endorsed 
AHPs, and they didn't do it spontaneously. They have been 
studying this issue for 10 years and they are desperately 
seeking this option. That is why there is so much passion 
around this issue. Every major business organization in the 
United States has endorsed AHPs, and they understand what is at 
stake here. They have looked at this issue and that is why they 
want it.
    Senator Kerry. Well, there are loads and loads of Chambers 
of Commerce who do not support it.
    Mr. Barreto. Some of them don't, and there are some 
Chambers of Commerce----
    Senator Kerry. A whole bunch of them don't.
    Mr. Barreto. There are some Chambers of Commerce----
    Senator Kerry. I have got a list of them right here, and 
there are a whole bunch of Farm Bureaus that don't like it and 
small business associations who don't like it----
    Mr. Barreto. I have met with some of them, and some of them 
already have a good health insurance benefit for their members 
and they don't want to change anything. They are happy with the 
status quo. And I say to them, you know what? If you are happy 
with your health insurance benefits, you should stay with them. 
But we have got to do something about 99 percent of the other 
small businesses that don't have it.
    Senator Kerry. Why do you think that so many consumer 
groups across the country are opposed to this? I mean, a great 
number of groups that represent the people who hopefully will 
get coverage or have coverage, are opposed to this?
    Mr. Barreto. I think once you educate and inform people, 
they are going to like the choice.
    Senator Kerry. Do you think they are all ill-informed? Is 
that it?
    Mr. Barreto. I am not saying they are all ill-informed, but 
some of them may not need this kind of health insurance 
benefit. But for millions of small businesses who have nothing 
else, have no other option.
    Senator Kerry. You don't think that they are concerned 
about the rights of people, about people being able to be 
protected against----
    Mr. Barreto. If they like their system that they have now, 
they can stay in it. Nobody is telling anybody that they have 
to change. What we are saying is that we want to give these 
small businesses who are screaming for relief another option, 
and they want this option. You know, we have already talked 
about it. We have made some significant progress. This has 
passed already several times on a bipartisan basis in the House 
of Representatives and this is the last place that we have to 
make progress. We have to make progress in the Senate and make 
sure that people are informed and educated about what the 
stakes are.
    Senator Kerry. Can I ask you what insurance you have?
    Mr. Barreto. I have Blue Cross-Blue Shield.
    Senator Kerry. Through the Federal Government?
    Mr. Barreto. Through the Federal Government.
    Senator Kerry. And Madam Secretary?
    Secretary Chao. Same.
    Senator Kerry. Good plan?
    Mr. Barreto. It has worked pretty well for us.
    Senator Kerry. Any reason it shouldn't be available to all 
Americans?
    Mr. Barreto. Well, I think Blue Cross-Blue Shield does make 
their insurance available.
    Senator Kerry. No, the Federal Employees Health Benefits 
Program, FEHB.
    Mr. Barreto. You are talking about a totally different 
thing there. Obviously, part of our insurance premium is paid 
by the Federal Government. Obviously, we are part of a pool of 
millions of people, which gives us better benefits and better 
costs. Those are the same kinds of things we want to give to 
small businesses.
    Senator Kerry. But if we could, which we could, why 
shouldn't we make it possible for all small businesses to buy 
into the same plan as we do?
    Secretary Chao. I think you would have to set up a whole 
new program. What we are talking about here is tearing down 
barriers and allowing small businesses to come together and 
pool risks so they can decrease their costs----
    Senator Kerry. Well, we are talking about making the market 
more competitive.
    Secretary Chao [continuing]. So they can offer more health 
care to their workers.
    Senator Kerry. Wouldn't it be a nice market offering to say 
to people that you could buy into the same program that we do?
    Mr. Barreto. I think that there is a concern with a lot of 
small business. Any time that you talk about something being 
part of the Government, a Government plan, when you talk about 
adding maybe $70 billion----
    Senator Kerry. Blue Cross isn't a Government plan. Blue 
Cross is a private plan.
    Mr. Barreto. But it would be in the context of----
    Senator Kerry. You have Blue Cross, don't you?
    Mr. Barreto. I do.
    Senator Kerry. You have Blue Cross, Madam Secretary? It is 
not a Government plan.
    Mr. Barreto. We buy it as a Federal employee.
    Senator Kerry. Yes, but why not let other people buy in as 
whatever kind of employees they are?
    Mr. Barreto. Well, I mean, a lot of it would depend on what 
the cost would be. Would they receive the same benefits we do, 
because part of our insurance is paid for by the Federal 
Government.
    Senator Kerry. Correct, and what we would do is provide a 
50 percent tax credit to small businesses to be able to buy in, 
so they could afford it.
    Secretary Chao. I think the particular bill you are 
referring to that was just offered also by Senator Lincoln.
    Senator Kerry. That is a slightly different plan, but it is 
modeled on the same concept.
    Secretary Chao. That bill will cost $18 billion from 
mandatory appropriations over the next 4 years.
    Senator Kerry. Yes, I don't support their bill because I 
think it doesn't bring in enough people, but there is a way to 
bring in more people.
    Secretary Chao. The total cost to the Federal Government 
for AHPs would be approximately $100 million over the next 5 
years. So again, I think the approach is quite sound. It would 
enable us to cover more people and it would, again, tear down 
barriers that currently exist and prevent a level playing 
field. And the AHP legislation does not establish a new and 
more expensive Federal program legislation.
    Senator Kerry. So it is a matter of choice of expense, is 
that it?
    Mr. Barreto. Well, I think there are other things, too.
    Secretary Chao. It is a matter of choice and helping 
people. What I am concerned about are workers who are working 
for small companies who do not have health care insurance----
    Senator Kerry. No, I know, but if you could provide health 
insurance----
    Secretary Chao. [continuing.] ----and they cannot have it 
because of these artificial barriers that are preventing their 
companies and their employers from coming together, sharing in 
the pooling of the risk, which is commonly available to large 
corporations and labor unions. Because small businesses 
currently cannot do that, and therefore, they cannot offer that 
benefit to their workers.
    Senator Kerry. Well, let me just point out, because I have 
heard so many times here that this is going to be trying to 
make small business exactly like big business and we are going 
to give them the level playing field. It is not the same 
playing field, and it is not making them the same, because 
small employers are going to pay premiums to the AHPs just like 
insurance and they are going to trust that the AHP is going to 
be there to pay for them down the road. In contrast, large 
employers in America who self-fund are at risk for their 
employees. These folks won't be, which is why the solvency 
issue is so critical. So it is not the same playing field.
    Secretary Chao. Well, self-insured plans under current law 
are not under State jurisdictions, either. There is a big 
difference.
    Senator Kerry. Well, I realize that, but it is the question 
of what is the bottom line here with respect to the person 
signing up.
    And the second thing I want to say is that you have to make 
a fundamental decision in public life about what you think the 
standard is you are trying to make available to people. We in 
the Congress have decided that somehow we get this terrific 
plan, but Americans shouldn't be able to buy into it. I don't 
think that is right. I think Americans ought to be able to buy 
into it. Now, if they can buy into it, so much the better for 
them. And if we were to give them an economic incentive to 
empower them to buy into it and lower the premiums, you could, 
in fact, have 95 percent of all Americans covered.
    So when you say we are not solving the whole problem, you 
are making a choice not to solve it because you think tax cuts 
are more important.
    Mr. Barreto. I think what we are trying to do is respond to 
the different parts of it. I am not sure that you can solve it 
in just one-size-fits-all. I think that you have got to solve 
these different moving parts that we talked about. What we are 
dealing with right here is one----
    Senator Kerry. But you can provide a comprehensive plan, 
Mr. Barreto--I know it because a lot of people have done it 
through the years--where you help deal with the cost side of 
it, you help deal with--I mean, I know what the Administration 
is doing. I think they put up $50 million nationally to try to 
deal with technology in hospitals and in the health care 
industry. Fifty-million dollars is laughed at in State after 
State. It doesn't even take care of one State's challenge.
    So it is really a choice of where you want to put your 
money, and we disagree on that. But I think there is a better 
solution and there is a better way to provide more affordable 
health care, which is better health care to more people under 
better standards than we are choosing to do, and that is an 
important debate to have and that is an important role for us 
to play here. Is there a better way to do this?
    Now, we are not in charge of the Congress or the White 
House, I understand that. So, therefore, we are going to have 
to try to find a way to stop-gap this. What I want to do is not 
do harm, and what I want to do is try to find a way to get as 
many businesses into this as possible under the fairest 
mechanism possible. So I hope we can stop-gap some of these 
holes on solvency, on coverage, on rights and so forth, and I 
want to work with the Chair to do that. But we ought to be 
honest in our appraisal of where some of those issues may 
exist. It just happens in the writing of law that sometimes 
there are holes and misinterpretations.
    Mr. Barreto. I agree with you wholeheartedly, Senator 
Kerry, and I think what small businesses are saying is, please 
send help as soon as possible. We can't discuss this and debate 
this for another 10 years. Some of us won't be in business any 
longer if we keep getting double-digit increases in our health 
insurance.
    So again, and I think some of the other Senators mentioned 
this, we should be talking about all of these options, and this 
is, I think, something that is going to be with us for a long, 
long time. But if we could do something like AHPs and do it 
this year, you could provide relief to millions of small 
businesses while we are working on some of those other issues 
that affect their health care costs and access.
    Senator Kerry. I just want to listen carefully to the 
experts who tell me there may be more people uninsured and 
there may be more problems with people scammed and there may be 
less delivery of adequate health care. Now, if I hear people 
saying that to me, I am going to stop and examine it pretty 
carefully.
    Chair Snowe. Thank you. Thank you, Senator Kerry. No, I 
appreciate your comments and hopefully we can work through 
these issues. I think this was valuable, to have this 
discussion on the specifics of the legislation, because it gets 
us beyond. I hope we can create a building block and step 
forward. These issues, as I said earlier, aren't mutually 
exclusive. There are a variety of initiatives.
    Let me just make several points. Obviously, Association 
Health Plans are optional and they are voluntary. They can't be 
created--well, you could State-by-State, but we are going to 
hear in a subsequent panel an individual talk about the fact 
they weren't able to, because it is not efficient to create an 
AHP or a statewide pool for small businesses in every State or 
a variety of States. I mean, it just makes it almost impossible 
from a regulatory standpoint, and ultimately they closed down 
their Association Health Plans because you couldn't transcend 
State boundaries. That is one of the issues.
    The other issue is corporations and unions. We cite that 
for a good reason. First of all, it is interesting to note, as 
I said earlier in my statement, that they offer the more 
generous and most generous plans, and they are exempted from 
State mandates in that they don't have to comply with State 
mandates. It is suggesting that if you don't have State 
mandates, you are never going to get the best benefits. That is 
not necessarily true. State benefits and State mandates are 
important. Obviously, it sets a threshold establishing what we 
think is important.
    On the other hand, it doesn't mean to say small businesses 
and their employees aren't interested in those benefits and 
they have to be mandated in order to get them. The whole 
purpose is to make small business competitive with corporations 
and larger businesses that offer this as a benefit.
    Having good health insurance is an important benefit to 
attracting good employees, and that is the other thing, is to 
level the playing field for small businesses so that they can 
stay on par in competing for the good employees with 
corporations who can offer this generous health care package. 
If you don't have that in today's world, that can be first and 
foremost as to whether or not an employee or potential employee 
is going to make the decision, and so that is another tool that 
we can give small business that they otherwise do not have.
    Now, my small businesses have, what do they have, 
catastrophic at best. I mean, they are paying $5,000 to $6,000 
minimum a year just to get the catastrophic coverage because it 
is the bare bones. So what is the option here, is to give them 
something, the ability--and these packages will be designed to 
attract the maximum number of participants in a plan, not the 
least number.
    Now, we all want to avoid any issue regarding the race to 
the bottom or the lowest common denominator, but I think that 
the best instincts ultimately will prevail for very good 
reason, and we have the oversight mechanisms in here to do it.
    And so I hope that we can look at these issues in that 
sense. And might I also add, on the legislation that was 
suggested here by Senator Durbin, Senator Lincoln, and others, 
they also preempt State benefit mandates. So under their plan, 
the Federal Government would make those decisions about what 
would be incorporated and they would be bypassing State 
mandates, as well. We all are seeing why those State mandates 
are there. They are important. We are not saying we are trying 
to get out from under them. That is not the point of this. The 
point of this is desperation. That is it. It is desperation. I 
mean, small businesses are desperate. They are in a crisis and 
we have got to help them.
    Let us just take one step forward, one step forward that 
won't cost anywhere from $18 to $70 billion that they are 
suggesting. I would like it. I mean, there are very good 
options. But we have got to do something, and in this era of--
--
    Senator Kerry. Would you like it more than a tax cut? No.
    [Laughter.]
    Chair Snowe. Well, I have also had issues on that, too. In 
any event, I think that is the point. I think we can. I think 
that is the point here. I think that there are ways of reaching 
some conclusion, and there are other issues that you are 
suggesting. I think we can get there on some of these things. I 
just hope it won't be a barrier that we can't--you know, we 
ought to be able to do something.
    Senator Kerry. Madam Chair, can I ask that Senator Durbin's 
statement be made part of the record?
    Chair Snowe. Yes. Without objection, so ordered.
    [The prepared statement of Senator Durbin follows:]

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    Senator Kerry. Just kind of quickly, and we are going to 
end up, but I want to find a solution. I ran a small business. 
I had about 35-, 40 part-time employees. I would have loved to 
have given health care, but I couldn't even consider it. I 
understand it, but I also understand that there is a reason 
many of these protections are standard, and that is the history 
of this. We all understand it. There are costs and ways to 
reduce those costs.
    I hope we can come up with a way to bridge these 
differences, and I think we probably can if we work in good 
faith at it and there isn't just sort of an ideological quest 
here. If we really want to try to find a way to help small 
business, hopefully, we can do it in a fair-minded manner.
    Chair Snowe. Thank you.
    Mr. Barreto. Thank you very much, Senator.
    Chair Snowe. Thank you, and thank you for your patience. 
Thank you for your contributions and your leadership. Again, 
thank you very much.
    The next panel, who have been more than patient. We have 
tested your endurance today. Sorry. But you see that it is 
obviously a very important issue to all of us and I think it 
was a very constructive discussion here this morning, and so I 
appreciate your willingness to be patient.
    Our second panel this morning represents the small business 
community, obviously different associations and State 
governments here, and so we appreciate your all being here 
today.
    First of all, I would like to introduce Doug Newman, 
President and owner of Newman Concrete Services located in 
Hallowell, Maine. Mr. Newman is an active member of the 
Associated Builders and Contractors, served as the board 
representative for ABC's Maine Small Business for Responsible 
Health Care Reform Task Force.
    Also testifying is Mr. Al Mansell, a Realtor from Salt Lake 
City, Utah, and current President of the National Association 
of Realtors, the Nation's largest professional association, 
representing two million members involved in all aspects of the 
residential and commercial real estate industry.
    Testifying also is Mr. Tom Haynes, the Executive Director 
of the Coca-Cola Bottlers' Association. The Coca-Cola Bottlers' 
Association not only represents the interests of Coca-Cola 
Bottlers in dealing with the Government and the company, but 
also manages numerous employee benefits, purchasing, and 
insurance programs for these bottlers.
    Also, Len Nichols, who directs the Health Policy Program at 
the New America Foundation, which aims to expand health 
insurance coverage to all Americans while reigning in costs and 
improving efficiency of the overall health care system.
    I want to also welcome John Morrison, Montana State Auditor 
and Commissioner for Insurance and Securities. Mr. Morrison is 
representing the National Association of Insurance 
Commissioners today.
    Finally, I welcome Mr. Lindsay, who currently oversees the 
Employee Benefits Group at Lockton Companies of Colorado, one 
of the largest insurance brokerage firms in the country. We 
appreciate your being here, too, and we thank you for being 
here. We welcome your testimony as former Chair of the National 
Small Business Association, which is the Nation's oldest non-
partisan small business advocacy group, reaching more than 
150,000 nationwide. Thank you.
    So, Doug, we will begin with you.

  STATEMENT OF DOUG NEWMAN, OWNER, NEWMAN CONCRETE SERVICES, 
                     INC., HALLOWELL, MAINE

    Mr. Newman. Good morning, Senator Snowe, Senator Kerry. 
Thank you very much for having me here today to discuss this 
important issue of vital importance to small businesses. I 
would also like to take the opportunity----
    Chair Snowe. Sorry to interrupt, but hopefully, you can 
summarize your statements within 5 minutes and we will submit 
your entire statement for the record. Thank you.
    Mr. Newman. I will be brief. I would also like to take a 
moment and thank Senator Snowe for her strong leadership on 
behalf of small businesses back in Maine. We are very proud to 
have you up here fighting for us.
    My name is Doug Newman. I own a company called Newman 
Concrete Services located in Hallowell, Maine. We employ 50 men 
and women on some of the largest construction projects in 
Maine. Of the many challenges I faced starting my business 10 
years ago, health insurance is at the top of the list.
    Looking ahead, what we find discouraging is we don't see 
anything on the horizon that appears ready and willing and able 
to address the situation. Association Health Plans, we think, 
is a legislation that could provide some immediate relief.
    I started my business in 1996, after working in the 
construction industry since getting out of college. Within a 
few years, we had grown to over $3 million in sales and had 
over 50 employees. Like most people who started a small 
business, I wasn't really prepared for the obstacles I was 
going to face. I am very proud of what we accomplished, but if 
you asked me if I would do it all over again, I am not sure I 
could say with all honesty that I would.
    Of all those risks and difficulties, health insurance has 
been one of the most troubling. I learned early on that 
providing health insurance to my employees is a vital part of 
having a business. But more importantly than that, like most 
small businesses, I think it is the right thing to do. You feel 
a very strong moral obligation to your employees. We are small 
businesses. I have less than 50 of them. When the car breaks 
down, when the family problems arise, when things aren't going 
well at home, I know about it. These people, I deal with every 
day. We don't have 2,000 or 3,000 employees. I have a very 
small number of them.
    When we were able to finally purchase health insurance 2 or 
3 years after we started, it was a real milestone in my 
business. I thought my business had finally arrived. We were 
now a solid, legitimate business. We were providing health 
insurance to our employees. Some of my proudest moments as a 
business owner has been when people that work for me came to me 
and they were secure enough in the business, they were secure 
enough in the pay and benefits that they started families, they 
bought homes. That, to me, was when a business really arrives, 
when you have employees who work for you that feel confident 
enough in what you are doing to do that.
    What I didn't know, and what I am learning every day, is 
just how difficult it is to maintain that. And even as I face 
the challenges of rising health insurance costs, my employees 
face the same thing.
    In my State, the economy has been slow the last few years. 
The price I charge for my projects that I get isn't going up 
any. Wages isn't going up any. Unfortunately, everything else 
is.
    Of my 50 employees, about half are covered by an HMO 
offered through Anthem Blue Cross-Blue Shield. Employees and 
their families are eligible after 6 months to join the plan. I 
pay 70 percent of the individual premium and I pay 50 percent 
of the family cost. It is offered through a flex benefits 
account, which allows the deduction to be made before taxes.
    Despite difficult financial times in recent years, reducing 
my employees' share, or increasing my employees' share just 
hasn't been an option. They can't afford it. So as a result, 
the company has absorbed in the last 4 or 5 years some pretty 
large increases. I can't afford to ask my employees to pay more 
and I can't afford to lose my good employees.
    We have cut costs and downsized what we can, but there is 
an inevitable day of reckoning coming if we continue to face 
the same unsustainable health insurance costs year in and year 
out. We are just going to reach a point where we just can't 
keep going. We are literally being put in a situation where we 
can't charge more, we can't make more, and the costs are coming 
up to a point where the company is just simply not going to be 
profitable.
    In the last 4 years, since 2000, health insurance premiums 
for an individual has risen from $42 a week to $70 a week. 
Family coverage went from $123 a week to $211 a week, 
represents about a 70 percent increase in just the last 4 
years. All-told, my company contributes right now well over 
$50,000 a year in health insurance premiums. Unfortunately, 
this is often the difference between making money and losing 
money, and the last few years, it has put me on the wrong side 
of that line.
    Every year when renewals come, we are very fortunate--very 
fortunate--to get two quotes. In Maine, there are only three 
companies that are even writing insurance, and we have a 
relatively weak market up there. If I have two insurance quotes 
to choose from, I consider myself lucky. They are both 
basically the same exact plan and the difference in cost 
generally isn't that much.
    One thing is inescapable. If we don't do something very 
shortly to provide access to lower health insurance for small 
businesses, they are just going to be forced to drop it. Health 
insurance ceased to be affordable a long time ago. Right now, 
it is affecting our ability to be profitable and to grow, and 
in the near future, it is going to become simply impossible.
    In Maine, we have had a shift of over 10 percent from 
private insurance to Medicaid. In the last 4 or 5 years, the 
number of uninsured in Maine has remained pretty constant. We 
have had a shift from 10 percent of the population enrolled in 
Medicaid to now 20 percent of the population is enrolled in 
Medicaid. No change in the uninsured, just a shift from people 
paying private insurance to our Medicaid system, and anybody 
that has paid any attention to our budget up there, they will 
see what kind of havoc that is causing.
    It is for all these reasons that I support S. 406, the 
Small Business Health Fairness Act. There is no doubt in my 
mind that within a very short period of time, the bargaining 
power, the lower administrative costs, the freedom from very 
high costs associated with mandates would lower my insurance 
and provide a break that if we don't get, I don't know where we 
are going to go.
    Another issue is just one of basic fairness. We compete 
against companies every day that have been around a long time, 
have a much better balance sheet than we do, and are 
financially able to self-insure. They are able to create plans 
that meet their needs at a significantly lower cost to me. It 
seems ironic to me that in a country where the vast number of 
people are employed by small business, we afford big businesses 
and labor unions the kind of benefits that we don't make 
available to small businesses.
    The more technical issues have been discussed at great 
length, so I will stop there and I would look forward to 
answering any questions that you might have.
    [The prepared statement of Mr. Newman follows:]

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    Chair Snowe. Thank you very much, Doug.
    Mr. Mansell.

  STATEMENT OF AL MANSELL, PRESIDENT, NATIONAL ASSOCIATION OF 
                    REALTORS, WASHINGTON, DC

    Mr. Mansell. Thank you very much, Madam Chair Snowe and 
Ranking Member Kerry and the only Member of the Committee left, 
Senator Burns.
    [Laughter.]
    Senator Burns. We have a lot of things to do.
    [Laughter.]
    Mr. Mansell. You are a patient man.
    [Laughter.]
    We appreciate the opportunity to be able to come and speak 
to the Committee today. I do, and particularly on behalf of the 
National Association of Realtors. We do not have 2,000 members, 
though, Madam Chair. I will tell you, we only have 1.2 million.
    Chair Snowe. Oh, did I say 2,000? I thought I said two 
million.
    Mr. Mansell. You said two million, yes.
    Chair Snowe. Oh, thank you.
    Mr. Mansell. I like the growth, but it was a little more 
than we actually have, so I just wanted to set that record 
straight. But we are the largest trade association in the 
United States and we appreciate the opportunity to come and 
speak today on the Small Business Health Fairness Act. We 
applaud you for your willingness to sponsor this legislation 
and work it through the Congress.
    Our members are very interested in S. 406, and unlike many 
other pieces of legislation that we work on, this happens to be 
a very personal issue for them. Of our 1.2 million members, 28 
percent, or 330,000 of those members are uninsured. This is 
about double the percentage uninsured as compared with the 
general U.S. population.
    Real estate firms are the prototypical small business. Most 
of our firms, or the average firm, have only five or fewer 
employees or independent contractor agents. These are truly 
small businesses, and like most small businesses of any sort, 
they have a number of issues with insurance. One is our 
salespeople who are not employees of our firms, are rather 
self-employed, independent contractors. This makes it much more 
difficult for realty firm owners to provide insurance to them. 
As Senator Isakson mentioned to you earlier, because of the 
Internal Revenue laws, we can't do that.
    In a survey we did of our members, we found that 74 percent 
of the uninsured Realtors said the reason they are uninsured is 
the cost of coverage. Only 7 percent cited pre-existing 
conditions. We are nervous that we are going to have an 
increase even in the 28 percent that are now uninsured because 
we have an additional 5 percent of our members who are actually 
on COBRA. So those opportunities are going to run out for them.
    Our numbers of uninsured members have doubled over the past 
7 years. The numbers in 1996 were 13 percent, or roughly 90,000 
members. At the end of 2004, 300,000 members, or 28 percent, 
were uninsured. This is something that we really feel strongly 
about, that we need to be able to draw our ability to negotiate 
a good deal as a large association and offer this benefit to 
our members and help them to find affordable coverage in the 
health care arena.
    The most often asked question when members call in to our 
Information Central, which is kind of a hotline for our 
members, is, ``What can NAR offer me in the way of affordable 
health care insurance?'' And the answer we have to give is, 
``Very little,'' because we do not have the ability to form an 
Association Health Care Plan. We very much would like to do 
that and be on a par with large employers and unions who can do 
that all over the Nation. We believe if we were able to do 
that, we would be able to really help with the uninsured 
problem facing our members and of the Nation as a whole.
    We have, as an association, done some survey work of the 
public and small business owners. I would like to share what we 
found. We found that 87 percent of the small business owners 
favor the concept of S. 406. We found that 77 percent of small 
business owners say they likely would participate in an AHP 
program. Eighty-nine percent of voters favored the concept. And 
even when we presented the opponents' arguments against small 
business health plans, 81 percent of small business owners 
still favored it and 88 percent of the national voters favor 
it.
    This is an across-the-board, non-partisan issue as far as 
we can tell. This is something the public wants, and I can tell 
you for our own folks, this is something they want. Certainly, 
our association has people from all over the country and every 
party, and we want to help them do that.
    We know it isn't a fix to everything. We know it isn't the 
silver bullet that is going to fix the world for us. But we 
think it is a viable option that will at least assist us in 
helping serve our members better. We want to work with you to 
be able to come up with solutions to some of the problems that 
have been brought up, some of the concerns, and get through 
those and get this piece of legislation passed this year, 
because we believe that it will, in fact, help our membership 
and reduce the number of uninsured in this country and we will 
work with you to accomplish that.
    Thank you very much.
    [The prepared statement of Mr. Mansell follows:]

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    Chair Snowe. Thank you.
    Mr. Haynes.

    STATEMENT OF TOM HAYNES, EXECUTIVE DIRECTOR, COCA-COLA 
            BOTTLERS' ASSOCIATION, ATLANTA, GEORGIA

    Mr. Haynes. Thank you, Chair Snowe and Ranking Member 
Kerry, for inviting us here to this hearing and for holding 
this hearing and for your focus and your work on trying to help 
the small business community with their concerns, particularly 
this pressing concern on health care.
    I am here both on behalf of the Coca-Cola Bottlers' 
Association, which, as Chair Snowe said, represents all the 
Coca-Cola bottlers in the United States, but also on behalf of 
a coalition of trade associations, all of whom believe that 
this is the single most important thing we can do to help our 
members provide more affordable health care to their employees.
    I think our experiences should be very helpful to the 
Committee in understanding the realities of what we are living 
with and understanding that some of the concerns expressed 
about AHPs are not borne out by the real world experience of 
trade associations.
    As Senator Kerry pointed out, it is possible to do this 
today. We do have an Association Health Plan, but there is one 
fundamental problem. It only works for the big businesses in 
our association, not for the small businesses.
    Five years ago, the plan that we had for small bottlers, 
bottlers with less than 50 employees, was disbanded because we 
couldn't find a carrier in the country to work with who would 
help us put this plan together and keep it together. So the 
bottlers that were part of our plan were left to whatever 
alternatives they had, and I think many of them found those 
alternatives very unattractive.
    Now, the plan we have does not, again, reflect what we hear 
about AHPs from the critics. Our administrative costs are quite 
manageable. They are in the 7 percent range. We desperately 
want to expand this program and to improve this program, but 
primarily to expand this program to include the small 
businesses that bottle and distribute Coca-Cola in the United 
States. If we could do it, it would make a huge difference for 
them and their employees.
    We have talked to some of the bottlers who used to be in 
our small business plan, our small bottler plan, and they fall 
into two categories. One is bottlers that have found their 
health insurance costs rising very substantially and simply 
have not been able to continue to do what they were doing 
before. So they increased deductibles, they reduced coverages. 
The costs go up to employees. Employees opt out of those 
programs. And what we have found with some of the bottlers that 
once were in our program is that they have gone from having 100 
percent of their workforce insured to having less than 50 
percent of their workforce insured, and I know that for all the 
Members of the Committee is the kind of situation that you do 
not want to see happen, increasing the rolls of uninsured 
because of the cost of insurance to small business.
    The second thing that we see is people who are continuing 
to stick with it, absorb the increases, and simply change the 
rest of their business, recognizing that health care is going 
to make other things less possible. An example that we have 
looked at actually happens to be a foundation that manages 
scholarships provided to 250 students every year throughout the 
country, college scholarships. This foundation, which has a 
staff of seven, was once in our small bottlers pool and their 
costs, their expenses were comparable to those for big 
bottlers, big businesses within our association.
    Since they were forced out of our plan by these market 
forces and really fundamentally by the impact of trying to 
comply with State mandates, their costs have gone up 
materially. Today, they pay about 60 percent more than a 
bottler that operates in the same State and in neighboring 
States. They pay more than the bottler that pays the most in 
our program, which is at least partially experience-related, 
and it is fully-insured.
    Even for the bigger bottlers that are still part of our 
program, and there are about--I think we have 13 in that 
program out of a possibility of 77--with AHP legislation, we 
would have lots of opportunities in the marketplace to improve 
their coverages to make them more affordable.
    I think the other fundamental thing, I think we are very 
typical of a lot of associations. We don't exist to write 
health insurance. We do a lot of things for our bottlers. Every 
bottler in the country is a member of our association. Most of 
them have been so for 90 years. So there is no possibility we 
would discriminate in terms of membership. And even if we were 
inclined to, our relationship with our members is multi-faceted 
and to think that we would make a decision about our 
relationship with one of our members based purely upon some 
prediction as to the healthiness of their workforce as part of 
our program, I just don't think it is realistic and I don't 
think it is realistic for many of the other associations who 
would try to write these plans.
    So that is, in a nutshell--there is a lot more detail in my 
statement, but I look forward to answering your questions and I 
thank you.
    [The prepared statement of Mr. Haynes follows:]

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    Chair Snowe. Thank you.
    Mr. Nichols.

STATEMENT OF LEN NICHOLS, DIRECTOR, HEALTH POLICY PROGRAM, THE 
             NEW AMERICA FOUNDATION, WASHINGTON, DC

    Mr. Nichols. Madam Chair, Senator Kerry, Senator Burns, it 
is a high honor, indeed, to have been invited back to testify 
before this Committee on this topic because I know how 
dedicated you all are to improving health insurance coverage 
options for small business owners, their workers, and their 
families.
    My name is Len Nichols and I am the Director of the Health 
Policy Program at the New America Foundation--Senator, I have 
moved in the last 2 weeks--a non-profit, non-partisan public 
policy institute dedicated to finding practical solutions to 
our Nation's most pressing problems. Our focus today is on 
enabling more small employers to offer health insurance to 
their workers by being, and I quote, more like large firms.
    The primary reason for this huge discrepancy in offer rates 
by firm size, which are documented in my written testimony, is 
that large firms achieve economies of scale, as we talked about 
earlier today. These economies of scale come from three 
sources. I am going to focus on one, the one most relevant to 
our discussion, risk pool size and stability. Simply put, the 
larger the risk pool, the lower the variance of expected 
medical claims costs. The statistical law of large numbers is a 
good friend to large pools.
    It is possible for insurers to create a large stable pool 
out of many small employers, but in real life, for various 
reasons, premium variance is higher for small firms than for 
large. So my testimony will address the pros and cons of 
alternative ways to enable small firms to be more like large 
firms in purchasing health insurance.
    Currently, there are two broad approaches on the table, 
Association Health Plans and subsidized participation in 
broader purchasing pools. Simply put, AHPs are one step 
forward, but I fear they are two steps backward at the same 
time. And while the best alternative is perhaps two small steps 
forward, it is, in my view, well past time for small steps 
only. You have heard the urgency described.
    Association Health Plans would make insurance cheaper by 
exempting members' self-insured plans from State regulations, 
including benefit mandates, solvency standards, State taxes, 
and the rest. These exemptions would lower premiums a bit, but 
the largest gain to the AHP members would more likely come from 
scale economies and from favorable risk selection vis-a-vis the 
rest of the market as a whole, not necessarily within an 
association.
    Firms with low-risk workers, whoever they were, young and 
healthy, will find the self-insured AHP product exempted from 
benefit mandates that are most attractive, and as these firms 
leave the currently fully-insured market pools, those pools 
would necessarily deteriorate. The only empirical question is 
how much premiums would rise for those who weren't able to get 
into the self-insured AHPs, and that is really what the ying-
yang in this debate is all about.
    You know, we have been talking about this for quite some 
time. I think I have been testifying on it for at least 9 
years. I think you all have been talking about it for longer. 
And I have often asked myself, why is it that proponents are so 
intent on creating a separate market for some small firms, but 
not for others, and I really can only think of two reasons.
    Some proponents, I think, really sincerely want to help 
firms and they know their firms and they know that those firms 
are relatively low-risk and that would work. They could band 
together and be similar. And they either don't know about other 
firms in the market or just don't worry about firms that may 
have different risk profiles.
    Other proponents perhaps hope to administer self-insured 
AHPs and use the market opportunity as a way to finance other 
objectives of the organization. These are fine reasons to seek 
legislation, but they are not compelling public policy 
rationales, certainly not for a Committee as dedicated to the 
well-being of the entire small business sector as this one.
    A better way to continue your historic mission is to 
encourage all small firms to act like large businesses by 
banding together in a truly large and powerful purchasing pool.
    Now, some State benefit mandates, at least in my 
experience, may indeed merit repeal on the arguments, on the 
real analysis you can do. If so, then Congress should override 
them for all small firms in all States, not just for those who 
happen to belong already or come to qualify for an association.
    So if AHPs aren't the best way to go, how should Congress 
react? Creating a single large purchasing pool, either in each 
State or in a locale within a State, would indeed lower 
premiums, but subsidies, of course they are expensive, but they 
would entice even more entry and help stabilize the risk pool, 
as well.
    Who should be subsidized in this way? A lot of researchers 
asked this question and we have pretty much concluded the most 
efficient subsidies are those that are linked to low-income 
workers directly. So if the policy objective is to subsidize 
firms that don't offer today, then linking firm-level tax 
credits to worker wages would be far more efficient than 
subsidizing firms regardless of worker wages and incomes, as 
implicitly AHPs would.
    The SEHBP bill co-sponsored by Senators Durbin and Lincoln 
links employer subsidies to worker wages and provides larger 
tax credits the greater the employer's share. This extra price 
reduction means that that approach would likely increase 
coverage on net more than AHP legislation, but neither approach 
is powerful enough to solve the uninsured crisis which you all 
have articulated so well.
    In fact, recent work I have completed with the support of 
the California Health Care Foundation makes clear that the 
greatest risk to our health system's future is this: an 
increasing fraction of our workforce cannot afford health care 
as we know it. Premiums are growing faster than wages. A worker 
with median wages in 2003 had the same purchasing power vis-a-
vis health insurance as a worker at the 25th percentile wage 5 
years ago.
    This rapid decline in purchasing power is surely 
responsible for the decline in take-up and in overall ESI 
coverage we observed recently, and this fact helps remind us of 
the three interrelated problems of our impressive, but flawed, 
health care system: low clinical value per dollar, highly 
uneven quality of care, and inequitable access to that care.
    To avoid more uninsured, higher costs, and even more stress 
on small business owners, I think we have to tackle these 
problems simultaneously through comprehensive reforms. Support 
for what I will call an adult conversation about health policy 
alternatives is actually growing around the country, a 
conversation we postponed far too long. The fact that more 
workers cannot afford private health insurance each year, as 
has been testified to today, has been noticed in every 
community around our country.
    Details are better left for another day, but the principal 
and central elements of a far better health care system are 
emerging. The guiding principle is universal coverage in 
exchange for universal responsibility. Key elements of this 
center on an individual mandate to purchase private health 
insurance with continued employer and increased social 
responsibility for financing support. There must also be 
effective cost growth control so that the public subsidy 
guarantee and continued employer participation will indeed be 
sustainable.
    Now, while we muster the courage for this larger task, 
perhaps our most important next step is to acknowledge as a 
Nation that access to health care is fundamentally a moral 
issue. The Institute of Medicine has clearly interpreted the 
research literature to tell us that some of the consequences of 
lack of insurance are thousands of premature deaths every year. 
This should be just as unacceptable to us as are deaths from 
smoking, drunk driving, medical errors, or acts of terrorism 
here and abroad.
    Over 5,000 years of various scriptural traditions call upon 
us all to clearly pursue justice and enhance the life chances 
of all our fellow human beings. Once we agree to stop accepting 
the morally unacceptable, then maybe we will be ready to talk 
about how, rather than whether, to inprove our entire health 
care system, being ever mindful of the essential role small 
employers will always have in our economy and our health 
insurance opportunities.
    Thank you very much.
    [The prepared statement of Mr. Nichols follows:]

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    Chair Snowe. Thank you, Mr. Nichols.
    Mr. Morrison.

STATEMENT OF JOHN MORRISON, MONTANA STATE AUDITOR, COMMISSIONER 
                 FOR INSURANCE AND SECURITIES, 
          HELENA, MONTANA, ON BEHALF OF THE NATIONAL 
             ASSOCIATION OF INSURANCE COMMISSIONERS

    Mr. Morrison. Thank you, Madam Chair, Ranking Member Kerry, 
Senator Burns. My name is John Morrison. I am the elected 
Montana State Auditor and Commissioner of Insurance and 
Securities. I am testifying today on behalf of the National 
Association of Insurance Commissioners.
    The NAIC represents the chief insurance regulators of the 
50 States, the District of Columbia, and the five U.S. 
Territories. I chair the NAIC's Health Insurance and Managed 
Care Committee. The insurance regulators are devoted to 
protecting consumers, and it is with this goal in mind that I 
comment today generally on the small business health care 
crisis, and in particular on the proposal to create association 
health plans.
    Providing affordable health coverage to small businesses is 
critically important in many ways. The statistics cited here 
today show the urgency of the problem. The numbers are even 
greater in Montana. In our State, 1-in-5 Montanans have no 
health insurance, and over half of them--over half of them--
work for a small business with fewer than ten employees. What 
we do as policymakers and regulators impacts the health of 
these employees and their families, the stability of the health 
insurance market, and the vitality of the small business 
community. I am pleased to offer the full support of the NAIC 
in developing legislation that will reach these goals.
    States have acted aggressively over the past 15 years to 
stabilize and improve the small group market. States have 
required insurers to pool all of their small group risk by 
imposing rating bands to further spread the risk of small, 
unhealthy businesses across a larger population. States have 
created purchasing pools and allowed associations to provide 
State-regulated insurance products to their members.
    In Montana, we just enacted a plan that I proposed to give 
substantial tax credits and purchasing pool access to several 
thousand small businesses to make health insurance more 
affordable. Our proposal is supported by the Montana Chamber of 
Commerce, NFIB, and over 40 major organizations representing 
labor, education, public health, providers, seniors, and 
others. The Montana Chamber of Commerce has its own insured 
association plan, Chamber Choices. The Flathead County Business 
and Industry Association has its own insured association plan, 
the FBIA plan.
    The Federal Government and the States must work closely 
with these broad coalitions to implement reforms that truly 
make insurance more affordable to small businesses. Rehashing 
strategies that have failed, such as AHPs, is not a step 
forward. It is time to move forward to find effective 
solutions.
    In their search for effective solutions, the Nation's 
insurance regulators have identified seven basic principles by 
which Federal health insurance reform legislation can be 
analyzed. These principles are intended to keep the focus on 
the needs of consumers and the true causes of the current 
crisis.
    One, the rights of all consumers must be protected. States 
have patient protections, solvency standards, fraud prevention 
programs, and oversight mechanisms in place to protect 
consumers. These standards should not be preempted.
    Two, do not damage existing State reforms that are working. 
Small group purchasing pools, high risk pools, and other 
reforms increase availability and affordability of health 
insurance. Federal reforms must not erode these successful 
efforts.
    Three, consumer education must be provided. The Federal 
Government must coordinate with State consumer education 
programs to ensure consumers are able to make informed choices.
    Four, rising health care costs must be addressed. There are 
multiple drivers of health care costs and they, in turn, are 
driving up the cost of health insurance. Effective policy must 
include provisions to address cost drivers and control rising 
health care costs.
    Five, do not make cost shifting worse. Low reimbursement 
payments have shifted costs to the private sector. Unfunded 
Federal mandates have shifted costs to State governments. The 
cost of providing care to the uninsured is also shifted, 
driving up rates for insured consumers. Federal health 
insurance legislation must address cost shifting.
    Six, the position of less healthy individuals must be 
protected. New designs must not shift more costs to the sicker 
patient or discourage appropriate care.
    Finally, seven, public policymakers should not allow the 
creation of insurance companies that do not have appropriate 
oversight. To allow them to be formed outside the existing 
regulatory structure will create an unlevel playing field that 
is unfair to existing insurers and eventually harmful to 
consumers.
    States continue to experiment with reinsurance, tax 
credits, subsidies, basic health plans for small businesses, 
regional pooling, and programs to promote healthier lifestyles 
and manage diseases. As always, States are the laboratories for 
innovative ideas. The NAIC this year--this year--will examine 
these State initiatives to find successful trends that can be 
followed by the States.
    Still, the impact of the Federal Government on health care 
policy is tremendous and America's State insurance regulators 
look forward to working with you toward real progress on this 
issue for small businesses and their employees everywhere.
    [The prepared statement of Mr. Morrison follows:]

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    Chair Snowe. Thank you, Mr. Morrison.
    Mr. Lindsay.

       STATEMENT OF WILLIAM N. LINDSAY, III, PAST CHAIR, 
         NATIONAL SMALL BUSINESS ASSOCIATION, DENVER, 
                            COLORADO

    Mr. Lindsay. Yes, Madam Chair.
    Chair Snowe. Thank you.
    Mr. Lindsay. Chair Snowe, Ranking Member Kerry, Senator 
Burns, my name is Bill Lindsay. I am here as the former Chair 
of the National Small Business Association, the Nation's oldest 
small business association.
    I have spent a career running a small business designed to 
help other small businesses with their health insurance. I 
thank you for this opportunity to speak on this critical issue. 
As has been mentioned by all of the other presenters today, 
this is a very significant issue affecting our Nation's economy 
and small businesses.
    Health care and the cost of insurance consistently rank as 
the top concern of our members. We may want to fix the issue 
with cost of insurance, but I urge you to heed the ethical 
credo of physicians, that is, first, do no harm.
    NSBA has studied Association Health Plans, AHPs, and we are 
one of the few small business groups that oppose them. We are, 
however, supported through a coalition of numerous local, 
regional, and State Chambers of Commerce in our opposition. 
There are several misconceptions about AHPs that have been 
discussed today and I would like to speak about them briefly. 
There are four in total.
    The first is that larger pools create bargaining clout. 
Pooling alone does not lower insurance rates. It depends upon 
who is in the pool. Otherwise, Blue Cross and Blue Shield, 
which insures arguably the largest number of small businesses 
in America, would have the lowest rates, and they don't. Eighty 
percent of cost for insurance is based upon cost of the claims. 
Cost of claims is not impacted by a larger national pool. 
Doctors and hospitals agree to discounts on who is insured in 
their area. If an AHP had five million members nationwide, but 
only several hundred in a local community, they would not be 
able to negotiate a lower rate than existing players in that 
marketplace.
    The cost of administration in small business insurance is 
very, very important, but the question is how AHPs would impact 
that. You would still have the issue of billing and 
collections, bad debt, and all of the issues that insurance 
companies deal with right now.
    The bill provides little protections against gaming, and in 
order to affect the cost of insurance, which I have mentioned 
before represents 80 percent of the total cost, AHPs would have 
to employ strategies that would adversely affect the rest of 
the market. Examples would be the ability allowed under HIPAA 
to have disparate rates based on the age of the applicants. 
That is permitted under HIPAA, and AHPs would be able to 
structure those rates so they would be able to appeal to 
younger and healthier workers. Also, the ability to exclude not 
only State-mandated coverages, but other forms of coverage that 
would be needed by those who have chronic health conditions.
    A third point is that this bill would exempt AHPs from 
State solvency requirements. It has been discussed that there 
are provisions in the bill on solvency, but you have got to 
remember that the National Association of Insurance 
Commissioners and the vast majority of States have moved away 
from static requirements to risk-based capital requirements 
that index those solvency requirements based on the size and 
the growth of the pool.
    The final misconception is that pooling cannot occur right 
now. In Senator Burns' State, in Montana, and in Mr. Morrison's 
State, there currently are opportunities for businesses to band 
together in MEWAs that are regulated by the State insurance 
department to create more market presence in that State, and 
those work very effectively.
    The Mercer Report, and Senator, I have included my 
testimony for inclusion in the record. I would like to request 
that this also be included.
    Chair Snowe. Without objection, so ordered.
    Mr. Lindsay. It was commissioned by the National Small 
Business Association. It indicated that those with AHPs would 
see a rate reduction of up to 10 percent over a period of 4 
years, but those not in AHPs will see premium increases of 23 
percent or more, primarily due to risk selection. The overall 
net increase in the market would increase, and has been 
mentioned in previous testimony, the resulting increase would 
be over a million additional uninsured individuals.
    Now, I know it is easier to criticize. The question then 
is, well, what is the solution? Chair Snowe introduced S. 723, 
the Simple Cafeteria Plan, which I think is a huge step and 
very positive for small business. But in addition to that, the 
National Small Business Association has spent the last 18 
months studying this issue and we have put forth a 
comprehensive proposal for reform which would include the 
following parts.
    Number one, looking at the issues, we would seek to require 
all individuals to have health insurance, either through 
Medicaid, Medicare, individual insurance, or traditional group 
insurance.
    We would provide subsidies to low-income individuals, not 
to businesses.
    We would provide a truly basic plan indexed to income 
levels so that the cost would be proportionate to income.
    We would remove the tax subsidy for health plans that are 
richer than the basic benefit program and drive unnecessary 
utilization.
    We would focus on quality, including public disclosure of 
health care quality within hospitals and physicians' offices.
    We would tie malpractice reform to physicians who follow 
established protocols and proven clinical procedures.
    And we would treat individual health insurance like group 
insurance for tax purposes to provide equity in the small 
business market.
    Madam Chair, I thank you for the opportunity to present 
this information this morning and I hope it is helpful in your 
deliberation.
    [The prepared statement of Mr. Lindsay follows:]

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    Chair Snowe. Thank you. Thank you, Mr. Lindsay.
    Obviously, we have heard a variety of views here this 
morning, or this afternoon now.
    I am going to turn to Senator Burns for my turn because I 
know he has got other appointments and this has gone on longer 
than we anticipated, so Senator Burns, you may proceed.
    Senator Burns. I just have one question, and I just went 
through the testimony of just about all of you last evening. 
Let me ask Mr. Nichols, Mr. Morrison, and Mr. Lindsay, are all 
three of you proposing some sort of a taxpayer subsidy to take 
care of individual plans or group plans?
    Mr. Nichols. Senator Burns, I think it is fair to say that 
if we are going to achieve significant expansion of health 
insurance coverage, we are going to have to have public monies. 
It is not our place to advocate that today. It is our place to 
tell you the implications of your choices. I will say I think 
that is where we will eventually head and that is what I would 
like to see.
    What we are trying to do, I think, is indicate we share 
your goal. Your goal is to try to find a way to get small 
business much better access to the same kinds of coverage large 
businesses have, and we are simply trying to say, compared to 
AHPs, there are better alternatives and those alternatives 
include having all firms join together, have the same kind of 
rules apply inside a new pool as outside the pool, make sure 
the solvency stays where it is, and if you really want to 
expand coverage and you are ready to make that choice, then you 
can subsidize it with tax credits or whatever and we can help 
you design that, too.
    Mr. Morrison. Senator Burns, I think your question hits on 
one of the major issues that is key to providing more 
affordable insurance to more small businesses and their 
employees all across the country. Right now, as you know, 1-in-
5 Montanans don't have any health insurance. That is about 
170,000 of us. Most of those uninsureds want to provide 
insurance to their families and the employers want to provide 
it to their employees, but they can't find it at a level they 
can afford.
    I had a conversation recently with a guy in Livingston who 
owned an auto mechanic garage, and I was there at the coffee 
shop and he came in. He was wearing his coveralls. He had 
grease still on his hand. He came down, taking a few minutes 
away from work, and he said, I am here because I want to 
provide health insurance to my employees. And I said, how much 
can you provide? How much can you pay? And he said, $100 a 
month. And I said, how much can they pay, and he said $50 a 
month each. For $150 a month each, they can't find a product, 
and so, therefore, they go bare.
    Well, meanwhile in Montana, hospitals provide treatment to 
the uninsured to the tune of $100 million a year and we are 
leaving $7,000 per year on the table in that shop that wants to 
be going toward defraying that cost shifting, but it can't find 
a way to do it.
    And so as we develop alternatives, both as State 
policymakers and Federal policymakers, the key, I think, is to 
provide access to health insurance that requires each 
individual and each employer to pay as much of their fair share 
as they can afford to pay and then step up to the level of 
being insured.
    Senator Burns. In other words, you subscribe to a 
subsidized taxpayer subsidy.
    Mr. Morrison. Well, what we did in Montana, as you may 
know, with our State House Bill 667 is we provide tax credits, 
tax credits to small businesses that are currently insured with 
two to four employees. That allows them to defray on an annual 
basis the cost of their health insurance premiums, and then for 
businesses that are currently uninsured, we allow them to join 
a purchasing pool, and the purchasing pool has rates that are 
discounted, as well.
    Now, that purchasing pool does receive some revenue from I-
149, which is the tobacco tax initiative that the people of 
Montana enacted by a vote of over 60 percent of the people. It 
creates a special revenue account and some of that revenue goes 
in to helping provide that purchasing pool access at an 
affordable price to several thousand Montana small employers.
    Senator Burns. Has this plan passed, or is it pending?
    Mr. Morrison. This has been enacted by the legislature and 
it is pending signature by the Governor.
    Senator Burns. How long is that tobacco money going to 
last?
    Mr. Morrison. We don't know exactly how long it is going to 
last. We were pretty conservative in the way we set this up to 
make sure that we took account of the possibility of a 
significant decrease in the expected revenue over time.
    Mr. Lindsay. Senator, if I may, you asked the question of 
me, as well, and just to respond, I think that our view is that 
the only way we are going to fundamentally reform our health 
insurance system and be able to control costs is we have got to 
get everybody covered. And the question is, how do you do that 
if you are going to be covering very low-income individuals?
    I would also comment that we already have substantial 
subsidies right now just in the form of the way our tax code 
works, and unfortunately, our tax code, because of the tax-
favored nature of insurance, encourages people to buy greater 
and greater insurance coverage, more than they need, because it 
is tax-deductible. Our approach would limit that tax deduction 
and use the resulting tax dollars to subsidize those that are 
low-income.
    Senator Burns. Well, I am just looking at the possibility 
of no matter where the cost shifting happens, whether it 
happens at the hospital or at the doctor's office or the 
insurance companies, it happens. And so I just want to clear 
that up on where do you want to subsidize. Evidently, all three 
of you agree that that is the case.
    Thank you very much, Madam Chair.
    Chair Snowe. Thank you, Senator Burns, and thank you for 
being here today and for your contributions. Sorry the hearing 
went so long.
    But I think it illustrates how compelling this issue is and 
the problem, and it obviously does require a diverse approach. 
This is one such approach. I am interested in hearing the 
varied views represented here on the panel today and I would 
like to get to the heart of some of these issues for a moment, 
and I won't prolong it because I know it is late and I 
understand, Mr. Mansell, you have an appointment. So I will 
finish up because Senator Kerry had a speech, so he had to 
leave.
    You heard some of the comments here today, and we obviously 
have three panelists who are opposed and expressed concerns 
about the way in which Association Health Plans are structured, 
what is going to impact the State markets. Obviously, there is 
a significant problem.
    Doug, you continue to provide insurance for your employees, 
much to your credit, given the soaring increases occurring in 
the State of Maine. It is a market dominated by one or two, 
maybe three carriers at best, but one predominately. That is 
true of many markets throughout the country. That is why you 
have seen so many--and because so many insurers have fled the 
small group markets, ultimately, you have been left with paying 
whatever costs are available for health insurance plans for 
your employees and for your families.
    You have heard some of the concerns here today about the 
idea of Association Health Plans. Is there anything you want to 
address in respect to that, whether it is on the adverse 
selection, cherry-picking, the impact on the State market, risk 
pools, so on?
    Mr. Newman. I guess I would start off by saying that the 
one unacceptable course of action is the status quo. I talk to 
small businesses every day in my association with NFIB and ABC 
and other groups. I mean, I have run into hundreds of them in 
the course of various things and I agree with what everybody 
else said. Health insurance has overtaken workers' 
compensation, regulation, taxes, all the traditional issues we 
talk about. It has just overtaken them all by leaps and bounds.
    What I think is needed to avert what could be a disaster, 
particularly in State Medicaid systems, is we need to get some 
relief focused and funneled to small businesses, the 10-, the 
20-, the 30-person firms, as soon as possible, and the reason I 
was so anxious to come down here today was just to convey that 
thought, that it is getting dire out there and that my business 
and many other businesses like mine are literally on the verge 
of just saying, OK, we can't go on.
    Health insurance is going to have to be one of the last 
checks I write, because I need health insurance to keep my 
employees. I don't know if I want to be in business. I don't 
want to be one of those businesses that doesn't offer health 
insurance.
    So we need action and we need it very quickly, and I 
understand that Association Health Plans aren't the total 
solution. I tend to disagree with some of the theories put 
forth by other folks about cherry-picking. I think the real 
danger that is going on now is economic cherry-picking. Those 
people who are finding a way to make it happen and making it 
happen, those that just can't swing it anymore or can't get 
into the market are not doing it and that is putting a huge 
burden on States.
    I think that NFIB, for example, an organization we are 
involved with that does great work for small business, there 
are no barriers to entry to NFIB. Another group, ABC, if you 
happen to be a contractor, you can join. The entry fees to 
these organizations are very, very modest. There are no 
barriers to entry. Anybody with one person or 50 could join 
NFIB tomorrow and your legislation would require NFIB to offer 
them that rate. There wouldn't be that sort of cherry-picking. 
Every small business, essentially, in the country will be 
eligible for an Association Health Plan.
    I think some of the other concerns, there might be some 
reasons why, but I think your legislation probably addresses 
some of those, as well.
    But I think the most important thing to remember is that we 
are on the verge of a crisis out there. Seventy percent 
increases aren't sustainable. They are just literally not 
sustainable. And if we don't do something in the next year or 
two, I won't be offering health insurance. I know of dozens, if 
not hundreds, of other businesses that aren't going to be 
offering health insurance, and then where are we going to be? I 
don't think we have the time to go down a path of more 
comprehensive solutions. I think immediate action is needed, 
and I think this would provide immediate relief to a lot of 
small businesses and I don't think, personally, I don't think 
that the detriment that has been described by others would 
necessarily result.
    Chair Snowe. I appreciate your comments and I thank you for 
taking the time to fly down here and be here today.
    You know, it is interesting, because I think we have to get 
to the real world solutions given the crisis that has 
surrounded small business regarding this particular issue that 
has emerged as the number one issue for a very good reason, if 
you look at that chart and what you are experiencing in your 
own world.
    Mr. Mansell, you are saying your association would expand, 
is that the potential here?
    Mr. Mansell. No. No.
    Chair Snowe. No, not in terms of your members, but in terms 
of the ability to provide----
    Mr. Mansell. Well, actually, what our association would 
like the ability to do would be to group our people together 
and be able to purchase from an insurer, our current insurer.
    Chair Snowe. Right.
    Mr. Mansell. We are not interested necessarily in becoming 
an insurance company. That is not the direction our association 
is interested in. We are interested in being able to group 
purchase insurance at a better rate. We do not have a ``cherry-
picking problem.'' The association doesn't choose its members. 
They come to us basically through being hired at real estate 
companies and joining local boards and State associations and 
so forth.
    Chair Snowe. Well, how do they join your association? What 
questions do you ask, if any, other than paying dues?
    Mr. Mansell. The questions we ask is, are you licensed by 
the State, if there is a license law, and will you abide by the 
code of ethics of the National Association of Realtors. Other 
than that, you are in. It is not a real heavy entrance barrier 
for folks to get into the association. The ability for people 
to play with that, ``cherry-pick,'' as it has been talked about 
here, in our association, that isn't even in the realm of 
possibility. We are not interested in this from a standpoint of 
generating revenues. We don't need the revenues. We need the 
insurance, and our association would act as a facilitator to 
get this done, not as somebody that is going to collect 
revenues.
    Chair Snowe. And that is one of the points in this 
legislation. But again, I am open to discussion on some of 
these questions. But on the reserve requirements, when we are 
talking about--Senator Kerry is referring to $2 million. Well, 
the reason for that is so there wouldn't be the ability to 
charge excessive premiums unnecessarily for the members.
    Mr. Mansell. Right.
    Chair Snowe. And so that is the reason for that cap. But 
again, we can look at that particular issue. But I thought it 
was compelling, what you had mentioned, that 77 percent of your 
realtors want to be able to participate. I mean, that, again, I 
think, speaks to the large question here that is at stake.
    Mr. Mansell. It is a very serious problem. The other part 
of our group who are insured are insured mainly on individual 
policies and the problem they have is that as soon as they have 
any sickness in their family, they get canceled. And so it is a 
real serious problem for our group, even those that are willing 
and able to purchase insurance. There are some serious 
barriers, and that is why grouping together would be so 
valuable for us.
    Chair Snowe. Mr. Haynes, you have heard some of the points 
that are mentioned, and I know you want to be able to--you had 
the experience, I gather, on a State-by-State basis, is that 
correct?
    Mr. Haynes. We are doing it today.
    Chair Snowe. You are doing it today?
    Mr. Haynes. For the big businesses in our association.
    Chair Snowe. I see.
    Mr. Haynes. The carrier is willing to go through all the 
hurdles and the administrative obstacles caused by complying, 
but the carrier will not, and we have not been able to find 
anyone who will accept in that program a bottler with less than 
50 employees. In fact, everybody basically below about 125, 
they sort of push away and don't want to do. It is only the big 
businesses that they are willing to go through the State 
mandates because there is enough business there, there is 
enough revenue there to handle the administrative expenses.
    The other thing, just a couple of points I might respond 
on. The mandate issue, the perception is that the problem with 
mandates is that we don't want to provide coverage for breast 
cancer screening or prostate cancer screening or something like 
that. Nothing could be further from the truth. We provided that 
when we had a small group program and we would provide it 
today. Our smaller bottlers want to provide health care 
benefits to their employees that are comparable to the larger 
bottlers. If they don't, they lose those people and lose their 
ability to survive.
    The issue with the mandates is not an individual mandate or 
a couple of mandates, it is 50 different sets of mandates. It 
is simply the administrative burden associated with complying 
with all sorts of different requirements and preparing all the 
documentation, training all the people who have to understand 
what the mandate is in that State.
    An example would be we have got, within our existing 
program, we have got somewhere in the range of six or seven 
different definitions of when a dependent must remain in the 
program because there are lots of different State rules on it. 
Some States say as long as they are a full-time student. Some 
States say as long as they are a part-time student with X-
numbers of hours. Some say until the age of 21 regardless of 
status. So if you have got 25 or 50 people that you are trying 
to add to a program from one of these smaller bottlers and 
there are four different definitions of dependent coverage, 
preparing all the documentation eats up the potential for 
including them in the program, so we can't get them in.
    And a lot of the mandates--another one we have is we have 
got a program that basically encourages employees to order 
prescription drugs by mail order. Well, there are States that 
prohibit creating any sort of incentive for mail order pharmacy 
prescriptions. So we have got some States where we can do it 
and some States where we can't, which is different 
documentation, different training for the people who are 
handling the claims management.
    We are able to do it as long as there is critical mass 
within an individual participant, but we simply can't extend it 
to the small businesses, which is the disparity issue that is 
really troubling.
    Chair Snowe. And what was the feedback from your 
membership, for example, on your plans in terms of---because 
this whole race to the bottom, the idea there are going to be 
bare-bone plans and trying to get around State mandates. I 
mean, what was the feedback in terms of designing a plan that 
was good for your members?
    Mr. Haynes. When we had them in our plan, the plan for the 
small members was comparable to the plan for the big members, 
which was comparable to the plan for big Fortune 500 companies, 
really no material difference. They wanted a comparable plan as 
long as the cost was reasonable, and that is what they would 
like today. Today, they have less comprehensive plans at higher 
costs.
    Chair Snowe. I appreciate that.
    Mr. Nichols, Mr. Morrison, and Mr. Lindsay, obviously, you 
are on the other side of the equation on this debate. You have 
heard the concerns here expressed today and some of the issues 
surrounding the desire to have this plan for small businesses 
as an option. I mean, frankly, insurers are leaving the States, 
I mean, leaving very few left. That is true in the State of 
Maine, for example, as Doug will tell you. There are very few 
carriers left to offer any competitive pricing for insurance 
plans. So ultimately, what is the State's responsibility in 
that sense?
    The goal of AHPs isn't to circumvent and to get out from 
underneath the State mandates. The goal and desire is to have a 
plan to offer their employees, hopefully with many of the 
benefits that are now required under State law. But right now, 
given what is happening in Maine and elsewhere across the 
country is that these pools are diminishing to the point there 
is no competitive ability to leverage a reasonable price for 
these plans.
    I mean, we have a dominant carrier, which we know is true. 
The Government Accountability Office issued a report several 
years ago and we know. I mean, we know what the largest 
carriers for small group markets in most of the markets across 
America. So it is either one to three, maybe five at best. So 
there is no leverage for pricing, and so hence the crisis that 
we are facing and the soaring premiums.
    So what is the responsibility of the States? How do you get 
around this? How do you solve this problem now if you don't 
have $75 billion to address some of the other plans that we are 
talking about here today, or $18 million the first 5 years and 
well beyond that? Do you see what I mean? I mean, there are a 
lot of other issues we can address, but right now, this is an 
option, and you are hearing it from small business in the real 
world experience. So what do we do?
    Mr. Lindsay. Madam Chair.
    Chair Snowe. Yes.
    Mr. Lindsay. In response to your question, I think as you 
have just identified, the problem we have in America is not 
availability of insurance, because HIPAA provided that for 
small businesses. The problem we have is the cost of the 
insurance. And the key fundamental issue is going to be--and of 
course, the majority of small business members, if they were 
told that they could purchase into a pool would want to do it, 
but no one has told them yet what it would cost, and that is 
the ultimate issue.
    And so the question is, how is an AHP going to lower the 
cost? The reason why most of us are so concerned about the 
issue of selection is that when you deal with health insurance 
premiums, you have very few options to control costs. The first 
is you get costs down by having positive selection. The people 
who buy your product are healthier than those who buy someone 
else's product. You do that by tiering your rates based on age, 
because if you are an association, you want to have people 
benefit from your program and so you are going to want to keep 
that rate low.
    The second way is by the coverage that you offer. If you 
offer the most comprehensive plan, you are going to appeal to 
people who are going to use that comprehensive plan and it is 
going to raise the rates. There is no magic here.
    And then the only other third way would be negotiating 
better deals with providers. As I have already mentioned in my 
testimony, provider discounts are local based on the number of 
people in that market who participate, and you are going to be 
competing with already large payers who are in that market and 
getting the best possible rate.
    So my view is the concern about AHPs, and it is a noble 
attempt and it is a very important attempt to address a 
difficult problem, but it is the effect it is going to have on 
the rest of the market that is so disturbing. The concern that 
I have is the public policy impact on those people who are 
currently insured who are not association members or who have 
older, less healthier workers, because it is going to be those 
people who get cost shifted to.
    Mr. Morrison. Madam Chair, first, the pleas of the people 
on that side of the table are similar to the ones that I hear 
all over Montana. No question about the urgency of this 
problem. Things do need to be done.
    We believe that AHPs are not likely to deliver the kind of 
relief that some other approaches are. An important thing to 
realize about AHPs is the way they deliver benefit to anyone is 
by segmenting the market. It is the only way that an AHP can 
deliver a benefit, because the benefit of pooling in terms of 
saving money comes in terms of negotiating deals with insurance 
companies, and when you are not negotiating a deal with an 
insurance company, pooling does not bring down rates. It 
stabilizes rates, but it doesn't bring them down.
    And so the only way an AHP member gets a lower rate is if 
they can break off with a group of people in some fashion that 
have lower medical costs. And so we insurance regulators oppose 
that because we believe that the people who break off and will 
have lower costs are going to wind up being a minority and a 
majority are going to wind up being stuck with premium 
increases.
    Now, there are some very constructive things that we can 
do. Number one, taking that money off the sidelines that I 
described. All of those small businesses out there that are 
uninsured right now, half nationally, 60 percent in Montana, 
want to be contributing something. Let us find a way to allow 
them to contribute what they can toward the overall cost of 
delivering health care.
    Number two, personal health issues, dealing with people 
taking charge of their own health and being accountable for 
their own health. We have seen health management programs in 
workplaces in Montana that have resulted in flat insurance 
premiums over time because they get people's cholesterol down, 
their blood pressure down, they get them to stop smoking, 
control their weight, and so forth, and these have a real 
effect on the need for health care.
    Number three, utilization, which is closely tied with 
advertising. The commercialization of some of these health care 
products and services has resulted in higher utilization than 
we used to have historically.
    And then finally, some of these issues that Senator Clinton 
and Senator Frist have taken up in terms of eliminating 
duplication and inefficiencies in the communication process and 
so forth. These present some real opportunities to actually 
bring down the cost of delivering health care here in the 
United States, which is what is going to ultimately bring down 
the cost of health insurance for small businesses.
    Chair Snowe. So how long should small businesses wait? I 
mean, I think that is the point: How long should small 
businesses wait when they are in the midst of a crisis that is 
only growing? Corporations and unions are allowed to be exempt 
from State mandates, and they offer the most generous plans. 
Nobody is saying, well, we ought to fold them back into the 
State risk pools. It is a question of having the leverage to 
purchase at better price that no one is helping small business 
out with right now.
    I don't know. It seems to me this is a practical approach, 
because it costs little money. It actually reduces Medicaid 
costs to the States. It will increase the number of insured and 
it will give them the ability to have a plan for their 
employees that actually, according to the Congressional Budget 
Office, will reduce premium costs, costs to the employers, as 
well. It has been documented by CBO that it would bring down 
the costs, so it is a start.
    It may not be everything. We can address some of the other 
issues. But I don't see--I am having a hard time figuring out 
what is exactly the problem here in terms of practical 
application of this issue in allowing associations--allowing 
small businesses to cross State lines, because that is what it 
is all about. It is not trying to bypass what you do every day, 
Mr. Morrison. I think it is a question of how best we get at 
this particular problem that is really leaving small businesses 
on, as the President says, on an island unto themselves right 
now because there is no lifeline. So that is one of the 
problems that we are grappling with.
    Mr. Nichols. If I could, Madam Chair, I think in the 
attempt to create a level playing field for small business vis-
a-vis the large businesses and unions you talked about, the 
AHPs do that. But in doing so, they make the field unlevel vis-
a-vis those insurance products that are still regulated and 
fully insured in that market. And so in an attempt to solve one 
problem, you kind of make the other part unlevel.
    What I am worried about is not the intent or the actions of 
these individuals or the people who are going to set up 
Association Plans for trade associations. They are going to 
take care of their trade members because they have got lots of 
reasons to keep them there. I understand that.
    What I am worried about is precisely, Madam Chair, the 
urgency of employers looking for the cheapest possible way for 
them to buy insurance. When they are low risk, they will find 
the NFIB product, the general product to which they can enter 
for $50, very attractive. When they are not, Madam Chair, they 
will find it less attractive. They will then come back to the 
fully-insured sector where all those benefit mandates exist and 
those prices are going to just go up and up and up and up, and 
that is what we are worried about, not the motives of these 
individuals but the way the search for lower cost will play out 
in a real marketplace. That is what we are scared of.
    Chair Snowe. It is just giving them the option, though. I 
mean, I guess I am not sure why--if it is not competitive, they 
won't join.
    Mr. Nichols. They will join, Madam Chair. The issue is what 
happens to those who can't join or don't want to join or find 
that the price to them in these unregulated situations are less 
appealing than they looked when their workers were all healthy. 
That is the question.
    Chair Snowe. OK. Mr. Haynes, I will give you the last word.
    Mr. Haynes Can I respond to all three, but particularly to 
Mr. Nichols, because I think analytically he is right in the 
sense that if only some part of small business can benefit from 
AHPs, then you have to look at where everyone else is.
    My view is that there are trade associations out there that 
will cover most, if not all, of the small business community. 
You have broad-based associations like NFIB that I believe 
can--I think most small businesses are part of some association 
that is going to pursue one of these plans.
    And here is the other fundamental thing, and I think it is 
missing in what we have all said, including me, and I think the 
exception is Doug Newman, because he points out something that 
I think is very powerful in this which is the profit motive. It 
is not true that the only money that an association can bring 
to its members by getting involved in this comes from adverse 
selection. There is the possibility of lowering administrative 
costs through group purchasing, but there is something really 
powerful, which is the profitability of the private commercial 
small group carriers, the people who are currently supplying 
small business, and the fact is that trade associations are 
almost universally non-profits and whatever money we are 
making, we are returning to our members.
    The Blue Cross system in the United States, just from what 
I have looked at on the Internet last night, looks to be making 
maybe as much as $5 billion a year selling small group 
insurance. Now, I think they can withstand some competition and 
still serve the small group market. I think they could afford 
to lose some of their more profitable pieces of business and 
still very adequately serve the small group market.
    And I think that is really the concern that Len expresses, 
which is really what I see as the most fundamental concern. I 
think that is the answer to that. I think the people who are 
writing small group insurance can continue to do it even if 
there is a small amount of adverse selection.
    Mr. Lindsay. Madam Chair.
    Chair Snowe. Yes.
    Mr. Lindsay. One question you have asked repeatedly is this 
whole question that if large business can do it, if unions can 
do it, why can't small business do it, and I think that is a 
part of this issue. And I think that is a worthy challenge.
    But I think the only way that you have a level playing 
field in that sort of intellectual foray is that insurance has 
to be mandated. The problem is, if we have--just by way of 
example, 5,000 businesses each with ten employees in a pool, 
50,000, from a risk profile standpoint, they don't operate the 
same way that a 50,000 single-employer business does. A single-
employer business that buys insurance buys it unemotionally for 
everybody. The CFO makes a decision based on what is right for 
the company and what is realistic for the employees.
    In the example I used with 5,000 businesses, they are going 
to make a decision based on what is in their enlightened self-
interest. What is covered in the plan? How much are the rates? 
So each of those 5,000 units are going to make individual 
decisions.
    So we don't have a level playing field in terms of the 
analogy of small businesses being able to operate like a big 
business. And as long as insurance is voluntary, that is the 
problem. If this body were to make a decision that insurance 
was required, then associations could be able to work because 
then everybody would be on a level playing field.
    The challenge that insurance companies have, and I would 
argue associations have, is the risk profile of people who come 
to them. In the insurance business, we call it adverse 
selection, and it is that adverse selection that would be the 
concern.
    So the only way for an association to protect its members, 
not to game its members but to protect them, would be to put up 
these kinds of safeguards, and what we are talking about is 
that those protections then unlevel the playing field, because 
in the traditional fully-insured market, you can't do that 
under State law. And so it is the unintended consequences that 
are the concern.
    Chair Snowe. OK.
    Mr. Morrison. If I could just add to that briefly----
    Chair Snowe. OK.
    [Laughter.]
    Mr. Morrison. When you are dealing with 5,000 employers, it 
is going to be hard to save administrative costs the same way 
as if you have one employer with that many employees.
    Chair Snowe. You have had the experience. Do you agree?
    Mr. Haynes. Absolutely not. Our administrative costs are 
comparable. We have 6,000 people in our pool spread across 12 
bottlers and our administrative costs are, as far as I know, 
comparable to our largest bottler, which has 77,000 employees.
    Chair Snowe. You know, it is interesting, because it does 
document that administrative costs will come down. I mean, that 
is the analysis that we have been given with respect to that, 
obviously, because it will have greater efficiency.
    Yes, Doug.
    Mr. Newman. If I could just make one final comment.
    Chair Snowe. Well, it is only fair to give a Mainer the 
final word.
    [Laughter.]
    Mr. Newman. On the issue of mandates, because I think it is 
something that we sort of forget, and that is why are small 
businesses seeking out this huge expense of offering health 
insurance to their employees, and I think that one of the best 
controls and mechanisms that is around that is going to protect 
employees on the issue of mandates is employers are buying 
health insurance because they are accountable to their 
employees. And if I went out tomorrow and bought a really lousy 
health insurance plan, believe me, I would pay the price for 
it.
    I think few businesses are likely to go down that path 
because we are accountable every day. It is a benefit we are 
trying to offer because we are trying to compete. So I don't 
think that the issue of mandates is about trying to buy a bare-
bones product to go out there and save a whole bunch of money 
because you are going to be shooting yourself in the foot with 
your employees.
    I think the elimination of mandates does one very important 
thing, is allows for innovation. I only have one choice a year 
in my health insurance. I might get two quotes, but it is the 
same choice for the same product. Everybody would agree on this 
panel that what we need to do in health insurance is create 
some innovation, try some new ideas, and get some personal 
accountability out there, and eliminating the mandates allows 
for that.
    Chair Snowe. Well, thank you all. Thank you, Doug. Thank 
you very much for being here and your willingness to testify 
and for your patience and endurance here today, for the hearing 
going much longer. But, you know, frankly, I thought it was 
very helpful to the discussion and I was actually very 
encouraged by some of the issues raised today and by Senator 
Kerry, Senator Burns, and others that hopefully will advance 
this debate and ultimately to reach some real concrete 
resolutions.
    So thank you all very much, and the record for this hearing 
will remain open for an additional 2 weeks, until noon on May 
4, for the submission of any additional testimony.
    This hearing is adjourned. Thank you.
    [Whereupon, at 1:29 p.m., the hearing was adjourned.]

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                           APPENDIX MATERIAL

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