[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]


 
                  HEALTH CARE REFORM: RECOMMENDATIONS
                       TO IMPROVE COORDINATION OF
                     FEDERAL AND STATE INITIATIVES

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                     EMPLOYMENT, LABOR AND PENSIONS

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, MAY 22, 2007

                               __________

                           Serial No. 110-40

                               __________

      Printed for the use of the Committee on Education and Labor


                       Available on the Internet:
      http://www.gpoaccess.gov/congress/house/education/index.html


                                 ______
                                     
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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       Howard P. ``Buck'' McKeon, 
    Chairman                             California,
Donald M. Payne, New Jersey            Ranking Minority Member
Robert E. Andrews, New Jersey        Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia  Peter Hoekstra, Michigan
Lynn C. Woolsey, California          Michael N. Castle, Delaware
Ruben Hinojosa, Texas                Mark E. Souder, Indiana
Carolyn McCarthy, New York           Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts       Judy Biggert, Illinois
Dennis J. Kucinich, Ohio             Todd Russell Platts, Pennsylvania
David Wu, Oregon                     Ric Keller, Florida
Rush D. Holt, New Jersey             Joe Wilson, South Carolina
Susan A. Davis, California           John Kline, Minnesota
Danny K. Davis, Illinois             Bob Inglis, South Carolina
Raul M. Grijalva, Arizona            Cathy McMorris Rodgers, Washington
Timothy H. Bishop, New York          Kenny Marchant, Texas
Linda T. Sanchez, California         Tom Price, Georgia
John P. Sarbanes, Maryland           Luis G. Fortuno, Puerto Rico
Joe Sestak, Pennsylvania             Charles W. Boustany, Jr., 
David Loebsack, Iowa                     Louisiana
Mazie Hirono, Hawaii                 Virginia Foxx, North Carolina
Jason Altmire, Pennsylvania          John R. ``Randy'' Kuhl, Jr., New 
John A. Yarmuth, Kentucky                York
Phil Hare, Illinois                  Rob Bishop, Utah
Yvette D. Clarke, New York           David Davis, Tennessee
Joe Courtney, Connecticut            Timothy Walberg, Michigan
Carol Shea-Porter, New Hampshire

                     Mark Zuckerman, Staff Director
                   Vic Klatt, Minority Staff Director
                                 ------                                

         SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                ROBERT E. ANDREWS, New Jersey, Chairman

George Miller, California            John Kline, Minnesota,
Dale E. Kildee, Michigan               Ranking Minority Member
Carolyn McCarthy, New York           Howard P. ``Buck'' McKeon, 
John F. Tierney, Massachusetts           California
David Wu, Oregon                     Kenny Marchant, Texas
Rush D. Holt, New Jersey             Charles W. Boustany, Jr., 
Linda T. Sanchez, California             Louisiana
Joe Sestak, Pennsylvania             David Davis, Tennessee
David Loebsack, Iowa                 Peter Hoekstra, Michigan
Phil Hare, Illinois                  Cathy McMorris Rodgers, Washington
Yvette D. Clarke, New York           Tom Price, Georgia
Joe Courtney, Connecticut            Virginia Foxx, North Carolina
                                     Timothy Walberg, Michigan
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 22, 2007.....................................     1

Statement of Members:
    Andrews, Hon. Robert E., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     3
    Baldwin, Hon. Tammy, a Representative in Congress from the 
      State of Wisconsin.........................................     5
        Prepared statement of....................................     7
    Kline, Hon. John, Senior Republican Member, Subcommittee on 
      Health, Employment, Labor and Pensions.....................     3
        Prepared statement of....................................     4
        Additional submissions:
            Letter from an employment community..................    58
            Prepared Statement of the ERISA Industry Committee...    59
            Prepared Statement of the HR Policy Association......    60
            Prepared Statement of the Society for Human Resource 
              Management.........................................    62
            Letter from the Corporate Health Care Coalition......    63
            Letter from the Business Roundtable..................    64
            Prepared Statement of Faith Cristol, vice president, 
              Workforce and Tax Retail Industry Leaders 
              Association........................................    64
    Hon. Tom Price, M.D., a Representative in Congress from the 
      State of Georgia...........................................     8
        Prepared statement of....................................    10
    Hon. John F. Tierney, a Representative in Congress from the 
      State of Massachusetts.....................................    11
        Prepared statement of....................................    12

Statement of Witnesses:
    Colmers, John, Secretary, Maryland Department of Health and 
      Mental Hygiene.............................................    25
        Prepared statement of....................................    27
    Covert, Kevin, vice president and deputy general counsel for 
      human resources, Honeywell International, Inc..............    33
        Prepared statement of....................................    35
    Goldman, Steven M., New Jersey Commissioner of Banking and 
      Insurance..................................................    45
        Prepared statement of....................................    47
    Kofman, Mila, J.D. associate research professor, Health 
      Policy Institute, Georgetown University....................    17
        Prepared statement of....................................    19
    Moore, Amy N., Covington & Burling LLP.......................    39
        Prepared statement of....................................    40
    Morrison, John, J.D., Montana State Auditor and Commissioner 
      of Insurance and Securities................................    29
        Prepared statement of....................................    31


                  HEALTH CARE REFORM: RECOMMENDATIONS
                       TO IMPROVE COORDINATION OF
                     FEDERAL AND STATE INITIATIVES

                              ----------                              


                         Tuesday, May 22, 2007

                     U.S. House of Representatives

         Subcommittee on Health, Employment, Labor and Pensions

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 3:00 p.m., in 
Room 2175, Rayburn House Office Building, Hon. Robert Andrews 
[chairman of the subcommittee] presiding.
    Present: Representatives Andrews, McCarthy, Tierney, Wu, 
Sestak, Loebsack, Hare, Courtney, Sarbanes, Kline, McKeon, 
Boustany, and Price.
    Staff present: Aaron Albright, Press Secretary; Tylease 
Alli, Hearing Clerk; Carlos Fenwick, Policy Advisor for 
Subcommittee on Health, Employment, Labor and Pensions; Michael 
Gaffin, Staff Assistant, Labor; Joe Novotny, Chief Clerk; Megan 
O'Reilly, Labor Policy Advisor; Michele Varnhagen, Labor Policy 
Director; Steve Forde, Minority Communications Director; Ed 
Gilroy, Minority Director of Workforce Policy; Rob Gregg, 
Minority Legislative Assistant; Victor Klatt, Minority Staff 
Director; Jim Paretti, Minority Workforce Policy Counsel; Molly 
McLaughlin Salmi, Minority Deputy Director of Workforce Policy; 
Ken Serafin, Minority Professional Staff Member; and Linda 
Stevens, Minority Chief Clerk/Assistant to the General Counsel.
    Chairman Andrews [presiding]. The subcommittee will come to 
order if everyone would please take their seats.
    I first want to thank our witnesses and guests for their 
indulgence in the late starting of the hearing. We had a series 
of 10 votes on the House floor, which took us for a substantial 
period of time, and, unfortunately, there is going to be, I 
think, one more interruption in about an hour. But we very much 
appreciate the indulgence of those who traveled to be here 
today, and we thank you very, very much for your patience.
    The purpose of today's hearing is to explore the issues 
that are raised by creative state solutions to the perplexing 
problem of the growing number of uninsured in our country.
    The number seems to rise as time goes on. When I first had 
the privilege of being elected to this body in 1990, I believe 
we had 35 million uninsured, and then by the beginning of the 
1990s, 1992-1993, we had 40 million uninsured. Now it is 
somewhere between 45 million and 47 million uninsured.
    There have been modest steps at the federal level, most 
especially the achievement in 1997 with the adoption of the 
State Children's Health Insurance Program, which is up for 
reauthorization this year. And I should indicate that we are 
involved in efforts with the Committee on Energy and Commerce 
to try to provide some additional employer options under that 
provision.
    But the truth of the matter is the federal government has 
not made a dent in fixing this program. Creative state leaders 
around our country, both Republican and Democratic, have made 
significant progress, not always without controversy, but have 
made significant progress.
    The purpose of our hearing today is twofold. It is to 
consider mechanisms by which state efforts to decrease the 
number of uninsured can be properly incorporated into the 
federal legal structure. That is to say: How can we give 
creative policymakers at the state level in both the Republican 
and Democratic parties the opportunity to effectuate good 
solutions to problems that will decrease the number of 
uninsured?
    We are going to hear from two panels today about that 
question. One is a panel of three of our colleagues that have 
an innovative idea to encourage more state innovation. And then 
the second is from a panel that will consist of experts in this 
health care legal field as well as representatives of state 
governments from throughout the country.
    The second question that we are going to address is how to 
strike the proper balance between innovative state solutions 
and the federal statute, the ERISA statute, which has governed 
this area of the law for 33 years. ERISA has set up a finely 
balanced structure, where the ability of employers to enjoy one 
set of rules through federal preemption has, in fact, 
encouraged a number of employers to voluntarily provide 
generous and sustained benefits for employees for a very long 
period of time.
    I would like to believe that we do not have to choose 
between disrupting that balance and encouraging creativity at 
the state level. I do not think this is an ideological problem. 
I think it is a practical problem.
    And I would invite comment from all of our colleagues on 
the subcommittee and the full committee in finding ways that we 
can retain the very laudable aspects of ERISA, which have given 
us a stable environment for employers to offer health benefits 
and pension benefits, but while at the same time encouraging 
creative state policymakers to do something we failed to do 
under both Democratic and Republican congresses and 
administrations in Washington, which is to reduce the number of 
uninsured people in the country.
    I believe there is an inextricable link between the growing 
number of uninsured and the rising costs of health care for the 
insured, and I believe that until we make significant progress 
in reducing the number of uninsured, we will not make 
significant progress in reducing the burden of health insurance 
premiums, copays, deductibles and other costs for those who are 
insured.
    So we want to kick off this discussion today. We, again, 
thank the witnesses for their discretion.
    And, at this time, I would turn to the distinguished 
ranking member of the subcommittee from Minnesota, Mr. Kline.

   Prepared Statement of Hon. Robert E. Andrews, a Representative in 
                 Congress From the State of New Jersey

    Good afternoon and welcome the Health, Employment, Labor, and 
Pensions Subcommittee hearing today entitled ``Health Care Reform: 
Recommendations to Improve Coordination of Federal and State 
Initiatives.'' This is part II of the HELP Subcommittee's hearing 
series on solutions to covering the uninsured. During our last hearing, 
we heard testimony from several health care policy experts regarding 
various states' innovative ideas to address the problem of the 
uninsured. In this hearing, we will hear directly from several state 
officials regarding their state's health care initiatives and the 
challenges federal law presents to them. In addition, we will hear from 
several Members of Congress regarding a proposal that would establish a 
commission to provide certain waivers and grants to states who want to 
increase health care.
    The purpose of today's hearing is to address the question of 
whether the federal government should provide states with waivers from 
the federal law known as the Employee Income Retirement Security Act 
(ERISA) in order to meaningfully implement their state health care 
initiatives. Although ERISA's original intent was to establish minimum 
funding and vesting standard for pension plans, its effect has created 
an unintended consequence that prohibits states from regulating 
employer-sponsored health plans.
    While the United States spends over $1.6 trillion on health care 
annually, which represents over 15% of our Gross Domestic Product, we 
nevertheless remain the only industrialized nation that does not 
guarantee health care for all of our citizens. Today, with over 46 
million Americans still without health insurance, Congress and states 
need to work together, now more than ever, to provide a solution to 
this dilemma. Whether we establish a national healthcare model or 
provide states with the necessary flexibility to implement smart, 
effective health care initiatives or devise a plan that improves 
coordination of federal and state health care initiatives, the time to 
do so is now. I look forward to hearing our witnesses' testimony today 
and the healthy debate we will have regarding a problem that has been 
ignored for far too long.
                                 ______
                                 
    Mr. Kline. Thank you, Mr. Chairman.
    I, too, would like to thank the witnesses. It is always 
interesting and fascinating and enjoyable to see our colleagues 
down there at the witness table, so I am looking forward to 
hearing from them and then, of course, from the panel of 
experts which will follow them.
    In the interest of time--and I know some of the panelists 
actually have plans to try to get on an airplane sometime this 
evening, so we will try to move through quickly--I have a 
statement which I would ask unanimous consent to be entered in 
the record.
    Chairman Andrews. Without objection.
    Mr. Kline. And then I would just say that as we look at 
this problem of the uninsured and innovative ways to solve it, 
we would be very careful to recognize, as the chairman said, 
that we have a balance here. And we do not want to destroy the 
voluntary efforts of employers who provide the vast majority of 
health insurance for Americans, and we want to be very careful 
not to damage ERISA in such a way that it would preclude that 
service in providing that insurance.
    So, with that, Mr. Chairman, I will just say thanks to the 
witnesses and yield back to you.
    [The opening statement of Mr. Kline follows:]

   Prepared Statement of Hon. John Kline, Ranking Republican Member, 
        Subcommittee on Health, Employment, Labor, and Pensions

    Good afternoon. I'd like to thank Chairman Andrews for convening 
this hearing this afternoon, on an issue that impacts every American. 
At a prior hearing in March, this Subcommittee examined the delivery of 
health care in this country, and began to explore many of the issues 
confronting our nation's health care system, including efforts to 
improve health care quality, access and affordability.
    I think one the of the important points coming out of that hearing 
is that regardless of the problems that we may face, be it rising 
health care costs or the uninsured, it is very important that we keep 
in mind some of the success of the current employer-based health care 
system, a voluntary system that provides the most common form of health 
care coverage for individuals and workers.
    For example, the current system delivers high quality coverage for 
about 160 million Americans. Testimony from the last hearing reflected 
the fact that American businesses are true innovators in efforts to 
redesign the health care system to improve price and quality 
transparency, and reduce costs. The private sector is leading efforts 
to help people learn the true costs of medical services, developing 
health care provider report cards, adopting value-based purchasing 
systems, and implementing wellness and disease management programs.
    The driver behind the successes of the employment-based system is 
the federal ERISA law. Specifically, the existence of ERISA, and its 
preemption of state law, means that American businesses can provide 
high quality, uniform benefits to all their employees across state 
lines. And that means companies with workers across the nation can 
provide uniform national coverage, without having to worry about 
abiding by 50 different sets of rules in order to offer insurance, 
which prevents headaches and saves money.
    Notwithstanding the successes of ERISA, states continue to have a 
role to play in this process, and many have developed health care 
proposals worthy of consideration. However, certain state proposals may 
undermine the efficiencies developed under ERISA, and have adverse 
impacts on the ability to provide efficient, affordable health care 
coverage. We must be wary of any attempts, however well-intentioned, to 
impose state mandates that detract from the goal of improving access 
and efficiency.
    When we explore whether or not the federal government should 
provide ``temporary'' waivers of ERISA preemption to permit states to 
more freely experiment, we must be mindful of the impact on the current 
structure, and take care not penalize ``good actors'' that are 
providing the type of health care benefits so highly valued by 
Americans. Also, we must be mindful of the potential difficulties 
associated with creating a waiver program, the fact that waivers once 
granted are unlikely to be revoked, and the potential that we will 
incur significant costs in permitting waivers of ERISA preemption.
    In addition, we must not forget that the Committee has taken the 
lead in efforts to improve the current system, such as the creation of 
Association Health Plans which would make it easier for individuals and 
small businesses obtain affordable health care coverage comparable to 
that provided by multi-state employers. I am hopeful we can continue to 
work together to reach consensus on measures to provide more affordable 
and efficient ways of providing health care benefits.
    Despite what we may agree to be the flaws of the current system, 
the private sector, as opposed to government, is in the best position 
to lead reform efforts and effectuate change. While there is a role for 
government, we must recognize the potential impact of any change, and 
take care to improve the system while not unnecessarily disrupting the 
high quality coverage enjoyed by most Americans.
    I'd like to welcome our distinguished witnesses today, including 
three of my colleagues who are here to discuss their bill, H.R. 506, 
the Health Partnership Through Creative Federalism Act, which is a 
helpful proposal that seeks to address some of the very problems we 
will discuss today. I look forward to everyone's testimony.
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Kline.
    Without objection, all members will have 14 days to submit 
additional materials for the hearing record.
    I am pleased to welcome three of our colleagues--the third 
is on his way--who have introduced some innovative legislation 
to encourage creative solutions at the state level with respect 
to this problem.
    Congressman Tom Price is a member of our committee. He is a 
second-term member representing the 6th District of Georgia. He 
is a physician. He is known as Dr. Price. Tom has been an 
outspoken advocate for patient-centered health reform and for 
finding solutions for covering the uninsured.
    And, Tom, we look forward to your comments.
    Congresswoman Tammy Baldwin is a fifth-term congresswoman 
representing the 2nd Congressional District of Wisconsin. She 
is a leading advocate for universal health care, protecting 
Social Security and Medicare, and increasing support for public 
education, including financial aid for higher education.
    Welcome, Tammy.
    And to join us in just a moment--he will go third--is 
another member of our committee, Congressman John Tierney, who 
is a 6th District member representing Massachusetts' 6th 
District. He has developed a national reputation as an 
effective legislator fighting for America's working families. 
John is also a member of our subcommittee.
    So I would ask, Congressman Price, if you would like to 
lead off. We welcome you home to your home committee.
    Dr. Price. I thank you, Mr. Chairman. If I may, I will 
yield to Congresswoman Baldwin, who was----
    Chairman Andrews. That will be just fine.
    Tammy, welcome.
    Dr. Price [continuing]. The genius behind of all of this at 
the beginning.
    Chairman Andrews. Glad to have you with us. You should know 
that any written statement will be entered into the record, 
without objection. And you are welcome to make an oral 
statement at this time.

 STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WISCONSIN

    Ms. Baldwin. Thank you, Mr. Chairman, and thank you, 
Ranking Member Kline. I very much appreciate the opportunity to 
testify before the committee today.
    I think members of the subcommittee are undoubtedly aware 
that over 46 million Americans are uninsured. Millions more are 
underinsured. In fact, the Commonwealth Fund recently released 
a study estimating that there are 16 million Americans who are 
underinsured, meaning that their insurance did not adequately 
protect them against catastrophic health-care expenses.
    So, in aggregate, we have 62 million Americans with no 
health insurance, sporadic coverage or insurance coverage that 
leaves them exposed to high health-care costs. Sixty-two 
million is about 20 percent of our nation's population, one in 
five.
    Meanwhile, as was noted in the chairman's opening 
statement, Congress has taken no significant steps to provide 
health care to these uninsured and underinsured Americans, and 
this lack of progress is not for want of ideas. We all know 
that various proposals have been floating around in Congress 
for years, even decades.
    Believe it or not, we have been talking about this issue at 
the federal level for more than 60 years. The first bill 
calling for national health care was introduced in the House by 
Representative John Dingell, Sr., in 1943, and as a tribute to 
his father, his son, John Dingell, Jr., has been introducing 
that same bill as H.R. 15 every session since.
    In every session, we have a number of bills purporting to 
increase access or to create a national health-care system. 
About 24 bills to expand health-care coverage have already been 
introduced in this 110th congressional session. Sixty-two bills 
were introduced in the 109th Congress, and most were intensely 
partisan.
    So, clearly, on the issue of health care for all, we are 
not at a loss for words or ideas, but we still have not figured 
out how to get the job done.
    But where we are seeing the job get done is at the state 
level. Innovative proposals in states such as Massachusetts, 
Vermont, Maine, Oregon and California and my home state of 
Wisconsin demonstrate a clear desire on the part of states to 
reach an agreement and move forward.
    Yet when one studies these proposals, it is clear that the 
states are constrained by federal laws and regulations. There 
is a reason why we see state proposals that are often very 
similar, and that is because states are all operating under the 
same set of constraints that we have imposed upon them under 
ERISA, under our tax laws and under a plethora of health-care 
laws and regulations.
    Recognizing this and feeling that we could not afford 
additional years or decades of inaction at the federal level, I 
convened my colleagues, Dr. Price, Mr. Tierney, and last 
session our former colleague Bob Beauprez of Colorado, in 
crafting H.R. 506, the Health Partnership Through Creative 
Federalism Act.
    And our bill is noteworthy, I think, for a number of 
reasons. First of all, as a commentator in a medical journal 
just mentioned, it is both an end and a means. In other words, 
it addresses both the substantive problem that we confront in 
this nation, but also the political obstacles that we face in 
moving forward on health-care reform.
    It is also bold. You could not describe this as an 
incremental approach, and a recent analysis of rival health-
care reform plans pending in Congress right now indicates that 
about 20 million additional Americans would be covered if only 
15 states put forward applications to participate in this 
creative federalism concept.
    It is also bipartisan. Right now, it enjoys 66 cosponsors 
just a few months after introduction: 36 Democrats and 30 
Republicans. These are people who disagree intensely on how to 
get the job done, but have come together around this bill so 
that we can test our rival ideas in the states.
    It is also a budget-friendly bill because of its budget 
neutrality provisions. It allows the federal government to be a 
helpful partner to states which are already taking the lead in 
making reforms. The federal government should be helping the 
states as they try new approaches, not hindering them.
    But this bill, as I mentioned, does not simply throw money 
at the problem. We are looking for systemic change and 
encouraging bold innovation. Our bill authorizes grants to 
individual states or portions of states to enact the strategy 
best suited for them, and under our plan, states will have a 
lot of freedom to think creatively and independently.
    I note my time is over. So I will hope that you read the 
rest of my preprinted comments.
    [The statement of Ms. Baldwin follows:]

Prepared Statement of Hon. Tammy Baldwin, a Representative in Congress 
                      From the State of Wisconsin

    Thank you Chairman Andrews, Ranking Member Klein and Subcommittee 
members, and thank you for inviting me to testify before you today.
    As members of this subcommittee are undoubtedly aware, 46 million 
Americans are uninsured. Millions more are underinsured. The 
Commonwealth Fund recently released a study estimating that there are 
16 million Americans who are underinsured--meaning their insurance did 
not adequately protect them against catastrophic health care expenses. 
That means that 62 million Americans either have no health insurance, 
have only sporadic coverage, or have insurance coverage that leaves 
them exposed to high health care costs. 62 million is nearly 21% of all 
Americans. One in five.
    Meanwhile, Congress has taken no significant steps to provide 
health care to these uninsured and underinsured Americans. And this 
lack of progress is not for want of ideas.
    We all know the various proposals that have been floating around 
Congress for years, and even decades.
    Believe it or not, we've been talking about this issue at the 
federal level for more than sixty years. The first bill calling for 
national health care, was introduced in the House by Rep. John Dingell 
Sr. in 1943 (and his son has been introducing that same bill every year 
since).
    And every session, a number of bills are introduced purporting to 
increase access or create a national system. About twenty-four bills to 
expand health care coverage have already been introduced this session. 
Roughly 62 were introduced in the 109th Congress.
    Clearly, on the subject of health care for all, we're not at a loss 
for words or ideas, but we still haven't figured out how to get the job 
done. And that is simply unacceptable.
    But where we are seeing the job get done is at the state level. 
Innovative proposals in states such as Massachusetts, Vermont, Maine, 
Oregon, California, and my home state of Wisconsin demonstrate a clear 
desire on the part of the states to reach an agreement and move 
forward.
    Yet when one studies these proposals, it's clear that states are 
constrained by federal laws and regulations. There's a reason why the 
state proposals are often very similar, and that's because the states 
are all operating under the same set of constraints that we have 
imposed upon them.
    Recognizing this and feeling that we could not afford additional 
years of inaction at the federal level, I joined my colleagues Dr. 
Price and Mr. Tierney in crafting H.R. 506, the ``Health Partnership 
through Creative Federalism Act.''
    Our bill is noteworthy because it allows the federal government to 
be a helpful partner to states which are already taking the lead and 
making reforms.
    The federal government should be helping the states as they try new 
approaches, not hindering them. But, this bill does not throw a bunch 
of money at the problem of the uninsured. We're looking for systemic 
change and encouraging innovation.
    Our bill authorizes grants to individual states, or groups or 
portions of states, to enact the strategy best suited for them. Under 
our plan, states have a lot of freedom to think creatively and 
independently.
    The bill is quite simple. Congress would authorize grants to 
individual states, groups of states, or portions of states to carry out 
any of a broad range of strategies to increase health care coverage. 
States desiring to participate in a health care expansion and 
improvement program would submit an application to a bipartisan ``State 
Health Innovation Commission.''
    The Commission would consider applications that include a variety 
of approaches, such as tax credits, expansion of Medicaid or SCHIP, 
creation of pooling arrangements like the FEHBP, single payer systems, 
health savings accounts, or a combination of these or other options.
    Some of these state applications might involve waivers of various 
federal law or regulation. Some states might ask that certain 
provisions of ERISA be waived. Some might ask for more flexibility in 
their state's Medicaid program. We don't know exactly what the states 
might propose, but we want to allow them the opportunity to think 
creatively and to seek temporary waivers of the federal laws which 
currently constrain them.
    After reviewing the state proposals, the Commission would submit to 
Congress a slate of recommended state applications that represent a 
variety of approaches.
    States receiving grants would be required to report on their 
progress. At the end of a five-year period, the Commission would be 
required to report to Congress whether the states are meeting the goals 
of the Act and recommend future action Congress should take regarding 
overall reform.
    And I'm happy to report to you that this is an approach that 
continues to gather bipartisan support. As of today, the bill has 66 
cosponsors and the cosponsors are almost evenly split between Democrats 
and Republicans: 36 Democrats and 30 Republicans.
    Our Health Partnership Through Creative Federalism is a major step 
in the right direction. This is an idea whose time has come; it is 
bold; it is bipartisan; and it is budget-friendly. It provides states 
with an opportunity to innovate without the current constraints of 
federal laws and regulations.
    Again, Mr. Chairman, thank you for the opportunity to testify today 
and thank you for taking up this important topic.
                                 ______
                                 
    Chairman Andrews. Thank you, Representative. As I said, 
without objection, your full statement will be entered into the 
record.
    Congressman Price?

STATEMENT OF HON. TOM PRICE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF GEORGIA

    Dr. Price. Thank you, Mr. Chairman and Ranking Member Kline 
and other distinguished members of the committee and staff. I 
want to thank you for holding this hearing on a critical issue 
and allowing me to participate.
    We certainly all know that there are many challenges facing 
the health-care system today, and the uninsured are at the top 
of the list, with 46 million lacking health insurance at some 
point during the year 2005. The rate of episodically uninsured 
has increased by more than 5 million over the last 4 years.
    And as a physician for over 25 years, I have seen firsthand 
the problems with the health-care delivery system, and each 
result in a decreasing ability for those responsible for 
providing the care from being able to fulfill their mission.
    Now the partisan battles, as have mentioned, both from the 
left and the right have blocked any real solutions for moving 
forward at the federal level. It is clear that one size cannot 
fit all, and that approach is not likely possible at the 
federal level in the near future.
    Consequently, many states have determined that they must 
act in the absence of federal results. Massachusetts, 
Minnesota, Pennsylvania, Vermont, California are just a few of 
the states who are attempting to correct the flaws within the 
current system.
    There have been efforts to expand universal coverage, to 
allow for tax incentives, to implement an individual mandate 
and even create preventative and wellness programs. Now this 
activity we ought to praise and we should continue to encourage 
this kind of innovation and creativity.
    States have some significant advantages when it comes to 
health reform. They already have the responsibility of 
regulating health insurance and of licensing health-care 
providers, and often they have local demographic advantages 
with a more uniform population than the nation as a whole.
    It has sincerely been my privilege to work with 
Representative Baldwin and Representative Tierney, along with 
Representative Beauprez in the last Congress, on this 
federalist approach that would help foster innovation and state 
reforms.
    Our proposal would encourage states or regions or 
localities to come up with a diverse set of ideas, each unique 
to their own particular challenges, to increase coverage for 
the uninsured.
    An endless variety of approaches might be implemented, tax 
credits, expansion of Medicaid or SCHIP, creation of pooling 
arrangements like the Federal Employee Health Benefits program, 
single-payer systems, health savings accounts or a defined 
benefit insurance model.
    A custom-made health-care financing system can be designed 
to fit the states' preferences, rather than having to implement 
a system designed for the entire nation.
    H.R. 506 would work by encouraging states to submit a 
health-care expansion and improvement proposal to a bipartisan 
commission composed of local, state and federal 
representatives. A slate of proposals would then be sent to 
Congress for an up or down vote.
    Grants to assist in implementation of their health reforms 
would be awarded, and the recipients would be required to 
report on the progress throughout the 5-year period. This would 
give states more flexibility around restrictive federal 
regulations that inhibit covering the uninsured.
    By expanding state waiver authority and allowing 
flexibility in other federal requirements, states may be more 
expansive with their reform ideas.
    What a great benefit it would be to allow the laboratory of 
the states an opportunity to shed greater light on various 
health coverage options.
    Now, when it comes to reforming our health-care system, the 
three of us have very different ideas as to what it should look 
like, and I suspect that is true across the panel before me, 
and that is why this bill makes so much sense.
    Reform that may work in one state or region might not work 
in another or might not work well in another, and members of 
Congress in this program do not have to pick one solution over 
another. It allows each of us to highlight our preferred model.
    Due to the political paralysis at the federal level, 
allowing states to foster innovation and competition, we will 
finally get to see positive and encouraging health-care 
solutions.
    Let me also take this opportunity to thank subcommittee 
members Ms. McCarthy, Mr. Wu, Mr. Holt, Mr. Hare, Mr. Marchant 
and Mr. Walberg who are among the 66 cosponsors--30 Republicans 
and 30 Democrats--of this bipartisan bill. I am sincerely and 
truly enthusiastic about the possibilities for success across 
our nation with this type of approach to our vexing challenge.
    I thank you for the opportunity to be with you, and I look 
forward to any questions that you might have as we move 
forward.
    [The statement of Dr. Price follows:]

    Prepared Statement of Hon. Tom Price, M.D., a Representative in 
                   Congress From the State of Georgia

    Good afternoon. I would like to thank Chairman Andrews, Ranking 
Member Kline, other distinguished members and staff for holding this 
critical hearing and for allowing me to participate.
    Our nation's health care system is facing a serious crisis. As a 
physician for 25 years, I have seen firsthand the problems with the 
health care delivery system. With more than 46 million lacking health 
insurance at some point during 2005, the rate of episodically uninsured 
has increased by more than 5 million over the last four years. This is 
due to a variety of factors including rising health care costs and 
decreasing employer-based coverage.
    Due to its broad scope and complexity, the challenge and 
consequences of the lack of health insurance in America does not have a 
quick fix. And the partisan battles over what type of major reform 
should be implemented seemingly have blocked any real solutions from 
moving forward. For the past decade the focus on reform from the left 
has been support for moving us toward a single-payer system. On the 
right, the push has been toward market-based or consumer-directed 
health plans. If any conclusion may be reached about our current 
dilemma, it is clear that a one-size-fits-all approach may not be 
possible on the federal level in the near future.
    For this reason, many states have determined that they have no 
option left to coming up with their own health care reforms as more of 
their population becomes uninsured and their health care dollars spiral 
out of control. Massachusetts, Minnesota, Pennsylvania, Vermont, and 
California are several states that have attempted to correct some of 
the flaws found within the current health care system. We have seen 
efforts to expand to universal coverage, allow for tax incentives, 
implement an individual mandate, and even create preventative and 
wellness programs. These types of bold reforms should be praised. We 
should continue to encourage this type of innovation and creativity.
    States have some advantages when it comes to health reform. States 
already have the responsibility for regulating health insurance and 
licensing health care providers. They have local demographic advantages 
in reforming the health care system, as states usually have a more 
uniform population than the country as a whole. A custom-made health 
care financing system can be designed to fit the state's preferences 
rather than having to implement a system designed for the entire 
nation.
    Rep. Baldwin, Rep. Tierney (along with former Rep. Beauprez last 
Congress) and I have spent over two years working on a federalist 
approach that would help foster innovation and state health reforms. By 
encouraging states, regions, and localities to come up with a diverse 
set of ideas, we may benefit from the use of multiple approaches--
conservative and liberal--to solving the problem of the uninsured. H.R. 
506, the Health Partnership through Creative Federalism Act, gives 
states and regions the flexibility to try new ways of covering their 
uninsured population. An endless variety of approaches might be 
implemented--tax credits, expansion of Medicaid or SCHIP, creation of 
pooling arrangements like FEHBP, single-payer systems, health savings 
accounts, or a defined benefit insurance model.
    H.R. 506 would work by encouraging states to submit a health care 
expansion and improvement proposal to a bipartisan commission composed 
of local, state and federal representatives. The commission would 
consider the state applications, weigh the pros and cons, and choose a 
variety of approaches. The slate of proposals would then be sent to 
Congress for an ``up or down'' vote. If approved, states would receive 
grants to assist in implementation of their health reforms and would be 
required to report on the progress throughout the five-year period. The 
commission would be responsible for reporting to Congress on whether 
states are meeting their goals and whether the reforms should continue.
    This bill would also give states more flexibility around 
restrictive federal regulations that inhibit covering their uninsured. 
By expanding state wavier authority and allowing flexibility in other 
federal requirements, states may be more expansive with their reform 
ideas. What a great benefit it would be to allow the laboratory of the 
states an opportunity to shed greater light on various health coverage 
options.
    When it comes to reforming our nation's health care system, the 
three of us have very different ideas as to what this should look like. 
That is why this bill makes so much sense. We allow for all of our 
ideas, and others, to be tested. Reform that may work in one state or 
region might not work as well in another. Let the states foster 
innovation and competition. I truly believe this is where we will 
finally get to see positive and encouraging health care solutions. 
Please allow me to also thank Subcommittee Members Ms. McCarthy, Mr. 
Wu, Mr. Holt, Mr. Hare, Mr. Marchant, and Mr. Walberg, who are among 
the 66 cosponsors--30 Republicans and 36 Democrats--of this bipartisan 
bill. I hope today's testimony will encourage other members of this 
Subcommittee and our colleagues on the full Education and Labor 
Committee to support this vital legislation. I am enthusiastic about 
the possibilities for success across our nation with this approach to a 
vexing challenge.
    Thank you and I look forward to your questions.
                                 ______
                                 
    Chairman Andrews. Tom, thank you very much.
    John Tierney, welcome.

 STATEMENT OF HON. JOHN TIERNEY, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF MASSACHUSETTS

    Mr. Tierney. Thank you, Mr. Chairman and----
    Chairman Andrews. John, your microphone is not on. See, you 
are inexperienced. [Laughter.]
    Mr. Tierney. You would think I would know. Next week, it 
will be too close or too far away, right?
    Thank you, Mr. Chairman. I thank all of my colleagues for 
giving us the opportunity to talk with you here today.
    When I first got elected in 1966--1996--my 30-odd years 
here in Congress--but in 1996, I advocated for universal health 
care, but in the single-payer form. And there was a big raging 
debate at that time and it continued for a while, but it was 
clear after a while that that was a big ship to turn around, to 
try to get everybody moving in the same direction.
    There were others that advocated as passionately for 
different ways, but little disagreement about the fact that 
everybody wanted universal coverage, every American covered 
with quality, comprehensive, affordable health care.
    The concept came to the idea that maybe we could do it in a 
way that has been outlined by my colleagues here. Obviously, I 
was not the first to have that idea, and it was good to not 
only start working with them and Mr. Beauprez who has now moved 
on from Congress, but with people from the National Governors 
Association, Stu Butler, Henry Aaron, a whole group of people 
who are interested in trying to put this together and getting 
some momentum behind it.
    I will not go into the details of the plan. My written 
testimony has that, but you have already heard that from my 
colleagues. But I do want to address the issue of ERISA and 
waivers on that. I think that is critical.
    If we are going to have any movement of a system that 
allows states to really get creative and to make some new ideas 
work, then they have to have the ability to waive a number of 
federal regulations and laws and most notably ERISA. So I would 
encourage everybody to look at that issue and be inclined to 
look at it with favor.
    It is time, given the fact that Maryland's Fair Share 
Health Care Fund Act was based on the ERISA preemption, and 
that is the same with a lot of different states who have to 
move in that direction.
    Let me just mention a little bit about what Massachusetts 
did. I know the chairman had asked that we touch on that in the 
testimony. Massachusetts enacted legislation that I would say 
is near universal in its reach out.
    We did that by expanding SCHIP to a certain degree, by 
merging the state's nongroup and small group health insurance 
markets, by creating a public entity known as the Commonwealth 
Health Insurance Connector to, in essence, if you will, connect 
individuals and small business with affordable, quality health 
insurance plans.
    It is all very innovative in that sense, but we had some 
efforts to go to to reach consensus on that. The fact of the 
matter is that employers--we are hoping to encourage them to 
continue covering people, but if they do not, they are going to 
have to pay an annual sum per employee of $295.
    Now that is the provision that Governor Romney vetoed 
before he went out and took credit for the bill, but the fact 
of the matter is that there has to be some mechanism there to 
encourage employers to cover people or to participate in 
putting money into a fund that can then be used to subsidize, 
you know, individuals who cannot afford a policy.
    So the Connector group creates policies that are 
affordable. We subsidize people into certain income categories, 
and then others have to pay on an as-can-afford basis on that.
    There are still going to be about 60,000 people, it is 
estimated, that will fall in the cracks, and they may well be 
people that are self-employed, working at home from Web sites.
    My office has been working lately actively with state 
officials, with a group called the Freelancers Group, another 
group Creative Economy Association of the North Shore, where I 
live, to try and find a way to have either the Connector group 
allow itself to create a policy for them or to allow these 
groups to create a policy which they can afford so that people 
that are self-employed and create so much a part of our economy 
now probably in all of our districts also have access to that.
    It is a crucial step, I think, and probably the only way 
that we are going to move forward is to allow a number of 
different models to be put forth. As Tom Price said, probably 
it is going to be the situation where urban communities are 
different than rural communities, different parts of the 
country differ on that, but we need a series of models or 
pilots that we can then see what works and take up the scale. I 
think this bill allows us to move in that direction.
    I was pleased and honored to work with my colleagues on 
this. If the three of us can work together, then probably 
anybody with varying and disparate views can work together 
because we had a lot of room between where we were on this.
    So I thank you, Mr. Chairman. I thank my colleagues again 
for allowing us to put this measure before you for 
consideration and look forward to working with all of you on 
it.
    Thank you.
    [The statement of Mr. Tierney follows:]

    Prepared Statement of Hon. John F. Tierney, a Representative in 
                Congress From the State of Massachusetts

    Good afternoon. I would like to thank Chairman Andrews for inviting 
me to speak before the Subcommittee today.
    When first elected, in 1996, I advocated for Universal Health Care, 
preferring the ``single payer'' concept. I still support that concept. 
However, a number of people sharing the belief in covering all citizens 
with quality comprehensive care have proposed other means which they 
believe would best reach that end. With this impasse, a number of 
people have been committed to exploring all possible avenues to address 
the ever-increasing number of Americans without health insurance and to 
expand access to quality, affordable health insurance for all of those 
in need.
    Realizing this impending impasse, I have authored and supported 
legislation designed to allow states federal resources to develop and 
implement creative proposals to improve their constituencies' access to 
health insurance as well as utilize the lessons learned from such 
state-based initiatives to inform the growing national debate on how to 
proceed with any potential reform of our country's health care system 
as a whole.
    Obviously, I wasn't alone in having this idea, or similar notions, 
and now I've had the pleasure to join with other members--Congresswoman 
Baldwin and Congressman Price--and use the considerable intellect of 
others knowledgeable in health care policy: Stuart Butler, Henry Aaron, 
representatives of the National Governors Association to name several, 
in drafting the Health Partnership Through Creative Federalism Act.
    This critical piece of legislation would create a commission 
comprised of federal, state, and local stakeholders to solicit and 
review state--and also potentially multi-state or sub-state--plans to 
expand health insurance coverage for their residents. The commission 
would recommend a range of plans to Congress for approval and, if 
approved, these states would then receive grants through the Department 
of Health and Human Services to implement the plans for five years and 
periodically report on results.
    I think that the diversity incorporated into both the commission 
composition and the plan selection process, combined with the bill's 
reporting requirements that will help ensure consistent accountability 
and assessment of the approved plans, make this measure well-suited to 
lower the number of uninsured Americans and expand access to quality, 
cost-efficient coverage.
    Mr. Chairman, I understand that one of your specific aims in 
holding today's hearing is to examine the Employee Retirement Income 
Security Act (ERISA), its potential impact on the ability of states to 
implement initiatives to expand health insurance coverage, and whether 
some form of ERISA waivers may be appropriate in this regard.
    This is indeed a timely point of interest given the recent legal 
challenge to Maryland's ``Fair Share Health Care Fund Act'' based on 
ERISA preemption and the growing momentum in many states to engage in 
similar efforts. In that vein, I want to note that our bill 
specifically allows for state plans approved by Congress under the Act 
to seek ``exceptions to otherwise applicable federal statutes, 
regulations, and policies,'' such as and including ERISA.
    Going back to the broader principles of the bill, quite frankly, 
this legislation is, in my view, long overdue. Absent federal action on 
the issue, many states have taken, or are beginning to take, action of 
their own accord to address their uninsured populations and expand 
access to care. Indeed, my own state of Massachusetts has been a 
pioneer in this regard, having enacted legislation last year to achieve 
near-universal coverage of the Bay State's residents through a 
combination of approaches.
    Among other things, the Massachusetts plan includes expansion of 
Medicaid and State Children's Health Insurance Program--or SCHIP--
eligibility, individual premium subsidization, merging of the state's 
non-group and small-group health insurance markets, and creation of a 
public entity--the Commonwealth Health Insurance Connector--to help 
``connect,'' if you will, individuals and small businesses with 
affordable, quality health insurance plans. These innovative approaches 
may have benefited greatly from this legislation. As more and more 
states look to follow Massachusetts's lead, now is the time to show 
them that they've got the federal government's support.
    Employers continue to offer coverage, hopefully, but those who do 
not are assessed a per-employee sum which is paid into the system 
funding subsidies for individuals qualifying on an income basis. The 
goal is to have nearly all residents with insurance by July 2007.
    I say that the Massachusetts plan achieves ``near-universal'' 
coverage because there are an estimated 60,000 Massachusetts residents, 
many of whom are self-employed, who are projected to continue to be 
unable to afford health insurance under the Commonwealth's plan. I am 
now actively working with local stakeholders--including entities like 
the Freelancers Union and the Creative Economy Association of the North 
Shore--in conjunction with state officials, to generate additional 
approaches that will expand access to coverage to these 60,000 
individuals.
    My point here is that efforts to expand access to health insurance 
seem to be occurring everywhere, and Congress must step up to the 
plate.
    We have a responsibility to the American people to work with state 
and local governments to facilitate access to quality, affordable 
health care, and the Health Partnership Through Creative Federalism Act 
is a crucial step toward this end.
    Again, thank you, Mr. Chairman, for having me here today.
                                 ______
                                 
    Chairman Andrews. Well, thank each of the three of you 
very, very much. I am impressed by the scope of the ideological 
reach of the cosponsors of this bill, and it really does show 
that there is a practical orientation to getting the job done.
    We are fortunate to be able to ask our colleagues questions 
about this at any time in our daily interaction, so I am not 
going to ask any questions at this time, so we can get on with 
the second panel, but I would ask Mr. Kline at this point if he 
has questions.
    Does anyone on our side have a question they would like to 
ask the members of the panel? Please feel free. There will only 
be a limited penalty. [Laughter.]
    Mr. Tierney. We are still signing other cosponsors, Mr. 
Chairman.
    Chairman Andrews. Okay.
    And anyone else on the minority side?
    Dr. Boustany?
    Dr. Boustany. We will have plenty of time to discuss this, 
but I am concerned that this does create a new bureaucracy, and 
it may have so many cosponsors because it may not in effect 
accomplish much, too. So I have some concerns, and I would like 
to point that out, but at least we will have plenty of time to 
discuss the bill as time goes forward.
    Chairman Andrews. If the gentleman would yield, my 
intention is to have as free flowing a discussion as we can, 
not just in this hearing, but as the process goes forward, so 
those kind of views can be entertained.
    We, by no means, offer this bill as a perfect template for 
what to do. But I offer it as an encouraging sign that members 
with very different views on this issue can come together and 
try to get something done, and I assure you there will be a 
free-flowing discussion.
    Dr. Boustany. Yes. Reclaiming my time, I think that is 
laudable, and I think it is great that we have the full 
partisan divide engaged in this, and that is important. But I 
read through the summary of the bill, and I have some major 
concerns.
    Chairman Andrews. I think Representative Baldwin wanted to 
comment.
    Ms. Baldwin. I think we had a lot of discussion and would 
share a concern about creating some sort of significantly large 
new bureaucracy. What instead we have done is create a State 
Health Innovation Commission. It is of limited duration. It is 
to solicit and receive the applications from the states, try to 
assure some diversity and to recommend back to the Congress of 
the United States a slate of proposals to be given grant 
funding and to be analyzed over the course of a 5-year pilot 
program.
    It is limited in terms of funding for this entity, and we 
would foresee that it would not be something that would be a 
permanent part of the bureaucracy. It would be housed within 
the Department of Health and Human Services, but most of the 
appointees to the commission are political. They sort of know 
how Congress works, how state legislatures work. They would 
largely not be compensated and would be very much, I think, not 
what you would describe as a bureaucracy by any means.
    Dr. Boustany. Well, I guess the concern I have is: What 
does it add to what currently is in place with the secretary of 
health and human services and his staff?
    Secondly, my understanding of the bill also creates a whole 
number of rules changes to the House of Representatives with 
this expedited section which I have some concerns about, 
including motions to recommit and certain waivers and points of 
orders that could be raised, and I think we can work with it as 
we go forward.
    We will have plenty of time to discuss this.
    Chairman Andrews. We will certainly consult Mr. Price on 
any changes in the House rules about motions to recommit, I 
assure you.
    Were there any other comments from the members?
    Again, we thank our colleagues very much for this very 
important contribution. We thank you.
    We are going to move on to the second panel. I would ask 
them to take their seats. Again, I apologize for the delay in 
getting to this portion of the hearing.
    All right. Well, ladies and gentlemen, welcome to the 
subcommittee. The procedure we are going to follow is I am 
going to read a brief introduction of the witnesses. We will 
get through each of the introductions and then start on the 
statements.
    As you may have heard with the first panel, your written 
statements will be made a part of the record in their entirety, 
and we would ask you to do a 5-minute oral synopsis of your 
statement.
    You will see the light box that is in front of you. When 
the light indicates yellow, it means you have 1 minute 
remaining. When it reaches red, we would ask you to wrap up so 
we can get to questions.
    Again, we very much appreciate everyone's presence.
    Mila Kofman is an associate research professor at 
Georgetown University Health Policy Institute. She conducts a 
range of studies on the uninsured and underinsured problems 
focused on private market reforms, regulation, access and 
affordability. Ms. Kofman has testified on several occasions 
before the U.S. Senate, our House of Representatives and state 
legislatures. She is recognized and cited as a national expert 
on insurance regulation, unauthorized insurance and ERISA. She 
was a federal regulator at the U.S. Department of Labor from 
1997 to 2001. Ms. Kofman holds a law degree from the Georgetown 
University Law Center and a B.A. degree in government and 
politics from the University of Maryland at College Park, summa 
cum laude.
    Welcome, Ms. Kofman.
    I want to ask if my colleague from Maryland, Mr. Sarbanes, 
will introduce our next witness, as he has worked with him and 
knows him.
    Mr. Sarbanes. Thank you.
    Chairman Andrews. Congressman Sarbanes?
    Mr. Sarbanes. Yes. Thank you, Mr. Chairman. Thanks for 
holding this hearing, and thank you for letting me join the 
committee mostly for purposes of introducing John Colmers, who 
is now the secretary of the Department of Health and Mental 
Hygiene in Maryland under Maryland Governor Martin O'Malley.
    From November 2000 through January 2007, Mr. Colmers was a 
senior program officer for the Milbank Memorial Fund. This fund 
is an endowed national foundation that provides nonpartisan 
analysis, study, research and communication on significant 
issues in health policy.
    Before that, he spent 19 years--and this is how I came to 
know him--in Maryland state government, where he held various 
positions, including executive director of the Maryland Health 
Care Commission and the Health Services Cost Review Commission 
which is the agency that oversees Maryland's all-payer hospital 
rate-setting system.
    He has a B.S. from Johns Hopkins University and an MPH from 
UNC-Chapel Hill and is past chair of the steering committee of 
the Reforming States Group, a bipartisan group of executive and 
legislative leaders.
    I practiced health-care law for 18 years in Baltimore, and 
John Colmers was always somebody who had a stellar reputation. 
I cannot think of anyone better suited to speak to the issues 
you are addressing today than him.
    Thank you very much.
    Chairman Andrews. Thank you very much, John.
    And welcome, Mr. Secretary. We are happy to have you here.
    John Morrison was elected as the state auditor of Montana, 
the commissioner of insurance and securities in November of 
2000, and re-elected in 2004. John has been working to reduce 
the number of uninsured Montanans since taking office. He is a 
member of the state bar association ethics committee and a 
coauthor of dozens of opinions on ethical issues. He is a past 
president of the Montana Trial Lawyers Association. He 
represented Montana in the states' tobacco litigation, 
represented the New York Times and other media organizations in 
the Unabomber case. John received his bachelor's degree in 
philosophy and politics from Whitman College in the state of 
Washington and a law degree from the University of Denver.
    Mr. Morrison, welcome to the committee. We are delighted to 
have you here.
    I am especially happy to welcome my friend, Kevin Covert, 
whom I have known for a very long time, both in a professional 
and personal capacity.
    It is great to see you, Kevin.
    He is the vice president and deputy general counsel for 
human resources at Honeywell International. In this role, Kevin 
leads a department of over 15 legal professionals with 
responsibility for all legal matters, including litigation, 
compliance and corporate transactions relating to labor, 
employment, employee benefits and compensation. Kevin is a 
graduate of Ryder University, Rutgers University School of Law 
and NYU, with his LLM in taxation.
    Kevin, it is great to have you with us today.
    Amy Moore is a law partner at Covington & Burling in 
Washington, D.C., a fine firm, and co-chairs Covington's 
employee benefits and executive compensation practice. She 
advises public and private clients on a wide range of tax, 
ERISA and employment law issues concerning all types of benefit 
programs. She is a graduate of Mount Holyoke College, received 
an M.A. from the University of Virginia and a J.D. from the 
University of Virginia School of Law.
    Welcome, Ms. Moore. We are happy to have you with us.
    And finally, last but certainly not least, the commissioner 
of New Jersey's Department of Banking and Insurance Steven 
Goldman. He was sworn into that office on March 20, 2006. Prior 
to his nomination by Governor Jon Corzine, Commissioner Goldman 
was a senior member and 22-year veteran of the outstanding firm 
of Sills Cummis Epstein & Gross where he focused on corporate 
law, focusing specifically on mergers and acquisitions, banking 
and finance, joint ventures and leverage buyouts. Commissioner 
Goldman earned a master's of law in taxation from New York 
University School of Law, a J.D. from the George Washington 
University School of Law, and a bachelor's degree in political 
science from Boston University. He lives in Woodcliff Lake, New 
Jersey, with his wife and three children.
    Welcome, Commissioner Goldman.
    Welcome to each of you. Again, we will proceed. Your 
written statements have been entered into the record.
    And, Ms. Kofman, we will begin with your 5-minute oral 
synopsis. Welcome.

 STATEMENT OF MILA KOFMAN, J.D., ASSOCIATE RESEARCH PROFESSOR, 
         HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY

    Ms. Kofman. Thank you very much, Mr. Chairman. I thank you 
and the committee for your leadership and willingness to 
examine how ERISA has been used to impede state-based health-
care reform initiatives.
    Although I believe we should address the health-care crisis 
as a nation and develop a national solution to ensure that all 
Americans have the same basic rights and protections no matter 
where one life or works, absent meaningful and comprehensive 
federal reforms, you should look for ways to make it easier for 
states to act.
    A law Congress enacted more than three decades ago, ERISA, 
has become a major obstacle to states. Unlike public policy 
discussions three decades ago when ERISA was passed, in 2007, 
we have 18,000 Americans who die preventable deaths because 
they are uninsured.
    The leading cause of personal bankruptcies in America is 
having an illness. We have millions without insurance and 
millions who are underinsured. Eighty percent of the uninsured 
are in families with either one full-time or part-time worker. 
One in four people with group coverage and nearly half with 
individual health insurance spend 10 percent or more of their 
income on medical expenses.
    Health coverage is inaccessible for many, unaffordable for 
many more, and insecure for those who have it. While some 
states are trying to respond, ERISA, a 1974 law, is a major 
obstacle. Today, I will highlight for you three negative 
impacts that ERISA has had on state efforts.
    First, ERISA limits states' ability to reform state-
regulated health insurance markets and makes it difficult to 
pay for coverage expansion programs.
    For example, state guarantee-access and rating laws 
designed to make insurance more affordable for small businesses 
with sicker workers have been undermined by ERISA, which allows 
employers to self-insure. When small businesses with healthy 
workers self-insure, their claims are not pooled with others 
and coverage is more expensive in state-regulated products as 
fewer healthy people help pay for the sicker ones.
    Another example is when states raise the age of dependent 
children, like in New Jersey, to the age of 30 to keep people 
covered longer in group coverage. That requirement does not 
apply to self-insured ERISA health plans.
    Financing coverage expansion has also been a problem. Some 
states have public-private partnerships, HIPCs, alliances, 
purchasing pools for individuals and small businesses. While 
programs vary, none are free and ERISA self-insured plans 
generally do not help pay for them.
    Second, ERISA limits state options when considering broad 
and comprehensive health-care financing reforms beyond 
reforming the insurance market.
    For example, some states have concluded that employers 
should help pay for medical coverage for their workers. One way 
is through fair share laws that establish minimum standards for 
how much employers contribute. These proposals would assess a 
penalty on employers that fall below the threshold, and those 
penalties would help pay for public health programs and 
clinics.
    To this end, Maryland passed the fair share law. The law 
was immediately challenged and was found preempted by ERISA. In 
Maryland, the law was a response to many workers of one large 
company using public insurance programs and clinics and 
draining public resources. Interestingly, the company in 
question increased its spending on health care for workers, but 
challenged the law anyway through one of their associations.
    Massachusetts last year passed broad reforms. One new 
requirement there is that employers with more than 10 employees 
provide health insurance or pay a fee. Already, there are 
rumors that some of the lawyers who challenged the Maryland law 
are looking for businesses to represent in Massachusetts so 
they can go to federal court and use ERISA to challenge 
Massachusetts' reforms.
    What is important here is that Maryland and Massachusetts 
laws were carefully crafted to avoid ERISA challenges and ERISA 
preemption, but as demonstrated in the Maryland case, your odds 
in Vegas are better than your odds in predicting how ERISA will 
be interpreted by federal courts.
    The third negative impact of ERISA is that it has a 
deterrent effect. The ERISA threat has stopped many states from 
considering or even debating certain reforms. Last year, there 
were 28 states with fair share bills; this year, three had 
those bills.
    There are also practical resource problems. States need 
upfront money to implement new programs like the Massachusetts 
Connector. The ERISA preemption risk deters many from even 
trying.
    In conclusion, Mr. Chairman, this committee and the 
Congress have the power and opportunity to make it easier for 
states to achieve universal access to health care and coverage.
    As you examine the 1974 law, you have many options, three 
of which include allowing federal regulators to give ERISA 
exemptions, clarifying that Massachusetts and Maryland type 
reforms are not preempted or clarifying that certain types of 
state reforms, beyond Massachusetts and Maryland, are not 
preempted.
    There are, of course, pros and cons to any approach. 
Whatever you decide to do, however, the time to act is now. 
Many states will continue to explore what is and is not allowed 
under ERISA, but this means more litigation, which is not a 
good way to respond to the health-care crisis or to reform our 
market.
    Thank you for your consideration. I look forward to 
assisting you as you look for ways to address the health-care 
crisis in America. The health-care crisis is really a silent 
disease on the middle class. It is killing the middle class, 
and I hope that this is the year that Congress will act.
    Thank you.
    [The statement of Ms. Kofman follows:]

 Prepared Statement of Mila Kofman, J.D. Associate Research Professor, 
             Health Policy Institute, Georgetown University

    Good afternoon. My name is Mila Kofman. I am an associate research 
professor at Georgetown University's Health Policy Institute 
(Institute). Mr. Chairman, I thank you and the Committee for your 
leadership and willingness to examine the Employee Retirement Income 
Security Act of 1974 (ERISA) and how it has been used to impede 
comprehensive state-based health care reform initiatives. It is both an 
honor and a privilege to testify before you on this matter.
    As a way of background, researchers at the Institute conduct a 
range of studies on the uninsured problem. My specific focus is private 
health insurance. For the past decade I have studied regulation of 
health insurance products and companies, state and federal health care 
and coverage reform initiatives, new products, and market failures. 
Currently I am the co-editor of the Journal of Insurance Regulation and 
serve (as one of six non-regulator members) on the Consumer Board of 
Trustees of the National Association of Insurance Commissioners. Before 
joining the faculty at Georgetown University, I was a federal regulator 
at the U.S. Department of Labor, where I worked on issues affecting 
ERISA health plans.
    I believe it would be optimal for us to address the health care 
crisis in this nation in its entirety and for the federal government to 
ensure that all Americans have the same basic rights and protections 
related to health care no matter where one lives or works. However, 
absent meaningful and comprehensive federal reforms, the Congress 
should look for ways to make it easier for states to act. Currently, 
ERISA, a law Congress enacted more than 3 decades ago, is having a 
negative impact that most could not imagine when the law was passed. A 
law that was designed to protect workers against fraud and abuse in the 
private pension system has in fact become a major obstacle for state-
based health care and coverage reforms.\1\
    Some state policymakers are trying to respond to the health care 
crisis through new initiatives to help finance medical care, 
restructuring the private and public insurance programs to cover more 
people and to pay for it. ERISA has been used to challenge those state 
efforts, and has been a major impediment to comprehensive reform 
efforts.\2\
    When ERISA was passed in 1974, the public policy was to promote a 
voluntary employer health coverage system where uniformity and 
administration of benefit programs was of most importance.\3\ Now, more 
than three decades later, a different public policy discussion is 
taking place.
    Now, our public policy discussions focus on the fact that we live 
in the wealthiest and most advanced country in the world, yet we allow 
18,000 Americans to die preventable deaths each year because they are 
uninsured. The uninsured problem is estimated to cost our economy $60 
to $130 billion annually.\4\ The leading cause of personal bankruptcies 
in the United States is having an illness (the majority of those filers 
were insured).\5\ The uninsured problem and the way we finance medial 
care handicaps American businesses in a global economy. The Big Three 
automakers spend more on health care than on steel. Our spending on 
health per capita is higher than Germany, Canada, France, Australia, 
and the United Kingdom (UK). Although we outspend those nations as a 
percentage of GDP, we have worse health outcomes--with Americans 
reporting more access to care problems than in the UK and Canada; we 
rank last out of 9 countries in terms of life expectancy behind Japan, 
France, Australia, Canada, Germany, New Zealand, the Netherlands, and 
the UK.\6\
    Our medical care and health insurance coverage crisis continues to 
grow--now approximately 45 million people are without any health 
coverage and millions more have inadequate coverage. The majority of 
uninsured people either work or have a worker in their family (80% with 
either full time or part time worker). Premiums for people with 
insurance continue to increase in the double digits with 25% of insured 
Americans (insured all year with group coverage) spending 10% or more 
of their income on premiums and out of pocket expenses for medical 
care. (The percentage of people with individual coverage who spend more 
than 10% of their income on premiums and medical care is 43%.) Health 
coverage is inaccessible for many, unaffordable for many more, and 
insecure for those who have it.\7\
    So our 30-year old federal policy of encouraging employers to 
provide health coverage voluntarily has not worked as well as hoped for 
many Americans. It is time to reexamine ERISA and whether it serves our 
new priorities and public policy goals of tackling the cost of medical 
care and developing sustainable financing so we can provide medical 
care for all of America's working families and communities.
    Unlike with civil rights laws, labor laws, environmental laws, and 
other areas where the federal government has stepped in to address an 
injustice and has received high marks for those federal efforts--in the 
area of financing medical care (with few exceptions), the federal 
government would not achieve a passing grade. Although through programs 
like Medicare, we have nearly universal coverage for our seniors, other 
federal interventions--mainly ERISA--have had questionable and in some 
cases a devastating effect on America's consumers. ERISA significantly 
restricts options and state-based solutions to the health coverage 
crisis in the United States.
    ERISA directly and indirectly impacts states' ability to reform 
their health care marketplace. Today, I will discuss three adverse and 
arguably unforeseen negative impacts that ERISA has had on states' 
ability to successfully reform their markets:
    1. ERISA limits states' ability to reform state-regulated health 
insurance markets and makes it difficult to have a successful coverage 
expansion initiative;
    2. ERISA limits options and imposes hard to assess risks when 
considering state-based broad and comprehensive health care financing 
reforms (beyond insurance); and
    3. ERISA has a deterrent effect, preventing some states from going 
forward with health care financing and coverage reforms.

1. ERISA limits states' ability to reform state-regulated health 
        insurance markets and makes it difficult to have a successful 
        coverage expansion initiative
    In the 1990's state policymakers sought to improve access to health 
insurance for businesses and individuals using several approaches, 
which rely on risk spreading among a broad population and greater risk 
assumption by insurers. Guaranteed issue laws required insurers to sell 
coverage to sick groups and premium rate reforms prohibited or 
restricted the ability of insurers to charge higher premiums based on 
the health status and claims of a group.\8\
    Such laws allowed employers with sicker workers to access private 
coverage. Through such risk pooling requirements, firms with sicker 
workers pay less than they otherwise would, which helps them to offer 
and maintain coverage. This, however, is frustrated by the ability of 
ERISA-covered employers to self-insure. When employers with healthy 
workers self-insure, their claims are not pooled with other businesses 
in the state regulated market; coverage is more expensive in state 
regulated products as fewer healthy people help pay for coverage for 
sicker ones.\9\ The problem is magnified as small businesses rejoin the 
regulated market when their employees are no longer healthy, making 
coverage more expensive for all employers in the state-regulated 
market. ERISA has undermined these state-based insurance market 
reforms.
    ERISA also impacts other types of state reforms. States may require 
insurers to keep people with medical needs, minimizing the burden on 
state and federally funded public insurance programs. For example, most 
states prohibit insurers from canceling insurance for dependent adult 
handicapped children who were covered by their parents' policies as 
minors. This requirement does not apply to self-insured ERISA plans. 
New state requirements aimed at keeping children insured by redefining 
``dependent'' status, e.g., raising the age of dependent children (in 
New Jersey to age of 30) and including grandchildren as dependents, do 
not apply to self-insured ERISA health plans. While some large self-
insured plans cover grandchildren for example, others do not. This 
means that state standards only reach part of the state's market. 
Dependents who do not qualify for group coverage or age-off parent's 
policies may join the ranks of the uninsured or may rely on state 
public insurance programs and publicly funded health centers, further 
taxing such programs.\10\
    ERISA has also been an obstacle to achieving a public policy goal 
of broadly spreading the cost of certain medical conditions and 
achieving public health goals (such as immunizing the population 
against certain diseases, stabilizing mental health conditions, 
encouraging treatment for substance abuse, covering mammograms, or 
financing supplies to control diabetes).\11\ The problem here is two 
fold when self-insured plans do not cover these services: (1) when 
medical care is provided through state funded programs, the result is a 
drain on public programs, and (2) because the cost of a benefit 
requirement is spread across a smaller population (among those in 
state-regulated products), the price is higher than it otherwise would 
be had the cost been spread over the entire population (self-funded and 
fully-insured plans). Again, it is important to remember that many 
large self-insured plans provide comprehensive, generous coverage for 
workers and their families (often much better than the insured products 
in state regulated markets).\12\ The problem of equitably financing 
these benefits is when self-insured plans do not provide such benefits, 
but the benefits are required in the state-regulated market.
    ERISA has also become an obstacle in how states finance new 
coverage initiatives. For example, in addition to market reforms, 
states have tried to expand access to health insurance coverage through 
public/private partnerships called ``HIPCs'' (health insurance 
purchasing cooperatives)--these are also known as purchasing alliances 
and purchasing pools (mostly for small businesses and self-employed 
people). The most recent examples include the ``Connector'' in 
Massachusetts, Dirigo Choice in Maine, and Insure Montana. These 
programs may use the state's purchasing power to negotiate rates and 
coverage with private insurance companies. Participating employers and 
individuals have a choice of products. State funding may be available 
to help pay for the premiums for moderate and low-income workers and 
families in some of these programs.\13\
    While state coverage expansion efforts vary, none are free. They 
all rely on funding, and ERISA self-insured plans generally do not 
contribute to financing such programs. However, self-funded plans 
benefit when people with medical needs have insurance--there is less 
uncompensated care and therefore less cost-shifting. In other words, 
the cost of uncompensated care is borne by all people with insurance as 
the costs are shifted to all privately insured people--those in self-
insured and fully insured plans. In 2005, privately insured people paid 
nearly $1000 more in premiums just to cover the cost-shift from 
uninsured patients.\14\

2. Beyond Insurance Reforms: ERISA limits options and imposes hard to 
        assess risks when considering state-based broad and 
        comprehensive health care financing reforms; New Generation of 
        Reforms--Equitable, Fair, and Sustainable Financing of Medical 
        Care
    Absent system wide reforms at the federal level, some states have 
taken on the task of reforming the delivery and financing of medical 
care. Some have concluded that the voluntary system of employers 
providing coverage and people buying coverage voluntarily has not 
worked. The new generation of state-based reforms is moving toward 
bold, comprehensive system-wide reforms, which may include a personal 
responsibility to purchase insurance and an expectation that employers 
will help pay for coverage. Mandatory participation requirements and 
fair and equitable contribution from employers may be the ``next 
generation'' of incremental reforms in the United States. Some states, 
however, also have ``single'' payer legislation and other non-
incremental approaches seeking to provide access to medical care to 
their residents. Again, it remains to be seen whether individuals using 
ERISA preemption are effective in challenging meaningful state reforms.
    In the last few years, many states have looked at ``fair share'' 
bills as a way to more equitably finance medical care. These 
initiatives also demonstrate the fiscal responsibility of states to 
develop programs that are sustainable financially over time.
    ERISA has been used successfully to preclude such state reforms. 
For example, Maryland's lawmakers passed ``Fair Share Health Care Fund 
Act'' in response to financial pressure on public programs, after 
learning that Maryland's public programs covered many employees of at 
least one large national company.\15\ The law would have required 
companies with more than 10,000 employees in Maryland to pay for 
medical care and coverage for their employees in the amount equal to or 
more than 8% of salaries (6% for non-profits). The state would have 
collected an assessment from companies that fell below 8%; the 
assessment would have helped fund Maryland's health care programs for 
moderate and low-wage income earners and poor people and families. 
Scheduled to go into effect in January 2007, Maryland's law was 
immediately challenged using ERISA and in January 2007 the Fourth 
Circuit Court of Appeals found Maryland's fair share law to be 
preempted by ERISA.\16\
    In April 2006, Massachusetts lawmakers enacted broad health care 
reforms called the ``Health Care Access and Affordability'' act (a.k.a. 
Massachusetts Health Care Reform Plan). Among several standards and 
funding mechanisms, there is a new requirement that employers with more 
than 10 employees provide health coverage or pay an annual fee per 
employee to help finance medical care that their employees use 
(currently that care is provided for free to patients but financed 
through public funding and other sources) in the state.\17\
    Although both laws were carefully crafted to avoid ERISA preemption 
and many experts concluded that these laws would not be preempted, it 
is difficult to predict (even for ERISA experts) how a federal court 
may interpret the scope of ERISA.\18\ The Fourth Circuit decision shows 
that ERISA limits options that states otherwise would have and poses 
hard to assess risks to comprehensive reform that may vary according to 
the precise design of the reform and the shifting views of the courts 
on the scope of ERISA preemption.

3. ERISA has a deterrent effect, preventing some states from going 
        forward with health care financing and coverage reforms
    In addition to its direct, adverse effect on states, ERISA has had 
an indirect negative impact on states' ability to reform their health 
care marketplace--the deterrent effect. The very real threat of ERISA 
litigation has stopped many states from considering new ways to achieve 
financing reforms and universal access to care. For example, in 2006 
there were 28 states with ``fair share'' bills. Maryland's policymakers 
passed the legislation but were not able to win the ERISA-based 
challenge to the law. Consequently, in 2007, there were only 3 states 
that had fair share bills introduced, down from 28 states in 2006.\19\ 
The chilling effect of the Maryland ERISA court decision was felt 
around the nation. With one decision, the Fourth Circuit Court of 
Appeals stopped state policymakers around the nation from even debating 
and discussing the public policy behind fair share bills similar to 
Maryland's.
    Furthermore, states need upfront funding and a resource investment 
to implement new state programs (like the Massachusetts Connector). The 
possibility that such initiatives are found later to be preempted by 
ERISA may deter states from taking the big financial risk of moving 
forward with their new programs. Their decision may also be impacted by 
the high litigation costs involved in ERISA preemption cases.\20\
    Another deterrent effect is that ERISA restricts states to a 
limited set of ideas. In recent months I have been working with various 
groups in Colorado. Last year Colorado's policymakers established a 
Blue Ribbon Commission charged with developing a comprehensive reform 
package to achieve universal access to care and reform health care 
financing in the state. Every discussion I have had with stakeholders 
has included issues around ERISA and the uncertainty that it brings to 
state-based reforms. And in those discussions, I advised that a new 
state initiative could be challenged using ERISA (even frivolous 
challenges are a concern due to state budget constraints) and that some 
ideas should not be considered because courts have said ``no'' to 
those, e.g., coverage benefit mandates on self-insured ERISA plans.\21\
    Some states, prior to proposing reforms, seek to understand their 
markets better--to determine who is uninsured and underinsured. But 
even simple data collection from self-insured plans by insurance 
regulators may be deterred, as regulators must consider how to 
structure data collection requests to avoid ERISA preemption 
challenges.\22\
    ERISA's deterrent effect is not new. You may remember the 
significant reforms Washington State passed in the early 1990s. These 
would have required universal coverage by 1999 for all citizens as well 
as making other significant changes in the insurance market. All were 
based on the assumption that the U.S. Congress would amend the law to 
allow Washington State an exemption from ERISA. When this did not 
occur, most of the reforms were repealed.\23\
Conclusion and Recommendations
    ERISA's limitations on what states can require of employers, and 
lawsuits using ERISA to question state authority and challenge state 
reform initiatives, make it difficult for states to address the health 
care crisis. As some states try to be creative in addressing the 
uninsured problem, ERISA continues to grow as an obstacle and in many 
ways, restricts states to the consideration of a more limited set of 
ideas. This makes it difficult to adopt successful reforms, to cover 
millions of Americans who do not have health insurance, to address the 
ever growing cost of health coverage for people who are insured, and to 
assure that in fact health insurance is adequate, accessible, and 
secure for people who are sick today, and those of us who will become 
sick in the future.
    Mr. Chairman, this committee and the United States Congress have 
the power and opportunity to address these issues. As I've noted, my 
preference would be for the federal government to develop a meaningful 
and comprehensive national solution to the health care crisis. However, 
absent that, I urge you to take a close look at ERISA vis a vis states' 
ability to achieve universal access to medical care and equitable and 
sustainable financing. As you examine the 1974 law, you have options, 
three of which include:
     allow federal regulators to give exemptions from ERISA to 
states--with standards established for such exemptions;
     amend ERISA clarifying that the types of reforms in 
Massachusetts and Maryland's Fair Share Act are not preempted by ERISA. 
(This would eliminate the expense of potential future litigation on 
these issues); and
     clarify that certain types of state reforms (beyond 
Massachusetts and Maryland's Fair Share laws) are not preempted by 
ERISA.
    There are pros and cons to these and other options. What ever you 
decide to do, however, the time to act is now. As the number of people 
in the United States without health insurance continues to rise, 
governors and state legislators continue to look for ways to address 
the problem despite ERISA challenges. Some states are looking for 
equitable and effective ways to finance medical care for their 
residents. They are looking for ways to improve the health of their 
residents and communities, as well as to remove some of the barriers 
that make American businesses less competitive world-wide (by improving 
the health of workers for example). Many states will continue to 
explore what is and is not allowed under ERISA but this means more 
litigation, which is not an optimal way to reform the health care 
coverage and financing system in the United States.
    I encourage you to look for measures that will encourage and 
support meaningful state initiatives. It is also important to remember 
that many self-funded large employer plans provide generous benefits to 
workers and dependents, covering expensive medical conditions and 
covering people with significant medical needs. Federal interventions 
must be carefully crafted as to not undermine comprehensive benefits 
that many have. It is clear that America's businesses need real help to 
address factors driving cost increases for medical care so they can 
keep their workers healthy and stay competitive in a global economy.
    Thank you for your consideration of this important issue, and I 
look forward to assisting you as you look for ways to address the ever 
growing problem of millions of Americans without health insurance and 
rising costs of coverage for all Americans.
                                endnotes
    \1\ In some cases ERISA has been used by crooks as a shield to hide 
illegal civil and criminal activities. Mila Kofman, Kevin Lucia, and 
Eliza Bangit, Proliferation of Phony Health Insurance: States and the 
Federal Government Respond, BNA Plus (2003) (hereinafter Fraud Report); 
GAO, Private Health Insurance: Employers and Individuals are Vulnerable 
to Unauthorized or Bogus Entities Selling Coverage, GAO-04-312 (Feb. 
2004).
    \2\ Federal preemption of state law may be appropriate when federal 
law is more protective than state law and there is sufficient oversight 
and enforcement capacity to make federal protections meaningful.
    \3\ According to Michael S. Gordon, minority Counsel to former 
Senator Jacob Javits (NY--R), who was involved in drafting and passing 
ERISA legislation, expanding ERISA preemption language to include 
health benefits was necessary to gain political support from the 
American Bar Association and AFL/CIO. Also according to Gordon, some 
members of Congress realized that ERISA would make it impossible for 
states to address health care and coverage issues. Michael S. Gordon, 
``ERISA Pre-emption and Health Care Reform: A History Lesson'' 
originally published in 1993 and reprinted in EBRI Notes May 2007, Vol 
28, #5, page 7--9, available at www.ebri.org. According to Gordon, it 
was not a ``simple oversight'' to include broad preemption related to 
health plans but a political necessity. Whether some, many, all, or 
none of the members of Congress in 1974 intended to promote uniformity 
or other public policy goals with ERISA is something historians may 
never be able to conclude with certainty. However, in interpreting 
ERISA's preemption language, courts have relied on apparent public 
policy goals behind the statute. The Fourth Circuit Federal Court of 
Appeals in striking down state law noted, ``Because Maryland's Fair 
Share Health Care Fund Act effectively requires employers in Maryland 
covered by the Act to restructure their employee health insurance 
plans, it conflicts with ERISA's goal of permitting uniform nationwide 
administration of these plans.'' Retail Industry Leaders Association v. 
Fielder, 475 F.3d 180, 183 (Court of Appeals 4th Circuit January 17, 
2007). The court went on to say, citing Aetna Health Inc. v. Davila, 
542 U.S. 200, 208 (2004) and other Supreme Court cases, ``[t]he primary 
objective of ERISA was to `provide a uniform regulatory regime over 
employee benefit plans.' '' So whether promoting uniformity in the 
1970s was the principle reason, one of many reasons, or not a reason 
behind ERISA's broad preemption matters little. Judges have concluded 
that uniformity in plan administration was the primary objective.
    \4\ For highlights see, Press Release, January 14, 2004, ``IOM 
Report Calls for Universal Health Coverage by 2010; Offers Principles 
to Judge, Compare Proposed Solutions'' available at 
www4.nationalacademies.org/news.nsf/isbn.
    \5\ See David Himmelstein, Elizabeth Warren, Deborah Thorne, and 
Steffie Woolhandler, ``Illness and Injury as Contributors to 
Bankruptcy'' Health Affairs Web Exclusive February 2005.
    \6\ See Commonwealth Fund charts, Spending on Health, 1980--2004 
(Data source: OECD Health Data 2005 and 2006) and Access Problems 
Because of Costs in Five Countries, 2004, available at www.cmwf.org;
    \7\ Sara Collins, et al, ``Squeezed: Why Rising Exposure to Health 
Care Costs Threatens the Health and Financial Well-Being of American 
Families; September 14, 2006, The Commonwealth Fund; Distribution of 
the Nonelderly Uninsured by Family Work Status, States (2004-2005), 
U.S. (2005), KFF at http://www.statehealthfacts.org.
    \8\ Not all states had such reforms. By the mid-1990's, 36 states 
had ``guaranteed-issue'' laws that required insurers to sell at least 
two policies to small businesses. BCBSA, State Legislative Health Care 
and Insurance Issues: 2005 Survey of Plans, December 2005, page 57. In 
1996, the Congress enacted the Health Insurance Portability and 
Accountability Act (HIPAA) requiring insurers to sell all their small 
group policies on a guaranteed-issue basis.
    \9\ See Mila Kofman and Karen Pollitz, ``Health Insurance 
Regulation by the States and the Federal Government: A Review of 
Current Approaches and Proposals for Change,'' Journal of Insurance 
Regulation Vol. 24 No. 4 page 77--108 (Summer 2006). Additionally, 
self-insurance allows employers to save money by avoiding the cost of 
paying for reserves and minimum capital. Such requirements apply to 
insurers and are designed to ensure solvency. There are no solvency 
requirements for health plans in ERISA. While saving some cost, the 
trade-off here is that people in ERISA self-insured plans have fewer 
protections than those in fully-insured plans, and as such may be stuck 
with medical bills if their employer goes bankrupt. When an insurer 
becomes insolvent, outstanding medical claims are paid for by guaranty 
funds. There is no similar safety-net for people in self-insured 
arrangements. A problem for state policy makers is that ERISA self-
funded plans do not contribute to state programs like guaranty funds, 
which are financed through assessments on health insurance companies. A 
broader financing base would make these safety-nets less costly; and of 
course, protect all workers against their health plan's insolvency.
    \10\ Not all states have these requirements. To expand access to 
private coverage, five states have guaranteed issue and community/
adjusted community rating protections for individuals purchasing 
coverage on their own (not through an employer). Other states provide 
no or only limited access to private coverage. This is an example of 
ERISA coupled with a lack of reforms in the states leaves people 
without options. It is also an example of where a national approach, 
perhaps establishing a federal floor of protections for all Americans 
and allowing states to enhance those would achieve better protections 
for all Americans.
    \11\ Which benefits are required to be covered is in part a 
function of how successful a particular group advocating for the 
mandate is in a state. Enacting benefit mandates is not done in a 
vacuum but is a part of a legislative process.
    \12\ For more information about large employer health plans, see 
Kaiser Family Foundation annual employer survey (available at 
www.kff.org).
    \13\ For more information about older programs, see Kofman, Mila, 
Issue Brief: Group Purchasing Arrangements: Issues for States, State 
Coverage Initiatives, April 2003 available at www.statecoverage.net/
pdf/issuebrief403.pdf.
    \14\ In 2005, it is estimated that $29 billion was paid by 
privately insured people charged higher rates to cover the cost of 
medical care for uninsured people; $43 billion is the total estimate 
but some of that amount was paid by state and federal programs. Paying 
a Premium, The Added Cost of Care for the Uninsured, Families USA, 
Washington DC, June 2005, pages 15-16. Arguably, employers with the 
most comprehensive plans (many of which are large self-insured plans) 
take on more of this burden than the employers that do not offer 
coverage or offer more limited coverage--precisely the inequity that 
Maryland's Fair Share law sought to address.
    \15\ Interestingly, there was a difference of opinion among large 
employers about the need for the law, with some lobbying for its 
passage and others opposing.
    \16\ See Plaintiff's Complaint, Retail Industry Leaders Association 
v. James D. Fielder, U.S. District Court for the District of Maryland 
(February 7, 2006); Retail Industry Leaders Association v. James D. 
Fielder, 435 F.Supp.2d 481 (U.S. District Court for the District of 
Maryland July 19, 2006); Retail Industry Leaders Association v. 
Fielder, 475 F.3d 180, 183 (Court of Appeals 4th Circuit January 17, 
2007) (upholding district court's decision finding Maryland's Fair 
Share Health Care Act preempted by ERISA). In its ruling, the appellate 
court found that Maryland law ``effectively requires employers in 
Maryland covered by the Act to restructure their employee health 
insurance plans, it conflicts with ERISA's goal of permitting uniform 
nationwide administration of these plans.'' Id. at 183.
    \17\ Massachusetts Reforms (House No. 4850) amends several state 
statutes including the insurance code.
    \18\ Maryland's Attorney General analyzed the bill and concluded 
that ERISA would not preempt it. See Letter from Joseph Curran, 
Attorney General, Maryland, to Michael Busch, Speaker of the House, 
Maryland General Assembly, January 9, 2006 (copy available from 
author). For a comprehensive analysis of ERISA and state authority to 
reform health care coverage and financing see, Patricia Butler. ``ERISA 
Preemption Manual for State Health Policymakers,'' State Coverage 
Initiatives, Alpha Center, and National Academy for State Health 
Policy, January 2000. In Fielder, AARP, among others, filed an amicus 
brief arguing that the Maryland law is not preempted. AARP was 
represented by Mary Ellen Signorille, who for a number of years was the 
co-author of ``ERISA Basics: Preemption'' for the American Bar 
Association, and then served as Chair of the Employee Benefits 
Committee of the Labor and Employment Law Section of the ABA. This 
demonstrates that even nationally recognized ERISA experts cannot 
predict how courts would rule on ERISA challenges.
    \19\ See National Conference of State Legislatures, 2006-2007 Fair 
Share Health Care Fund Or ``Pay or Play'' Bills: Can states mandate 
employer health insurance benefits? at http://www.ncsl.org/programs/
health/payorplay2007.htm For a discussion of fair share legislation, 
see Cassandra Cole and Kathleen McCullough, ``A Review of the Issues 
Surrounding Fair Share Health Care Bills,'' Journal of Insurance 
Regulation, Vol. 25 No.1, page 25-40 (Fall 2006).
    \20\ Litigating an ERISA preemption case involving a health 
insurance scam related to a multiple employer welfare arrangement cost 
one state over $500,000. See Fraud Report.
    \21\ More information about the Commission and all proposals 
recommended to the Commission are available at http://www.colorado.gov/
208commission. For an analysis of Fielder's implications for other 
state proposals, see Patricia Butler, ``ERISA Implications for State 
Health Care Access Initiatives: Impact of the Maryland ``Fair Share 
Act'' Court Decision, State Coverage Initiatives and National Academy 
for State Health Policy, November 2006.
    \22\ E-mail communications with Kent Michie, Insurance 
Commissioner, Utah Insurance Department, May 10, 2007.
    \23\ E-mail communications with Beth Berendt, Deputy Insurance 
Commissioner, Rates and Forms, Office of Insurance Commissioner, 
Washington State, May 10, 2007. See also Lawrence Brown and Michael 
Sparer, ``Window Shopping: State Health Reforms in the 1990s'' Health 
Affairs, Vol. 20 No.1, page 50, at 53 (January/February 2001).
                                 ______
                                 
    Chairman Andrews. Well, Ms. Kofman, thank you very much, 
and I apologize for mispronouncing your first name. It is Mila, 
I understand.
    Ms. Kofman. I respond to everything. [Laughter.]
    Chairman Andrews. Well, excuse me for that, and thank you 
for your testimony.
    Secretary Colmers, welcome.

 STATEMENT OF JOHN COLMERS, SECRETARY, MARYLAND DEPARTMENT OF 
                   HEALTH AND MENTAL HYGIENE

    Mr. Colmers. Chairman Andrews, Ranking Member Kline and 
members of the subcommittee, my name is John Colmers. I am the 
secretary of the Maryland Department of Health and Mental 
Hygiene, and I appreciate the opportunity to testify before you 
today on state health-care reforms and the challenges posed by 
ERISA and opportunities to improve coordination of federal and 
state initiatives.
    As you have already heard, ERISA was adopted in 1974 with 
the reasonable goal of allowing multi-state employers to offer 
comparable benefits across state lines. Preemption, however, 
has had unintended consequences for states and for large 
numbers of people with private self-funded plans who fall 
outside of state regulatory oversight.
    Maryland has had recent experience in attempting to expand 
access to a pay-or-play initiative, the Fair Share Health Care 
Fund Act. My testimony today will offer the benefits of that 
experience and describe limits on voluntary efforts in states 
to expand access. I will conclude with some suggested 
modifications to ERISA in the absence of broad reform or the 
granting of state waiver authority.
    Most state initiatives to voluntarily expand employer-
sponsored insurance coverage have attempted to provide low-cost 
or subsidized product to employers to offer their workers. To 
date, these voluntary initiatives have had modest success.
    Several states have created voluntary programs that offer 
subsidies to encourage employers to offer insurance or offer 
those subsidized products to low-income workers. For example, 
in Maine, they attempted to reach near universal coverage by 
providing a new source of coverage for small businesses and 
low-income individuals. There were significant subsidies 
offered, and yet to date, the initiative has enrolled less than 
20,000 people, well less of the goal that they had established.
    Many states have passed laws to allow insurance carriers to 
sell products that do not include all of the state required 
benefits. In Maryland, for example, we have a limited benefit 
policy, and after a year of being offered, only one group has 
enrolled 10 people. This leaves states to consider mandatory 
approaches. To the extent that these strategies place 
requirements on employers, however, they run headlong into 
federal preemption of ERISA.
    Maryland's experience with the Fair Share Health Care Fund 
Act is an example. That bill gave employers with 10,000 or more 
employees a choice: either spend at least 8 percent--or in the 
case of a nonprofit plan, 6 percent--of their payroll on health 
insurance costs or pay the difference into a fund that supports 
the Medicaid program. The act was struck down by the federal 
district court and the Fourth Circuit upheld the lower court's 
decision.
    The state has dropped any further appeal, and while many 
policymakers and legal scholars have debated whether such pay-
or-play approach is allowable under ERISA, it is clear that 
states attempting these approaches face a long and potentially 
contentious process with the courts.
    In addition to legal obstacles, many states face practical 
obstacles to mandated approaches. Most states have porous 
borders and need to remain economically competitive with their 
neighbors. The only state that has an employer mandate in place 
is Hawaii, and they have the luxury of thousands of miles of 
ocean surrounding it.
    A sustainable strategy to cover the nation's 47 million 
uninsured is likely to build off the base of an employer-
sponsored insurance. While state reforms should continue to be 
supported, in my view, comprehensive reform that affects 
employers needs to come from the federal government.
    However, recognizing that, in the absence of national 
health-care reform, states will continue to move ahead with 
what they can. Congress may consider granting ERISA exemptions. 
It could in the meantime adopt more modest changes that could 
help states move forward.
    These might include:
    One, explicitly allowing states to apply premium taxes to 
employer plans. Currently, states have largely leveraged funds 
through assessments on delivery systems--that is provider 
taxes--rather than direct assessments on employers. A federally 
limited premium tax would allow an assessment to be 
specifically targeted.
    Two, allow states to collect data from ERISA plans. 
Currently states do not have the explicit authority to collect 
information on who and what is covered by an ERISA plan, and 
this is information that is critical for state policymakers to 
plan reforms.
    Three, set a federal floor on benefits. A federal floor for 
benefits or standardization of benefits would assure adequacy 
of coverage for individuals receiving health-care benefits 
through ERISA plans.
    And finally, four, strengthen consumer protections for 
those covered by ERISA plans. Strong state consumer protections 
do not apply to individuals covered by ERISA plans. Currently, 
limited federal oversight is provided by the Department of 
Labor, and this oversight could be strengthened and enforced 
and could be coordinated with the states.
    In summary, states have tried voluntary strategies to 
encourage employers to offer insurance. These strategies have 
offered only modest effects. So far, the courts have 
interpreted ERISA as preventing states from considering 
mandatory strategies. In the absence of national reform, there 
are some more modest changes that could be done.
    I would echo the chairman's suggestion that the first and 
foremost thing that you can do is reauthorize SCHIP. It is 
critically important. You should also consider changes to the 
Medicaid program to make that much more affordable and easier 
to operate.
    Again, thank you for the opportunity, and I would be happy 
to answer questions.
    [The statement of Mr. Colmers follows:]

 Prepared Statement of John Colmers, Secretary, Maryland Department of 
                       Health and Mental Hygiene

    Chairman Andrews, Ranking Member Kline, and members of the 
Subcommittee, my name is John Colmers. I am the Secretary of the 
Maryland Department of Health and Mental Hygiene. I appreciate the 
opportunity to testify before you today on state health care reform 
efforts, the challenges posed by the federal Employee Retirement Income 
Security Act (ERISA), and opportunities to improve coordination of 
federal and state initiatives.
Background
    ERISA was adopted in 1974 with the reasonable goal of allowing 
multi-state employers to offer comparable benefits across state lines. 
ERISA preempted state regulation of employee benefit plans. It has had 
the effect of exempting the health benefits offered by self-funded 
employers from any regulatory oversight. This occurred because the 
federal government did not issue regulations for health coverage 
comparable to those it issued for defined benefit pensions. The 
combination of preemption and lack of federal action created a 
regulatory vacuum that exempts health coverage offered by self-funded 
employers from any oversight. This vacuum segments the insurance market 
for which the state versus the federal government is primarily 
responsible. In Maryland, about half of individuals with private sector 
employer-sponsored insurance are covered by self-funded plans.
    The majority of individuals still get their health insurance 
through their employer. Recent declines in employer-sponsored insurance 
account for much of the growth in the uninsured; but employer-sponsored 
insurance remains the centerpiece of our nation's health financing 
system. The preference for employer-sponsored insurance is embedded in 
the federal tax system with about $200 billion in tax incentives to 
purchase insurance through employers.
Voluntary Efforts to Improve Employer-Sponsored Insurance
    States have tried to implement a number of voluntary measures to 
increase the number of individuals who receive health insurance 
coverage through their employer, or more recently, to halt the erosion 
of employer-sponsored insurance. Most of these state initiatives have 
attempted to provide low-cost or subsidized products for employers to 
offer their workers. To date, these voluntary initiatives have had 
modest success.
    Several states have created voluntary programs that offer subsidies 
to encourage employers to offer insurance or offer subsidized insurance 
to low-income workers. The enrollment experience of these programs has 
usually been well below program goals. Further, the majority of 
uninsured who are helped by these programs enroll as individuals rather 
than through their employers. So these efforts have done little to 
improve the rate of employer-sponsored insurance. Other state 
initiatives to improve employer-sponsored insurance have also had 
modest success. For example, many states have passed laws that allow 
insurance carriers to sell products that do not include all of the 
state-required benefits. These limited benefit plans have had very low 
enrollment. This was the case with Maryland's limited benefit policy--
after a year of being offered, only one group enrolled with 10 
individuals.
    Voluntary policies have had limited success in strengthening or 
sustaining the employer-sponsored insurance system, leaving states to 
consider mandatory approaches. To the extent that the strategies place 
requirements on employers regarding health benefits, they run head into 
the federal preemption of ERISA.
    Maryland's experience with the Fair Share Health Care Fund Act is 
an example of how state reforms that affect employers are challenging 
because of ERISA. The Fair Share Health Care Fund Act gave employers 
with 10,000 or more employees a choice: either spend at least 8% (6% 
for nonprofit employers) of their payroll on health insurance costs or 
pay the difference into a fund that supports the Medicaid program. This 
policy responded to the growing body of evidence that many low-income 
workers or their dependents are covered by state Medicaid, SCHIP 
programs, or are uninsured. The Fair Share Health Care Fund Act was 
struck down by the Federal District Court which held that the law would 
have required an employer to expand its ERISA health plan which could 
interfere with the uniform national administration of the firm's plan. 
In January 2007, the Fourth Circuit Court of Appeals upheld the lower 
court's decision. The State has dropped any further appeal of the 
decision. Many policy makers and legal scholars have debated whether or 
not a ``pay or play'' approach is allowable under ERISA, but it is 
clear that states attempting these approaches face a long and 
potentially contentious process with the courts.
    In addition to the obstacle of federal preemption, states find it 
difficult to go too far in imposing requirements on employers. States 
have borders and need to remain economically competitive with their 
neighbors. The only state that has an employer mandate in place is 
Hawaii. Hawaii's law preceded ERISA and received specific exemption. 
Further, it is the only island state, sharing borders with thousands of 
miles of ocean.
    A sustainable strategy to cover the nation's 47 million uninsured 
is likely to build off the base of employer-sponsored insurance. State 
reforms that affect employer-sponsored insurance are important because 
they test new ideas. However, comprehensive reforms that affect 
employers need to come from the national level because of the legal 
limitation of ERISA as well as the practical limitations on how 
aggressive states can be in imposing requirements on employers.
Modifications to ERISA
    In the absence of national health care reform, states will continue 
to move ahead with what they can. Certainly, we are seeing evidence of 
that now with many Governors and Legislatures moving ahead on reforms. 
ERISA does not allow for state waivers. Therefore, unless there is a 
favorable court ruling state-specific exemptions would need to be 
authorized legislatively. While Congress may consider granting such 
exemptions, it could in the meantime adopt more modest changes that 
could help states move forward. ERISA could be modified to allow states 
to test reforms that may be more practical for them to implement. These 
include:
    1. Explicitly allow states to apply premium taxes to employer 
plans. Currently, states have largely leveraged funds through 
assessments on the delivery system rather than direct assessments on 
employers. The Supreme Court held this was allowable in its 1995 
Travelers\1\ ruling: A premium tax would allow an assessment to be 
specifically targeted; whereas an assessment on the delivery system has 
the effect of raising costs for all users of the health system, 
including those without insurance.
---------------------------------------------------------------------------
    \1\ N.Y. State Conf. of Blue Cross & Blue Shield Plans v Travelers 
Insurance, 514 U.S. 645 (1995).
---------------------------------------------------------------------------
    2. Allow states to collect data from ERISA plans. Currently states 
do not have the authority to collect information on who and what is 
covered by ERISA plans. This is critical information for state 
regulators to understand what is going on in their insurance market.
    3. Set a federal floor on benefits. Because of ERISA preemption 
states are not able to define the scope of benefits provided by ERISA 
plans. A federal floor for benefits or standardization of benefits 
would assure adequacy of coverage for individuals receiving health 
benefits through an ERISA plan.
    4. Strengthen consumer protections for those covered by ERISA 
plans. Maryland approved strong consumer protections and oversight 
several years ago, but those protections do not apply to individuals 
covered by ERISA plans. Currently, limited federal oversight is 
provided by the Department of Labor. This oversight should be 
strengthened and enforcement should be coordinated with states.
Conclusion
    States have tried voluntary strategies to encourage employers to 
offer insurance. These strategies have resulted in only modest 
enrollment. So far, the courts have interpreted ERISA as preventing 
states from considering mandatory strategies with employers. The need 
for states to remain economically competitive also limits their ability 
to consider mandatory strategies. Strategies to universally expand 
coverage that build on the employer sponsored insurance system 
ultimately need to come from the national level.
    In the absence of national health care reform, states can be 
important testing grounds for reforms. There are specific changes to 
ERISA that could help pave the way for more states to act.
    I appreciate the opportunity to testify and thank you for taking up 
this important issue.
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Secretary. I will tell you 
that we are, as I say, engaged in discussions to try to help 
more employers find a way to be a part of SCHIP as well.
    Mr. Morrison, is your proper title secretary, auditor? What 
is proper?
    Mr. Morrison. Auditor or commissioner. Just do not call me 
late for dinner. [Laughter.]
    Chairman Andrews. Okay. Well, welcome, Mr. Auditor, to the 
subcommittee.

     STATEMENT OF JOHN MORRISON, MONTANA STATE AUDITOR AND 
            COMMISSIONER OF INSURANCE AND SECURITIES

    Mr. Morrison. Thank you, Chairman Andrews, Ranking Member 
Kline, members of the committee. Thank you for your attention 
to this issue.
    Like other states, Montana has taken the bull by the horns 
and is working to find new, innovative solutions to solve the 
health-care crisis. In 2007's legislative session, which we 
just completed, the state senate and house passed a joint 
resolution to create an interim committee to study ways to 
study universal, portable, affordable health insurance coverage 
for all Montanans that involves private health insurance 
issuers and incorporates existing public programs. The bill 
directs the interim committee to examine the concept of a 
health insurance exchange as well as mandating private 
universal coverage.
    In addition, in 2005, my office prepared legislation that 
created the Insure Montana Program. Governor Schweitzer joined 
me in requesting introduction of the bill and signed it into 
law that year. This program, administered by the insurance 
department, creates a voluntary purchasing pool for small 
employers with two to nine employees and provides premium 
assistance to both the employees based on income and the 
employers.
    In addition, there are tax credits for other small 
employers who sponsor small group health plans. Insure Montana 
now makes health coverage affordable for nearly 10,000 Montana 
small business employees and their families, and with the help 
of the federal Medicaid waiver, we hope to raise that to 15,000 
in the next biennium.
    Montana is a rural state with many small employers and a 19 
percent uninsured rate. The existing health-care crisis spreads 
across America, but the best solutions for addressing the 
problem vary from state to state.
    Solutions that work in Massachusetts or in California may 
not work in Montana, and that is why state-based health reforms 
may be the most expeditious solution to a growing national 
problem. States can experiment with reforms on a smaller scale, 
so the effectiveness of those reforms can be tested.
    ERISA preemption of state regulation has been an obstacle 
to some state-based health-care reforms and will continue to be 
an obstacle to some reforms now being contemplated.
    For example, the 2007 Montana legislature passed a new law 
that requires health insurance plans to allow parents to 
continue to insure their children under the parent's health 
insurance policy until age 25, even if the child is not a full-
time student.
    This is a simple, but important reform because the age 
group between 19 and 30 years old typically has the highest 
uninsured rates. Continuing to cover those young adults on 
their parents' policies is a cost-effective way to provide 
health coverage for those individuals. Dependents who lose 
coverage under their parents' health plan often end up on 
public insurance programs or subsidized clinics or incur 
unreimbursed medical care.
    The new law cannot be applied to self-funded employer 
health plans because of ERISA and, therefore, can only be a 
partial solution.
    As with any study, the HJ 48 interim committee that I 
described will need to collect data about health plans--
benefits offered, number of individuals covered, amount of 
claims paid and cost of coverage. ERISA generally prevents 
states from collecting data from self-funded health plans and, 
therefore, states are left in a position of trying to find 
solutions for problems to which they only have limited 
information. State data collection should be safe from ERISA 
preemption.
    Some years ago, Montana created the Montana Comprehensive 
Health Association, which is our high-risk pool. It is funded 
by a 1 percent assessment on premiums. Because of ERISA 
preemption, self-funded employer plans do not contribute to the 
funding for this program, even though their employees are able 
to take advantage of the portability and high-risk sections.
    In order to keep premiums affordable, we instituted a 
premium assistance program for individuals who are 150 percent 
or below the federal poverty level. We sought federal funding 
for this in 2001, and Montana became a pilot program for the 
broader federal effort to assist state high-risk pools. 
However, continued funding for the federal grant program for 
the high-risk pools has not been reauthorized.
    As we in Montana begin to study new reforms to address the 
health-care crisis, we must always test the ERISA waters. 
Critics may bring ERISA challenges against state laws, causing 
uncertainty, significant delay and significant litigation 
costs. If the states had the ability to apply to the secretary 
of labor for a waiver of preemption in advance of attempting 
certain reforms, most of that uncertainty would be removed.
    Montana also has a dynamic ballot initiative process, and I 
am certain that great strides can be made toward covering the 
uninsured through this process in 2008. However, the specter of 
ERISA preemption curbs some of the innovative possibilities.
    Finally, ERISA preempts states from applying mandated 
coverages to self-funded employer plans. Most of those mandates 
provide important preventative health care, such as mammograms, 
diabetic services and supplies and other things. The cost of 
those kinds of care, when not covered, get shifted on to the 
narrowing slice of employers and individuals that do have 
insurance.
    From Maine to Montana, states are starting to get serious 
about ending the health-care crisis. While there are many 
challenges that require national authority and resources, we 
hope your approach to health care will empower the states so 
that we can get out of the wagon and help you pull it over the 
hill.
    [The statement of Mr. Morrison follows:]

 Prepared Statement of John Morrison, J.D., Montana State Auditor and 
                Commissioner of Insurance and Securities

    Good afternoon. My name is John Morrison, I am the Montana State 
Auditor, and have served as the Commissioner of Insurance and 
Securities for the State of Montana since 2001.
    I want to thank the committee for inviting me to testify and for 
being willing to examine this issue of how ERISA may be an obstacle 
that prevents state-based health care reform.
    Like other states, Montana is clearly taking the bull by the horns 
and attempting to find new, innovative solutions to solve the health 
care crisis. In the 2007 legislative session, the state Senate and the 
House passed a joint resolution to create an interim committee to study 
ways to create ``a system of universal, portable, affordable health 
insurance coverage for all Montanans that involves private health 
insurance issuers and that incorporates existing public programs.'' The 
bill directs the interim committee to specifically examine the concept 
of a health insurance exchange and the way that such a connector or 
exchange could be implemented in Montana. In addition, it directs the 
committee to study the advantages and disadvantages of mandating 
private universal coverage for all Montanans. [HJ 48]
    In addition, in 2005 my office prepared legislation that created 
the Insure Montana Program. Governor Schweitzer joined me in requesting 
introduction of the bill and signed it into law that year. This 
program, administered by the insurance department, creates a voluntary 
purchasing pool for small employers with 2 to 9 employees and provides 
premium assistance to both the employees (variable based on income) and 
the employers. In addition, there are tax credits for other small 
employers who sponsor small employer group health plans. Insure Montana 
now makes health coverage affordable for nearly 10,000 Montana small 
business employees and their families.
    Montana is a very rural state, with many small employers and a 19% 
uninsured rate. The existing health care crisis spreads across this 
entire country, but the best solutions for addressing this common 
problem vary widely from state to state because of widely varying 
demographics. Solutions that work in Massachusetts or in California may 
not work in Montana, and that is why state-based health reforms may be 
the most expeditious solution to a growing national problem. States can 
experiment with reforms on a smaller scale, so that the effectiveness 
of those reforms can be tested.
    ERISA preemption of state regulation has been an obstacle to state-
based health care reforms and will continue to be an obstacle to some 
future reforms now being contemplated by many states. For instance:
    1. In 2007 the Montana legislature passed a new law that requires 
health insurance plans to allow parents to continue to insure their 
children under the parent's health insurance policy until age 25, even 
if the child is not a full-time student. This is a simple, but 
important reform because the age group between 19 and 30 years old 
typically has the highest uninsured rates. Continuing to cover those 
young adults on their parents' policies is a cost-effective way to 
provide health coverage for those individuals. Dependents who lose 
coverage under their parents' health plan often end up in public 
insurance programs or subsidized clinics, or incur unreimbursed medical 
care.
    This new law cannot be applied to self-funded employer health plans 
because of ERISA, and therefore can only be a partial solution.
    2. Some years ago, Montana created the Montana Comprehensive Health 
Association, which offers high-risk pool coverage to individuals who 
are unable to get coverage in the individual market because of their 
health status. It also offers coverage to individuals who are federally 
eligible for portability coverage pursuant to HIPAA. Both of those risk 
pools are funded by a 1% assessment on all private health insurance 
premiums written in this state, as well as the premium collected from 
the individual participants. Because of ERISA preemptions, self-funded 
employer plans do not contribute to the funding for this program, even 
though their employees are able to take advantage of the portability 
pool when they lose their employer coverage. The financial viability of 
this program has been increasingly threatened since the passage of the 
HIPAA portability requirements. Access to coverage for persons losing 
employer coverage is a very important consumer protection provided by 
federal HIPAA law, but the states were left to shoulder the burden of 
the cost of that reform. ERISA prevents the states from assessing self-
funded employer plans, and the entire burden is shifted to persons who 
pay private health insurance premiums and other state funding sources. 
Experience in Montana has shown that portability pool participants also 
tend to be high-risk individuals, and the pool cannot be maintained by 
premiums alone. Assessments or other funding sources are necessary.
    We work hard to keep premiums affordable in this program and, to 
that end, we instituted a premium-assistance program for individuals 
who are 150% or below the FPL. We sought federal funding for this 
initiative in 2001 and Montana became a successful pilot project for 
the broader federal effort to assist state high-risk pools. However, 
the only steady source of funding for the program has come from the 
state because continued funding for the federal grant program for high-
risk pools has not been reauthorized.
    3. As we in Montana begin to study new reforms to address the 
health care crisis, we must do so tentatively, always testing the ERISA 
waters. Critics of health reforms may bring ERISA challenges (valid or 
not) against state laws, causing uncertainty, significant delay and 
significant litigation costs, even if the state ultimately prevails. If 
the states had the ability to apply to the Secretary of Labor for a 
waiver of preemption in advance of attempting certain reforms, most of 
that uncertainty, delay, and expense could be eliminated.
    The new Montana joint resolution [HJ 48] proposes to study the 
advantages and disadvantages of mandating private universal coverage: 
for instance, perhaps a pay-or-play system, as well as the concept of a 
health insurance exchange. A health insurance exchange could make 
coverage more affordable and portable by allowing employees to choose 
their coverage from an exchange offering an array of products, and then 
carry that coverage with them if they leave that employer. Both of 
these ideas are significantly different from the current method of 
delivering health insurance coverage. All of the reform ideas emerging 
from the states, no matter how promising, must be subject to intense 
legal scrutiny and are sometimes discarded, simply because the risk of 
ERISA preemption is too great.
    4. As with any study, the HJ 48 interim committee will need to 
collect data about health plans, benefits offered, number of 
individuals covered, amount of claims paid, and costs of coverage. 
ERISA generally prevents states from collecting data from self-funded 
health plans, and therefore states are left in the position of trying 
to find solutions for a problem when they have only half the 
information. State data collection should be saved from ERISA 
preemption.
    5. Montana also has a dynamic ballot initiative process and I am 
certain that great strides can be made toward covering the uninsured 
through this process in 2008. I have talked to many stakeholders and 
found widespread interest in this approach. As we consider different 
policy options, the specter of ERISA preemption curbs the innovative 
possibilities.
    6. The Insure Montana program has not encountered any direct ERISA 
challenges. However, the plans offered through the purchasing pool are 
privately insured and have higher cost premiums because of premium tax 
and high-risk pool assessments. That means that the cost of 
supplementing those premiums is higher. Self-funded employer plans are 
able to maintain lower costs because they do not pay these taxes and 
assessments and also because those plans do not include state mandates. 
But the cost savings achieved on the self-funded ERISA side are simply 
shifted onto the narrowing slice of the market covered by private 
carriers, including Insure Montana.
    7. ERISA preempts states from enforcing mandated coverages as to 
self-funded employer plans. Most of those mandates provide important 
preventative health care such as mammograms, diabetic services and 
supplies, immunizations and well-child care for young children, newborn 
coverage and maternity coverage. Many individuals, who do not have 
coverage for these types of important preventative care items, cannot 
afford to obtain them on their own. Serious health problems can occur 
and result in costs of uncompensated health care being shifted to the 
rest of the population that pays for health insurance, both private and 
self-funded, or some of these individuals may end up in public programs 
like Medicaid, which all taxpayers must pay for.
    From Maine to Montana, states are starting to get serious about 
ending the health care crisis. The laboratories of democracy are on the 
march, pioneering reforms. While there are many challenges that require 
the national authority and resources of Congress, we hope that your 
approach to health care will empower the states so that we can get out 
of the wagon and help you pull it over the hill.
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Auditor.
    Mr. Covert, welcome to the subcommittee.

 STATEMENT OF KEVIN COVERT, VICE PRESIDENT AND DEPUTY GENERAL 
   COUNSEL FOR HUMAN RESOURCES, HONEYWELL INTERNATIONAL, INC.

    Mr. Covert. Thank you, Mr. Chairman, Ranking Member Kline, 
members of the subcommittee.
    I am pleased to have the opportunity to share my views 
about the importance of ERISA preemption in making it possible 
for my company and thousands of other employers around the 
country to offer and administer a comprehensive health benefit 
plan to our employees.
    I am going to spend my time talking less about the 
theoretical and more about the practical, real-world 
implications of eroding ERISA preemption to those of us who 
sponsor employer plans.
    Honeywell is a diversified manufacturing company with 
approximately 120,000 employees worldwide. We have 
approximately 60,000 employees in the United States, and we 
operate in all 50 states. We provide our employees with a 
comprehensive benefits package, including medical coverage that 
includes core health coverage, prescription drugs, vision and 
dental care.
    We will spend in excess of $500 million in 2007 to provide 
health coverage to almost 135,000 employees and dependents. We 
will also spend in excess of $200 million this year to provide 
health coverage to another 60,000 retirees and their 
dependents.
    By far, health care is the most valued benefit we provide 
to our employees, and the provision of a comprehensive benefits 
package is absolutely critical to our ability to attract and 
retain talent in an ever-increasingly competitive world.
    Our employees do not have to go to work every day with the 
specter of catastrophic financial ruin caused by serious 
illness hanging over their heads. Moreover, we found that a 
healthy workforce is a productive workforce. While we have not 
attempted to quantify it, there is no doubt in our minds that 
the comprehensive health coverage that we provide to employees 
accounts for significant annual productivity savings for 
Honeywell.
    Thus, this truly is an example of a win-win proposition. By 
investing in our people, our employees and their families have 
the security that a robust health-care package provides, while 
Honeywell benefits from the resulting productivity that a 
healthy workforce engenders.
    Nevertheless, as health-care costs continue to skyrocket, 
Honeywell and other employers are increasingly challenged to 
find creative ways to provide quality care at manageable costs. 
ERISA preemption is the cornerstone of our ability to offer a 
comprehensive, affordable health-care package across all 50 
states in which we operate. ERISA preemption provides 
administrative simplicity, business flexibility and cost 
containment, all of which were part of the critical balance 
that Congress struck when ERISA was passed in 1974.
    Before the enactment of ERISA, employee benefit plans were 
regulated by a patchwork of state and local statutes. Employers 
like Honeywell that provide a benefit to a national workforce 
encountered tremendous administrative difficulties and 
extraordinary expense complying with these rules. These rules 
differ from state to state and sometimes from locality to 
locality.
    If we retreat to that pre-ERISA environment, employers will 
once again be subject to myriad mandates and regulations that 
Congress sought to avoid when ERISA was originally enacted. 
Even if one state's rules impose relatively modest 
requirements, when viewed from the perspective of an employer's 
multi-state health plan, such modest variations and 
requirements will impose significant costs and burdens, and I 
submit that the financial administrative resources consumed by 
efforts to comply with a patchwork of local laws will be better 
spent providing benefits to our employees and their families.
    Now, as you all know, we live and operate in a very dynamic 
global economy. The ability to react quickly and efficiently to 
changing circumstances, both in the United States and around 
the world, is crucial to our ability not only to thrive, but to 
survive as a company. Flexibility is the hallmark of ERISA 
preemption. It allows employers to tailor their benefit 
programs to the needs of their own workforces as opposed to the 
rigidity that a one-size-fits-all state-mandate solution would 
inevitably foster.
    Moreover, large employers have been the vanguard of 
innovation and cost containment in the health-care arena. 
Because ERISA preemption allows us to experiment and pilot plan 
designs, we have been able to mitigate cost increases and 
affect behavior for the positive.
    For example, in 2002, we implemented disease management 
programs to target high-risk conditions, including asthma, 
heart disease and diabetes. In 2004, we began a multi-year 
campaign to educate employees about their own role in their 
health-care decision-making, providing them with a plethora of 
decision-making support tools and resources.
    And just last year, we instituted a $500 incentive program 
to encourage our employees with one of eight different 
conditions that are known to have significant treatment 
variations--for example, hip replacement, knee replacement, 
hysterectomy, heart surgery--to seek out quality health 
information before making that treatment decision.
    As a result, while health-care costs have on average 
increased 10.8 percent over the past 5 years, Honeywell has 
been able to constrain health-care cost increases to 8.9 
percent annually over that same period. Without the flexibility 
borne of ERISA preemption, that cost containment would not be 
possible.
    Finally, an employer's ability to provide a national 
workforce with a uniform benefits package results in 
substantial savings to both the employer and employees. 
Approximately 70 million Americans receive health coverage 
under self-insured private-sector health plans. Without ERISA 
preemption, the complexity of trying to comply with a patchwork 
of state and local mandates would result in a massive shift in 
coverage from self-insured plans to the fully insured market.
    According to a recent study by Hewitt Associates, fully 
insured plans cost on average 11 percent to 12 percent more 
than self-insured plans because of premium taxes, profit and 
risk charges, commissions, claims processing and administration 
charges.
    Moreover, the cost of the actual mandates themselves, 
estimated to be 5 percent of health-care expenditures, would 
cause costs to spiral further out of control. These added costs 
would inevitably be felt by employees who are already being 
asked to shoulder an ever-increasing share of their health-care 
coverage.
    Chairman Andrews. Mr. Covert, if we just could ask you to 
wrap up if you could.
    Mr. Covert. In summary, I think we can all agree that a 
number of the elements of state reform are laudable goals. 
However, we urge Congress to tread carefully here, as we need 
to be cognizant of the law of unintended consequences. By 
watering down ERISA preemption, we would be stifling the 
innovative quality improvement and cost-containment initiatives 
that employers have been leading.
    Thank you, Mr. Chairman. I look forward to working with you 
and your committee to develop a plan that meets the needs of 
employers, employees and the uninsured alike.
    [The statement of Mr. Covert follows:]

 Prepared Statement of Kevin Covert, Vice President and Deputy General 
       Counsel for Human Resources, Honeywell International, Inc.

    My name is Kevin Covert and I am the Vice-President and Deputy 
General Counsel for Human Resources at Honeywell. I am a member of the 
Board of Directors of The American Benefits Council (``Council''), on 
whose behalf I am testifying today. We would like to thank the 
subcommittee for holding this important hearing on ``Health Care 
Reform: Recommendations to Improve Coordination of Federal and State 
Initiatives.'' Addressing the issue of uninsured Americans is a serious 
issue that deserves a thorough review by federal policymakers.
    The Council's members are primarily major U.S. employers that 
provide employee benefits to active and retired workers and that do 
business in most if not all states. The Council's membership also 
includes organizations that provide services to employers of all sizes 
for their employee benefit programs. Collectively, the Council's 
members either directly sponsor or provide services to retirement and 
health benefit plans covering more than 100 million Americans.
    The Council and its members have played a significant role on 
numerous health policy issues including supporting public and private 
initiatives to improve quality and transparency in our health care 
system, working to help stabilize the availability of retiree health 
care coverage as part of the Medicare Modernization Act, and serving as 
an important resource for policymakers on many other legislative and 
regulatory issues affecting employer-sponsored health coverage. The 
Council has also published a long-term public policy strategic plan--
known as its Safe and Sound report--which lays out a broad agenda of 
specific improvements in benefits policy designed to achieve ``personal 
financial security'' for all Americans, including a range of 
recommendations intended to make health care coverage more accessible, 
more affordable and of higher quality.
    Honeywell is a diversified manufacturing company with approximately 
120,000 employees worldwide. We have approximately 60,000 employees in 
the United States and we operate in all 50 states. We offer our 
employees a comprehensive benefits package, including medical coverage 
that includes core health coverage, prescription drug coverage, dental 
coverage and a vision plan. We will spend in excess of $500 million 
this year to provide health coverage to almost 135,000 Americans, at 
per employee cost of approximately $10,000. We will also spend in 
excess of $200 million to provide health coverage to another 60,000 
retirees and dependents.
    Honeywell, like other large employers, has been at the forefront of 
healthcare innovation. The competitive global markets in which we 
compete have forced us to think outside the box in the healthcare arena 
as we struggle to control costs, while at the same time competing for a 
limited supply of human capital. In 2002, we implemented disease 
management programs to target high risk conditions, including asthma, 
heart disease and diabetes. In 2004, we began a multi-year campaign to 
educate employees about their role in their own healthcare decision 
making, providing a plethora of decision support tools and resources. 
Just last year, we instituted a $500 incentive program to encourage 
employees with one of eight different conditions that are known to have 
significant treatment variations (e.g., hip replacement, knee 
replacement, back surgery, hysterectomy, heart surgery, etc.) to seek 
out quality health information before making a treatment decision. 
Thus, it is critical that Congress not do anything with respect to 
ERISA preemption that would stifle our health care innovation.
ERISA Preemption is Vital to the Voluntary Sponsorship of Health Plans
    Employers have an enormous stake in addressing the problem of the 
uninsured and the rising cost of health care. Employers are directly 
affected by the costs of uncompensated care for the uninsured, which 
drives up costs for all health care payors, including private payors 
like Honeywell as well as government programs. Employers, like 
Honeywell, are on the frontline of addressing the rising cost of health 
care through the development of innovative plan designs, implementing 
wellness programs and promoting transparency in the costs and quality 
of health care services.
    It is critical that federal or state reform efforts not undermine 
the crucial role that the Employee Retirement Income Security Act of 
1974 (ERISA) and employers play in our health care system. ERISA 
``preempts'' state laws that relate to employer sponsored employee 
benefit plans in order to promote the employer sponsorship of health 
plans and the uniform administration of benefits. Under ERISA, states 
retain the right to regulate insurance, however states may not deem 
ERISA plans to be insurance in order to subject such plans to state 
regulation.
    Simply put, ERISA preemption is vital to the voluntary sponsorship 
of health plans. Over 70 percent of American workers age 18 to 64 have 
employer-based health coverage.\1\ According to unpublished estimates 
by the Employee Benefit Research Institute (EBRI), roughly 70 million 
workers and dependents under age 65 are covered by private sector self 
insured plans.
---------------------------------------------------------------------------
    \1\ See Employee Benefit Research Institute Databook on Employee 
Benefits, Ch 1at http://www.ebri.org (updated April 2007).
---------------------------------------------------------------------------
    Employers depend on ERISA preemption to ensure that coverage can be 
offered uniformly across the country and administered relatively 
efficiently. ERISA preemption also gives each employer the flexibility 
to design the terms of health plans to meet the changing needs of their 
unique workforce and to attempt to control spiraling health care costs. 
We strongly believe that legislative responses that affect employers 
must build on the current federal framework which preserves uniformity 
in plan design and administration.
State Reforms Raise Concerns for Employers
    Although Congress has considered a variety of proposals over the 
years, states have now taken the lead in addressing the problem of the 
uninsured. Major initiatives were passed in Vermont, Maryland, 
Massachusetts and San Francisco, and numerous others are pending in 
states such as California, New Jersey and elsewhere. While the 
specifics of each proposal vary, they can be broadly categorized as 
follows:
     ``Pay or Play'' or ``Fair Share'' Laws: Pay or play laws 
require employers of a certain size to spend a set dollar amount or 
percentage of payroll for health care. Employers that fail to spend the 
required amount on health benefits typically must pay a penalty in the 
form of a tax or a mandatory contribution to state run health care 
programs. Maryland enacted the most publicized version of a pay or play 
law (the United States Court of Appeals for the Fourth Circuit found 
the Maryland law preempted under ERISA). Suffolk County, New York and 
San Francisco have adopted similar laws.
     Fair Wage Laws: Fair wage laws typically require employers 
to pay an overall hourly compensation package of a specified amount 
(e.g., $12/hr). Employers must pay a certain portion of the overall 
amount in cash (e.g., $9/hr) and the balance in either cash or health 
benefits. Employers who fail to offer a compliant hourly compensation 
package face monetary penalties. Municipalities are examining this 
approach as well.
     Comprehensive reform: Some states have adopted more 
comprehensive health care reforms, which may include (1) a play or pay 
assessment on employers that do not provide health coverage that meets 
a certain standard, (2) reforms of state insurance markets, (3) a 
requirement that individuals obtain coverage (the ``individual 
mandate''), (4) expansion of state and federal government health care 
programs, (5) premium assistance programs for lower wage workers to 
obtain private insurance, and (6) mandates on employers with uninsured 
employees to establish cafeteria plans to allow for pre-tax purchase of 
insurance. To date, Massachusetts and Vermont have adopted 
comprehensive proposals. A number of other states, including 
California, are considering proposals.
    While a number of the elements of state reform are laudable, 
including expanding subsidies to purchase private insurance, helping 
consumers make better health care decisions by comparing health care 
costs and quality and giving states more flexibility over their use of 
federal funds to meet their health care needs, certain elements of 
state-based reform raise significant concerns for employers.
    The Council is very concerned about proposals that have the effect 
of subjecting employers and health plans to a patchwork of state-by-
state regulation. Even if one state's rules impose relatively modest 
requirements, when viewed from the perspective of an employer's health 
plan that covers employees in multiple states, the cumulative effect of 
such variations in requirements will impose significant costs and 
administrative burden.
    A seemingly minimal employer mandate such as the requirement in 
Massachusetts that employers adopt and maintain a Section 125 
``cafeteria'' plan may create significant administrative burdens.\2\ 
Cafeteria plans are benefit plans, adopted pursuant to Internal Revenue 
Code section 125, that employers may offer to allow employees to pay 
for health care coverage (or other qualified benefits) on a pre-tax 
basis. The Massachusetts reform law requires adoption of a Section 125 
plan that satisfies both federal law as well as regulations established 
by the Commonwealth Connector. The Connector was created to help 
connect employers and employees with a choice of health care coverage 
options. Certain individuals, including individuals not eligible for 
coverage at their place of employment, such as those who work part-
time, will be able to purchase insurance through the Connector using 
pre-tax dollars via cafeteria plans established by their employers.
---------------------------------------------------------------------------
    \2\ One of the employer responsibilities under the Mass Health Care 
Reform Law is the requirement that employers with 11 or more full-time 
equivalent employees adopt and maintain a Plan that satisfies both 
Section 125 of the Internal Revenue Code and regulations established by 
the Commonwealth Connector. Helping Your Employees Connect to Good 
Health: Section 125 Plan Handbook for Employers. Version 1.0 (April 23, 
2007) p. 2.
---------------------------------------------------------------------------
    If all 50 states were to require cafeteria plans, employers would 
have to establish or modify their cafeteria plans and set up payroll 
systems to satisfy requirements in each state where they had employees 
working. For example, we understand that the Massachusetts Connecter 
program will only receive payroll deductions once-per-month. However, 
most employers use a two-week pay period. As such, employers with 
operations in Massachusetts will have to create a wholly separate 
payroll deduction scheme to meet the Massachusetts requirement. This 
could be very burdensome if replicated in several states.
    Another obvious concern with state reform efforts is with the pay 
or play or other employer assessments that accompany state law reforms. 
Because the proposals vary widely in each state, county or 
municipality, compliance would be extremely complex, if not impossible. 
Current proposals specify different amounts that must be spent on 
health benefits and the methods of determining the amounts vary widely. 
The proposals may include or exclude part-time workers, may use 
different definitions of employee or employer and count different types 
of coverage as qualifying coverage. The proposals also require distinct 
certification and reporting in each jurisdiction. Imagine the cost and 
difficulty of trying to comply with these rules if they varied in all 
50 states (let alone 3,077 counties and 87,525 municipalities). Under 
this approach, employers would also need to be certain their plans 
remain in compliance with all future changes to these state and local 
requirements which would be an extraordinarily difficult challenge.
    Employees also understand the importance of employer-sponsored 
health coverage and the employer's role in financing a large share of 
its expense. In a survey released earlier this month by the National 
Business Group on Health, two in three respondents (67%) consider their 
health plan to be excellent or very good. An even greater number (75%) 
said they valued it as their most important benefit from their employer 
and about three in every four respondents said they would prefer to get 
their health benefits through their employer rather than having a 
salary increase in order to purchase health coverage on their own.
ERISA Preemption is Based on Sound Public Policy
    We believe that ERISA preemption is based on sound public policy. 
Federal preemption fosters uniform administration and reduces the 
costly burden of state-by-state compliance and regulation. Without this 
essential framework, many employers, including the large employers that 
overwhelmingly provide health care coverage to their employees, will be 
forced to choose between increasing the employee share of health care 
coverage costs or eliminating coverage entirely. The complexity of 
administering a health care plan that treats workers differently based 
on the laws of each state (let alone each city) is inconceivable. ERISA 
preemption was enacted to solve this problem.
    ERISA preemption also allows employers to provide uniform benefit 
packages across the workforce. Employers do not want to create 
disparities within the work force where employees have different 
benefits simply based on where they work or live. Instead, benefits 
need to be tailored to the specific needs of an employer's workforce 
across state lines.
    ERISA preemption also helps mitigate the effect of health care 
costs as a factor in determining the advantages or disadvantages of 
operating in different states. Absent ERISA preemption, employers would 
have incentives to locate in states with less burdensome health care 
mandates. The high cost of health care already creates a competitive 
disadvantage for American employers relative to other countries. 
Allowing states and counties to encumber employers further would expand 
that gap.
ERISA Waivers are Not the Solution
    We believe that any new initiatives at either the state or federal 
level that address the problem of the uninsured must be pursued in a 
manner that continues to ensure uniformity in plan design and 
administration. This will ensure that that employers can continue to be 
innovators in plan design and cost control.
    We are also very concerned that one response would be for federal 
policymakers to pare back ERISA preemption, or grant states ``waivers'' 
from ERISA preemption. Waivers might be tempting because states are 
already acting and it may be difficult for federal policymakers to 
develop a consensus for a federal solution.
    ERISA waivers raise concerns as to both the mechanics and the 
efficacy of such a program. Moreover, it is not an easy solution--ERISA 
waivers will involve a tremendous amount of federal policymaking and 
oversight. Here are just some of the key issues that would have to be 
addressed:
     Will the states that are the subject of the waiver be 
named in federal law? If so, which standards would be used to protect 
certain state laws and not others?
     Will the process be administered on a case-by-case basis 
by a federal agency pursuant to federal standards? Is this a full-blown 
administrative proceeding?
     If an agency is granted authority to issue waivers, what 
standards would apply to limit the agency's authority or the future 
scope of state actions? Will states be limited to certain types of 
mandates or experimentation? Will states be free to force employers to 
pay for state health care reform?
    Needless to say, if the standards for waivers are set in federal 
law, as they would have to be, then federal policymakers will have to 
resolve most, if not all, of the policy questions that would have to be 
addressed in fashioning a uniform, federal approach.
Conclusion
    In conclusion, we recognize that the issue of uninsured Americans 
is a serious problem that requires a careful examination of every 
policy option. Moreover, the Council believes that changes to the 
nation's health care system are needed and has put forth in our long-
term strategic plan several proposals to dramatically improve the 
health care system. We think the best approach is a federal solution 
that builds on ERISA and promotes uniformity and cost containment. The 
solution must complement, not undermine, the important role that 
private sector employers play in voluntarily sponsoring self-insured 
health plans that cover approximately 70 million American workers and 
dependents.
    Again, thank you for the opportunity to share our perspectives.
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Covert, very much.
    There is another series of five votes here. What I would 
propose to do would be to try to get the statements of Ms. 
Moore and Commissioner Goldman in. Mr. Kline and I will stay to 
hear them, and then we will come back.
    Unfortunately, it is going to be maybe an hour because of 
this series of votes. If people have to leave, we understand. 
Members will come back to ask questions.
    So, Ms. Moore, we will proceed with you, and then Mr. 
Goldman, and we appreciate your patience.

   STATEMENT OF AMY MOORE, PARTNER, COVINGTON & BURLING, LLP

    Ms. Moore. Sure. Good afternoon, Mr. Chairman and Ranking 
Member Kline, members of the subcommittee.
    I represent a number of large employers who do business in 
multiple states and who are struggling with many of the same 
issues that the states are struggling with and that this 
committee is concerned about. So I very much appreciate the 
opportunity to be here this afternoon and speak with you about 
those issues.
    I am happy to be able to affirm that 33 years ago Congress 
got something right. The thing that Congress got right was the 
preemption provision of ERISA. It has worked well all of these 
years. It has made it possible for employers to create uniform 
health programs that meet the needs of their workforce, and 
they can be administered efficiently across the country.
    It has made it possible for employers to use their 
purchasing power to keep costs in line, and it has made 
possible the kind of employer innovation and improvement in 
health care that you heard Kevin Covert describe at Honeywell 
and that is also being implemented at large employers across 
the country.
    A sort of urban myth has arisen that the breadth of ERISA's 
preemption provision was an accident and that the members of 
Congress at the time did not really foresee the effect that 
this preemption provision would have on states' efforts to 
reform health-care plans.
    In fact, though, that is not the case. In large part, 
ERISA's preemption provision was a response to state efforts to 
reform their health-care system once they had enacted 
comprehensive health-care reform.
    Other states were contemplating it, courts were entering 
decisions that health plans could be regulated as if they were 
insurance arrangements, and employers and organized labor were 
extremely concerned that the effect that these kinds of 
inconsistent state laws would have on their nationwide health 
programs.
    Congress at the time carefully considered those concerns, 
weighed the competing interests of the state and the federal 
system and concluded that a broad ERISA preemption provision 
was essential to promote the health and vitality of employment-
based health care, and I believe that experience has shown over 
the last 33 years that that judgment was correct.
    Individual state mandates might seem like they are not 
terribly burdensome for an employer to comply with, but each 
mandate requires an employer to first figure out what the law 
requires. Does it apply to employees who live in one state and 
work in another? How does it apply? Who does it apply to?
    They have to amend their health plans. They have to 
renegotiate their agreements with their providers. They have to 
create a special set of employee communications for the 
employees in that particular state, and that can be especially 
problematic for employers who are trying to post uniform 
communications on a Web site.
    They have to train people who answer hotlines and who 
communicate with employees to answer questions about the new 
benefits or the new coverage. They have to revise their claims 
forms and claims procedures, and because, like the states, they 
do not have infinite resources, they have to make judgments 
about whether they need to cut back on other benefits in order 
to finance these new mandates.
    So a seemingly small, seemingly benign state law can have a 
significant impact on employment-based plans.
    There is a great deal that the states can do in the context 
of ERISA without ERISA waivers to reform access to health 
insurance, to reform individual and small group markets, to 
enact individual mandates. There is also a great deal that the 
states can do to finance health-care reform within their 
borders.
    A great many people, I think, including myself, would love 
to discover that ERISA prevents the states from taxing 
corporate income or personal income to finance health reform, 
but, sadly, I fear that even I do not believe that ERISA 
preemption is that broad.
    So I think that there are opportunities for the states to 
reform their health systems. The employers would like to work 
with them, but I think as this subcommittee considers how to 
address these very serious problems, we would ask that it 
remember that 160 million Americans under the age of 65 are 
receiving very good, very affordable health insurance from 
their employers, and we hope that you will approach this 
problem as a doctor approaches his patients, with the maxim in 
mind of first do no harm.
    Thank you very much, and I will be happy to answer 
questions.
    [The statement of Ms. Moore follows:]

      Prepared Statement of Amy N. Moore, Covington & Burling LLP

    Good morning, Mr. Chairman and Congressman Kline. I very much 
appreciate the opportunity to speak with you and the Subcommittee today 
about health care reform.
    I am a partner in the law firm of Covington & Burling LLP. I have 
concentrated on employee benefit matters since 1984. I advise many of 
the nation's largest employers on issues affecting the group health 
plans they maintain for their employees. Most of the companies I 
represent have employees in more than one state, and some have 
employees in all 50 states. My firm also represents The ERISA Industry 
Committee, a nonprofit association committed to the advancement of the 
employee benefit plans of America's largest employers. I am testifying 
today on my own behalf.
    The Subcommittee's focus on the coordination of federal and state 
initiatives is commendable. The health care system in this country has 
serious problems, and it will take the best efforts of federal and 
state policymakers, industry leaders, trade associations, and private 
individuals to address them. In the last six years alone, the cost of 
health care has increased at 3\1/2\ times the rate of inflation.\1\ 
National expenditures on health care now consume 16 percent of the 
gross domestic product.\2\ Although our health care system is among the 
most expensive in the world, it is far from being the most effective. 
Forty-seven million Americans, including more than 8 million children, 
have no health coverage.\3\
    The rising cost of health care puts pressure on employers as well 
as on state governments and their citizens; and employers are actively 
seeking solutions to the problems in our health care system. In spite 
of these difficulties, employment-based health care remains the main 
source of health coverage for American workers and their families. The 
percentage of workers and their families who receive health coverage 
from employment-based plans has remained steady for decades.\4\ 
Approximately 74 percent of workers are eligible for health benefits 
from their own employer, and more than 60 percent of workers are 
covered by their own employer's health plan.\5\ Those who decline their 
own employer's health coverage often have coverage from a spouse's or 
other family member's employer.\6\
    As this Subcommittee considers how to address the problems in our 
health care system, it should take care to preserve the aspects of the 
system that work well. Employers are able to offer health coverage to 
their workers in large part because their health plans are subject to 
uniform federal regulation, and are protected from inconsistent 
regulation at the state and local levels.
    I would like to focus on the importance of ERISA preemption to the 
employment-based health care system. I have four key points.
    First, the employment-based health system delivers comprehensive 
health coverage to millions of Americans today, and it is the force 
behind some of the most promising innovations in health care. A strong 
ERISA preemption provision makes this system possible; any erosion of 
ERISA preemption will put it in jeopardy.
    Second, Congress carefully considered the effect of ERISA 
preemption on state health reform efforts more than 30 years ago, when 
ERISA was enacted. Congress concluded that federal preemption was 
necessary to eliminate the threat of conflicting state and local 
regulation of employee benefit plans. As the House Committee on 
Education and Labor explained, ``the Federal interest and the need for 
national uniformity are so great that the enforcement of state 
regulation should be precluded.'' \7\ Experience has shown that this 
judgment was correct.
    Third, permitting states to obtain waivers from ERISA not only will 
undermine the employment-based health system, it also will prove 
impractical. Granting waivers from ERISA is very much more complicated 
than granting waivers from Medicaid. No system exists, or can easily be 
created, to administer an ERISA waiver program.
    Fourth, states do not need ERISA waivers in order to implement 
sound and effective health care reforms for their citizens. The 
problems most urgently in need of solutions--insuring the unemployed, 
providing reliable and accessible information on health care cost and 
quality, making affordable insurance available to individuals and small 
groups--are outside the scope of ERISA's preemption provision.
Employment-Based Health Coverage Is One of ERISA's Success Stories
    Employment-based group health plans provide health coverage to more 
than 160 million Americans under age 65.\8\ Although the employment-
based health system is voluntary, 96 percent of employers with more 
than 100 workers offer health coverage to their employees.\9\ Large 
employers bear the great majority of the cost of this coverage. For 
example, employers with more than 100 workers shoulder, on average, 82 
percent of the cost of single coverage and 74 percent of the cost of 
family coverage.\10\ Large employers spend approximately $3,300 per 
year for each employee with single coverage and approximately $8,000 
per year for each employee with family coverage.\11\
    Large employers are not only major providers of health care, they 
also are a major force behind the improvement of the health care 
system. Here are just a few examples of the ways in which employers are 
making health care safer, better, and more affordable for all 
Americans:
     Quality and Safety. Large employers and employer groups 
such as the Leapfrog Group are using their purchasing power to improve 
the safety and quality of health care by rewarding hospitals that 
provide high-quality care.
     Information Technology. Employers and employer groups are 
working to improve health information technology, such as electronic 
medical records and health information exchanges, to reduce medical 
errors and make health care more efficient.
     Transparency. Employers and employer groups are demanding 
better information about health care costs and outcomes, in an effort 
to make the health care system more efficient and more affordable.
     Patient-Centered Care. Individual employers, employer 
groups such as The ERISA Industry Committee, and physician groups have 
joined together in a Patient-Centered Primary Care Collaborative to 
develop and advance the concept that the Patient-Centered Medical Home, 
with a primary care physician coordinating a patient's care, is a 
better way to provide health care than the balkanized system that is 
too often the norm today.
     Wellness Programs. Employers recognize the importance of 
promoting good health among their employees: they are developing 
innovative programs and incentives to encourage exercise, weight loss, 
smoking cessation, regular physical examinations, and other healthy 
practices.
     Consumer-Driven Care. Large employers have been a 
significant force behind consumer-driven health care, which gives 
employees more flexibility and more responsibility to decide how best 
to spend their families' health care dollars.
    Employment-based health plans provide affordable, comprehensive 
care to millions of workers and their families, and they drive 
innovation and improvement in the health care system as a whole. A 
major factor contributing to the success of employment-based health 
plans is the broad preemption provision in ERISA.
The Continued Vitality of Employment-Based Health Coverage Depends on 
        ERISA Preemption
    ERISA preempts ``any and all State laws insofar as they may now or 
hereafter relate to any employee benefit plan'' covered by ERISA.\12\ 
Because self-insured group health plans are not subject to state 
benefit mandates, companies that do business in more than one state can 
provide uniform health benefits to their employees across state lines. 
An employer with a nationwide work force can maintain a nationwide 
health program, with all of the cost savings and administrative 
efficiencies a uniform benefit program entails. The employer can 
provide all employees with the same health coverage regardless of where 
they live, where they work, or where their care is provided, and 
regardless of how often they are transferred during their careers.
    It is no accident that ERISA includes a broad preemption provision. 
Before ERISA was enacted, employee benefit plans were regulated by a 
patchwork of state statutes, local ordinances, and court-made rules. An 
employer that provided benefits to a multistate work force encountered 
severe administrative difficulties and unnecessary expense as it 
attempted to comply with rules that differed from state to state, and 
sometimes from city to city. It was difficult or impossible for a large 
employer to tailor its benefit programs to the needs of its work force. 
Inconsistent and conflicting state mandates prevented employers from 
providing their employees with the best possible benefits at the most 
reasonable cost.
    The bills passed by the House and Senate originally included a much 
narrower preemption provision, which would have superseded state law 
only in areas specifically regulated by the federal statute.\13\ In 
conference, however, the members recognized that such a system was 
unworkable. Senator Javits, one of the chief architects of ERISA, 
explained that the narrow preemption provision ``open[ed] the door to 
multiple and potentially conflicting State laws hastily contrived to 
deal with some particular aspect of private welfare or pension benefit 
plans not clearly connected to the Federal regulatory scheme.'' He 
concluded that ``on balance, the emergence of a comprehensive and 
pervasive Federal interest and the interests of uniformity with respect 
to interstate plans required . . . the displacement of State action in 
the field of private employee benefit programs.'' \14\
    The principal House sponsor of ERISA, Representative John Dent of 
Pennsylvania, was equally emphatic in describing the central importance 
of a broad preemption provision. Representative Dent stated:
    I wish to make note of what is to many the crowning achievement of 
this legislation, the reservation to Federal authority [of] the sole 
power to regulate the field of employee benefit plans. With the 
preemption of the field, we round out the protection afforded 
participants by eliminating the threat of conflicting and inconsistent 
State and local regulation.\15\
    Senator Williams also emphasized the need to relieve employers of 
inconsistent state regulation:
    It should be stressed that with the narrow exceptions specified in 
the bill, the substantive and enforcement provisions of the conference 
substitute are intended to preempt the field for Federal regulations, 
thus eliminating the threat of conflicting or inconsistent State and 
local regulation of employee benefit plans. This principle is intended 
to apply in its broadest sense to all actions of State or local 
governments, or any instrumentality thereof, which have the force or 
effect of law.\16\
    The ERISA conferees understood that the broad preemption provision 
included in ERISA would prevent state and local governments from 
experimenting with health reform. In fact, one of the main reasons that 
the conferees expanded the preemption provision was to preclude state-
by-state health reform efforts.\17\ Hawaii had already enacted a health 
reform measure while ERISA was being debated, and California was 
considering similar legislation. The conferees feared that inconsistent 
state laws regulating health care would undermine employment-based 
health plans, and they recognized that the narrow preemption provision 
included in the House and Senate bills was not sufficient to protect 
plans from this threat.
    Congress decided to bar state reform initiatives only after 
thoughtful deliberation. After carefully weighing the competing 
interests, the ERISA conferees concluded that national uniformity in 
the regulation of employee benefit plans was essential to the growth 
and soundness of these plans and outweighed the interest of state and 
local governments in regulating employee benefit plans within their 
borders.
    This conclusion was tested again several years later and found to 
be sound. ERISA established a Joint Pension Task Force, consisting of 
the staffs of the House and Senate committees with primary jurisdiction 
over ERISA, and directed the Task Force to conduct a ``full study and 
review'' of the ``effects and desirability'' of the ERISA preemption 
provision.\18\ Senator Javits observed that the Task Force had ``the 
responsibility of studying and evaluating preemption in connection with 
State authorities and reporting its findings to the Congress. If it is 
determined that the preemption policy devised has the effect of 
precluding essential legislation at either the State or Federal level, 
appropriate modifications can be made.'' \19\
    The Task Force monitored the implementation of ERISA for two years 
following the statute's enactment. In addition, the Subcommittee on 
Labor Standards of the House Committee on Education and Labor held 
eight days of oversight hearings in which it carefully and thoroughly 
examined the implementation of ERISA. The Subcommittee issued a 
report\20\ concluding that ERISA's broad preemption provision was 
necessary and that the limited exceptions to ERISA preemption included 
in the original statute should be narrowed still further. The report 
reaffirmed the policy choice reflected in ERISA's preemption provision, 
that ``the Federal interest and the need for national uniformity are so 
great that the enforcement of state regulation should be precluded.'' 
\21\ The report explained:
    We remain convinced of the propriety and necessity for the very 
broad preemption policy contained in section 514. To the extent that 
the scheme of regulation is found to be deficient with respect to some 
or all of the plans covered by the Act, we are prepared to consider 
amendments expanding or modifying the federal standards. We will be 
most reluctant to consider any remedy involving a limitation of the 
preemptive scheme as it applies to the plans [governed by ERISA].\22\
    The fact that employment-based health plans are free of state 
regulation does not mean that they are exempt from governmental 
standards. In the 30 years since ERISA was enacted, Congress has 
repeatedly imposed federal health mandates when it believed that they 
would improve the delivery of health care to employees and their 
families. For example, under federal law, employment-based group health 
plans must:
     provide health care continuation coverage to employees and 
dependents who lose their eligibility for employer group health 
coverage;\23\
     provide coverage mandated by state medical child support 
orders;\24\
     provide primary coverage to state Medicaid 
beneficiaries;\25\
     cover adopted children;\26\
     maintain coverage of pediatric vaccines at least at 1993 
levels;\27\
     avoid imposing preexisting condition limitations, except 
within very narrow constraints;\28\
     offer special enrollment rights to individuals who lose 
other coverage, or who acquire a new spouse or dependent;\29\
     avoid discriminating against participants based on their 
health status;\30\
     cover a minimum hospital stay following childbirth;\31\
     provide the same annual and lifetime limits for mental 
health benefits that they provide for medical and surgical 
benefits;\32\
     cover reconstructive surgery following mastectomies;\33\ 
and
     preserve the privacy of employees' medical records.\34\
    Although these federal mandates are sometimes costly and burdensome 
to administer, they at least have the virtue of applying uniformly to 
all employment-based health plans, regardless of where the employee 
lives or works.
    The same considerations that prompted Congress to adopt a broad 
preemption provision 30 years ago still apply today. The voluntary 
employment-based health system is one of the success stories in the 
history of health care in America; but this system will continue to 
thrive only if employer plans continue to be protected from 
inconsistent regulation at the state and local levels.
State Waivers From ERISA Preemption Will Undermine a Highly Successful 
        System
    The suggestion occasionally is made that states should be able to 
obtain waivers from ERISA's preemption provision so that they can 
experiment with health reform, including employer mandates. This 
proposal is problematic for several reasons.
    First, it undermines the uniform federal system of regulation that 
Congress carefully constructed in ERISA and expanded in subsequent 
legislation, a system that has served employers and employees well for 
more than 30 years. If state and local governments are able to obtain 
waivers in order to regulate health care, employment-based health plans 
will be exposed to ``the threat of conflicting and inconsistent State 
and local regulation'' that Representative Dent foresaw when ERISA was 
enacted, and that Congress wisely took steps to prevent. Financial and 
administrative resources will be consumed by efforts to comply with a 
patchwork of local laws; employers will no longer be able to tailor 
their benefit programs to their employees' needs; and workers and their 
families will inevitably suffer.
    Second, no system exists, or can easily be created, to administer 
an ERISA waiver program. The model that proponents of state waivers 
cite is the Medicaid statute, which allows the Secretary of Health and 
Human Services to grant exceptions to specific substantive requirements 
of the Medicaid program.\35\ The Medicaid waiver program is 
administered by the Centers for Medicare and Medicaid Services 
(``CMS''), the federal agency that is responsible for the Medicare and 
Medicaid programs. The CMS staff are expert in matters relating to the 
delivery of health care. The agency's mission requires it to develop 
and implement health policy; to interact with hospitals, doctors, and 
other health service providers; to maintain large databases of medical 
and payment information; and to administer complex health programs and 
health financing systems in cooperation with state governments and 
other partners. CMS's expertise in health matters ensures that the 
agency is well-positioned to evaluate the potential benefits and costs 
of state waiver proposals, and to determine whether federal grant 
dollars will be effectively spent on the alternative programs the 
states wish to implement.
    In contrast, the Department of Labor, which is the federal agency 
responsible for ERISA's preemption provision, plays no role in the 
financing or delivery of health care. The Department of Labor 
administers a voluntary system in which employers make their own 
choices about the design and cost of their group health programs. 
Department of Labor staff have no basis for evaluating state health 
reform proposals; for determining whether a particular state waiver 
will impose burdens on employers that will outweigh any benefit the 
proposal might confer on the citizens of a particular state; or for 
monitoring the effects of the state program and assessing whether the 
waiver should be continued.
    Unlike the Medicaid waiver program, an ERISA waiver program would 
not merely evaluate how federal grant dollars should be allocated. 
Instead, the ERISA waiver program would attempt to determine what 
administrative costs and substantive mandates state and local 
governments should be permitted to impose on employment-based health 
plans, and what effect local initiatives will have on nationwide 
benefit programs. Health care is not confined within state borders: it 
is provided in major medical markets that transcend state and local 
boundaries. The parties best able to determine how multistate employers 
should spend their health-care dollars are the employers themselves. A 
strong ERISA preemption provision is essential to preserve employers' 
ability to make the decisions that are in the best interest of their 
workers and the workers' families.
The States Do Not Need ERISA Waivers in Order to Implement Health 
        Reform
    The states appropriately seek affordable, comprehensive health 
insurance for all their citizens. Large employers support these 
efforts, and most large companies already devote substantial resources 
to provide health coverage to their workers and the workers' families. 
The problems most urgently in need of solutions are outside the scope 
of ERISA's preemption provision: they lie with the unemployed and 
marginally employed, who do not receive health insurance through the 
workplace; with the lack of reliable and accessible information 
concerning health costs and health quality; and with the lack of 
affordable insurance for individuals and small groups.
    The states do not need ERISA waivers in order to address these 
problems. ERISA does not prevent states from regulating the individual 
and small group insurance markets. Insurance--including insurance sold 
to employers--is expressly carved out of ERISA's preemption provision, 
so that states are free to exercise their traditional authority to 
regulate health insurance products sold within their borders.\36\ State 
initiatives to increase access to health care, to make health care more 
affordable, and to improve the quality of health care likewise are not 
affected by ERISA. Nor does ERISA preclude individual mandates, such as 
Massachusetts' requirement that all of its citizens maintain a minimum 
level of health insurance. Accordingly, states may engage in a broad 
range of health reforms without any constraint under ERISA.
    That completes my prepared statement. I will be pleased to answer 
any questions the Chairman or any members of the Subcommittee might 
have. Thank you for your attention.
                                endnotes
    \1\ Paul Fronstin, Employment-Based Health Benefits: Access and 
Coverage, 1988-2005, Employee Benefits Research Institute (EBRI) Issue 
Brief No. 303 (March 2007).
    \2\ The Henry J. Kaiser Family Foundation, Trends and Indicators in 
the Changing Health Care Marketplace, Publication No. 7031 (Feb. 2006).
    \3\ DeNavas-Walt, Proctor, and Lee, Income, Poverty, and Health 
Insurance Coverage in the United States: 2005, U.S. Census Bureau 
(August 2006).
    \4\ Fronstin, EBRI Issue Brief No. 303, supra.
    \5\ Id.
    \6\ Id.
    \7\ H.R. Rep. No. 1785, 94th Cong., 2d Sess. at 47 (1977).
    \8\ Paul Fronstin, Sources of Health Insurance and Characteristics 
of the Uninsured: Updated Analysis of the March 2006 Current Population 
Survey, Employee Benefits Research Institute (EBRI) Issue Brief No. 305 
(May 2007).
    \9\ U.S. Department of Labor, Bureau of Labor Statistics, National 
Compensation Survey: Employee Benefits in Private Industry in the 
United States, March 2006 (August 2006).
    \10\ Id.
    \11\ Id.
    \12\ ERISA Sec.  514(a), 29 U.S.C. Sec.  1144(a).
    \13\ H.R. 2, 93d Cong., 2d Sess., Sec.  514(a) (1974) (House bill); 
H.R. 2, 93d Cong., 2d Sess., Sec.  699(a) (Senate bill). For a 
discussion of the legislative history of ERISA's preemption provision, 
see Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-100 (1983).
    \14\ 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits).
    \15\ 120 Cong. Rec. 29197 (1974) (remarks of Rep. Dent).
    \16\ 120 Cong. Rec. 29933 (1974) (remarks of Sen. Williams).
    \17\ Michael S. Gordon, minority counsel to Senator Javits during 
the consideration and passage of ERISA, describing the history of 
ERISA's preemption provision in Health Care Reform: Managed Competition 
and Beyond, Employee Benefits Research Institute (EBRI) Issue Brief No. 
135 (March 1993).
    \18\ See ERISA Sec. Sec.  3021, 3022(a)(4), 88 Stat. 999 (1974).
    \19\ 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits).
    \20\ H.R. Rep. No. 1785, 94th Cong., 2d Sess. (1977).
    \21\ Id. at 47.
    \22\ Id. at 48 (emphasis added).
    \23\ ERISA Sec. Sec.  601-08, added by the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (``COBRA''), Pub. L. No. 99-272, 
Sec.  10002(a) (1986).
    \24\ ERISA Sec.  609, added by the Omnibus Budget Reconciliation 
Act of 1993, Pub. L. No. 103-66, Sec.  4301(a) (1993).
    \25\ Id.
    \26\ Id.
    \27\ Id.
    \28\ ERISA Sec.  701, added by the Health Insurance Portability and 
Accountability Act of 1996, Pub. L. No. 104-191, Sec.  101(a) (1996).
    \29\ Id.
    \30\ ERISA Sec.  702, added by the Health Insurance Portability and 
Accountability Act of 1996, Pub. L. No. 104-191, Sec.  101(a) (1996).
    \31\ ERISA Sec.  711, added by the Newborns' and Mothers' Health 
Protection Act of 1996, Pub. L. No. 104-204, Sec.  603(a)(5) (1996).
    \32\ ERISA Sec.  712, added by the Mental Health Parity Act of 
1996, Pub. L. No. 104-204, Sec.  702(a) (1996).
    \33\ ERISA Sec.  713, added by the Women's Health and Cancer Rights 
Act, Pub. L. No. 105-277, Sec.  902(a) (1998).
    \34\ 45 C.F.R. Sec.  164.504, implementing the Health Insurance 
Portability and Accountability Act of 1996, Pub. L. No. 104-191, 
Sec. Sec.  261-64 (1996).
    \35\ Social Security Act Sec.  1115, 42 U.S.C. Sec.  1315 
(authority to approve projects that test policy innovations likely to 
further the objectives of the Medicaid program); Social Security Act 
Sec.  1915(b), 42 U.S.C. Sec.  1396n(b) (authority to grant waivers 
that allow states to implement managed care delivery systems, or 
otherwise limit individuals' choice of provider under Medicaid); Social 
Security Act Sec.  1915(c), 42 U.S.C. Sec.  1396n(c) (authority to 
waive Medicaid provisions in order to allow long-term care services to 
be delivered in community settings).
    \36\ ERISA Sec.  514(b)(2)(A), 29 U.S.C. Sec.  1144(b)(2)(A).
                                 ______
                                 
    Chairman Andrews. Thank you, Ms. Moore.
    Commissioner Goldman, welcome.

     STATEMENT OF STEVEN GOLDMAN, COMMISSIONER, NEW JERSEY 
              DEPARTMENT OF BANKING AND INSURANCE

    Mr. Goldman. Thank you. Good afternoon, Chairman Andrews, 
Ranking Member Kline and members of the subcommittee. I thank 
you for giving me the opportunity to address you today.
    As the chief insurance regulator in New Jersey, I am 
acutely aware of the crisis our country faces with regard to 
health insurance coverage. Of nearly 45 million Americans 
without health insurance in 2005, 8 million were children and 
1.3 million live in New Jersey.
    But there is some good news because there is an increased 
level of engagement and innovation at the state level on health 
reform issues. Just in the past year or so, we have seen major 
legislation adopted in seven states and reform work under way 
in six more.
    A fundamental principle of insurance is to spread the risk 
as widely as possible. That principle is undermined by the 
increasing segmentation of the marketplace into smaller and 
smaller risk pools. Therefore, a guidepost to New Jersey's 
reform efforts is the creation of larger risk pools.
    The Corzine administration has as a priority reducing the 
number of uninsured through a comprehensive examination of the 
current health-care delivery system and its funding mechanisms. 
The administration's health reform strategy is to expand health 
coverage in three ways: increase affordability and availability 
of commercial coverage for individuals and small groups, expand 
Medicaid and family care to cover people for whom commercial 
coverage is unaffordable, and strengthen the existing system of 
reimbursing hospitals for uncompensated care.
    At present, this strategy does not require employers or 
individuals to purchase or contribute to coverage.
    A working group chaired by State Senator Joseph Vitali has 
outlined a plan that would reduce by at least 50 percent the 
number of uninsured by replacing the New Jersey individual 
market with a government-sponsored program that would be 
mandatory for all people not eligible for employer coverage or 
Medicaid.
    The plan would have premiums and other cost-sharing 
requirements based on income. So it should be affordable for 
every person required to purchase it. A major obstacle is its 
cost, estimated in excess of $1 billion, of subsidizing the 
premiums of low-income enrollees.
    The administration continues to share Senator Vitali's 
goals and to work with him on health-care reform.
    These approaches probably require an assessment on both 
insured and self-funded health benefit plans. Some argue that 
ERISA preemption precludes such assessments which will leave 
the burden on insured plans only.
    In June of 2006, New Jersey, as part of the National 
Association of Insurance Commissioners, worked to identify 
promising state reform proposals and ways in which the federal 
government could encourage continued innovation and reform at 
the state level. As a part of that effort, the NAIC created the 
State Innovations Working Group and the Federal Relief Subgroup 
which I co-chaired with Commissioner Steve Orr of Maryland.
    The groups gathered testimony from many sources and 
examined ERISA preemption and its effects upon state reform 
efforts. The subgroup conducted a survey of the states 
regarding potential preemptive effects of federal laws on 
innovations related to making health insurance or alternative 
health-care financing mechanisms more affordable.
    One important issue noted was that ERISA complicates the 
ability of states to implement premium assistance programs as 
part of their Medicaid and SCHIP programs. Due to ERISA 
preemption, states cannot require employers to participate in 
these programs.
    States also find it difficult to obtain information about 
employer coverage because they cannot compel employers to 
report this information or inform lower-income employees about 
the opportunity to enroll in a public program.
    Thus, preemption undermines what would otherwise be a very 
effective strategy for helping working families afford the 
coverage already offered by their employers.
    Importantly, in several areas, the states believe they are 
not actually preempted by federal law, but uncertainty 
regarding what is permissible has created a threat of 
protracted legal action to resolve the question and has 
effectively discouraged the states from acting in theses areas.
    The NAIC used the results of the survey to formulate a 
four-point proposal for federal action that would help 
encourage more states to undertake innovative reform measures, 
allowing them to act as the laboratories of democracy. We 
selected items for inclusion in the proposal to maximize 
flexibility to confer upon the states and minimize impact on 
sponsors of multi-state self-insured plans.
    New Jersey supports the NAIC proposals, and they are as 
follows:
    Adopt an amendment to ERISA clarifying that data collection 
requirements are saved from preemption. To minimize the 
administrative burden of this change, it would not be 
unreasonable to limit states to collecting the same information 
from self-insured plans that they collect from fully insured 
plans.
    Two, adopt an amendment to ERISA to clarify that pay-or-
play requirements that are neutral as to whether an employer 
pays an assessment or offers health benefits and makes no 
requirement regarding the form of benefits offered to employees 
are saved from preemption.
    Three----
    Chairman Andrews. Commissioner, if you could just briefly 
wrap up, thank you.
    Mr. Goldman. Yes.
    Amend ERISA to give the secretary of labor authority to 
grant waivers.
    And, four, create a federal grant program to provide 
qualified states startup and operating funds.
    [The statement of Mr. Goldman follows:]

  Prepared Statement of Steven M. Goldman, New Jersey Commissioner of 
                         Banking and Insurance

    Good morning Chairman Andrews, Ranking Member Kline and members of 
the subcommittee. Thank you for holding this important hearing and for 
providing me with the opportunity to present my views on the 
coordination of state and federal health reform initiatives. My name is 
Steven M. Goldman, and I am the New Jersey Commissioner of Banking and 
Insurance. While I testify today in my capacity as Insurance 
Commissioner, my testimony will also touch on my experience as Co-Chair 
of the National Association of Insurance Commissioners' Federal Relief 
Subgroup.
The problem is clear
    As the chief insurance regulator for the state of New Jersey, I am 
acutely aware of the crisis our country faces with regard to health 
insurance coverage. Nearly 45 million Americans went without health 
insurance coverage in 2005.\1\ Eight million of them were children\2\ 
and 80 percent were from working families.\3\ One million, three 
hundred thousand of these uninsured Americans live in New Jersey, and 
of these, 230,000 are children. When someone without health insurance 
needs extensive medical treatment the financial consequences can be 
devastating and the health consequences are even worse. In 2004 the 
Institute of Medicine estimated that every year 18,000 deaths in 
America can be attributed to a lack of health insurance coverage.\4\ 
The challenge before us is great and it is growing every year.
---------------------------------------------------------------------------
    \1\ De-Navas-Walt, Carmen, Bernadette. D. Proctor, and Cheryl Hill 
Lee, U.S. Census Bureau, Current Population Reports, P60-231, Income 
Poverty and Health Insurance Coverage in the United States: 2005, Table 
C-2
    \2\ Ibid.
    \3\ Institute of Medicine, Committee on the Consequences of 
Uninsurance, Insuring America's Health, 4 Principles and 
Recommendations (Washington, National Academic Press, 2004 p. 163
    \4\ Ibid. p. 8
---------------------------------------------------------------------------
States are leading reform efforts
    In the face of these daunting and discouraging statistics, there is 
some good news. The level of engagement and innovation at the state 
level on health reform issues has never been higher. Just in the past 
year or so, we have seen major reform legislation adopted in seven 
states (Indiana, Massachusetts, Pennsylvania, Rhode Island, Tennessee, 
Vermont, and Washington) and reform work is underway in at least six 
more (California, Illinois, Kansas, Maine, Minnesota, and Oregon).
New Jersey experience
    New Jersey passed comprehensive health reform legislation in the 
early 1990s. Almost 15 years of history provides some guidance. We 
consider our small group market (2-50 employees) very successful. About 
900,000 people, over 10% of our population, are covered in this market. 
This market provides affordable coverage even though eligibility and 
rates cannot be based on health conditions. Rates can only depend (to a 
limited extent) on age, gender, and geography. Many of us in New Jersey 
consider this market to be an easily replicated template for gradual 
reform.
    Our individual market, on the other hand, has not been as 
successful. In this market, the combination of guaranteed issue, pure 
community rating (prohibition of rating based on age, gender, and 
territory as well as health status), and the absence of any rating 
subsidy has led to increasing rates and decreasing enrollment. 
Currently, only about 80,000 people, or less than 1% of our population, 
are enrolled in this market. That being said, changes have been made in 
this market, including the offering of Basic and Essential policies 
with rating by age, gender, and territory, that have stabilized 
enrollment to some extent.
    In addition, while the New Jersey individual market is often 
characterized as having the highest average premiums, these ``average'' 
premiums are available to any eligible person. Currently, an eligible 
individual in New Jersey can purchase a comprehensive HMO policy for 
about $435 a month, regardless of health condition. Various reform 
proposals being considered in New Jersey seek to reduce this cost, but 
no proposal currently being considered does so at the price of creating 
separate coverage pools or rating for ``healthy'' and ``unhealthy'' 
individuals.
    Another interesting initiative in New Jersey is our ``Dependent 
Under 30 Law'', which allows unmarried, childless dependents to 
continue on their parent's coverage by paying the cost of the coverage. 
This program, which became effective over the past year, has about 
7,000 young people enrolled. A number of states have enacted, or are 
considering enacting, similar laws.
    We think that a problem with the current health insurance market is 
the increasing segmentation of that market into smaller and smaller 
risk pools. We think a fundamental principle of insurance is to spread 
risk as widely as possible. A guidepost of our reform efforts is the 
creation of larger risk pools. The reinsurance of higher cost enrollees 
in our reform markets would be an example of this principle.
    Governor Corzine is a strong supporter of universal health care. In 
the absence of federal action to address the issue, his administration 
is proposing significant state reforms to make health care more 
accessible and affordable.
    The Corzine administration's near term health reform strategy is to 
expand health coverage in three ways: 1) increase the affordability and 
availability of commercial coverage for individuals and small groups; 
2) expand Medicaid and Family Care to cover people for whom commercial 
coverage is unaffordable; and 3) strengthen the existing system of 
reimbursing hospitals for uncompensated care to provide a safety net 
for those who remain uninsured.
    In the commercial market, we think it makes sense to combine our 
individual and small group markets, and develop a reinsurance system to 
cover the largest claims in these markets. We estimate that this will 
reduce individual rates significantly for younger people, reduce small 
group rates slightly, and reduce the number of uninsured by over 
100,000.
    Our Medicaid/Family Care initiatives include enrolling the many 
Medicaid eligible who are not currently enrolled, increasing the 
coverage of parents in low income families, and a buy in program for 
high income families to insure their children by paying the full cost 
of Family Care coverage.
    However, this near term strategy still leaves a vast number (over 1 
million) NJ residents uninsured, and does not require employers or 
individuals to purchase or contribute to coverage. A working group 
chaired by State Senator Joseph Vitale has developed a plan that would 
reduce, by at least 50%, the number of uninsured. The Vitale plan would 
replace the New Jersey individual market with a government sponsored 
plan that would be mandatory for all people who were not eligible for 
employer coverage or Medicaid. This plan would have significant cost 
savings (perhaps 10%) compared to commercial coverage. Most important, 
the plan would have premiums and other cost sharing requirements based 
on income, so it should be affordable to every person required to 
purchase it. A major obstacle for this plan is the cost (estimated in 
excess of $1 billion) of subsidizing the premiums of low income 
enrollees. Governor Corzine shares Senator Vitale's goals and is 
committed to working with him.
    Both the administration initiative and the Vitale plan probably 
require, for their success, a broad-based assessment on both insured 
and self-funded health benefit plans. As discussed below, some argue 
that ERISA pre-emption precludes such assessments, which will leave the 
burden of such assessments on insured plans only.
Massachusetts innovation
    In Massachusetts, a Republican governor and Democratic legislature 
were able to bridge the partisan divide to reach agreement on one of 
the most innovative new programs in many years. This program may merge 
the small group and individual health insurance markets into a single 
market operating under a single set of rules, creates a ``health 
insurance connector'' that facilitates the purchase of policies by 
individuals and small businesses, requires all state residents to 
enroll in health coverage and provides subsidies to those who cannot 
afford it.
Montana innovation
    In 2005, Montana created the Insure Montana program, which assists 
very small businesses with the purchase of health insurance by 
providing tax credits to those that already provide coverage to their 
employees and by providing monthly assistance to obtain coverage 
through a purchasing pool to those that have not been able to it. 
Currently the pool provides coverage to 5,100 people from 735 small 
businesses in Montana, while the tax credits assist an additional 3,800 
people from 655 small businesses.
New York innovation
    In operation since 2001, the Healthy New York program provides 
private market coverage for small businesses, sole proprietors, and 
uninsured workers. Healthy New York reduces premiums through a 
reinsurance program that reimburses participating carriers for 90 
percent of claims between $5,000 and $75,000 for each enrollee. Since 
its inception, over 300,000 New Yorkers have obtained health insurance 
coverage through the program, which has reduced premiums by 40 to 70 
percent compared to the overall market, depending on the coverage 
purchased.
Vermont innovation
    Almost one year ago today Vermont enacted a new health reform law. 
Beginning on October 1, the new Catamount Health Plan will provide 
uninsured state residents with a low-cost health insurance product with 
an emphasis on preventive care and chronic care management. The state 
will provide subsidies for low-income individuals to purchase coverage 
either through the Catamount Health Plan or through employer-provided 
coverage and will also make significant new investments to improve the 
quality and cost-effectiveness of care for those with chronic 
conditions and to create a statewide health information infrastructure 
to facilitate the sharing of information between health care providers, 
patients, and payers.
    While these programs I have mentioned have all received substantial 
coverage in the press, many other state efforts have not received as 
much attention. The National Association of Insurance Commissioners 
(NAIC) has compiled a catalog of innovative state programs to modernize 
health insurance and extend coverage to the uninsured, which runs some 
90 pages in length.
NAIC efforts to promote state reforms
    In June 2006, the NAIC embarked upon an effort to identify 
promising state reform proposals and ways in which the federal 
government could encourage continued innovation and reform at the state 
level. The NAIC's Health and Managed Care (B) Committee held a public 
hearing to take testimony from state officials, health policy scholars, 
consumer groups, and insurance industry representatives on promising 
reform strategies, and created a State Innovations Working Group 
(``Working Group'') to concentrate on the issue and hold further 
hearings. Since then, the State Innovations Working Group has held two 
additional hearings to gather testimony, including one in which we 
examined ERISA preemption and its effects upon state reform efforts.
    Noted ERISA expert Patricia Butler testified before the Working 
Group in September 2006 on the state of ERISA preemption with regard to 
health reform legislation on the state level. She detailed two key 
areas in which ERISA complicates the states' abilities to implement 
innovative health reform plans. First, she told the Working Group, the 
status of ``pay-or-play'' assessments on employers was uncertain. A 
federal district court had recently invalidated a Maryland statute that 
required all private employers with more than 10,000 employees in the 
state to spend at least 8 percent of its payroll on health benefits or 
pay the difference to help fund the state Medicaid program. A federal 
appeals court later upheld that verdict in a 2-1 decision.\5\
---------------------------------------------------------------------------
    \5\ Retail Industry Leaders Association v. Fielder, 4th Cir. 
January 17, 2007
---------------------------------------------------------------------------
    However, she believed a broad-based ``pay-or-play'' assessment 
would be likely to withstand an ERISA challenge. To do so, the 
assessment would have to remain neutral regarding whether employers 
offer coverage or pay an assessment to the state, could not set 
standards to qualify for the credit against the assessment, or 
otherwise refer to ERISA plans.
    Ms. Butler also noted that ERISA complicates the ability of states 
to implement premium assistance programs as part of their Medicaid and 
SCHIP programs. Due to ERISA preemption, states cannot require 
employers to participate in these programs. States also find it 
difficult to obtain information about employer coverage (benefits, 
premium sharing, employee qualifications, work status, and waiting 
periods) because they cannot compel employers to report this 
information or inform lower-income employees about the opportunity to 
enroll in a public program. Thus, preemption undermines what could 
otherwise be a very effective strategy for helping working families 
afford the coverage that is already offered by their employers.
Recommendations
    In light of this testimony, the Working Group created a Federal 
Relief Subgroup, which I co-chaired with Commissioner Steven Orr of 
Maryland, and directed it to identify areas in which states could use 
additional flexibility to more effectively pursue reforms that would 
reduce the number of their citizens without health insurance coverage. 
The Federal Relief Subgroup conducted a survey of the states, asking 
them if they had considered the preemptive effect of federal laws on 
innovations related to making health insurance or alternative health 
care financing mechanisms more affordable, particularly with respect to 
the small group market in which small businesses purchase coverage. 
Fully two-thirds of responding states had encountered situations where 
federal law preempted, or threatened to preempt, health reform 
proposals. The remaining third either had not kept track of the 
preemptive effects of federal laws upon reform proposals or had not 
encountered any.
    It should be noted that in several areas the states believe that 
they are not actually preempted by federal law, but uncertainty 
regarding what is permissible has created a threat of protracted legal 
action to resolve the question, and thus has effectively discouraged 
the states from acting in these areas.
    States reported a wide range of areas in which federal preemptions 
interfered with their ability to pursue reforms, including the ability 
to:
     Broadly spread assessments to fund high risk pools across 
fully-insured and self-insured plans ;
     Broadly pool risk across fully-insured and self-insured 
plans ;
     Collect data on coverage, benefits, premiums, and 
utilization from self-insured plans;
     Apply minimum standards to stop-loss insurance to ensure 
that it is not used to evade state insurance regulation by smaller 
businesses that lack the funds and expertise to self-insure ;
     Craft reforms that target very small businesses with 10 or 
fewer employees or persons with high medical costs ;
     Require employers to provide minimum levels of health 
benefits ;
     Require self-insured plans to promptly reimburse providers 
for covered services ;
     Apply state law consumer protections to self-insured 
plans; and
     Implement a statewide chronic care management and health 
promotion programs; and
     Create statewide health information networks .
    The NAIC used the results of the survey to formulate a four-point 
proposal for federal action that would help encourage more states to 
undertake innovative reform measures, allowing them to act as the 
``laboratories of democracy,'' testing and fine-tuning different 
approaches and customizing them to fit different situations in each 
state. We selected items for inclusion in this proposal in order to 
maximize the flexibility they confer upon the states, while minimizing 
the impact upon the sponsors of multistate self-insured plans. It is my 
belief that Congress could best help the states to make progress by:
     Amending ERISA to clarify that states may require self-
insured plans to submit data regarding coverage, premiums, cost-sharing 
arrangements, and utilization;
     Amending ERISA to clarify that ``pay-or-play'' assessments 
that meet specified criteria are not preempted by federal law;
     Granting the Secretary of Labor the authority to grant 
waivers from ERISA to states that implement comprehensive health reform 
proposals; and
     Creating a federal grant program to provide grants to 
states pursuing new and innovative reform ideas.
Data collection
    Good data is an essential prerequisite of successful reform. 
Currently, state policymakers cannot gain a complete picture of health 
insurance and health care markets, including accurate and comprehensive 
data on benefits, premiums, cost-sharing requirements, and utilization 
of care. While state regulators routinely collect this data from 
licensed carriers providing fully insured plans, it is not clear that 
they can require sponsors of group health benefit plans and third party 
administrators to provide it. To get an approximate picture of the 
benefits, premiums, cost-sharing arrangements, and care utilization 
associated with self-insured plans in their states, legislators and 
regulators must rely upon groups such as the Kaiser Family Foundation 
and the Employee Benefits Research Institute to conduct surveys and 
supply aggregate data. This data is vital to state policymakers, both 
in crafting reforms and in administering Medicaid and SCHIP premium 
assistance programs.
    Congress should remedy this situation by adopting an amendment to 
ERISA clarifying that data collection requirements are saved from 
preemption. To minimize the administrative burden of this change, it 
would not be unreasonable to limit states to collecting the same 
information from self-insured plans that they collect from fully-
insured plans.
``Pay-or-Play'' Assessments
    As noted above, a ``Pay-or-Play Assessment'' is one which requires 
an employer to fund employee health benefits to a specified level, or 
pay an assessment (usually intended to otherwise fund coverage.) States 
have long held that a properly crafted pay-or-play initiative is not 
preempted by ERISA, so long as it remains neutral on the question of 
whether an employer would choose to pay the required assessment or 
provide health benefits to its employees. Nevertheless, legislative 
clarification that these programs are permissible within ERISA's 
regulatory framework would obviate the need for states to defend these 
programs in court each time they are proposed. I believe Congress 
should adopt an amendment to ERISA to clarify that pay-or-play 
requirements that are neutral as to whether an employer pays an 
assessment or offers health benefits and make no requirements regarding 
the form of benefits offered to employees are saved from preemption.
    Many experts, such as Patricia Butler, believe ERISA already allows 
for pay-or-play programs, as long as they are structured in a way that 
does not require self-insured plans to provide a defined benefit 
package. However, experts also agree that any pay-or-play program could 
be challenged in court and that a specific allowance in federal law 
would avoid uncertainty, legal wrangling, and wasted time and money, 
all of which would impede a state's reform efforts.
Impediment waivers
    In addition to the two flexibility proposals above, it is my hope 
that additional ideas will continue to be developed at the state level, 
some of which may require additional flexibility from the federal 
government. We therefore recommend that Congress amend ERISA to grant 
the Secretary of Labor the authority to grant waivers from that statute 
for the purposes of encouraging and facilitating innovative state 
initiatives to expand health insurance coverage, contain health care 
costs, and to improve the quality and efficiency of health care. This 
authority would help states that are crafting as yet unforeseen 
solutions to the problem of the uninsured and would encourage further 
creativity at the state level.
Federal assistance
    Finally, new and innovative health reforms are costly to develop 
and implement, and a federal grant program to encourage and assist the 
states in this process would be very helpful. I believe that a new 
federal grant program that provides qualified states both start-up and 
operating funds to develop and implement innovative health insurance 
reforms that address access and the affordability of health insurance 
and health care would be an extraordinarily useful and wise use of 
federal resources. I have reviewed H.R. 506, the Health Partnership 
Through Creative Federalism and S. 325, the Health Partnership Act and 
believe that legislation along the same general lines as these bills 
would be very helpful.
Conclusion
    Thank you again for the opportunity to share my thoughts on this 
important issue. I look forward to working with Congress and this 
Committee on ways to help the states craft new, innovative, and 
successful initiatives to ensure that all Americans have access to 
affordable health insurance coverage and the peace of mind that goes 
with it. Please do not hesitate to call upon me if I can be of any 
further assistance. This concludes my testimony, and I would be happy 
to answer any questions from the committee.
                                 ______
                                 
    Chairman Andrews. Thank you very, very much.
    We will briefly adjourn to go cast some votes. I hope it 
will be about 45 minutes. It could be longer. Again, if someone 
has a pressing engagement and must leave, we fully understand, 
but the members will return after that period to ask questions.
    Thank you.
    The committee stands in recess.
    [Recess.]
    Chairman Andrews. The subcommittee will resume 
deliberation.
    I want to, again, thank this extraordinarily patient panel 
of witnesses for what you have endured today. The vagaries of 
the congressional schedule are sometimes difficult to predict. 
Thank you very, very much for your patience.
    The statements were outstanding. We are very pleased with 
the contribution that each of you has made to our dialogue and 
discussions, and we hope that today will not be your last 
contribution to this discussion, although, given the schedule, 
you may wish that it would be. But we would invite you to 
continue speaking with the committee as the process goes on.
    I have a few questions.
    Mr. Covert, I just wanted to say I know that Honeywell has 
a well-deserved reputation as an exemplary provider of employee 
benefits. You treat your employees very, very well, and it is 
good business to do so, and it is also what the corporate ethic 
is. I understand that.
    About how much does Honeywell spend on health benefits each 
year as a percentage of its payroll?
    Mr. Covert. Mr. Chairman, I am not sure as a percentage of 
payroll. It is a little over $500 million on actives and 
dependents, another $200 million or so on retirees. That is a 
little over $700 million on sales of $31 billion. I am not sure 
exactly, but I am quite sure that it is more than 8 percent. We 
satisfy the Maryland law.
    Chairman Andrews. Yes. You sort of anticipate my question.
    Mr. Colmers, so, if the Maryland law had been upheld by the 
Fourth Circuit and were on the books today, the what I will 
call pay-or-play provision would not apply to an employer that 
had expended more than 8 percent of its payroll. Is that 
correct?
    Mr. Colmers. Eight percent for for profit; 6 percent for 
nonprofit.
    Chairman Andrews. Now, in Maryland, when an uninsured 
person goes to a hospital, does the person get care?
    Mr. Colmers. Absolutely. Maryland actually is unique in the 
country in that regard. Maryland is the only state in the 
country that has an all-payer hospital rate-setting system. New 
Jersey used to have one. In Maryland, all payers help 
contribute to fund the funding of uncompensated care.
    Chairman Andrews. So the person would get care, and because 
he or she could not pay their bill, am I correct in assuming 
that other payers who do pay would, in effect, pay that bill, 
would----
    Mr. Colmers. Absolutely. It is an explicit adjustment to 
the rates that hospitals charge other payers, and those payers, 
including Medicare and Medicaid pay for it.
    Chairman Andrews. So if an employer that has more than the 
threshold number of employees, which is 10,000, under the 
Maryland plan, and that employer, let's say, provides less than 
8 percent of payroll to health care, if that employer's 
employees go to the hospital, they get cared for, correct?
    Mr. Colmers. That is correct.
    Chairman Andrews. And to what extent does that employer 
participate in paying for that care?
    Mr. Colmers. That the employer contributes? Well, if they 
are not providing coverage, they are not contributing at all.
    Chairman Andrews. They are not contributing at all.
    Mr. Colmers. Not directly, no.
    Chairman Andrews. So if I have 15,000 employees and I do 
not provide health benefits to most of them or all of them, so 
I am below the 8 percent threshold, and one of my employees 
gets into an auto accident, has a brain stem injury, and that 
person runs up a huge bill, my contribution as an employer is 
zero to that?
    Mr. Colmers. Yes. Although I would say, with all due 
respect to the insurance commissioners around here, because it 
is an automobile accident, it might be a little bit different 
than----
    Chairman Andrews. Okay. Let's say the person just has an 
aneurism. This person just has an aneurism then.
    Mr. Colmers. Yes.
    Chairman Andrews. Mr. Morrison, in Montana, one of the 
provisions that you have talked about was the 1 percent premium 
levy in order to fund a fund designed, as I understand it, for 
people who are difficult to insure, who are high risk. If one 
of those uninsured people goes to a hospital in Montana, an 
uninsured person with an aneurism, do they get care?
    Mr. Morrison. They do, and, as you know, Mr. Chairman, the 
EMTALA federal law requires across the country a certain level 
of care in an emergency setting. Montana Hospital Association 
estimates that they spend over or they provide over $100 
million a year in our small population state in uncompensated 
care. They then figure that into the rate base, and those rates 
then affect the reimbursement rates for the insured plans.
    Chairman Andrews. So what happens is that payers who do pay 
their bill are cross-subsidizing payers who do not under that 
system.
    Mr. Morrison. Exactly.
    Chairman Andrews. Ms. Moore, who should pay that bill? What 
do you think we should do about that problem?
    Ms. Moore. Well, I think that for employers, we have a 
voluntary health system. Employers choose how to compensate 
their employees, and they choose whether to provide health 
benefits or to provide compensation in some other form.
    Chairman Andrews. Right.
    Ms. Moore. As long as we have a voluntary system, some 
employers are going to choose not to provide health coverage at 
the level that we might think appropriate, but, interestingly, 
I think 96 percent of employers with more than 100 employees do 
provide comprehensive health care and are covering those 
expenses.
    Chairman Andrews. Okay. My time has expired, but I guess I 
would ask you to supplement for the record the specific answer 
to the question I asked, which is who you think should pay the 
bill, and I think I just heard you say whoever volunteers to 
pay it.
    Ms. Moore. Yes, I think that is right.
    Chairman Andrews. Okay. I would yield to the ranking 
member, Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman.
    I, too, would like to thank the witnesses for their 
incredible patience. Unfortunately, one thing in this place 
that trumps everything else are votes on the floor, and there 
is simply nothing we can do about that. So I apologize, and I 
appreciate your understanding.
    Dr. Boustany has to leave, and so what I would like to do 
now is yield to him so that he can ask his questions.
    Dr. Boustany. I thank the gentleman.
    I have some simple yes-no questions. Let me start with you, 
Ms. Moore. Does the ERISA preemption prevent states from 
subsidizing coverage for low-wage workers or small employers?
    Ms. Moore. No, it does not.
    Dr. Boustany. Thank you.
    What about increasing the transparency of information on 
health quality and price to give consumers more objective 
information on where to go for needed health care? Does the 
ERISA preemption prevent states from doing that?
    Ms. Moore. No, it does not.
    Dr. Boustany. Does the preemption clause prevent 
reallocating federal Medicaid matching funds for expanding 
health coverage to state residents?
    Ms. Moore. No, it does not.
    Dr. Boustany. Does it prevent regulating insurance premiums 
charged for health coverage offered to small employer groups 
and individuals?
    Ms. Moore. No.
    Dr. Boustany. Does it prevent enacting an individual 
coverage mandate for higher-income workers?
    Ms. Moore. No, it does not.
    Dr. Boustany. Does it prevent expanding coverage under 
SCHIP or Medicaid?
    Ms. Moore. No, it does not.
    Dr. Boustany. Does it prevent forming insurance pools for 
offering more affordable coverage to small employers?
    Ms. Moore. No.
    Dr. Boustany. Does it prevent forming insurance pools for 
high-risk, high-cost individuals who are otherwise unable to 
afford health coverage on their own?
    Ms. Moore. No, it does not.
    Dr. Boustany. Does it prevent states from enacting medical 
liability reform to lower the cost of defensive medicine and 
litigation expense?
    Ms. Moore. No, it does not.
    Dr. Boustany. And finally, does it prevent reducing or 
eliminating state-mandated benefits on health insurance 
coverage?
    Ms. Moore. No, it does not.
    Dr. Boustany. I think it is important, as we look at this 
debate, to understand what the fundamental issue is here, and 
it is clear that states have many tools. I just mentioned 10. 
States have many tools to make coverage and medical care more 
affordable and available for families.
    But one tool they do lack is the ability to tax employer-
sponsored plans, and my sense of it is that the movement on the 
part of the states to chip away with ERISA waivers is basically 
to get their hands on the money. I believe that ERISA waivers 
are perhaps a thinly veiled attempt to create new taxes, and no 
one can guarantee that these new costs will not be passed on to 
the working families.
    So, before we open the Pandora's box, why not ask whether 
new taxes on employers or employer-sponsored health care would 
actually lower health costs. I think that is a legitimate 
question to ask.
    And I think we have to wonder and ask what happens if we 
inadvertently dismantle the employer-based health-care system 
and make it more cumbersome and more expensive to administer. 
What are the consequences of that because, clearly, it is a 
system that is working for a segment of our population?
    So I think we need to be very clear as we go forward in 
this debate how we move on this because we all share the same 
concerns. We all want to make health care more affordable. We 
want to include the uninsured into the rolls being insured, and 
there are many tools out there that currently exist.
    So I think we have to be honest about what is at stake 
here.
    If anyone wants to comment further, I am certainly happy to 
entertain your answers or comments.
    Yes?
    Ms. Kofman. Thank you.
    I completely agree with you that we certainly do not want 
to jeopardize or in any way adversely impact the comprehensive 
benefits that many self-insured large employers offer. The 
problem is that not all large employers do that, and when they 
do not, it is the state taxpayers that end up subsidizing the 
profits of those large employers that do not pay for their 
workers. So the idea here is one of equity and fairness in how 
we finance medical care and coverage.
    And the problem for states that I have observed is that 
even though you have a simple answer from one of the witnesses 
here that states can and cannot do certain things, it is not so 
simple when states are challenged using ERISA and, as I 
mentioned earlier, both Maryland and Massachusetts laws were 
carefully crafted by many experts to avoid ERISA challenge, and 
many people thought that they were okay under ERISA, and it 
turned out that they were not. So there is a whole lot of risk. 
States are not certain as to how far they can go to develop 
good mechanisms.
    Dr. Boustany. I think the states do have a number of tools 
that they could use, and we are only starting to see some 
creative responses. For too long in health care, there has been 
a lack of creativity in how to deal with this.
    I know. I am a heart surgeon. I also was on the board of a 
community hospital. I also worked in the county hospital system 
in Louisiana. So we have looked at a number of creative ways on 
how to deal with this.
    And so I think too often the states have not been creative 
and have just simply looked for more money to throw at a 
problem without trying to devise a real solution to dealing 
with this health-care crisis that I think has continued to 
grow.
    Chairman Andrews. Mr. Goldman?
    Dr. Boustany. I know my time is up.
    Chairman Andrews. I think Mr. Goldman just wanted to say 
something, and then we will go to Mr. Kline.
    Mr. Goldman. Yes. Briefly, Congressman, one aspect that is 
totally nonfinancial is just data collection. It is very 
difficult to assess the health-care status in your state in its 
entirety if you cannot collect data from a large segment of the 
population that is having health care provided for it in a 
different way, and so that is clearly nonmonetary.
    With respect to the monetary aspect, there is a monetary 
aspect to it. There is no doubt about it. But I do not think 
the monetary aspect is designed as necessarily the principle 
driver. There is an effort to bring some fairness across the 
system because, as was acknowledged, not every employer is 
Honeywell. Lots of employers are not Honeywell and do not pay a 
fair share and basically are laying off the same dollars to the 
state taxpayers, and that is not fair either.
    Chairman Andrews. The gentleman's time has expired.
    The gentleman from Minnesota, the ranking member, is 
recognized for 5 minutes.
    Mr. Kline. Thank you, Mr. Chairman.
    And I am mindful of the fact that it is late. Some of you 
have made new plane reservations, but even those will run out 
here shortly.
    Just a couple of things for Mr. Covert--and Ms. Moore, for 
that matter. This issue of data collection that Mr. Goldman has 
raised. Have you got some position or comment on that? What is 
the problem with what he is talking about, either one of you, 
both of you?
    Mr. Covert. I mean, from my perspective, I mean, we really 
do not have a problem with the data collection and sharing of 
data. We would be just as happy to get the information that the 
states have as well.
    From our perspective, what we would ask for, though, is 
that, you know, the federal regulating agency tell us what you 
want to know, as we do in the 5500s in the pension area. Tell 
us what you want disclosed. We are happy to disclose it.
    What we do not want to have to do is go out and spend 
millions of dollars with auditors because every state decides 
they have a different idea of what it wants to know and how it 
wants it to be reported. If the federal government were to 
determine that they would like us to report and share this 
data, from my perspective, we do not have an issue with that.
    Ms. Moore. And I think that is generally true of large 
employers. They are already reporting a lot of data because 
they are required to under federal law. They are willing to 
report more if more data would be useful. They are very 
interested in getting data on health-care outcomes to improve 
their own programs, but their principle concern is that they 
not be exposed to the 50 different requirements in 50 different 
states.
    Mr. Kline. Okay. Thank you.
    Let's talk about the 50 different states and the 50 
different requirements. I am very impressed. Honeywell, as we 
have discussed a couple of times today, has employees in all 50 
states, and so the regulation of each state would be of some 
importance to you.
    If the regulations got too complex and passed some or all 
of the states, you could choose, could you not, to just get 
fully insured plans or purchase them for your employees, and if 
you did that, what would the impact be?
    Mr. Covert. Yes, we could, Congressman Kline. The problem 
with that approach from our perspective and from our employees' 
perspective is that once you go state by state to the 
individual or the group fully insured market, you are basically 
locked into the various mandates of each of those states which 
means we have less flexibility.
    So, if we are in New Jersey, we have to comply with 
whatever New Jersey has mandated in terms of its insurance 
products. Minnesota is something different; Texas, something 
different. So we end up with, you know, a fair degree of 
difference among the 50 states as they decide on an individual 
basis what they think is important and what should be covered 
under the policy.
    So we do not have the ability to structure some of the, you 
know, tools and the cost saving and, you know, innovative ideas 
that we have come up with to help provide better benefits at 
lower cost.
    It is also a lot more expensive. I mean, if we have to go 
to Prudential to buy insurance, Prudential is in business to 
make money. There is a profit load in there. There is a 
retention piece in there just in case their actuaries are wrong 
on how much risk and loss they are going to have.
    As I noted in my statement, the estimate from Hewitt 
Associates is that it is 11 percent to 12 percent more 
expensive to go into the fully insured market than self-
insurance because you have all those minimal man costs carved 
out. You know, if you are paying $10,000 like we are per 
employee for health care, you add 12 percent on top of that, 
that is $1,200 more.
    Employees are already stretched to the limits. If you add 
another chunk of that $1,200 on top of them just because we 
went from self-insured to fully insured, I am not sure that 
they are going to think that was a great deal.
    Mr. Kline. Okay. Thank you.
    Mr. Chairman, I see the light is starting to turn on me as 
well, and it is late. So I will yield back again with my thanks 
to the witnesses. You have just been great.
    Chairman Andrews. Let me reiterate my appreciation for the 
quality of the testimony, the thoroughness of the analysis.
    I did want to say to Commissioner Goldman, we are 
especially glad you could be with us today. I know this is a 
very busy time in our state, and I find the NAIC proposals very 
encouraging as a place to start.
    This will be an ongoing dialogue. We welcome your 
continuing participation.
    We are again very grateful for your patience through a very 
long day, and we thank you very, very much.
    The committee will now stand adjourned.
    [Additional submissions from Mr. Kline follow:]
    [Letter from an employment community follows:]

                                                      May 18, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of 
        Representatives, Washington, DC.
    Dear Chairman Andrews and Ranking Member Kline: We welcome the 
opportunity to share the views of the employer community in advance of 
your upcoming hearing on efforts to cover uninsured Americans. Roughly 
160 million Americans are insured--primarily through the offering of 
voluntary employer-provided health benefits. We support efforts to 
expand health care coverage and access, but we strongly encourage you 
to recognize the importance of the Employee Retirement Income Security 
Act (ERISA) and the role played by its preemption clause in ensuring 
the ability of employers to maintain uniform national health care 
plans.
    The states are doing significant work on the problem of the 
uninsured--we applaud those that are approaching this in a responsible 
manner working closely with all of the stakeholders to seek solutions 
that expand coverage without overburdening employer-sponsored plans. 
The uniformity across state lines ensured by ERISA preemption helps 
protect affordable, uniform coverage for tens of millions of Americans; 
we believe it is critical that states address the health care crisis in 
a way that does not violate the ERISA preemption clause.
    ERISA provides a crucial framework for offering benefits to 
American workers. An important provision requires that it ``shall 
supersede any and all State laws insofar as they may now or hereafter 
relate to any employee benefit plan * * *'' Referred to as ``the 
crowning achievement of this legislation'' by its principal House 
sponsor Rep. John Dent (D-PA), the provision aims to ``round out the 
protection afforded participants by eliminating the threat of 
conflicting and inconsistent State and local regulation * * *''
    In a health care system that has many glaring flaws, one of the 
true victories since the enactment of ERISA has been the success in 
enabling nationwide plans to cover millions of employees in multiple 
jurisdictions. This is far more than just a convenience; when employers 
negotiate contracts with vendors using a standard approach, they have 
maximum leverage in ensuring the lowest possible premium costs, which 
greatly benefits plan beneficiaries. It also lowers administrative and 
compliance costs, which means that more of a company's benefits 
expenses are spent on the provision of benefits to employees and their 
dependents than on benefit administration. These advantages would be 
lost if employers had to negotiate and set up separate plans to comply 
with the unique rules of each jurisdiction.
    We look forward to working with you and your colleagues on these 
important issues.
                                 American Benefits Council,
                         National Business Group on Health,
                                       Business Roundtable,
                     National Business Coalition on Health,
                           Corporate Health Care Coalition,
                                National Retail Federation,
                              The ERISA Industry Committee,
                       Retail Industry Leaders Association,
                                     HR Policy Association,
                     Society for Human Resource Management,
                     National Association of Manufacturers,
                                  U.S. Chamber of Commerce,
           National Association of Wholesaler-Distributors.
                                 ______
                                 
    [Statement of the ERISA Industry Committee follows:]

           Prepared Statement of the ERISA Industry Committee

    Mr. Chairman, Ranking Member Kline and Committee Members: Thank you 
for the opportunity to voice the point of view of major employers that 
directly sponsor voluntary health care benefit plans for tens of 
millions of Americans. Today's hearing addresses the issue of state and 
federal initiatives to expand access and coverage, and the importance 
of ERISA protections for national health care plans. The ERISA Industry 
Committee (ERIC) is a non-profit trade association committed to the 
advancement of employee health, retirement, and compensation plans of 
America's largest employers. We represent exclusively the employee 
benefits interests of major employers. ERIC has a strong interest in 
economic policy affecting our members' ability to deliver those 
benefits, their cost and their effectiveness, as well as the role of 
those benefits in America's economy.
    Members of ERIC directly sponsor health care and pension plans that 
cover tens of millions of Americans, providing them the freedom to 
pursue career opportunities without fear of financial ruin from health 
care expenses. The employer-sponsored health care system, specifically 
with support of the national uniformity provisions in ERISA, has 
allowed American employers to provide workers with the best retirement 
and health benefits in the global market.
    ERISA has played a vital role over the course of the past decades 
in protecting the health care coverage of American workers and their 
families, whose employers provide quality health care benefits. Over 
160 million Americans have enjoyed the financial security provided by 
quality, voluntary health care benefits sponsored by major employers 
across the country.
    Heath care costs have persisted in rising in the double-digit for 
many years, significantly higher than the costs attributable to most 
companies' core operations. The driving force behind important 
innovations that have slowed this rise, increasing quality of health 
care and health insurance for workers while simultaneously controlling 
costs, has been major employers. Through strategies like drug therapy, 
disease management and prevention, the medical home model, voluntary 
mental health coverage, advances in health information technology and 
personal health records, consumer-driven health plans, value-based 
purchasing and pay-for-performance initiatives, transparency programs, 
and myriad other innovations, major employers have brought competition, 
openness, and improvement to the United States' health care market. 
This has resulted in vast increases in quality for patients and 
purchasers, while at the same time helping to curb rising costs.
    The erosion of ERISA preemption protections would threaten the 
affordable and accessible health insurance coverage provided to 
American workers. Major employers, not legislators or government, have 
been responsible for the most important improvements in health care in 
the United States. An employer is attuned to the specific needs of its 
own workforce, and can better design plan offerings that will meet the 
needs of its workers, regardless of where they are employed, where they 
live, or where their medical providers are located.
    Rather than the drastic and possibly disastrous proposition of 
removing ERISA protections from national employer-sponsored health care 
plans, Congress should consider being proactive in some of the areas 
that American health care is severely lacking:
    We lag behind other countries in implementation of health 
information technology and electronic health records. American 
citizens, on average, have no medical home or primary care physician--
driving them to unnecessary emergency room care and inflating the costs 
of treatments. Health plans in the United States, especially those 
sponsored or managed by the government, place little emphasis on 
prevention and disease management, which are the best methods to 
improve health and control costs. Individuals do not have tax parity 
with employers in the purchasing of health insurance. Small businesses 
may not band together to create more powerful purchasing pools. The 
health care market in the US is misaligned--it is easier to find 
information on the cost and quality of televisions and MP3 players than 
on doctors and hospitals.
    With all of these (and many other) glaring flaws in the US health 
care system, there is much to be done that can positively impact access 
and coverage without threatening the health insurance already provided 
to more than half of Americans. ERISA has made providing coverage to 
employees spread across the country affordable and practical, allowing 
major employers to adhere to rules made by Congress and the Department 
of Labor--not forcing them to construct a different plan in every 
state, or worse, every county or city.
    Encroaching state and local health care mandates have threatened 
employers' ERISA protections, raising the specter of vastly increased 
administrative costs, severely decreased bargaining leverage for plan 
sponsors, and a balkanized system of coverage. When employers negotiate 
rates for uniform plans to cover thousands of employees across the 
country, it allows them to secure the lowest possible premium costs and 
ensure the most affordable coverage for plan beneficiaries.
    While we applaud the efforts of this Committee to explore options 
that may expand much-needed access and coverage to the more than 40 
million uninsured Americans, ERIC members urge you to avoid actions 
that could jeopardize the positive aspects of our current system. There 
are many proven ways to expand access, lower the barriers of high 
costs, and increase coverage for uninsured Americans that will not 
threaten the affordable and comprehensive coverage offered by major 
employers.
    ERISA preemption of conflicting state regulations has been an 
invaluable tool in safeguarding the coverage currently provided to more 
than 160 million American workers and their families, and we urge you 
to take this into account when evaluating options to bolster state 
initiatives. We look forward to working with Congress to further 
efforts that will bolster the voluntary employer-sponsored benefits 
system, expand coverage for the uninsured, and improve the quality of 
health care in the US.
    Thank you for considering the views of America's largest employers, 
who sponsor health insurance for so many American workers.
                                 ______
                                 
    [Statement of the HR Policy Association follows:]

            Prepared Statement of the HR Policy Association

    Mr. Chairman, Congressman Kline and Distinguished Members of the 
Subcommittee: We appreciate the opportunity to submit testimony to the 
Subcommittee on health care reform activity at the state and local 
level and the importance of ERISA to preserving health care benefits 
for those covered by group health insurance plans. We strongly believe 
that your examination of this subject should include recognition of the 
vital role that ERISA and its strong preemption language play in 
ensuring the ability of employers to offer uniform benefits nationwide.
    HR Policy Association consists of chief human resource officers 
representing more than 250 of the largest corporations in the United 
States. From nearly every major industry sector, HR Policy members have 
a combined market capitalization of more than $8.2 trillion and employ 
more than 18 million employees world wide. Most of these corporations 
do business in more than one state and several do business in all fifty 
states. HR Policy seeks to ensure that laws and policies affecting 
employment relations are sound, practical, and responsive to the 
realities of the modern workplace. All of HR Policy's member companies 
provide health care benefits to employees.
    There is no question that the most important domestic policy issue 
for employers is the current health care crisis. In the United States, 
employers' share of health insurance costs currently represents 6.8 
percent of total employee compensation.\1\ Employers' health care costs 
have increased more than 550 percent since 1981, while inflation has 
only doubled the price of goods and services in the economy during that 
same period. Rapidly rising health insurance premiums in the United 
States are damaging the ability of some companies, particularly longer-
established ones, to compete in the domestic and international market. 
According to the Organization for Economic Cooperation and Development 
(OECD), the United States spent 15.2 percent of its Gross Domestic 
Product (GDP) on health care in 2003, 30 percent more than Switzerland, 
which ranked second, and 78 percent greater than the median for all 30 
OECD countries.
---------------------------------------------------------------------------
    \1\ Bureau of Labor Statistics, Employer Costs for Employee 
Compensation (ECEC) online database, http://www.bls.gov/ncs/ect/
home.htm, series IDCMU2150000000000P, accessed May 2006.
---------------------------------------------------------------------------
    Moreover, more than 45 million Americans are uninsured, which is 
injurious not only to those who lack coverage, but employers and 
society as a whole. The cost of uncompensated care delivered to 
uninsured individuals is shifted to payers raising premiums for the 
government, employers, and their employees. In 2005, premiums for 
family coverage provided by private employers were $922 higher and 
premiums for individual coverage were $341 higher due to the cost of 
care for the uninsured. A June 2003 Institute of Medicine study 
estimated that the uninsured cost the United States from $65 to $130 
billion per year in lost earnings and output from absenteeism, chronic 
poor health, disability and early mortality.
    Because of the severity of the problem--and its national 
character--we fully anticipate that Congress over the next few years 
will be actively seeking solutions. As the representative of those 
responsible for the employee benefits of 19 million Americans, HR 
Policy stands ready to work very closely with the Congress in that 
effort.
    Achieving a national consensus in this area is critical but, thus 
far, elusive. It is not surprising, then, that the states have stepped 
into the void and are actively pursuing reforms designed to ensure that 
the maximum number of their own citizens is covered by health 
insurance. We generally applaud the energy and creativity of those 
states that are approaching this in a responsible manner, working 
closely with all of the affected stakeholders. As they proceed, we have 
no doubt that there will be many valuable lessons that can be applied 
to a national solution.
    What is prompting the states to act is the very large number of 
individuals and families in each state who, for a variety of causes, 
are not covered by health insurance. Enactment of ERISA and the success 
of its preemption in enabling employers with employees in multiple 
jurisdictions to offer uniform nationwide plans has been one of the few 
strengths of our badly flawed health care system. At present, 61 % of 
employees with private health insurance receive it through employer 
sponsored health care. It is important that any policy changes made at 
either the federal, state or local level do nothing to jeopardize the 
coverage of those who are already insured through the employment-based 
system.
    As you know, ERISA provides in 29 U.S.C. Sec.  1144(a) that its 
provisions ``shall supersede any and all State laws insofar as they may 
now or hereafter relate to any employee benefit plan * * *'' Referred 
to as ``the crowning achievement of this legislation'' by its principal 
House sponsor Rep. John Dent (D-PA), the purpose of the provision was 
to ``round out the protection afforded participants by eliminating the 
threat of conflicting and inconsistent State and local regulation * * 
*'' \2\
---------------------------------------------------------------------------
    \2\ 120 Cong. Rec. 29197 (1974).
---------------------------------------------------------------------------
    Employers with operations throughout the United States seek to 
maintain uniform benefit policies for their employees for a variety of 
reasons including the inherent efficiencies for employers, and equity, 
cost and convenience considerations for their employees. One of the 
advantages large employers have in securing health insurance coverage 
for their employees is the size of the pool they bring to the carrier 
and the economies of scale in administering the program. Multi-state 
employers are able to offer the most affordable coverage to workers 
when they negotiate contracts with large vendors using a standard 
approach to get the maximum amount of leverage and the lowest costs. 
Employees within multi-state ERISA plans benefit directly from this 
reduced administrative cost in the form of lower premiums for their 
coverage. Employers would lose this leverage if they had to negotiate 
with vendors based on local and state rules rather than a single 
national standard, which would only exacerbate the challenge that 
employers face in maintaining affordable benefits.
    Large companies employ the use of regional and national health care 
resources to provide benefits for their workers. For example, some 
medical centers in major urban areas have expertise in particular 
procedures, delivering care in a way that lowers costs and raises 
health care quality. Employers have supported a concentration in 
regional specialty practices or ``centers of excellence'' by directing 
their employee to use carefully selected facilities. ERISA facilitates 
employer plans to arrange for health care without being limited by the 
locations of their employees' health insurer, employment or residence.
    Employers with self-insured plans have led efforts to promote 
consumer awareness and decision making about health care cost and 
quality in an effort to improve the care delivered and lower overall 
costs. Companies have supported improvements in data collection, 
patient satisfaction, treatment outcomes, and the use of patients using 
this data to select providers. ERISA has provided an incentive for 
employers to invest in quality improvements, measures, and adopt a 
uniform data standard nationwide. Furthermore, ERISA protects employers 
seeking these improvements from having to comply with a variety of 
state definitions for data reporting, which could significantly slow 
these efforts.
    While ERISA permits employers to establish programs that serve 
their employees without variation across state, city and county lines, 
it also provides needed flexibility for employers to design their 
benefit plans. Companies retain the flexibility to vary health benefits 
for reasons related to the needs of their employees, rather than 
varying benefits based on an employee's state of residence.
    Multi-state employers also want to maintain uniform benefits across 
state lines for equity reasons underlying a common principle that all 
similarly situated workers within one company should be entitled to 
similar benefits regardless of the state in which they reside. Uniform 
benefit policies facilitate understanding for employees and retirees 
who often travel across state lines during the course of their tenure 
with one employer. Employees receive the benefit of having consistent 
and clear plan choices, equitable treatment of like employees residing 
in different states, and continuous access to health care benefits 
across state lines.
    Furthermore, ERISA remedies provide consistent rights for plan 
participants from state to state. This equity ensures plan assets are 
used exclusively to pay for benefits and are not consumed in paying a 
small number of high damage awards for the benefit of a limited number 
of beneficiaries.
    An enactment by a single state or locality can disrupt this 
uniformity, resulting in additional administrative costs that simply 
add to the growing burden of providing health care benefits. If all 
fifty states act separately, not to mention the thousands of 
municipalities within those states, it could only make multi-employer 
plans far less efficient and far costlier for the employers as well as 
their employees.
    Thus, we believe it is critical that, as the states continue to 
address the health care crisis, they do so in a way that does not 
violate the ERISA preemption clause. Within this framework, they can 
continue to pursue solutions to expand health insurance coverage of 
their residents without undermining the coverage that already exists.
    Thank you for this opportunity to express our views.
                                 ______
                                 
    [Statement of the Society for Human Resource Management 
follows:]

    Prepared Statement of the Society for Human Resource Management

    Chairman Andrews, Ranking Member Kline, and Members of the 
Subcommittee, thank you for holding this important hearing on federal 
and state initiatives to increase health care access and coverage. The 
Society for Human Resource Management (SHRM) appreciates the 
opportunity to submit this statement for the record to highlight our 
strong support for the Employee Retirement Income Security Act (ERISA).
    SHRM is the world's largest association devoted to human resource 
management. Representing more than 217,000 individual members, the 
Society's mission is to serve the needs of HR professionals by 
providing the most essential and comprehensive resources available. As 
an influential voice, the Society's mission is also to advance the 
human resource profession to ensure that HR is recognized as an 
essential partner in developing and executing organizational strategy. 
Founded in 1948, SHRM currently has more than 550 affiliated chapters 
within the United States and members in more than 100 countries.
    SHRM is well positioned to provide insight on the role of ERISA in 
the voluntary provision of health care benefits. HR professionals are 
responsible for designing and implementing health care benefit programs 
that meet the needs of workers and contribute to organizational 
success. SHRM's members strive to offer the right mix of benefits to 
attract and retain top performers while balancing the increasing costs 
of offering these benefits.
    Since rising health care costs are a serious burden for both 
employers and employees, HR professionals are working to reduce health 
care costs by driving patient safety and quality improvement efforts 
through employer health plan purchasing power and employee education. 
HR professionals are helping to foster change in employee and provider 
behavior by educating employees about the cost of health care and how 
to make purchasing decisions based on quality. By ensuring that 
employees understand their health care benefits and know how to utilize 
them efficiently and to their best advantage financially, HR 
professionals can help control the future cost of employee health 
benefits.
    Despite years of significant cost increases, the majority of 
employers continue to voluntarily offer health care insurance, 
providing important health care benefits to more than 160 million 
Americans. The preemption clause of the Employee Retirement Income 
Security Act is critically important to the employer-based health care 
system, providing a national framework for organizations to offer 
uniform health care plans.
    Because ERISA preemption is fundamental in allowing employers to 
maintain affordable, uniform coverage for employees and their families, 
SHRM believes that ERISA preemption must be maintained and 
strengthened. While SHRM supports efforts to expand coverage to the 
uninsured, allowing ERISA preemption waivers would harm the employer-
based health care system and could jeopardize the generous health care 
coverage of tens of millions of Americans.
    While state efforts to increase coverage to the uninsured are 
laudable, SHRM has serious concerns and reservations with proposals 
that would violate ERISA by imposing health care spending or coverage 
mandates, such as the Maryland Fair Share Health Care Fund Act.
    Because the Maryland proposal would require employers with a 
defined number of employees to spend a certain percentage of their 
payroll on employee health benefits or make a contribution to the 
state's insurance program, the United States Court of Appeals for the 
Fourth Circuit concluded that the Act would require employers to 
restructure their health insurance plans, which conflicts with ERISA's 
objective to permit the nationally uniform administration of employee 
benefit plans. SHRM filed an amicus brief in support of the Retail 
Industry Leaders Association's challenge of the Act, and believes this 
important decision sends a strong message that self-funded employer 
plans are governed by federal law.
    As Members of the Committee know, the number of uninsured Americans 
is a serious issue that requires careful examination by policy makers 
and stakeholders. Major reform of our current health care system, to 
include expanded coverage, better quality, and lower costs, is a top 
priority for HR professionals. SHRM applauds the committee for 
convening this important hearing and looks forward to working with 
Congress to pursue important reforms that will strengthen the employer-
based health care system.
                                 ______
                                 
    [Letter from the Corporate Health Care Coalition follows:]

                           Corporate Health Care Coalition,
                                                      May 22, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of 
        Representatives, Washington, DC.

    Dear Chairman Andrews, Ranking Member Kline and Members of the 
Subcommittee: The members of the Corporate Health Care Coalition (CHCC) 
commend you for considering ways to address the health care crisis and 
the unacceptable number of Americans who lack health insurance. As you 
consider health care reform proposals, we ask that you recognize the 
importance of the Employee Retirement Income Security Act (ERISA) and 
the important role that its preemption clause plays in ensuring the 
ability of large employers to maintain uniform national health care 
plans.
    CHCC is comprised of 17 large, multi-state, predominantly self-
insured companies that operate health benefit plans for employees and 
their families as well as retirees. Our organization is distinguished 
by its focus on issues that are critical for employers who sponsor 
health benefit plans on a nationwide basis. Members of CHCC have been 
in the forefront of efforts to ensure quality and cost-effective 
benefits since its inception.
    Enactment of ERISA and the success of its preemption in enabling 
employers with employees in multiple jurisdictions to offer uniform 
nationwide plans has been one of the few strengths of our badly flawed 
health care system. The benefits of ERISA preemption go beyond 
administrative convenience for employers. ERISA preemption provides 
equity, cost and convenience considerations for employees, ensuring 
that all employees of multi-state employers are treated consistently 
and fairly regardless of where they work.
    When employers negotiate contracts with large vendors using a 
standard approach, they have the maximum amount of leverage in ensuring 
the lowest possible premium costs, benefiting employees in the form of 
lower out-of-pocket expenses for their coverage. This advantage would 
be lost if employers instead had to negotiate separate plans to comply 
with the unique rules of each jurisdiction in which they have 
employees. Eliminating ERISA preemption would ultimately result in 
higher costs for employers and their employees.
    Several states are undertaking efforts to address the problem of 
the uninsured and other flaws in the system. We praise those that are 
doing so in a careful manner and working closely with all of the 
stakeholders to seek a solution that is economically responsible. 
However, as lawmakers focus on the problem of the uninsured, they 
should be careful to avoid jeopardizing the benefits of millions of 
Americans who receive their existing coverage through the employment-
based system. ERISA preemption enables large employers to provide 
comprehensive benefits in a relatively cost-effective manner for 
millions of Americans. Our members believe that it is critical that, as 
the states continue to address the health care crisis, their efforts do 
not weaken the ERISA preemption clause.
    Thank you for your attention in this matter.
                                          Marisa L. Milton,
                                                Executive Director.
                                 ______
                                 
    [Letter from the Business Roundtable follows:]

                                       Business Roundtable,
                                                      May 21, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of 
        Representatives, Washington, DC.
    Dear Chairman Andrews and Ranking Member Kline:  On behalf of 
Business Roundtable, I commend you for your interest in health care 
reform and for seeking improvements in the coordination of federal and 
state initiatives. Our health care system is in need of transformation. 
We must ensure that all Americans have access to affordable, quality 
health care coverage, whether their coverage is provided in the private 
marketplace or through federal or state public programs.
    Business Roundtable is an association of 160 chief executive 
officers of leading U.S. companies with over $4.5 trillion in annual 
revenues and more than 10 million employees. Counting employees and 
their families, Business Roundtable companies provide health care 
coverage for approximately 35 million Americans.
    Health care coverage is of critical importance and value to our 
employees and their families. Employment-based health benefits are the 
most common form of health insurance for the non-poor and non-elderly 
according to the Employee Benefits Research Institute. The Employee 
Retirement Income Security Act (ERISA) is the foundation upon which 
most employers offer health coverage to their employees. Currently, 
more than 159 million Americans receive their health insurance benefits 
through the workplace. ERISA allows employers to create health plans 
that are tailored to the needs and desires of their employee workforce. 
Additionally, ERISA allows employers to provide wellness, fitness, 
disease prevention and management programs. Without ERISA, there would 
be significantly less health care coverage and less healthy workers in 
America's workforce.
    We look forward to continuing to work with Congress to seriously 
reform and improve our nation's health care system without harming 
employee coverage.
            Sincerely,
                                        John J. Castellani.
                                 ______
                                 
    [Statement of Faith Cristol follows:]

Prepared Statement of Faith Cristol, Vice President, Workforce and Tax 
                  Retail Industry Leaders Association

    Chairman Andrews, Ranking Member Kline, and other Members of the 
Subcommittee, thank you for the opportunity to discuss retailers' 
continued support for the Employee Retirement Income Security Act 
(``ERISA'') that encourages employers to voluntarily offer employees 
health care benefits.
    I am Faith Cristol, Vice President of Workforce and Tax at the 
Retail Industry Leaders Association (``RILA''). RILA promotes consumer 
choice and economic freedom through public policy and industry 
operational excellence. Its members include the largest and fastest 
growing companies in the retail industry--retailers, product 
manufacturers, and service suppliers--which together account for more 
than $1.5 trillion in annual sales. RILA members provide millions of 
jobs and operate more than 100,000 stores, manufacturing facilities and 
distribution centers domestically and abroad. RILA is governed by a 
Board of Directors that includes the top leadership in some of the 
country's most innovative and successful companies, including Best Buy 
Co., Inc., Lowe's Companies, Inc., Target Corporation, The Home Depot, 
Inc., Wal-Mart Stores, Inc., and other retail leaders.
    RILA members recognize that ERISA, in its current form, is crucial 
to the voluntary provision of health care benefits in this country. 
Accordingly, RILA applauds Congress both for the passage of ERISA more 
than 30 years ago and its ongoing oversight of this important area of 
health care policy, including today's hearing. By allowing multi-state 
employers to administer employee health care plans uniformly and 
efficiently on a nationwide basis, ERISA has created this country's 
system of voluntary, employer-provided health care benefits. As I 
discuss in further detail below, central to this system is ERISA's 
preemption of state and local health care spending mandates.
1. RILA Members Are Leaders in Providing Benefits to Employees
    For members of RILA, offering competitive salaries and 
comprehensive benefits is not just good for employees; it is also good 
for business. Attracting and retaining a qualified and satisfied team 
of employees is one of the most significant challenges that our members 
face everyday. Throughout the country, competition for employees is 
robust, especially in times of low unemployment such as we are 
experiencing in today's economy.
    As a result, RILA members on average pay their hourly employees 
nearly twice the federal minimum wage, and offer competitive benefit 
plans that often include health care benefits, employee discounts, 
profit sharing and retirement savings plans, stock option plans, 
disability insurance, training and educational opportunities, paid time 
off, life insurance and other benefits. RILA members want employees who 
are healthy, productive and satisfied with their jobs--and the 
competitive nature of their industry demands that they provide 
attractive employee benefits.
2. ERISA Encourages Employers to Provide Health Care Benefits
    Given RILA members' strong economic and altruistic incentives for 
providing competitive employee benefits, they strongly support current 
policies that encourage employers to voluntarily provide health care 
coverage--of which ERISA is a key and indispensable component. When 
Congress enacted ERISA more than three decades ago, it created a system 
that encourages employers to offer employee health benefits by 
permitting them to administer health plans uniformly and efficiently. 
This is especially important to employers that operate in multiple 
states, such as RILA's members. Without such uniformity, these 
employers would be faced with a patchwork of complex and conflicting 
state regulations that would make providing health care benefits far 
more challenging.
    The national regulatory framework afforded by ERISA gives companies 
the flexibility they need to meet and respond to the unique 
requirements of their workforce. This is especially important to 
retailers who employ a much younger workforce than most industries. In 
fact, one-third of all retail workers are under 24 years of age, as 
compared with only 14 percent for all industries. Retailers also have a 
high percentage of workers who choose to work part time or who work 
only seasonally, characteristics that lead to high turnover. Given the 
unique demographics of their workforce, retailers need flexibility in 
devising health plans that meet their distinctive characteristics and 
compensate similarly situated employees equivalently, and ERISA gives 
them that flexibility.
3. ERISA Should and Does Preempt State and Local Health Care Spending 
        Mandates
    Today, however, ERISA's uniformity and efficiency are under attack 
by those seeking to undermine it with a patchwork of state and local 
governments spending mandates--each imposing a unique set of 
regulations and costs on the health care benefit plans offered by 
employers. Specifically, lawmakers in more than 30 states have been 
lobbied to enact so-called ``fair share'' legislation to force large 
employers to spend a percentage of their payroll on employee health 
care benefits or else pay a fine, in effect, to a state health care 
fund.
    The exact percentages and the size of the companies captured by 
these spending mandates vary from state to state, but the basic formula 
is the same: employers with a specific number of workers would be 
mandated to pay a specific amount or percentage on worker health 
benefits. To the extent an employer's spending falls short of these 
mandated amounts, the difference would have to be paid to a state fund 
set up by the legislation for the supposed purpose of defraying state 
expenditures on health care.
    By precluding the uniform and efficient administration of health 
care plans, these spending mandates threaten to undermine this nation's 
system of employee benefits voluntarily provided by employers. Federal 
courts have correctly held that these state and local health care 
spending mandates are preempted by ERISA.
    As a result of a legal challenge by RILA, earlier this year the 
United States Court of Appeals for the Fourth Circuit affirmed a 
district court decision invalidating a Maryland ``fair share'' law that 
attempted to impose a health benefit mandate on employers. Retail 
Industry Leaders Ass'n v. Fielder, 475 F.3d 180 (4th Cir. 2007). This 
judicial ruling makes it clear that employer health plans are governed 
by federal law, not by a patchwork of state and local laws. RILA 
believes the Fourth Circuit's decision sends a strong message that 
bills containing ``fair share'' provisions that are under consideration 
in other states also are preempted by ERISA.
    The circuit court held that ``[b]ecause Maryland's Fair Share 
Health Care Fund Act effectively requires employers in Maryland covered 
by the Act to restructure their employee health insurance plans, it 
conflicts with ERISA's goal of permitting uniform nationwide 
administration of these plans. We conclude therefore that the Maryland 
Act is preempted by ERISA.''
    The Fourth Circuit also recognized that this decision prevents the 
very type of ``regulatory balkanization that Congress sought to avoid 
by enacting ERISA's preemption provision.'' Importantly, the Fourth 
Circuit specifically noted that if it had not affirmed the district 
court's decision ``surely other States and local governments would 
follow'' Maryland in passing laws that ``clash[] with ERISA's 
preemption provision and ERISA's purpose.''
    This judicial ruling validates the position of the business 
community\1\ that the U.S. Congress enacted ERISA, in part, to create 
uniformity in national health benefit plans. The single, national 
regulatory framework afforded by ERISA gives companies the flexibility 
they need to meet and respond to the unique requirements of their 
workforce. Businesses generally, and retailers in particular, need to 
be free to devise health plans that meet the distinctive 
characteristics of their employees, and ERISA gives them that freedom. 
This is especially important to employers that operate in multiple 
states, and ERISA encourages them to offer employee health benefits by 
permitting them to administer health plans uniformly and efficiently.
---------------------------------------------------------------------------
    \1\ Notably, the United States Chamber of Commerce, the Maryland 
Chamber of Commerce, the Society of Human Resource Management, and the 
National Federation of Independent Businesses submitted ``friend of the 
court'' briefs supporting RILA's legal challenge of the Maryland law.
---------------------------------------------------------------------------
    ERISA also allows large employers to take advantage of their 
nationwide purchasing power to help drive down the costs of health care 
for their employees--the same concept that allows large retailers to 
offer consumers lower prices on their products.
    Supporters of state and local health care spending mandates argue 
that they are not preempted by ERISA because they do not mandate what 
benefits an employer must offer. The Fourth Circuit rejected this 
argument, as well. Maryland argued that its fair share provision was 
not mandatory because, inter alia, an employer could pay the state a 
tax in lieu of increasing health care benefits. Id. at 193-97 (``the 
Secretary relies most heavily on the argument that the Fair Share Act 
gives employers the choice of paying the state rather than altering 
their health care spending''). The Fourth Circuit concluded that ``this 
argument fails,'' noting that ``in most scenarios the Act would cause 
an employer to alter the administration of its health care plans.'' Id. 
at 197. ``In effect, the only rational choice employers have under the 
Fair Share Act is to structure their ERISA health care benefit plans so 
as to meet the minimum threshold.'' Id. at 193. A fair share provision 
is effectively mandatory because it ``leaves employers no reasonable 
choices except to change how they structure their employee benefit 
plans.'' Id. at 197.
    In sum, ERISA is the lynchpin of our nation's system of voluntary 
employer-sponsored health care. If we allow ERISA to be eroded by 
``fair share'' spending mandates or other state and local incursions 
operating under the auspices of an ``ERISA waiver'' or otherwise, then 
we are headed down a dangerous track that could jeopardize employer-
sponsored health care in this country. Differing state and local health 
benefit mandates would only increase health care costs, create benefit 
disparity among similarly situated employees, and serve as a strong 
disincentive for employers to offer health coverage.
4. In Addition to Being Unlawful, Health Care Spending Mandates Also 
        Are Unwise
    RILA believes it is unwise to restrict the flexibility of 
businesses by dictating how they should structure their health benefit 
plans or how much should be spent on those benefits. For this reason as 
well, RILA members are strongly opposed to state health care mandates.
    As noted above, these spending mandates represent a ``one-size-
fits-all'' approach to health care coverage that make no sense for 
retail businesses that experience a high degree of turnover and employ 
a much younger workforce than most industries. Moreover, both common 
sense and economic research show that the burden of health care 
mandates might very well fall on the employees themselves. State and 
local spending mandates put pressure on employers to pass the cost of 
mandated health care benefits onto employees. The companies may look to 
cut jobs or move out of the jurisdiction altogether. The result is that 
employees could end up footing the bill for these newly mandated 
benefits. In the end, many of these employees could be forced to 
confront the bitter irony that legislation designed to provide 
employer-based health care leaves them with neither an employer nor 
health care.
    In sum, health care spending mandates implicitly blame the business 
community for the state's health care problems by placing the burden of 
solving these problems on employers. They restrict employers' ability 
to be flexible, to respond to market conditions, and to react to the 
needs of their employees. Because these spending mandates would 
significantly complicate and frustrate employers' efforts to provide 
voluntary health care benefits, RILA opposes them as unwise policy in 
addition to their being unlawful.
5. Conclusion
    ERISA is crucial to the voluntary provision of health care benefits 
in this country, and a key feature of ERISA is its preemption of state 
and local health care spending mandates. By barring the creation of a 
complex and conflicting patchwork of such state and local mandates, 
ERISA in its current form allows employers to administer employee 
health care plans uniformly and efficiently on a nationwide basis.
    RILA appreciates this opportunity to submit a written statement, 
and thanks the Committee for addressing this important issue.
                                 ______
                                 
    [Whereupon, at 5:23 p.m., the subcommittee was adjourned.]