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


 
                   SUBCOMMITTEE HEARING ON HOW SMALL 
                    BUSINESSES CAN BEST ADDRESS THE 
                  HEALTHCARE NEEDS OF THEIR EMPLOYEES 

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

             SUBCOMMITTEE ON RURAL & URBAN ENTREPRENEURSHIP
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            AUGUST 30, 2007

                               __________

                          Serial Number 110-42

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                     U.S. GOVERNMENT PRINTING OFFICE

38-200 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001
























                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


WILLIAM JEFFERSON, Louisiana         STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina         ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas              SAM GRAVES, Missouri
RICK LARSEN, Washington              TODD AKIN, Missouri
RAUL GRIJALVA, Arizona               BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine               MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois               STEVE KING, Iowa
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin                LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania          DEAN HELLER, Nevada
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

             SUBCOMMITTEE ON RURAL & URBAN ENTREPRENEURSHIP

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______


                                  (ii)

  

















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Shuler, Hon. Heath...............................................     1
Davis, Hon. David................................................     3

                               WITNESSES


PANEL I
Johnson, Jerry, The Laurel of Asheville Magazine.................     4
Kendrick, Bob, Kendrick & Associates.............................     5
Masterton, Laurey, Laurey's Catering.............................     7
Coward, Caroline, Asheville Chamber of Commerce Healthcare 
  Roundtable.....................................................     9

PANEL II
Schwarz, Miriam, Buncombe County Medical Society.................    20
Leonard, Mark, WestCare..........................................    22
Baumgarten, Dr. Alan, Asheville Family Healthcare................    23
Groome, George, Colton Groome Insurance..........................    26

                                APPENDIX


Prepared Statements:
Shuler, Hon. Heath...............................................    36
Davis, Hon. David................................................    38
Johnson, Jerry, The Laurel of Asheville Magazine.................    40
Kendrick, Bob, Kendrick & Associates.............................    42
Masterton, Laurey, Laurey's Catering.............................    45
Coward, Caroline, Asheville Chamber of Commerce Healthcare 
  Roundtable.....................................................    47
Schwarz, Miriam, Buncombe County Medical Society.................    49
Leonard, Mark, WestCare..........................................    53
Baumgarten, Dr. Alan, Asheville Family Healthcare................    59
Groome, George, Colton Groome Insurance..........................    64

                                 (iii)

  


                      SUBCOMMITTEE HEARING ON HOW
                       SMALL BUSINESSES CAN BEST
                      ADDRESS THE HEALTHCARE NEEDS
                           OF THEIR EMPLOYEES

                              ----------                              


                       Thursday, August 30, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
             Subcommittee on Rural & Urban Entrepreneurship
                                         Asheville, North Carolina.
    The Subcommittee met, pursuant to call, at 2:05 p.m., in 
the Auditorium, Asheville Chamber of Commerce, 36 Montford 
Avenue, Asheville, North Carolina, Hon. Heath Shuler [Chairman 
of the Subcommittee], presiding.
    Present: Representatives Shuler and Davis.

                OPENING STATEMENT OF MR. SHULER

    Chairman Shuler. The hearing is called to order.
    I would first like to welcome everyone to this hearing. 
What an important issue that we are facing. Our small 
businesses continue to be faced with an outstanding climb in 
our healthcare industry, being able to provide adequate health 
insurance at an affordable rate to the employees or the 
employer providing that service for them.
    I would like to welcome everyone to Asheville and I would 
certainly like to welcome my colleague and one of my very good 
friends in the House, Congressman David Davis from the First 
District of Tennessee, which encompasses Johnson City, 
Kingsport, all the way down to Sevierville.
    Mr. Davis. That is correct.
    Chairman Shuler. To give you a little bit of history on our 
Committee that we feel very proud about. There are not a lot of 
committees in the House that you can say is actually ran as 
well as the Small Business Committee is, truly bipartisan 
support on both sides. Chairwoman Velazquez has done an 
outstanding job of actually getting bills to the House. And it 
could not have happened if it was not for the support of 
ranking member Chabot and what he has been able to put together 
on the minority side in a working relationship. So we want to 
extend that welcome relationship that both Congressman Davis 
and I have to the mountains of western North Carolina.
    Today's hearing will focus on the rising cost of healthcare 
and how it affects small businesses. The increased cost and the 
lack of availability of healthcare insurance is a problem that 
continues to plague the nation's small businesses. Over the 
last seven years, entrepreneurs have seen premiums rise at 
nearly 80 percent.
    This is an issue that affects small firms across the 
country, but particularly important here in western North 
Carolina. Employer-sponsored insurance is a primary source of 
healthcare coverage for 68 percent of North Carolina's working 
families. However, due to the rising costs, that number has 
steadily declined over the past few years as businesses find it 
more difficult to find affordable insurance coverage. Today, 
over half of all uninsured workers in this state are employed 
by businesses with fewer than 25 employees. North Carolina's 
small business has consistently identified high premium costs 
as the primary reason many are unable to offer health 
coverages.
    It is clear that there is a need to do something and it has 
to be addressed immediately when we talk about our economy in 
Washington and addressing the rising healthcare costs must be 
at the top of the list.
    One of my goals as Chairman of this Subcommittee is to 
ensure that healthcare reform considers the impact of small 
businesses. Already this Congress has passed several important 
legislation to assist small businesses to provide healthcare as 
well as to provide access to that care.
    Recently, the Committee passed the Affordable Healthcare 
Initiative. This grant program would allow small business 
development centers to assist owners in identifying affordable 
health insurance options for their employees.
    Our Committee also reported legislation that will help 
small healthcare providers service the small business owners 
and their families. We passed a Small Business Administration 
lending bill that makes low-cost loans available for healthcare 
providers who service low income and under-served areas. This 
will provide much needed financing to the providers serving 
many of the employees of small businesses.
    But this is only a start. The Committee has held numerous 
hearings to identify new ideas and programs for the coverage of 
the uninsured and the increase of access to all Americans.
    A number of committees will be looking at the problems of 
healthcare coverage in the 110th Congress. This Committee's 
focus is to make sure that small businesses are part of the 
debate.
    Today's panel offers a diverse perspective on challenges 
facing healthcare systems. I look forward to hearing your 
testimony of small business owners, healthcare providers and 
insurance brokers. Small business would not be in our district 
if we look around at what has happened to the diversity of 
specifically western North Carolina where we have seen so many 
plants have gone, so many of our jobs have truly moved abroad, 
and it is our small businesses, our small business owners that 
is really the backbone behind our country. I think we all 
believe in Congress that our small businesses are going to be 
the key to our future. And it will be these 10, 5, 20, 25 
employee businesses that really change the dynamics of what our 
country is all about.
    At this time, I would like to introduce one of my very good 
friends in the House, Congressman David Davis from the First 
District of Tennessee. Congressman Davis.

                 OPENING STATEMENT OF MR. DAVIS

    Mr. Davis. Thank you, Heath. Good afternoon and thank you 
all for being here as we examine healthcare choices for 
America's small businesses, their employees and working 
families.
    Before we begin, I would like to sincerely thank my good 
friend, Congressman Heath Shuler, for inviting me to come over 
the mountains into your beautiful district. We may come from 
different states, be members of different parties, but only one 
of us can throw a 12 yard out pattern on the road.
    [Laughter.]
    Mr. Davis. And you can guess which one it is. As long as 
the sun rises over the Blue Ridge mountains in my home in 
Tennessee and sets over them in Mr. Shuler's district here in 
North Carolina, I know that we have at least one thing in 
common--the desire to help small business owners find reliable, 
high-quality and reasonably-priced healthcare that will be 
available when they need it.
    I have been involved with healthcare for almost 30 years, I 
am a respiratory therapist by training myself and have owned 
several healthcare businesses. I have been a small business 
owner now for about 15 years. I really see myself as an 
entrepreneur. So I have seen this issue from both sides.
    At the center of our examination are the issues of cost and 
access. As we all know, purchasing health insurance is one of 
small businesses' most costly expenses. According to the 
National Federation of Small Business, NFIB, healthcare is the 
most severe problem for small business owners, greater than 
taxes, cash flow or government regulations--which is hard to 
believe. Small groups, including small businesses usually pay 
more for similar or less coverage than large businesses. As a 
result, small businesses are less likely to offer health 
insurance than large firms. Not surprisingly, the principal 
reason given is that small businesses could not afford the 
coverage.
    One of the most distressing statistics that we see each 
year is the rising number of Americans who live without health 
insurance, currently estimated at roughly 46 million people. Of 
those without health insurance, about 60 percent are small 
business owners or employees of small businesses and their 
families.
    As healthcare costs continue to rise, fewer employers and 
working families will be able to afford the coverage. Clearly, 
we in Congress must look at this pressing problem and find 
solutions that will create an environment so those in need for 
healthcare insurance can not only find the coverage they need, 
but also afford the coverage that they need. We need to be 
working towards a healthcare delivery system that works best, 
not just what we have always done in the past. A simply look at 
the current healthcare landscape shows the system is not 
working.
    Over the past several years, Congress has debated numerous 
proposals designed to bring the cost of healthcare down, 
including the establishment of associated health plans, also 
known as AHPs; increasing the availability, use and ease of 
health savings accounts, also known as HSAs; and reforming the 
medical liability system. And as you may recall, in President 
Bush's most recent State of the Union, he talked about allowing 
employers and those that are employed, to actually take some of 
their pre-tax dollars and purchase health insurance, to have a 
system so that thereby they can afford the health insurance 
that they need. Unfortunately, some of the things I just 
mentioned in these proposals, which I believe could provide 
significant relief for the problems that we face, were never 
signed into law, they are still on the books.
    As we all know, there is not one solution to a problem as 
complicated and complex as 46 million Americans living and 
working without health insurance. Small business employers and 
employees are in critical need of new ways to increase health 
insurance coverage.
    I look forward to hearing from our witnesses and to working 
with you, Mr. Shuler, on finding ways to make healthcare more 
affordable for small businesses and their employees.
    Again, thank you for inviting me to be here with you and 
your constituents, and I yield back the balance of my time.
    Chairman Shuler. I thank the gentleman from Tennessee.
    I ask unanimous consent that the record be open for five 
days for members to submit their statements. Hearing no 
objection, so ordered.
    I would like to now call the first panel which consists of 
small business owners as well as a member of the Chamber of 
Commerce healthcare roundtable.
    Our first witness is Jerry Johnson, the owner of The Laurel 
of Asheville Magazine, a local monthly lifestyle publication.
    Mr. Johnson, you have five minutes for your testimony.

   STATEMENT OF JERRY JOHNSON, OWNER, THE LAUREL OF ASHEVILLE

    Mr. Johnson. Thank you, Mr. Chairman. Like you said, my 
name is Jerry Johnson, and with my partner Bob Brown, we own 
The Laurel of Asheville Magazine. I have been an owner of 
various small businesses for nearly 25 years and all of those 
businesses have had less than 10 employees.
    There has always been a constant need to search for or shop 
for health insurance. That is because prices have always been 
going up and the amount of coverage has always been going down. 
My overall view is that there has been a dramatic change in the 
health insurance marketplace over the last 25 years. In the 
early 1980s, there were numerous companies offering a wide 
variety of coverage from major medical to hospitalization. In 
those early years, I learned to shop for a better price about 
every two years because the rates were increased. There were 
numerous agents available then that provided policies and 
educated you as to the new choices and different coverages. In 
the past decade, the choices in the once abundant health 
insurance marketplace has gone away. Ten years ago, there were 
probably 40 or 50 companies offering some variety of health 
insurance in North Carolina. Today, I believe there are less 
than 10 and even those choices are limited because some of 
these companies are really offering indemnity policies, which 
means they pay cash per incident and are not true 
hospitalization or major medical coverage.
    Today, there are more people needing and looking for 
coverage. The high cost of medical care can ruin a family's 
future or prevent someone from truly becoming well. Yet today, 
far fewer agents are offering health insurance policies and 
fewer companies are supplying policies. As a small business 
person, this does not make sense. When I know there are more 
people wanting to buy something, it usually means that more 
businesses will enter the marketplace to meet the demand. This 
is definitely not true with health insurance.
    As a small business person, I believe that more competition 
is needed in the marketplace. Competition in any industry I can 
think of has brought about creativity and innovation, whether 
that means in the delivery of the service, the coverage or the 
pricing. I also believe that the government can aid in this 
expanding of the marketplace. For one, the government could 
become more of a reinsurer of catastrophic coverage, making it 
available on a sliding income scale to those insurance 
companies willing to innovate and offer policies to children 
and families that are most at risk, companies that are also 
willing to help with wellness and non-traditional forms of 
healthcare. Keeping people healthy and not just paying for 
their sickness is what insurance companies could be doing 
differently. Secondly, and what would save small business 
people a lot of time and effort and money would be to make 
easier access to the types and varieties of insurance coverage 
available. With fewer agents in the field and fewer companies, 
it would be really helpful to aggregate their services to a web 
site or a clearinghouse and then use standard terms that could 
be used and explained. Comparison and maybe some costing, so we 
could project ahead what it would cost for various size groups 
to have heath insurance.
    In conclusion, I know that we as a country can do a much 
better job of keeping our workforce, our families and our 
children healthy. We need to shakeup the insurance industry and 
have them start thinking of better ways to market and deliver 
their product and less thinking about their shares on the stock 
market.
    I thank you for your time, Mr. Chairman, Mr. Davis.
    Chairman Shuler. Thank you, Mr. Johnson, for your 
testimony.
    Our next witness is Bob Kendrick, the owner of Kendrick & 
Associates, an independent business consultant in Weaverville.
    [The prepared statement of Mr. Johnson may be found on page 
40 of the Appendix.]


   STATEMENT OF BOB KENDRICK, OWNER OF KENDRICK & ASSOCIATES

    Mr. Kendrick. Thank you, Mr. Chairman.. Mr. Davis, glad to 
be here. I do appreciate the opportunity to give testimony, 
even though I am certainly not a healthcare professional or 
particularly a strong student of the healthcare issues.
    But I do have an opportunity to work with a number of small 
businesses throughout our region who are either trying to 
establish themselves or are in the position where they are 
trying to expand and grow. I have a second relationship with 
these folks because I run a local certified development 
corporation, SBA 504, which you are keenly aware of on the 
Small Business Committee, and fortunately we were selected by 
the Administrator Preston as one of the top two in the country 
this year. We do appreciate the recognition.
    What I have discovered in 25 years of working with a 
variety of small businesses is that we really have two sectors 
of small business that serve all our communities. We have what 
used to be known as the mom and pop business and now are more 
appropriately considered lifestyle business, where you have the 
individuals, be it family or non-related, who are trying to 
establish and run a business to support the cost of their 
lifestyle. They are not particularly high growth oriented, they 
tend to serve local markets--it is the neighborhood store or it 
is a particular niche where they have found a market where they 
can fulfill. And one of the growth factors that is going on in 
western North Carolina is these lifestyle businesses are 
attracted to our market because of lifestyle issues. And 
whether it be Tennessee, North Carolina, et cetera. These small 
businesses--and it is really the tiny business administration 
who serves those needs, as you said, tend to be fewer than ten 
employees, most often fewer than five.
    The second businesses we have are what are considered 
gazelles, to where maybe a core group of professionals with 
various talents come together and establish a business. They 
are more clearly focused on more of a growth opportunity. They 
are anticipating to expand and grow their business over a 
reasonable time frame. I think Laurey fits that category very 
well.
    Both of these businesses, regardless of their orientation, 
have the same problems when it comes to healthcare as a 
component of the management of running your business. I 
recognize what Mr. Davis said, that healthcare is a significant 
issue for small business. But it is only one of many--sales, 
market penetration, cost containment as business owners where 
the cost of health insurance and whether you can provide it to 
your employees or not just becomes one component of the 
management decision.
    I think we also need to recognize, as do you, Mr. Davis, 
that most of our medical practitioners are small business 
owners in a medical specialty, and they have the same needs and 
demands as the rest of us. They are trying to manage cash flow 
issues, they are trying to find time to take a vacation, they 
are trying to find time to spend with their family and friends.
    All of the activities that were mentioned by Jerry, as far 
as what is happening to the healthcare industry, all run down 
through these same business opportunities. My dentist is on 
cash, he cannot afford the cash flow to get into filing 
insurance. Many of the doctors that I talk to--and we have a 
wide variety of medical practitioners in western North Carolina 
who are attracted here for lifestyle as well as market 
opportunity--are facing these exact same issues. Whether it is 
regulation as it relates to reimbursement plans, the 
adversarial relationship between the small practitioner and the 
healthcare insurance industry, it is all the same. We are just 
not solving the problems.
    I think our other small businesses, where healthcare is a 
component are seeing a continual degradation of what they are 
allowed to do for their employees. They have to compete in the 
marketplace. If they are offering health insurance at a fairly 
high premium to their employees and their competitors in the 
marketplace are not, then that business is perhaps at a 
distinct disadvantage to capture new sales and profitability to 
the bottom line.
    I know in my circumstance--and my business does not offer 
health insurance--I leave it to people that affiliate with me. 
I try and give them sufficient revenues to where they can go 
out and purchase their own independent. That is what I do.
    Your comment--when I agreed to serve, I went back and 
looked at my own Quickbooks and between health insurance 
expense and out-of-pockets, I have spent $16,000 since January 
1 on healthcare. I have been healthy, I have not been in the 
hospital. And that is the reality of what we are facing and 
that is the dilemma.
    I recognize there are about 122,000 working people in 
Buncombe County. These are the folks of which 22,000 have no 
health insurance, we need to serve.
    I look forward to addressing your questions. I appreciate 
the opportunity to be with you and I think there are some other 
aspects of small business that need to be addressed, as it 
relates to healthcare. Thank you, very much.
    Chairman Shuler. Mr. Kendrick, thank you for your 
testimony.
    At this time, I would like to introduce our next witness, 
Laurey Masterton, the owner of Laurey's Catering and Gourmet to 
Go of Asheville. Laurey, thank you for your time and your 
commitment to your business. And you will have five minutes to 
present your testimony.
    [The prepared statement of Mr. Kendrick may be found in 
page 42 of the Appendix.]


   STATEMENT OF LAUREY MASTERTON, OWNER OF LAUREY'S CATERING

    Ms. Masterton. Thank you, Mr. Chairman, Mr. Davis. Thanks 
for asking me to speak about my business and health insurance.
    I have been living and working in Asheville, running my 
catering company since 1987. I started catering out of a second 
floor walk-up apartment, working alone, doing all the planning, 
shopping, cooking, serving and cleaning up. All by myself.
    After three years, I was caught--fortunately--by the Health 
Department and made the decision to get a real kitchen that was 
approved and fully legal. And at that point, I started to have 
employees too, first one and then more and more as needed, of 
course. And my business grew as did my overhead.
    But let me back up just a little bit. When I was 25, I 
found out that I had uterine cancer. I did not have any 
insurance. At that time, I was an hourly employee working in 
the theatrical lighting business in New York City. But I needed 
and had major surgery. Fortunately, I had a mentor whose 
partner was an OB-GYN and she did not charge me for doing the 
surgery. I did, however, have a stint in the emergency room and 
a few days in the hospital, two different hospitals. In New 
York, at that time, maybe still, there was a fund called the 
Hill-Burton Fund, that covered people who did not have any 
money to pay for these sorts of things. I did not have full 
time employment and so I was covered by that fund. I did have 
to pay the emergency room though, and it took me a long time, 
paying $100 a month, to pay off the thousands of dollars of 
debt that I racked up in those few days.
    When I was 34, I had cancer again, ovarian this time, and 
fortunately at that point, I did have coverage. All of those 
bills were paid, as were the necessary follow-up treatments 
that were needed.
    Realizing that health insurance is essential, I have 
offered it to full time staff since the very beginning of my 
business, as soon as I had full time staff. This has made me 
have much more overhead than my competitors, as Bob referred 
to, and has also meant that I am more expensive than my 
competitors. This is a problem, but it is also something that I 
am committed to doing, and hopefully my clients will understand 
that being a good, responsible employer means that it can 
translate into higher costs but that taking care of one's staff 
is an admirable thing to do.
    Unfortunately, this understanding is not always present. I 
do not really feel comfortable saying ``Well, yes, but they pay 
under the table and they do not offer any benefits and they do 
not have any insurance and....''--that gets whiney and I try to 
take the higher road, trying to know that I am doing the right 
thing.
    I do pay all my taxes, I do follow all the rules, which can 
often mean higher costs to me. And I do still offer all my full 
time employees full health insurance.
    I used to pay 100 percent. A few years ago, however, when 
the costs just kept rising and rising, I had to call a stop to 
that. We have capped our payment per month, per employee now, 
and deduct the remainder from our employees' checks. I really 
wish I did not have to do this, but it was really getting 
completely out of control.
    Let me give you a sense of the costs.
    I have about 20 to 40 employees, about ten of these are 
full time, qualifying for full health insurance. I pay about 
four or more thousand dollars a month, about four or more 
percent of my sales, each month to Blue Cross and another 
smaller amount to the dental insurer. This is a significant 
amount of money for me. Imagine what I could do with an extra 
$48,000 a year. Imagine what some of my competitors do. Imagine 
how they can afford to charge less.
    As I was writing this, a some-time employee of mine came in 
to pick up a paycheck. He has just started a catering company 
in another neighboring town. He is working out of somebody 
else's kitchen and at this point, he does not have any staff 
except for himself and his wife. He was smiling and spoke 
excitedly about how well he is doing. ``The profit is 
amazing,'' he said. Right, I thought, having just finished 
looking at my current list of accounts payable. No overhead--he 
has no overhead, lots of profit. Oh, well. I run a profitable 
business but it is much harder to do with the huge amount of 
money I pay to health insurance and the other pieces of 
overhead that I have.
    At the same time, I feel safe, knowing that I have 
insurance and that some of my staff have it too. It makes a 
huge difference to them. We have had employees with injuries--
not from working, just on their own, playing soccer and horsing 
around, and they have been covered. We have had folks who now 
get regular medical and dental checkups and I know that they 
were not able to do that before working for me. I know I am 
doing the right thing. And it is expensive.
    It seems tragic to me that we cannot find a cheaper way to 
take care of things. I am glad to know that you are asking for 
opinions and experiences and I really do hope that you can find 
a way to get more people insured and for people like me to be 
able to run a responsible, profitable and truly competitive 
business. Everyone should be able to have insurance and an 
employer should be able to offer it without breaking the bank.
    Thank you very much.
    Chairman Shuler. Thank you.
    At this time, I would like to introduce Caroline Coward, an 
attorney at Van Winkle law firm here in Asheville. Caroline 
also sits on the Asheville Area Chamber of Commerce Healthcare 
Roundtable.
    [The prepared statement of Ms. Masterton may be found on 
page 45 of the Appendix.]


  STATEMENT OF CAROLINE COWARD, ATTORNEY, VAN WINKLE LAW FIRM

    Ms. Coward. First, I would like to take this opportunity to 
get on the record that I am originally from Robbinsville and 
until Mr. Chairman came along, that we were able to beat Bryson 
City occasionally.
    [Laughter.]
    Ms. Coward. Having said that--
    Chairman Shuler. Can we strike that from the record?
    [Laughter.]
    Ms. Coward. --I am an attorney and a partner with Van 
Winkle law firm with offices in Hendersonville and Asheville. 
We have 104 employees, 38 attorneys and 66 support staff. Our 
firm has reacted specifically to the rising cost of healthcare 
in two ways that I will address.
    First, we have reacted by implementing a new healthcare 
plan. In 2005, we were consistently seeing annual double-digit 
percentage increases in our healthcare costs. By implementing 
the new plan, our goal was, and is, to cause the participant to 
be a better consumer and understand the true cost of 
healthcare. We still have a traditional plan that has a lower 
deductible and co-pays. We have steadily decreased the benefits 
of that plan and will phase it out completely by 2009.
    Our new options are high deductible plans and healthcare 
savings accounts. The firm makes contributions to HSAs for 
employees participating and reduces or eliminates the payroll 
premium contribution. The plan pays $500 per person for 
wellness visits, except for vision and dental. By basically 
shifting more risk to the employee, the plans will 
theoretically attract employees who tend to be healthier. The 
risk that we are taking is whether we will get enough employees 
who are also willing to take the risk of these plans.
    Secondly, we have reacted--our firm--by making an effort to 
understand why the cost of healthcare is rising and if there 
are issues particular to our region. We have participated for 
the past four years on the Buncombe Chamber of Commerce 
Healthcare Roundtable, which consists of employers and 
providers. The roundtable has focused on issues related to the 
rising cost of healthcare for our region and strategies to 
address the underlying causes.
    One factor identified by the roundtable is the fact that 
our region has a high percentage of Medicare patients, but 
because of the methodology for determining the rates Medicare 
will pay, our providers are paid less than providers in a town 
close, Greenville, South Carolina, which is about an hour and a 
half from us. For instance, statistics from the roundtable 
indicate that Mission Hospital was paid 87 percent of its cost 
for Medicare and Medicaid patients in 2006, resulting in over 
$42 million in costs shifted to other payers. This cost 
differential is not due to inefficient use of resources. The 
total per Medicare enrollee for hospitalization in western 
North Carolina is at the 24th percentile nationally, 50 
percentile is the average. Ultimately, these costs are shifted 
to insurers and businesses which result in increased healthcare 
premiums. The roundtable has found that employers and employees 
are increasingly dropping coverage, resulting in a growing 
amount of bad debt and charity care expenses for physicians and 
hospitals. This cycle impacts us as an employer by causing our 
costs to rise in order to subsidize the under or uninsured. It 
is estimated that nearly 22 percent of Buncombe County 
residents between the ages of 19 and 64 do not have health 
insurance. Over half of the uninsured are employed.
    The roundtable has focused on four strategies to address 
this issue:
    One is to advocate the appropriate payment for Medicare and 
Medicaid. Basically, Medicare reimbursement is based in part on 
a wage index of certain established regions throughout the 
country. Asheville is located in a region that has a lower wage 
index than Greenville, South Carolina. However, Asheville must 
compete with Greenville for resources such as nurses and other 
healthcare providers. As stated above, Greenville has a higher 
Medicare reimbursement than Asheville, although the cost to 
provide services is as much or more in Asheville than it is in 
Greenville.
    Second, the Chamber is promoting community-wide initiatives 
in the area of prevention, cessation of smoking, increased 
physical activity and reduction of obesity by promoting 
community resources. The objectives are to conduct a widespread 
community-based health promotion publicity campaign to inform 
and reinforce our identity as a Health Community as defined by 
the CDC.
    It is also to support a single point of entry for 
information and access to existing resources, making health 
promotion available to residents of Buncombe County.
    Third is to encourage the development of alternative 
insurance products for small businesses. The roundtable is 
presently reviewing whether employers in the area would be 
interested in developing a model established in Missouri where 
laws were amended to allow small and large employers to combine 
and create a large risk pool.
    The fourth is to advocate for medical liability reform. 
Defensive medicine, over-utilization of technology, continues 
to cause the rise in healthcare.
    In closing, as an employer, a member of the roundtable and 
a citizen of western North Carolina, I ask for active support 
from our federal legislators. These issues are hindering 
economic development and the achievement of improved health 
status of our community.
    Thank you.
    [The prepared statement of Ms. Coward may be found on page 
47 of the Appendix.]

    Chairman Shuler. Thank you. And thank all of the panel for 
your testimony.
    Ms. Coward, I think your point is exactly well taken, 
especially when we are talking about the cooperatives pooling 
different businesses and groups together. What do you think the 
biggest obstacle has been in some of these districts of 
retaining small businesses and actually getting them involved 
in the pool groups, the cooperative groups, to be able to 
sustain--what are some of the obstacles we can overcome from 
our side that we can set forth the initiatives that employers 
are able to be actively involved in these pool groups to be 
able to lessen the cost?
    Ms. Coward. I mean, I would think the concern would be 
whether or not the larger employers are going to even want to 
set up these groups, because if a larger employer is able to 
attract a wider range of patients--of patients, I am sorry--of 
employees and that range includes healthier employees, whether 
or not they are going to be accepting of smaller employers who 
maybe do not have as healthy a work force. I see that as maybe 
the first obstacle, is basically convincing the large employers 
to be willing to bring on the smaller employers. I am not sure 
that it is going to flip the other way. And Laurey may have an 
opinion.
    Chairman Shuler. If you look at being able to pool--Ms. 
Masterton, have you been able to put some of your resources 
together to see if you could pool some of your different 
colleagues together under a specific pool to be able to lower 
your healthcare costs?
    Ms. Masterton. I am a member of Asheville Independent 
Restaurant Association and I know that is something that they 
are looking at. Frankly, I am trying to run my business and I 
have not really had time to look into it. You know, I know that 
in other places, at the chambers of commerce, you can be a part 
of the chamber health insurance plan, and I guess we are not 
allowed to do that in North Carolina.
    Chairman Shuler. That is right, North Carolina is excluded.
    Ms. Masterton. I would love to be in a group, a big group 
or a little group or a group of my colleagues, you know. I like 
groups.
    [Laughter.]
    Chairman Shuler. You would like to be in any group.
    Ms. Masterton. I would just like to have the security of 
insurance and there is safety in numbers, yeah.
    Chairman Shuler. Mr. Kendrick, how do you feel about being 
able to pool, if we could pool in this state, to be able to 
pool some of our resources together to be able to lower the 
cost?
    Mr. Kendrick. I think it is a worthy goal. And I think that 
a reasonable segment of the small business community would look 
to that. I think business owners want to serve the needs of 
their employees because that is retention, that controls 
turnover and people care about the people they work with. But 
it will not be universal. Again, my point being, if nobody in 
my industry insures anybody, then I do not have a motivator to 
get me to that table.
    Chairman Shuler. Absolutely. How have you seen retention, 
not being able to provide health insurance for your employees? 
How have you looked at that retention?
    Mr. Kendrick. If you look at the family circumstance, there 
are many, many, many people in our community that one spouse 
works at a job with benefits and retains that job because they 
can get benefits, which frees up the second significant other 
to perhaps look at other opportunities where health insurance 
or other benefits are not available. I think it is key for 
retention, and I think Laurey would probably find that the case 
with her business.
    Ms. Masterton. It is true and probably every single week 
somebody on my staff comes and says this is the greatest place 
to work and thank you so much for providing insurance. It is 
hugely important to them.
    Chairman Shuler. So often I think now in small businesses 
we are seeing, maybe not so much the salaries, but the benefits 
that they ask about first, because of the healthcare costs, it 
is such an important part.
    Mr. Kendrick, I mean, you just spent what, $16,000 already 
personally?
    Mr. Kendrick. Two thousand a month, it is two lives, you 
know, we are talking about.
    Chairman Shuler. Absolutely. I have had some folks that 
have worked for me and it has been amazing to actually see the 
actual cost. I actually got my health insurance license, a life 
and health license, once upon a time. And to really be able, 
from a small business owner, be able to see how it actually 
impacts us, and I found out pretty quickly that--my in-laws are 
in the insurance business, independent insurance company and it 
is not like you can make money off just a couple of people. I 
mean you have to have lots and lots. And I am sure we will hear 
from our panel, our second panel, but you have to have a lot 
because there is not a lot of money actually being made on the 
brokerage side of it. It is a very, very small percentage that 
is actually making money.
    Mr. Johnson, how often would you say that you--at the end 
of each year, you revisit your health insurance?
    Mr. Johnson. It is an annual--I mean you cannot step away 
from it. What I do, because group policies for less than ten 
employees are not available, you know, we do an allowance for 
our employees and, you know, we spend a thousand a month in 
insurance, you know, just to give them money that they can use 
to purchase their own health insurance.
    Chairman Shuler. So you have really gotten to the point 
that because you know that the cost is so high, that you do not 
even bother the broker of insurance.
    Mr. Johnson. Well, I ask the broker and the broker says, 
you know, you are better off with an individual policy because 
a group policy is going to cost you 20 percent more.
    Chairman Shuler. Do they look at that money that they are 
receiving, extra money to be able to provide their own 
coverage, do they look at that as salary or do they look at 
that as benefits?
    Mr. Johnson. I really do not get the compliments that 
Laurey does.
    [Laughter.]
    Mr. Johnson. Because it is not really--I am not really 
telling them what it is for, it just gets attached once a month 
and says here is the allotment for, you know, each one of you.
    Chairman Shuler. How many of them would you say actually 
gets coverage?
    Mr. Johnson. All of them.
    Chairman Shuler. All of them.
    Mr. Johnson. Yeah, and we discussed it. They actually do 
get some kind of coverage. Sometimes they will come back and 
say what do you think is the best buy, something like that. 
They want some consultation. And that is hard to get for 
individual policies because there are, like I said, fewer 
agents out there offering it you know, and so people want to 
share information to find out what other people are buying, 
what is good coverage.
    Chairman Shuler. Ms. Masterton, how do you feel--how often 
do you research your health insurance costs?
    Ms. Masterton. There is little choice and I have that from 
a person who comes in and says well, we can switch to United 
Healthcare this year or we can switch to Blue Cross this year, 
so we sort of switch back and forth and it drives me crazy.
    You know, I have looked into giving people money and asking 
them to get their own insurance, but I have two women who are 
in their forties and then there is me who throws the whole 
thing off because I have such a checkered medical past. And 
then I have young men who are $80 a month, and then I am, who 
knows how much I am. You know, it would be ridiculously 
expensive. And so we balance each other out, the old gals and 
the young guys and--
    [Laughter.]
    Ms. Masterton. It is true, so yeah, it is just my cost of 
doing business.
    Chairman Shuler. It is amazing now, as you look at so many 
people, if you are switching coverage, how many times they say 
that you are not covered or we are not going to cover that 
particular case.
    Ms. Masterton. That is right. I am totally a pre-existing 
condition, I am a walking, living, breathing--you know, it is 
hard.
    Chairman Shuler. Have any of you--and this is open to the 
entire panel--have you looked at maybe some just catastrophic 
coverages? I mean, Mr. Kendrick--
    Mr. Kendrick. That is what I carry.
    Chairman Shuler. That is basically what you carry.
    Mr. Kendrick. There is no dental, there is no vision, it is 
major medical with a high deductible. And in December when I 
turn 59, it will go up. I mean, that is the way it works.
    I would like to make one comment while it is open. There is 
a hidden cost in this. Your opening remarks were about the 
future of our economy as small business. And as someone who is 
a lender, do you realize how many credit reports I see on 
entrepreneurs who cannot get financing because under an 
otherwise unblemished credit history, they have medical 
collections because a child was ill five years ago and it 
decimates them on trying to get business loans or even personal 
credit costs. And that is a whole hidden cost. They are not 
smart enough to do what Laurey did and get on a $100 a month 
payment plan as to not destroy their credit.
    Chairman Shuler. Ms. Coward, how do you feel--the medical 
savings plan, how has it been adopted in our area and how many 
people are participating, would you feel, in a health savings 
plan?
    Ms. Coward. Well, again, I think that--I do not know in the 
whole area, I just know with our firm, we are working into it 
and it was not an easy sell because the employees are taking a 
lot more risk with the high deductible, but it does--so 
ultimately, again, I believe we will end up perhaps with a 
healthier workforce, but we also may end up with no workforce, 
depending on whether or not we are going to have employees that 
are willing to take the risk of a higher deductible.
    Chairman Shuler. Absolutely. At this time, I would like to 
recognize the gentleman from Tennessee, Mr. Davis.
    Mr. Davis. Thank you, panel, you have done a wonderful job 
explaining the situations you deal with every day. As a small 
business owner, I still deal with them, even now, I still own a 
small business and still see those rates go up in the teens 
every year.
    I can tell you, Ms. Masterton, coming from my background, I 
know that I could not go out and have a workforce that is 
willing to come to work without health insurance. And it sounds 
like you understand, you pay $48,000 more than your competitor 
does, but do you feel like you are probably getting a better 
type of employee, hopefully giving you a competitive advantage, 
because you are willing to do a little more than some of your 
competitors?
    Ms. Masterton. Yes, I do. And I think--I have people who 
have been with me for ten years and the two older women who I 
referred to, one has been with me ten years, one has been with 
me for nine years. And you do not see that--restaurants are 
heavily--there is a lot of turnover. And relative to the 
industry, I do not have turnover, and I think that it is 
because of that. And I think there are a substantial number of 
my clients who do recognize that and appreciate it and 
hopefully understand that I am running a responsible business. 
So yeah.
    Mr. Davis. Thank you.
    Ms. Coward, coming from a legal profession, it is 
interesting for me to hear you talk about medical liability 
reform. Can you expand on that a little bit and tell me where 
you see, as an attorney, where some of the problems were at and 
how you have some of those hidden costs in healthcare?
    Ms. Coward. Well, I mean, I think that where I sit, we are 
a defense firm, so we represent the provider side, we are not 
the plaintiff side. With that said, what we do see is more and 
more physicians are using defensive medicine, where they will 
prescribe a lot more procedures, a lot more tests, to cover 
their rear end--
    [Laughter.]
    Ms. Coward. --whenever they are looking at a patient, 
particularly emergency room situations. And that ultimately 
leads to, not only the cost is high whenever there is a lawsuit 
with large damages found, without a cap to that, but then on 
the other side, you are seeing daily over-use of diagnostic 
testing because of physicians' concern about the possibility of 
a medical malpractice lawsuit against them.
    Mr. Davis. Thank you.
    Mr. Johnson, you talked about the need for additional 
competition. Can you talk to us a little bit about where you 
see that competition being built in? Do you feel like that 
needs to be mandated by the federal or state government or do 
you feel like that something needs to be done in the private 
sector? And how do you see that working?
    Mr. Johnson. Well, I mean, if I go back to where it was 25 
years ago, there were a lot of small insurance companies. Now, 
there has been a lot of consolidation in the insurance industry 
and less of them taking risks, you know. But if we do not have 
competition, you are not going to have innovation. I mean, they 
are only going to provide what they have to provide. You can go 
now and some of the insurance companies do not tell you that 
they provide health wellness, you know, physicals every year, 
certain tests every year to an age group, et cetera. But, you 
know, that should be something that everybody does and yet some 
of them do not want you to really know that. It is couched in 
the terms and everything.
    So I think that more wellness-oriented companies are out 
there, I think, if the catastrophic were somehow handled. It is 
the catastrophic I see--that is what people are worried about, 
employees, everything else. It is not about--they can figure 
out how to pay for the office visits, they can figure out how 
to pay for the small tests. You know, yeah, they have gotten 
used to some of that, but they know in the overall picture, 
that is not what is going to hurt them, it is the catastrophic. 
And a lot of people cannot buy catastrophic insurance.
    So if they are going to have more competition in the 
marketplace, somebody has got to be the reinsurer or the 
backbone that will provide the catastrophic. And then I think 
you would see more small insurance companies or people starting 
insurance companies that might want to get in there and provide 
a wider variety of services, knowing that the catastrophic is 
kind of covered.
    Mr. Davis. How do we go about encouraging that, as a 
Congress?
    Mr. Johnson. Well, looking at how catastrophic affects the 
bankruptcy rate, looking at how catastrophic affects small 
families, how it hesitates people from risking going into small 
business at all. You know, now that we do not have a decent 
bankruptcy law and now that we do not have--I mean if somebody 
gets sick and they have a multi-hundred thousand dollar bill at 
the hospital, they know they cannot go out and start a small 
business. They are totally limited, there is no backdoor, you 
know. I think that Congress has got to figure out a way to work 
with insurers to provide catastrophic insurance for a segment 
of the market, whether it is--you know, the one I hear about 
all the time is--I hire a lot of older employees and they are 
worried about, you know, retiring at age 60 and not getting to 
Medicaid. You know, that group there has got health problems 
just because of their age. The actuarial tables will tell you 
that you are going to get problems when you get above the age 
of 59.
    Mr. Kendrick. Not all of us.
    Mr. Johnson. But I mean that is something that is there, 
but there is no one coming forward and saying well, we will 
make sure that you are not going to be without a home, without 
a future, without the ability to, you know, buy groceries, 
because you have had a catastrophic illness. And that is not 
fair.
    So I think Congress has to look at how they can somehow 
supply or help reinsurers or insurance companies in general be 
there for the catastrophic so it does not fall down on the 
little guy, who is a small business owner or has the potential 
to be a small business owner.
    Mr. Davis. I mentioned three different things in my opening 
statement. I mentioned associated health plans, Mr. Shuler is 
calling them pools. The four of you, are you supportive of 
associated health plans?
    Mr. Kendrick. I think associated health plans add to that 
sense of competition. If the association could be formed and 
you could get sufficient lives in it to where we are not just 
making application to an insurer, but now we are out there and 
seeing if they want to bid to buy that association's group 
plan. I mean that is one way you address competition. If there 
are 10,000 people in an association group and you say who wants 
to insure this group, you are setting an opportunity for 
competition. So yes, I agree that it is a solution.
    Ms. Masterton. I agree also, yes. I think whatever we can 
do to get more people insured, able to insure their employees, 
then the better off we will be. And yes, it has to be 
affordable.
    Ms. Coward. And I guess I look at some possible incentive 
for the large employers to want to participate, because I think 
they may be key, and it would be good to have a champion to 
take this on, and there may be some out there.
    Mr. Davis. I know you are supportive of HSAs, health 
savings accounts.
    Ms. Coward. Yes.
    Mr. Davis. Are the rest of you?
    Mr. Kendrick. I have looked at it, but it is a lack of 
knowledge and it is just one management job that the owner of 
the business has to perform. There are many other management 
jobs. We cannot learn to be our own healthcare professional. I 
mean the question, when do you look at your health insurance--
well, when I get the notice of increase, I call and I say what 
are my options. And I want a professional who understands the 
plan to give me an opinion, well, you could do self-insurance, 
you can go to a pool, you can do this or this or this. And then 
you make the management call. Okay, raise deductible, drop 
dental, whatever it is you need to do.
    Mr. Davis. And another thing that I mentioned was President 
Bush mentioned in his last State of the Union, being able to 
use tax dollars. Instead of sending it to the federal 
government, actually allowing the business owner or the 
employee that is self-employed or an employee that works for a 
small business and does not have insurance, use your tax 
dollars to actually go out and purchase heath insurance, rather 
than sending that money to Washington. Does that sound like a 
solution?
    Ms. Masterton. That involves a lot of responsibility on the 
part of the employee and I think that for the folks that work 
for me, I think that--you know, I worry that they would not 
take the time to do the exploring. You know, for the man, it 
would be fine, and the women, it would not be fine. And it is 
just not equal and it would be difficult. The women would not 
do it, I think, I fear.
    Mr. Davis. And back to something Mr. Johnson said somewhat. 
You give a lump sum of money and you hope and probably intend 
for that money to be used to buy health insurance.
    Mr. Johnson. Uh-huh.
    Mr. Davis. I will tell you, the vision I get of healthcare 
in America. We understand when we go to a supermarket that the 
odds are when you go through and you fill up your grocery cart 
and you go through the checkout line and you have $150 worth of 
groceries, most people intend that when you get there, you are 
going to have to pay for it. Or you stop at a gas pump and you 
put gas in your car, you probably are going to have to pay for 
it. Or if you have someone come in and do some electrical work, 
when they finish, you assume that you are probably going to 
have to pay for it.
    Healthcare is one of those things in America where over the 
last 40 years, we have come to a situation where you go receive 
your healthcare and then somebody else is responsible for 
writing the check. And as long as we have Americans and 
employees not willing to take an active role in their 
healthcare because somebody else, in their mind, is paying for 
it--we are all paying for it. He is paying for it, I am paying 
for it, the panel is paying for it, business owners are paying 
for it. Ultimately, your employees and customers are paying for 
it, because that cost gets spread.
    Until we can have Americans, in my opinion, understand that 
they need to take an active role in their healthcare, in 
wellness issues, the purchase of the right type of insurance 
and understand that defensive medicine drives up cost--all 
those things go in to the pricing of healthcare. Until we have 
Americans willing to take a stand and say look, I am going to 
start looking at my invoice that I get from a provider, I am 
going to start looking at my Medicare EOMB, my explanation of 
Medicare benefits, and determine did I really get what they 
told me that I was charged for.
    Does the panel sort of see that Americans have gotten away 
from believing that they have a responsibility for healthcare? 
Anybody?
    Mr. Kendrick. I think there is an element very true in what 
you are saying, but it is the interpretation. My wife worked in 
healthcare for a number of years and, you know, if we have a 
world where the medical professional is calling on a high 
school graduate to interpret benefits and reimbursement to the 
doctor, then by the time it gets to the individual who received 
the care and they get the form, they are not qualified to do 
their own interpretation. I mean, they do not know.
    Mr. Davis. A lot of layers of bureaucracy.
    Mr. Kendrick. They do not know.
    Chairman Shuler. Will the gentleman yield?
    Mr. Davis. Yes.
    Chairman Shuler. One question--two questions. How long 
would it take all of you to run a P&L statement for your 
business? How long would it take you to run a P&L statement for 
your business?
    It could be back in ten minutes probably.
    How long would it take each one of you to get your personal 
medical history compiled together?
    [Laughter.]
    Ms. Masterton. A long time.
    Chairman Shuler. I think that is what Congressman Davis is 
saying. We personally have to take care. We can put a lot of 
blame and we can hope that the federal government would do a 
tremendous amount, but when it really comes down to it, I mean 
as individuals, we have to be responsible for our healthcare. 
And part of that would be a wellness program, preventative 
care, disease management, the technology that is available--and 
that is one of the things that the hospitals--I know that our 
hospitals locally are doing a data link system that really 
truly is trying to inter-link our hospitals and our doctors' 
offices so they do not have duplicate services when they get 
there.
    Now not everyone can eat healthier and exercise more. We 
understand that. But if we all make a little small part of the 
big pie, we are going to lower some of the healthcare costs and 
we are going to ultimately get into, you know, whether people 
are for or against or whatever your idea of universal 
healthcare is, if we do not take control of our own personal 
health, we will be taking that P&L statement, I am telling you, 
and all we are going to do is take it from one industry to 
another. And ultimately, I am afraid that that industry will be 
the American tax dollars and we will be paying taxes back into 
it.
    And I apologize and I yield back.
    Mr. Davis. Very good point.
    Ms. Masterton. I think that it is very important for people 
to take responsibility for their health and I know that the 
hospitals have a big plan with their employees to do that and I 
know the City of Asheville does that and I know it is a very 
important part of what the Chamber is doing, supporting healthy 
lifestyle. It makes a huge difference. And I think that, you 
know, from my perspective, again, if I were to just say here is 
$400-$500, go decide what you are going to do yourselves, it's 
just that there is--if you are young, it is cheaper and if 
you're old, it is cheaper. So do I pay the 50 year old women 
$900 and I can give the young guys $90? That is not fair. So 
then I get caught up in how do I take care of my staff. I mean 
I provide a parking spot for them and I provide healthcare for 
them and I provide a uniform for them. And, you know, that is 
part of mom Masterton takes care of her kids in this way. And I 
make less money because of it, but it is part of what I do.
    Mr. Davis. You are a good corporate citizen, thank you for 
what you do. I yield back.
    Ms. Coward. I do think--let me say one thing--that in 
western North Carolina, because we do have a really large 
percentage of Medicare and we are getting paid less, I agree 
that people should take more responsibility but I do think with 
this cost shifting, that employers are ultimately having to pay 
a lot of costs that are being shifted to them that other parts 
of the country are not having to pay, other like kind areas.
    Chairman Shuler. I agree with you. And I commend this panel 
for the work that they have done with your own business. As you 
can probably tell, I mean, we could spend hours upon hours 
discussing the things that we can do to better this healthcare 
problem and this crisis that we are truly in. Congressman Davis 
and I have our work cut out for us, and as do our colleagues, 
to really try to find this comprehensive plan that can actually 
work. I think some of the most important things that we can do 
is provide healthcare coverage for our seniors, healthcare 
coverage for our children. We have got some work to do and 
having this testimony certainly helps because we know now--we 
do not just assume and we cannot do our job effectively in 
Washington if we do not hear from you and we do not understand 
what your needs are in the small business arena. It is real 
easy when the big corporations show up with their folks, but it 
is sometimes the small businesses that we never hear from and 
that is why it is so important that we continue to work 
together, work with our chambers, work for our small business 
groups and collectively work together to see how we can better 
benefit our small businesses and our communities.
    Just as we said, if we can lower those costs one small 
company at a time, then over a few weeks, months and years, we 
are going to lower our healthcare costs. But we have to be 
actively involved and I think it is going to take different 
layers, as we have discussed here and we have heard, our 
witnesses have given us great testimony, the obstacles that you 
are in in your business.
    Ms. Masterton, it is incredible that you continue to 
provide healthcare coverage for your employees, and I commend 
you for that. That is an outstanding job and I know they 
respect you and retaining your employees I know is--when 
someone works for you for nine or ten years, it is a compliment 
to you as an employer. And I know that they are not there just 
because of healthcare, but knowing that you provide that, that 
really comes from the heart. And I commend you, and I commend 
all of you for the hard work that you are doing in our 
community.
    And at this time, we will have the second panel come 
forward and I thank you for your testimony.
    [Pause.]
    Chairman Shuler. I would like to thank the second panel. As 
you can tell from our first panel, we have got a lot of 
obstacles to overcome in our healthcare. Obviously, from the 
provider side, from having quality care. I know that this panel 
obviously--we all listened very well in knowing that our 
healthcare costs and needs and how we collectively in the long 
can pull the rope in the same direction, to truly know that we 
need the quality of care first, access to care and that we can 
better be a healthier community. And there are so many ways 
that we can get there, let us just see--we know what the 
ultimate goal is, to have insurance and provide insurance in 
some capacity for all Americans. But some of the most important 
things we have to do is have their access to it. And some of 
the access requires that their health insurance is not the 
emergency room and that is not their primary care physicians, 
the emergency room. But actually provide access through our 
providers and hopefully through employers more, but we have to 
get ahold of our healthcare system.
    I would like to welcome the second panel. I look forward to 
your testimony. I would like to call our first witness of the 
second panel, Miriam Schwarz is the CEO and Executive Director 
of Buncombe County Medical Society. Ms. Schwarz also oversees 
Project Access, a charitable organization that provides free 
healthcare for uninsured through physician volunteer basis.
    I thank you and you have five minutes for your opening 
remarks.

   STATEMENT OF MIRIAM SCHWARZ, CEO AND EXECUTIVE DIRECTOR, 
                BUNCOMBE COUNTY MEDICAL SOCIETY

    Ms. Schwarz. Thank you, Mr. Chairman, Mr. Davis. I am very 
honored to be here today. My name is Miriam Schwarz and I am 
the CEO of the Buncombe County Medical Society. I have been on 
the job for two months. But during that time, I have heard from 
a lot of physician practices and have also gotten to know the 
Project Access program very well.
    So today, what I would like to do is to focus on two key 
points: One, physician practices as small businesses; and the 
second I would like to talk about the Buncombe County Medical 
Society physicians as providers of free care to the working 
uninsured.
    Beginning with physician practices as small businesses, 
there are approximately 500 physician practices in the 16 
counties of western North Carolina. Most of them are small 
businesses. Like all small businesses, these physician 
practices have a hard time affording insurance because they 
have so few people to spread the risk. One sick employee and 
the small business's premiums go through the roof. Thus, small 
businesses pay higher premiums per person than do large 
corporations.
    And it is a fact, as we have heard already, that many small 
businesses have to offer reduced benefits in order to survive. 
Most of our doctors' offices have reached a point where they 
can no longer afford to pay the entire premium for their own 
staff's health insurance, so they are increasingly asking 
employees to accept higher deductibles and pay a higher share 
of premiums and they are dropping family members from the plan.
    Here is one story from a practice I talked to, this is 
quote:
    ``From the employer point of view we are, like everyone 
else, stuck with reviewing options and deciding whether to 
renew current coverage, reduce current coverage or seek 
coverage with a different insurer. This is time consuming and 
expensive, just to get the information. Then comes decision 
time. At present, it is a trade off between increasing 
deductibles and requiring employees to pay more of their 
premiums. Insurance coverage--health, business-owners and 
malpractice--is the single largest expense we face each year.''
    In addition to dealing with their own employees' healthcare 
plans, physician practices must also deal with the ever-
changing landscape of healthcare coverage for their patients, 
as small businesses shift to less expensive coverage and 
deductibles. The impact of the shifting sand is summarized by 
this one practice, quote:
    ``It is very likely that during the next few months, we 
will have to add a staff position to do nothing but handle 
precertifications and authorizations for managed care entities, 
not to mention the Medicare Advantage plans. It is difficult to 
keep up with the ever-changing coverage as employers shift to 
different, less-expensive coverage, and employees are not 
usually up to date on their current coverage. This requires 
additional time on the part of the front desk personnel to get 
new information, then on the part of billing staff to verify 
coverage and make changes in the computer. Collecting balances 
then becomes more difficult because patients are now having to 
meet higher deductibles than in previous years.
    It is a constant challenge to keep this ever-changing 
landscape in view, and it has a ripple effect that touches just 
about everyone in the practice.''
    Now I am going to talk a little bit about the physicians as 
providers of care to the working uninsured. I am going to start 
with a story of one of our patients.
    This patient was diagnosed with adult-onset asthma, with 
severe breathing difficulties requiring unaffordable 
medications and doctor visits. Her part time work did not 
provide her with health insurance. Project Access came to her 
rescue, as it has with so many other thousands of patients in 
Buncombe County. After receiving proper treatment, her 
breathing improved and she was able to get a full time job that 
provided her with health insurance. She says of her doctors, 
they saved my life.
    Eleven years ago, the physicians came together to organize 
the charity care they provided, making it more efficient, more 
comprehensive and more accessible to patients. Project Access 
is an integral component of our local safety net healthcare 
system and that includes primary care, specialty care, hospital 
services, labs and other services for low-income, uninsured 
patients.
    It is a strategic partnership between the government, non-
profits and for-profit organizations. The doctors have donated 
over $10 million in free care for 3300 patients this year 
alone. In the past 11 years, 18,000 patients have been served 
with a total value of services of $72.8 million.
    Forty six percent of our current Project Access patients 
have no insurance but they work full time, part time or are 
self-employed. Over 85 percent of the county's private practice 
physicians are participating in Project Access and, remember, 
these practices are small businesses themselves, struggling to 
insure their own employees. But they give away free care.
    This program, Project Access, is a great program being 
replicated all over the country, but I am here to tell you that 
our physicians are growing weary. The physicians of Buncombe 
County are giving away free care to the working uninsured, but 
those numbers keep rising and they cannot keep up with the 
pace. Their own health insurance premiums are up, physician 
reimbursement is down, medical liability insurance premiums are 
up. The healthcare system does practice some defensive medicine 
for fear of litigation and healthcare coverage for patients is 
becoming scarce because employers can no longer afford to 
provide coverage for their employees, let along their family.
    I want to emphasize that Project Access is not a cure for 
the uninsured. Project Access is not the answer to this 
incredibly complex problem of national healthcare reform, it is 
just a stop gap measure, an example of a community of 
physicians locally trying to address a problem in the absence 
of policy reform at the state and national level. Project 
Access is ethical and philanthropic doctors working for free, 
and there is only a certain amount of free care that doctors 
can afford to give away. Relying on charity care is not the 
solution.
    Thank you.
    Chairman Shuler. Thank you for your testimony.
    Our next witness is Mark Leonard, CEO of WestCare, a non-
profit healthcare provider that delivers healthcare to over 
80,000 people living in western North Carolina.
    I welcome you and you have five minutes to give your 
testimony.
    [The prepared statement of Ms. Schwarz may be found on page 
49 of the Appendix.]


            STATEMENT OF MARK LEONARD, CEO, WESTCARE

    Mr. Leonard. Thank you, Mr. Chairman and Mr. Davis for 
allowing me to present the hospital perspective of providing 
care to our uninsured patients.
    Increasingly large numbers of Americans and North 
Carolinians without health insurance is a growing problem and I 
applaud your efforts in bringing us together today to discuss 
it.
    Let me briefly describe our health system and the impact of 
a growing uninsured population. WestCare Health System consists 
of Harris Regional Hospital in Sylva, Swain County Hospital in 
Bryson City, Mountain Trace Nursing Center in Webster, WestCare 
Medical Parks of Franklin, Sylva and Bryson City, along with a 
variety of ancillary programs and services. WestCare employs 
over 1020 staff members. Each year, we will see over 6000 
hospital admissions and another 95,000 outpatient encounters. 
Our medical staff performs almost 6500 surgeries each year and 
deliver over 750 babies each year. We see over 27,000 patients 
in our two emergency departments annually.
    Our primary service area consists of Jackson, Macon, Swain 
and Graham Counties. Almost 90,000 citizens live in this 
service area. Approximately 18 percent of western North 
Carolina's population is 65 or older, as compared to the state 
average of 11.7 and the national average of 12.1 percent. 
Additionally, our region experiences greater incidence of 
poverty than the state average.
    Being uninsured can create grave negative health 
consequences. Uninsured patients often put off seeking care 
until a condition is serious and includes multiple 
complications. These patients will seek care through our 
emergency departments as well as ERs throughout the country. 
Uninsured patients make up over 24 percent of all patients 
treated in the emergency departments at WestCare Health System. 
An emergency room is the most costly setting to provide care. 
Unfortunately, the ER oftentimes becomes the family physician 
for people without health insurance.
    Gentlemen, I am embarrassed to tell you that the Institute 
of Medicine estimates that approximately 18,000 people die each 
year nationally from diseases and conditions that are treatable 
and preventable, simply because they do not have health 
insurance.
    At WestCare, we, like many other hospitals, define 
uncompensated care as consisting of shortfalls from the 
Medicare program, the Medicaid program and from the uninsured. 
At WestCare, the total annual cost of uncompensated care we 
provide exceeds $8,200,000. Five million dollars of that amount 
is the cost of care provided to our uninsured patients. And at 
WestCare, we have seen this trend line accelerate at an 
alarming rate. In 2003, we provided $2,500,000 in cost of care 
to the uninsured. Remember, we project that amount to double to 
over $5 million this year. And at WestCare, over 25 percent of 
our uninsured patients are employed. That is to say, $1,250,000 
of cost of care is provided to patients who are employed but 
for which we receive little or no reimbursement. And of course, 
when the uninsured receive care, their care is paid by others. 
We, like other health systems, make the difficult decision to 
pass along the cost of their care to privately insured 
patients. This reality is necessary in order to come close to 
recovering our daily operating costs. This creates a vicious 
cycle. As the uninsured increase or when Medicare or Medicaid 
cut reimbursement rates, we are forced to shift our costs and 
ask the privately insured patients to pay more. This puts a 
greater burden on employers who often decide then that they can 
no longer provide health insurance. In turn, more people are 
uninsured and the problem only gets worse. To continue to break 
even, WestCare and other hospitals must shift these losses to 
the privately insured, which will only result in more uninsured 
patients.
    Yesterday, the Census Bureau announced that the number of 
people without health insurance rose from 44.8 million in 2005 
to 47 million in 2006. The Census Bureau figures, however, 
looks at the total population. However, just about everyone 
over 65 is insured through the Medicare program. By including 
the over 65 population, the Census Bureau's figures are 
somewhat misleading and understate the problem. If you look at 
just the 18 to 64 age group, the uninsured rate for the U.S. is 
20.3 percent, the rate for North Carolina is 19.5 percent and 
the rate for western North Carolina is 20.1 percent.
    Mr. Chairman, Mr. Davis, thank you again for your 
leadership in highlighting this significant issue.
    Chairman Shuler. Thank you, Mr. Leonard, I appreciate that.
    Our next witness is Dr. Baumgarten, a physician in private 
practice at Asheville Family Health Center. Mr. Baumgarten is 
Vice Chief of Staff at Mission Hospital.
    You will be recognized for five minutes.
    [The prepared statement of Mr. Leonard may be found on page 
53 of the Appendix.]


STATEMENT OF ALAN BAUMGARTEN, M.D., PHYSICIAN, ASHEVILLE FAMILY 
          HEALTHCARE AND VICE CEO OF MISSION HOSPITAL

    Dr. Baumgarten. Thank you, Chairman Shuler, Mr. Davis. As 
you know, my name is Dr. Alan Baumgarten, I am a family 
physician, 20 years in practice with Asheville Family Health 
Center, Vice Chief of Staff for Mission Hospital and also the 
Buncombe County Medical Society representative to the 
Healthcare Roundtable, Business Healthcare Roundtable.
    I will speak about doctor-patient relationship and how this 
affects on a personal level our patients; also how it affects 
our community and the level of providing these services.
    The opening line of a very recent New York Times editorial 
reads something like ``Many Americans are under the delusion 
that we have the best healthcare system in the world.'' A 
recent study conducted by the respected Commonwealth Fund, 
comparing the United States and other advanced nations, found 
that in fact, we were at the bottom of healthcare measures when 
compared to other countries like our own, such as Austria, 
Canada, Germany, New Zealand and the United Kingdom. I will not 
go into the details of it, but it is astounding that we can 
think we are the best when we actually look at real measures of 
infant mortality and adult mortality rates.
    Healthcare is also facing a major financial crisis. The 
U.S. is spending more than 16 percent of our GNP on healthcare 
and the figure is rising. We spend more than twice per person 
than any other country in the world, and that includes 
uninsured people and that is more than twice any other country 
in our comparison group. In spite of this huge expense that we 
are paying, more than 47 million Americans, as cited earlier, 
are out of the healthcare insurance system. U.S. Census Bureau 
data has also indicated that that portion is greatest in the 
uninsured working population and that is involving an 
employment-based insurance system. Working Americans make up 
the fastest growing segment of the uninsured and that is a 
system failing us.
    You asked me to address these issues relative to small 
business, and I will do so. But I will say that it has to be 
identified in the context of our broader system, which is 
failing us.
    I have several examples of patients that I work with that 
have been caught in the web of this system. The first one is 
Susan, a 56 year old female with a history of breast cancer, 
now ten years in remission. She works at a local day care 
center, child care center, not a high paying job. And her 
employer actually covers her with health insurance. It is a 
great benefit that covers catastrophic care with a $5000 
deductible taken off from her $18,000 income. She has a nagging 
fear of a recurrence of her breast cancer and so she keeps up 
with her annual preventive maintenance care, which probably 
costs her out of pocket somewhere around $800. She gets routine 
mammograms, routine chest x-rays, routine chemistries each year 
as well as physical examinations.
    About three months ago, she came to me with a new problem, 
headache and dizziness. She could not shake the concern about 
her recurrence of her cancer and we went through a number of 
measures to try to mitigate the simple explanations of her 
problem. Of course, none of those really resolves her concern, 
although some of them helped make her symptoms less 
significant. And she came back about a month later saying ``I 
need a CAT scan, I cannot go on like this I cannot do my work, 
I think I have cancer.'' Of course, she paid out-of-pocket the 
$1200 which was not covered by her deductible, so her total 
bill went up to about now $2300 for the year and her CAT scan 
was normal.
    Don is a 59 year old male who is working as a repair 
technician for a major business office equipment company, 
diagnosed with a rare abdominal sarcoma. He had good healthcare 
benefits when this all started and fortunately it covered most 
of his medical expenses that included diagnostic, surgical, 
chemotherapy and recovery. However, he was not able to work 
during that period of time. When he came back to his job, there 
was no job. He is a very capable person, started his own 
business as a repair technician, covered himself under his 
COBRA health plan until it expired. Don then went into the open 
market for insurance and of course found that he could not 
afford any, could not get covered on his wife's policy because 
of his previous conditions. He did well for approximately 
another year when his abdominal pain returned. A CT scan 
confirmed the recurrence of his cancer. After another surgery 
and more chemotherapy, Don has been unable to work. He has no 
health insurance, they are nearly broke and about to lose their 
home.
    My third case is Carmen, a 22 year old female, which is 
incredibly sad. After high school, she moved to Charlotte to 
take care of her father, who was dying of liver cancer. At 19, 
she returned to Asheville, got a job as a receptionist in a 
small business in town, got health insurance because her 
employer thought that was good, became engaged, pregnant and on 
Christmas Day a year ago, her husband was killed in an 
automobile accident, two months later she gave birth to a baby 
boy that died one month later with SIDS.
    One would ask how much can someone like this take. She 
could not work, she went onto Medicaid. She received some 
excellent counseling and was back to work about nine months 
later. Six months after that, she came in for her own personal 
routine examination where I discovered a thyroid nodule. It was 
diagnosed as thyroid cancer, she required I-131 therapy. She 
was working for a new employer now who did not provide health 
insurance, so she was left with deciding does she quit her job, 
which was providing her her sanity and go back onto Medicaid so 
she could get her coverage, or otherwise. I consulted with the 
therapist, with her family and with this young woman, we all 
decided she needed to stay in the workforce. I was able to get 
the pharmaceutical company to donate I-131, I was able to get 
the hospital to donate free coverage for the few days of her 
hospital stay and I was able to encourage a specialist to 
administer the therapy at no cost. That only took me several 
hours to accomplish, and also my own charity care.
    So what we see today is a system that is well identified by 
Ms. Schwarz that is relying very heavily on the charity care of 
physicians to cover what should be an employment health based 
system that does that job.
    Absence of insurance coverage for employees of small 
businesses has other far-reaching consequences. The lack of 
preventive healthcare benefits means that most illnesses are 
diagnosed later than their natural history resulting in higher 
medical costs. Acute care is delayed until a simple problem 
becomes more serious resulting in complicated and costly care, 
requiring often hospitalization at a higher rate. And the lack 
of insurance is associated with limitations to primary care 
access, resulting in patients who obtain their primary medical 
care at more expensive facilities; namely, the emergency 
department.
    Uninsured patients with more severe and catastrophic 
illnesses, complicated illnesses, generally end up receiving 
charity care from the community hospitals and from their 
physicians. As we know, these rates are high, they have already 
been outlined. And we have also understood that a higher 
percentage of Medicare and Medicaid patients in our region 
relative to the other regions of the state and the country. 
These are government payers, for which both hospitals and 
physicians are reimbursed at rates below their costs, so we are 
resorting to the cost shifting. You have heard now at least 
three times a mention of the cost shifting initiatives. We know 
that that is not a sustainable task, we cannot continue to pass 
on the costs of uncompensated care to private payers. We heard 
it being mentioned as a vicious cycle, it is actually a vicious 
cycle for our community in a much greater way because when 
these insurance companies are tasked with paying for the 
uncompensated care, they raise their rates. They raise their 
rates to our small businesses who then have to deal with higher 
rates as we heard from the first panel. So this is not a 
sustainable system.
    I will not address the issues of primary care physicians 
since Ms. Schwarz did that so well. But I will say that these 
are small businesses as well and they are incapable of 
shouldering the rising operating expenses of our small 
businesses as well as providing the unending charity care.
    To address local healthcare financing concerns, the leaders 
of Asheville and our communities nearby have formed a Business 
Healthcare Roundtable and we have come together in four areas 
that have already been addressed. We are trying to keep our 
hand on the pulse of these issues nationally as well as 
statewide. And can only do so to a certain degree. The issues 
are far greater than what our local community can deal with.
    The American healthcare system, as you know, is not 
sustainable as it is going on today. We need leadership from 
Washington on these issues so that all citizens can at least 
get a basic level of care. If our health insurance, employment 
based insurance system, is not the answer, we need answers from 
beyond that. We need to be thinking about it on a national 
basis.
    I thank you for your time.
    Chairman Shuler. Thank you, sir.
    Our next witness is George Groome, the owner of Colton 
Groome & Company, providing health insurance for small 
businesses here in western North Carolina.
    Mr. Groome, you are recognized for five minutes.
    [The prepared statement of Dr. Baumgarten may be found on 
page 59 of the Appendix.]


  STATEMENT OF GEORGE GROOME, OWNER OF COLTON GROOME INSURANCE

    Mr. Groome. Thank you and good afternoon, Mr. Davis, 
Chairman Shuler, thank you for your efforts on our behalf in 
Washington.
    Had I known what a task it was to solve the healthcare 
crisis in 300 seconds, I might not have accepted this 
challenge. It is going to take me 324 seconds.
    I am George Groome, President of Colton Groome & Company. 
We are a 56 year old financial and benefit consulting company 
here in Asheville. I have been with the firm 33 years. We work 
with approximately 120 businesses in this area and cover over 
10,000 covered participants in some form of employee benefit 
program.
    One of our areas of concentration is employer sponsored 
medical insurance programs, and as you can imagine, in western 
North Carolina, we work with companies that would have ten to 
250 employees, as that is the backbone of this economy.
    According to our local Chamber's survey, the number one 
concern of our membership, which is about 2000 folks--actually 
over 2000 folks, as primarily small businesses--the number one 
concern is healthcare and affordable health insurance. The 
community assessment that was done in 2005, you have already 
heard, there are 40,000 uninsured residents in Buncombe County 
and 22,000 of those folks are actively at work and still 
uninsured.
    Our experience is that more folks are going uninsured 
because small businesses are canceling their plans or employees 
cannot afford their fair share of the premium. And we--and I 
will define we, we are the government, we are the providers, we 
are the employers--we are the full time insureds, we are paying 
for the uninsureds to receive medical care that they deserve 
and that they need. We are paying in one of the most 
inefficient ways possible, called the transfer system, transfer 
taxes and cost shifting.
    The answer does not lie in a national healthcare or 
government administered payment plan. The best way for small 
business to address the healthcare needs of their employees is 
through quality, competitively priced private financed 
insurance, commonly known as the free enterprise system.
    The healthcare system is not perfect at the insurance 
carrier level. It is not perfect at the provider level and it 
is not perfect at the legal system level. Each of those areas 
is flawed and those flaws need to be addressed. However, the 
free enterprise system, even with its flaws, holds incredible 
promise as part of the fix.
    I have four thoughts on how to mobilize the free enterprise 
system in this endeavor.
    My first premise is that we can insure the most folks the 
quickest and the fastest through quality employer programs. We 
need to evaluate requiring employers to provide coverage for 
all employees working 20 hours a week. Simple incentives and 
subsidies can be designed to make the employer whole. This 
approach should relieve the pressure on our social systems, 
resulting in savings to at least partially finance a more 
effective system. Larger employers, especially larger 
employers, will use part time status as a cost reduction 
technique to not cover part time employees. And of course, 
thereby driving down cost.
    Insured employees, as pointed out, end up paying for the 
uninsured through the transfer payments in their increased 
premiums. It is irrelevant to me and I think hopefully to this 
audience, it is irrelevant whether we pay $8.99 for a CD at 
Wal-Mart or whether we pay $9.99 for a CD at Wal-Mart. What is 
relevant is that our citizens and our certified workers that 
are capable and that are willing to work 20 hours a week are 
insured and receive medical care.
    Secondly, with more folks covered for medical services, I 
believe that we would have better and more appropriate access 
to medical care. If you have better and more appropriate 
access, you should have better outcomes. With better outcomes, 
you should have reduced costs. I agree with other statements 
regarding consumer responsibility in directing and purchasing 
medical care.
    Thirdly, with a significantly larger insured population, we 
should be able to compete--create more competitive insurance 
rates, especially for the small business. Small businesses have 
little to no leverage with carriers and there are few 
alternatives. In western North Carolina, we have two 
alternatives for small businesses, United Healthcare and Blue 
Cross-Blue Shield.
    Where there is a deemed lack of competition in the medical 
insurance marketplace, as here in western North Carolina, 
government can stimulate that competition through incentives 
and rate subsidies to insurance carriers that are willing to 
participate in the under-served markets. we are already 
subsidizing those rates through transfer payments and cost 
shifting.
    Access to quality services need to be incented through the 
provider community as well, as my fourth point. That is 
continued in my written comments and elaborated on there.
    In summary, government incentives and subsidies, in my 
opinion, are superior to government intervention in insuring, 
financing and controlling the costs of quality medical 
services. I believe government can effectively direct funding 
to impact the healthcare crisis through incentives to 
employers, through incentives for the providers and incentives 
to the insurance carriers to create more competition. We can 
retain what is great about out healthcare system while making 
sure access and payment for services are delivered efficiently 
through employer-sponsored plans, where the lives and the needs 
of the families, as you have witnessed from these panels, where 
those lives are experienced on a daily basis up close and 
personal.
    Considering the alternatives, my hope is that these 
thoughts may merit further consideration and we thank you for 
your interest to make sure all Americans have access to 
affordable and quality healthcare.
    [The prepared statement of Mr. Groome may be found on page 
64 of the Appendix.]

    Chairman Shuler. Mr. Groome, thank you so much.
    Mr. Groome, in terms of an incentive, do you think that 
receiving a tax credit is enough tO incentivize small business 
companies to provide healthcare to their employees.
    Mr. Groome. It may have to be a subsidy instead of a tax 
credit. Some small businesses don't pay tax and as a result, a 
credit would not help those organizations, but if there is a 
subsidy, then that might encourage and give small businesses 
the money to pay those premiums.
    Chairman Shuler. When you talk about a subsidy, are you 
talking about to the large provider that just received the 
largest profits in insurance history?
    Mr. Groome. No. Let me use primary care as an example. My 
understanding is we have a shortage of primary care, access to 
primary care.
    Chairman Shuler. Absolutely.
    Mr. Groome. Well, if I am twenty some odd years old and I 
am looking at going into primary care medicine versus going 
into dentistry, I know that I can work half the time in 
dentistry and make twice the money. Now I might probably go 
into dentistry, assuming I have the intellectual and manual 
skills to make that choice. And I think that we need to have 
the incentives to direct folks into the areas where we are 
under-served, and that's one example.
    Chairman Shuler. You are not suggesting give subsidies to 
the big insurance companies?
    Mr. Groome. Oh, when you said providers, I'm sorry--
    Chairman Shuler. I am talking the insurance company 
providers.
    Mr. Groome. Well, I am suggesting you give subsidies to 
anybody in Asheville, North Carolina who will come in and 
increase the competition and offer Bob Kendrick more options 
and Laurey Masterton. They have two options right now.
    Chairman Shuler. And I think that is what this bill did 
that we passed in the House.
    Mr. Groome. Good, good. And that would be tax credits.
    Chairman Shuler. It would enable, through these tax credits 
and incentive for actually a pool of financing to be able to 
help fund smaller insurance companies to be able to get back in 
the market. And I think we were able to realize that. I just 
want to make sure we are on the record that we did not go to 
the large insurance companies and that is where we gave 
subsidies. We have seen how that happened in the oil industry.
    Mr. Groome. I was encouraged when you pointed that out.
    Chairman Shuler. Mr. Leonard, how are you dealing with--
obviously we are talking about providers and we are talking 
about access to healthcare--how are you--the recruiting process 
must be very, very difficult to recruit a student out of med 
school to come to Jackson County versus going to Mecklenburg 
County, especially when we are looking at maybe in the more 
specialty areas. How has it been and how are you dealing with 
being able to incentivize students or doctors, other than the 
quality of life that we have here in the mountains?
    Mr. Leonard. Certainly it is becoming more and more 
competitive and it is more competitive certainly for primary 
care physicians around the country. And to try and find those 
physicians, those residents that are interested in a rural 
environment, a rural community is a smaller pool of folks. And 
then if you tell them that 20 or 30, 40 percent or greater of 
their patient pool may not be able to pay for their care, 
again, that becomes even a greater concern and we are now 
experiencing residents coming to us in the last 12 to 18 months 
here in western North Carolina that are now saying I am not 
interested in a private practice model. I will come on and be 
your employee and you, hospital, employ me; i.e., shift that 
risk to the hospital because they do not want and are not able 
to be successful business men and women as the earlier 
generations of physicians have been able to, and still practice 
good medicine. And so that shift, that risk is now being 
shifted not only nationally but here in the mountains as well 
to the hospitals.
    Chairman Shuler. Dr. Baumgarten, are you looking at the 
same problems here--
    Dr. Baumgarten. Absolutely.
    Chairman Shuler. --Mission Hospital, because it is a larger 
hospital provider than it is in a rural area.
    Dr. Baumgarten. Recently North Carolina--the Institute of 
Medicine came out with a study that identified how great the 
significance shortage in western North Carolina will be. There 
is some early discussion on the state level of expanding 
medical education from all the medical schools. We are, 
therefore, looking at ways of ensuring that there will be more 
physicians for western North Carolina. Mission Hospital is 
thinking of becoming involved in that process of becoming an 
alternate training site for third and fourth year medical 
students. So there are some interests in expanding the 
available pool for physicians, but when you talk about primary 
care, that is going to be a hard sell, that is the population 
of physicians that is shrinking the fastest. As Mr. Groome was 
saying, when you look at the specialty areas of physicians, you 
know, there is the top and there is the bottom, and the bottom 
is losing its population because it is also the lowest income 
generator. So we have to look at reimbursement systems that 
incentivize primary care physicians to stay in business and to 
go into that business of primary care if we are going to keep 
lip syncing that primary care is the backbone of the American 
medical system.
    Chairman Shuler. There is a little statistics that I have 
seen that said that actually a vet, a veterinarian, will 
actually make more money than a primary care physician will in 
the first ten years.
    Dr. Baumgarten. I think that is absolutely true.
    Chairman Shuler. Are you seeing--how much, if you take a 
single practice, how much of the paperwork would you--I mean 
how important it is, administrative, when it comes to the 
paperwork, dealing with--
    Dr. Baumgarten. Primary care is the highest overhead of the 
medical professions. We basically run between 60 and 65 percent 
in overhead. We average between four and five employees per 
provider in primary care. A lot of that is billing, paperwork. 
We are the front line that gets all the disability forms, all 
the insurance forms, all the out-of-work forms, as well as the 
filing for primary healthcare. We are the offices that set up 
the referrals to the specialists, we are the offices that 
receive all the paperwork and consultations. When you asked 
about that medical record, we are the location where it all 
comes back to, our computer systems are bursting.
    Chairman Shuler. I was in the medical profession as is 
Congressman Davis. The area which I was in was the IT sector 
and as I traveled throughout the United States, I would go to 
different hospitals and meet with the chiefs of staff and all 
the IT sector and the marketing sector. I realized pretty 
quickly that there was not a single hospital in the United 
States that could communicate with one another. I mean it was 
very, very difficult and I think what the hospitals are doing, 
obviously with WestCare and with Mission being able to do the 
data link together is going to save a tremendous amount of 
overhead.
    And so I commend and kind of brag on the hospitals, 
although we compete against one another, truly the most 
important thing we have seen is the care of the patient. And we 
have got to find a better way to get to electronic medical 
records at a much better rate than we are presently doing. 
Technology in medicine has continued to--it has been incredible 
what we can do and the longevity in medicine, modern medicine, 
but the IT sector of it, we are still running around with paper 
all the time. I know there is complying with HIPPA compliance 
and even a much better way to apply it through HIPPA 
regulations is through the medical records.
    Mr. Leonard, just very quick--and I think this is something 
that obviously Congressman Davis and I can really take back--
explain to me, give me the Readers Digest version, if you will, 
of how you are self-insuring. And I know a lot of our small 
businesses cannot do this, but how you are incentivizing your 
employees to eat healthy and exercise and maybe some of the 
benefits of being able to pay some of their healthcare costs 
and what that healthcare cost would be if they meet certain 
goals and requirements through the company.
    Mr. Leonard. The other panelists have recognized and they 
are correct, that there are only two choices here in western 
North Carolina. We cannot afford and have chosen not to use 
either choice--Blue Cross or United. When I go out to chambers 
of commerce, folks will say, now wait a minute, you are part of 
the problem. And I say well wait a minute, we are a provider 
but I am also an employer, 1020 staff members. We self-insure 
those staff members for their health insurance and we provide 
health insurance to our full time as well as our part time 
employees.
    We cover 80/20, 80 percent of the healthcare bill is paid 
for out of WestCare dollars and 20 percent of that bill is in 
the form of the premium to the employee for their coverage or 
family coverage. In 2002, we spent 2.5 million of WestCare 
dollars for that health plan benefit. This year, we expect that 
to almost double, up to 4.8 million of WestCare dollars, not 
including the family, the premium increases. We are at about a 
break-even. The margin on healthcare, the operating margin, is 
very thin. If that rate continues, we cannot continue to keep 
the lights on and the doors open. We have been, for the last 
several years, yes, going out and encouraging our employees 
locally as well as regionally. Joe DeMore at Mission Hospital 
has been a leader in a ``know your numbers''campaign, making 
sure that employees--we take personal responsibility for 
knowing what your cholesterol counts are, knowing what your PSA 
counts are, knowing what your blood pressure is, knowing what 
your exercise needs are and your weight and body mass index is.
    So we are trying to target some of the high costs and high 
risk patients, those patients with asthma, those patients with 
diabetes; i.e., employees of ours that have diabetes, that have 
uncontrollable diabetes or asthma, in giving them incentives as 
part of a health plan so that they come in and get their blood 
sugars checked on a regular basis. And we have seen significant 
reductions and good results. Very much baby steps but we are 
trying to get our employees pointed in the right direction, 
encouraging again, tobacco-free utilization throughout our 
workforce, healthy lifestyle.
    Chairman Shuler. So through this disease management program 
that you are basically creating, the wellness program, are you 
seeing that numbers of days in the hospital have decreased, 
numbers of days at work have increased? Have you seen any of 
those statistics, been able to truly see a difference?
    Mr. Leonard. Not yet, because again, we are still very 
early into the program, but what we are seeing is if we are 
investing the time, energy and the encouragement now, that 
three years, four years, five years down the road, we will have 
a healthier, longer retained workforce with us. It is a long-
term commitment.
    Chairman Shuler. Ms. Schwarz, obviously we have our 
healthcare providers here, we are talking about our docs. As we 
are seeing, basically their profits go down, how are you able 
to incentivize and has it been more difficult to get physicians 
to participate in the program?
    Ms. Schwarz. In the Project Access?
    Chairman Shuler. In your program, yes.
    Ms. Schwarz. The physicians participate in Project Access, 
I think mostly from a sense of altruism and wanting to do right 
by their community. So that has actually carried the program 
for quite some time. We are in our 11th year, that is a long 
time for a charity care program to be operating. Most of the 
other Project Access sites that are springing up around the 
country are either in their infancy or only a couple of years 
old.
    And as we continue, what we are finding is that physicians 
are growing increasingly frustrated at the never-ending cycle 
of the uninsured coming through their doors. I think what is 
happening is it is beginning to feel like an onslaught that 
just will not stop. They are the terminus, I mean, you know, 
they are the ones that end up with this human being--and you 
have heard, you know, some very eloquently stated stories about 
human beings ending up in front of that physician and by the 
time that person gets there, you know, the physician is ready 
to do what he or she needs to do to take care of that person.
    So for us, it is a matter of continuing to ensure that we 
are helping to channel the appropriate patients into the 
system, we have to have mechanisms in place to do that, to do 
good screening, eligibility requirements. And to keep the 
burden, red tape and so forth, out of the physician offices as 
much as possible. It is a challenge though, continues to be a 
challenge.
    Chairman Shuler. At this time, I would recognize 
Congressman Davis.
    Mr. Davis. Thank you, Mr. Chairman. Thank you, panel, you 
have done a wonderful job.
    Mr. Groome, you talked a little bit about subsidies and 
trying to go from a two provider insurance group to choose 
from, to have other options. The one problem that I see, in the 
federal government, once you start a program, it starts to grow 
and it is hard to get the genie back in the bottle. We have 
seen that over in Tennessee with TennCare, if you followed what 
happened over there. I can see Mr. Leonard has followed that.
    Mr. Leonard. Very well.
    Mr. Davis. It just about bankrupted the State of Tennessee 
and they finally had to stop it. And that is one of the 
problems.
    One of things I wanted to talk about is you mentioned, Mr. 
Chairman, in your statement that veterinarians can probably 
make more than M.D.'s can. Can you help me understand maybe the 
difference? Some of the difference that I see between M.D.'s 
and veterinary medicine over that first 10 years is probably 
there is not as much insurance, there is not as much 
regulation, not as much liability. Help expand on that. Is 
there a difference between the two and why can the veterinary 
doc, for the first 10 years of a practice, make more money than 
someone taking care of humans? Is there a difference?
    Dr. Baumgarten. Yes, they get paid for what they do. I mean 
you go to your vet and you take your dog in for his examination 
and you get a bill for $98 and you go to the window and you pay 
$98.
    Mr. Davis. You just hit on my point that I was making to 
the other panel. We understand when we go to the veterinarian 
that, you know, if it costs $300 for the procedure, we are 
going to have to be responsible for that. And I do not think we 
need to get to the point in America where Americans go back to 
the days before 1965 where there was a Medicare program where 
you had to take care of all your healthcare. But as we 
continue, in my mind, to add more and more government, more and 
more layers of bureaucracy and have less and less choice. And 
we have someone else taking responsibility, we are to the 
point, in my opinion, that when my father who is now 80 years 
old, receives a Medicare explanation of benefits, I am not 
saying he needs to pay for the care, but he at least ought to 
take the time to read it and see if the services that he's 
being charged for was actually provided.
    Do you see that if Americans would at least get more 
involved in their healthcare to understanding the healthcare 
system, that it would be a help for us? Anyone on the panel.
    Dr. Baumgarten. I absolutely believe that we all need to be 
much more involved in our health and wellness. There is no 
question about issues related to rising obesity, and if you 
think we are in a healthcare crisis now, when we start dealing 
with the downstream medical consequences of 30 percent of the 
adults being obese, you have not seen anything yet.
    So yes, there is a great need to be responsible medically 
for that. I think that that is why we need to re-address the 
system that we are involved in right now, because we--there is 
no level on which we address accountability at this point, 
whether that be medical, personal or financial. So there are 
some tremendous needs here that we are facing.
    But I will say that unless we look at the system as a whole 
and have the strength and fortitude to look at it as a whole, 
we will be continuing to apply the bandaids that we started 
with after World War II, and right now we have a system that is 
patchworked together. Very few buildings are successful when 
you construct them a room at a time.
    Mr. Groome. I think that the healthcare savings accounts 
will help people read their statements, if they are being 
debited for the $110 and I think that the healthcare--from our 
experience, healthcare savings accounts are a little simpler 
than what people think they are and what employers think they 
are. It is going to take awhile for them to catch hold. I 
admire the Van Winkle firm for phasing it in over a three-year 
period. If people are actually paying the bill when they check 
out and it is coming out of their health savings account, I 
believe they will read the bill and make sure that they 
received the services.
    Dr. Baumgarten. The concern I have about healthcare saving 
accounts is that basically people often will see that as being 
an expense out of their pocket and choose not to go seek the 
appropriate primary care that they need in order to prevent a 
problem from being a downstream consequence or catastrophe.
    And though I think it is great to incentivize people to be 
responsible for their care, you know, some people are choosing 
between that and some other need that they have. And you know, 
we actually are a self-insured business as well, the Asheville 
Family Health Center, and recognize that it would be very 
difficult in our organization to start an HSA where there is no 
pool for the single mother who has two children to initially 
start drawing off of, unless we as a small business, put in the 
couple thousand dollars that they need in order to get started. 
So suddenly we are left with having to come up with $200,000 to 
get the system rolling.
    Mr. Davis. I would like to thank the panel again. You have 
been excellent presenters.
    The one thing that I take away from this meeting, we all 
agree that there are some problems in healthcare, there are 
some problems with access to healthcare. I think we need to 
continue this debate on finding solutions for those problems. I 
do not think we are going to be able to do that in a two hour 
hearing, but hopefully we can continue as we move forward, 
because I think we all do understand that we need that.
    And Mr. Shuler, thank you for your leadership today. Thank 
you for allowing me to come across the mountain. And I yield 
back.
    Chairman Shuler. Well, thank you. I think we all can 
reiterate that having adequate access to healthcare is so 
important.
    And one last thing, when we are coding in our hospitals and 
physicians, is it not amazing when those bills are being 
produced at what small percentage of that you are being paid 
for one-on-one consultation? I just find that so--that we are 
actually doing the opposite of truly impacting. And coding, for 
most of you, is how the docs get paid and how the hospitals get 
paid. You know, you can get paid more for a procedure when most 
the time that one-on-one time is the most valuable time that a 
physician can ever spend with a patient. And it is unfortunate 
that the way it is being paid today, that it does not 
incentivize our docs to actually do that. And it is very, very 
difficult for them, because on the average I think a primary 
care physician needs to see a patient in and out every 12 
minutes to be somewhat balanced, if you will, on a P&L sheet at 
the end of the month. And we need to encourage and incentivize 
that one-on-one consultation.
    And hopefully we can take and draw a tremendous amount from 
what you have given us today in your testimonies and your time 
that you have provided. And so many of you, the bottom line is, 
as America, we care. We care about the people who cannot 
afford, who do not have the opportunities and we care about our 
small businesses and we care about our docs and our hospitals. 
In Buncombe County, they are the largest employer and all of 
our small towns, I mean Jackson County, our largest employer is 
our hospitals. We have to find a solution to this. It is going 
to be lots and lots of baby steps and this is a first step.
    So I thank all of you for your time commitment and what you 
mean to our community. And the hearing is adjourned.
    [Whereupon, at 4:00 p.m., the Subcommittee was adjourned.]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                                 
