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


 
                    FULL COMMITTEE HEARING ON HEALTH 
                   INSURER CONSOLIDATION - THE IMPACT 
                           ON SMALL BUSINESS 

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 25, 2007

                               __________

                          Serial Number 110-55

                               __________

         Printed for the use of the Committee on Small Business


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

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  


           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural 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

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  




















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Plested III, Dr. William G., American Medical Association........     4
Huges, Robert, National Association for the Self-Employed........     5
King, Dr. James D, American Academy of Family Physicians.........     7
Office, James R., Victory Wholesale Grocers......................     9
Scandlen, Greg, Consumers for Health Care Choices................    11

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    22
Chabot, Hon. Steve...............................................    24
Altmire, Hon. Jason..............................................    26
Plested III, Dr. William G., American Medical Association........    27
Huges, Robert, National Association for the Self-Employed........    39
King, Dr. James D., American Academy of Family Physicians........    44
Office, James R., Victory Wholesale Grocers......................    49
Scandlen, Greg, Consumers for Health Care Choices................    56

Statements for the Record:
Consumer Federation of America, Consumers Union and US PIRG......    63

                                  (v)

  


                    FULL COMMITTEE HEARING ON HEALTH
                   INSURER CONSOLIDATION - THE IMPACT
                           ON SMALL BUSINESS

                              ----------                              


                       Thursday, October 25, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 9:30 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Gonzalez, Cuellar, 
Altmire, Clarke, Ellsworth, Sestak, Higgins, Chabot, Bartlett, 
and Fallin.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. Good morning. I call this hearing to 
order to address Health Insurer Consolidation--The Impact on 
Small Business.
    Access to health insurance is an area of concern to small 
businesses. The rising costs of health care are regularly cited 
by small firms as one of their biggest worries. Small 
businesses need to have choices in the health insurance 
marketplace. It is imperative that the marketplace is diverse 
and competition flourishes.
    It is also critical that small medical providers are able 
to continue offering services. Physicians and other providers 
must be able to operate on a level playing field with health 
insurers and be reimbursed at fair rates. If not, quality of 
care will decline, and it is the patient who ultimately will 
suffer.
    Consolidation in the health insurance industry is one area 
of special concern that has a direct impact on these issues. 
Because these mergers affect access to care and influence the 
quality of medical services, they command careful scrutiny by 
regulators. Unfortunately, the health insurance industry, like 
a number of other industries, has seen a general lack of 
enforcement of antitrust laws.
    Earlier this year, The Wall Street Journal reported that 
the Federal Government has nearly stepped out of the antitrust 
enforcement business. While some mergers benefit consumers and 
increase the competitiveness of U.S. companies, others pose 
substantial risks to competition and innovation.
    The health insurance marketplace has become increasingly 
concentrated in recent years. Consolidation has left small 
businesses with fewer choices, and physicians with diminished 
leverage to negotiate. In the majority of metropolitan areas, a 
single insurer now dominates the marketplace. If individuals 
and small businesses cannot get health coverage through the 
dominant insurer, they may not be able to find alternatives.
    Recent mergers in the health insurance industry has tended 
to not generate efficiencies that have lower costs for small 
businesses or improved coverage. Premiums for small businesses 
have continued to increase without a corresponding increase in 
benefits. Consumers are facing increased deductibles, co-
payments, and co-insurance, which have reduced the scope of 
their coverage.
    When operating in highly concentrated markets, physicians 
often find they are stuck with take it or leave it contracts. 
The Department of Justice has recognized that physicians face 
special difficulties in dealing with health insurers--namely, 
it is very costly for them to switch from one insurer to 
another.
    Replacing lost business for a physician by attracting new 
patients from other sources is very difficult in our current 
health care system. Physicians face barriers in attracting 
potential new HMO patients, since they are filtered through an 
HMO plan. Physicians struggle to maintain the quality of care 
in the face of reduced reimbursement--a large administrative 
burden.
    When physicians are forced to spend less time on each 
appointment, ultimately it is the patients that suffer. It is 
essential that competition remains vibrant in the health 
insurance marketplace. Not surprisingly, studies have found 
that when competition declines premium costs generally go up. 
The rising costs of health care are leading to greater numbers 
of uninsured, and less small businesses and individuals can 
afford to pay premiums.
    Small businesses continue to be burdened by the high cost 
of health care. These rising costs of health insurance is one 
of the primary reasons the ranks of the 46 million uninsured 
Americans continue to grow. Tragically, 18,000 Americans lose 
their lives each year because of a lack of health insurance. We 
need to ensure that providers are on a level playing field, and 
small businesses and individuals have choices when it comes to 
health care.
    I yield now to Ranking Member Chabot for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you very much, Madam Chairwoman. I want to 
apologize for being a couple of minutes late. It was one of 
those mornings where just too many things scheduled and just 
couldn't make it to everything on time. So I apologize.
    And I want to thank the Chairwoman for holding this 
important hearing on the impact of mergers and increasing 
concentration in the health insurance market. This hearing 
continues this Committee's examination of the cost of health 
care on small businesses, both as purchasers of health care and 
as providers.
    The Supreme Court has stated that ``The unrestrained 
interaction of competitive forces will yield the best 
allocation of our economic resources, the lowest prices, the 
highest quality, and the greatest material progress.'' In 
short, competitive markets represent the cornerstone of 
American progress and the success of our democracy. Antitrust 
laws were established to protect these precious values. By 
providing a mechanism to ensure that competition is not 
unreasonably hindered, the antitrust laws can be seen as 
further bracing the competition foundation of this country.
    When mergers occur, that may reduce competition. It 
behooves the Justice Department or the Federal Trade Commission 
to closely assess the value of these mergers. That is 
particularly crucial in the context of health care. When the 
members of this Committee travel back to their districts, they 
are put face to face with constituents and small business 
owners that struggle every day to cope with the rising costs of 
obtaining or providing health care.
    If the number of companies that supply health insurance 
continues to decrease, basic economics suggest that costs of 
obtaining health care coverage will increase. It then becomes 
vital to assess the impact of industry consolidation on small 
business owners who already have significant difficulty in 
obtaining health insurance coverage.
    Today, we have witnesses that represent small business 
purchasers of health care who will inform the Committee of the 
increasing difficulty that they have in obtaining health care 
coverage at reasonable costs that are not made any easier as 
concentration in the industry increases. In addition to the 
obvious effects on purchasers of health care coverage, it is 
important to remember that many providers of health care are 
small businesses.
    If concentration increases in the health insurance 
industry, then the multitude of providers are faced with the 
market power of a very large single purchaser that will be able 
to dictate prices and the service rendered. And if the prices 
do not cover the physician's costs, physicians will stop seeing 
patients, thus reducing choice even more. Of course, in 
addition to the bulwark of antitrust laws to protect 
competition, another avenue is to increase competition in the 
provision of health insurers.
    This Committee, under the former Chairman, Mr. Talent, took 
the lead in promoting competition in the health insurance 
market by creating association health plans. The House, on a 
number of occasions--I believe six times in a five-year period-
-passed association health plan legislation that unfortunately 
died in the Senate.
    The Chairwoman, Chairwoman Velazquez, should be commended 
for her courageous votes in support of association health 
plans. Given their potential to reduce costs and increase 
competition, I think the Committee seriously needs to 
investigate the resuscitation of that concept.
    I look forward to a thoughtful discussion from the panel of 
witnesses, a very distinguished panel I might add that we have 
here today, and their ideas on how to protect and improve 
competition in the health insurance markets. And, again, I want 
to thank the Chairwoman for holding this important hearing, and 
I yield back my time.
    ChairwomanVelazquez. Thank you, Mr. Chabot.
    And we are going to start with our first witnesses, and let 
me just take this opportunity to thank all of you for being 
here today. We are going to have a timer in front of you. Green 
means you go, and then the red one means five minutes are up. 
Each one of you will have five minutes to make your 
presentation.
    Dr. Plested, Dr. William Plested, is our first witness. He 
served as the President of the American Medical Association 
from June 2006 to June 2007. Dr. Plested is a cardiovascular 
surgeon and has been in private practice in Santa Monica, 
California, for more than 35 years. The American Medical 
Association is the nation's largest physician group and 
advocates on issues vital to the nation's health.
    Thank you, and welcome.

   STATEMENT OF DR. WILLIAM G. PLESTED, III, IMMEDIATE PAST 
 PRESIDENT, AMERICAN MEDICAL ASSOCIATION, BRENTWOOD, CALIFORNIA

    Dr.Plested. Thank you, Madam Chair. My name is Bill 
Plested. I am a past president of the American Medical 
Association and a cardiac surgeon from Santa Monica, 
California. I want to thank you very kindly for inviting me to 
testify today and for holding a hearing on this exceedingly 
important issue--health insurance consolidation.
    Consolidation in the health insurance market is critical to 
the AMA, because physicians are both patient advocates and 
small business owners. Physicians have primary responsibility 
for advocating for their patients, and they also are small 
business that want to provide health care insurance for their 
employees.
    Physicians' ability to perform either of these vital 
functions, however, has been severely compromised by growing 
consolidation in the for-profit health insurance market. This 
consolidation has left physicians with little leverage against 
unfair contract terms that deal with patient care and little 
control over their own employees' rising health insurance 
premiums.
    As you all know, our market performs optimally when 
consumers have a choice of competing products and services. 
Increasingly, however, choice in the health insurance market 
has been severely restricted as health plans have pursued 
aggressive acquisition strategies to assume dominant positions.
    In the past decade, there have been over 400 mergers. 
Contrary to claims of greater efficiency and lower cost, these 
mergers in fact have led to higher premiums and decreased 
patient access to care. If the current trend continues, we fear 
it will lead to a health care system dominated by a few 
companies that, unlike physicians, have an obligation to 
shareholders, not to patients.
    Our worst fears may be realized in Nevada where we have 
urged the Department of Justice to block the merger of the 
United Health Group and Sierra Health Systems. This merger 
would have a devastating impact on Nevada's patients and 
physicians and would reverberate throughout the health care 
system as a harbinger of unrestricted consolidation, would 
drastically reduce competition, and severely limit health 
insurance choice for employers and individuals in Nevada.
    The United-Sierra merger would give United a 94 percent HMO 
market--share of the HMO market in Clark County and an 80 
percent share of the HMO market in the entire State of Nevada. 
Nevada is in need of more competition, not less. The State 
currently ranks 47th in the country for access to care and 45th 
in access to physicians. This merger would push Nevada even 
further down these lists by exacerbating physician shortages.
    Competition is essential to the delivery of high quality 
health care services, and this merger would serve only to 
further disadvantage an already challenged Nevada health care 
system. Consolidation is not benefiting patients. Health 
insurers are recording record high profits while patient health 
insurance premiums continue to rise. In fact, United and 
Wellpoint have had seven--seven years of consecutive double-
digit profit growth that has ranged to 20 to 70 percent year 
after year.
    In addition to compelling results of the AMA's annual 
competition study, many areas across the country exhibit 
characteristics typical of uncompetitive markets and growing 
monopolistic behavior. These include significant barriers to 
entry for new health insurers, the ability of large entrenched 
insurers to raise premiums without losing market share, and the 
power of dominant insurers to coerce physicians into accepting 
unreasonable and unjust contracts.
    The AMA believes that the Federal Government must take 
steps to address the serious public policy issues raised by 
unfettered health insurer consolidation. The current situation 
in Nevada is emblematic of the total absence of boundaries and 
enforcement currently applied to health plan mergers.
    Therefore, we respectfully encourage this Committee to urge 
the DOJ to enjoin the merger of United and Sierra. By so doing, 
the Committee would be taking a meaningful step on behalf of 
America's patients towards correcting the existing inequities 
in the health care market.
    Thank you.
    [The prepared statement of Dr. Plested may be found in the 
Appendix on page 27.]

    ChairwomanVelazquez. Thank you, Dr. Plested.
    Our next witness is Mr. Robert Hughes. He is the President 
of the National Association for the Self-Employed. Mr. Hughes 
has managed his own accounting practice, Hall & Hughes, in 
Dallas/Fort Worth, for the past 20 years. NASE represents 
hundreds of thousands of entrepreneurs and microbusinesses and 
is the largest non-profit, non-partisan association of its kind 
in the United States.
    Welcome.

STATEMENT OF ROBERT HUGHES, PRESIDENT, NATIONAL ASSOCIATION FOR 
                       THE SELF-EMPLOYED

    Mr.Hughes. Thank you very much. It is our pleasure to be 
here this morning, and thank you, Ms. Chairwoman, for the 
invitation.
    As a representative of over 250,000 microbusinesses across 
the country, the NASE is committed to addressing the issue of 
affordable health coverage. I am here to tell you that health 
care costs and coverage premiums are adversely affecting 
microbusiness and impairing their ability to grow, compete, and 
succeed.
    In addition to the high cost of health coverage, it has a 
serious personal impact on business owners and their employees. 
Oftentimes, the small business will sacrifice saving for 
retirement, putting money aside for their children's education, 
and addressing other personal needs to redirect funds to health 
coverage in order to stay insured. Of course, the worst result 
of mounting premiums is dropping coverage all together, which 
puts their business, their employees, their family, and 
themselves at risk when they face even a minor medical event.
    In a 2005 survey, the NASE found that the majority of 
microbusiness owners, those businesses with 10 or less 
employees, do not have for themselves, nor do they offer, 
health insurance to their employees. Most alarming is the rate 
at which premiums for microbusinesses have been increasing. In 
a similar health study conducted in 2002, microbusinesses 
indicated the median premium increase for the year before was a 
little over 11 percent.
    In 2005, microbusiness owners were experiencing a median 
premium increase of over 17 percent. Premium costs are the 
single most important factor that determines whether a business 
owner will insure himself and provide coverage for employees. 
Thus, the key question here today is if the increasing number 
of mergers among health insurers is playing a role in premium 
increases.
    The self-employed and microbusinesses purchase health 
insurance in either the small group market or the individual 
market. The small group market is much more restrictive and 
regulated, which reduces, in our opinion, competition and 
availability. The NASE believes that minimization of insurance 
carriers due to consolidation, compounded with a concern of 
high risk in the small group segment, and excessive state 
regulation leave small business with minimal options to set up 
small group health plan, and is a factor contributing to high 
premiums in insurance markets.
    A 2005 GAO report highlighted that the median market share 
of the largest carrier in the small group market was 43 
percent, up 10 percent from just three years earlier. The five 
largest carriers in the small group market, when combined, 
represented three-quarters or more of the market in 26 of the 
34 states that participated in the GAO study. The dominance of 
a few carriers in the small group market was also supported by 
studies from the AMA and leading health insurance experts.
    How, then, is this lack of competition affecting insurance 
premiums? Well, let me give you a quote from one of our 
members, a freelance writer from Geneva, Illinois. ``The lack 
of competition among health insurers absolutely affects my 
insurance cost, as well as the quality and scope of coverage I 
can barely afford. Our state's non-competitive health care 
insurance environment, due to the monopoly of one or two 
carriers, places all of the leverage in the hands of the 
insurers. I can't vote with my feet and dollars if I have no 
alternatives from which to select.''
    David, along with other microbusiness owners, will tell you 
that competition plays a central role in improving quality, 
spurring innovation, and keeping prices down. Research has 
indicated that health plans have increased premiums 
consistently above the rate of growth in costs. Cumulative, the 
premium increases for the last six years have exceeded 87 
percent, which is more than three times the overall increase 
and medical inflation of 28 percent.
    Why have insurance companies increased rates at these 
paces? I guess the simple answer is: they can. I believe that 
the current state regulatory climate plays an even more 
critical role in keeping costs high and impairing competition. 
State mandates are an issue. Some believe that state mandates 
increase insurance premiums by as much as 20 percent or even 
more.
    Microbusiness owners have long been a proponent of market-
based solutions for dealing with our health care system. 
However, competition without competitors will not deliver the 
desired incentive for health care improvement. The NASE urges 
Congress to address the disparities in individual and group 
markets. There are over 20 million non-employer firms in 
America. Certainly, they have access to, and choice of, health 
care coverage at a very limited basis, and that issue should be 
addressed.
    Increasing insurer competition for the strong economic 
market segment, addressing state insurance regulation and 
mandates, and creating equitable federal tax treatment for 
these non-employer firms, are key to increasing access to 
affordable health coverage.
    [The prepared statement of Mr. Hughes may be found in the 
Appendix on page 39.]

    ChairwomanVelazquez. Thank you, Mr. Hughes.
    Our next witness is Dr. James D. King. He is the President 
of the American Academy of Family Physicians. Dr. King is in 
private practice in the rural community of Selmer, Tennessee. 
He serves as the Medical Director of Chester County Health Care 
Services. The American Academy of Family Physicians is one of 
the largest national medical organizations with more than 
94,000 members in 50 states, the District of Columbia, Puerto 
Rico, the Virgin Islands, and Guam.
    Welcome.

STATEMENT OF DR. JAMES D. KING, PRESIDENT, AMERICAN ACADEMY OF 
              FAMILY PHYSICIANS, SELMER, TENNESSEE

    Dr.King. Thank you. On behalf of the Academy, I appreciate 
the concern about the effect of consolidated health plans on 
family physicians. We are members of the small business 
community, and also are professionals concerned about the 
effective delivery of health care to our patients.
    Consolidation of health insurance plans have created a 
profound imbalance that hurts the ability of family physicians 
to negotiate contracts. This is harmful to our practices, but 
also means that many of our patients cannot find the primary 
care physicians who accept their insurance.
    According to the industry analysis, between 1992 and 2006 
the number of health insurance companies dropped from 95 to 7. 
The American Medical Association reports that 280 U.S. markets, 
at least one-third of the covered lives, are members of a 
single largest insurer in that market. In the U.S., only two 
insurance companies cover one-third of all insured Americans.
    This market concentration gives health plans huge power to 
determine the coverage and payment terms. Let me give you a 
snapshot of how this affects the individual member. Nearly two-
thirds of the patients of a solo family physician in Colorado 
are insured by one commercial payer. This situation occurred 
because of a merger. When this doctor made the case for a 
payment increase to keep pace with inflation, he was told by 
the insurance company, ``As a solo physician, you are the 
weakest economic unit and must take what we decide to give.''
    That single statement bluntly and accurately describes our 
problem. As the economic heavyweights, health plans have no 
incentive to agree to physician requests. When a doctor doesn't 
agree to the terms of the contract, the plan just removes the 
practice from the network. This means that patients essentially 
are denied access to their physicians.
    In most cases, family doctors stick to their patients and 
sign untenable contracts. These contracts can affect many 
aspects of the practice. They dictate treatment decisions, 
require the use of special labs, require peer-to-peer requests 
for prior authorizations, demand completion of multiple-page 
forms, and delay payment while requiring responses to endless 
questions.
    Many insurance contracts even allow the health plan to 
change the terms at any time without notifying the physician 
simply by posting new information on their web site. These 
business practices may increase the profit--may increase the 
profits of the insurance company, but they create enormous 
burdens for our small and solo practices and may hurt patient 
care.
    As a result, more primary care physicians are driven to 
work in other settings, such as emergency rooms, in cash only 
practices. Some leave medical practice all together. Worst of 
all, payment rates and other contract terms are unrelated to 
quality of care.
    Let me give you another quick story. A family physician who 
had been honored several times as the best physician in 
Arizona, who had more than 100 physicians as his patients, and 
who received the highest possible rating from his health plans 
for quality and efficiency, is taking more than $100,000 out of 
his savings each year just to keep his practice afloat. Despite 
his good work, he has been unable to negotiate higher payment 
rates with insurers.
    Speaking more broadly, insurance plans consolidate 
threaten--consolidation threatens the potential for quality 
improvement in U.S. health care. For example, family medicine 
and other primary care specialties are advocating for the 
patient-centered medical home for all Americans. This medical 
home would be a practice that has been transformed to offer 
comprehensive, continuous, and coordinated care to our 
patients.
    Experience with health systems based on primary care in 
other industrialized nations have demonstrated the exceptional 
value of a medical home in terms of quality and cost 
effectiveness. However, the success of the medical home depends 
on a long-term relationship between the physician and the 
patient. This relationship can be threatened, even destroyed, 
if insurance companies dictate the terms of the medical 
practice and limit our patients' freedom of choice.
    The AAFP recommends changing antitrust laws so that 
physicians can be true market participants. The current 
statutes were established years ago during a very different 
competitive environment. Under these outmoded laws, physicians 
are barred from discussing the financial aspects of their 
practice with any entity unrelated to their practice. In 
contrast, insurance companies use market share and shared 
economic strength to carry out near monopolistic behavior.
    AAFP commends the Committee for highlighting the 
significant problems resulting from health insurance 
consolidation. Family physicians, many of whom provide health 
care in small and solo practices in rural and other under 
served areas, feel the effect of the insurance consolidation as 
they attempt to negotiate in an environment that is stacked 
against them.
    Again, I want to thank you for this opportunity to provide 
this testimony, and I look forward to answering your questions.
    [The prepared statement of Dr. King may be found in the 
Appendix on page 44.]

    ChairwomanVelazquez. Thank you, Dr. King.
    And now the Chair recognizes Dr. Chabot for the purpose of 
introducing our next witness.
    Mr.Chabot. Thank you very much, Madam Chair. I would like 
to introduce Mr. Office. He is the Vice President and General 
Counsel for Victory Wholesale Group, which is headquartered in 
Springfield, Ohio. Mr. Office is currently sponsorship chair 
and a board member of the Southwest Ohio Chapter of Association 
of Corporate Counsel.
    Victory is a national wholesale distributor of grocery, 
health and beauty, and pharmaceutical products, and we are very 
pleased to have a fellow buckeye here this morning. And we 
welcome you and are looking forward to hearing from you, Mr. 
Office.
    Thank you.

    STATEMENT OF JAMES R. OFFICE, GENERAL COUNSEL, VICTORY 
              WHOLESALE GROCERS, SPRINGBORO, OHIO

    Mr.Office. Thank you, Madam Chairwoman, Representative 
Chabot, and members of this Committee, for inviting us to 
discuss this important issue.
    Victory Wholesale Group appreciates the opportunity to 
submit these comments to the Committee. The rising and out-of-
control increases in health costs is a very important subject 
to us and every other small business across America. Health 
insurance consolidations are a large contributor to the 
increased health costs. One of Victory's largest expenses is 
for the health care coverage that it provides its employees.
    Let me first tell you a little something about Victory. 
Some of you may know something about Victory through our 
involvement in and grants over the many years to the 
Congressional Hunger Foundation. Victory is a group of family-
owned separate companies. The first was established in 1979. 
Our businesses include a wholesale grocery distributor, a food 
marketing company, a public warehouse business, a contract 
packaging business, a pharmaceutical wholesale distributor, a 
promotional items distributor.
    Victory has a small number of employees and businesses in 
over 22 states, including Ohio, New York, Florida, California, 
Nevada, and the Commonwealth of Puerto Rico. Health insurance 
is the cornerstone of benefits that Victory provides its 
employees. Victory has tried different health care plan models, 
including fully insured, self-insured, PPOs, and HMOs, with the 
objective to reduce our health insurance care costs, or to 
control their increases.
    Victory, having employees around the country, has not been 
able to find a single affordable health care plan that covers 
our separate businesses and employees on a national basis with 
health care provider networks that can compete with the 
regional health care providers.
    In Victory's experience, insurance consolidation has led to 
the decreased competition and higher prices in the market. Let 
me elaborate. First, we have found that controlling health care 
costs is nearly impossible. The health care industry is both 
fragmented and concentrated. It is loaded with administrative 
costs, it is inefficient, it is not measured. Accounting for 
quality and for value just simply doesn't exist.
    Next, we have found that the deepest discounts and best 
coverage networks are offered on a regional basis. We have 
found that the markets where we have employees are dominated by 
a few large insurance carriers. Carriers with a smaller market 
share in these regions generally have weak hospital and doctor 
networks, or smaller discounts. Plans with fewer hospitals and 
doctors to choose from are simply not very popular with 
employees, and, therefore, employers.
    We have found that many of the markets where we have 
employees have several dominant affiliate health care provider 
networks or groups. These are groups of one or more hospitals 
and physicians that have combined into an affiliation or 
network, and they rent these networks to insurance companies 
and employers.
    A few dominant health care provider networks in a region 
can and do use their enhanced market clout to resist 
negotiating discounts with insurance carriers and employers. We 
have found that the dominant insurance carriers in the region 
generally price health care plans for small businesses through 
what I would describe as experience rating, i.e. healthy groups 
get fairly high prices, and unhealthy groups get very high 
prices.
    Insurance carriers have an uncanny way of learning the 
health of a group, even if they don't insure your group. We 
have found that a single serious or major health event within a 
group will virtually eliminate competitive bids and result in 
much higher than average cost increases as well as dictated 
structural changes in your benefits to the group's plan at 
renewal.
    We have found that faced with the increasing health care 
costs, employers and employees are faced with very few choices. 
I would call it a menu of the lesser of evils. These options 
include: 1) increasing the amount of premium that each employee 
pays each month; 2) increasing the co-payments or deductibles; 
3) imposing changes on unhealthy lifestyles, like charging 
smokers or obese people more premiums; 4) incorporating higher 
deductibles and lower benefits into the plan design, and 
sometimes using like a health savings account or health 
reimbursement accounts, which in the end is just a cut in 
benefits, reducing or modifying or eliminating benefits, and 
providing financial incentives or disincentives to use the 
modified benefits.
    And lastly, an option that I find is becoming a lot more 
common today, which is small businesses are just eliminating 
offering employer-provided health insurance. Historically, 
small businesses make up the backbone of our nation's 
employers. Collectively, small businesses employ the largest 
number of people in the United States. Yet because each company 
is small, we have almost no market clout to help bring changes 
to our health care system.
    Health insurance consolidation has in part created a take 
it or leave it market for small businesses. Reduced competition 
through consolidations both of insurance carriers and health 
insurance carrier provider networks has led to increased 
pricing, fewer choices for small businesses and their 
employees.
    [The prepared statement of Mr. Office may be found in the 
Appendix on page 49.]

    ChairwomanVelazquez. Mr. Office, your time is up, and they 
just called for a vote. So I would like to move to the next 
witness.
    And for that purpose, I recognize Mr. Bartlett.
    Mr.Bartlett. Thank you very much. Mr. Scandlen wasn't in 
his chair when the Committee began, I suspect for the same 
reason I wasn't in my chair. I think we both probably came down 
270 this morning. I left two hours and 15 minutes before the 
Committee, because I really wanted to be here on time. But, 
unfortunately, this was my second longest commute in 15 years 
of commuting that 50 miles from Frederick, Maryland, down to 
the Hill. So thank you very much for braving the traffic and 
being here this morning.
    Greg Scandlen is from Hagerstown, Maryland. He is the 
founder of Consumers for Health Care Choices, a non-partisan, 
non-profit membership organization aimed at empowering 
consumers in the health care system. He is considered one of 
the nation's experts on health care financing, insurance 
regulation, and employee benefits.
    He testifies frequently before Congress and appears on such 
television shows as The O'Reilly Factor, NBC Nightly News, and 
CNN. He has published many papers on topics such as health care 
costs, insurance reform, employee benefits, individual 
insurance programs, HSAs, HRAs, and every aspect of consumer-
driven health care. Mr. Scandlen was the president of the 
Health Benefits Group and the founder and executive director of 
the Council for Affordable Health Insurance. He also spent 12 
years in the Blue Cross/Blue Shield system, most recently as 
the director of state research at the national association.
    Thank you very much for joining us today.

  STATEMENT OF GREG SCANDLEN, PRESIDENT, CONSUMERS FOR HEALTH 
                          CARE CHOICES

    Mr.Scandlen. Thank you, Mr. Congressman. Thank you, Madam 
Chairman, and members of the Committee. I was going to ask you, 
Mr. Bartlett, for a note excusing my tardiness, but you have 
made that unnecessary. Thank you very much. I do apologize for 
being late, though.
    I know you have a vote pending, so I will be very quick. I 
just want to share a couple of thoughts with you. One is that 
concentration of--in this market is not an accident, and it is 
not an inherent part of the small group market. When I was with 
the Blue Cross/Blue Shield Association, I was--one of my 
responsibilities was working with the National Association of 
Insurance Commissioners on their small group reform proposals 
back in the late 1980s.
    And I can tell you, at the time the Commissioners and their 
staff made it very clear that these reforms would do nothing to 
lower cost, nothing to increase access. Their purpose was to 
stabilize the market, and that was their language.
    And what they meant by that was they thought there was too 
much competition in the small group market. It was confusing 
for employers, and they would prefer it if there were only 
three or four competitors in every market. That would be easier 
to understand, and, frankly, probably easier for the regulators 
to regulate, with a smaller number of companies.
    So I think the situation we have today is the direct 
consequence of regulatory interference with the market. Many of 
those regulations were well intentioned, but I think they all 
add to cost and complexity in this market, and many, many 
smaller companies decided they simply could not afford to 
comply with the various state and changing from year to year 
regulations that they had to follow. So they simply got out of 
the business.
    Many of them were life insurance companies, and they sold 
off their health books to larger carriers that were--that are 
better able to afford the compliance costs associated with all 
of these regulations. And what we have today, and as the other 
witnesses have mentioned, we have coverage that is overpriced, 
inefficient, unaccountable, inconvenient, and incomprehensible 
to the consumer.
    We need--these are, I believe, the characteristics of a 
non-competitive market. There is insufficient competition. If 
you don't like what--if you don't like what one company offers, 
it really doesn't matter because everybody else is offering the 
exact same thing at the exact same price.
    This market is sorely needing innovation and efficiency. 
The insurance industry is notoriously inefficient. And back in 
the 19th century when it comes to technology and computer 
support, larger is not better, larger results in monopolization 
and a lack of innovation. And there have been some proposals 
that have come before the Congress that I think would help 
here.
    One is the interstate purchase of coverage. So if I am 
living in Maryland, and there is a better product available in 
Pennsylvania, I would like to be able to purchase that product, 
and I don't see why I can't. Another possibility would be an 
alternative federal charter, so insurance companies could 
become like banks. They could decide whether they would like to 
be regulated by the states or by the Federal Government.
    And if they choose the states, they are confined to doing 
business in the state that is regulating them. If they choose a 
federal charter, they can operate nationally, and Mr. Office 
and other multi-state's smaller employers would be able to 
purchase the same product for all of their employees.
    So I think solutions are there, but I think decisive action 
is needed, because this market is collapsing.
    Thank you very much.
    [The prepared statement of Mr. Scandlen may be found in the 
Appendix on page 56.]

    ChairwomanVelazquez. Thank you very much.
    The Committee stands in recess and will resume right after 
the vote.
    [Recess.]
    ChairwomanVelazquez. Gentlemen, the Committee is called 
back to order. I know the Ranking Member is on his way here.
    I would like to address my first question to Dr. Plested. 
We all agree that it is critical that physicians are in a 
position to be advocates for their patients. I understand that 
some physicians are concerned that important decisions relating 
to care of patients has been taken away from them by burdensome 
rules imposed by insurers.
    My question is, Dr. Plested, have these rules gotten more 
onerous as the insurance industry has consolidated? And how do 
these policies affect the doctor-patient relationship? Is the 
quality of care impacted?
    Dr.Plested. Thank you, Madam Chair, and the answer to the 
question is unequivocally yes, quality of care is affected. The 
basis for patient care throughout history has been based on 
what we call the patient-physician relationship. And both of 
those partners in that relationship have the same interest, and 
that is the health of the patient. Regardless of how you change 
that, if you put anyone in between that, whether that be an 
insurer or an employer, if anyone else gets in between those 
two parties in that relationship, their interest is different.
    With an insurer, the CEO of every insurance company's 
primary interest is his shareholders, not the patient. So that 
it can just--it just follows by reason that any time we dilute 
that basic fundamental relationship it is not in the interest 
of patients. And when the insurer can bludgeon the physician 
with paperwork, with unnecessary rules and regulations and 
unilateral--contracts that can be unilaterally amended, all 
these things that you have heard in the testimony today, that 
directly affects the care that those patients can get.
    ChairwomanVelazquez. Have you conducted any survey among 
doctors regarding that doctor-patient relationship as a result 
of consolidation?
    Dr.Plested. Specifically related to consolidation, I don't 
know that we have, but we have all kinds of data about what has 
happened to the relationship, and consolidation is an integral 
part of that. And it has all been detrimental.
    ChairwomanVelazquez. Thank you, Dr. Plested.
    Dr. King, the difficulty physicians have faced with the 
insurance industry is in large part based upon the size of the 
companies and the market share they command. Some insurance 
companies have grown so large that physicians have found it 
difficult to negotiate a contract with favorable terms. What 
has been the experience of your members? Are they being forced 
to accept take it or leave it contracts?
    Dr.King. The short answer is yes. I practice in a small 
town in Selmer, Tennessee, west Tennessee in a rural area. And 
so we only have one or two major industries to begin with, and 
when we only have one insurance product they have as much as 
30, 40, 50 percent of the patient base for us to take care of.
    And I have been taking care of these patients for 20 years, 
and all of a sudden I am dealing with an insurance company that 
has offered a contract that I know is inappropriate, that is 
going to interfere with the quality of care that I need to 
provide. And it is tough for me even to consider making a 
living and supply jobs for my employees. I am a small business, 
too. I have got--we have seven physicians, we have 39 employees 
that we need to supply their health care, we need to provide 
them with pay.
    So I am a small business, but I am also providing the 
health care. And if I choose to eliminate 20 percent of the 
patients I have been taking care of, I don't think too many 
businesses can do that. And we are seeing that every day, that 
they are having to either accept a contract that is not 
acceptable, that we know we can't make it work, or give up 30 
percent of the patients we have been caring for over years.
    ChairwomanVelazquez. Thank you.
    Mr. Hughes, the cost of the same health benefits are likely 
to be higher for a small firm than for a large firm. How does 
this make for an unleveled playing field for your members when 
it comes to negotiating health insurance plans? And with 
increased concentration in the industry, do you expect this 
disparity to grow?
    Mr.Hughes. The micro-employer is in a very difficult 
position, because they are facing regulation that places them 
into the small group market. So even though we may have a very 
small employer group of only one or two people, they are thrown 
into the group market that is accordingly rated based on that 
group experience.
    What we are seeing is a significant premium rate increases 
as a result of that. The small group simply doesn't have a 
chance to compete the way the larger group does in the 
marketplace.
    ChairwomanVelazquez. What can be done to remedy this 
disparity?
    Mr.Hughes. Well, one of the factors involves federal 
taxation. It is clear that taxes affect social behavior, and it 
is also clear that in the Tax Code today all businesses receive 
an exemption for the payment of income taxes and payroll taxes 
on premiums that they provide for their employees for health 
insurance coverage.
    The exception to that rule is for the sole proprietor, the 
self-employed individual. That particular individual does not 
receive a payroll tax deduction for these health insurance 
premiums, and accordingly must pay then 15 percent of payroll 
taxes on those premiums. The effect is that if the tax law were 
amended to be equitable to all business owners, self-employed 
proprietors could then reduce their premium costs by 15 percent 
across the board.
    ChairwomanVelazquez. Thank you, Mr. Hughes.
    Mr. Office, you mentioned that insurance companies may 
entice employers by offering low coverage rates to new groups, 
and then dramatically increase premiums or change benefits on 
renewals. You mentioned that this behavior often chases 
competition out of the market, thus allowing the insurer to 
later increase prices. What have your experiences been with 
such enticement rates, and what can your business do to respond 
to dramatically increased renewal premiums when you only have 
one or two other insurers to choose from?
    Mr.Office. If you have any suggestions, I am open.
    [Laughter.]
    That is the thousand-pound gorilla that we face. You will 
get an insurance carrier that will come into the market. And to 
buy market share they will offer discounts, and most small 
businesses look at price. That is a critical factor. And once 
they have done that, you are moving--your numbers stay the 
same.
    In any community, you have a certain number of people that 
are insured, and you are just moving them from this bucket to 
this bucket, and so this area over here loses those people and 
they push out of the marketplace. Once that is done, then they 
do increase the premiums. Or if, structurally, they say, 
``Well, we will keep your premium the same, but here is the 
policy you are going to have next year,'' it is going to have 
fourth-tier pharmaceutical or it is going to have higher co-
pays and deductibles, or ``we are not going to cover, you know, 
these procedures,'' or whatever.
    But as a small business, you react to what they present to 
you. You don't really--and you don't have a market to go look 
for to say, ``Well, what about an alternative?'' So any 
questions are welcome.
    ChairwomanVelazquez. Sure. Mr. Scandlen--and I will 
recognize Mr. Bartlett--I heard when you spoke about the direct 
consequences of state regulations that it really encourages 
concentration. And I know how frustrating it is. You said that 
one of the avenues could be interstate purchase of health 
insurance or federal charter.
    But even without going into that, what role or how do you 
assess the Department of Justice role, or lack of oversight, 
regarding antitrust laws when it comes to consolidation?
    Mr.Scandlen. I think there is an important role for 
antitrust enforcement here. Clearly, when there are only two or 
three players, when they actually merge together, that is a 
concern. But I, quite frankly, think that is--that is something 
for the--it is not a universal solution, because if there is a 
company that would like to sell its business to another 
company, because the first company simply is not profitable, 
then antitrust enforcement there strikes me as inappropriate.
    So I guess I am reluctantly embracing antitrust in selected 
cases. And, for instance, in the United-Sierra merger in 
Nevada, my organization was quite concerned about that and 
communicated with the Department of Justice encouraging them to 
reject that merger, because here were two very strong viable 
companies that consumers we couldn't see would derive any 
benefit from--from the merger. And if consumers are not 
benefiting from it, then I think it--and could actually be 
disadvantaged by it, then I think it is a problem. But I don't 
see it as the number one solution to this issue.
    ChairwomanVelazquez. Thank you.
    Now I recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair.
    Dr. Plested, I will start with you if I can. You noted that 
investigating consolidation regulators have tended to focus on 
physicians rather than on health insurers. Could you expand 
upon that a little bit? Why do you think that is so, and what 
should be done about that?
    Dr.Plested. Well, I certainly can't testify to the 
motivation of the DOJ, but I can testify to what has happened, 
and it would appear that the doctor--an individual doctor is 
much less able to withstand an assault from the DOJ. And it 
makes their rate of caring actions that they succeed on 
exceedingly high, because it--an individual physician just 
can't withstand this.
    A huge insurer certainly can, and I think the point that 
the Chairman just raised is exceedingly important. What can we 
do, or what can this Committee do? And the answer to that is it 
is time to draw a line in the sand and say, ``This is going to 
stop.'' The answers are complex, as everybody has said, and 
they aren't going to be solved in this testimony or this 
action. But to put down a marker and say this Committee from--
to the DOJ, we have got to make it crystal clear that this is 
going to stop, and get this merger enjoined, would be the 
necessary first step that could be made.
    Mr.Chabot. Thank you, Doctor.
    MR. Hughes, if I could turn to you next. In your written 
testimony, you urged Congress to address the inequitable tax 
treatment of health insurance for individuals purchasing 
coverage on their own. I really couldn't agree more with you on 
that, and, in fact, today I am reintroducing a bill that I have 
introduced in previous Congresses. Unfortunately, we haven't 
gotten it passed into law yet, but we are going to continue 
working.
    It is called the Health Insurance Affordability Act, and it 
is legislation that would provide a tax deduction for gross 
income--or, excuse me, from gross income for the health 
insurance costs of an individual taxpayer, the taxpayer's 
spouse, and dependents as well. In other words, you know, large 
corporations obviously can fully deduct the health care costs 
for their employees, but an individual basically pays for their 
premiums and doesn't get to claim those for the most part. And 
a lot of small businesses also aren't able to do so, at least 
to 100 percent.
    Could you explain how a deduction like that would help 
individuals in small firms?
    Mr.Hughes. Well, again, going out in the individual market, 
as you indicate, those health insurance premiums are paid with 
after-tax dollars, meaning that their purchasing power has been 
eroded significantly. And if there is a way, a mechanism that 
would allow for the deduction of health insurance premiums 
across the board, whether employee or business or small 
business owner, then my sense is that it is going to have the 
impact of bringing more people into the marketplace, creating a 
marketplace that has in effect lower ultimate cost of premiums, 
and theoretically that should increase competition, because 
more insurers should go after that market niche. So we 
wholeheartedly support that type of legislation.
    Mr.Chabot. Thank you very much.
    Dr. King, in your written testimony you state that ``As a 
result of concentration of insurers, many family practice 
physicians in small or solo practices have little leverage in 
negotiations with health plans.'' Could you discuss that 
briefly, and what effect that ultimately has?
    Dr.King. I will be glad to. In fact, I can give you an 
example of my own practice. As I stated earlier, I practice in 
a small town in west Tennessee. We have a large employer there, 
and they changed insurances for cost, as mentioned earlier. 
There was no physician in my county in the network that 
insurance product provided. And they not only didn't come at us 
with a contract we wouldn't accept, they didn't offer us one at 
all.
    Under their arrangement, all they had to do was have a 
doctor within 45 miles of the plant that signed up. Then, they 
met all the requirements they felt like they needed to do. And 
they wouldn't even sit down and talk to us.
    And my patients had a choice to make that year. They came 
and saw me and we tried to work out a way that they could pay 
me for their services and we didn't bill their insurance, or 
they drove 45 miles. So they were doing back and forth for an 
entire year until they finally changed that plan. They chose 
not to make any changes at all.
    So not only do they come at us and we can't negotiate, and 
this was every physician in the county, that, you know, they 
have enough, but for--with our family physicians, most of us 
are solo practitioners or small groups, anywhere from one 
doctor to maybe four or five. We have absolutely no leverage.
    Mr.Chabot. Thank you very much, Doctor.
    Mr. Office, you mentioned that your companies maintain 
multiple health insurance plans to foster competition, and to 
help reduce costs. How much of an impact does this make on your 
overall health insurance costs?
    Mr.Office. I would be happy to share some numbers with you, 
which I came prepared to. But we range--for example, single 
only coverage in one geographic location where I understand 
there is some competition, and I am not involved in the buying 
there, but they are paying $177 a month per employee. And in 
the area that I work in, we are paying $570 a month. So there 
is a $400 difference. For family coverage, the difference is 
$450 versus $1,400. So you can see that there could be 
significant differences.
    Now, because of the regionalization I can't go to, say, New 
York or Puerto Rico where I might get a lower rate and buy a 
plan for, you know, south--you know, southern Ohio where we 
have most--you know, a large group of people, or Florida. We 
just can't get that, because we end up with networks. We are 
not going to buy a plan and pay a premium and then get a 
network where there is no doctors in that area. Our employees 
will--there will be a mutiny.
    [Laughter.]
    Mr.Chabot. Okay. Thank you.
    Mr.Office. So, you know, if you are going to pay the 
premium, you have to have hospitals and doctors in that 
network. And you don't want to make people have to change those 
choices. So there can be a big difference.
    Mr.Chabot. One of our colleagues, John Shadegg from 
Arizona, has introduced a plan over the years relative to 
health insurance that would allow people to go across state 
lines and would undo some of the difficulties there are with 
various states having different requirements and regulations 
and keeping companies out that aren't necessarily in a 
particular state. So it is something that we probably ought to 
look at.
    Finally, Mr. Scandlen, in your written testimony you 
discuss the need for innovation in the types of health 
insurance coverage that are offered, such as health savings 
accounts, for example. How would small businesses benefit from 
greater innovation? And is there anything that you would 
suggest this Committee or Congress do in that area to be of 
assistance?
    Mr.Scandlen. I am not sure how you could encourage 
innovation other than just encouraging competition. I mean, I 
think it is the same thing. And there are some very, very 
interesting things out there. One of the things I mentioned in 
the testimony was the special needs plans under Medicare, and 
that is sort of an experiment that--that I think so far is 
having very good results, very interesting results.
    These are insurance companies that focus on the needs of 
the chronically ill, and one of the reasons they are able to do 
that is because they receive--Medicare pays out risk-based 
premiums, so they are receiving premiums that enable them to 
service that special population.
    Mr. Chabot, if I could very quickly also, in terms of the--
your tax deduction for individuals, I think that is a marvelous 
idea, and I think it is worth remembering that up until 1983 
individuals could deduct their health insurance premiums as 
part of the medical expense deduction, as long as, in 1983, it 
didn't exceed three percent of their AGI.
    That was raised to 5.5 percent, and then in '87 raised to 
7.5 percent. and we have seen, as that has eroded, the 
individual market has just gone in the tank, because that tax 
advantage has been withheld from people that buy individual 
coverage.
    Mr.Chabot. Thank you very much.
    I yield back, Madam Chair.
    ChairwomanVelazquez. Thank you.
    Mr. Gonzalez.
    Mr.Gonzalez. Thank you very much, Madam Chairwoman. The 
issue of availability and affordability--and it transcends big 
business, small business, every American situated one way or 
another. The interesting thing, I think the government has a 
tremendous stake in making sure there is robust competition, 
because the future does hold more government involvement in 
assisting individuals, small business, families, in acquiring 
health insurance.
    So availability and affordability looms large, whether it 
is the President's tax proposal, whether it is what Mr. Chabot 
was talking about, associated health plans, subsidizing 
premiums and such. All that is for naught if we don't have a 
healthy insurance industry that will provide choice, which will 
drive down cost, obviously. At least that is what I have used 
as the big picture.
    Some of the things that we have covered here, though, I am 
wondering if it really does in any way assist in achieving that 
final goal of availability and affordability. I will say that I 
think our first witness alluded to--I guess it is the United 
acquisition of Sierra. Is that right? And maybe that should be 
a marker. Maybe we ought to pay a lot of attention to that, and 
put everybody on notice. And I think that point is well taken.
    One thing that Dr. King pointed out--and I am thinking all 
short of that--is, how do we get all of the different 
participants fully empowered?
    ChairwomanVelazquez. Will the gentleman suspend?
    Mr.Gonzalez. Yes.
    ChairwomanVelazquez. I just would like to ask unanimous 
consent, and the Ranking Member agreed with me, for every 
member to have the opportunity to ask one question. This is 
going to be quite--a very disruptive session today. Right now 
on the floor they are going to be calling procedural votes.
    So in light of that, I will give the opportunity for 
everyone to ask one question, since I know that some of the 
members of the panel have flights to catch.
    Mr.Gonzalez. I will be real brief, then. I will just ask 
Dr. King, you pointed out that maybe empowering physicians to 
negotiate, where presently they are prohibited by law--that was 
my understanding of your testimony--if you could just kind of 
elaborate a little bit on that, and how you see that would be 
beneficial to the big question of availability and 
affordability.
    Dr.King. Well, in allowing us to be able to negotiate, or 
at least talk to each other, you know, about the different 
insurance products, about the contracts that we are being 
offered to make sure that we can compare, we talk doctor talk, 
we don't talk lawyer talk. And we need to have the ability to 
share information and share problems and concerns as we look at 
the contracts, so that we can make decisions that is the best 
interest for our patients.
    And then, if we can negotiate that, I can see how, you 
know--you know, I don't know about the--you know, the 
consolidation of all of the insurance companies and all, but I 
see how the health care of my patients can improve, and we can 
arrive at a better plan that we take away the barriers that I 
try to help take care of my patients with that, so that 
physicians won't desert. We don't have enough primary care 
physicians out there. They are going into different 
arrangements. They are going into ERs, they are going into 
urgent cars, which is not where we want our patients, and they 
are going into markets that don't include insurance.
    So we have--just to get the physicians out in the rural 
areas and taking care of patients like we need to, they have 
got to be able to negotiate and make it work.
    Mr.Gonzalez. Thank you. I yield back.
    ChairwomanVelazquez. Thank you.
    Mr. Bartlett.
    Mr.Bartlett. Thank you very much. You know, we don't really 
have much of a health care system in our country. We have a 
really good sick care system. It is the best in the world, and 
I would hope that we might move a little more toward a health 
care system, so maybe we wouldn't need such a big sick care 
system.
    One of the problems in rising health care costs is the fact 
that health care--I am using that word euphemistically--health 
care is about the only thing that most people shop for in our 
country and never ask the price. So they are not a careful 
shopper.
    And one of the things that I wanted to personally do, so 
that I could become a careful shopper--and these were in the 
days before health savings accounts, which really makes a 
person a careful shopper, and I am a big fan of those. But 
absent that, when I retired 20-couple years ago, I wanted to 
find a catastrophic policy with a $5,000 deductible. See, I 
think that these little nickel and dime things just wear you 
out and enormously increase the cost of health care.
    I can pay the first $5,000. That might be a little painful, 
but what I can't pay is that second half million. And I think 
that many of the policies drop. You have a cap at about a half 
million. I couldn't find a catastrophic policy with a $5,000 
deductible. That ought to be a pretty cheap policy, shouldn't 
it? And wouldn't it make people a really careful shopper? And 
why don't you--why doesn't the industry offer that kind of a 
policy?
    Mr.Scandlen. I think they are available now. And if I am 
not mistaken, the AMA has offered a $10,000 deductible policy 
to its members for a long time. So I think if you were shopping 
today, Mr. Bartlett, you would be able to find that.
    Mr.Bartlett. Madam Chair, I would like you to encourage our 
people here who provide our options for health care to include 
that as one of the options.
    ChairwomanVelazquez. Definitely.
    Mr.Bartlett. Thank you very much.
    ChairwomanVelazquez. Ms. Clarke.
    Ms.Clarke. I want to thank our Chairwoman and our Ranking 
Member. This is probably one of the most critical issues facing 
Americans today. As small businesses, as health care providers, 
as consumers, we are all in a quandary and involved in the same 
meltdown together.
    There are so many questions that I would like to ask, but I 
want to get an understanding of some of what is happening out 
there to physicians' claims. I want to ask for anyone on the 
panel--I have heard that health insurers have employed coercive 
tactics, such as re-pricing of physician claims, which results 
in non-contracted physicians receiving less than contracted 
physicians for the same service. What is re-pricing exactly, 
and what other manipulative practices have health insurers used 
to undermine a physician's bargaining power? Dr. Plested?
    Dr.Plested. Re-pricing is a very interesting phenomenon. It 
is complex, but there have been contracts let by entities that 
do not provide any care. They just round up a large number of 
contracted doctors who will accept a price, and there are 
literally hundreds of these contracted groups. There are now 
entities called re-pricers that take every physician and match 
that physician by computers with every contract that they have 
signed for every service that they provide.
    And so that when you get a bill from your insurance company 
that has six things on it, that may be a sign by a re-pricer to 
six or seven different contracts, so that he gets the lowest 
one. It is complex, but it is a very Machiavellian type of 
system.
    There are also the things that the insurers can do that 
have been mentioned that they can unilaterally amend a 
contract. They can change the amount that they agreed to pay 
you. They can unilaterally put in screens. They have 
computerized screens that will reduce the amount that they pay 
for things that it doesn't pay the physician to charge--to try 
to challenge each of these. There are a multitude of 
monopolistic behaviors that are allowed by this.
    ChairwomanVelazquez. Thank you. And I want to take this 
opportunity to thank all the witnesses. And I am sorry we do 
not have more time to spend with you, but I am very, very happy 
that we really had an opportunity to have this dialogue on an 
issue that is so important, not only for small businesses and 
small practitioners, but also for consumers in America.
    The Small Business Committee will call on federal antitrust 
regulators to play a more active role in ensuring that health 
insurance markets remain competitive, and, to that effect, I 
will ask the Ranking Member to join with me in sending a letter 
to the Department of Justice. I will also--I already discussed 
with Chairman Conyers on the House floor, when we went to vote, 
asking him to do a joint hearing between Judiciary and Small 
Business to examine specific mergers that may be pending.
    I know, Mr. Scandlen, that you said that this is just one 
aspect of a bigger picture, but we have to make sure that there 
is proper oversight and examination before these mergers can 
proceed.
    With that, I thank all the witnesses for your 
participation. I ask unanimous consent that members have five 
legislative days to enter statements and supporting materials 
into the record, and this Committee is adjourned.
    [Whereupon, at 11:45 a.m., the Committee was adjourned.]

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