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



 
                       FULL COMMITTEE HEARING ON
                       STATE STRATEGIES TO EXPAND
                       HEALTH INSURANCE FOR SMALL
                               BUSINESSES

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 26, 2008

                               __________

                          Serial Number 110-72

                               __________

         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              VACANT, 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


PANEL I:
Pawlenty, Honorable Tim, Governor of Minnesota, St. Paul, MN.....     4
Rendell, Honorable Edward G., Governor of Pennsylvania, 
  Harrisburg, PA.................................................    18

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    35
Chabot, Hon. Steve...............................................    37
Pawlenty, Honorable Tim, Governor of Minnesota, St. Paul, MN.....    38
Rendell, Honorable Edward G., Governor of Pennsylvania, 
  Harrisburg, PA.................................................    45

                                  (v)

  


                    FULL COMMITTEE HEARING ON STATE
                      STRATEGIES TO EXPAND HEALTH
                      INSURANCE COVERAGE FOR SMALL
                               BUSINESSES

                              ----------                              


                       Tuesday, February 26, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Shuler, Gonzalez, 
Altmire, Clarke, Ellsworth, Sestak, Chabot, Bartlett, Akin, 
Fortenberry, Westmoreland, Davis, Fallin, and Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. This hearing on state strategies to 
expand health insurance coverage for small businesses is now 
called to order.
    The Committee is honored to have before us today Governor 
Tim Pawlenty of Minnesota and Governor Edward Rendell of 
Pennsylvania. These leaders have been at the forefront of the 
health care debate that has implications for the entire nation. 
While I understand their approaches to reform may be very 
different, we hope to gain insight on how their proposals can 
improve health coverage for the citizens of their states.
    This is the fifth hearing that the Small Business Committee 
has held on the issue of access to health insurance for small 
businesses. It is a problem that threatens to undermine our 
entire health care system. It is for that reason we are 
continuing to work with the small business community and 
stakeholders to identify ways that Congress can address this 
crisis. While major change may be a year away, the Committee is 
attempting to identify consensus reforms that can either be 
enacted this year or as part of any health care reforms made in 
the future.
    The Governors here today are fully away of the obstacles 
that meaningful health care reform presents. With any efforts 
to increase coverage that impacts our nation's health system, 
it will invariably create some form of opposition. Governor 
Pawlenty and Governor Rendell are responding to the harsh 
reality of rising health care costs and declining coverage in 
their states.
    This Committee is particularly interested in the steps that 
Minnesota and Pennsylvania are considering to ensure small 
firms have access to affordable health insurance coverage.
    More than a year ago, Governor Pawlenty laid out his Health 
Connections platform that has set the stage for reforming his 
State. Governor Rendell is also in the midst of a major debate 
on comprehensive changes to the health care system in 
Pennsylvania. He is now working with the legislature to advance 
his prescription for a Pennsylvania plan.
    Both of these plans make small businesses a critical 
component of expanding coverage. I believe it is becoming 
increasingly clear that addressing the problem of the uninsured 
requires a focus on encouraging small businesses to offer 
health insurance coverage.
    Today's discussion will hopefully allow the Committee to 
gain new perspective on approaches to improving health care 
choices for small businesses. In the past year, this Committee 
has examined how competition among insurers and risk are cost 
drivers for small businesses seeking health insurance. These 
are problems that I believe can and must be addressed by 
changes at both the State and federal level.
    While demographics and localized issues may shape the 
solutions that you are proposing, it is clear that you both 
agree that the current system needs to change. The matter of 
affordable coverage for small businesses is something that 
every state is facing across this nation. Given the challenges, 
it comes as no surprise that 6 out of 10 uninsured Americans, 
including more than 10 million children, are in households 
headed by self-employed workers or small business employers.
    I look forward to today's testimony, and again thank you 
for being here to discuss this important issue. I will now 
yield to the Ranking Member, Mr. Chabot, for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you, Madam Chairwoman, and good morning. 
Thank you for holding this hearing on state initiatives to 
expand health insurance. And special thanks to our 
distinguished witnesses who are taking time from their National 
Governors Association winter meeting here in Washington to be 
with us today.
    Governors Pawlenty and Rendell, we really do appreciate 
your participation here this morning. We will stop talking 
shortly, so we can get to you.
    Forty-seven million Americans are uninsured, and for those 
who are uninsured, and for those who are insured, costs 
continue to skyrocket. For small businesses, health care is 
continually ranked as one of the top concerns. And as we have 
heard expressed by witnesses throughout this Committee's 10 
health hearings so far this Congress, it continues to be a 
problem in this country.
    With premiums escalating, small companies face limited 
choices of health insurance providers. Many operate within 
margins so thin that they cannot provide health insurance for 
themselves or their employees. According to the Government 
Accountability Office, health care spending is a chief culprit 
of our national debt. The structural debt, at the current rate 
of growth and spending in federal entitlements, is $53 
trillion--$53 trillion with a T--assuming future promise and 
funded benefits of Medicare, Social Security, veterans health 
care, and other programs are kept.
    These figures are nothing short of astonishing, not to 
mention disturbing. The cost of health care has outstripped 
inflation by two percentage points per year each year for the 
past 40 years, and costs are expected to continue to rise. 
Health care costs for individuals and small businesses must be 
addressed at present, and they must be curtailed for our 
children and grandchildren.
    These are tough problems with many facets and no easy 
answers. Clearly, entitlement spending must be addressed, and I 
believe there are important steps Congress can take to bring 
down the cost of health care and make it more accessible. For 
example, I introduced the Health Insurance Affordability Act, 
which would allow every American to deduct 100 percent of the 
cost of their health insurance premiums when calculating their 
federal income tax.
    It is also important to eliminate frivolous lawsuits, which 
drive up health care costs. To that end, many of us support The 
Health Act, which would cap non-economic damages and ensure 
that only those with legitimate claims can proceed to a 
lawsuit. And many of us also support legislation that would 
allow small businesses to join together with national 
associations to purchase health insurance for their employees.
    The increased purchasing power and lower premium costs 
would encourage small companies to offer health insurance to 
their employees if they don't already. The House has passed 
this legislation many times in previous Congresses only to be 
stalled in the Senate. Because Congress has not addressed these 
issues, many states have become incubators of health care 
reform proposals. Some have proposed innovative programs to 
expand health insurance coverage.
    The Governors who are with us today have been at the 
forefront in offering imaginative health insurance solutions in 
their states. We are eager to hear your ideas for reform.
    Madam Chairwoman, thank you again for holding this 
important hearing, and I think we all look forward to both 
Governors' testimony here this morning.
    And thank you for being here, Governors.
    Chairwoman Velazquez. Thank you.
    It gives me great pleasure to welcome Governor Tim 
Pawlenty, who was elected to his first term as Governor in 
2002, and was re-elected in 2006. He is the 39th Governor of 
Minnesota, and currently serves as Chair of the National 
Governors Association. The State of Minnesota has one of the 
lowest uninsured rates in the country.
    In 2005, Governor Pawlenty signed into law a health care 
reform bill that creates small employer flexible benefit plans 
which are designed to assist small entrepreneurs purchase 
health insurance. He is continuing to work on health care 
reforms to improve access to coverage.
    Governor, we always allow for a five-minute presentation. 
We will give you more latitude, but we would love to be able to 
ask some questions.

STATEMENT OF THE HONORABLE TIM PAWLENTY, GOVERNOR OF MINNESOTA, 
                      ST. PAUL, MINNESOTA

    Governor Pawlenty. Madam Chair and members, thank you so 
much for the opportunity to be here. We sincerely apologize. We 
were expecting only a brief meeting with the Speaker and the 
leader, and they were very generous with their time. So we are 
sorry for our lateness in arriving here today.
    We recognize--Governor Rendell and all Governors--the 
importance of small businesses. It is the main engine of our 
economy in Minnesota and across the nation. Seventy percent or 
so of all of the new jobs created in the country are created by 
these small and early stage companies. It is vital to our 
future economic picture and health in this country to make sure 
our small business sector is healthy, and a key variable, as 
you well know, Madam Chair and members, is the ability to 
contain health care costs for small businesses, not only as a 
way to help them provide health insurance coverage to their 
employees, but to allow them to even remain viable.
    I am the Governor of one of the I think best states from a 
health standpoint in the country. We had the healthiest State 
in the nation seven years in a row. Vermont just beat us out 
this last year, so we are second this year. But we are going to 
get them back next year, Madam Chair. But for seven years in a 
row, the healthiest State in the nation by a number of wide 
measurements on health.
    And we have the second longest rate of living or longevity 
in the country, second only to Hawaii. I think they have us 
beat out on tropical fruit digestion and eating there, but that 
helps them.
    We have one of the lowest health care costs in the country. 
And as you mentioned, we have the lowest rate of uninsured in 
the country at about 7 percent. It fluctuates up and down a 
little bit. Many states define full insurance--in fact, 
Massachusetts I think is defining universal coverage at 95 
percent. We are already at 93 percent, and we still have a ways 
to go with respect to our reforms.
    The reason I share all of that with you is not to brag 
about Minnesota, but to tell you that even with all of that 
nation-leading status, home of the Mayo Clinic, home of the 
University of Minnesota, even with all of that, we can't make 
the current system work and have it be affordable and 
accessible and high quality, the way it is currently 
configured. And so that is how high the bar has become for our 
citizens and for our small business leaders and job providers 
across the country.
    The costs of this health care system are killing us 
economically. The current system is not sustainable for 
individuals, for families, for small businesses, for local 
units of governments, for school districts, for counties, for 
state governments, for the Federal Government. It is the thing 
that is driving us further towards insolvency, financially and 
economically, and we hope that you will join us--and I know you 
will--in trying to find ways to make it more affordable and 
available.
    We have seen in Minnesota, as the nation has seen, an 
erosion of employer-sponsored/employer-provided health care 
coverage that is very concerning. As that displacement occurs, 
those individuals either are on their own or they fall through 
the cracks or look increasingly to government programs. And 
that has its own limitations and concerns associated with it as 
well.
    As to my comments that the current system is flawed and 
what we could do about it, Madam Chair, right now we have a 
system where what we pay for is not aligned with the outcomes 
that we desire. And we have a system where we pay for 
procedures, volumes of procedures, and as largely disassociated 
with whether those procedures are leading in an efficient and 
impactful manner to better health, or whether the health care 
being provided is of a high quality. And the pricing around 
that is quite mysterious to most consumers, and even to some 
third-party payers of those bills.
    In short, and in oversimplified terms, we have a health 
care system where all of us get to go to a health care provider 
as consumers, consume goods and services, being largely 
ignorant of price or quality, and then we send the bill to a 
third-party payer, namely an insurance company, an HMO, or a 
government, and they pay the bill.
    There is no system that I am aware of where that is going 
to work. It defies what we know about human nature. It defies 
what we know about markets, and all of the flaws and warts of 
that are now being visited upon us in terms of what we see and 
the deficiencies in this system.
    Madam Chair and members, if we invited you to go purchase a 
television--and I hope you would purchase it at one of our 
great Minnesota companies like Target or Best Buy that are 
headquartered in Minnesota--and we said, ``No consideration 
about price or quality, just go pick out a television,'' I 
doubt that many members or citizens would go pick out a, you 
know, 12-inch television. I think probably most of the people 
would go get the big flat screen.
    And so we need to connect consumers and payers and 
providers as it relates to how we pay for the desired outcomes 
that we have. With that in mind, we note that even in 
Minnesota, with all of our nation-leading health care quality 
and delivery systems, until recently only 1 in 10 people were 
getting optimal care in diabetes.
    We know what optimal care in diabetes is. We can define it 
at Mayo Clinic levels. We can define it at world-class leading 
levels. And 1 in 10 people were getting that kind of care. And 
if you don't get optimal care in diabetes, it leads to very 
expensive, worsening, problematic, chronic conditions that get 
even more expensive.
    So paying for providers, as one example of many, to move 
their patient loads towards optimal care, and putting 
benchmarks around that and pain premiums, pain incentives for 
that, seems to me like it makes a lot of sense. And you know 
most of the money goes into the five big chronic conditions. It 
is diabetes, obesity, heart disease, cardiac care, end of life 
issues.
    And, you know, setting best of class expectations on 
quality and pain for that, rather than paying for volumes of 
procedures, seems like a movement that we need to take with 
respect to our payment systems.
    I also think there is a lot of back room costs that can be 
taken out, and we are requiring in Minnesota in our public 
health programs, if you want to be paid by the State government 
and be a participating provider in our State programs, you have 
got to e-prescribe. Now, there is some legacy problems with 
that in terms of small providers and rural providers who can't 
make the pivot. We are going to try to give them some financial 
help.
    But at a time certain in the next couple of years, if you 
want to be part of a provider in our State program, you have 
got to e-prescribe. We have a non-profit that has been 
assembled of our health care providers in Minnesota that will 
share medical records electronically. That is not a government 
central storage of data. It is the ability for providers to 
mutually go into databases with proper security in place and 
pull out medical records. So if you are in Duluth, you can get 
the record from Minneapolis that you may need, even though you 
had two different providers.
    From an employer standpoint, Madam Chair and members, 125 
plans are low-hanging fruit, you know, and they are not costly 
to set up for employers. It is a relatively modest and easy 
thing to do. But if they do that, whether the employer actually 
pays for the insurance, or an individual comes to the 
marketplace and can declare the benefits of a 125 plan, it is a 
significant savings either for the employer and/or the 
employee. So I would encourage that type of approach as well.
    But if I--and there are many, many other things, but if I 
were to leave you with one thought that I think is just 
critical, is we have to reform the payment system. Some would 
argue that the way to do that is to move to a single payer 
system. For me, I don't think that is the correct approach. I 
don't think it is realistic. I don't think it will work.
    For me, I think the idea is to get transparency around 
quality and price, and be very aggressive about that. And the 
new reform that we have in Minnesota is to try to put to the 
side the third-party payers, the insurers, the health plans, 
and have them become vendors of the providers, but have the 
providers come forward and be the bidders of the price.
    They can name whatever price they want. But once they name 
it, it is good for a certain period of time, and it has to be 
available to the whole market, whether it is an individual, 
whether it is a small business, whether it is the government.
    When we go to Minute Clinic, which was started in 
Minnesota, there is no mystery about what stuff costs. You 
know, go to the CVS up on the wall when you walk in. If you 
want the flu shot, there is the price. You know, if you want 
the strep test, there is the price. It is simple. So we need to 
have price transparency and ways that average Americans, 
average Minnesotans, average citizens of Governor Rendell's 
State, can see in a user-friendly, simple format, and then I 
think we also have to align payments, whether they are coming 
from individuals or third-party payers, to quality, and not 
defined just by the volumes of the procedures.
    If you pay providers by how many procedures they perform, 
you are going to get more procedures. If you pay people to keep 
people healthy, and define what that means, either in terms of 
initially optimal care, but ultimately outcomes, I think that 
is a better use of our money and a brighter future.
    So that is the direction we are headed in Minnesota. I 
would say it is mission critical for our country. This issue, 
as one measure--and you know this--the rate that these programs 
are growing at the state level, and, candidly, at the federal 
level, this will usurp the vast majority of our State's budget 
within 20 years, probably within 15 years.
    It has enormous implications for our ability to do almost 
everything else--K-12, higher ed, roads and bridges. It is the 
big vacuum in the room. And if we don't find a way to deal with 
this, it is not only going to be a very severe challenge to 
small businesses, but the rest of what we are trying to do as 
well.
    Thank you for listening. I would be happy to answer your 
questions after Governor Rendell.
    Madam Chair, I have--Governor Rendell is being very kind 
and is offering me to take questions now, because I am going to 
try to catch a plane, and then he is willing to suspend his 
comments, if that is okay with you, Madam Chair.
    [The prepared statement of Governor Pawlenty may be found 
in the Appendix on page 38.]

    Chairwoman Velazquez. Thank you. Sure. All right. Without 
objection.
    Okay. Let me address my first question, of course, to you, 
Governor. And I would like maybe--if Governor Rendell wants to 
comment on this--
    Governor Rendell. Sure.
    Chairwoman Velazquez. --very first question. We all know 
that small businesses across the country are struggling with 
the rising costs of health care. And one of the main problems 
in many states if the lack of competition in the health 
insurance market.
    This was reiterated yesterday by the Nevada merger between 
United Health and Sierra that was approved by the Department of 
Justice. Governor Pawlenty, while I appreciate that Minnesota-
based United Health employs many citizens of your State, I was 
hoping that you can talk about whether this increase in 
consolidation concerns or presents any concerns about 
competition.
    Governor Pawlenty. Well, I will give you one other--Madam 
Chair, thank you, and members. United Health is a large company 
located in Minnesota, but oddly it is not allowed to do 
business in Minnesota. We have an old law in Minnesota that 
prohibits for-profit health companies from providing health 
services in our State. I think we are the only State in the 
nation that does that. So what we have is three non-profit 
providers, three health plans that control 85 percent of the 
market.
    In the early '90s, we did a reform where we were going to 
try to--we were the first in, and heaviest in, in the HMO. I 
wasn't there then, but that is what we tried to do. And what 
happened is initially there was some progress as to cost 
containment. They took the low-hanging fruit. But I would 
suggest to you that in Minnesota our market is not robust from 
a competitive standpoint. We have three non-profits that 
compete.
    What they do from year to year is cannibalize each other's 
market share, so when one comes in as the low-cost provider one 
year for these big employee groups, they get selected. The 
losers come back and underbid them next year. And so they just 
trade relative market share from year to year.
    The quality of services and offerings don't vary 
significantly, other than on marketing labels. And we could 
stand for much more robust competition in my State. I think the 
semi-monopolization of our health care market in Minnesota, and 
the vertical integration of it, has not served us well. Now, 
that is not a comment about what is going on in other states or 
United. It is a comment about the fact that we have allowed, 
and encouraged in some ways through public policy, the vertical 
integration of the health care delivery system in Minnesota. 
And it has not served us well.
    Chairwoman Velazquez. Okay. Thank you.
    And let me go--Governor?
    Governor Rendell. I want to add very quickly on that. 
Ironically, we are trying to get United to come into 
Pennsylvania to spread competition.
    [Laughter.]
    But there are things you can do. The reason that there is 
no competition is when you have two or three or one dominant 
carrier in an area, they are allowed to negotiate with 
hospitals and doctors clauses that make it impossible for 
competition to come in.
    And I would recommend that Congress take a look at those 
type of clauses, sort of the most favored nation clauses, and 
outlaw them--plain and simply outlaw them, make it impossible 
for them to negotiate those, because providers--a hospital--if 
you are 80 percent of the market, you are the HMO, and you want 
that type of clause, the hospital is in deep trouble if they 
don't do that. So they are forced to take an abusive regulation 
that stifles competition.
    That is something I would urge you to take a look at, and 
something I think you could legislate.
    Chairwoman Velazquez. Thank you.
    Governor Pawlenty, we have been here in this Committee, and 
throughout the Congress, trying to enact legislation that will 
allow for small businesses to be able to purchase health 
coverage. And one of the bills that we passed was the creation 
of the association health plans.
    I supported that legislation, which would allow for small 
firms to pool together for purchasing health insurance. And 
despite passage of the bill in the House numerous times, wide 
support from the small business community, and the backing of 
Minority Leader Boehner, and the President, the proposal was 
unable to get through the Senate.
    And during the debate some states expressed concerns about 
allowing firms to buy coverage across the state line, and the 
National Governors Association actively oppose AHPs. As a 
Governor, do you have reservations about allowing small 
businesses to band together, if the plans were regulated by the 
Federal Government, as opposed to the state?
    Governor Pawlenty. Madam Chair and members, I would even 
take it one step further, and say, first and foremost, we need 
to make sure that consumer protections are in place. These 
policies and rules and regulations are complex, and to have 
typical consumers try to sort through that without some 
guardrails and protections in place is something that we need 
to be very careful about.
    Assuming that those are in place at a state level or a 
federal level, in the world of the internet, in the world of 
the iPod, in the world of global markets, in a world where 
regional and state boundaries are, you know, melding, why is it 
that in Minnesota I can't buy a California insurance plan? Or 
why is it that I can't bind together with similarly-situated 
people?
    I am speaking for myself now, not NGA, but it seems 
outdated and parochial to limit these offerings to the state 
that you happen to live in when this is largely a transaction 
involving the exchange of data and the exchange of information. 
So my personal view, not the NGA's view, is that association 
health plans--and assuming consumer protection is robust, 
consumer protections are in place, people should be able to buy 
insurance wherever they want, and in whatever form they want. 
It is a free country, and you shouldn't be bound by your own 
state's boundaries in that regard.
    Chairwoman Velazquez. Thank you.
    Governor Rendell. I would differ just slightly. I certainly 
agree with the sentiments Governor Pawlenty offered. But one of 
the things I am fighting for--and in my testimony I will 
mention it--is for the State Insurance Commissioner to get the 
right to regulate health insurance rates. He regulates car 
insurance, homeowners insurance, but doesn't regulate health 
insurance.
    And if we get that right--and I think it is very important 
consumer protection, so no one can be denied coverage because 
they have a prior existing condition, which is a yeast 
infection, for example, we need the Insurance Commissioner to 
have that right. How does our Insurance Commissioner regulate a 
product that is being offered in California?
    But if you go to--and I believe Congress should--some form 
of national health insurance, maybe a form that relies on a 
working arrangement with the states, but if you go to that, 
then I think it makes sense.
    Chairwoman Velazquez. I now recognize Mr. Chabot. And I 
will ask the members to please address the question to Governor 
Pawlenty, because--given the time constraint, and then we will 
have Governor Rendell make his presentation, and we will have 
an opportunity to ask questions to the Governor.
    Mr. Chabot. Thank you very much, Madam Chair.
    And, Governor Pawlenty, you proposed a path to universal 
coverage rather than universal coverage. Could you elaborate on 
why, in your State, you decided a more incremental approach?
    Governor Pawlenty. Yes. You know, we are pretty far along 
the continuum, as I mentioned already, at 7 percent uninsured, 
93 percent insured. And so as we looked at the various models 
that have been proposed, either academically or on the ground 
around the country, we think we can make very substantial 
progress, beyond even 95 percent, with the types of payment 
reforms that I have suggested in my earlier comments. And then, 
we are going to harvest part of the savings from those payment 
reforms and plow it back into an existing or style of program 
that we have in Minnesota, provide more access to the 
uninsured.
    We hope that most of the savings--in my view, about two-
thirds of it--will go into holding down premiums, and then more 
for access. In my opinion, and you have got to be careful about 
a mandate where you say everybody has to be insured--and then, 
if you--the health care that you have available in your 
marketplace isn't affordable, you end up criminalizing poor 
people, or penalizing poor people.
    So I think a better approach--and we think we can get there 
without such a mandate--would be due to the payment reform and 
provide the ability for individuals to go into the marketplace 
and purchase it themselves, or through their employer or 
association.
    Mr. Chabot. Thank you. And in your written testimony, you 
had emphasized that states should continue to have the 
flexibility to try new approaches. Could you discuss why that 
is so important?
    Governor Pawlenty. Well, we celebrate this year the 100th 
anniversary of the National Governors Association. And one of 
the roles that we think we can play is to be laboratories of 
democracy, that we can go out, try new things. We are a little 
smaller. We are little more nimble. We can do things a little 
quicker. The good news is, if we can show that it works, you 
could perhaps take some comfort as a Congress before you took 
it national, without having to take on all the risk.
    On the other hand, if we do things that don't work, and 
they turn out to be stupid, then you could prevent that from 
being visited upon the whole country before we road test it a 
little bit in the states. So having flexibility, first of all, 
respects federalism, respects state rights, and that is the 
tradition of our country.
    But second of all, it preserves this role as a laboratory 
of democracy where we can be experimenters and hopefully 
deliver results that might be appealing to you.
    Mr. Chabot. Thank you. And, finally, in your written 
testimony also you referred to making consumers meaningful 
partners in their health care. Could you discuss why that is so 
important?
    Governor Pawlenty. Well, it has been my experience, sir--
and I am sure it has been yours--where when people have some 
skin in the game--I don't mean that medically, I mean that 
financially--
    [Laughter.]
    --the tend to behave differently. And, you know, if we--I 
go out in the hallway here and have a cardiac arrest, I don't 
have the time to look up, you know, who the best local provider 
is in terms of a quality web site and look up price 
transparency. But for those things that are schedulable, 
predictable, preventable, and repetitive, it seems to me having 
consumers' interests financially aligned with best price/best 
quality is a good thing to do.
    And the good news there is, in our research, in most 
instances the highest quality providers in many cases are also 
lower cost providers. Not in all cases, but in many cases. And 
so this investment of consumers changes their behaviors in ways 
that I think will serve the financial systems well, but, more 
importantly, will also drive them to better health care.
    Mr. Chabot. Thank you very much, Governor.
    I yield back the balance of my time, Madam Chair.
    Chairwoman Velazquez. Sure. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Madam Chairwoman, and, 
of course, welcome.
    The first and most burning question--and I apologize if 
someone asked it. I was outside actually meeting with a bunch 
of physicians from the State of Texas in the city. I mentioned 
Governor Rendell's suggestion on the most favored nation type 
provisions, and actually the Texas legislature is going to be 
looking into that. I asked them--they ought to come in here, if 
there was some room.
    But the most pressing question, and I don't think anyone 
has asked it yet, but I know it is on everybody's minds, given 
where we are in the primaries. I would ask both Governors: if 
nominated, would you accept? If elected, would you serve?
    [Laughter.]
    You can answer that some other time, instead of putting you 
in the hot seat.
    Governor Pawlenty, I really wanted--there are a couple of 
things--the most interesting things we have been discussing 
about pay-for-performance and such. But, first, just protocols. 
And you were talking about the optimum care and such. How do 
you establish those benchmarks? I think you made reference to 
diabetes treatment, and you said that is easily identifiable, 
what you should do, what are the basics, what is the proper 
care, best practices, and such.
    But if you are talking about treatment across the board, 
whether it is a particular disease or regular treatment or 
whatever for other--or just checkups or whatever, how do you 
ever get to that bottom line, first of all, as to what would be 
the minimum of best care, best practices? How do you establish 
that?
    And then, secondly, I guess it is, how do you establish 
pay-for-performance criteria? Because we have asked Governor 
Leavitt, Secretary, HHS, and he hasn't been able to give us an 
answer to that, at least the last few hearings that I have 
attended. So those are the two questions.
    Governor Pawlenty. Thank you, Congressman Gonzalez. I can 
tell you in Minnesota that we envision this in two steps. We 
are not ready yet, nor are the databases ready yet, nor is the 
delivery system ready yet, to pay purely for health care 
outcomes. The systems aren't robust enough. The culture--
medical culture is not yet advanced enough.
    But conceptually, we see that, and there is acceptance of 
it. In the meantime, as a proxy for outcomes, we want to pay 
for adherence to world-class standards, which gets to your 
point. Again, this is not the destination, but it is the 
pathway to the destination.
    We have a hometown advantage in Minnesota, because we have 
the Mayo Clinic. And so we have the Mayo Clinic and others who 
have sponsored something called ICSE standards. I forget what 
it stands for, but it is ICSE, and it is basically a depiction 
of world-class standards in many courses of treatment. And so 
when doctors come and say--did say, ``You know, why do I want 
to practice medicine by a cookbook? You know, I have got my own 
standards,'' and, like, you really want to take issue with the 
Mayo Clinic as being, you know, low quality?
    And so we are not saying you have to do that, but we are 
saying we will pay you more if you do do it. So in the case of 
diabetes, we have this program called Bridges to Excellence, 
where we say, all right, we have got about 6 or 8 percent of 
our current diabetics in Minnesota on these optimal care 
treatment regimes, we want to get that to 80 percent over the 
next 10 years. So we are saying to our providers, ``We will pay 
you more if you can get your patient load to 10 percent next 
year, and then, after that 15 percent, and after that,'' so it 
is a bonus system based on these ICSE standards.
    But I will acknowledge to you that is not the endpoint. 
Those treatment protocols or standards are proxy for better 
health, better health care outcomes. They are not the outcomes 
themselves.
    So we had some resistance in Minnesota, and still do to 
some extent, but the medical community has come around these 
ICSE standards mostly. There is still some dissent, but they 
have mostly come around it, and most because of the credibility 
of the Mayo Clinic and the people who stand behind the 
standards.
    Mr. Gonzalez. Thanks very much, Governor.
    Governor Rendell. Congressman--
    Mr. Gonzalez. Government Rendell?
    Governor Rendell. --I will take a quick shot at that. 
Number one, obviously, standards are always debatable. But we 
know that there are certain things that we shouldn't pay for, 
and our Medicaid program has informed providers that we are not 
going to pay for medical errors anymore. We are not going to 
pay for obvious medical--preventable medical errors.
    You know, right now in the current system, you go in for 
the amputation of your right arm, the hospital by mistake 
amputates your left arm, your provider pays for that. Then, for 
the remediation of the left arm, including the placing of a 
prosthesis, your provider pays for that. And then, they get 
around to amputating the correct arm, and your provider pays 
for that--a third time. No one business, no other field of 
endeavor in the United States of America, would business people 
put up with that, paying for that type of performance.
    And we are not in our Medicaid program anymore. We have 
notified them. We have worked on it with our hospitals, and our 
hospitals have agreed that this is a fair system. We are not 
going to pay for obvious preventable medical errors. That is a 
standard that should be applied across the board.
    Secondly, we do know--the industry, the science of health 
care, knows what works and what doesn't work. There are 10 
states--and I think Minnesota is one of them--that allow for 
the--what is called the Taylor model, named after the doctor 
who formulated it, for treating chronic care diseases like 
diabetes.
    Right now, in Pennsylvania, if you have diabetes, the only 
thing we will pay for is the time you spend with your primary 
care physician. Most primary care physicians are swamped. They 
tell you you have diabetes, they will give you a pamphlet on 
diet, they will give you a quick run-through of how you test 
yourself, you are out of the office. And the next time they see 
you may be when you are going into the hospital for amputation.
    The Taylor model--the health care system pays for a 
nutritionist who works almost on a weekly or every two week 
basis with that patient, saying, ``How are you doing? Is your 
diet too restrictive? If it is, I can make substitutions.'' The 
Taylor model pays for a physician's assistant who will tell 
that person how to test themselves, or, if it is too painful, 
will suggest an alternate method, and make sure that the 
patient is living up to those procedures on a weekly basis.
    The Taylor model pays for the pharmacist's time as well. 
You manage the disease. You don't just treat it; you manage it. 
We can show you, in the 10 states that have the Taylor model, 
the hospitalization rate for diabetes compared to Pennsylvania. 
And we estimate we will save $2.1 billion if we can get down to 
the hospitalization rate of the 10 states who manage chronic 
care diseases. So it is doable.
    Mr. Gonzalez. Thank you very much.
    Chairwoman Velazquez. Time is expired.
    Mr. Gonzalez. I yield back.
    Chairwoman Velazquez. Governor, at what time do you need to 
leave the room?
    Governor Pawlenty. Madam Chair, just in a few moments.
    Chairwoman Velazquez. Okay. So I now recognize Mr. 
Fortenberry. Is he here? No. Who is next here? Mr. 
Westmoreland. No? Mr. Akin, okay.
    Mr. Akin. Thank you, Madam Chair.
    I have just a real quick question. Are you assuming--and in 
your State is the health insurance policies, are they portable, 
or is that not the case?
    Governor Pawlenty. Generally, no.
    Mr. Akin. And do you support that idea, or have you looked 
at that? Or what is your position on that?
    Governor Pawlenty. Yes.
    Governor Rendell. Same answer.
    Mr. Akin. That is all I had. Thank you, Madam Chair.
    Chairwoman Velazquez. Mr. Altmire.
    Mr. Altmire. Governor Pawlenty, thank you for being so 
generous with your time with your flight on the other end. I 
spent my professional career before being elected in health 
care policies. This is something I have thought about and 
worked a lot. And I talk about pay-for-performance all the 
time, and I want to commend you for your testimony--and I will 
commend Governor Rendell after his testimony--but for what you 
have done to take a leading role in pushing that.
    And I agree with everything you said about the incentives 
that exist, and it is almost as though the incentive of the 
provider is for the patient to get sick. They make more money 
the more often they come to see them, and you have taken steps 
to address that.
    So, quickly, my question is: given the impact that pay-for-
performance will have on health care providers, and 
particularly solo and small group providers, practitioners, 
what steps have you taken in your state to make sure that they 
are fairly considered with their interests?
    Governor Pawlenty. Thank you, Congressman Altmire. It is a 
great question. And I also want to say in the interest of full 
disclosure, what we have done in Minnesota is early stage. I 
think I would be misleading this Committee if anybody said we 
have got a full-blown pay-for-performance program, it is 
embedded in the culture, deeply embedded in the payment system. 
We are at the very beginnings of paying at the margins for 
diabetes, obesity, and a few other things. So it is a start. We 
think we know where we need to end up, but it is just 
beginning.
    As to your question about rural or smaller providers, in 
Minnesota we are trying to address that, and one way is through 
health information technology. That if you are in an area of 
greater Minnesota, and you need access to this type of 
information on standards, practice protocols, or the like, that 
you have the capabilities to access that. And we also don't 
make the system mandatory.
    You know, in the end, if we are going to pay for outcomes, 
we should be agnostic as to how they get there, you know, 
making sure there is consumer protection and it is legal and 
ethical and appropriate. But we have got this intermediate step 
where we are paying for procedures now, and now we are going to 
go to best practices, and hopefully to outcomes.
    But we could say to small and rural providers, ``Here is 
the outcomes we expect. How you get there, you know, is part of 
the art of medicine. And we will see you on the results side of 
this.'' But we are not there yet with the system we have. But 
to answer your question, we are trying to provide some support 
to transition them, to make sure they have access through 
technology to the same information everybody else has got.
    Mr. Chabot. Would the gentleman yield? I thank the 
gentleman for yielding.
    Madam Chair, if I could make a suggestion. Since the 
Governor has to leave literally very soon, in moments, perhaps, 
because a lot of members have been here, if each member could 
maybe ask one question so we get to as many as possible.
    Chairwoman Velazquez. Without objection, yes.
    Mr. Chabot. Thank you.
    Chairwoman Velazquez. Mr. Westmoreland. And we will come 
back a second round.
    Mr. Westmoreland. Thank you, Madam Chair.
    And, Governor, thank you for being here, too. I wanted to 
ask you about the flexible benefits program that you allowed 
small business--or I guess insurers to offer small business. It 
says that--I was just reading a statement--that the plan must 
be offered on a guaranteed basis to all small firms.
    So are you saying that there is--that each small business 
cannot come up with their own menu of plans that they would 
want based on the employees getting together and saying, ``We 
need this, we don't need this,'' but they would all have to be 
offered the same plan?
    Governor Pawlenty. Within a range of--Congressman 
Westmoreland, within a range of benefit options they can 
design. But once the plan is offered, it has to be available in 
the market broadly.
    I will also tell you this program has not been particularly 
successful. Not because I don't think it is well designed and 
well intentioned, but it has been woefully under-marketed. And 
in my view, the health plans do not have a large incentive to 
sell this particular product. It is a low-profit, low-margin, 
high administration product, and I would say to you the impact 
of this in Minnesota so far has been very modest.
    And so I would not bring this up yet as a success, and I 
think more flexibility perhaps would be--but the heart of the 
matter is the health plans have very little incentive to 
aggressively market that plan. And they are marketing, frankly, 
more revenue-robust plans.
    Mr. Westmoreland. Do you think it would be better if they 
were able to offer different plans to different businesses?
    Chairwoman Velazquez. Remember, one question.
    Governor Pawlenty. Yes. Congressman Westmoreland, yes, but 
within a base of consumer protection. You know, again, this is 
an area where consumers can get really exploited if we are not 
careful. These plans and policies are very complex.
    I used to be a lawyer. I try to read this stuff. I can't 
understand my benefits and rights, and so you have got to--
within a range, you have got to protect the consumers.
    Chairwoman Velazquez. Mr. Sestak.
    Mr. Sestak. Thank you. Governor, you made a response to a 
question earlier--I think the response had something to do 
with, you know, an individual having skin in the game, you 
know, changes the behavior because they have to pay a part of 
it. Why can't you extend that skin in the game analogy that you 
want to change behavior by having a mandate, so that people are 
involved in it? And isn't that the same philosophy that, 
therefore, their behavior might change if they are involved in 
a particular sense? If they are not, you then have to wait 
until they go to the emergency room. Isn't it the same analogy?
    Governor Pawlenty. Madam Chair--I am sorry, Congressman, I 
can't see your name plate there, but--Sestak--you are speaking 
to an individual mandate for coverage. We have an individual 
mandate for automobile insurance in Minnesota with the threat 
of a criminal penalty, and the non-compliance rate is well 
north of 10 percent. And the reason for that is, in part, some 
people just aren't responsible, but a large part of it is 
people can't afford the insurance. And so there is a reality 
there that lies underneath that.
    The other thing is, at least in Minnesota, we are so close 
to what many would define as, you know, reasonable universal 
coverage that we don't think it is necessary. We are already at 
93 percent, you know, and we think we can get to the 
Massachusetts standard without that.
    And the other thing I would be careful about, the 
Massachusetts approach is a work in progress. And I would 
suggest to you that there are some unique circumstances there 
that may not be--that you can't replicate. Specifically, they 
cut a deal with the Federal Government where they have got a 
big bunch of transition money that is available for a couple of 
years and then it sunsets. And that was part of a deal they cut 
on some Medicaid negotiation issues that sunsets.
    Number two, they promised affordability, and it--the jury 
is still out yet on whether over time that is going to be an 
affordable plan. You know, originally, they had hoped to do it 
under $200 a month. I think it is north of $300, and maybe in 
many people's minds, if the legislature keeps putting stuff in 
there, it could be a $400 or $500 a month plan.
    Now, they have added some people to the rolls. No question 
about that. But I don't think that mandating something through 
government is the best way to go, particularly when the main 
barrier is you have got people who can't afford it. And so I 
think a smarter way to go is to try to make it affordable and 
help them through the marketplace, if need be give them some 
financial assistance. But saying, ``Poor people, you know, get 
this or you are going to be a criminal,'' seems to me not the 
wisest path.
    Chairwoman Velazquez. Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Governors, for joining us 
today. I am in your neighborhood. I am from Nebraska. And I 
really appreciated your opening comment. I think the major 
challenge before us all is: how do we improve outcomes and 
reduce costs? And to that end, I think you identified three 
absolute critical factors, one being both transparency in terms 
of quality of care as well as price, and in addition to that 
the use of health information technology to increase 
efficiency, but also encouraging/incenting healthy behaviors.
    In that regard, I want a clearer understanding, though, as 
to what level of subsidy the State is providing to the various 
components of the health care plans that you have talked about, 
and whether or not health savings accounts are an important 
component of that, because the health savings account, in my 
view, particularly when you can--again, allowing someone to use 
the price mechanism for their own care, in partnership with 
their health care provider to improve an outcome, but also save 
a little money, is a very important way in which we can, again, 
achieve, again, a better outcome and reduce costs.
    So I am curious as to the level of State subsidy and 
whether health savings accounts are an important part of that.
    Governor Pawlenty. Well, thank you. And if I could just 
jump back to the other Congressman's question. The other aspect 
of a mandate is if you mandate it, and people can't afford it, 
then you have just either made them criminals or you have sent 
the government the bill. And you guys are broke, we are going 
broke, so it is--where does that lead?
    As to your question, Congressman Fortenberry, HSAs 
philosophically for me, are a right direction, a right option 
to present. I will say their impact in the market so far has 
been modest. A cousin of HSAs, as it relates to consumer 
empowerment, consumer responsibility, is what you do with 
financial alignment of--you can go wherever you want--my 
attitude is, go wherever you want, but if you pick a high-cost, 
low-quality place, we are not going to pay as much of that as 
we would if you went to a high-quality efficient place.
    And, you know, that is oversimplified, but within the 
deductibles, co-pays, those types of mechanisms, I think you 
want to align those mechanisms to high-quality efficient 
places. And those are powerful incentives.
    I will tell you one quick, true story. A guy's daughter got 
injured in Michigan. He is a Minnesotan, a Minnesota health 
plan, so he is out of network with a Michigan provider. She has 
a knee injury. It is not life-threatening, and they wanted 
something like $1,600 or $1,800 for the MRI in Michigan.
    He gets a friend to drive her home. In the meantime, he is 
in an HSA, so he gets on the phone to Minnesota MRI providers. 
He gets quoted a $1,200 price, a $900 price, an $800 price. 
Finally, he finds a place that, if he pays cash up front, cash 
discount, he got it done for like $600.
    So now not everybody is going to jump on the phone and do 
that, but he was a motivated, involved, engaged consumer, and 
got the price of that procedure down from $1,600 to $600. That 
is the power of having people say, ``Hmm, if I have got to pay 
something, maybe I had better think about what the price is and 
what the quality is.'' I am sorry?
    Mr. Fortenberry. The mechanism by which the State sets it 
up.
    Governor Pawlenty. Oh, yes. We have endless numbers of 
State programs in health care, and we are going broke over 
them. But one of our flagship programs is called Minnesota 
Care. You know that if you are--oversimplify it, if you are a 
senior citizen or older, you get Medicare, which is a good 
program. If you are disabled or poor, you get Medicaid, which 
is a good program. If your employer-based coverage, you get 
your coverage from your employer, the people who are falling 
through the cracks of course are the working poor who don't 
make enough to, you know, buy their own, or don't get their 
insurance from their employer, but make too much to qualify for 
the public program.
    So the in-betweeners in Minnesota might qualify for 
something called Minnesota Care. It is a sliding scale subsidy 
program for you to go out and buy insurance, or we buy it for 
you, in the private market. And that is the way we deal with 
the in-betweeners, the working poor that fall through the 
cracks. And it is a big program, and the amount of subsidy 
varies depending on income level, and then it falls off 
completely. And it is a good program, but it is an expensive 
program.
    Chairwoman Velazquez. Ms. Clarke.
    Governor Pawlenty. Madam Chair, I am afraid I am going to 
have to go. But if I could thank you for your understanding, 
and I also want to particularly thank Governor Rendell for his 
patience. And I owe him one now.
    [Laughter.]
    And owing Governor Rendell is not a good thing.
    [Laughter.]
    Chairwoman Velazquez. Thank you, Governor. Thank you so 
very much, Governor.
    Okay. Well, I now recognize Mr. Sestak for the purpose of 
introducing our next witness properly.
    Mr. Sestak. Thanks, Chairwoman Velazquez and Ranking Member 
Chabot.
    I am very pleased to introduce Governor Rendell. When I got 
out of the Navy two years ago this month and entered politics, 
and I asked somebody what to do, he said, ``Do what Ed does.'' 
Everybody, you know, calls him Ed. You can go to every train 
station in the morning at 6:00, every hoagie shop during the 
day, and every restaurant early evening, and every bar late at 
night.
    [Laughter.]
    And then, finally, they said, ``Make sure you do what he 
did as--make sure Wawa names a sandwich after you,'' because we 
have up there the Rendelli Wrap, which is chicken strips with 
buffalo blue cheese. I haven't gotten the last one, but I 
followed everything else and I am here.
    He certainly is a man of the people. After he took over in 
2003, even though I watched from a distant way at sea, he 
basically took very strategic investments and revitalized 
communities of people, enhanced their education, an really 
began to expand health care, starting with those who were 
disenfranchised at the time, the young children, all the way to 
mental health and drug addiction.
    I am really pleased that we are addressing this today with 
him, because it is a real brain-drain on small businesses at 
times. They do create 70 percent of all jobs, but they don't--
aren't as able to provide health care, so, therefore, those 
kids, those entrepreneurs, those startup types, are being 
potentially more attracted to large businesses rather than 
small.
    And so what we will hear from him is a prescription for 
Pennsylvania that has several components to it--cover all 
children, cover all Pennsylvanians, but also to address costs 
by--what I am most taken by is the impact that we are going to 
address this issue of health-caused infections, all the way 
down to chronic disease management.
    In short, his approach is exactly who he is. It is 
everybody contributes, everybody benefits in a common-sense, 
comprehensive approach to health care. And at the end, just 
before I introduce him, on a personal note, as every new 
politician does early in their career, they get into trouble.
    [Laughter.]
    They make some decision to speak somewhere potentially, as 
in my case, and where segments of a certain community were 
either blogging me to death, or whatever, and I decided to stay 
the course. There was one politician who decided to show up 
that evening uninvited to stand beside me at a pretty trying 
time, and so I very much thank you, Governor. You really are 
not just a great politician, but, without question, a selfless 
individual who is truly, in my opinion, a profile of courage.
    Thank you.

   STATEMENT OF THE HONORABLE EDWARD G. RENDELL, GOVERNOR OF 
             PENNSYLVANIA, HARRISBURG, PENNSYLVANIA

    Governor Rendell. Thank you, Congressman.
    Chairwoman Velazquez. Welcome, Governor.
    Governor Rendell. Thank you, Madam Chair.
    Let me just give you, first, a quick look at a thumbnail 
sketch of where we stand in Pennsylvania, our situation, not 
quite as rosy as Minnesota.
    In the last seven years, from 2000 through 2006, health 
care inflation has risen in Pennsylvania by 75 percent. Regular 
inflation--health care premiums have risen by 75 percent. 
Regular inflation, 17 percent; median income has grown by 14 
percent. So you can see just how far, how fast, small business 
or all business employers have fallen behind the health care 
premium rate of growth, and how the employees who contribute 
have fallen behind. Their buying power is much, much less than 
it was seven years ago.
    I would submit to you that if we fast-forwarded to 2013, 
the next seven years, and those statistics continue, health 
care as we know it in Pennsylvania, and my guess is in almost 
all of the states represented by this panel, will be over. 
There will be no employer-based health care in the United 
States of America. I think that is unsatisfactory and wouldn't 
be a good result for us.
    In Pennsylvania, we have--the good news is we have about 92 
percent of our people covered. The bad news is it is 800,000 
adults without coverage--a little less than 150,000 children. 
Of those who are uncovered, 74 percent of them work, and the 
vast majority of them work for small businesses. And I am using 
the federal definition of small businesses--50 employees or 
less.
    Twenty-seven percent of them have been uninsured for at 
least five years. Premiums for employer-based health care rose 
in 2005 by 9.2 percent. It was the fifth straight year that 
premiums increased by at least 9 percent.
    In less than 10 years, the average cost for premiums for 
family coverage in Pennsylvania through employer-sponsored 
health care has gone from $4,800 in 1996 to $11,400 in 2005. 
During that same period, if you were just trying to insure your 
employee, coverage went from $2,000 to $4,600. Stunning 
increases.
    And the most stunning fact of all--Pennsylvania is second 
only to California in the number of citizens who, between 2000 
and 2007, have lost employer-based health care; 491,000, 
effectively one-half million Pennsylvanians, have lost 
employer-based health care in the last seven years, second only 
to California, as I said.
    Now, what can we do about it? I think what we have to do is 
take strong and decisive action, do it quickly, do it smartly, 
and I believe the answer is a combined federal and state 
program.
    But let me tell you a little bit about what we have tried 
to do in Pennsylvania. You have heard Congressman Sestak said, 
and the Chairwoman said, we have a plan called Prescription 
Pennsylvania. It has three components, all equally important. 
The first component is to contain and drive down costs. If we 
don't do that, nothing else we are designing here will matter, 
because--Governor Pawlenty used the vacuum analogy--because 
everything will be swept away unless we can contain and reduce 
certain costs. We believe we can do that.
    The second component of our plan is to cover all 
Pennsylvanians. But if you did that, the average premium for a 
small business or a large business would drop by 6.2 percent. 
If we covered all Pennsylvanians, it would save the health care 
delivery system $1.2 billion in Pennsylvania--a 6.2 percent 
reduction in that small businesses' premiums. And I want you to 
keep those percentages in mind.
    The second thing we want to attack is medical errors, and 
we are attacking them in a number of ways. As I said, in our 
Medicare and Medicaid program, we are stopping paying for 
obvious and preventable medical errors. We want big businesses 
to join us in doing that. Preventable medical errors cost $2.1 
billion, about 10 percent reduction in premiums if you get rid 
of all them, and I know you can't.
    Hospital-acquired infections--I think Congressman Sestak 
made reference to that. We require our hospitals to report the 
level of both medical errors and hospital-acquired infections. 
Last year, there were $4 billion of hospital-acquired 
infections. You know what that is. I come in for an 
appendectomy, I am otherwise perfectly healthy, but I get 
infected by something that occurred inside the hospital. It is 
stunning.
    The average cost of hospitalization in Pennsylvania is 
$32,000. If you get a hospital-acquired infection, the average 
cost is $180,000. Are hospital-acquired infections--and you 
have all now heard about MRSA--are they preventable? Yes, they 
are. And Scandinavian countries have pretty much zeroed them 
out. They are preventable.
    Some good work is being done here. The Pittsburgh VA, 
Congressman Altmire, is the leading Veterans Administration 
hospital in controlling hospital-acquired infections. They have 
an interesting protocol, which I don't have time to tell you 
about, but over the course of the average stay that protocol 
costs $377. It is masks and gowns and hats for everyone who 
comes within a certain amount of the patient. It costs $377, so 
you pay me now $377 per patient, or you pay me later $150,000 
per patient.
    We passed in Pennsylvania the first comprehensive hospital-
acquired infection bill in the State. We make hospitals file an 
HAI control plan. We make them adhere to best practices. We 
reward them, give them monetary rewards, for incremental 
reductions in hospital-acquired infections, and we punish them.
    I have said, and my Health Commissioner stands ready, if a 
rate of hospital-acquired infection does not come down or grows 
over a certain period, we will take away the license of that 
hospital. And I don't care if it is the most blue chip hospital 
in Pennsylvania, if they are not going to take it seriously, we 
will take away their accreditation.
    The next thing we do is to free up our non-medical 
providers to do more in the health care delivery system. We 
passed comprehensive legislation to do that. And as a result, 
nurse-run clinics are cropping up all over Pennsylvania--in big 
box drug stores, in food stores, in supermarkets--and they give 
treatment in off-hours.
    So we have stopped the flow of people going to emergency 
rooms for non-emergency treatment, because they can go to these 
nurse-run clinics. It increases accessibility, particularly in 
rural areas, in hard-served urban areas, and at the same time 
it cut costs, because instead of a primary care physician, you 
are getting a certified nurse practitioner delivering the same 
treatment. Instead of a dentist, you are getting a dental 
hygienist, delivering the same treatment at significantly less 
cost.
    Chronic care I alluded to, and so did Governor Pawlenty. We 
believe we can cut out most of those $2 billion of unnecessary 
hospitalizations that come from an improper method of treating 
chronic care diseases. Just take hospital-acquired infections--
if we could eliminate half of the $4 billion that is being 
spent now by the health care delivery system, that would be 
another 12 percent reduction in the cost of premiums.
    So can we constrain health care costs? Is it useless? Of 
course not. Of course not.
    In our State Employee Benefit Program, it employs 58,000 
employees. Rather than all of those increases that I have told 
you, in the last three years we have had zero increases. Why? 
Because we went to generic prescription drugs for everyone. You 
can't get a name brand. You cannot get a name brand.
    We have wellness programs where we give employees financial 
incentives for meeting wellness standards, and those things 
have caused us to be able to hold down our plan. So anyone who 
tells you that we can't constrain costs in the health care 
delivery system is not telling you the truth.
    The second part of our plan is cover all Pennsylvanians. 
That doesn't relate directly to small business.
    The third part of our plan is how we attack insurance 
reform, and insurance reform is very, very important. Small 
businesses in many states get killed by the rating system. If 
you have got 10 employees, and two of your employees--let us 
say they are 28-year old men--leave, and you hired or replaced 
them with two 25-year old women, your rates, unless they are 
controlled, will spike through the roof. Why? Because they are 
child-bearing years, and there are potential risks.
    Many states still allow--and Pennsylvania is one of them--
still allow that type of demographic rating. We want to change 
that. We want to go to only age, location, and geography, as 
things that can cause differential in prices. We want to make 
sure the highest price that an insurance company can charge per 
employee is only twice the level of the lowest price that they 
charge. That is crucially important to small businesses.
    We want to pass a law that says 85 percent of the premium 
dollar goes to providing health care, not to advertising, not 
to salaries, not to overhead, but to health care--a crucially 
important aspect of this. And as I said, we want to give the 
Insurance Commissioner the right to set rates and to adjust 
some things that are clearly unfair practices.
    Cover all Pennsylvanians--we offer a good--stripped down 
but good basic health care product--hospitalization, 
prevention, unlimited doctors' visits, generic prescription 
drug coverage, mental health and substance abuse coverage. We 
subsidize it using some federal funds, 33 percent federal 
funds, about 30 percent State funds. We subsidize it by asking 
the employer to pay $130 a month. The employee pays either $40 
or $60 in contribution per month, depending on their overall 
family income.
    It is a good, stripped down, affordable plan, and we 
believe it will cover virtually everyone who works for small 
businesses. This is only available to small businesses, 50 
employees or under. And it is only available to low wage 
businesses. Low wage businesses are defined as businesses that 
have a median income--their average payroll is less than the 
median income, which in Pennsylvania is $42,000 times, let us 
say, 10 employees. If their payroll is lower than that, they 
qualify for the product. But we are requiring all insurers in 
Pennsylvania to offer this product without the subsidy.
    We also offer it to people who are self-employed. We offer 
it to people who don't have coverage in any other way. We even 
offer it to people who make more than 300 percent of poverty, 
but they come in and buy it at our cost. Our cost is $240 a 
month that we pay to subsidize. So it is a good, workable plan. 
It will cover most of the people in small businesses.
    And at the same time, insurance reform is crucial, it is 
absolutely crucial--small businesses get hit more by insurance 
company practices than anything else--and containing costs. 
Those are the things that I believe can give us a workable, 
affordable, accessible health care system in both Pennsylvania 
and across the country.
    [The prepared statement of Governor Rendell may be found in 
the Appendix on page 45.]

    Chairwoman Velazquez. Thank you, Governor.
    And I am going to ask unanimous consent that the Chair and 
the Ranking and all the members will have an opportunity to ask 
just one question. Without objection.
    Governor, if I may, I would like to talk to you about the 
funding vehicles for the CAP program. And I know that has been 
the center of the debate in the Pennsylvania legislature. And 
under your original proposal, the fair share assessment would 
have required businesses pay into a fund if they do not offer 
health coverage.
    And this plan was similar to the Massachusetts reform, but 
I understand that it was opposed by some lawmakers. Can you 
talk to us about the original plan and why you believe there 
was some resistance to it, and how are you funding this 
initiative now?
    Governor Rendell. Well, real quickly, we had three sources 
of funding--one, to increase our cigarette tax by 10 cents a 
pack, still keep us far lower than New York and New Jersey; 
two, to tax smokeless tobacco products. Unbelievably, 
Pennsylvania is the only State in the union that doesn't tax 
cigars and smokeless tobacco products. When I came in, I said 
that can't be right. North Carolina, Kentucky, Virginia--no, we 
are the only ones. So those were the two sources.
    And the third source was the fair share assessment that got 
at the free riders. And I believe, conceptually and in every 
way, that there shouldn't be free riders. Whether you are a 
small business or whether you are a 1,000-employee business, if 
you don't provide health care, you are driving up the cost of 
everybody else.
    If you have got 1,000 employees and you don't provide 
health care, everybody's premium--every small business in the 
State who does provide health care is paying over 6 percent 
additional to their premium because of you. So we proposed a 3 
percent payroll assessment, payroll tax, whatever you want to 
call it.
    Because it would have impacted on small businesses, it got 
very little support in the legislature, including by my own 
Democrats. Even though we phased it in for five years for small 
businesses, we had a lot of small business protections, but it 
still became--you know, eventually you get the message you are 
not going to get it through.
    I still think it is the best way to go. There should not be 
free riders in the system. Why should one machine shop with 10 
employees offer health insurance to its employees and the 
other, who is competing with it--you know, two miles down the 
road--get away without offering health insurance, and those 10 
employees get picked up in ways that we all eventually pay 
for--ratepayers and the State and eventually pays for.
    So as a substitute, it is really too complicated and not 
worth spending the time. But we have an abatement fund for our 
doctors from their medical malpractice insurance liability that 
they pay to the State in Pennsylvania--you pay private 
premiums, and you pay to the State for the catastrophic fund. 
We abated that fund; especially for specialists, we abated it 
when we were in the middle of the medical malpractice crisis.
    We have kept that abatement on, and it has worked very 
successfully to stabilize the practice of medicine in 
Pennsylvania. but it is racking up big surpluses, so we are 
tapping into the surplus to pay for--to cover all 
Pennsylvanians.
    Chairwoman Velazquez. Thank you, Governor.
    Mr. Chabot.
    Mr. Chabot. Thank you. First of all, I represent 
Cincinnati, Ohio, Governor, and I would appreciate it if your 
Steelers would quit beating up on my Bengals. So--
    Governor Rendell. Next year.
    Mr. Chabot. All right. We will see. Hopefully, we will do 
better next year.
    But my question is that there are some uninsured 
individuals, especially young people, who could afford health 
insurance who just choose not to be covered. What would you do, 
what do you do, about individuals in that situation?
    Governor Rendell. Well, interestingly, I favor mandating so 
those people aren't free riders either. I favor mandating. But, 
again, it was one that I knew--we have, as Representative 
Altmire and Representative Sestak will tell you, a little bit 
of a conservative legislature. And I have dragged them kicking 
and screaming into the 21st century.
    But there were certain things that I knew I couldn't 
accomplish, and what we said in Pennsylvania--we will try it 
without the mandate for five years, and then see if the free 
riders are hurting the system. Do you know who wants those 28-
year olds in the system? The HMOs, and with good reason--
because if we are going to force them to cover--and in 
Pennsylvania we intend to force them to cover cancer patients, 
everybody--they should have the right to have the healthy 28-
year olds in the system.
    In fact, they are called by the health care profession 
``the invincibles.'' They are 28-year old males, they never 
think they are going to get old, they have never seen a doctor, 
they don't think they have any need for a doctor. In fact, I 
was an invincible once. I was playing basketball and I took a 
pass on one of my fingers. And I didn't go to the doctor for 
three days because I thought I could heal it myself. As a 
result, I have a crooked finger for the rest of my life.
    The invincibles are the ones that everybody wants. In 
Pennsylvania, we have designed a bizarre system. If you have 
cancer, and you are not covered, you can't get health care 
coverage. If you are a 28-year old, and you are perfectly 
healthy, everybody wants to cover you. It is you-know-what 
backwards. It makes no sense at all.
     [Laughter.]
    You know, it makes no sense at all. And to make the system 
work, to be fair, if we are going to keep the system of 
insurance companies delivering the basic product--and I think 
we should--I think you need to get the invincibles into the 
system for the benefit of the insurance companies.
    Mr. Chabot. Thank you, Governor. I yield back.
    Chairwoman Velazquez. Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Madam Chair.
    Governor, thanks for being here. Governor Pawlenty talked a 
lot about the performance pay or time payment to quality. Could 
you tell--in your studies, you have obviously studied this a 
lot. Can you tell me your views on that and some of the 
pitfalls you see and/or the challenges? I know you said it was 
in the infancy stage, but just what your experience has been or 
how you view that.
    Governor Rendell. You know, we have a wonderful medical 
profession in this country, wonderful hospitals, wonderful 
doctors, the best in the world. And Pennsylvania really, in 
teaching hospitals, leads the way. But you have got to motivate 
the system to change.
    Think about it for a second. Why are there $4 billion worth 
of hospital-acquired infections? Why are there? Don't the 
hospitals care about the quality of care that they deliver? 
Aren't they worried about what happens? By the way, that $4 
billion, also 2,500 deaths a year; 22,000 cases of hospital-
acquired infection, 2,500 deaths.
    And the interesting thing, all the cost containment stuff I 
talked about, better way of handling chronic care, hospital-
acquired infections, medical errors, all of those things 
improve the quality of the system. Normally, when we save 
money--I know when you try to save money in Washington people 
say, ``Oh, you are hurting people.'' Here, we are saving money 
and helping the quality of the delivery of the system.
    So preventable medical errors are step 1, and we are doing 
it in the Medicaid program. We intend to do it for everyone in 
our system, for our seniors, for our employees. I mean, we are 
the 800-pound gorilla. The State of Pennsylvania actually 
insures 24 percent of the people who get health insurance in 
the Commonwealth of Pennsylvania. So we intend to do it, and I 
am talking to employer groups about doing it.
    Why? Because it will motivate cost-saving and quality-
inducing changes that we can't seem to motivate anyway. When I 
visited the Pittsburgh Veterans Administration Hospital--and if 
you all have time, go there and see what they have done--the 
protocol is neat and it makes sense, but the thing that is so 
important is everybody has bought in--the doctors, the nurses, 
the janitors, the maintenance men. We had a janitor who showed 
us, with great pride, his storage room, and he said, 
``Governor, I don't leave work until I make sure there are 
enough caps and gowns and masks in here so nobody can use as an 
excuse that they didn't have available caps and masks and 
gowns.'' Everybody has bought in.
    And right now, the medical profession isn't thinking about 
cost savings. A some of our great teaching hospitals, I have 
had people tell me that surgeons look at hospital-acquired 
infections as a cost of doing business. Well, we have got to 
motivate them to start thinking about quality of care and about 
cost reductions.
    Mr. Ellsworth. Thank you. I would yield back.
    Chairwoman Velazquez. Ms. Fallin.
    Ms. Fallin. Thank you, Governor, for coming today. I was 
just slipping out to another meeting, but they told me I was 
next to ask a question, so I am going to stay for just a 
second.
    Governor Rendell. Well, thanks for staying.
    Ms. Fallin. I was interested in your comment about the two 
men and the two women, and the two men left and the two women 
were hired, and the insurance premiums went up for the small 
business, if I remember the story right. And you were talking 
about how the women were of child-bearing age, and so the rates 
went up because they were rated differently, and how are we 
going to resolve the difference on ratings in various stages.
    And, you know, as I was sitting here thinking about that, 
Mr. Chairman, I was thinking about how women are kind of 
discriminated against with the ratings on health care and 
health care costs for insurance, and how, you know, I could see 
where employers might rather hire a man than a woman if their 
insurance premiums are going to go up because a woman is of 
child-bearing age.
    So I just thought that comment was kind of interesting. I 
hadn't really thought about that in the past.
    Governor Rendell. It is devastating. The smaller number of 
employees you have, the smaller your pool is. Demographic 
rating allows them to rate just your pool of employees. 
Community rating is you rate all of the people in that HMO in 
the entire state or in the entire nation. We should basically 
have community rating with a few nods--obviously, age would be 
one, the geography would be one, because in certain part of the 
country--in Philadelphia it is more expensive to have health 
care than it is in Tioga County in the northern tier of 
Pennsylvania.
    So some limited number of factors in which they can spike 
rates. But, again, we want to reduce the spike to no more than 
two to one. Right now, some rates spike seven, eight, to one. 
Heaven forbid you have got five employees, and you just--you 
want to hire this brilliant woman who has got a brilliant 
resume, she is 29--sorry, she is 39 years of age and in her 
mid-30s she successfully fought breast cancer. Wait until you 
see--in states that have demographic rating, wait until you see 
what happens to that small business' overall premium because 
they have hired somebody, even though the breast cancer is in 
remission, who has had breast cancer.
    So, yes, I think there is a lot of discrimination in the 
system, as long as you allow demographic rating.
    Ms. Fallin. I appreciate your comments. Thank you.
    Chairwoman Velazquez. Ms. Clarke.
     Ms. Clarke. Thank you, Madam Chair.
    And thank you, Governor. Why do you think that only certain 
small businesses get access to the subsidized health plans 
under the CAP program? And why not all small businesses?
    Governor Rendell. Well, because let us say you are a hedge 
fund, and you have 20 employees, and the non-administrative 
employees--let us say the 12 professional employees are 
making--oh, on an average, the hedge fund these days--$3 
million each. We don't think the state should be subsidizing 
them.
    But we do say--we do offer--by regulation, we would make 
the HMOs offer the same plan to them at cost--you know, at 
cost. It wouldn't be subsidized, but they could get it if they 
wanted it, for $240 a month per employee. They probably 
wouldn't want it, because they would probably want a few things 
like, for example, only dental emergencies or cover all 
Pennsylvanians. Now, a hedge fund is not going to want that 
plan, obviously, but that is why we did it--just to make sure 
that those firms who really can't afford to do a non-subsidized 
plan take it.
    Chairwoman Velazquez. Mr. Buchanan.
    Mr. Buchanan. Thank you, Governor, for coming in. I am in 
Florida, Sarasota, Florida. I want to thank you for your 
leadership. One of the things I would just say, with all of 
this discussion about national health care programs, I am glad 
that governors like you are leading in this, because I am 
scared to death to let the Federal Government deal with this. 
If we can find the best practices within a given state, and 
then take that, because as you mentioned it could break the 
country. I mean, we are already tight on federal dollars. I 
know you are tight on dollars in Pennsylvania. So that is just 
a statement.
    I have been in business for 30 years myself, and I have 
seen this cost go up. You know, we had, two or three years ago, 
1,200 employees, so we have dealt with this. We use a lot of 
different insurance companies. And you mentioned a lot of 
different things.
    One thing you didn't mention that does come up a lot--and I 
would just get your opinion, and I know this is a little bit 
political, but I think there is a lot of blame to go around for 
a lot of things--hospitals, doctors, and, of course, insurance 
companies. But one of the things I do hear a lot of our 
doctors--and we don't have a lot of doctors coming to Florida, 
and I am concerned about that--is this whole concept of 
defensive medicine. What is that costing us?
    You know, it is not about the trial lawyers. It is about 
you looking--putting everything on the table. But when you look 
at defensive medicine, you look at a lot of the doctors 20, 30 
years in practice, specialties, that deal with surgery, have 
put all of their assets into asset protection, their wife's 
name. Then, you have the cost of MedMal; many times that gets 
passed through. Or, in our State, I have got to tell you, a lot 
of doctors don't even take it, can't afford it. texas has come 
up with their cap where it is $250,000, and that seems to lower 
premiums.
    But I will tell you last week I was with a neurosurgeon. We 
had our week in the District, and he said to me, he said, 
``Vern,'' he said, ``I give out 10 times more in CAT scans than 
I used to. I shouldn't, but I do because a guy comes in or a 
gal comes in, has a headache. I have got to have them run down 
all these tests because of that chance--1 in 10,000--that it is 
more than what I think it is. I have got to run all of these 
tests. They are expensive tests, and, you know, that just--that 
gets passed on to, you know, Medicare in our case.''
    And so I don't--what is your whole thought on that aspect? 
And, again, I just want to make it clear, I am not just 
pointing out one area, because--
    Governor Rendell. No, no, no.
    Mr. Buchanan. --there is a lot of blame to go around, and I 
am--I share--
    Governor Rendell. And you are absolutely right. And when I 
came in, we did things to, first, stabilize the medical 
malpractice crisis, because we were right up there with Florida 
in the level of our premiums. And premiums were increasing 50, 
80 percent. I am glad to tell you that, because of the things 
we did, we have had three years where--two years where premiums 
stayed zero, and this year the two major companies dropped them 
by 7 and 11 percent.
    There are too many junk cases in the system, too many 
outrageous verdicts. There are ways you can do reasonable tort 
reform that don't throw the baby out with the bath water. The 
case I gave you about the never event, the amputation of the 
wrong arm, is there anybody here who would not want some 
compensation for somebody who goes into a hospital and loses an 
arm that there was never anything wrong with? Of course not. 
You are not suggesting that either. There has to be some 
reasonable compensation.
    I think the long-range plan that we have adopted in 
Pennsylvania by rule of criminal--of civil procedure, excuse 
me--we have adopted a mediation program. The one that Chicago, 
Rush Hospital, it is a very famous program--the mediation 
program, within a month, if there is a claim, the claimant 
comes in--they can bring a lawyer--the hospital and the doctor 
are there. There is a mediator. They hear both sides. The 
mediator makes a suggestion.
    He says, ``Mrs. Rose, you know, this is a very close case. 
I am not sure there was error here. I am not sure you would 
convince a jury. But, you know, you do have some injuries. It 
wasn't your fault. We are going to give you $80,000, I 
recommend.'' She can take it, or then reject it and go on to 
court. She is not waiving any rights.
    It is amazing--in Russia, I think it is 73 percent of the 
cases are settled within one month in the mediation program. 
And what that does is knocks out most of the legal costs. Most 
of--it is not--the big verdicts are the ones that get the 
attention. But if you talk to an insurance company, what it 
really is is the junk lawsuits that are thrown in where someone 
is hoping that they will settle for $35- or $50,000. It 
eliminates most of those junk lawsuits.
    And it eliminates the insurance company, the hospital's 
legal bills, because if it is a junk lawsuit, even if they win 
it, often they run up $100,000 in depositions and pre-trial 
stuff and all of that.
    So, yes, I think we should have reasonable tort reform. I 
don't agree with a $250,000 cap, because I could sit here and 
give you examples, and I don't think any one of you would think 
that $250,000 were compensation. Someone goes in for--a 25-year 
old sheet metal worker goes in for a herniated disc operation. 
Through undisputed malpractice, he gets--he comes out of that 
operation a quadraparaplegic--never hold his child, never have 
relations his wife, never walk again, never bathe himself 
again. $250,000 above medical costs for--he will probably live 
another 50, 60 years? I don't think that is fair.
    But having said that, we can certainly do something--and 
you are right, we should do something--because there is too 
much defensive medicine being practiced, and we have got to get 
a hold on rates, and we have got to have a balanced approach.
    I would love it if the Congress could get together with the 
next administration and do something reasonable on tort reform 
that doesn't take away rights in the most extreme and brutal 
cases, but at the same time doesn't make the medical system do 
all of these things.
    Remember, $2.1 billion of avoidable medical errors, and 
that is the assessment of the Patient Safety Authority in 
Pennsylvania that is made up of mostly either former doctors or 
practicing doctors or academicians, not the assessment of trial 
lawyers. So we want to reduce those, too, because it is patient 
safety.
    We focus on the monetary aspect of the tort system, but it 
is also patient safety, too. A physician told me about 
hospital-acquired infections--he said, ``If my wife had to go 
in for surgery, let us say on her elbow,'' he said, ``I would 
have someone do it in my office before I would put her in the 
hospital.''
    Chairwoman Velazquez. Okay. Time is expired.
    Mr. Altmire.
    Mr. Altmire. Governor, Congressman Heath Shuler sits next 
to me here in the Committee, and he wanted me to pass on to you 
that, in preparation for you coming in, he went back and 
reviewed your comments from the Philadelphia Eagles game where 
you used to do--
    [Laughter.]
    --against the Redskins, the media and television worker.
    Governor Rendell. Absolutely.
    Mr. Altmire. He was very much looking forward to cross 
examining you.
    Governor Rendell. Sorry I missed it.
    [Laughter.]
    Mr. Altmire. But he did want to pass on his regrets that he 
was unable to be here.
    The purpose of this Committee is to study national policy 
as it relates to small businesses that are struggling with 
affording health care. And you have done great work in 
Pennsylvania, and you have made small businesses the staple of 
your reform policy. So I was wondering if you could explain, to 
the degree you could extrapolate, how we might look at this 
from a national perspective, what you have done in 
Pennsylvania.
    Governor Rendell. Yes, that is a good question. And can I 
say to the Committee, when you talk about state plans, when 
Massachusetts pounds its chest and says, ``We have a State 
plan,'' and California and Pennsylvania are going down that 
road, it is a state-federal plan. Your plan--under my plan, the 
Federal Government would pay 33 percent of the cost. So it is 
not fair to say it is a state plan. It is somewhat similar to 
how we deal with Medicaid; we share the costs.
    And, again, no disrespect to Senator Obama, Senator 
Clinton, or Senator McCain, but I think one thing you should 
possibly examine is, do we promote states going down this road? 
And do we reserve for the Federal Government a couple of key 
things that the Federal Government can do that nobody else can 
do?
    Governor Pawlenty talked about bringing technology into the 
system, and we desperately need it, and it will save tens and 
tens and tens of billions of dollars a year across the nation. 
Well, right now, we are going down that road a little bit, but 
I don't believe we will ever have a truly interoperable health 
care technology system without the Federal Government stepping 
up and at least putting matching dollars into the fray.
    And when I say ``matching dollars,'' not necessarily for 
the states--maybe--but also for the institutions, because they 
will benefit by it. We should have a card that you can take out 
of your wallet like a credit card, and that card should be--it 
should be the type of card that if I am visiting friends in 
Seattle, and for some reason I fall unconscious, while they are 
bringing me into the emergency room, somebody should take that 
card, stick it into a computer, it should give you my entire 
medical history, my blood type, what I am allergic to, 
etcetera, etcetera, and at the same time read out tests.
    I may have had an EKG just a week before in my doctor's 
office in Philadelphia. That will save us so much money, and, 
again, improve the delivery of health care services. How many 
episodes--they are called ADEs--when someone gets the wrong 
prescription, and they get grievously sick because they get the 
wrong prescription. If you had that card that went from 
provider to provider, pharmacy to pharmacy, and you could stick 
it in the computer, we would eliminate all ADEs.
    And so I think the Federal Government is the only vehicle 
who can up-front that money. But it is a particularly important 
role.
    Stop loss-if you had three corporate executives here--big 
business, medium business, small business--they would tell you 
that what kills them the most and drives up their premiums is 
the one or two percent of their employees who have significant 
illnesses, chronic care, heart disease, cancer, brain tumor, 
etcetera.
    Well, stop loss--I thought it was the best idea that came 
out of Senator Kerry's campaign. The Federal Government pays 75 
percent of the costs above the first $50,000. They pay 75 
percent of the cost. If the Federal Government did those two 
things, maybe we have a system where the state government 
provides the coverage, federal money matches it, maybe we have 
a system that works there without, you know, doing a massive 
program, just two basic things.
    Now, there is a cost involved for this. You all know--and I 
know you are all smart enough to know this, and you have been 
here--that we are not going to get a program that will improve 
health care, constrain costs, give everybody access to health 
care, without some upfront cost.
    But the option of doing nothing is the most costly of all. 
If we do nothing, those 75 percent increases in premiums in the 
last seven years in Pennsylvania will continue. And I would 
submit to everyone that that is not an option. Right now, doing 
nothing is not an option for our health care system delivery 
problems.
    Chairwoman Velazquez. Mr. Davis.
    Mr. Davis. Thank you, Madam Chair.
    Thank you, Governor, for being here today. I come from the 
State of Tennessee, and you have probably followed TenCare down 
through the years.
    Governor Rendell. Sure.
    Mr. Davis. TenCare was such a good program that it went 
broke, and the current Governor had to pretty much dismantle 
TenCare. How does your State's program parallel TenCare?
    Governor Rendell. Well, it is different, because we have a 
sliding scale of subsidies, number one. We make the employer 
and the employee contribute. That is crucially important. It is 
crucially important. And we believe we have done the actuarials 
and all of those things well enough that we have got revenue 
streams that will control the--it is always easy to do the 
first year of these programs. It is easy to do the first three 
or four years.
    What you should judge these programs by is: what is the 
funding going to be? Are you going to be okay 10 to 15 years 
down the road? And I think we have worked very, very hard with 
actuaries and everybody else to try to make sure that adequate 
funding exists for the program down the road. It does no good 
to design a health care program and then have it go bust seven, 
eight years later. It just increases people's frustration.
    So I think it is very important that what we do we do--we 
study it, we do it well, and we do it practically. And it is 
not worth doing if we are going to try to do it on the cheap. 
And, again, in the long run, I believe we will save a 
tremendous amount of money, but it is not worth doing if we do 
it on the cheap.
    And putting technology into the medical system is a good 
example. There is going to be significant upfront costs--
significant--and maybe it is the Federal Government, the state, 
and the providers that share the burden. But there will be 
tremendous cost savings down the road--tremendous cost savings 
down the road.
    So, but you are right--I mean, we have tried to plan--I 
gave the people who are working on Prescription for 
Pennsylvania--I said I want to know where we are going to be 15 
years from now. And I think that is the crucial part of it.
    Mr. Davis. And if you look at health care now, I think 
health care needs to be patient-centered. Patients need to--
really, not even government, not business owners. We need to 
have patient-centered health care.
    Governor Rendell. No question.
    Mr. Davis. And I think that is where we get off base 
sometimes when we are looking at health care, and if we could 
get it back down to the patient--actually, I had a health care 
conference last week in my district, and I brought in U.S. 
Chamber of Commerce, I brought in National Federation of 
Independent Business, I brought in American College of 
Physicians, I brought in hospitals, I brought in large 
insurance companies, I brought in consumers.
    And I think it is vitally important that we have the 
stakeholders sit together and talk about the issues that are 
important and what we can afford, what we can't afford, what we 
need to do. One of the things that came out of the hearings 
last week in my district is we need more primary care 
physicians. There are so many physicians that are actually 
being trained, and then they can't afford to pay their loans 
off by being a primary care physician, they have to be a brain 
surgeon or a cardiac surgeon or--
    Governor Rendell. That is an incredibly relevant point. To 
address that in Pennsylvania, we have actually increased our 
Medicaid reimbursements to primary care physicians as part of 
this. But interestingly--my staff always tells me I am not 
allowed to give the exact percentage--but there is a New 
England Journal of Medicine study that says certified nurse 
practitioners can do X percentage--and it is pretty high--of 
what a primary care physician can do for 40, 45 percent of the 
cost.
    We need to unleash nurse practitioners and RNs. We need to 
unleash them to do the things that they are trained to do. Most 
of those nurse practitioners, many of them have Ph.D.s, and so 
you can set in rural parts of Tennessee and rural parts of 
Pennsylvania--you can have those nurse practitioner-driven 
clinics that do an awful lot of good in providing basic health 
care to citizens. You don't need to go to a doctor for a flu 
shot, right? I mean, there is no reason to go to a doctor for a 
flu shot.
    One of the cost-saving devices we have--and this is--this 
question reminds me of it--we are requiring every hospital in 
Pennsylvania that has an emergency room to have a 24/7 non-
emergent care facility staffed by nurse practitioners and 
physician assistants, because we designed a health care system 
in this country that is open from 8:00 in the morning until 
5:00 at night, Monday through Friday. Heaven forbid you get 
sick on the weekends or you get sick at night. You have to go 
to the emergency room for non-emergent care.
    Your dog bites you, just you are rolling around having fun 
with your dog, he gets too playful and bites you at 9:00 at 
night, where do you go? You go to an emergency room. You go to 
the emergency room, the attending physician gives you a gauze 
pad, says, ``Put pressure on it,'' and then he utters the most 
dreaded words known to mankind, ``We will get to you as soon as 
we can.'' Four and a half hours later, they bring you into a 
room, the doctor looks at it, gives you--wipes it with an 
antibiotic, and gives you two stitches.
    What we want is, when that admitting physician looks at 
you, says, ``No, go down to Room 101. You don't have to be 
here.'' You go into Room 101, a nurse practitioner or 
physician's assistant looks at it, puts the antibiotic on, 
stitches you up, you are out in a half hour, 45 percent of the 
cost to the system. Forty-five percent of the cost to the 
system.
    But you couldn't be more right; patient-centered is 
crucial, and we have got to find a way to do these things. And 
communication is important. You know, I asked the hospital 
execs, I said, ``Why don't you do something about hospital-
acquired infections?'' If it was impossible to do something 
about it, I could understand. Then, it would be a cost of doing 
business. But Scandinavia has done it, and certain hospitals in 
the U.S. have done it. And they said, ``Well, it is hard to get 
the doctors to buy into it.''
    Chairwoman Velazquez. Time has expired.
    Governor Rendell. You are not a good administrator if you 
can't get the doctors to buy into it.
    Chairwoman Velazquez. Mr. Sestak.
    Mr. Davis. Thank you.
    Mr. Sestak. Thanks, Madam Chair.
    Governor, I wanted to follow up with a question I had asked 
Governor Pawlenty, but I didn't get a chance to kind of follow 
up with him. The reason I am--I am curious about this mandate 
question, because the theory--and I understand how 
Massachusetts is unique and all. I don't think anyone was 
asking to criminalize anyone.
    Governor Rendell. No.
    Mr. Sestak. Criminalize with--
    Governor Rendell. Not at all.
    Mr. Sestak. --insurance. But my question stems from so many 
kind of comments that were made here--if you have managed care, 
if you can prevent the diabetes from getting worse, the cost of 
going to the emergency room when it is acute for those who 
don't have insurance, the fact that millions of the 47 million 
uninsured can afford insurance, the youth that are living on 
Wall Street and doing well.
    So the concept has been that the mandate has the healthy as 
well as the unhealthy in the pools, and then you theoretically 
have the premiums go down, because the healthy are mandated to 
be in it. The benefit also is less go to the emergency room.
    Governor Rendell. Absolutely.
    Mr. Sestak. Because you have managed that care. So my 
question is: I know you have touched upon this, I think in your 
plans thinking of the 300 percent and above, because you would 
have subsidies, obviously, who--those can't afford it, you 
know, so that you could do it. So could you give me your 
opinion on this concept of mandate?
    Governor Rendell. Well, I will--you know, this business, 
and then, you know, this issue has reared its head in the 
political campaign. It is ludicrous to suggest that the poor 
are going to be criminalized or in any way punished or be in 
violation, because they won't be able to afford it. For 
example, on Cover All Pennsylvanians, if you are 150 percent 
below the poverty level, if your family is, you get into the 
CAP program without paying a dime, without paying a dime.
    And as you go above 150 percent, the premiums--monthly 
premiums rise for you. But if you are 150 percent and below, 
you get in without paying a dime. It is as plain and simple as 
that. And Massachusetts was much like that, etcetera, etcetera, 
etcetera.
    Nobody is going to keep a poor person out because they 
can't pay. What the mandate was designed for is--ironically, is 
to help everyone and to help the insurance companies, because 
every one of those 28-year olds--and there are plenty of them, 
there are plenty of them--if I was a--I was an assistant DA 
working for the city of Philadelphia, but if I had--when I went 
to private practice, I had my own little practice, I didn't 
have health care. I was 29 years old.
    But if something happened to me, I would be treated in an 
emergency room. And that cost gets paid--passed back to the 
taxpayer and to the ratepayer. ``No free riders'' ought to be 
the rule. It is absolutely basic. And, you know, as I said, we 
do it--and Governor Pawlenty is right, there are a lot of 
people who avoid insurance. But most of them don't avoid it 
because--some of them avoid it because they can't pay, but in 
this case no one is going to have to worry about not being able 
to pay for it. So I think it is a fair system.
    And if you had an insurance company--the Congressman made a 
good suggestion to have not just political people at one time, 
get a panel of one person representing everything. The 
insurance company guy would be waving his hand frantically and 
saying, ``Well, if you are going to make us take someone with a 
pre-existing cancer, then you have got to give us the 28-year 
old.'' And that is right.
    Unless we want to go to single payer, and, you know, there 
are pluses and minuses to single payer--unless we want to go 
single payer, we have to do something that is fair and balanced 
for the insurance companies as well.
    Mr. Sestak. Governor, one other question that I am 
intrigued by in watching Massachusetts. And sometimes it is not 
just the theory; it is how they executive it. So the quasi-
government connector that is permitted to take all of these 
small businesses and pool them together to where to some degree 
you can Wal-Mart it, then, through competition, having mandated 
that the healthy are in as well as the unhealthy, again, the 
question was asked here, and I understood his answer is--I 
think what his answer was, ``I wouldn't prescribe anything.'' 
But yet, do you see value in pursuing that?
    Governor Rendell. Sure. Absolutely. And by the way, I know 
the Congressman asked a question about the health savings 
account. It isn't here. If you are a small business, and you 
offer health savings accounts to your employees, that counts. 
You don't have to go into Cover All Pennsylvanians. That 
counts, even though I think when you get to lower income 
working people health savings accounts are not very realistic--
not very realistic, but, still, we allow that to count.
    And certainly, allowing--I mean, there are a lot of ways to 
skin the cat here, and allowing small businesses to group 
together are important, except the insurance company guy who is 
not here, he would be howling. He would be howling, because he 
would by--and, by the way, one of the things--and I think this 
is important for both Democrats and Republicans in the 
Congress-we are not going to get this, a good system of 
affordable, accessible health care, without stepping on the 
toes of the insurance companies.
    They are going to be forced to take some things they don't 
like--they don't like. But they should understand that this 
plan, what you are looking at, will step on their toes. Single 
payer is the death penalty for them, and they ought to accept 
the fact that everybody is going to have sacrifice a little to 
make this work.
    I don't know if any of you saw this, and maybe it was just 
in--I thought I saw it on Washington TV, so maybe you did see 
it--but it is this woman who works for one of the insurance 
companies that has gotten a series of bonuses because she has 
been tremendously successful in denying claims. She has been 
their single most successful person in denying claims. Again, 
sometimes you should deny claims--I am not saying that--but the 
system is all out of whack.
    You know, you can't do that, any more than--what would you 
as a Congress say to Mary Smith, 35 years old, self-employed, 
she had a little health plan, she got cancer, the health plan 
coverage period ran out, she can't get coverage now. She was 
clearing $26,000 a year in her small business. She has no way 
of fighting for her life.
    I mean, what do we say to her? The richest country in the 
world, the only country that doesn't have some form of--the 
only developed nation that doesn't have some form of guaranteed 
health insurance. What do we say to that lady? Sorry, you are 
out of luck? It would be too tough for the insurance companies 
to pick it up? There is no catastrophic fund?
    The little State of Delaware has an interesting plan. They 
will--and this is impractical for the big states--they will 
cover 100 percent of the expenses in fighting cancer for any 
Delawarean citizen who gets cancer and doesn't have health 
coverage and can't afford health coverage. I asked Governor 
Minner how many it was, and it was like 732 people. You know, 
would that we could do that in Pennsylvania. You know, I would 
do it tomorrow.
    I mean, how do we explain that to people? You know, you 
have great coverage. I have great coverage, you know. How do we 
explain it? I just don't think we can.
    So I would, again, urge the Congress--and I appreciate 
Madam Chair and everyone on this Committee taking this issue 
seriously. It is--I think it is the seminal issue of the next 
10, 15 years in America. And you have got to solve it, and we 
will work with you in every way we can. I don't think we want 
to just absolve ourself of any fiscal responsibility for the 
delivery of health care. We will work with you on any 
reasonable system that is set up, but let us get this done.
    Chairwoman Velazquez. Thank you so very much, Governor, for 
your generous time that you spent with us, and also for all of 
the efforts that you are putting together in Pennsylvania to 
expand health coverage for the uninsured.
    And particularly, for this Committee, it is the Small 
Business Committee, there is no way that we address the lack of 
health coverage in our country without addressing the issue of 
the lack of coverage for small businesses. And in today's Wall 
Street Journal, they report on the federal--a new federal study 
that says that federal spending on health care will reach $2 
trillion by the year 2017.
    So this is our biggest challenge, and we cannot wait, and 
this is why for us to have you here has been not only a great 
honor but a great service to the work that we do in this 
Committee in trying to reach consensus to see what kind of 
legislation we can move forward, and not to wait until the next 
administration is in place in the White House. Too many people 
are suffering in this country, and these are working people.
    Governor Rendell. And remember, we can contain costs. It is 
an achievable goal. I know that from our own experience, but I 
believe it with all my heart. We just need the will to do it.
    Chairwoman Velazquez. Thank you. I ask unanimous consent 
that members will have five days to submit a statement and 
supporting materials for the record. Without objection, so 
ordered.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 12:32 p.m., the Committee was adjourned.]

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