[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
MAKING HEALTH CARE REFORM WORK
FOR SMALL BUSINESS
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 18, 2008
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 110-113
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
HEATH SHULER, North Carolina STEVE CHABOT, Ohio, Ranking Member
CHARLES 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 DAVID DAVIS, Tennessee
YVETTE CLARKE, New York MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii
Michael Day, Majority 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 VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
______
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
______
Subcommittee on Rural and Urban Entrepreneurship
HEATH SHULER, North Carolina, Chairman
RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska,
MICHAEL MICHAUD, Maine Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
CHARLES GONZALEZ, Texas MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia
(iii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
WITNESSES
Blumberg, Dr. Linda J., Principal Research Associate, Health
Policy Center, The Urban Institute............................. 3
Nichols, Dr. Len M., Director, Health Policy Program, The New
America Foundation............................................. 5
Butler, Dr. Stuart, Vice President, Domestic and Economic Policy
Studies, The Heritage Foundation............................... 7
Haynes, Mr. Thomas, Executive Director, the Coca-Cola Bottlers'
Association.................................................... 9
Eckstein, Mr. Jim, President, C.A. Eckstein Roofing, Cincinnati,
Ohio, on behalf of the National Roofing Contractors Association 12
APPENDIX
PREPARED STATEMENTS:
Velazquez, Hon. Nydia M.......................................... 26
Chabot, Hon. Steve............................................... 28
Blumberg, Dr. Linda J., Principal Research Associate, Health
Policy Center, The Urban Institute............................. 29
Nichols, Dr. Len M., Director, Health Policy Program, The New
America Foundation............................................. 44
Butler, Dr. Stuart, Vice President, Domestic and Economic Policy
Studies, The Heritage Foundation............................... 53
Haynes, Mr. Thomas, Executive Director, the Coca-Cola Bottlers'
Association.................................................... 63
Eckstein, Mr. Jim, President, C.A. Eckstein Roofing, Cincinnati,
Ohio, on behalf of the National Roofing Contractors Association 72
STATEMENTS FOR THE RECORD:
Altmire, Hon. Jason.............................................. 77
(v)
MAKING HEALTH CARE REFORM WORK
FOR SMALL BUSINESS
----------
Thursday, September 18, 2008
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:37 a.m., inRoom
1539, Longworth House Office Building, Hon. Nydia M. Velazquez
[Chair of the Committee] Presiding.
Present: Representatives Velazquez, Gonzalez, Cuellar,
Ellsworth, Chabot, and Fortenberry.
Chairwoman Velazquez. Good morning, I call this hearing of
the House Small Business Committee to order. Last month, the
Census Bureau came out with what appeared to be good news for
our Nation's uninsured. In the year between 2006 and 2007, the
number of people without health care decreased from 47 million
to 45.7 million, but while that may have seemed to be an
encouraging drop, the reality is that is simply not a growing
crisis. In fact, the decline was the result of expanded
government programs like Medicare and Medicaid, not increase
access to affordable private insurance.
Despite a modest update in coverage, our country's health
care concerns are deepening. Within the entrepreneurial
community alone, 20 million men and women are uninsured. Since
the year 2000, small business premiums have jumped more than 80
percent. As a result, millions of entrepreneurs and their
employees have been forced out of the market. Clearly health
care remains a serious problem for the small business
community. Already this committee has held more than a dozen
hearings on the issue.
In July, in helping to introduce bipartisan legislation
called the CHOICE Act, which included a number of provisions
designed to make health care affordable for small firms. In
this morning's hearing, we will continue to explore the various
coverage challenges facing entrepreneurs and discuss options
for reforming the current system. By definition small firms
have fewer employees and less capital than their corporate
counterparts. Accordingly, they have less clout and bargaining
power with big insurance companies. As a result providers are
not as compelled to offer competitive small business rates,
leaving entrepreneurs with fewer options.
In addition to a lack of choices, small businesses are
forced to foot the bill for insurance companies hide
administrative costs. Because of the unique nature, small
business coverage tends to be more specialized, providers pour
a great deal of money and man-hours into micro targeting
entrepreneurs. These expenses are ultimately reflected in
increased premiums. These steep administrative costs, unlimited
provider options have made health care a small business
nightmare.
Universal coverage will be the best way to insure that
every entrepreneur and small business employee is covered. That
said, any overhaul of the current system will have to be
carefully orchestrated. At present, there are a number of
potential means for doing so, they include allowances for
personal tax incentives, mixed private public insurance groups
and public coverage. But in order for any of these approaches
to be viable, they must take a number of key provisions into
account. They must be capable of not only easing administrative
burdens and creating more choices, but also of eliminating the
current systems complexity.
Any move to repair our broken health care system will have
to strike a delicate balance. It must be cautious without being
wavering, it must be resolute without being reckless, and most
importantly it must be universal without being one-size-fits-
all. This is particularly true for our entrepreneurs whose
businesses represent 50 percent of the workforce in a myriad of
diverse industries. While small firms may be diverse in their
unique interests they are united in their need for health care.
A need which must be met not just for the sake of our 26
million small businesses, but for the sake of America's 45.7
million uninsured and the country as a whole.
[The statement of Chairwoman Velazquez is included in the
appendix on page 26.]
I would like to take this opportunity to thank the
distinguished members of the panel in advance for their
testimony, and I yield to Ranking Member Chabot for his opening
statement.
Mr. Chabot. Thank you, Madam Chair, for yielding. And I
want to thank you for holding this important hearing this
morning and welcome the panel. I would like to thank each and
every one of the witnesses who have taken the time to provide
this committee or will shortly their testimony this morning.
And I want to especially welcome a fellow Cincinnatian, Jim
Eckstein, who I will introduce briefly later.
The cost of health insurance in general is rising faster
than inflation, while the percentage of individuals without
health insurance unfortunately continues to rise. Today, more
than 47 million Americans are without health insurance. For
small businesses and their employees soaring health costs are a
critical issue. The cost of health insurance continued its 20-
year reign as the number 1 issue worrying small business owners
according to the FIB.
Roughly 63 percent of all uninsured workers are either
self-employed or work for firms without more than 100
employees, in other words, fewer than 100. And that estimate is
by the Employee Benefit Research Institute. According to the
National Small Business Association, in 2007, only 47 percent
of businesses with fewer than 500 employees offered health
insurance. That was down from 58 percent about 10 years ago.
Our current system of health insurance and health care is
financially unsustainable and threatens the health and finance
security of small businesses and, most importantly, their
employees. Large employers, unlike small businesses are able to
spread risk more broadly among their workers and enjoy
economies of scale that keep administrative costs employer than
is true in the small business community.
When a large employer self insures its health benefits are
not subject to State insurance laws and regulations because it
is not defined as insurance. This, along with the broad risk
spreading and low per-person administrative cost confers a
considerable cost advantage over similar benefit plans in a
small group or individual markets for insurance.
Health care insurance reform should make the market for
health insurance more competitive resulting is greater access
to quality care. Health care policy reforms should balance the
competing goals of access to quality, affordability, and
predictability and consumer choice.
Madam Chair, I look forward to working with you on this
important issue. And I want to commend you for your hard work
and the attention that you focused on this very important issue
over the last 2 years. As you have indicated we have had a
number of hearings. I know that you appreciate, as I do, the
importance of this to the small business community, so thank
you for holding this important hearing, and I yield back the
balance of my time.
[The statement of [The statement of Ranking Member Chabot
is included in the appendix on page 28.]
Chairwoman Velazquez. Thank you. Thank you, Ranking Member
Chabot. I welcome our first witness, Ms. Linda J. Blumberg,
she's a principal research associate of the Health Policy
Center in the Urban Center. The Center analyzes trends and
underlying causes of changes in health insurance coverage,
access to care and the use of health care services. Prior to
joining the Urban Institute, she served as a health policy
advisor at the Office of Management and Budget.
Ms. Blumberg, you have 5 minutes. When you see the green
light to start and the red one means that your time has
expired.
STATEMENT OF LINDA BLUMBERG, PRINCIPAL RESEARCH ASSOCIATE,
HEALTH POLICY CENTER;
Ms. Blumberg. Thank you.
Madam Chairwoman, Ranking Member Chabot and distinguished
members of the committee: Thank you for inviting me to share my
views on health insurance and strategies for health reform that
affect small businesses and their workers. While I am an
employee of the Urban Institute, this testimony reflects my
views alone and does not necessarily reflect those of the Urban
Institute, its trustees or its funders.
In brief, my main points are as follows. Small employers
face substantial disadvantages relative to large employers when
providing health insurance to their workers. These problems can
largely be summarized as higher administrative costs of
insurance, limited ability to spread health care risk, and a
workforce with lower than average wages. All of these problems
must be addressed if insurance coverage is to increase
significantly among workers in small firms.
Fixed administrative costs make it inefficient for insurers
to sell coverage to small employers. The per person price of
buying insurance for a small group of individuals will always
be higher than buying those same benefits for a large group.
Allowing small employers and individuals to purchase coverage
through organized purchasing pools such as the type developed
in Massachusetts with their connector, State or Federal
employee health benefit plans, public programs, or other such
group purchasing entities is an approach that could provide
small employers and individuals with an avenue for more
efficient purchasing. Such purchasing entities should also be
structured to guarantee workers without employer offers access
to a source of comprehensive insurance coverage and they
constitute 70 percent of uninsured workers .
With regard to the second problem facing small employers,
the limited ability to spread risk, small employers tend to
have workforces with greater variance in year-to-year health
care costs than large employers, a shear consequence of small
numbers. Strategies are available to more broadly spread the
risk associated with small group and individual purchasing.
These include mandating that all individuals have insurance
coverage, regulating premiums such that dollars are moved from
healthier risk pools to sicker ones, or directly subsidizing
health care costs of those with high medical needs. Such
approaches could make coverage more affordable and accessible
for workers in small firms. Strategies that would tend to
further segment the risk of small firm workers, such as
proposals to federally license association health plans, or to
increase coverage in existing non group insurance markets.
These segmenting strategies might lead to some savings for the
healthy, but would do so at increased cost to the unhealthy,
leading to no expected change in insurance coverage.
The third general problem, that small employers tend to
have lower wage workforces than large employers, means
expansions of insurance coverage will require significant
income-related subsidies to make coverage affordable for many
uninsured workers. Because employers largely finance insurance
by paying lower wages to their workers, expecting low-income
workers to voluntarily seek out that type of trade off is not
practical.
Subsidies should be targeted according to workers' incomes
in order to ensure that the bulk of government assistance goes
to those in greatest financial need. Once one accepts that
substantial subsidies will be required to expand coverage
significantly, a host of design issues come into play. These
include: defining what families at different income levels can
afford to contribute to the cost of their medical care,
including protecting the unhealthy from excessive out-of-pocket
costs; mechanisms for making voluntary participation in
insurance coverage as easy as possible; insuring that each
individual has a guaranteed source for purchasing coverage;
keeping the administrative costs associated with delivering
subsidies as low as possible; and, critically, identifying
sufficient sources of financing.
With regard to financing, policymakers have begun to
consider the possibility of eliminating the current tax
exemption for employer sponsored insurance and redirecting that
subsidy to finance reforms. The level of this tax expenditure
is sufficient, in my opinion, to finance comprehensive health
care reform and is already dedicated to subsidizing health
insurance.
The current exemption is not particularly effective in
expanding coverage, however, since it subsidizes most those who
are most likely to purchase coverage even in the absence of any
subsidy. However, great caution should be taken before
eliminating this subsidy outright, because any changes to the
current tax treatment can be highly disruptive to the existing
system of employer based health insurance. Eliminating this
subsidy must be preceded with significant reforms to the
private individual insurance market to insure that access to
insurance coverage for those already insured not be adversely
affected.
Thank you for your time, and I am happy to answer any
questions you might have.
Chairwoman Velazquez. Thank you, Dr. Blumberg.
[The statement of Ms. Blumberg is included in the appendix
on page 29.]
Chairwoman Velazquez. Our next witness is Dr. Len Nichols,
Dr. Nichols is the director of the health policy program at the
New American Foundation. This program aims to expand health
insurance coverage to all Americans while reigning in costs and
improving the efficiency of the health care system. Prior to
joining New America, Dr. Nichols was the vice president of the
Center For Studying Health System Change. Welcome.
STATEMENT OF LEN NICHOLS, DIRECTOR, HEALTH POLICY PROGRAM, THE
NEW AMERICAN FOUNDATION
Mr. Nichols. Madam Chairwoman Velazquez, Ranking Member
Chabot, distinguished members of the panel, I want to thank you
for inviting me to testify here today. My name is Len Nichols
and I direct the health policy program at the New American
Foundation.
I would like to begin by congratulating, Madam Chairwoman,
for your work on the CHOICE Act along with your cosponsors
first and foremost because it is bipartisan. In my opinion, it
is impossible for us to move our health care system forward
unless we do it on a bipartisan basis. And I think probably you
know better than most just how hard that is in this
environment.
So I applaud you from the outset, keep up the good work.
And I would say I will take this moment to also congratulate
those who worked on the SHOP Act, another thing in the same
direction, because that along with CHOICE adds to a growing
course that we can indeed do better as a Nation in our health
reform conversations than we managed to in 1993, 1994, when I
got all this gray in my beard. Linda got tired of working the
halls of OMB, we can do better and I thank you for that.
In a letter to testify you asked me to think about the
question how can we structure a system to work better for small
businesses. And I would say my primary answer is we can help
small employers in the same way we can help all Americans, and
there really are two big steps, some of which you have taken in
your bill. The first is to create an insurance marketplace that
is fair, efficient and fundamentally accessible. And the second
is to reform the delivery system so that we can get more value
for all our premium health care dollars. If we don't do that,
it doesn't matter what we do about financing.
Now the first step is to create a new market place that is
accessible. This requires, as your bill does, that insurers be
required to sell to all customers regardless of health status.
There is no question that this is a problem in the individual
market at the moment. And in the individual market, at the
moment, of course, we have a lot OF entrepreneurs, we have
self-employed people, sole proprietors and workers who work for
firms who can't afford to offer right now. So I think it is
important to think about extending that guarantee beyond the
small group market to the individual market.
But just accessibility is not enough, in my view. We must
also make it fair and affordable. So you have to have rules
about what you are going to charge people where you don't
distinguish people's rates by their health status.
Now I would quibble just a bit with the particulars of the
CHOICE Act in the following way, it is designed, of course, to
subsidize employers. I am not opposed to that, but a lot of
analytic work has been done, some of which with myself and
smarter colleagues to say that we can often get more efficient
subsidy schemes if we direct them at individuals. And the main
reason for that is that it is impossible for a firm to know the
income of a worker, they know the wages. But if you know the
income, you can actually tailor subsidies more precisely to low
income families and you get more bang for your buck that way.
So I would ask you to consider those kind of modifications
which we can talk about off-line.
But even more than target efficiency, one of the reasons I
am a little nervous about moving toward subsidizing employers
is because when I look at the 21st century economy and I see
the needs of competing around the world, I see a health care
system here that is more inefficient than others in the world,
and we rely more on employer financing.
So to move in a direction of trying to expand employer
financing, even as we are trying to maintain middle class high
value added jobs, competing against companies who come from far
more efficient health systems and don't reply on employer
financing as much, it puts a burden on us that we want to
seriously reconsider going forward.
Now as you know quite well, and what impresses me about
your Act is you clearly recognize this, that in order to make
insurance markets work better, we have to re-orient incentives,
and re-orienting incentives really means changing what we
reward insurers for doing. At the moment, our insurance markets
reward risk selection, that is to say, selling to the healthy,
including the sick any way you can.
One important component that can reduce or change those
incentives is an individual purchase requirement so that every
person is required to buy whatever insurance they have access
to. You have to subsidize them for sure, but if you do that,
then you take away the incentive to aggressively underwrite and
exclude the sick. Then you make an insurance market where you
can only make money by delivering value for dollar and having
better health services an better insurance bargains. So I think
you want to think about adding that as well.
As I said the CHOICE Act succeeds in creating a marketplace
that would work better than the market does now. And I applaud
you for that. I do think we can improve going forward.
Let me just say a minute about delivery system reform if I
could. No health reform proposal of any form is going to
sustain an improvement in our health care system unless we bend
the cost curve, unless get serious about delivery system
reform. Just because you are a Small Business Committee doesn't
mean you can't take this on. Indeed, you do by this Act by
requiring employers to offer wellness programs in order to be
eligible for the small business tax credit.
As you clearly know, wellness and disease management
programs have had great success and have given value to workers
and their firms, that is, one type of innovation that can help
transform the system. Others you might consider include
insensitive for having enrollees sign up for help homes or
medical homes where they have a primary care provider
completely oriented toward helping them navigate the system.
And you also may consider incentives for providers who adopt
electronic records and decision support tools.
Small employers will always hold a major role in our
conversations about health care reform because no single group
is more important to our economy and to our society. Small
group insurance markets have been the focus of repeated policy
interventions since even before Stuart and I started this a
long time ago. And employers have suffered from high
administrative loads, lack of competition, and I would say
increasingly intense competition from firms from overseas.
Thus it is clear that health reform's focus on increasing
access to quality affordable health care for small employers
could serve as an important and catalytic step toward the
changes we need nationwide. As you contemplate this, I
encourage you to think about building a marketplace that can
eventually welcome all Americans, not just small employers, so
that we can improve value for dollar. Thank you very much.
[The statement of Mr. Nichols is included in the appendix
on page 44.]
Chairwoman Velazquez. Thank you. Our next witness is Mr.
Stuart Butler. Dr. Butler is vice president of domestic and
economic policy studies at the Heritage Foundation. Dr. Butler
has been with the Foundation since 1979 and worked on an array
of policy issues ranging from health care to welfare reform.
The Heritage Foundation promotes public policies based on the
principle of free enterprise, limited government and individual
freedom. Welcome.
STATEMENT OF STUART BUTLER, VICE PRESIDENT, DOMESTIC AND
ECONOMIC POLICY STUDIES, HERITAGE FOUNDATION
Mr. Butler. Thank you very much, indeed, Madam Chairwoman.
I also want to join with Len and Linda in applauding you and
the committee for approaching this in a bipartisan way. And I
think that is reflected outside of the Congress. Len and I
don't always agree on things, and so I think there really is a
good and spirited discussion which is very, very positive in
this.
I also agree with you and with Mr. Chabot that we do see in
the small business sector structural weaknesses in the ability
of small firms to do the kinds of things that large firms can
do in the insurance area. The nature of the workforce and the
change in the workforce exacerbates that issue and the
difficulty of grouping is of course, also an inherent problem.
So there are many inherent problems with small business trying
to do this which we all recognize.
So you have asked us how in this context should we move
forward in trying to provide coverage. I would say that I am
skeptical, and would caution you, about the idea of trying to
model steps forward for small firms on what happens in the
large business sector. That does go to ideas like creating
larger groupings of smaller firms to try to operate as though
they were large firms in the purchase of insurance.
I think that trying to group small firms in a co-op or some
other type of device does risk various kinds of perverse
incentives in terms of how individual companies will view those
co-ops, view their joining or not joining, how risk is spread,
and so on. Trying to group firms together also will not fully
deal with the portability problem that we see generally in our
society, and which is particularly noticeable in the small
business sector.
I want to emphasize what Len said about the feature of your
legislation that says let's try to provide a subsidy from the
tax system through a tax credit directly to firms. We both
agree that the evidence is that that is an extremely expensive
way and a very imprecise way of providing subsidies when they
are needed. You could end up with a situation where the costs
for a newly insured employee under that arrangement could be
more than double what we see for individual tax credits or even
expanding public programs into those areas. So I certainly
caution you about that.
A better approach in my view is to start down the road of
thinking a little differently about the role of the small
employer in the future with regard to insurance. And the key to
this is to separate the notion of the employers's role as what
I would call a facilitator of insurance during the financial
transactions from the role of sponsoring insurance, or actually
trying to organize insurance.
I would point out that if you look at the recent history of
retirement programs and IRAs and so on, we have gone in that
direction in the retirement area, saying employers have a
certain role, but they are not there to manage your money in
some way. There is a strong lesson there with regard to how we
think about health insurance.
I would suggest that approach would indicate maybe a road
that has three elements, and I think this does echo what you
have heard already. The first element is to say well, let us
set up an infrastructure, often called a health insurance
exchange, modeled on the FEHBP or the connector in
Massachusetts, which actually carries out the function of
organizing and sponsoring the coverage itself and offering
different plans. It would provide a menu of options, enabling
people to have full portability if they change employers within
that exchange. Plans within such an exchange could be offered
by discrete organizations or groups such as labor unions,
consortia of churches, farm bureaus and so on. So there are
lots of elements to bear in mind.
In this situation, the States would function as the primary
place in which issues of pooling and risk would take place. It
would be within the exchange, not within groups of employers
under that model. Again, similar to how we look at it in the
FEHBP.
The second element would be to explicitly make employers
the facilitators rather than the sponsors of coverage. That
means, in effect, that what small firms would do in this case
is basically, specify that the exchange itself and the plans
within it would be their plan, and they would not themselves be
trying to organize insurance. This is much as you, as a Member
of Congress, and other Members of Congress, don't get together
as a co-op and try to offer insurance to your employees. You
say the plan is the FEHBP and all those issues are carried out
in that area.
So the employers role would be primarily making deductions
from payroll deductions, sending premiums, perhaps adding
contributions and so on.
The third element, which, again, reflects what you heard is
that to make this more effective, and indeed to make the whole
system more effective for employers, you must address the tax
treatment of health care. I share Linda's cautions about the
ways of doing that, but I think we see a health tax system
today which is inherently inequitable, inefficient, and really
gets in the way of creative solutions for the small business
sector or for other sectors.
So just in conclusion, I applaud very much what you are
attempting to do and that you recognize and are focused on the
special concerns of small businesses. I think those concerns do
force us to think creatively about better ways to organize and
to reexamine the role of employer. And I just want to end by
absolutely agreeing with Len that this gives us an opportunity
to look at creating a structure and infrastructure, and a way
forward, which will not only fix the problem for small
employers, but in my view would be the model that over time
would extend to the working population in general. Once you see
the small business sector as potentially the model and the
leader in dealing with this problem rather than thinking of it
as sort of a step sister, you can deal with their particular
problems.
[The statement of Mr. Butler is included in the appendix on
page 53.]
Chairwoman Velazquez. Thank you, Dr. Butler. Our next
witness is Mr. Thomas Haynes, he is executive director to the
Coca-Cola Bottlers Association. Mr. Haynes has served as
president of the Association Health Care Coalition which aimed
to improve health care options available to small businesses
established in 1914, the Coca-Cola Bottlers' Association
assists a 73-member company reducing costs by meeting their
needs in a number of areas, including health insurance.
Welcome.
STATEMENT OF THOMAS HAYNES, EXECUTIVE DIRECTOR, THE COCA-COLA
BOTTLERS' ASSOCIATION
Mr. Haynes. Thank you, Chairwoman Velazquez, and Ranking
Member Chabot for this opportunity. I would also particularly
like to thank Chairwoman Velazquez for the leadership that you
have shown over the years in trying to find creative solutions
to the challenges facing the Small Business Committee. And most
of all, frankly, for your authorship and sponsorship of the
CHOICE Act, which I believe is a very well thought out and very
powerful first step and a step that will probably have much
more implications than people may see currently if Congress
chooses to support it which I certainly hope they will. And
really make a major dent in the problem that small businesses
face.
The reason I believe the CHOICE Act is so powerful, and I
think I find myself in disagreement with Dr. Butler on a number
of issues, is our own practical experience at serving our
members, both in the health care and outside the health care
environment. As I have indicated in my testimony, the
Association has been sponsoring and providing health care
benefits for the members of our association for about 30 years.
We had a very effective, very comprehensive program that
included both our large members and our small members. Our
members range from bottlers with as fewer as 12 employees to as
many as 50,000, so we have that entire spectrum on both sides.
And we were providing solutions to almost ends of that
spectrum, not the highest, but certainly the next layer down
through 2000 when the program we had built four or smaller
members was disbanded because we could not find a carrier
willing to support it.
Our program has always been based upon a fully insured
model, although it includes significant elements of risk
shifting both to the association and to the individual members.
And we simply couldn't find any insurance carriers who were
willing to support the small member part of that pool, even
though it was working very effectively at the time and we had
to disbanded that.
I have been with the Association since 2001. The single
most important task that I pursued is how to reestablish that
program. To give you an understanding of how important it would
be for those members, health care costs represent in the range
of 10 percent of the cost of a case of Coca-Cola, a 12 pack of
Coca-Cola. We believe that our smaller members have as much as
a 20 percent disadvantage vis-a-vis their competitors, vis-a-
vis larger members.
That represents essentially a 10 cent per case competitive
disadvantage between small and large members. And I have
members with less than 100 employees who compete with
businesses with as many as 35,000, 40,000 employees. So this is
a real world business issue for those members. And frankly, it
is an issue for the consumers of our products, who are buying
those products in those territories, it either affects the
profitability or it affects the cost of the product or both.
So this is a very important problem. The reason why I
believe the CHOICE Act is the right solution is it basically
models the solution that the Association has adopted outside
the group health area. We have had a liability insurance
program for 100 years. The single most powerful element of that
liability insurance program is our captive. And we have had a
captive that has operated very effectively for nearly 30 years.
That captive has moved from taking a small part of the risk
to taking almost the entirety of the liability at risk in our
liability insurance program. And we are able to deliver a 25
percent premium credit to the participants in that captive
while still being competitive with commercial insurers in the
real world. So I, contrary to Dr. Butler, have real world
experience that says this solution will work, it will work, I
will guarantee for our members. We could cover, I believe, the
60 members who are not currently in our group health program
very rapidly under this program and delivery lower costs than
they face today.
Now, I think the issue that personally as an if physical
conservative and would be very sympathetic to Dr. Butler and
his organization on virtually every issue would look at it and
ask is of course the Federal tax expenditure to subsidize this
coverage. I have no trouble with that feature of it and I think
it is entirely supportable as expendable Federal dollars.
In my mind what the subsidy will do is correct the uneven
playing field that small business and large business currently
operate on because of the disparate effect of all the state
regulations on small businesses that are trained to pool. By
equalizing that playing field and allowing us to create a
cooperative, and, in fact, facilitating the cooperative, but
including it as a requirement of the bill, it will put us in a
position where we can put these smaller members back on an even
playing field.
It is, in my mind, the impact it will have on competition,
on allowing the members themselves to manage their risk as
opposed to paying a carrier, the profit premium that they have
to pay to take on those risks, the reality that a carrier is
going to be worried about adverse selection when a small
business comes to them is going to be worried about the reality
that the people who are seeking insurance are going to be the
people with the greatest health risk.
The reason why our members pay so much more for insurance
in part, who are not in our program, is because of the premiums
they are paying to the carriers for taking on those risks. And
by simply pulling and retaining those risks, that profit part
of the cost will come out of their cost and will be a real
market-based savings. I am also very confident that with the
subsidy for the members that have under 100 employees we could
add double or triple the number of participants in our program
among members with more than 100 employees, but with a lower
cost for them. So the reality is, I think we would save more
money internally than the Federal Government would provide us
by a significant multiple. I think it is a dollar that would
deliver tens or hundreds of dollars of benefits to the
employees and our members. So I think it is an excellent
solution. I welcome the opportunity to discuss the pros and
cons of some of these ideas.
[The statement of Mr. Haynes is included in the appendix at
page 63.]
Chairwoman Velazquez. Thank you. The Chair recognizes the
ranking member for the purposes of introducing our next
witness.
Mr. Chabot. Thank you, Madam Chair. And I am pleased to
introduce James Eckstein, who is the president of C.A. Eckstein
Roofing, Inc. which is located in Cincinnati, Ohio, Mr.
Eckstein has been working for the company since 1975 and has
served as president since 2002. His business has been providing
the greater Cincinnati area with residential and commercial
roofing services since 1945, C.A. Eckstein Roofing is a second
generation, family-owned company with a third generation
actively involved in the day-to-day operations. The company
currently employs 35 people. So the epitome of a small business
that we are trying to encourage in this country.
Mr. Eckstein also currently serves as Vice President of the
National Roofing Contractors Association, one of the Nation's
oldest trade associations which is based in Rosemont, Illinois.
And I would note that he's come at considerable sacrifice
because as some may know Hurricane Ike, at least the remnants
of it, came roaring through our area, Cincinnati, Ohio and
knocked down innumerable trees. And many, many people, in fact,
over 90 percent of the people in the greater Cincinnati area
were without power, some are still without power. Our home was
out for about a day and a half.
My wife called me and told me that she had it back on, but
reading by candlelight and that sort of thing which was
unusual, but what we went through clearly wasn't as severe as
what many others went through that were seriously impacted. But
he came back from being out of the country and came to
Cincinnati, I understand, to see this and had some challenges
coming up here. And I also might note there were thousands and
thousands of homes that had shingles ripped off the roof so I
know there is considerable work here so we appreciate his
coming here to share testimony that might be valuable to health
care for small businesses. And so I will quit talking and start
listening.
STATEMENT OF JAMES ECKSTEIN, PRESIDENT, C.A. ECKSTEIN ROOFING,
ON BEHALF OF NATIONAL ROOFING CONTRACTORS ASSOCIATION
Mr. Eckstein. Thank you, Madam Chairwoman, Ranking Member
Chabot and members of the committee for the opportunity to
discuss health care reform for small businesses. My name is Jim
Eckstein, I am President of C.A. Eckstein Roofing Incorporated
in Cincinnati. I also serve as a vice president of National
Roofing Contractors Association, and I am testifying on behalf
of NRCA.
First, I want to commend Chairwoman Velazquez and
Congressman Chabot for your outstanding leadership on health
care and other issues of importance to small business. Your
tireless efforts on behalf of working Americans are greatly
appreciated by NRCA. NRCA welcomes the opportunity to testify
on the problem of excessive increases and the cost of health
insurance for small businesses which, has been a major concern
for roofing contractors for many years.
NRCA strongly supports the small business CHOICE Act of
2008, because we believe it will address this critical issue.
We commend you, Madam Chairwoman, as well as Congressman Joseph
Pitts for recently introducing this legislation. NRCA also
commends Congressman Chabot for introducing the Health
Insurance Affordability Act of 2007, which would allow
individual taxpayers to take a tax deduction for their health
insurance costs.
At C.A. Eckstein Roofing, we believe it is very important
to provide our employees with high quality health care benefits
and we have done so for many years. Moreover, it is necessary
that we do so in order to remain competitive in attracting high
quality employees. However, providing health coverage for our
employees is becoming more difficult each year as we continue
to be hit with double digit premium increases.
Our most severe problem now is that insurance companies are
unwilling to provide us with competitive pricing because of
cancer and other health conditions among a few of our spouses
and the families. As a result, we have no choice but to accept
the double digit premium increases from our current insurer.
The excessive premium increases charged by our insurance
company year after year forced us to increase the amount that
our employees pay for health care benefits which I greatly
regret.
In addition to jeopardizing the health of many workers,
lack of affordable health insurance also greatly hinders
economic growth across the Nation. Small entrepreneurs are the
primary source of job growth in our economy and difficulties in
providing affording health benefits to employees slow their
ability to grow their business and create new jobs. Moreover
the current manner in which health insurance is regulated puts
small business at a disadvantage to large corporations in
providing health benefits to our employees.
It is clear from the situation at our company that some
form of expanded pooling is necessary in order to spread risk
across greater numbers of insured lives. Expanded risk pooling
is essential if we are ever going to restrain the excessive
cost of health insurance for small businesses. NRCA strongly
supports the Small Business CHOICE Act.
This is one method of expanding pooling opportunities for
small businesses. The CHOICE Act is a private sector solution
that creates new purchasing cooperatives designed it allow
small businesses to stabilize health insurance costs by pooling
risks. The bill also provides a tax credit to small employers
who purchase health insurance for their employees through a
cooperative.
Finally the bill provides a role for trade associations
like NRCA to be involved in the development of purchasing
cooperatives. We believe that the establishment of new pooling
options for small businesses, such as the cooperatives
envisioned by the CHOICE Act will inject greater levels of
competition into the health insurance market. The need for
increased competition in health insurance markets is widely
agreed upon as a key ingredient to help restrain the excessive
cost of insurance.
NRCA is committed to working with Congress to obtain
enactment of the CHOICE Act, and possibly other bipartisan
proposals that address the problem small businesses face
obtaining access to affordable health insurance. NRCA strongly
urges Congress to take up small business health reform early
next year to address this urgent issue.
Again, thank you for the opportunity to share NRCA's views
and I would be pleased to answer any questions you may have.
[The statement of Mr. Eckstein is included in the appendix
at page 72.]
Chairwoman Velazquez. Thank you, Mr. Eckstein. Dr. Nichols,
can you please elaborate on how changing our health care
delivery system will have a positive impact on the small
business health insurance market?
Mr. Nichols. Madam Chairwoman, I welcome the opportunity to
answer that question, because it may seem disconnected, but
basically we tend to focus a lot as the distinguished members
who actually run businesses or talk to people who do on a daily
basis like my brothers, I would say, but they tell us they
focus on insurance costs because that is the price they pay.
But as the gentleman from Cincinnati mentioned, it's the health
care cost of the people we are covering that actually drive
everything. And what we know, Madam Chairwoman, is that health
care costs have been growing so much faster in economy-wide
productivity more and more, Americans are finding it
unaffordable. More and more small businesses are having a hard
time. We just learned about that record.
So the core issue is how do we reduce the rate of cost
growth. And I would even say it is really about how do we get
more value for dollar as opposed to cost per se. So I want to
both encourage you to work with everybody to make the insurance
market better, but the insurance market just reflects what the
health care cost structure is underneath, so we have to dig
underneath and do that. Your emphasis on wellness is a great
place to start, but we basically have to buy smarter.
We have tolerated far too much imprecision, not knowing,
assuming all hospitals and doctors are the same, assuming they
all know everything they need to know. You know, I had a dean
of a medical school tell me a couple of years ago when he
started practice 30 years ago he had to understand 8 drugs,
because that is really all you needed to do to practice
medicine in the United States then. There were 200 new ones
last year. No one can manage that much information. We need to
provide information tools, better incentives an get way smarter
about buying.
Chairwoman Velazquez. Mr. Haynes, a growing number of small
firms are using consumer driven, high deductible health plans
as a mean of containing premium costs, are high deductible
plans addressing the problems being faced by your members or is
more needed?
Mr. Haynes. I think it is a difficult and possibly not that
effective solution. I say that believing in theory that if you
create the right kinds of incentives for consumers markets will
work better. The practical real world experience that we have
is that it is very difficult for consumers of health care
services to understand all the choices that are available to
them, to process all the information they need to process in
order to make the right decisions on how much money should go
into a pool and how to manage their own health care. I think
they need help. That is my opinion.
And I can't debate the academic merits issue of the
employer provided versus individual insurance, but I do believe
that individuals need help from a trusted source in managing
their health care in a way that they are comfortable with and
that will deliver the best results.
Chairwoman Velazquez. Dr. Nichols, let me ask you, do you
find that these plans tend to shift the responsibility of who
is paying for health care coverage?
Mr. Nichols. They have, but I would also say the record is
mixed. I would say it this way, they are sort of what you might
call consumer driven 101, which was, in some ways, more an
attempt to just shift the responsibility and the risk, but
increasingly there is some consumer driven 201. And let me
hasten to agree with my colleague, Mr. Haynes, people need
agents; they need help. It turns out if insurers and employers
do provide that information, people can make better choices.
What Stuart and I are thinking about instead of having a
marketplace that brings those kind of advantages to all would
still hinge on individual choice, but informed choice, the
choice that actually uses the information tools we have.
We are going to always trust our docs, but our docs need
help. We need to trust our employers, we do in small employer
cases, large employers I am not so sure, but in small employers
we do, but they need help too because purchasing health care
efficiently is a complicated thing. Web M.D. Is wonderful, it
can't always help you decide, you need an agent you trust.
Chairwoman Velazquez. Thank you.
Dr. Butler, critics of individual tax credits to increase
coverage argue that it has the potential of eroding employer
base coverage. Is it possible to avoid this outcome while still
offering tax credits or incentives to individuals?
Mr. Butler. Yes, I think it is. I would agree with Len and
Linda on the importance of structuring the insurance market in
parallel to providing individual tax credits. I would certainly
agree that if you merely gave somebody a tax credit and let
them sort of go off on their own, then indeed you would get
massive adverse selection. You would get only certain people
leaving an employer's plan and so on, and that would be
destabilizing. So I do think it is important to combine them.
In my view, in terms of a health insurance exchange system,
I do believe that the employer should actually make the basic
decision about whether their employees have access to plans and
to credits through the health insurance exchange. So I
recognize that. But I think there are steps - prudent steps -
that can be taken to make sure you are minimizing your risk of
unraveling of existing coverage.
And I would point out, of course, that we are all basically
saying that there has to be some means to make sure that people
have both adequate resources to obtain coverage and an adequate
array of reasonable and affordable plans. I think it was Len
who emphasized this. Trying to focus that subsidy on the
individual is better than trying to focus it on the
individual's employer.
Chairwoman Velazquez. Dr. Blumberg, what are the advantages
of a system where Americans secure health insurance through
their employer?
Ms. Blumberg. Well, the advantage of this system as it is
now, while it is highly imperfect, and I think there is a lot
of room for improvement, is that when individuals are going to
look for a job, they are not necessarily coming together as a
group for the purpose of buying health insurance. They are
coming for other reasons.
Once individuals are in and employment group, particularly
in large employers, the employer acts as a natural risk pooling
mechanism for buying health insurance. So that in a very large
firm, the average healthcare cost in that pool is going to
usually be about the average that you see in the population at
large. And so it makes sense from a risk pooling standpoint for
those individuals to come together and purchase health
insurance.
The advantage, also particularly for larger groups, is that
there are some administrative economies of scale of buying in a
big pool like that. And so the cost of buying health insurance
for them is going to be lower per unit of benefit than an
individual or a smaller group.
Chairwoman Velazquez. Thank you. Mr. Eckstein, you
testified that the tax credit element of the CHOICE Act is
justified because large employers have significant benefits
under ERISA. Can you talk about some of the advantages that
larger firms currently have over small businesses when it comes
to purchasing health insurance.
Mr. Eckstein. Well, they have a larger pool of people that
makes it a little more of an advantage for the insurance
company to deal with that large group. For a small group, all
we need is one or two catastrophic illnesses and we become very
unattractive to the insurance companies. As I stated, we have
been stuck with the same insurance carrier for 4 or 5 years now
because no one else wants to quote us because we have had one
spouse with cancer, one of our employees had cancer and they
just, we are stuck with them, nobody else will quote us.
Chairwoman Velazquez. Let me go to Mr. Chabot.
Mr. Chabot. Thank you. Dr. Blumberg, I will begin with you
if I can. Can you discuss again a little bit how small
businesses can, since they have a disadvantage to larger
corporations, larger companies with respect to scale, et
cetera, how can the little guy compete against these larger
companies if they are trying to provide health care for their
employees?
Ms. Blumberg. Truthfully, I don't believe that they can.
And that is why I think that placing emphasis on trying to get
more small employers to be direct providers, their own
purchasers of health insurance coverage, is probably not going
to be an effective way for significantly expanding health
insurance coverage, because they will always suffer from being
smaller scale and having the risk pooling issues and the
administrative cost problem. They also have higher turnover
than larger firms, which increases the administrative costs of
the firm providing health insurance. They have got the problem
of having lower wage workers than larger firms and medium size
firms, on average. So the affordability issue is also a very
prominent one.
So from my perspective, the way to get more workers in
small firms into health insurance coverage is through a broader
based reform mechanism that will address the needs of really
all uninsured individuals and particularly with these modest
income and high health care needs.
Mr. Chabot. Thank you. Dr. Nichols, I notice you are a big
proponent of the CHOICE plan. Could you tell us again what are
a couple of the major things that you think are so beneficial
of the plan and why those of us who may not be co sponsors yet
should consider co sponsoring the legislation?
Mr. Nichols. Well, first of all, it is bipartisan. And in
my opinion we need to show the country that we can work
together. And I think that just the fact of cosponsorship and
leadership that has already been shown reassures the country
frankly those of us who live in Washington are trying to solve
problems and not just posture about them.
Secondly, it sets up a mechanism whereby people could buy
health insurance that would be cheaper than it is for them
today, and it targets that incentive directly at the group that
is probably in most need of relief, and that is the small
business sector. There is no question.
I think Mr. Eckstein's story is the most ringing in my
ears. Here is a family-owned company, two generations, I
believe you told us, that is having a hard time maintaining,
offering what they want to do because of one or two people in
their health care family getting sick. It is that kind of, I
will just say outrage, that we ought to fix. I don't blame the
insurer. The insurers are in the world where they are following
the rules they have that we have set up. The point of the
CHOICE Act is to change the rules and to change incentives and
to change the ways to make it available to more people. So all
of that is good.
My quibbles are that I think we could actually have our
subsidy dollars go farther to cover more people if we are able
to target them to low income workers as opposed to higher
income workers who just happen to be in smaller firms. The
classic example, not at the table today, would be a law firm or
a consulting firm of a bunch of egghead economists, doing very
well, thank you very much, why should you subsidize them? They
don't need it.
The second thing is I would agree with Linda in the long
run you want to think about how are we going to help more
workers in general. And more firms concentrate on what they do
best, what they do best, as you all know, is create jobs. I
want to remove the worry of health insurance from the plate of
the CEO so he can focus on fixing roofs and making Coca-Cola
even cheaper. I am in favor of that, I am a big Coke fan. So
what I want to do is remove the health insurance, if you will,
nightmare, from their plate by creating a marketplace where all
workers can go. They can contribute to those workers purchases
if they want to. It is America, it is part of the labor
contract, but let's not build that as the only way to do it.
And that is where I would quibble.
Mr. Chabot. Thank you. Dr. Butler, the Heritage Foundation,
and of course, Brookings are a couple of top think tanks that
we often read your reports and listen when you all talk about
important issues like we have here today. And obviously, we are
way down the road on health care for the most part being
provided through one's employer. It really didn't have to be
this way from the beginning. I am just curious as to what your
thinking is, because I have heard you speak at a number of
different forums in the past. Is there a way that would have
made better sense so that we wouldn't be here at this point in
time? And how realistic is that at some point, maybe get back
to what would make more sense?
Mr. Butler. Well, I am a historian so don't get me started
on that. I think we are facing a number of problems these days,
if we had done things a little differently in the past, we may
not be where we are today. But anyway, when I look at this, and
actually when I look at it as somebody who is an immigrant to
the United States, albeit having been here for 30 years, you
are right.
When you start looking at the American system, and as Len
said, you have employers here that are trying to make
something, yet having to worry about how sick might their
employees be. That doesn't typically happen in other countries.
You have employees shopping around for employers, wondering
whether their benefits package is going to cover their problem.
That is a problem too. And part of the root here, I think, is
the tax treatment, which many people have pointed to that skews
us to go down a certain road. We have all said that that needs
to be addressed, and we need to make some steady changes in
that to move the subsidy more to the person and away from
another institution.
However, I would say that given where we are and how we
need to think about the future, I do want to just reemphasize
the distinction I tried to make in the role of the employer
between the role of the place of employment as a very useful
convenient place to do a number of transactions to enroll
people. Most Americans pay their tax via their employer. They
are very good reasons for this, very sound reasons for doing
this. To distinguish between that and who actually organizes
coverage and who is at risk.
I think the discussion we have been having to some extent
is do we envision a future in America where the employer,
particularly the small employer, continues to be a key part of
organizing that coverage, and is in fact, holding the risk in
some way, or should we try to move away from that system? That
is what I would argue for.
I think the analog with the way with you as Members of
Congress provide insurance to your employees is a good analogy
to look at. And you don't come together. You don't have to
worry about the medical condition of any employee of yours
because; it doesn't affect your ability to function as a Member
of Congress; it doesn't affect the bottom line of your office
in that sense. But you are a very important individual in terms
of giving people who come to work for you access to a system
based on an exchange where the risk is handled separately, and
I think that is the way forward.
So given the choice you can make, I would advise you, when
you look at the CHOICE Act, to examine the opportunity for
seeing a somewhat different role for the employer in the future
than you are currently looking at, and to move in a slightly
different direction than is implied by what you are doing. As
you go down your current route, you still have the inherent
problem of the medical risk of the employees of any individual
company, and should they be in the co-op or should they not.
The decision they make is going to still be one of who is going
to carry the risk and what is the cost. I think that is
inherent.
I would just say finally and maybe this is a point of
clarification for Mr. Haynes, my understanding from your
testimony from the Bottlers' Association is that you still
really don't provide the same kind of system of benefits to
your smaller members and to your larger members, maybe I
misheard that. But I thought that was the case, so you are
still facing that situation of having a particular problem for
the smaller members.
Mr. Haynes. Well, if I can clarify, that is because of
regulation, there is not a choice on our part, the system has
State regulation. So we are going to come up with a solution
for our small members. I am committed to doing that. And it is
going to be based upon a captive.
Mr. Haynes. One way or the other we are going to do it. We
are going to struggle to be effective if we don't have some
help financially in overcoming the competitive handicap that we
already face because of the cost gap. But we are going to do
it.
And if I could just comment briefly, I think that the
workplace is a very natural place for employees to get their
health care insurance now. You can argue whether we might be
better off if they didn't, but if you consider the fact that
retirement is primarily coming through workplace-based 401K
plans, that we provide a whole range of benefits, programs that
we administer. I think it is both current reality and, frankly,
fairly natural for employees to look to the workplace for help
on their health care. After all, I think small business is
concerned about the health and welfare of their employees
separate and apart from the cost component.
Mr. Chabot. Let me just ask one last quick question , and I
will address this to both Mr. Haynes and Mr. Eckstein.
In the scheme of challenges that those of you on the small
business community have to deal with, where does health care in
coming up with additional costs--I know it has been going up
double digit in recent years. Where does that fall in the
challenges that you face? And just a pretty quick answer, not a
long one, Mr. Haynes and Mr. Eckstein.
Mr. Haynes. It is very high and it is probably number one
and I could even extend that beyond my organization because I
have been working closely with the National Beer Wholesalers
vis-a-vis health care and they did a member survey of the
largest challenge that their members face and health care was
number one in that survey; so our experience is typical.
Mr. Chabot. Thank you.
Mr. Eckstein.
Mr. Eckstein. Health care has become just absolutely huge
for us. Running a business myself, I didn't have the time to
spend on health care every year, to shop it and try to find
someone. I actually brought my wife to work, and now basically
her job is she monitors our health insurance on a yearly basis.
And we actually last year went to a health reimbursement
account to absorb some of the increase and not pass it along to
our employees and it actually worked out fairly well last year.
Mr. Chabot. Thank you. And that's consistent with what I
have been hearing. I go to small business folks in my districts
a lot and I will tour their plant and meet with their folks,
and I hear that if it is not the number one issue, it is very
close to the top with just about every small business and I
would venture to say that is probably true nationally as well.
Thank you very much, Madam Chair. I yield back my time.
Chairwoman Velazquez. Mr. Ellsworth.
Mr. Ellsworth. Thank you, Madam Chair.
Maybe not so much a question, but I would like to thank you
and the ranking member so much for keeping the spotlight on
this issue. I know we have had several hearings about this. We
have had governors in talking about State health insurance
individuals and small business. So thank you very much.
Obviously this is something that we look forward to getting
something done about and I know you are committed to that, and
I look forward to next year too. Like Dr. Nichols said,
regardless of who is in the White House, this is going to be a
pressing issue for the new administration as well as us.
Sitting over here listening to the panel, I had a flashback
to when I was interviewing--in my former life interviewing
potential employees. And being a former law enforcement
officer, you always ask the question why do you want to become
a deputy sheriff? And you would think it would be to protect
and serve and things like that. And as time went on, I had
people saying, well, I hear the county has really good health
benefits as their reason for wanting to become a deputy
sheriff.
Now, I didn't hire those people, but they were pretty
honest. But I thought that was a telling thing that they were
willing to come in and want that job just to get the health
insurance benefits. I hope they are listening today and if they
are reapplying they will think of a better answer than that.
But as Mr. Chabot said, I spent yesterday on the phone
anticipating this hearing talking to small business owners in
my district with my roundtable, and just the stories that came
from them. One gentleman who owns a trucking company and fuel
prices are his number one, but health insurance and health care
for him and his employees were all of their number one issue.
And just listening to some of the stories that they had, gaming
that deductible system. I know one of the gentlemen talked
about that he selected a plan with a $2,500 and had asked the
employees to pay the first $750. He would take the gamble on
paying above the $750 anything that they didn't spend. He was
just gambling.
Other issues that they talked about were the insurance
companies that are demanding that 50 or 60 percent of the
employees get on the program, and that is not always possible.
In a five-person job, if the spouse of somebody works and it's
a better insurance plan, they are not there. So they are
hampered. But again, I don't have a lot of questions because I
think we all know where this has to go. It is letting the
rubber meet the road and getting these things done, and I look
forward to you and the rest of us keep pushing until this
actually happens.
With that, I yield back, but thank you all very much for
your input.
Chairwoman Velazquez. Thank you.
Mr. Fortenberry.
Mr. Fortenberry. Thank you, Madam Chair.
Thank you all for joining us today.
Dr. Blumberg, if I could summarize your testimony because
unfortunately, it was the only one I was able to read through
since being here fully, I think your suggestions can be
summarized as follows: better pooling for small firms; high-
risk pools, which is a government subsidy for persons who have
chronic health conditions; and some form of premium assistance
for individuals of lower income; is that correct?
Ms. Blumberg. Not necessarily. The issue of the high cost
is a really critical one from my perspective. But whether you
are going to address that problem by taking the people and
separating them out into high-risk pools versus changing the
way insurance is priced and risk is pooled in private insurance
in general is a very big decision.
So I think we need to be very cautious about how we go
about that in order to make sure that coverage remains adequate
and affordable for people regardless of their health status.
For example, if you take the route of going with high risk
pools for those who are high cost, they are separated out from
the people that are lower cost. So if you are going to
subsidize their coverage explicitly in order to make it
affordable, the cost to the Government is going to be
considerably higher than if their costs are averaged throughout
the population. The total healthcare costs are the same. You
have to pay for the costs eventually one way or the other. But
it is a matter of how much is going to come directly from
Government revenue versus how much is going to be spread
through premiums. So those are big policy decisions and I
wouldn't say that high-risk pools are necessarily the right way
to go.
Mr. Fortenberry. Then that would beg the question as to
whether a form of premium assistance is the most efficient way
and perhaps the most societally beneficial way, to continue to
have proper access to health insurance coverage in the event
that a person who falls out of normal risk categories and can
not then be absorbed into smaller pools like you have.
Ms. Blumberg. I think that buying coverage through
employers, particularly large employers, is more efficient at
this point than buying person by person because of
administrative costs, but I think a lot of us have been talking
about the notion of creating structures or building on existing
structures that would allow coverage to be purchased outside of
the employment context as efficiently as many employers do.
Mr. Fortenberry. What would that look like?
Ms. Blumberg. What that would look like is a purchasing
entity, maybe something structured similarly to the Federal
Employees Health Benefits Plan, which is what Stuart was
speaking about, based on State purchasing pools, or State
employee plans. You could do it through public programs, you
could open up Medicaid and SCHIP for purchasing coverage for
individuals of varying income levels. Most people in those
plans are already enrolled in private health insurance plans,
they are just being contracted by the State. You could set up a
connector-like entity as they have done in Massachusetts. Where
the State creates an entity through which they decide what the
array of health benefits are going to look like and they
contract with the insurers in order to provide that for
individuals and/or small businesses that want to buy into it.
But the key is that we have to be really careful about how
we slice up the covered individuals in insurance coverage. The
more choices that they have, the more options that they have
available to them, the more we segment risk. So we have to be
very careful about how many choices people face and how they
are priced in order to make sure that we spread the cost as
broadly as possibly.
Mr. Fortenberry. Let us talk about two aspects of that, and
others of you can chime in.
One is the Health Savings Account initiative that tries to
drive the consumer back into the equation when rationing
limited dollars in ordinary costs while there is an
extraordinary or catastrophic condition. Mr. Ellsworth is
right, and it is an amusing story, but I think it is very true.
And this also is a question of portability, that the dampening
effect on economic productivity created by having a person seek
employment merely for the benefit of health insurance, versus
using their skill sets to find the right place to exercise
their gifts, is a very real drain on productivity.
So we talk about an employer-based system and you all are
generous people, those of you who have a business. I think most
small business people are trying to help their employees. But
because you get a tax benefit, in effect, for doing this (plus
the fact that it is about retaining employees) we used to call
it in the corporate world "golden handcuffs." If these benefits
get big enough, you are going to think twice before leaving or
you are going to seek a position for the benefit alone versus
the opportunity to again find the right fit for your own skill
set. This happens a lot in rural communities where a spouse
will leave a farm or another entity simply to go to some level
of governmental--a level of governmental entity for the health
insurance benefits.
So while I agree with many of the points you are making in
regards to the efficiency of delivering health care through the
business platform, I think we have to think also about this
issue of portability and this drain on productivity when a
person ends up being basically chained to the desk that they
are at because of their need for health insurance.
Ms. Blumberg. That is actually one of the advantages of
these purchasing entities, that an individual regardless of
where they are working, can maintain their health insurance
coverage when they move from job to job and whatever employer
they are working with at the time, if they have decided to make
contributions, can pay those contributions into the purchasing
pool or the individual could hopefully go there and get income-
related support in order to be able to afford coverage there.
So I think most of us are realizing that, particularly for
small businesses and some medium-sized businesses as well, it
is inefficient for them to be the location of purchasing
coverage. But these purchasing entities are basically the
solution to the issues that I think you are raising.
Mr. Butler. I might add that in addition to issue of so-
called job lock, with people making decisions as to who they
work for, there is of course the other issue which I am sure
you are very familiar, which is how people's decision to go
into business for themselves is affected by the insurance
issue. There has not been so much research done on that but we
certainly know anecdotally very much how that is affected. We
have done a summary of the research that is out there and I
would be more than happy to--
Mr. Fortenberry. Madam Chair, I think that Dr. Butler is
making an extraordinary point, one that should be impacted
further by this committee because this drain on entrepreneurial
productivity is very real because of this issue.
Mr. Butler. We would like to be helpful. We see it all the
time - people who just cannot go into business for themselves
unless they have coverage through a spouse, for example. You
see these patterns very, very clearly. People maybe get
divorced and then suddenly, because they are in business, they
cannot afford to continue because of the immediate effects of
running out of--
Mr. Nichols. If I could, Stuart mentioned, and I welcome to
see it, it has been hard developing empirical models to do
this, but I think he probably knows and I certainly know there
are surveys of people thinking of business formation. And I
know Todd Stottlemyer, the president of NFIB, has made very
clear, and I think he has got a hard survey to back this up, it
is the number one problem, the number one impediment to
business formation is worrying about how you're going to cover
your family and your would-be employees; so I certainly agree
it is very important.
Chairwoman Velazquez. We are having some votes the floor,
but I have two more questions and then, Mr. Chabot, if you have
any other questions.
Dr. Nichols, despite some of the successes of the
Massachusetts Commonwealth connector plan, it hasn't delivered
on the promise of low-cost small business plans. Small
businesses appear to be disproportionately funding the State's
health care system in comparison to big business and government
payers. Do you believe that there was a way that this could
have been avoided?
Mr. Nichols. Well, Madam Chairman, I think the fundamental
cost structure in Massachusetts is driven by the unfortunate
fact that health care costs a lot in Massachusetts, and
unfortunately there is no magic wand you can wave when the
providers up there get paid what they get paid, and that is the
fundamental thing. Now, Linda actually probably knows more
about Massachusetts specifically than I do so I will defer to
her, but I will say when you structure a new marketplace, I
think all of us would agree you have to have transitions that
are smooth. You don't want to have a big jump.
Massachusetts had a fair number of benefit mandates that
were already in place that in some sense the market had
adjusted to. You could get money back although not nearly as
much as the advocates would tell you. You can get money back by
taking mandates away, but if you do that precipitously, you end
up uncovering cancer and so forth. So you have to be careful
about that. What they did do, which I was very much in favor
of, was they allowed there to be products sold to young
workers, to young people, between, I think, 21 and 29 that had
fewer mandates so that they could offer those people a little
bit lower premium.
But Linda, you may want to speak to--
Ms. Blumberg. I think the underlying cost structure of the
State is the major issue and they are focusing their attention
now on strategies to contain costs. It was a very difficult
political calculus to try to expand coverage substantially
while at the same time containing costs, lower provider payment
rates, et cetera. It would have been a very difficult piece of
legislation to pass without support of the providers; so now I
think the focus is on cost containment.
But I would mention a survey that was done by the Urban
Institute prior to the reform implementation and the survey was
done again more recently. It was demonstrated that employer-
sponsored insurance coverage in Massachusetts has increased
since the implementation of the reforms. So more employers seem
to be offering and more workers taking up.
Chairwoman Velazquez. Dr. Butler, you suggest giving tax
credits to individuals as opposed to employers because it is a
more effective means of expanding traditional coverage. Can you
envision any circumstances in which tax credits for small
businesses could be effectively used to expand coverage?
Mr. Butler. Well, I do think that there is a case to be
made for credits in the transition especially, if you are
asking employers to set up systems. And we see this,
incidentally, in the area of pensions as well, that legislation
has been put forward to address the fact that there is a direct
cost to a small business person, that might discourage them
from setting up an alternative system. I think covering that
with a credit can make sense, to cover those transition costs.
What I was referring to is the idea of trying to subsidize with
a tax subsidy directly to the employer in order to bring down
the cost of coverage per se. So I would draw that distinction
between the role of any kind of subsidy to the small employer.
Chairwoman Velazquez. Yes. I am sure Mr. Haynes would want
to comment--
Mr. Haynes. Yes. I would say looking specifically at the
Choice Act, there is probably dramatic evidence to the contrary
because I think in our situation the tax subsidies would allow
us to bring a lot more people into our existing pool. Frankly,
I think more money would be saved by the people who wouldn't
get--by the employers who wouldn't get the subsidies than the
people who would get the subsidies and there would be more
benefit to the participants in the pool that we could create
outside of the group being subsidized than inside the group.
Mr. Butler. Well, with respect, I mean, the actual
econometric data that has been done--there has been a number of
econometric studies looking at this in terms of the cost, the
revenue loss associated with providing a subsidy to an employer
who is already providing coverage to their employee and to try
to level the playing field. There is a huge revenue loss
associated with that. And I mean Econometricians do look at
these things, and the data I think is pretty clear that it
really is almost pushing on a string in terms of cost. It costs
an enormous amount for those who are already covered if you go
through the employer, and it is a much higher cost method of
trying to cover those people. I just think the data shows that
very clearly.
Mr. Haynes. I think the difference is between a targeted
subsidy and a general subsidy. This is a targeted subsidy that
works specific on the marketplace.
Chairwoman Velazquez. Mr. Chabot.
Thank you.
Mr. Chabot. Thank you, Madam Chair. I know we have votes;
so I won't ask any more questions. But I just want to thank you
for holding the hearing and I want to commend the panel. I
think they have done an excellent job and have really shed a
lot of light on this. I think this is an excellent panel,
especially the panel member from Cincinnati.
Chairwoman Velazquez. Thank you all.
I ask unanimous consent that members will have 5 days to
submit a statement and supporting materials for the record.
Without objection, so ordered.
This hearing is now adjourned.
[Whereupon, at 12:00 p.m., the committee was adjourned.]
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