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


 
                    AMERICA'S NEED FOR HEALTH REFORM

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 18, 2008

                               __________

                           Serial No. 110-150


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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                    COMMITTEE ON ENERGY AND COMMERCE

    JOHN D. DINGELL, Michigan,       JOE BARTON, Texas
             Chairman                    Ranking Member
HENRY A. WAXMAN, California          RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts      FRED UPTON, Michigan
RICK BOUCHER, Virginia               CLIFF STEARNS, Florida
EDOLPHUS TOWNS, New York             NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey       ED WHITFIELD, Kentucky
BART GORDON, Tennessee               BARBARA CUBIN, Wyoming
BOBBY L. RUSH, Illinois              JOHN SHIMKUS, Illinois
ANNA G. ESHOO, California            HEATHER WILSON, New Mexico
BART STUPAK, Michigan                JOHN SHADEGG, Arizona
ELIOT L. ENGEL, New York             CHARLES W. ``CHIP'' PICKERING, 
GENE GREEN, Texas                        Mississippi
DIANA DeGETTE, Colorado              VITO FOSSELLA, New York
    Vice Chairman                    ROY BLUNT, Missouri
LOIS CAPPS, California               STEVE BUYER, Indiana
MIKE DOYLE, Pennsylvania             GEORGE RADANOVICH, California
JANE HARMAN, California              JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MARY BONO MACK, California
JAN SCHAKOWSKY, Illinois             GREG WALDEN, Oregon
HILDA L. SOLIS, California           LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas           MIKE FERGUSON, New Jersey
JAY INSLEE, Washington               MIKE ROGERS, Michigan
TAMMY BALDWIN, Wisconsin             SUE WILKINS MYRICK, North Carolina
MIKE ROSS, Arkansas                  JOHN SULLIVAN, Oklahoma
DARLENE HOOLEY, Oregon               TIM MURPHY, Pennsylvania
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   MARSHA BLACKBURN, Tennessee        
G.K. BUTTERFIELD, North Carolina     
CHARLIE MELANCON, Louisiana          
JOHN BARROW, Georgia                 
DORIS O. MATSUI, California          
                                     
_________________________________________________________________

                           Professional Staff

 Dennis B. Fitzgibbons, Chief of 
               Staff
Gregg A. Rothschild, Chief Counsel
   Sharon E. Davis, Chief Clerk
  David Cavicke, Minority Staff 
             Director

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
HENRY A. WAXMAN, California          NATHAN DEAL, Georgia,
EDOLPHUS TOWNS, New York                 Ranking Member
BART GORDON, Tennessee               RALPH M. HALL, Texas
ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
LOIS CAPPS, California               STEVE BUYER, Indiana
    Vice Chair                       JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
ELIOT L. ENGEL, New York             SUE WILKINS MYRICK, North Carolina
JAN SCHAKOWSKY, Illinois             JOHN SULLIVAN, Oklahoma
HILDA L. SOLIS, California           TIM MURPHY, Pennsylvania
MIKE ROSS, Arkansas                  MICHAEL C. BURGESS, Texas
DARLENE HOOLEY, Oregon               MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          JOE BARTON, Texas (ex officio)
JIM MATHESON, Utah
JOHN D. DINGELL, Michigan (ex 
    officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     3
Hon. John D. Dingell, a Representative in Congress from the State 
  of Texas, prepared statement...................................     4
Hon. Edolphus Towns, a Representative in Congress from the State 
  of New York, opening statement.................................     6
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     7
Hon. Lois Capps, a Representative in Congress from the State of 
  California, opening statement..................................     8
Hon. Jan Schakowsky, a Representative in Congress from the State 
  of Illinois, opening statement.................................     9
Hon. John B. Shadegg, a Representative in Congress from the State 
  of Arizona, opening statement..................................     9
Hon. Hilda L. Solis, a Representative in Congress from the State 
  of California, opening statement...............................
  1
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    12
Hon. Diana DeGette, a Representative in Congress from the State 
  of Colorado, prepared statement................................    13
Hon. Darlene Hooley, a Representative in Congress from the State 
  of Oregon, opening statement...................................    14
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    15

                               Witnesses

Jon S. Corzine, Governor, State of New Jersey....................    17
    Prepared statement...........................................    20
Elizabeth Edwards, Senior Fellow, Center for American Progress...    22
    Prepared statement...........................................    27
Stephen T. Parente, Ph.D., Director, Medical Industry Leadership 
  Institute and Associate Professor of Finance, Carlson School of 
  Management.....................................................    34
    Prepared statement...........................................    36
E.J. Holland, Jr., Senior Vice President, Human Resources and 
  Communication, Embarq..........................................    69
    Prepared statement...........................................    72
Patricia Owen, President and Founder, FACES DaySpa, The Village 
  at Wexford.....................................................    93
    Prepared statement...........................................    95
Karen Pollitz, M.P.P., Project Director, Research Professor, 
  Georgetown University, Health Policy Institute.................   102
    Prepared statement...........................................   105
Karen Davis, Ph.D., The Commonwealth Fund........................   119
    Prepared statement...........................................   121
William J. Fox, F.S.A., M.A.A.A., Principal and Consulting 
  Actuary, Milliman..............................................   176
    Prepared statement...........................................   178
Ronald E. Bachman, F.S.A., M.A.A.A., Senior Fellow, Center for 
  Health Transformation..........................................   218
    Prepared statement...........................................   220
.................................................................


                    AMERICA'S NEED FOR HEALTH REFORM

                              ----------                              


                      THURSDAY, SEPTEMBER 18, 2008

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:45 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Frank 
Pallone, Jr. (chairman) presiding.
    Members present: Representatives Pallone, Towns, Green, 
DeGette, Capps, Baldwin, Schakowsky, Solis, Hooley, Matheson, 
Dingell (ex officio), Deal, Shadegg, Murphy, and Burgess.
    Staff present: Bridgett Taylor, Purvee Kempf, Tim 
Gronniger, Hasan Sarsour, Jodi Seth, Brin Frazier, Lauren 
Bloomberg, Bobby Clark, Ryan Long, Clay Alspach, Brandon Clark, 
and Chad Grant.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. The meeting of the subcommittee is called to 
order, and today we are having a hearing on ``America's Need 
for Health Reform.'' I recognize myself initially for an 
opening statement.
    When it comes to our Nation's healthcare system, I think 
there is at least one thing that we can all agree on, that our 
healthcare system is in crisis and is getting worse every day. 
The trends we are seeing today are truly frightening. 
Healthcare costs are climbing, access is eroding, and the 
quality of care is unpredictable. The United States spends 
approximately $2.1 trillion on healthcare annually, 
approximately 16 percent of our entire economy, and this is 
about twice what we spent 10 years ago. We outspend any other 
country when it comes to healthcare, but what has all this 
money brought us?
    More and more Americans join the ranks of the uninsured 
every day. Today there are roughly 45 million Americans who do 
not have health insurance, and as I said, approximately 16 
percent of the U.S. population. This is a problem that is only 
going to get worse. As the economy continues to weaken, more 
and more working Americans and their families are falling into 
the same trap. Nearly half the increase in the uninsured 
population between 2005 and 2006 occurred among middle-income 
families.
    Part of the problem has been that healthcare costs continue 
to skyrocket at alarming rates. The average cost of a family 
employer-based insurance policy in 2007 was $12,106, or nearly 
the full-year, full-time earning of a minimum wage job. The 
cost of a similar policy in the individual market would be 
prohibitively more expensive, out of reach for far too many 
working American families. And contrary to some opinions, the 
problems that people face when it comes to healthcare are not 
their own. It is nice to talk about taking ownership over your 
healthcare and having some skin in the game, but the truth of 
the matter is, we are all in this together. Rising costs and 
increasing numbers of uninsured Americans seriously impact our 
economy and society as well as further distress our weakening 
healthcare system.
    As healthcare costs increase, it strains businesses and 
employers and puts them at a competitive disadvantage globally. 
Employer-sponsored health insurance premiums rose by almost 100 
percent between 2000 and 2007, making it increasingly difficult 
for employers to continue to offer health insurance to their 
workers. Instead, more and more businesses are shifting the 
costs of health insurance to their employees at a time when 
healthcare costs are rising substantially faster than wage 
growth.
    The impact of the uninsured on our communities is 
tremendous. We have 45 million Americans who cannot call a 
doctor to get an appointment, who do not have access to 
preventative care and who are forced to use the local emergency 
room as their primary source of care. Not only are these people 
sicker because they put off getting treatment and therefore 
more expensive to treat but they also are seeking care in a 
setting that costs our healthcare system more money.
    Hospitals in my home State of New Jersey are grappling with 
providing rising amounts of charity care that increases their 
bad debt. Many hospitals cannot afford this growing financial 
burden and the State of New Jersey is having increasing 
difficulty in reimbursing hospitals for the charity care they 
provide. I will note that my governor, Jon Corzine, is with us 
today and can talk about many of the challenges our State faces 
because of our crumbling healthcare system. Governor Corzine 
will also be able to talk about what States are doing to answer 
the call to reform our Nation's healthcare system. New Jersey, 
Massachusetts, New York, and many other States are 
experimenting with new and innovative ways to expand their 
health insurance for their residents but they can't do it 
alone. The Federal Government will need to take a leading role 
in reforming our healthcare system.
    All of these problems are interconnected, whether it is 
cost, access or quality. We need a healthcare reform plan that 
looks at the inadequacies of our healthcare system in its 
entirety and begins to address its failings. Fortunately, many 
people are talking about healthcare reform right now. 
Healthcare has become a critical part of the national debate, 
which reflects the growing anxiety many Americans share about 
the current state of our healthcare system.
    In the end, we need to recognize that when it comes to 
healthcare, having it shouldn't be a luxury reserved just for 
those lucky enough to afford it. It is a basic human right, and 
we as a country, as a society have to ask ourselves, is it OK 
for Members of Congress to have the best healthcare in America 
but not 45 million other Americans? Is it OK to let our 
families, friends and neighbors continue to fall through the 
cracks of our broken healthcare system or are we going to 
finally resolve ourselves to providing affordable, accessible, 
and high-quality healthcare to every American citizen, and I 
think the answer is clear.
    I want to thank our witnesses. We have a great panel today, 
a pretty large panel, but I do appreciate your all being here. 
We are eager to hear your testimony.
    Mr. Pallone. I now recognize our ranking member for today, 
Mr. Murphy.

   OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Murphy. Thank you, Mr. Chairman. Thank you so much for 
holding this important hearing on healthcare reform, and I also 
would like to welcome the distinguished panel of folks, experts 
from around the country who are here to give us their input.
    As we are talking about healthcare reform, you alluded to a 
number of things, Mr. Chairman, and I appreciate that in terms 
of the uninsured and their access to care. I want to make sure, 
however, when we talk about healthcare reform, the emphasis is 
on reform, because healthcare reform is not just about who is 
paying but what we are paying for, and so often when we look at 
healthcare issues, we talk about such things as saying 
healthcare is expensive, let us have the government take it 
over, or healthcare is expensive, let us offer tax credits for 
people. In either case, the government is footing a lot of the 
bill but I am not sure it gets down to the fundamentals of our 
forum, and I think as we look at this, as you have heard me say 
many times on this committee, there are a couple of things 
where I think we can save massive amounts of money but we have 
to make sure we are tackling these.
    One, of course, is an area I frequently talk about, and 
that is the area of hospital-acquired infections. If you have 
$50 billion a year wasted on preventable infections, that is 
money we could be saving the healthcare system. As of today, 
62,000 people have died in this country just since January 1 
from healthcare-acquired infections out of 1.1 million cases 
and that amounts to $31,000,500,000 wasted this year on 
preventable infections.
    But there is another area too when it comes to providing 
healthcare for the uninsured, and that is an issue that this 
committee tackled before in Mr. Green's bill regarding 
community health centers. An amendment we put into that bill 
would have allowed physicians to volunteer at community health 
centers. This is intuitively obvious. After all, if you have 
community health centers, the 6,000 physicians that provide 
care at these centers around the country, there are not enough 
to help the 1,100 community health centers and the 16 million 
people who use these things. Wouldn't it be nice if we allowed 
physicians to volunteer, and indeed, in Mr. Green's bill, we 
allowed that, saying they would be covered under the Federal 
Torts Claim Act. The Senate, we understand, pulled that part of 
the bill and it is important that the House works very hard to 
get that reinstated. When we find that community health centers 
save about 30 percent in annual spending on Medicaid patients 
due to reduced special care referrals and fewer hospital 
admissions, that is a massive savings. As a matter of fact, the 
CBO also said that if we allowed physicians to volunteer, then 
the impact on the federal budget would be zero. We don't have a 
lot of situations like that, but to be able to provide 
healthcare for folks with physicians who want to be Good 
Samaritans and give some of their care, you would think that 
would be a healthcare reform that we understand that we really 
could afford.
    A couple years ago we found out that the actual numbers of 
physicians where there is need for primary care, nurse 
practitioners, physician assistants, midwives, dentists, et 
cetera, the vacancies were huge, also with OB/GYNs, family 
physicians, pediatricians, and the vacancy rates are 
particularly high among rural and inner city health centers, 
which range from 19 percent to 29 percent of their workforce. 
What I think is so hugely important that as the conference 
committees are meeting on the bill involving community health 
centers, is that the House continue to push very hard for some 
of these real reforms. We can make sure that while the Federal 
Government is looking at a $200 billion combined bailout of 
Fannie Mae and Freddie Mac and $85 billion for AIG and other 
billions sent out to J.P. Morgan, Chase and Bear Sterns, and 
all those other things, we surely can find a way to work zero 
in the equation and allow physicians to volunteer. It is just 
wrong, it is unconscionable. And I hope as we discuss the 
issues of healthcare reform, we look at these things too, and 
Mr. Chairman, I am going to give you a copy of something that I 
wrote a while ago. It is called ``Critical Condition: The State 
of the Union's Healthcare,'' and it is light reading. It is 
only about 60 pages long. But you know me, I obsess on details. 
But this also outlines a lot of the things that I think we 
could be doing to reduce healthcare costs and I hope we can 
include this in part of our conversation in the future.
    With that, I thank you so much for doing this hearing and I 
look forward to continuing to work with you.
    Mr. Pallone. Thank you so much, and let me say, it is not 
that often that a member actually gives me a document so 
important that they wrote themselves. That is great. Thank you.
    Next for an opening statement, the chairman of our full 
committee, who has been working on healthcare reform for so 
many years so successfully, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, thank you, and I commend you for 
this hearing today, and I welcome a very distinguished panel of 
witnesses for their joining us. I thank them for their kindness 
to us, and I know that they will make this a valuable hearing 
in our effort to see to it we address the problems of 
healthcare to our people.
    I want to express my particular pleasure at seeing 
Elizabeth Edwards here. She is a great friend of the lovely 
Debra and I and I want her to feel welcome today. We are 
honored you are with us. And I particularly want to welcome 
Governor Jon Corzine. Governor, welcome. We had the privilege 
of working with you when you were in the Senate. It was always 
a great pleasure, and your leadership in healthcare and other 
important matters is very much appreciated. Thank you again to 
our other panelists. Thank you also.
    This is an important hearing, and it is necessary not only 
to review the status of our healthcare system but also to begin 
to prepare for what we are going to do to see to it that we 
finally make it something which works in the interest of all of 
our people. Today we are going to work particularly on the role 
of employer-sponsored coverage, the individual insurance 
market, the role of public programs such as Medicare, Medicaid, 
and the State Children's Health Insurance Program, States' 
perspective on healthcare coverage, and the growing number of 
uninsured Americans. Perhaps most importantly, we will lay the 
foundation for future discussions on healthcare reform, 
something desperately needed. Next year will bring us, we hope, 
great opportunities to repair and to strengthen our healthcare 
system and our witnesses today I again thank because they are 
going to provide valuable insights to help us as we focus our 
efforts ahead to 2009.
    It is a curious anomaly we confront in this country. Our 
healthcare system is the best in the world. It is regrettably 
also the worst because we have 47 million Americans who have no 
access. People live in terror of loss of their policies of 
health insurance, and worse, large numbers of people are either 
uninsured, underinsured, or suffer from severe problems in 
terms of being able to achieve healthcare in a fashion that is 
needed. We rank with the Third World with regard to infant 
mortality and we have the unfortunate fact that many of our 
people are dying before they should and that our life 
expectancy does not match that of other developed nations. 
Forty-seven million Americans, until recently, were without 
health coverage. We have changed that a little bit better by 
seeing to it that we have increased the number of people who 
are under government-sponsored programs, but 9 million of our 
people who are not covered are children, and they could have 
had coverage had it not been for a veto of the President of the 
SCHIP program, which was a valuable, useful, and forward-
looking step that this committee took to see to it that we 
addressed the needs of one of our most vulnerable groups in 
this society.
    The last time we launched a serious health reform program, 
our healthcare spending was 14 percent of GDP. Today it is 17 
percent. And we find that General Motors spends more on 
healthcare than it does on steel and we find also that 
Starbucks spends more on healthcare than it does on coffee--an 
entirely unacceptable consequence. Our healthcare system is not 
just morally indefensible, it is economically untenable. It is 
destroying the largest corporations and small businesses alike, 
and our companies simply cannot compete with their foreign 
competition because of the excessive costs of healthcare that 
they bear and the consequences of that are of course that every 
person who receives healthcare in this country is endangered.
    I am pleased to note that it is 60 years since President 
Truman issued the first call for a national healthcare plan. 
Regrettably, the Nation has not heard it and opposition from 
special interests has prevented that from coming to be. In 
1942, my father, John Dingell, Sr., tried to answer that call 
by introducing the first national health insurance act, and I 
have carried on my dear old dad's work opening each session by 
introducing a bill to provide Americans with adequate health 
coverage.
    We think that we are going to move forward next year, and I 
certainly hope that the issues of adequate healthcare for our 
people will be addressed as the campaign goes forward because 
the American people want something done about this problem and 
your leadership, Mr. Chairman, on this matter holding this 
hearing and the assistance of our very, very valuable panel is 
going, I hope, to help prepare us for this to give us an 
understanding of what needs to be done and to establish a clear 
recognition of a great public need unanswered.
    Thank you, Mr. Chairman.
    Mr. Pallone. Thank you, Chairman Dingell.
    I next recognize our ranking member, Mr. Deal from Georgia.
    Mr. Deal. Thank you, Mr. Chairman, and we have a very 
distinguished panel here today who represent a very wide 
spectrum of positions and opinions on the delivery of 
healthcare and the future of healthcare in this country, and in 
deference to the time that will be required to hear your 
testimony, I am going to reserve any other time and not use it 
at this point and just simply welcome all of you here today. We 
are pleased to have all of you. Thank you.
    Mr. Pallone. Thank you.
    Next is our newly victorious member from New York, Mr. 
Towns.

 OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Towns. Thank you very much, Mr. Chairman. Let me thank 
you for holding this hearing. Let me begin by welcoming the 
very distinguished panel members. It is good to see all of you 
and really appreciate you coming to share with us because this 
is a very serious situation that we really must deal with. I 
welcome the opportunity to explore the reasons why a 
nationalized approach to reforming healthcare is needed.
    Mr. Chairman, I am a firm believer that we in this country 
need universal healthcare now. Last year, I recall giving a 
speech on the House floor in support of House efforts to expand 
SCHIP. As I was bearing witness, in comes a staffer to inform 
me to stop my speech because the Administration just vetoed the 
SCHIP bill and what I was saying was no longer relevant. It is 
still beyond me how anyone could deny coverage to our Nation's 
most needy. When we passed the SCHIP expansion legislation, 
there were 2.6 million uninsured New Yorkers, 400,000 of whom 
were children. Now that we are experiencing a difficult 
economic downturn, we know more people regretfully will be out 
of work and in dire need of healthcare.
    I am anxious to examine the role of employer-sponsored 
coverage, the individual insurance market, the role of public 
programs such as Medicare, Medicaid, and the State Children's 
Health Program, States' perspectives of healthcare coverage, 
the uninsured, the underinsured. Given that our healthcare 
system is obviously broken, we have the chance to fix it. I 
intend to be on the side of the angels in that effort.
    With that, I appreciate the witnesses today in shedding 
light on the problem, but let me say that, let us take the word 
``reform'' very seriously. Around here I found over the years 
that reform does not mean what really reform should mean. 
Reform around here means cut the budget. I think that we should 
look very seriously at ways and methods that we can improve our 
healthcare system and that we should reform it in a very 
positive way, not just loosely use the word ``reform.''
    Thank you very much for the opportunity. I yield back.
    Mr. Pallone. Thank you, Mr. Towns.
    The gentleman from Texas, Mr. Burgess, is recognized for an 
opening statement.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman, and thank you for 
convening this hearing. It is an important topic. We have 
certainly have a significant panel of witnesses here today, 
experts to challenge some of our thinking and preconceived 
notions, and I appreciate the opportunity as always on this 
committee to participate in this type of discussion.
    Certainly in this country we are at a crossroads when it 
comes to healthcare. For somebody who has spent a lifetime in 
healthcare, I will just tell you, it is significant for me that 
both of the major parties' nominees for President are talking 
about healthcare. It is probably one, two, or three on each of 
their lists, depending what else is in the headlines that day, 
and I think that is a good thing. We basically have two 
directions in which we might go because there are significant 
differences envisioned from both of the candidates, and as a 
consequence, we will have a referendum in November, and as a 
consequence of the referendum, we will have a mandate as we 
start into next year, and we will make that decision. Do we 
believe that the individual should retain some ability to 
determine what is involved in their healthcare or do we yield 
to the supremacy of the State, and it will be an interesting 
outcome this November.
    Now, what about models for reform? We are going to hear 
something about that this morning. Oftentimes I am asked, what 
is the biggest single-payer healthcare system in the world? I 
think it is us. I think with our Medicare, Medicaid, VA system, 
federal prison system, all of the parts that are paid for by 
the Federal Government, I think it is us. Is this a model for 
reform? Well, certainly the world in which I live right now, I 
spend the bulk of my time dealing with problems that are caused 
for people from our Medicare, Medicaid, and VA system, whether 
it is the patient who can't get what they need or the provider 
who feels that their services have once again been devalued, so 
it is a major consumer of my time.
    Now, Alan Greenspan, talking to a group of us right before 
he left Capitol Hill said someone asked him if we could 
continue to pay for Medicare in the future. He thought for a 
minute and said I think we will be able to because Congress 
will make the right decisions. That actually was a little 
chilling itself. But then he stopped and said, what concerns me 
more is, will there be anyone there to deliver the services 
when you require them? And that is something that I think this 
committee needs to really focus on. We passed a very small bill 
yesterday in some of our public health bills to deal with 
physician workforce issues at the residency level. We have 
other opportunities. We haven't really faced the biggest 
problem of all, which is a sustainable growth rate formula. 
Sure, we delayed it once again in July but we have a huge cliff 
we are going to fall off in a little over a year's time and no 
one right now is talking about what we do to prevent that train 
wreck when it happens and we are not really addressing any 
visionary changes in the health proficient scholarship loan 
program. It has been a long time but really does need to be 
transformed for the 21st century.
    So I think even Dr. Zerhouni, who came and talked to us 
last week or 2 weeks ago from the NIH, and showed us that 
wonderful chart of a couple of years he had one or two little 
places on the genome he could point to for type 1 diabetes and 
then he went through the changes that have gone on the first 
quarter of 2008. Virtually the whole slide was filled up with 
little colorful things on the human genome. We are going to 
have an era of medicine where the ability to predict a 
predictive profile is going to be significantly different from 
what it was in the years that I practiced medicine. We need to 
preserve the ability to have that type of personalized medicine 
that high touch as well as high tech and to preserve the type 
of healthcare system that will nurture that and encourage that 
and not drive it in a direction which it should not go.
    But anyway, I welcome our witnesses and I am looking 
forward to your testimony. I will yield back the balance of my 
time and look forward to a lively question-and-answer session. 
I yield back.
    Mr. Pallone. Thank you.
    Next is our vice chair, who is a champion of healthcare 
professionals, the gentlewoman from California, Ms. Capps.

   OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Capps. Thank you, Chairman Pallone, for convening this 
hearing. Thank you to all of our expert witnesses for being 
with us today, and a particular welcome to Governor Corzine and 
our friend, Elizabeth Edwards. This topic, so important in 
consideration of comprehensive health reform, will help us to 
set the stage for enactment next year.
    I believe we can agree that our next President will be 
tasked with finally achieving an overhaul of our broken 
healthcare system. Quite frankly, this current Administration 
has had little interest in taking any approach other than one 
that favors the healthy and the wealthy. This approach has had 
grave consequences as we have seen outcomes in the United 
States slip further behind outcomes in other western countries. 
We watch the number of uninsured Americans grow to now 47 
million. We have seen health disparities grow between different 
ethnic and socioeconomic groups. And when we talk about health 
reform, our emphasis needs to be on how we can best serve the 
needs of all Americans, one that recognizes the specific health 
needs of women and of children, one that emphasizes the 
importance of primary and preventive healthcare and one that 
guarantees every American access to high-quality care. Quite 
frankly, this will never be achieved if we only look at 
healthcare through the tax code or as a commodity. Healthcare 
shouldn't be a luxury; it is a right. I don't think we can 
accomplish anything by making comparisons to shopping around 
for other luxuries. I might shop around for the best price on a 
car or a television but if I don't find one that I can afford, 
I am not going to die. The same cannot be said for healthcare. 
So our goal here is to examine what has and what hasn't worked.
    I look forward to hearing from our witnesses today on their 
thoughts on this matter and what they envision the ideal 
healthcare to look like, and I yield back.
    Mr. Pallone. Thank you.
    The gentlewoman from Illinois, Ms. Schakowsky.

 OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman. I am going to put 
my statement in the record because I really am anxious to hear 
all of our witnesses. I do want to give a special welcome to 
Governor Corzine and acknowledge the work that he has done to 
continue to expand health insurance in his State. Our Governor 
Blagojevich has made healthcare a priority as well but it is 
such a difficult challenge, and I want to also thank Elizabeth 
Edwards and the Center for American Progress Action Fund and 
for her incredible aspiration and leadership.
    And finally, I am thankful to all of the witnesses but I 
wanted to thank the Commonwealth Fund for its work in pointing 
out that this is not just about the uninsured anymore, that 
millions and millions of families are struggling now to have 
the adequate insurance that they need and that it is time to 
have as every other industrialized country does, we make 
healthcare a right and provide it to all Americans, and I yield 
back. Thank you.
    Mr. Pallone. Thank you.
    The gentleman from Arizona, Mr. Shadegg, is recognized for 
an opening.

OPENING STATEMENT OF HON. JOHN B. SHADEGG, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ARIZONA

    Mr. Shadegg. Thank you, Mr. Chairman, and I will put my 
formal statement in the record. I do want to compliment you for 
holding this hearing and I want to thank all of our witnesses.
    Throughout my career in Congress, from my election in 1994 
forward, I have worked on healthcare reform. I believe that 
there are many great things to say about healthcare in America 
but there are many things that we can do much better than we do 
now. I began my career fighting for patients' rights because I 
believe the HMO industry was in fact shortchanging patients or 
people in America who needed healthcare for not the best of 
reasons, for money reasons. But I think we face a huge issue in 
how we reform healthcare in America. I think we can in fact 
make it dramatically better.
    I would argue that it was the law of unintended 
consequences that has led us where we are, and that is, the 
Federal Government, the United States Congress a number of 
years ago basically said healthcare provided by your employer 
is tax subsidized, it comes with pre-tax dollars. Healthcare 
you go buy yourself has to be paid for with post-tax dollars. 
That slaps down rather, I think, outrageously the poorest of 
Americans who can't get healthcare through their employer. We 
say to them, well, you ought to be insured, you shouldn't show 
up at a hospital emergency room without healthcare, but oh, by 
the way, you have to buy it with post-tax dollars, meaning it 
is at least a third more expensive. That is outrageous and it 
is wrong and I have been fighting to change it since I got 
here.
    We also have said in America under ERISA that if a 
healthcare plan, not a doctor but if a healthcare plan makes a 
negligent decision, they are immune. Indeed, I can cite you 
lawsuits where the government specifically says in a decision 
decided by the U.S. Supreme Court that if a plan denies you 
care and it results in death or injury, that plan is immune 
from damages, but if a doctor makes the same mistake, well, you 
can scare the bejebees out of him.
    I think we are at a pivotal moment. Right now, healthcare 
in America, I believe, is controlled by third parties. Your 
employer picks your plan because the government says it is tax 
subsidized if that is how it happens, and then the plan picks 
your doctor. You, the individual patient, can't hold that plan 
accountable, you can't demand better service, you cannot demand 
lower price. You are just at the mercy of the plan your 
employer picked and you are left out of the process. Now, we 
have a choice. Do we go to more third-party control by creating 
what my colleagues on the other side want, a universally run 
government-run program where you are a cog and you fit into the 
program and instead of having your employer make your 
healthcare decisions for you, some government bureaucrat does, 
or do we say you know what, we should empower people, we should 
let people make choices, we should give people the money that 
the employer has right now and let them make a decision. They 
should take the money from their employer or, I would prefer a 
tax credit from the government and buy either their employer's 
plan or some other plan they choose. Put them in charge. And 
for poor Americans, my legislation says we give them a 
refundable tax credit and even the poorest in America can go 
buy a plan that responds to their demands and their needs and 
their interest and we give them choice to go buy the plan they 
want. Then they can demand that that plan provide them quality 
services at a low price or they will fire them and go buy 
another one. If you turn on the TV tonight, you will see 20 
commercials for auto insurance. You will not see a single 
commercial for health insurance because health insurance 
companies don't have to market to people.
    Now, how do we take care of those with preexisting 
conditions? I have introduced and this Congress thankfully has 
passed State high-risk pools. Sadly, the States have not taken 
advantage of those, but we can write high-risk-pool legislation 
that says to insurance companies, you are going to help fund 
the high-risk pool in your State, you are not going to put 
people in there that shouldn't be in there because you will be 
required to pay the cost of it but we are not going to let 
anyone in America go without healthcare. I have dropped a bill 
that will do that. We can ensure that every American has 
healthcare but every American has healthcare they choose, not 
healthcare----
    Mr. Pallone. The gentleman is over by 1 minute.
    Mr. Shadegg. I am almost finished. Not healthcare picked by 
a bureaucrat and controlled by a bureaucrat.
    Thank you, Mr. Chairman, for your indulgence.
    Mr. Pallone. Thank you.
    I now recognize the gentlewoman from California, Ms. Solis.

 OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Solis. Thank you, Mr. Chairman. I also want to thank 
our panelists for being here. I welcome you, Governor Corzine, 
and also the honorable Elizabeth Edwards for being so 
courageous and a healthcare advocate for so many, many people 
across this country.
    I want to focus my attention on the disparities that exist 
in healthcare, particularly among the Latino community. We find 
that there are currently about 15 million Latinos that don't 
have insurance but many of these families are working families, 
and believe it or not, many of them are U.S. citizens, but they 
have not been able to access some of the fine programs that we 
have currently in place like Medicare, Medicaid, and also the 
SCHIP program. In my State of California, we continue to fall 
behind in terms of outreach to these communities, particularly 
because we have problems with barriers in English, cultural, 
linguistic barriers, and the fact that the governor in our 
State has cut back and has not, in my opinion, utilized funding 
appropriately to reach out to these communities. We do have a 
healthcare crisis, not just with the Latino community but with 
African-Americans and also Asians. These are the groups that 
will soon represent in a few years 50 percent of this country, 
and what are we doing to help provide them with better 
healthcare outcomes? That is a big question.
    I don't want to lecture anybody and I don't want to be 
lectured at but I can tell you that I am looking forward to a 
Democratic leadership in the coming year and I am hopeful that 
we will see an expansion of these programs, the SCHIP program, 
and that we make an investment, a human resource investment, in 
communities of color. Not just providing them better access to 
services through public health care clinics and what have you 
but also investing in their education so that we can have 
professionals that will serve in our communities and want to 
stay there and to have an incentive so that they can have some 
type of loan repayment to be able to work that off in 
communities of color and rural America and in the urban cities.
    So I am hopeful that we can work together with you. I am 
very excited about the possibilities of the change for so many 
Americans, 47 million people who are waiting to see that they 
have some form of healthcare coverage.
    So with that, I will yield back and would like to just 
submit my comments for the record. Thank you.
    Mr. Pallone. The gentlelady's comments will be submitted. 
Without objection, so ordered.
    And next we have the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman. I am pleased we are 
holding the hearing today on this crucial subject of reforming 
America's healthcare.
    No American should be living in this country without health 
insurance. Yet, nationwide, 47 million Americans are uninsured. 
Texas, unfortunately, has the distinction of having the highest 
rate of uninsured in the Nation. Nearly 25 percent of the 
population in Texas is without health insurance coverage. Our 
system was designed so that every American should be covered, 
either through an employer-based plan or individual plan or a 
public plan, but as medical and insurance costs continue to 
rise, more and more Americans are falling through the cracks. 
The largest rise in uninsured and underinsured are middle-class 
families that make too much to qualify for public programs but 
who don't make enough for the costly premiums under private 
plans. With the economy in shambles and insurance costs rising 
faster than people's wages, we can expect the number to grow.
    Most Americans get insurance through employer-based plans. 
The problem here is that the average amount employers have to 
pay for insurance has risen by two-thirds over the past 8 
years. This means that not only are companies forced to offer 
fewer benefits but also that employers pay higher premiums. 
American do have another option besides buying into the 
employer-based plan. They can buy their own individual plan. 
But many people are averse to this because costs of individual 
plans are considerably higher than employer based and 
unfortunately many companies will screen their applicants so 
they come across as a higher risk. They either raise the cost 
or they deny it altogether. You can't truly reform the system 
without creating safety nets to ensure that every American no 
matter how sick they are has access to quality, affordable 
care. Many States have taken initiatives to create insurance 
pools for high-risk applicants. Costs are still comparably 
higher. The key to reform is providing affordable care to these 
people.
    Another problem we face is getting people who are eligible 
for public programs enrolled. Again, in Texas, enrollment 
barriers have kept many people off who are eligible for 
Medicaid and SCHIP off the rolls. Texas HHS estimates that 
between 200,000 and 300,000 children are eligible for SCHIP but 
not enrolled. As the economy worsens, unemployment rises, 
States are going to continue to shoulder more of the burden. We 
need to find ways to support them in reforming private and 
public plans and support in finding innovative ways to use 
technology and quality care in insurance practices.
    Unfortunately, the large number of uninsured creates a 
vicious cycle by driving up healthcare costs. The uninsured 
often miss preventative care and don't even seek help until 
problems are dire. Research by the Kaiser Family Foundation 
shows that nearly 40 percent of uninsured skip recommended 
tests or treatment. Twenty percent say they have needed but not 
received care for a serious problem in the past year. The cost 
burden on hospitals facing this problem could be avoided if 
American had some type of healthcare coverage and access to 
that care. This would lower the amount hospitals pay for 
treating serious conditions while uninsured patients would 
eventually lower insurance costs for everyone. We have to 
reverse the risk cycle. We have to start somewhere and that is 
why it is so important we begin discussion of reform.
    I thank our witnesses. We have a great panel today; both 
the governor and Ms. Edwards and a lot of folks we have worked 
with and I hope the next Congress will build on what we hear 
today and create that safety net for all Americans to have some 
type of health coverage. Thank you.
    Mr. Pallone. Thank you, Mr. Green.
    I next recognize the gentlewoman from Colorado, Ms. 
DeGette.

 OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Ms. DeGette. Thank you very much, Mr. Chairman. I was 
really heartened to hear Chairman Dingell talk about how he 
intends to work on comprehensive healthcare reform in the next 
Congress, because as we have heard from my colleagues, it is so 
urgently needed, and when we do look at comprehensive 
healthcare reform, we need to look at universality so we can 
cover everybody in some way. We need to look at portability so 
people can take it from employer to employer, State to State, 
and we need to look at affordability so that we can make this 
whole system that is groaning under its own weight more 
affordable both for the patients and for the system.
    Having said that, Mr. Chairman, I just want to talk about 
two things that I think about constantly. The first one was a 
lady who came in and testified in front of this committee last 
year on the SCHIP bill. She is my constituent, and she is a 
janitor, she is a single mom. She was abused and she left and 
she has two little kids, and she is trying to go to school and 
she is trying to work and do what she is supposed to do, and 
she got a raise in her job as a janitor so then she was thrown 
off the SCHIP program but her employer doesn't offer health 
insurance so she didn't have health insurance so now she 
doesn't have insurance and she just went for some cancer 
screening and found out that she had some abnormal cells. And 
equally bad, she has to take her kids to the emergency room 
every time they get an ear infection. What kind of country is 
it that has that kind of healthcare for people who are trying 
to work and do the right thing?
    The second thing I have been thinking a lot about lately is 
a friend of mine, he was my next-door neighbor when I was 
growing up and I have known him since I was 6 years old, and he 
called me up a couple of months ago. He is an actor and 
supports himself part-time by renovating houses so he is self-
insured and he did the right thing, he bought insurance, and 
about a year ago he was diagnosed with prostate cancer. So he 
went in and he was treated for it, and then after the 
treatment, which he thought was successful, his insurance 
company called and said--and he was self-insured. They said we 
are going to increase your insurance to $1,000 a month and oh, 
by the way, we are excluding any future prostate cancer from 
your coverage. So he said, well, that is ridiculous, I can't 
afford it and it wouldn't cover prostate cancer anyway. Well, 
you know the end of this story. About 3 months later, it turned 
out the cancer had spread throughout his body and he had no 
health insurance. So he went back to his old doctor and his old 
doctor said well, you don't have insurance, we are not going to 
treat you, and he had to apply for SSI, which my office was 
able to expedite for him, and now he's in the wonderful hands 
of the Denver Health System. But I just have to ask again, what 
kind of a country is it that treats our citizens that way?
    So this is why we need healthcare reform, this is why it 
needs to be comprehensive, and I am committed to working with 
every single person on both sides of the aisle on this 
committee to make that happen.
    Mr. Pallone. Thank you.
    Next is the gentlewoman from Oregon, Ms. Hooley, recognized 
for an opening statement.

 OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Ms. Hooley. Thank you, Mr. Chair, and I want to thank all 
of the panelists for spending your time with us today. You are 
an inspiration to us.
    And I just want to share with my colleagues our continued 
support for healthcare reform in this country. I think we have 
reached that tipping point where people now say yes, in fact, 
we need a healthcare system. We are bleeding, literally, as our 
ERs are filled with people seeking emergency care because they 
don't have health insurance. In fact, I happened to be at a 
conference where a woman passed out. There was a doctor there. 
He said we need to get you to the emergency room, we are going 
to call an ambulance. She said you can't do that, I don't have 
any insurance. That was just one incident. And again, I am 
going to repeat what my colleague said, what kind of a country 
is that?
    We are bleeding financially and 45 million Americans are 
still without health insurance because they can't afford it or 
they don't have jobs that provide it. We are bleeding 
confidence because no one sees our healthcare system getting 
any better in its current form. Colleagues, we are bleeding to 
death. The band-aids that have been thrown at our healthcare 
system over the last 20, 30 years are failing. It is time to 
stop the bleeding once and for all and overhaul the way 
healthcare and insurance is provided in this country. It is 
time for healthcare reform.
    There have been many ideas that have been presented on this 
issue. I think some of the best ideas come in the form of the 
Healthy Americans Act. The Healthy Americans Act provides 
private healthcare coverage to all Americans and makes that 
coverage portable and incentivizes prevention. It will also 
save us nearly $1.5 trillion over the next 10 years. As 
millions of Americans struggle in this difficult economic time, 
small increases in healthcare premiums, copays, and 
prescriptions are causing more and more stress. Under the 
Healthy Americans Act, lower and middle income Americans will 
actually save money to receive the same or better care than 
they currently have. Individuals could keep their coverage as 
they move from job to job or if they become unemployed, ill, or 
disabled, and the bill would prohibit insurance companies from 
denying coverage to those with preexisting conditions or risky 
family histories. The writing is on the wall. Our system is 
broken and is sending individuals, families, and our country on 
a financial freefall at a very fragile economic time, but more 
than that, people's health is being jeopardized and there is 
nothing more important than our health.
    I look forward to the upcoming debate on smart healthcare 
reform, and my hope is that we will start with the Healthy 
Americans Act. Thank you, Mr. Chair, for your time.
    Mr. Pallone. Thank you, Ms. Hooley.
    The gentlewoman from Wisconsin, Ms. Baldwin.

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

    Ms. Baldwin. Thank you, Mr. Chairman, and thank you to all 
of our witnesses for joining us today. We are really honored to 
have you here, and you are here to address what I believe is 
the most pressing crisis facing this committee, this Congress, 
and our Nation, and that is the need for healthcare reform.
    When I first came to Congress, I came with a very clear 
goal of wanting to reform our healthcare system to make it 
accessible and available to all Americans, and to make it 
comprehensive for all Americans, and I am sorry to say that 
over the time that I have been here, the crisis has only gotten 
worse. Today, however, I think we stand at a critical point in 
our Nation's history. I don't think I have seen as much 
momentum for change as I feel around me right now in this 
Nation and I do believe that we can get the job done.
    The most glaring aspect of this crisis of course is the 
uninsured. There are roughly 46 million Americans who do not 
have access to health insurance, and as we know, there is a 
face and a story and a family behind every single one of those 
Americans. They are mothers, fathers, sons, daughters, workers, 
and above all, Americans, and I believe that healthcare ought 
to be a right and not just a privilege for some.
    But I also understand that our crisis is a financial one as 
well. We need to rein in healthcare spending if we are to build 
a sustainable system for the country's rapidly engaging 
population. As we have come so far with treatments for a wide 
variety of diseases, our problem is now one of chronic disease, 
which strains the finances of our healthcare system as well as 
the health of our citizens.
    I have long been a supporter of States as innovators in the 
healthcare system and in healthcare reform and we have seen, 
and I am sure our witnesses can attest, that many States have 
successfully taken up the issue. Vermont, Massachusetts, 
California, my home State of Wisconsin, are only a few of the 
states that are exploring new avenues for healthcare reform. 
The Federal Government should be a partner with the States in 
these efforts and not hamper their innovation, and while I 
recognize the very great need for national healthcare reform as 
we move forward in the conversation about healthcare reform, I 
encourage my colleagues to continue to provide incentives for 
innovations at the State level.
    It is hard to think of a more difficult challenge than 
taking on America's healthcare system. Literally every single 
citizen has a stake in the way we approach this. But I know 
that we need to tap into the minds of experts in the field such 
as the witnesses that we have before our committee today, as 
well as listening to the Americans that all of us represent in 
our districts. Only then will we be able to achieve our goal of 
access to healthcare for everyone. That day has been far too 
long in coming but we have a tremendous opportunity to change 
that in the very near future.
    Thank you, Mr. Chairman, again, for holding this hearing 
and thank you to our witnesses.
    Mr. Pallone. I want to thank the gentlewoman.
    I would ask unanimous consent to enter into the record a 
statement from Congressman Jim Langevin of Rhode Island. I 
think many of you know that he has made healthcare reform a 
major priority in this district. Without objection, so ordered.
    [The prepared statement of Mr. Langevin was unavailable at 
the time of printing.]
    Mr. Pallone. That concludes the opening statements by 
members of the subcommittee, so we will now turn to our 
witnesses, and we do have one panel today, a very large panel, 
and I want to welcome all of you.
    I am going to basically introduce each of you starting from 
my left with my governor, who I am so happy to have with us 
today, the Hon. Jon S. Corzine. Governor Corzine has done a 
tremendous job on so many levels, primarily on dealing with the 
budget, which is always so difficult in the State of New 
Jersey, but he has repeatedly said that he wants to expand 
healthcare for all residents in New Jersey to the point where 
every resident of New Jersey does have health insurance and has 
already begun the process of instituting that, particularly 
with children and low-income people, and so I do want to 
welcome him today. Thank you for being here. Next is Ms. 
Edwards, who many of you know has been a champion on healthcare 
reform for many years. She now is a Senior Fellow with the 
Center for American Progress Action Fund here in D.C., and 
thank you for taking the time to be with us here today. We then 
have Dr. Stephen Parente, who is Director of the Medical 
Industry Leadership Institute and Associate Professor for 
Finance at Carlson School of Management at the University of 
Minnesota. And next is Mr. E.J. ``Ned'' Holland, Jr., who is 
Senior Vice President for Human Resources and Communications 
with Embarq based in Overland Park, Kansas. Thank you for being 
here. Patricia Owen, who is President and founder of FACES 
DaySpa from the Village at Wexford at Hilton Head Island, South 
Carolina. And then Ms. Karen Pollitz, who has certainly been 
here many times. Thank you for being here again today, Karen. 
She is Project Director and Research Professor at Georgetown 
University Health Policy Institute. And after that we have 
Karen Davis, who is President of the Commonwealth Fund in the 
city of New York, and we have William J. Fox, who is Principal 
and Consulting Actuary for Milliman in Seattle, Washington, and 
last is Mr. Ronald Bachman, who is Senior Fellow for the Center 
for Health Transformation, who is from Atlanta, Georgia. Thank 
you, and thank you all for being here today.
    I think you know that we operate with 5-minute opening 
statements. They become part of the record. Each witness may in 
the discretion of the subcommittee submit additional statements 
in writing for inclusion in the record, and I now recognize my 
governor, Jon Corzine.

   STATEMENT OF JON S. CORZINE, GOVERNOR, STATE OF NEW JERSEY

    Mr. Corzine. It is a pleasure to be back in Washington to 
offer my perspective as the governor of the great State of New 
Jersey about the essential need for healthcare reform. I first 
want to say thank you to Chairman Pallone for all his great 
work not only here in Washington but the State of New Jersey in 
pushing, championing healthcare programs at large, and I also 
want to commend the committee, both sides of the aisle for your 
leadership in enacting some of the moratoriums in what I 
believe were decidedly harmful Medicaid regulations that were 
about to be imposed and issued over the last year. Those 
regulations threatened critical funding for hospitals and 
healthcare providers and severely would have impacted the 
vulnerable, many of which were talked about earlier. I would 
hope that you would work on a moratorium on the remaining 
regulation limiting outpatient hospital payments.
    Looking forward, I am thrilled about the healthcare reform 
debate that is going on in the presidential and congressional 
campaigns. I commend the members and today's other witnesses 
for addressing this important national issue. Unfortunately, in 
the past few days in our financial markets and with respect to 
the national recession, whatever problems we have, they are 
only going to get a little worse, maybe a lot worse, quite an 
exacerbation of those issues and should motivate us to move 
even faster.
    Growing economic troubles are a severe problem for our 
State economies and that impacts our ability to work in 
healthcare. You know the litany: falling home prices, rising 
unemployment, declining tax receipts, higher energy costs, 
escalating Medicaid spending, and on and on. It is clear more 
employers in this environment will be dropping healthcare or 
creating costs for the employee that are hard to bear going 
forward.
    The Kaiser Foundation says for every 1 percent increase in 
unemployment, 1.1 million more people go onto the Medicaid 
rolls. We have gone from 4.9 percent to 6.1 percent just this 
year. So the problem that we have in financing this is going to 
grow in the context of the current environment.
    As somebody who has had a little bit of firsthand 
experience with the healthcare system due to some of my own 
failings a year-and-a-half ago, I am one to say that we have 
much that is good in the system. It is not something that has 
failed in every aspect, but I think all of us have to realize 
that there are very large disparities in how it works for our 
population and it is not with equal standard that healthcare is 
administered to a vast number of people. I am not going to go 
through the 46 million, whether it is 45 or 47. It is growing. 
It was 40 million in 2000. There is enormous pressure. The 
single largest cause for bankruptcy in America comes as an 
outgrowth of major medical emergencies and financial crises 
that happen. We are spending 16 percent of the GDP on 
healthcare. It is time that we get control of the costs. And if 
it were only the costs that were at stake, then we would have 
one set of problems, but the fact is that the healthcare 
performance outcomes is not where it should be in America, 
37th, according to the World Health Organization. We have got 
the rankings reversed. We are paying the most and getting 
something less than what we should and I appreciate Chairman 
Dingell and Mr. Murphy's comments on some of the flaws that are 
in the system. We need to address those.
    The question is, how do we better align our system, 
particularly in a patchwork of systems that really don't all 
fit together? The answer in brief I believe is twofold. First, 
we need a strong and committed Federal-State partnership 
willing to build on and strengthen practices of successful 
programs that exist along with our employer-based coverage. And 
second, we need federal leadership to put in place a system 
that provides universal access for all Americans, and this is 
particularly true since the Federal Government and ERISA 
programs are about 50 percent of all of those insured today. So 
we can't just deal with these programs at a State level.
    As you know, I am an old washed-up businessman but I think 
I understand that the first lesson that you learned in medical 
school if you were a doctor is do no harm. In today's context 
when we talk about the short term, I hope we do no harm with 
the State programs that we already have in place. That means 
asking for reauthorization of SCHIP, a program that has 
benefited millions of children, about 260,000 in New Jersey, 
and for a decade this has been one of the most important 
building blocks at providing access to healthcare. We have 
430,000 adults and with Medicaid and SCHIP, 570,000 children in 
our State program, FamilyCare, and this is essential for the 
health of our public but it is also essential that we get this 
reauthorization for the health of our finances in a State like 
New Jersey but I would say that is the case with the vast 
majority of the States.
    Along these same lines, do no harm means increasing the 
federal Medicaid match, or FMAP, and this countercyclical 
environment, reimbursement mechanism that is absolutely 
essential for the kind of meltdown we are having in our 
finances and fall-off in tax receipts, which with very few 
discretionary means of adjusting budgets at State levels where 
we have constitutional responsibility to balance budget, we 
need this FMAP help and we need it now. The revenues, I think, 
in most States are falling off very dramatically.
    And we also know that as the ranks of the uninsured grow, 
so does hospital emergency room utilization and charity care, 
and we have a crisis in the ER rooms across this country. We 
actually have universal healthcare in this country. 
Unfortunately, it is delivered at the wrong spot, in our 
emergency rooms. It is the most expensive spot. It is not the 
place for a medical home. ER activity adversely affects 
obviously the financial operations and we have a crisis in our 
hospitals. We had eight out of the 81 hospitals we have in New 
Jersey close in the last 18 months and we have a long list of 
others that are under enormous pressure. So we need to make 
sure that we move in these areas. I think the FMAP is one of 
those places that can help immediately.
    We need to make sure we do no harm in how we fund and 
allocate the opportunity to have federally qualified health 
centers. It is a great backstop. We have 80 sites in New 
Jersey. They are effective partners in providing preventive 
care and help in chronic care. I encourage you not to miss any 
opportunity to press forward in this area.
    And then finally, do no harm means please don't stand in 
the way of Massachusetts or New Jersey, who are taking big 
steps in expanding access and have the use of flexibility in 
enacting insurance reforms to reduce costs to the system. Just 
this last spring, I signed a law that will expand our 
FamilyCare, which I spoke about earlier, for the 250,000 
uninsured kids that we have in New Jersey. In fact, we are 
mandating that so we are taking an intermediate step to 
universal access and we put also in place insurance reforms 
that will help both small business and the individual market, 
modified community ratings, medical loss ratios, a whole series 
of steps that are actually trying to work in the market. We 
need to have that flexibility for the States to do it. We have 
been laboratories of change. We can be in the future but we 
need national help with regard to this universal healthcare 
coverage reality.
    We need the Federal Government to provide some kind of 
roadmap for the ultimate guidelines and design of our program. 
We need to improve outcomes but we also need to promote the 
movement and management of chronic care and access to 
preventive care to get into a more cost-effective system. We 
need the Federal Government's leadership and investments in 
electronic medical record systems, setting standards, requiring 
best practices, establishing deadlines for implementation. It 
isn't going to happen if we do it piecemeal, and by the way, 
someone gets sick and they happen to be in another State at the 
same time, what have we accomplished? We need to move together 
as a Nation on this and we need the cooperation between the 
States and the Federal Government.
    Just this year, we asked Professor Uwe Reinhardt of 
Princeton to look at our healthcare system and how we 
rationalize them in the State of New Jersey, and there are just 
so many places where we overlap between the two. One of the 
most important recommendations made by that commission, which I 
hope this committee will examine, I know the chairman is 
looking at it, and that is to put a cap on hospital charges for 
the uninsured and no more than some percentage of Medicare. We 
used 115 percent. We are actually ripping off the uninsured 
often to try to make up for the failure of the uninsured in 
other areas.
    There are lots of flaws in the system. I could go on. 
Prenatal care, if we had it, we would have healthier women in 
pregnancy, better birth outcomes, all kinds of great things, 
and I encourage you to move on this universal healthcare. 
Across the board on every aspect, there is no question that if 
we provide access, we will improve the cost structure, we will 
improve the outcomes. This is not only a cost-benefit analysis, 
it is a moral responsibility. I think it is very encouraging 
that both Senators Obama and McCain are talking about moving in 
the right direction with regard to universal access. They have 
premises and objectives that are generally common. Both 
candidates want access to care to contain healthcare costs, to 
build healthcare IT infrastructure and encourage preventive 
care. We need to take these themes and use these as a basis to 
drive to universal access and make sure that we are leveraging 
those things that are working--SCHIP, FQHCs, employer-sponsored 
coverage, et cetera.
    We can reform this system but we have to have the will and 
the commitment to make sure it is done and it should be done 
with a Federal-State partnership. I know we are willing in New 
Jersey to build on that, I know the governors are, and I look 
forward to working with this committee in the days and weeks 
ahead, months ahead to come up with a system that breaks the 
back of a broken system.
    [The prepared statement of Mr. Corzine follows:]

                      Statement of Jon S. Corzine

    Good morning Chairman Pallone and Distinguished members of 
the Subcommittee on Health.
    It is a pleasure to be back in Washington to offer my 
perspective as the Governor of New Jersey about the essential 
need for health care reform across this nation.
    Before I start, I want to commend Chairman Pallone, who has 
been a champion of critical health programs for both the State 
of New Jersey and the country--I thank you for your leadership.
    I also would like to commend the Committee and the many 
members of on both sides of the aisle for your leadership and 
hard work in enacting a moratorium on many of the harmful 
Medicaid regulations the Administration issued over the past 
year. Those regulations threatened critical funding for 
hospitals and other health care providers and would have 
impacted severely the care provided to our most vulnerable. I 
would encourage, however, you to seek a moratorium on the 
remaining regulations limiting outpatient hospital payments.
    Looking forward, I am pleased that health care reform is at 
the forefront of the national debate in the ongoing 
Presidential and congressional campaigns. I commend the 
members-and today's other witnesses-for their commitment to 
addressing what is one of the most challenging and severe 
problems we face: the broken health care system.
    The events of the past few days in our financial markets 
and the national recession will likely exacerbate the stresses 
present in the healthcare system and will further motivate our 
need to work together for reform.
    Our growing national economic troubles are already having 
serious consequences for most state economies and our 
finances--you know the litany--falling home prices, rising 
unemployment, higher energy costs, escalating Medicaid 
spending, and more families in need of health care services. In 
this economic climate, it is clear more employers will be 
forced to reduce or eliminate health coverage for their 
employees, aggravating the negative trend in employer-provided 
health insurance.
    In fact, according to the Kaiser Family Foundation, 
nationally every 1 percent increase in unemployment results in 
1.1 million more uninsured and an additional 1 million people--
400,000 of them children-enrolling in Medicaid. And, since 
Medicaid eligibility lags 6 months behind unemployment figures, 
the full impact of increasing demand for Medicaid services 
cannot be known for some time.
    As some of you know, I had first hand experience with the 
health care system when I was in a car accident about a year-
and-a-half ago. I am extremely grateful for the outstanding 
care that I received. It was truly extraordinary. In truth, 
while the U.S. health system has millions of dedicated 
professionals providing great care and treatment, our health-
care system in many respects does not match the high standards 
we have come to expect.
    There are now about 46 million uninsured Americans--up from 
40 million in 2000. We can all agree that's 46 million too 
many, and the number is rising every day. Far too many 
Americans live with the fear that a major medical emergency 
could mean financial ruin. In fact, health care costs are the 
leading cause of personal bankruptcy.
    But the crisis in our health care system is much more than 
the number of uninsured. We rank 37th in health-system 
performance, according to the World Health Organization, but 
1st in expenditures. Quite simply, we are paying more but 
getting less.
    The question is: how can we better align our system--really 
a patchwork of systems--to begin to reverse those rankings?
    The answer, I believe, is two-fold. First, we need a strong 
and committed federal-state partnership, willing to build on 
and strengthen best practices of successful programs and 
existing elements such as employer-based coverage. Second, we 
need federal leadership to put in place a system that provides 
universal access for all Americans.
    I may be a washed-up businessman, but my understanding is 
that when you first enter medical school, the first lesson 
learned is: ``Do No Harm.'' In today's context, during a 
recession that is hurting everyone, ``Do no harm'' means 
supporting State programs rather than undermining them.
    Following the principle ``Do no harm'' means reauthorizing 
SCHIP, a program that has benefited millions of American 
children by letting states tailor their plans flexibly to 
adjust for wide variation in the cost of living and 
availability of providers. SCHIP has been a highly successful 
building block across the country for a decade, and should 
actually be expanded, particularly during a recession. New 
Jersey covers 430,000 adults and 570,000 children through our 
Medicaid and SCHIP programs, known as FamilyCare. I urge you to 
do everything that you can to move ahead on reauthorization of 
this crucial program.
    Along those lines, ``Do no harm'' means increasing the 
federal Medicaid match, or FMAP, in what's called a 
``countercyclical'' reimbursement mechanism, so that during a 
national downturn like our current one, States receive more 
money to cover the growing numbers of people losing insurance 
and are able to hold off harmful cuts in safety net programs. 
Without that support, coverage is one of the few discretionary 
items that states have in their financial tool box. You all 
must remember that states are constitutionally mandated to 
balance our budgets.
    We all know that as the ranks of the uninsured grow, so too 
does hospital emergency room utilization. We really have a 
crisis of ER use in this Nation--it's a costly replacement for 
a family care physician or a medical ``home'', ER activity 
adversely affects hospital financial operations, and it is not 
conducive to providing the kind of preventive and chronic care 
that will reduce costs in the system. I can tell you we have a 
true crisis in financing Charity Care among our hospitals in 
New Jersey.
    So ``do no harm'' does mean helping states get more people 
insured so they're not overusing the ER, but it also means 
expanding the Federally Qualified Health Centers (FQHC). In New 
Jersey, we have found our FQHC's--we have over 80 sites--to be 
highly effective partners in our efforts to expand access to 
essential health care services--particularly preventative and 
chronic care.
    Finally, ``do no harm'' means support the innovators--a 
state like Massachusetts that has enacted comprehensive reform, 
and states like New Jersey that are taking big steps by 
expanding access and enacting insurance reforms to reduce costs 
to the system. This summer, I signed into law an expansion of 
our bipartisan FamilyCare program to cover more working-class 
families while mandating health coverage for all children--
250,000 of whom are currently uninsured. We also enacted 
insurance market reforms to make health insurance more 
affordable to individuals and small businesses in the State.
    I think I can speak for my fellow Governors on both sides 
of the aisle when I say that most states, for so long the 
laboratories of change, need immediate help to get through this 
recession if we're to remain the reliable source for health 
care we have always been. And going forward, we will need a 
strong federal-state partnership to make our vision of 
universal health care a reality.
    I believe states have been creative in devising strategies 
to cover more people while holding down costs. But federal 
support is absolutely necessary if we are going to achieve 
truly universal care. It may come down the road, and it may 
have to happen in steps, but that ultimate goal should guide 
the design of our reform. We all know those with insurance 
receive better care, and that higher levels of coverage 
translate into lower health care costs as people manage chronic 
diseases and access preventative care. The federal government 
can coordinate this effort in a way that reaches the most 
people and is the most cost-effective.
    Federal support means investments in a national Electronic 
Medical Record system--setting standards requiring best 
practices and establishing deadlines for implementation. This 
is a perfect example of where the Federal Government can 
coordinate a cost-saving mechanism that would mean better 
quality care for all Americans and billions in reduced health 
care costs.
    In New Jersey, we have taken significant steps to reform 
our health care system. I recruited internationally recognized 
health care economist, Princeton University Professor Dr. Uwe 
Reinhardt, to lead an in-depth analysis of the complex problems 
that have led to a series of hospital closings. The findings of 
the Commission on Rationalizing Health Care Resources have 
resulted in a series of laws that have strengthened our 
hospital system, increased protections for the uninsured and 
put New Jersey in the forefront of health care reform.
    We recently completed a study in New Jersey that showed the 
No. 1 barrier to women getting prenatal care is lack of health 
insurance. We know that prenatal care helps women have 
healthier pregnancies, better birth outcomes, and gives 
children a better chance at a healthy life. Is there a better 
reason for us to fight for universal health care?
    Across the board, on every aspect of care, there's no 
question that providing access to affordable health insurance 
is not only the direction that we should take-it is our moral 
responsibility.
    On the principles, I believe most of us agree. If you 
review the Obama and McCain health care plans from the 
standpoint of premises and objectives, the level of agreement 
is remarkable.
    Both candidates want to expand access to care, to contain 
health-care costs, to build health-care IT infrastructure, and 
to encourage preventative care. Those themes represent major 
common ground from which to work toward national health reform.
    We ought to leverage that consensus, but we ought not to 
undermine what already works: S-CHIP, FQHCs, employer-sponsored 
coverage, and finally, state customization-whether it's with 
Medicaid and SCHIP or the state regulation of insurance 
markets, which is critical for consumer protection.
    We can reform this patchwork system, but it requires a 
strong and committed federal-state partnership premised on a 
willingness to build upon what's working and a commitment to 
the attainability of that ultimate goal, universal care.
    Thank you.
                              ----------                              

    Mr. Pallone. Thank you, Governor, and thanks for what you 
do in our State, but I also want to mention, because you 
reminded me at the end there, of all your work as the 
Democratic chair of the health subcommittee for the National 
Governors Association. You worked on a bipartisan basis when we 
were trying to move on SCHIP and a lot of the initiatives and 
you helped us a lot with that, so thank you.
    Next is Ms. Edwards. Let me just say again that the fact 
that you have been so high profile on this issue I think has 
been so important, not only to this committee and its efforts 
but nationally. I know that when you are in the spotlight there 
are a lot of different things you can talk about or work on and 
we appreciate the fact that you have taken so much time to 
profile the need for healthcare reform. Thank you.

   STATEMENT OF ELIZABETH EDWARDS, SENIOR FELLOW, CENTER FOR 
                       AMERICAN PROGRESS

    Ms. Edwards. Thank you, Chairman Pallone and Ranking Member 
Deal and members of the committee. I really do thank you for 
the opportunity to be here, not just because I think healthcare 
reform is such an important issue but because I know it is from 
my travels around the country. One of the reasons it is 
impossible for me not to do this work is because of how many 
voices I have heard.
    I want to mention one as I start. In March of 2007, I was 
in Cleveland when a working woman whispered in my ear, I am 
really afraid for myself and for my children because I have a 
lump in my breast, but I cannot get treatment, I cannot see a 
doctor, I have no insurance. It is a very sad story because if 
she doesn't get treatment, the likelihood is that, Sheila is 
her name, that she would die as a result of this untreated 
condition. But as sad as it is, it is also inspiring because 
she took the time to whisper in someone's ear, because in 
America we are hopeful that we can solve these problems. She 
believed if she whispered in the right person's ear, that 
things could change. I am also hopeful that things can change.
    For the first time in 15 years, we are talking about 
healthcare now on a national level and here in this committee. 
Both the Republican and the Democratic nominees are engaged in 
a discussion about healthcare. If you looked at it from 
altitude, you would assume we were standing at the edge of 
healthcare heaven. I hope that is the case.
    Given the limited time and the impressiveness of the panel 
sitting here, I want to just limit my comments to a couple of 
things. One is an analysis of the conservative approach to 
healthcare reform, which has been talked about by a number of 
people on the committee and I am certain will be talked about 
by a number of the witnesses before you, and to use Senator 
McCain's proposals as the springboard for that discussion.
    Any healthcare effort that we have has to focus on 
achieving coverage for all and has to focus on getting costs 
controlled as an essential feature of healthcare. They have to 
happen at the same time. In fact, they are both different sides 
of the same Rubik's cube. We can't solve the problems on one 
side without also solving the problems on the other. It is a 
false dichotomy that pits one of these against the other. I do 
think that Senator McCain's policy does focus excessively on 
providing a lower cost policy without at the same time 
guaranteeing a basic level of coverage in that policy or 
addressing the scope of inclusion for all Americans. Any 
insurance operates more efficiently--any insurance, fire 
insurance, health insurance, car insurance operates more 
efficiently--the larger the number of people included in the 
pool so the more of us that are included, the more efficient 
and the lower cost the healthcare system is going to be.
    It also works best for us individually when it is 
continuous and coordinated. By allowing people to slip in and 
out of the system, we reduce their healthcare status and we in 
fact raise the cost. As a Brookings Institute economist has 
noted recently, broadly expanded coverage is a precondition for 
effective measures to limit overall healthcare spending. Karen 
Davis, who is on the panel today, has also been a powerful 
voice on the link and I expect you will hear a lot more from 
her about a link between universal coverage and cost 
containment in talking about the importance of offering 
continuous coverage to contain costs and to not interrupt the 
access of patients and the ill to care.
    If we as a country can ever agree on the need for coverage 
for all, then the next question is, what kind of coverage is it 
that we want. The larger the pool, the more efficient the 
system. The group market is more efficient than the individual 
market. I know it was mentioned by members of the committee 
that individual choice is really important. The truth is, we 
have tested that. We are testing it today. We have people in 
the individual market today and what we find is that their care 
is more expensive, that their cost-sharing obligations are 
higher and that there are in fact more exclusions. We also find 
that insurance companies cherry pick, that for the insurance 
companies it is more expensive because they are cherry picking 
among us. So we have already tested this idea. The idea that 
everyone can pay a little over time and across populations in 
return for medical care and financial security when things go 
wrong is the way in which we need to proceed.
    So again, let us consider Senator McCain's approach as the 
ideal in the conservative approach to healthcare. The 
individual market makes it more difficult to get insurance. 
Even Americans seeking coverage on the individual market with 
minor preexisting conditions, let alone chronic conditions, 
will pay higher premiums. I have said and gotten tremendous 
coverage for saying that Senator McCain and I have something in 
common, and that is, neither one of us would be insured under 
his healthcare plan, because the problem is, if you have a 
serious chronic condition, you are not likely to be offered, as 
was found in Denver by the young man with prostate cancer, if 
you are provided coverage at all. The individual market is 
notorious in its poor provision of coverage.
    Senator McCain promises $2,500 for an individual, $5,000 
for a family tax credit to help us pay for health insurance on 
our own. For some, that is for young healthy families and small 
families, the tax credit may be enough as long as you stay 
young and healthy, and I would like to know the prescription 
for that, you are likely to be able to continue to afford a 
policy. If you are 55 and healthy, it will cost you as much as 
three times that to buy an insurance policy. If you are 55 with 
hypertension or, as Senator McCain and I, with cancer, good 
luck to you.
    Even if a family in an individual market is offered 
insurance, there is no guarantee that they can keep it. One 
California healthcare plan recently agreed with State 
regulators to reinstate 950 people who had their coverage 
canceled once they needed it. Chairman Waxman has held a 
hearing on this recently, which was very edifying.
    Senator McCain's approach to deregulation on benefits would 
allow insurance to be sold nationally, thereby eliminating 
State protection of mandated benefits. So what difference does 
it make to me which State offers my health insurance policy? 
Actually it makes a lot of difference. Most people don't know 
what protections are currently required by their State 
regulations. They only know what their own policy says. But 
what difference does it make to me in which State it is 
written? Well, actually it matters a lot. It is far too easy 
for people to fall between the threadbare patchwork of 
protections offered by some States and the federal HIPAA law, 
especially where individuals are concerned. In only 44 States 
do state regulations require your health insurance policy to 
cover emergency room visits, only 44; six do not. Forty-five 
States require mental health care to be covered; five do not. 
Twenty-seven require coverage for diabetes treatment. When 
insurance companies are deciding from which State they are 
going to offer insurance policies, do you think they are going 
to be offering it from one of those 27 that require diabetes 
coverage or from one of the ones that do not? I think we 
probably know the answer, and our experience with the credit 
card industry is edifying in this respect. It is not too 
farfetched to suggest the insurance companies are going to 
write their policies from the most industry-favorable States, 
just as banks and credit card companies do.
    Also, in Senator McCain's plan, marketing and underwriting 
costs in the individual market will be driven up. One of the 
complaints about for-profit health insurance companies are the 
administrative costs associated with each policy, that is, the 
part of your premium that goes into the insurance company 
offices in salaries and underwriting and marketing and 
therefore doesn't go into your healthcare. In individual 
policies, the administrative costs are close to three times 
what it is for employer-based policies. Recent analysis shows 
this will likely mean $20 billion in additional administrative 
costs, which means an ever-larger chunk of healthcare dollars 
that are not going into healthcare. This is exactly the 
opposite direction that we want to go. Some of that is just the 
hassle of a large entirely diverse group but most of it has to 
do with underwriting and marketing, that is, determining how 
much risk you are and trying to find customers who don't 
represent much of a risk, that is, cherry picking our 
population, also something we want to discourage as opposed to 
encourage. The insurers have the incentive at the present time 
to play a game of musical chairs where they can hope that some 
other insurers get the bill for the sickest patients. This is 
an immoral gamble that we know is going on, that we know exists 
and that we allow to continue. The costs are paid by people 
like 17-year-old Natalie Sarkeesian from California, whose 
insurer her denied her a liver transplant that was recommended 
by her doctors. She died waiting to contest that decision.
    Also in Senator McCain's plan, the marketing and 
underwriting costs in the individual market driving up, we also 
find that we are going to see additional cost-sharing 
ramifications by moving to the individual market, cost-sharing 
being your deductibles and your copayments. The cost sharing in 
the individual market is often considerably higher than it is 
in the employer provider groups. Consumer-driven care with its 
high deductibles creates a problem where very often the patient 
is required to pay the first dollar of any care. What this does 
is create a disincentive for people to get the care that they 
need. You don't get that continuity of care, conditions worsen 
and the cost to the overall system is increased in the long 
run.
    Much of the disagreement between the role of the individual 
market and the group market rests with the belief of free-
market economists that buying healthcare is akin to buying any 
consumer goods. I thought that the reference to the television 
set, I don't die if I can't afford the television set I want, 
was incredibly apt and I expect to be using it in the future as 
I talk about this. Yet deciding between the costs and benefits 
of various cancer treatments like chemotherapy or radiation or 
surgery will simply never be the same as deciding between a 
Dodge or a Buick or a Ford.
    We have extreme market failures in healthcare that require 
government intervention such as the incentives for insurance 
companies to cherry pick, as I mentioned before, or later drop 
from coverage those who are sick as we heard earlier, the moral 
hazard faced by individuals who choose not to get coverage for 
themselves or their children. Simply put, it is a dangerous 
mistake to overstate the role that consumers can play in 
healthcare. It is not the same market as any other consumer 
goods. We are not selling toilet paper here. We are not selling 
televisions. We are selling an essential part of people's lives 
and it needs to be considered in an entirely different way.
    The use of tax credits is one of the mechanisms that cuts 
across the political spectrum. Progressives and conservatives 
have both talked about their use. From the progressive point of 
view, tax credits are used in conjunction with strengthening 
both public and private health insurance through the expansion 
of Medicaid and the SCHIP program. The Center for American 
Progress is one of the first think tanks to release a major 
paper on Senator McCain's plan but now there is growing 
consensus about what that plans means. The tax credit that he 
offers simply will not cover the cost of insurance except for 
the very smallest group that I talked about, the young and the 
healthy smallest families. The family premiums for employers 
that employers pay for insurance are roughly about $13,000 a 
year. A $5,000 tax credit falls well short of that amount, in 
addition to which Health Affairs magazine suggested that 
individuals moving from the employer-based policy to an 
individual policy of the same caliber will find that their 
healthcare costs have gone up about $2,000, so we would then be 
talking about an even greater shortfall. The tax credit is not 
indexed to premium increases. It is indexed to inflation. It is 
expected to be about 2 percent a year while premiums go up 7 
percent a year. So even though there is a very small sliver of 
people who are tax winners in that first year, those evaporate 
quickly after the first year as their savings are eaten up by 
the increase in premiums.
    Also, the tax credit is not large enough for families. Five 
thousand dollars for a family may do it for a very small family 
but will not do it for a larger family, and there is no 
distinction made between large families and small families.
    Mr. Pallone. Ms. Edwards, you are about 8 minutes over.
    Ms. Edwards. I apologize for that. I will stop and answer 
any questions at a later point. I do think that this is an 
enormous opportunity and I would hate for us to miss the 
opportunity again to get the kind of healthcare that is going 
to make a difference for people like Sheila. She whispered in 
my ear. She is now whispering in yours.
    [The prepared statement of Ms. Edwards follows:]

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    Mr. Pallone. Thank you so much. I appreciate it, and sorry 
to interrupt you.
    Ms. Edwards. No, it is all right. I apologize. As I was 
looking at this, I was not looking at the time.
    Mr. Pallone. I understand, and we do really appreciate your 
being here today. Thanks so much really.
    And next I am going to go to Dr. Parente.

   STATEMENT OF STEPHEN T. PARENTE, PH.D., DIRECTOR, MEDICAL 
   INDUSTRY LEADERSHIP INSTITUTE, AND ASSOCIATE PROFESSOR OF 
             FINANCE, CARLSON SCHOOL OF MANAGEMENT

    Mr. Parente. Thank you, Chairman Pallone and Ranking Member 
Deal. I am honored to be part of this panel.
    Let me give you some information that I found from doing 
research in the field. I want to start by saying that there is 
a tremendous opportunity in front of us if we are faced with 
changing the healthcare system and we have basically zero 
resources to do it, and what I am going to be focusing on and 
one thing that has been mentioned by Elizabeth Edwards and 
others is the purchase of insurance across State lines.
    It is well known that small businesses are a critical 
economic engine of the United States. Even more than before 
these businesses can be virtual enterprises operating in 
multiple States and countries where human capital and expertise 
is tied together by e-mail, Web meetings, air traffic, and 
billed to order service support and manufacturing. One visit to 
a w=Web site today can equip an entire multi-State startup with 
vital technology, banking services, or travel arrangements. But 
with health insurance, the situation is quite different.
    In the United States today, a small company or individual 
can only buy insurance offered in the State where they live. 
This policy stretches back to the Supreme Court ruling in 1944 
finding insurance was not commerce under the law and that the 
Court would follow the lead of Congress. As a result, on March 
9, 1945, the McCarran-Ferguson Act was passed by Congress. It 
allows State law to regulate the business of insurance, any 
insurance, without federal interference. As a result, each 
State's insurance commissioner or like official would be 
responsible for oversight of insurance company practices 
including fair and timely payment as well as premiums. This 
policy makes sense in the context of consumer protection, many 
of the issues that Elizabeth Edwards mentioned. To enforce such 
protections requires oversight and clear lines of 
communication. In 1945, these activities were best considered 
local. However, life in America has changed a lot since the 
mid-20th century.
    So for this, I bring out my illustration. I did not write 
this book. This was given to me as a gift. It is from my alma 
mater, Johns Hopkins University Press, where Karen and I spent 
some time together, ``Night Trains: The Pullman System and the 
Golden Years of American Rail Travel.'' So if I were to come to 
you in 1952, there is a section in the back that says where 
every single train is on the track on midnight, March 1, 1952, 
and there are literally thousands of them. It is a review of a 
world that just simply doesn't exist anymore. To get to you 
today, I would have taken a train from Minneapolis to Chicago 
on the Sioux Line, gotten in yesterday morning, and then left 
on a train on the Pennsylvania Railroad to come in to see you 
this morning at 7:30 on a Pullman service. Just one example of 
how things have changed. The first consumer-initiated long-
distance telephone call was completed in 1951. Blackberry back 
then was a jam. And about the time McCarran-Ferguson was 
passed, tuberculosis was one of the largest causes of death in 
the United States, surpassing cancer.
    Another change is the case of health insurance. Today just 
over 55 percent, or more than half of all Americans, with 
private insurance get it through large employer-funded plans, 
as we know through ERISA. This came from 1978 legislation. They 
exempt them from McCarran-Ferguson. That means that all State-
specific insurance mandates are not enforceable to the majority 
of Americans. For those in political science, the median voter 
does not apply to the majority of Americans because of ERISA.
    Economists like to measure the value of goods and services 
as an opportunity cost, that is, the cost of foregoing 
alternatives. A moderate estimate of the opportunity cost of 
not being able to buy insurance across States lines completed 
in a study by myself and colleagues at the University of 
Minnesota--Roger Feldman, Jean Abraham and Yi Xu--estimates 
that between 10 to 15 million people could buy insurance if 
they were to purchase insurance across State lines under 
different policy assumptions. The one that we focused on was a 
moderate estimate, where people can focus on four regions where 
States most likely to be chosen would be Alabama, Arizona, 
Nebraska, and New Hampshire. Even if you were to basically 
concentrate the enforcement mechanisms of the five largest 
States in the union, you would be looking at 7 million people 
that would now have health insurance.
    Buying health insurance across States lines is not a new 
policy. Members of Congress have brought this proposal forward. 
With the use of the Internet, it is easy to see intuitively why 
this policy makes some sense. On ehealthinsurance.com, a family 
of four of exactly the same age and gender profile in eastern 
Pennsylvania, say New Hope, Pennsylvania, in Bucks County, will 
have a premium half of what an identical policy would cost just 
across the Delaware River in Lambertville, New Jersey, and I 
applaud what you are doing, Governor Corzine, to change that 
situation but it is true today, just if we look today, where 
those premiums are. I look forward to those changes.
    Purchasing insurance across States lines could be the first 
pragmatic step toward making the health insurance market work 
for all Americans. It has interesting appeal. It could be 
immediately acted upon with budget neutrality. The policy 
change is also more consistent with the United States 
preference for gradual improvements in insurance access.
    There are many serious issues as well. Actually, I want to 
come back to that. People like us are sitting here and have sat 
here for 90 years. This is a recurring story. And every time 
the dial turns, another 10 or 15 million or 10 or 15 percent 
get something. Hopefully we will get more than this time but it 
is a recurring story.
    It could also be said that the opportunity cost of the 
legacies of 1940s legislation may be leading millions uninsured 
with an emphasis on the word ``insurance,'' that is, to cover 
high risk, very, very expensive cases such as cancer, not what 
we see today as health plans, which have a very gray 
distinction between what is necessary and unnecessary. Care for 
catastrophic stuff should be covered under insurance. Going 
beyond that is the moral hazard problem that if you actually as 
I have looked at the data and see why our costs grow so much, 
it is not because of cancer. It is because of our own greed 
thinking that we can live forever--a personal statement.
    As we look for cures to our health policy concerns and 
consider our national financial resources, particularly in the 
last few days, the research of my colleagues and myself at 
least offer an opportunity that I think should get some 
discussion. Thank you.
    [The prepared statement of Mr. Parente follows:]

                    Statement of Stephen T. Parente

    It is well known that small businesses are a critical 
economic engine of the United States. Even more than before, 
these businesses can be virtual enterprises operating in 
multiple states where human capital expertise is tied together 
by email, web meetings, air travel and build to order service 
support and manufacturing. One visit to a web site today can 
equip an entire multi-state start-up with vital technology, 
banking services or travel arrangements. But with health 
insurance, the situation is quite different.
    Currently, a small company or individual can only buy 
insurance offered in the state where they live. This policy 
stretches back to a Supreme Court ruling in 1944 (United States 
vs. South-Eastern Underwriters Association (322 U. S. 533)) 
finding insurance was not commerce under the law rested with 
Congress, and that the Court would follow the lead of Congress. 
As a result, on March 9, 1945, The McCarran-Ferguson Act was 
passed by Congress. It allows state law to regulate the 
business of insurance without federal government interference. 
As a result each state's insurance commissioner, or like 
official, would be responsible for oversight of insurance 
company practices, including fair and timely payment as well as 
premiums. This affects the provision of all insurance, not just 
health insurance.
    The policy makes sense in the context of consumer 
protection, but life has changes a lot since tuberculosis was 
one of the largest causes of death in the United States and the 
majority of interstate travel occurred on overnight trains. How 
much change? In the case of health insurance, just over 55% or 
more than half of all Americans with private insurance get it 
through large employer funded plans that have been exempt from 
McCarran Ferguson since the 1978 Employee Retirement Income and 
Security Act. That means all those state-specific insurance 
mandates like `no drive-by deliveries' are not enforceable to 
the majority of Americans.
    Economists like to measure value of a good, service as 
opportunity costs, the cost of forgone alternatives. A moderate 
estimate of the opportunity cost of not being able to buy 
insurance across state lines is 10.5 million uninsured per 
year. These estimates are based on a study recently completed 
by myself and colleagues Roger Feldman, Jean Abraham and Yi Xu 
at the University of Minnesota (see: http://
www.ehealthplan.org). The estimate assumes people will buy 
insurance in one of four regions where one state has the lowest 
regulatory burden in terms of coverage mandates, guaranteed 
issue of insurance and community rating of premiums. Those four 
states are Alabama (South), Arizona (West), Nebraska (Midwest) 
and New Hampshire (Northeast). Other models assume only the 
five largest states are available for interstate insurance 
offers and find a moderate estimate of 7 million newly insured.
    Buying health insurance across state lines is not a new 
policy proposal. U.S. House of Representatives and Senate 
members have advocated this policy in repeated legislative 
sections. With the use of the Internet, it very easy to see 
intuitively why this policy would make sense. On 
ehealthinsurance.com, a family of four with exactly the same 
age and gender profile in eastern Pennsylvania will have a 
premium half of what an identical policy would cost just across 
the Delaware in Washington Crossing, NJ.
    Purchasing insurance across state lines could be the first 
pragmatic step toward making the health insurance market work 
for all Americans. It has interesting appeal. It could be 
immediately acted upon with budget neutrality. The policy 
change is also more consistent with the Unites States 
preference for gradual improvements the health insurance 
access. There are many serious issues as well such who would be 
ultimately accountable for consumer protection. At best it 
would be two states, but coordination could be onerous. It is 
understandable why state specific preferences have played such 
a major role. But it can also be said that the opportunity cost 
from the legacy of 1940s era legislation are millions of 
uninsured left to live (and perhaps die) from personal distress 
and devastation. As we look for cures, and consider our 
national financial resources--this policy option needs more 
serious consideration. 

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    Mr. Pallone. Thank you.
    Mr. Holland.

 STATEMENT OF E.J. HOLLAND, JR., SENIOR VICE PRESIDENT, HUMAN 
              RESOURCES AND COMMUNICATION, EMBARQ

    Mr. Holland. Thank you, Mr. Chairman, Ranking Member Deal. 
My name is E.J. Holland, Jr., although most people call me Ned. 
I am senior vice president of human resources and 
communications at Embarq in Overland Park, Kansas. We are the 
fourth largest telecommunications company in this country, I 
think AT&T, Verizon, Qwest, and then Embarq. We are fourth. We 
are usually before the members of this committee on other 
issues. We are pleased to be here today with respect to 
healthcare issues, about which we feel strongly and about which 
I personally have a strong interest.
    I want to thank the chairman particularly and the members 
of his able staff for the personal courtesy they have shown me 
as I have come here today. I couldn't have felt more welcome 
and I appreciate it.
    I have been working on these issues, Mr. Chairman, for the 
better part of 40 years. That may mean I should get out of it 
and perhaps they could be solved. I am not sure I have had that 
much impact. I particularly appreciate today that you have 
included an employer on the panel. All too often in these kinds 
of events, I see academics and healthcare people and theorists 
and not people who actually write some 60 percent of the checks 
that are written to pay for this system in the country. But 
while I am an employer, I also want to observe that I have 
spent better than 30 years on the board and served as chairman 
of the public hospital system in Kansas City, Missouri, Truman 
Medical Center, so I come with a view towards covering the 
indigent and the uninsured, and I currently serve on the board 
of the Kansas Health Policy Authority, where we are responsible 
for all healthcare purchasing in the State of Kansas, all 
Medicaid and all state employee healthcare purchasing, an 
innovative approach that Kansas has taken out in the plains.
    I have a fairly diverse background, therefore, and I come 
at this issue with my conflicts in my mind but I am persuaded 
that reform of the healthcare system is of critical importance 
to my shareholders, my employees, my company, and indeed to the 
United States. It has become a burden on a number of 
industries. It causes chaos in industries. I think of steel and 
I think of the auto companies. It is well on its way to causing 
chaos in the telecommunications industry.
    From my perspective as an employer, I can tell you that the 
current system harms American business as it struggles to stay 
competitive with the rest of the world and it harms those of us 
who do the right thing already as we struggle to remain 
competitive with people who don't do the right thing even here 
in the United States. So on two counts, we are behind the eight 
ball, if you will. The problem is far larger and more complex 
than we can solve at Embarq or that employers and employer 
groups I belong to can solve. We need the help of several 
States. I would join Governor Corzine's suggestion that the 
States can be creative in laboratories. I agree with that. I 
would observe that and urge you not to villainize employers. It 
is we who provide a great deal of the healthcare in the 
country. We are there as an accident of history. Wage and price 
controls in the 1940s and World War II are what caused 
employers to be where we are today, but we are where we are and 
we try to deal with it on a daily basis.
    I will tell you that we have every bell and whistle you can 
think of in our healthcare plans. We do all the right things 
with respect to wellness and preventive care and the like and 
still I am facing a $20 million deficit this year. That may 
seem like much in the federal budget but it is a lot in my 
budget and I am responsible for trying to cure it.
    We believe that cost is critical. Keeping the employers in 
the system and assuming that we can just pick up cost increases 
year after year just won't work. No other part of my budget 
went up this year. No other part of my budget will go up next 
year. That is true of my colleagues. And we hear the stories 
that Chairman Dingell, I believe, talked about, how much 
healthcare the auto companies pay as compared to how much steel 
they buy or how much coffee Starbucks buys as compared to how 
much healthcare it buys. Well, we are well on our way in my 
company. My CFO observed to me the other day that if I don't 
stop--he looks to me to do it--the escalation of healthcare 
costs, we will be spending more on healthcare than we do on 
information technology, and as you know in our industry, 
information technology is the core of what we do. It can't be 
that way.
    I have listed in my prepared testimony that has been 
submitted already, Mr. Chairman, four areas in which I would 
urge the committee to pay some attention. One, we need to 
invest in information technology for healthcare. We need to 
arrest the growth in other parts of the system and we do invest 
in things that are productive of better diagnostics and better 
record keeping. The notion of individual electronic medical 
record is long since overdue. If we did technology at Embarq 
like the healthcare system is doing, then I am afraid, I don't 
mean to be disrespectful, but we would be giving you tin cans 
strung together with twine to do your communications. We just 
can't continue to function in this fashion.
    Second, we really believe we need national quality 
standards, and I have heard several people talk about that, and 
I won't repeat that. It is a crime that we have different 
standards in northern Maine and southern California, different 
standards for minorities and majorities, different standards 
for men and women. That can't continue.
    We believe we should create better physician reimbursement 
systems. I won't burden you with that. It is in my written 
testimony.
    And finally, we do think overall what is critical is to 
expand the participation pool. Everyone must be in the system. 
That is the way ultimately to level the costs and to share the 
costs of the social contract, the fabric of that social 
contract in the country. And to do that will take standards at 
the federal level. We would like to be able to experiment in 
Kansas along with Massachusetts and New Jersey.
    Mr. Pallone. I have to tell you, you are a minute over.
    Mr. Holland. And I will stop, Mr. Chairman. Thank you for 
your courtesy. We appreciate your attention to this issue. It 
is critical for us and you know it is critical for the country.
    [The prepared statement of Mr. Holland follows:]

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    Mr. Pallone. Thank you so much. I really appreciate your 
input on the employer's situation particularly.
    Ms. Owen.

  STATEMENT OF PATRICIA OWEN, PRESIDENT AND FOUNDATION, FACES 
                 DAYSPA, THE VILLAGE AT WEXFORD

    Ms. Owen. Thank you, Chairman Pallone and Ranking Member 
Deal, members of the committee. My name is Patricia Owen. I am 
the owner of FACES DaySpa, a 23-employee small business 
specializing in professional spa services located in Hilton 
Head Island, South Carolina. I am also here on behalf of the 
U.S. Chamber of Commerce and serve as a member of its council 
on small business. I commend the committee for its interest in 
having this hearing.
    As owner of FACES DaySpa since its inception of 1983, I 
have guided my company from a small boutique to its current 
status as a nationally renowned, award-winning business. Back 
when my husband and I decided to move to Hilton Head Island, we 
used our hard-earned savings to open FACES boutique. What began 
as a small mom-and-pop business has now become one of the most 
extensive day spas in the Southeast. As owner of FACES, one of 
my most important duties is to attract and keep highly 
qualified employees. I find healthcare coverage is the most 
sought-after benefit that an employer can offer. Even so, in 
this salon and spa industry, it is rare that employers offer 
any form of healthcare options.
    So almost 5 years ago, I took the plunge with a traditional 
PPO healthcare coverage plan that I made available to full-time 
employees working 40 hours a week. My company picked up $200 a 
month of the cost of the premium and my employees were 
responsible for the balance. However, this first plan was not 
well received by the employees. Premiums of older workers were 
more expensive than those of the younger ones, causing them not 
to participate, and the younger workers felt they had little 
incentive to participate in the plan. As a result, out of my 23 
employees, only six took advantage of the benefit. Also, like 
most small business owners, I was faced with the challenge of 
soaring annual increases along with the challenge of seeking 
ways to contain spiraling costs.
    Almost a year ago, I was told of some new alternatives that 
were being made available to small businesses in my area. I 
decided to review new strategies concerning coverage with my 
employees to determine if there was a plan that was more 
suitable to their needs. Since ultimately I wanted my employees 
happy with the end result, I made sure all of them were 
involved in the process and the final decision. What we decided 
on was a high-deductible health savings account, HSA, plan. The 
plan offers a $3,000 individual deductible and a $6,000 
combined family deductible. I agreed to pay 50 percent of the 
premium, which amounts to $163 per month for each of my 
employees. I also agreed to reduce the requirement for 
participation to a minimum 30-hour workweek. Then participation 
soared. Even though the cost I paid per employee has gone down, 
my total cost has increased substantially because of increased 
staff participation but having an HSA high-deductible option is 
a win-win for both me and my employees. I am able to offer an 
affordable option, my employees have a comprehensive health 
insurance policy and I am able to pay 50 percent of their 
premiums.
    I am not alone as a small business owner struggling to 
provide health insurance. Every small business owner I know 
wants to offer affordable, dependable health insurance to their 
employees and the type of flexibility that will keep them 
competitive in their respective marketplaces. To ensure this, 
we call upon Congress to help.
    For years the Chamber and businesses like mine have pushed 
for legislation that would provide relief by letting small 
businesses pool together across State lines to provide cost-
effective and accessible insurance through trade and 
professional associations. By being part of a larger group, 
small businesses would have greater negotiating power and would 
also reduce costs by having uniform standards from State to 
State. Small businesses need the freedom to purchase plans that 
meet their employees' needs which means fewer mandates, less 
bureaucracy and more flexibility.
    Congress should also consider proposals that would give tax 
credits to small businesses to help them provide insurance 
which would create a level playing field for individuals and 
the self-employed by giving them deductibility of health 
insurance premiums.
    While I have mentioned several proposals that will help 
provide some assistance for small business, I also need to 
discuss the other legislative proposals that would drive down 
costs and lead to improvements through our healthcare system 
including the need to promote the widespread adoption of health 
information technology and to reform our medical liability 
system.
    In conclusion, I encourage Congress to take note of the 
success that many employers and employees are experiencing by 
changing our focus from sick care to true health care. 
Proposals that would offer tax credits to employers who provide 
comprehensive wellness programs for their employees would be a 
great help in promoting these efforts.
    Thank you for the opportunity to testify today.
    [The prepared statement of Ms. Owen follows:]

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    Mr. Pallone. Thank you, Ms. Owen. I particularly appreciate 
your explaining just how it works, you know, what the direct 
impact is on the employees.
    Ms. Pollitz.

STATEMENT OF KAREN POLLITZ, M.P.P., PROJECT DIRECTOR, RESEARCH 
    PROFESSOR, GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE

    Ms. Pollitz. Thank you, Mr. Chairman, Congressman Deal. 
Good morning, members of the subcommittee. I am Karen Pollitz 
and I direct research on private health insurance at Georgetown 
University's Health Policy Institute and I will focus my 
remarks this morning on private health insurance and the role 
it might play in any health reform proposal.
    Mr. Chairman, we buy health insurance in case we get sick. 
Therefore, how private health insurance works for us when we 
are sick is of the utmost concern. In order for insurance 
protection to be meaningful, it has to satisfy four tests. It 
must be available, adequate, and affordable always, and too 
often today private health insurance fails one or more of these 
tests. We have to do better.
    First, coverage must be available. That means we have to be 
eligible to enroll. Today the vast majority of uninsured people 
work but are ineligible for either job-based coverage or 
Medicaid or other public programs so their option is individual 
health insurance. However, this coverage is medically 
underwritten in most States and so you are not eligible if you 
are not in perfect health. Cancer, diabetes, heart disease, 
pregnancy, and many other conditions will render you 
uninsurable, and even minor health conditions like hay fever or 
acne can get you into trouble. If we want health insurance to 
be available to people when they are sick, we need regulation 
to require that all policies be sold all the time on a 
guaranteed issue basis.
    Second, health coverage must be adequate. The measure of 
adequacy is the out-of-pocket costs for medical care that 
people must pay after their insurance has contributed. Too 
often today, health insurance is inadequate. Medical debt and 
medical bankruptcy are primarily problems of the insured. A 
recent Commonwealth Fund study found that the number of 
underinsured Americans has grown 60 percent since 2003. 
Numerous health plan features can leave people inadequately 
covered, especially in the individual health insurance market. 
In particular, preexisting condition exclusion periods will 
carve out the very coverage that people need most. Bare-bones 
policies that don't cover doctor visits, chemotherapy, mental 
health care, maternity care, or prescription drugs are also 
problematic. Very often, cost sharing for covered services is 
what gets people into trouble. High deductibles are one obvious 
cost burden but so can be even most copays. Don't forget that 
the majority of healthcare spending is due to chronic 
conditions, and for these patients, cost sharing can be 
relentless. So, for example, over the course of 18 months of 
active treatment, a breast cancer patient might have as many as 
180 doctor visits and outpatient therapies and need as many as 
40 prescriptions and refills. A $25 copay for each of these 
would total more than $5,000.
    Adequacy of health insurance can be addressed through 
regulation. We have to rethink our definition of private health 
insurance. Under federal law, the definition of health 
insurance is pretty much anything a health insurance company 
sells. We need a better outcomes-based definition. A policy 
that leaves you bankrupt or in debt if you have a baby or 
cancer or heart attack should not be allowed to be called 
health insurance.
    Third, insurance premiums have to be affordable. Plenty of 
policies in the individual market today sell for less than $100 
a month but only because coverage is skimpy and sick people 
aren't allowed to buy them. If we want insurance to cover 
people and the care they need, it won't be inexpensive and many 
people will need subsidies, significant subsidies in order for 
their coverage to be affordable. In addition to subsidies, 
regulation is needed to prevent insurers from varying premiums 
based on health status, age, gender, and other factors. The 
experience of the tax credit we have today for health 
insurance, the health coverage tax credits, is instructive. 
Under that law, coverage can be made available to people and 
eligible for the credit that isn't subject to any rating rules. 
In the State of North Carolina, one insurer charged more than 
$3,900 per month for an HCTC-eligible policy for a 55-year-old 
in poor health. Even with a 65 percent subsidy, few could 
afford to pay the rest.
    Finally, health insurance must be available, affordable, 
and adequate all of the time, and here again, rules will be 
needed so that people can not only get coverage but keep it. 
Especially in the individual health insurance market, it can be 
very hard to remain covered once you get sick. If cherry 
picking describes the practices the insurers use to select only 
good risks at the outside, then lemon dropping might be used to 
describe practices to shed risks once they are enrolled. 
Premiums can take off at renewal when companies use durational 
rating or when they close a product to new policyholders, 
stranding the in-force enrollees in a dwindling pool whose 
premiums just climb. Recent press accounts have also taught us 
about the practice of post-claims underwriting under which 
policyholders who make claims may be re-investigated to 
determine whether the insurer can avoid paying the claim. These 
investigations are defended as necessary to defer fraud but 
abuse of insurer practices has also been documented including 
accounts of one carrier that paid bonuses to staff based on how 
many individual policyholders were dropped and how much money 
was saved.
    Mr. Chairman, I acknowledge that regulation isn't always 
very popular and I just have ticked off a pretty good list of 
rules, but believe me, these are necessary, and in fact, I 
should probably add a fifth A to my list, accountability. If we 
want to expend health insurance coverage and retain a role for 
private insurance companies, particularly in the individual 
market, you will need much tighter regulation that you have 
today. Even under health reform with mandate for everyone to 
have coverage and generous subsidies, the incentive to cherry 
pick and lemon drop will continue.
    Make no mistake, there will always be an incentive for 
insurers to avoid that small minority of us who account for 
most healthcare spending and at some point all of us will spend 
some time in that minority. Strong national federal standards 
for health insurance will be critical to ensure that all 
Americans----
    Mr. Pallone. Ms. Pollitz, you are a minute over.
    Ms. Pollitz. And I am winding up. We will also need the 
expertise and capacity of state regulators to help enforce and 
monitor strong national protections. It is time for this Nation 
to move ahead on a program of healthcare to ensure that 
coverage is always available, afford and adequate for all of 
us. Thank you.
    [The prepared statement of Ms. Pollitz follows:]

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    Mr. Pallone. Thank you, and I know you have been here on 
other occasions and we always like to hear from you, believe 
me. Thank you.
    Dr. Davis.

 STATEMENT OF KAREN DAVIS, PH.D., PRESIDENT, THE COMMONWEALTH 
                              FUND

    Ms. Davis. As members have stressed today, it is important 
to lay the foundation for health reform, and in doing that, I 
think it is instructive to look at the 40-year history of 
Medicare and Medicaid and our 10 years of experience with 
SCHIP, the State Children's Health Insurance Program. These 
programs cover America's sickest and poorest individuals, 
people who do not fare well in the private insurance market. 
Currently more than one in four Americans are covered under 
public programs.
    As the Nation moves to cover the uninsured, preserving a 
mixed private-public system of coverage has many advantages. 
First of all, it minimizes disruption in current sources of 
coverage, but most importantly, it can build on both the 
strengths of public programs and private coverage, and it 
requires only minimal new administrative structures.
    To turn to public programs, they are especially valuable 
components of health reform. First and foremost, they have low 
administrative costs. They have a track record of providing 
access to needed healthcare services for those who are most 
difficult to serve. Medicare in particular is an ideal coverage 
source for older and disabled adults in the two-year waiting 
period for Medicare because these individuals will soon be 
eligible for Medicare and they typically cannot find coverage 
in the individual insurance market since insurers have a strong 
financial incentive to restrict enrollment or limit benefits of 
those with health problems. Opening up Medicare to older adults 
and the disabled in the 2-year waiting period has many 
advantages. It helps them get affordable coverage but it also 
helps prevent health conditions from deteriorating and 
resulting in even higher costs to Medicare once they do become 
eligible, and work that we have funded at the Commonwealth Fund 
and published in leading medical journals has documented that. 
Medicare beneficiaries report high satisfaction with their 
coverage and their ability to access healthcare services.
    Medicaid and SCHIP are also ideal sources of coverage for 
low-income adults and children. They often serve as a source of 
coverage for many of the Nation's most seriously disabled, 
children with developmental disability, HIV/AIDS, frail elders, 
and others. States have been successful in reducing the rate of 
uninsured children since the SCHIP program was enacted in 1997. 
States' ability to do this, however, depends on how the economy 
is doing and may be subject to retrenchment in economic 
downturn, and as Governor Corzine pointed out, it is very 
important that the federal matching rate for Medicaid and SCHIP 
increase and be adjusted automatically with rates of 
unemployment.
    Private employer coverage is also very important to the 
American health insurance systems. It covers 160 million 
working Americans and their families. Employers tend to pick up 
75 to 80 percent of the premium. However, it is the small 
business sector where coverage is eroding and in part that is 
because small firms cannot get the same premiums that are 
available to large firms for the same benefits.
    For those individuals whose only recourse is the individual 
insurance market, as Karen Pollitz has pointed out, 
availability and affordability depend on State regulation. Our 
studies show that nine out of ten people who look for 
individual health insurance don't buy it. They don't buy it 
because it is not available to them, they can't afford it, or 
it doesn't meet their needs. So we do need a set of national 
rules and a national insurance connector that assures 
affordability for coverage.
    Congress can take steps now to lay the foundation for 
broader health reform. These include leverage Medicare's 
position as the largest payer for healthcare, to improve 
healthcare quality, and address the rise in healthcare costs 
that have been mentioned by a number of our panelists. It can 
also strengthen Medicaid and SCHIP as the basis for coverage 
for all low-income children, and I would say adults, reforming 
individual markets and making affordable insurance options 
including a public insurance option modeled on Medicare 
available to small businesses and individual through an 
insurance connector.
    A mixed private-public system of universal coverage 
featuring seamless coordination across sources of coverage 
could transform both the financing and delivery of healthcare 
services. Such a system would build on the best that both 
private insurance and public programs have to offer while 
achieving needed savings and ensuring access to care for all.
    Thank you.
    [The prepared statement of Ms. Davis follows:]

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    Mr. Pallone. Thank you, Dr. Davis.
    Mr. Fox.

 STATEMENT OF WILLIAM J. FOX, F.S.A., M.A.A.A., PRINCIPAL AND 
                  CONSULTING ACTUARY, MILLIMAN

    Mr. Fox. Hello. I was invited here to talk about the cost 
shift from Medicare and Medicaid and the impact that has on 
private insurance premiums. I am from Milliman. We are the 
largest actuarial employer in the country. We are very focused 
on our independence and not advocating advice. I will just give 
you some numbers and not with a specific slant on them.
    We have completed cost-shifting studies for Arizona, 
California, New York, and Washington. We are currently working 
on a study in Oregon and a nationwide study. So I have a 
PowerPoint I was told that might come up but I don't know that 
it will, but anyway, you guys probably have handouts. My 
presentation is going to cover four main points: what is the 
cost shift; how large is the cost shift; what is the impact of 
private insurance premiums and what are the trends; where is 
this going.
    So what is cost shifting? In most areas of the country for 
the same service, private health insurers pay a lot more than 
Medicare, which pays more than Medicaid. So in other words, if 
Medicare and Medicaid paid higher rates, the private payer 
rates could come down and private insurance premiums, so we 
should be on the fourth slide now. If Medicare and Medicaid 
could pay more, the private is that correct payers could pay 
less and private insurance premiums would be lower with the 
providers, the hospitals and physicians, still making the same 
income. So some consider this to be a cost shift to a hidden 
tax, that effectively employer groups and privately insured 
people are subsidizing Medicare and Medicaid.
    So how large is the cost shift? So to quantify that, I will 
warn you, this is a sample based on the four States for 
hospital and three States for physician so the variability from 
State to State is tremendous and can be very significant. But 
these are generally pretty indicative of what is happening. On 
the hospital side, what we are showing here that if a hospital 
has an average cost of let us say an X-ray, it is $100, then 
the commercial or private insurance payers are paying about 
$115.90, and for that same average $100 cost, Medicare is 
paying about $90 and Medicaid is paying about $86.50, so 13\1/
2\ percent less there in your chart. On the physician side, 
there is no fixed cost, but if we take the average 
reimbursement that physicians get, they are getting about $100 
on average let us say for an office visit and they are going to 
get about $110 from the private payers, about $90 for Medicare 
and only $76 from Medicaid.
    Going on to the next one, so how does that cost shift 
impact the private insurance premiums? Well, using California 
as an illustration, we have a total annual premium of $13,800. 
That is an annual premium for a family, employee, spouse, and 
children. The cost shift is about 12.2 percent of that, or 
$1,690. You can see the breakdown in the graph there. The 
employers pay most that, as Karen just said, 75, 80 percent, 
$1,234 is paid for by the employer. This is just the portion 
that is due to the cost shift so this amount would be reduced 
if there was no cost shift from Medicare/Medicaid. And $456 is 
paid for by the employee. But on top of that, the employee's 
coinsurance and deductibles, other things are also increased, 
so $298 comes from the cost sharing for that employee.
    So how is the cost shift changing over time? This is a 
really powerful graph that if you can see it is reducing--what 
happened in the 1990s with managed care, the cost shift reduced 
and things came together and now it has been spreading apart. 
And what happened there in the 1990s was not that Medicare and 
Medicaid increased their payments, it was that the commercial 
private payers reduced their payments. There was a lot of 
competition and the hospitals and physicians managed to lower 
their costs or lower their reimbursement so that then they made 
more on Medicaid and Medicare. Now, what has happened since 
then is either the cost pressures or other things which were 
not--I am not getting into the solutions just quantifying the 
numbers, you can understand them, is that since then the costs 
have been higher than the Medicare and Medicaid increase and 
its leverage effect to increase that cost shift. This is well 
illustrated on the next slide, which shows that if you have a 5 
percent cost so the hospitals, let us say they have a 5 percent 
increase in their cost, and Medicare only pays them 3 percent, 
an increase, and Medicare pays them a 2 percent increase, then 
the commercial private insurance payers, they have to pay 7.3 
percent for that hospital to get the 5 percent. And that is 
really how the hospitals negotiate. I do a lot of hospital 
contracting work. They are out there saying here is our bottom 
line, here is what we are getting, you guys have to pay us the 
rest, and that is what contributing to the high increase in 
commercial health insurance and part of the cost there.
    And the last slide I have is just to illustrate some of the 
variance. This is the hospital margins by State. Again, we are 
mixing different States, different years. We are putting out a 
national study in the next couple of weeks sponsored by a few 
large groups but it is important to know that this is very 
different from market to market, even with a State. I have done 
some work in Pennsylvania where some parts of Pennsylvania they 
make money on Medicare, the hospitals do, and some parts they 
lose a lot of money and so the cost shift and commercial 
insurance premiums are a lot higher.
    Thank you.
    [The prepared statement of Mr. Fox follows:]

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    Mr. Pallone. Thank you, Mr. Fox.
    Mr. Bachman.

   STATEMENT OF RONALD E. BACHMAN, F.S.A., M.A.A.A., SENIOR 
            FELLOW, CENTER FOR HEALTH TRANSFORMATION

    Mr. Bachman. Thank you. My name is Ron Bachman. I am an 
Actuary and a Senior Fellow at the Center for Health 
Transformation. Americans know that a solution is needed to the 
47 million people who are uninsured. Any solution must include 
the sickest among us. No one can be left behind. Any system 
that works only for the young, healthy, and wealthy is a system 
destined to failure.
    According to the Institute of Medicine, 18,000 people die 
every year because they are uninsured. Uninsured adults have a 
25 percent greater rate of dying than adults with insurance. 
Simply put, insuring all Americans is a moral imperative. 
Addressing the uninsured is also an economic development 
opportunity. Uninsured adults have more absences from work, 
more unscheduled sick days and greater rates of disability. 
Eight out of 10 uninsureds are in working families. The great 
job creation machine in this country is small business yet 65 
percent with fewer than 10 employees do not even offer health 
insurance. Many more Americans are only a pink slip away from 
losing their jobs and their health insurance.
    The uninsureds are a symptom of a dysfunctional system. 
Focusing on the uninsured rather than arguing over general 
market reforms, I believe, will lead us to new solutions. We 
have an outdated legal and regulatory environment with 
unintended consequences that makes little sense to the average 
citizen. For example, it is illegal for small groups to provide 
financial rewards to a diabetic following doctor's orders or 
incent individuals with financial rewards for healthy behaviors 
such as wellness, prevention, and early intervention. States 
add a sales tax to every policy sold, amounting to 2 or 3 
percent or more of the premiums. These added taxes only make 
insurance more unaffordable and increase the number of 
uninsureds. In 24 States, it is illegal for small employers to 
contribute to the purchase of individual policies through the 
use of tax advantaged Health Reimbursement Arrangements.
    It is generally illegal under federal law for an unemployed 
worker to use accumulated HSA savings to pay for health 
insurance premiums. It is illegal under federal law to provide 
separate prescription drug benefits under high-deductible 
health plans. It is illegal under federal law for personally 
contributed but unused Flexible Spending Account funds to 
accumulate over time. These are multiple account designs with 
confusing rules and requirements that make no sense to the 
average citizen.
    A collaboration of key stakeholders worked last year to 
develop recommendations to lower the uninsured in Georgia by 
one-third, about 500,000 in our State. The collaboration 
efforts succeeded. On May 7, 2008, Georgia's Governor Sonny 
Perdue signed into law health insurance reform legislation that 
allows insurers to develop significantly more affordable 
products for small companies and individuals. The new laws 
focus on the uninsured working poor as a first step. This 
legislation is estimated to bring an annual increase to 
economic value to Georgia of $1.9 billion.
    The key to success was moving beyond the first generation 
HSA-eligible plans to a new generation of consumer-oriented 
products. Critics have concerns regarding coverage under HSA-
eligible plans. The required upfront deductibles have been a 
problem for many. With new generation plans, these concerns are 
substantially moderated and potentially eliminated. The new 
Georgia law is a market-based individually centered package of 
reforms that eliminates outdated insurance laws that 
unintentionally limited the offering of affordable insurance. 
The new law allows financial dividends to be placed into Health 
Savings Accounts for engaging in wellness, prevention, and 
treatment compliance. Rewards and incentives paid into the HSA 
by insurers can reduce or eliminate the entire deductible 
otherwise payable by the patient. Affordability is no longer 
the dollars you take out of your pocket to pay for an insurance 
premium. Affordability is also achieved through healthy choices 
and behavior changes.
    Georgia eliminated all State and local sales tax on HSA-
eligible plans. As an incentive to offer insurance, companies 
with fewer than 50 employees are granted a $250 tax credit for 
each employee enrolled in an HSA-eligible plan. For individual 
insurance buyers, there is a special Georgia income tax 
deduction for premiums associated with the purchase of an HSA-
eligible plan. The new Georgia law makes it legally clear that 
there is an option for small employers to contribute tax 
advantaged HRA dollars to employees for the purpose of buying 
individual portable health insurance and/or paying for health 
expenses. Soon Georgians will see products at a fraction of 
their current cost. The old complaint that HSA-eligible plans 
are simply high-deductible coverage only for the young, 
healthy, and wealthy is addressed with these new generation 
products that are allowed under Georgia law.
    Georgia is reflective of a much broader change afoot in 
this country that is unleashing the creative spirit, the 
entrepreneurial spirit of Americans to solve the uninsured 
problem. The process has started. The foundation blocks are 
bipartisan collaboration, support at the federal law, reform at 
the state level, creative product development, and citizen 
involvement in their own health and healthcare and empowered 
financially with information and choices.
    The mission is clear: insure all Americans by 2012 in a 
21st century intelligent health system. The questions are: who 
will help, who will hinder, and who will be willing to give 
power to consumers over their most precious asset, their 
health. Thank you.
    [The prepared statement of Mr. Bachman follows:]

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    Mr. Pallone. Thank you, Mr. Bachman, and I want to thank 
all the panel for being here today. Now we are going to 
questions and I will start with myself, and I wanted to ask my 
governor, one of my colleagues up here mentioned your being 
unique because you were a Senator for a number of years and now 
you are the governor of the State, and I know you talked about, 
we all know about your efforts to try to expand, to do health 
reform, to expand coverage on the State level. But you have 
often talked to me about how difficult that is or the 
challenges that exist if there isn't federal help. So my 
question really is, what are those challenges? I mean, how 
difficult will it be for New Jersey to expand coverage and 
maybe even ultimately get to have everyone covered without the 
help of the Federal Government and how can the Federal 
Government help?
    Mr. Corzine. Well, I think the panel discussion that you 
have heard here tells you one of the reasons why the Federal 
Government I believe needs to be involved. You need some kind 
of baseline standards with regard to a whole set of issues. I 
don't look forward to having preemption of the States of higher 
standards that might be set in any State but you need to be 
able to be assured that the quality of coverage from one place 
in Lambertville versus Bucks County is actually not going to 
end up having cost shifts onto emergency room care. Without 
some kind of baseline standards with regard to electronic 
medical record, we are not going to be able to build a national 
system that makes any sense. Preventative care and all of the 
other issues I think are going to need some common baseline 
activity.
    Now, the initiatives of the Federal Government if you are a 
believer that they are good things, like Medicaid, Medicare, 
SCHIP, are going to require that there be a continuation of 
real federal financial support to be able to actually execute 
what is said. Otherwise what has happened in New Jersey in two 
different downturns already over an economic cycle, we end up 
rationing against what our capacity to be able to pay is and so 
you get an on-again, off-again implementation of SCHIP in its 
activities or a change in Medicaid copayments, which ends up 
rationing in a back-door way. We need some consistency in the 
financial flow from the Federal Government if we are going to 
be able to do it and particularly with respect to building the 
universal plans that we are trying to put together in the 
States. There is great flexibility shown by HHS with 
Massachusetts in shifting around how federal dollars that came 
to the State would be used and applied for purposes of it. 
Without that kind of flexibility for the different terms and 
conditions that we all face in different States--we have a high 
cost of living. I know there will be people that will complain 
that we go up to 350 percent of poverty but the cost of living 
in New Jersey is entirely different. Fifty thousand dollars of 
income for a family of four gets you way over spending a third 
of your dollars on housing in almost any situation, and it is 
incredibly important to maintain those flexibilities.
    So, it is a longwinded answer saying we need baseline 
levels of requirements from the Federal Government. We need a 
real partner in finance and we need stability in how that is 
going to work. FMAP ought to be something that is an automatic 
stabilizer in my view because you get every State backed into a 
corner that they end up having to cut healthcare expenditures 
at the very worst time.
    Mr. Pallone. Thank you, Governor. Yesterday we had a markup 
in the full committee and Mr. Deal talked about performance 
transparency, and I mentioned to him afterwards that there are 
various ways of dealing with hospital costs and particularly 
for the individual, and I mentioned that you recently signed 
into law a series of bills that reformed the way hospitals 
operate and one of those restricted the ability of hospitals to 
overcharge uninsured patients, which apparently was a common 
practice in New Jersey. Can you just talk about how uninsured 
patients were being disadvantaged and what steps, how that bill 
is trying to rectify that problem?
    Mr. Corzine. Well, Mr. Fox talked about this. This is cost 
shifting. If you aren't making enough money in one place and 
you have to survive, you end up placing it into the individual 
market, and what is even worse, you shift to the uninsured in a 
most exceptional way, hoping or expecting that you are going to 
get reimbursed on charity care or indigent funding, and it 
happens. People who manage the hospital systems understand this 
and it ends up being incentivized by how we are working. That 
is why we thought it would be very important reform that no one 
who is uninsured could be charged more than 115 percent of the 
Medicare charges for a particular function because you were 
seeing dramatically different charges for people who were 
insured often at that $100 that Mr. Fox talked about as he 
tried to describe the system. It needs to be done. There have 
to be all kinds of other transparency issues. You need 
Sarbanes-Oxley. I happen to be in favor of those kinds of 
things in how we actually manage the affairs of hospitals and 
we have a whole series of steps that we have taken there with 
regard to reform as well but I think that what we actually want 
to do is get everybody insured so that the shifting around to 
various uninsured segments or lesser insured segments doesn't 
end up being the person left without a chair at the party.
    Mr. Pallone. Thank you.
    Mr. Deal.
    Mr. Deal. Thank you, and thank you, Governor Corzine, for 
leading the effort on transparency. I believe it is truly one 
of those missing elements in the discussions that we have. It 
is unfortunate when the uninsured or the individual who has a 
Health Savings Account or simply wishes to reach in their own 
pocket and pay for healthcare services is the person who pays 
the very highest price or at least is quoted the very highest 
price if in fact they can get a quote. We had the example 
yesterday, we talked about a young man who worked for a 
Congressman here who had to go in for an appendectomy. They 
thought he was uninsured and he got a bill for $19,000 for a 
one-night stay. When it was finally determined that he actually 
did have insurance, the insurance paid a little over $2,100. 
There is something wrong with that kind of system, and I 
applaud your efforts for leading efforts in transparency.
    Mr. Corzine. If I may, Mr. Deal, I would also say that is 
true on quality standards. We need transparency with regard to 
that.
    Mr. Deal. Here is the champion on that issue right here.
    Mr. Corzine. I think this is one of those areas though that 
I think there is a baseline, there is a lot of consensus on a 
number of areas where we have to move. Clearly how money flows 
in this system is obviously a debating point but there are a 
number of reforms that I think Congress can be extraordinarily 
helpful on if we moved in these areas on transparency and 
reporting.
    Mr. Deal. One of the big issues of course, and you 
mentioned it in terms of a bump in the FMAP that governors are 
asking for. My understanding is that the State of Rhode Island 
has now applied for a waiver from CMS that would give them 
greater flexibility as to how they administer their program 
with, I presume, the underlying assumption that if we could 
just get rid of some of these federal mandates in the Medicaid 
program, we could take the same amount of money and do more 
effective things like more preventive care, things that are 
tailored better to the needs of our constituents in our State. 
What is your reaction to that kind of an approach?
    Mr. Corzine. Well, most States would argue for flexibility 
and they ask for waivers for different purposes. We don't look 
at some of those requirements as so onerous. We look at them 
more as requirements so we might have a difference of view with 
how Rhode Island did it but we do believe that the States 
through the administration of this program and these cost-
sharing elements that we have ought to have the flexibility to 
try to maximize. Now, whether Rhode Island is right and we are 
right on which ones, which elements of Medicaid ought to be 
attended to, you know, I will leave that to healthcare experts 
to tell me what is responsible. But flexibility is something 
that I think all of us are very much in favor of, ``all of us'' 
being governors, and I would support that concept. That is 
actually how the process with respect to Massachusetts mandate 
program has come into place, flexibility on how the money is 
used flowing to the State, and frankly, we have benefited in 
New Jersey because we have had under both Republican and 
Democratic administrations waivers that have allowed us to 
structure our program in the context of the needs of our 
community.
    Mr. Deal. One of the troubling things when we move from the 
public healthcare arena, whether it be Medicare or Medicaid, 
into talking about private insurance is the issue of mandates 
and mandates in coverage, and Dr. Parente, you have done 
extensive looks at that and your testimony alludes to it, some 
of your other documents even elaborate further. One of the 
illustrations, as I recall, and I have it here, is the 
difference between what somebody who is in Washington crossing 
New Jersey would pay as opposed to being across the Delaware 
River in Pennsylvania and I believe you indicated maybe it is 
twice as much in a private health insurance premium. Why is 
that and what can be done to deal with that?
    Mr. Parente. Well, the result was actually driven by two 
things. One is the mandates themselves. Each mandate has an 
incremental cost to insurance in terms of underwriting. That is 
just a fact in terms of how these policies are sort of written 
out in terms of cost, and if you want to see it, any one of you 
can just go to ehealthinsurance.com, plug in the zip codes, put 
in your family profiles, that is why I did to sort of personify 
this or friends of families, and see what things look like. It 
is remarkable the premium differences for identical premium 
structures, identical meaning the same coinsurance level, the 
same deductible, and even in some cases the same plan, United 
Health or Sigma, offering basically the same plan in either 
State but they have obviously State-specific offices but they 
are clearly trying to get some economies of scale. It is 
something that actually honestly surprised me how big the 
difference would be, and to see it actually on the one hand 
show up in theory but also backed up right by the price quotes 
you are seeing off e-health insurance is validated. Most of the 
research I do doesn't get validated that easily.
    Mr. Deal. Thank you. My time is expired. I yield back.
    Mr. Pallone. Let me just mention to the panel and to the 
members, we have a vote on the floor and about 12 minutes left. 
We have two votes. We are going to try to do one or two more 
members for questions and then we are going to have to break. I 
know that some of you can't stay. For those that can, we would 
ask you come back after the votes and continue.
    Next is the gentlewoman from Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I wanted to ask you, Ms. Owen, or respond to some of the 
remarks that you made. I am looking at your employees now that 
you say is a win-win situation and they pay $1,956 a year in 
premiums, $163 a month, and then a $6,000 combined family 
deductible. So if someone in the family is sick and they have 
chosen the family plan, before any insurance kicks in, we are 
talking about $8,000, and I completely understand the 
challenges that small businesses have in providing their 
employees with healthcare and I think that is absolutely 
something that we need to address. But to call that a win-win 
situation, I can't understand how anybody could say having to 
pay $8,000 before you get any healthcare policy that that 
really works. Have you lost employees as a result if there is a 
health problem?
    Ms. Owen. No, actually as I said, my employees are the ones 
that listened to all the options that were available. We called 
in our insurance agent and we had a general meeting, and he 
presented all the different options that are available, and 
this is one they chose. We actually have had hardly any 
turnover where we used to have a lot of turnover so there is 
much more stability in my staffing. Obviously, the hope is that 
they would fund their savings portion of the HSA, maybe not 
this first year but as time goes on, and in the future as we 
grow that we could even help them fund that. But in general 
they are very happy with--I guess they are very pleased that 
they have insurance at all, because as I said, most----
    Ms. Schakowsky. Let me just ask Ms. Edwards, the woman who 
whispered in your ear, would this kind of policy have met her 
needs?
    Ms. Edwards. No. I mean, I think that if she had $6,000 to 
spend, she would have been able to get some sort of policy 
somewhat better than the policy that--$6,000 might have gotten 
her a policy. It certainly would have gotten her a screening at 
some level. But she didn't have that money to spend. I mean, 
the point is that we have a working mother doing everything 
basically right but she doesn't have the benefit of having even 
Ms. Owen as her employer so she has no health coverage 
whatsoever and so her options are really closed. I want to say, 
there is a disincentive too for her to get checked because if 
she gets checked and finds out that in fact it is cancer, it 
makes her almost uninsurable. So there is a disincentive for 
her to find out even. So she doesn't have the money to spend to 
buy the insurance. She has a disincentive because of the way 
the system operates to get checked and it puts her on a very 
bad healthcare path.
    Ms. Schakowsky. I am concerned--you wanted to say 
something?
    Ms. Owen. I just wanted to say, I think the benefit for my 
employees as they saw it was the fact that their wellness 
visits were covered whereas before they had the copay. They 
really never used their insurance and they liked the fact that 
their wellness visits are 100 percent covered, and once they 
meet their deductible, everything is 100 percent covered. So 
once they get to that point, sure there is a $6,000, $8,000 
gap.
    Ms. Schakowsky. Almost $8,000.
    Ms. Owen. But then they know that if there is a 
catastrophic illness, that they are covered, and I think that 
gives them a level of security.
    Ms. Schakowsky. I am concerned often, and anyone can answer 
this, that we talk about, we divide the world between insured 
and uninsured too much and maybe this is for you, Dr. Davis, 
because as you pointed out, the problem of the millions of 
people who have inadequate health insurance, I think is too 
often overlooked. I wondered if you wanted to comment on some 
of the Commonwealth findings.
    Ms. Davis. Well, absolutely, I think you are right to focus 
on the combination, the deductible, and the premium. Let us 
face it, the premium could be very low if it covered absolutely 
nothing so the real issue is what is the impact on the family. 
What the Commonwealth Fund survey showed in 2007, first of all, 
that we have had this major jump in people who are underinsured 
of 60 percent over 2003 but the underinsured have the same 
problems as the uninsured, both in terms of having access to 
care and in terms of medical bills or medical debt that they 
can't pay. Sixty-one percent of people who are underinsured 
report difficulties paying medical bills or they have 
accumulated medical debt. Sixty-one percent of the uninsured 
report bills or medical debts. Of those have insurance all year 
long and are adequately insured, 26 percent of those still have 
bills and medical debts. So you are exactly right that being 
underinsured is no advantage over being uninsured. You can 
still be wiped out financially. People are talking about having 
these debts on their credit cards. They are talking about 
having added to home equity line of credit as a result of these 
debts. So we need to look at the totality, the adequacy of the 
coverage, as Karen Pollitz has said, and the affordability of 
the premium together and not pat ourselves on the back that we 
have got the premium low but not covering anything. That is not 
the solution.
    Mr. Pallone. The gentlewoman's time is expired.
    Ms. Schakowsky. Thank you.
    Mr. Pallone. As I said, we are going to recess now. I know 
that not everyone--well, there are only 5 minutes left. I know 
that not everyone can stay but we do want those of you who can 
to come back. We have two votes, so that is about 15, 20 
minutes. But the committee will stand in recess until the votes 
are completed.
    [Recess.]
    Mr. Pallone. The subcommittee is back in session, and we 
left off with Mr. Murphy of Pennsylvania being next for 
questions. The gentleman is recognized.
    Mr. Murphy. Thank you, Mr. Chairman. I thank the panel for 
returning here. I heard a lot about universal healthcare but 
heard nobody talk about the cost. So I would like to have 
someone tell me how much universal healthcare would cost in 
this country. Yes?
    Mr. Parente. It depends what you are talking about, but----
    Mr. Murphy. Just give me a number.
    Mr. Parente. Roughly from here on out, probably $700 
billion per year.
    Mr. Murphy. Does anybody else have a number on that?
    Ms. Edwards. That is if you eliminate the employer-provided 
insurance. Is that correct?
    Mr. Parente. No. That is just--if you really want to cover 
45 million or 47 million people with reasonable medium-sized 
PPO coverage, slightly less than the Blues plan and FEHBP, that 
is about the price tag you are going to run.
    Mr. Murphy. Ms. Edwards, do you have a different number on 
that?
    Ms. Edwards. I think we are talking about $120 billion.
    Mr. Murphy. Does anybody else have a number on that?
    Ms. Davis. We have had Lewen do an estimate of something 
called building blocks. It is $82 billion a year without system 
reform, $31 billion federal budget costs a year with system 
reform.
    Mr. Murphy. And that means we still have the two-tiered 
system and the private insurance remains in place?
    Ms. Davis. That particular proposal brings Medicaid up to 
Medicare rates and then starts equalizing private insurance and 
Medicare rates.
    Mr. Holland. Congressman, let me throw, if I may, a slight 
curve to you. We did some work at the Kansas Health Policy 
Authority, a couple of major foundations funded some work, and 
we did a series of alternative funding methodologies, and I 
asked them to look at what would it mean if we self-insured the 
entire State of Kansas.
    Mr. Murphy. OK.
    Mr. Holland. And we actually could cut the cost of 
healthcare in Kansas from $8.3 billion by about $800 million. I 
can provide you the detail. I would be happy to send it to you.
    Mr. Murphy. Well, now, when we look at the 47 million 
uninsured, one of the constant criticisms about that is those 
are people who also think they are uninsured but they are 
really on Medicaid, people who have options for insurance but 
they don't take it, people who are between jobs so they 
temporarily for 30 or 60 days do not have insurance. So that 47 
million is not an accurate number, and I am trying to really 
figure this out. So when people talk about the cost of 
healthcare in this country as $2.1 trillion, how do we get to 
$700 billion, $120 billion, or $82 billion? I don't understand 
that. I mean, if we are going to say, OK, we are going to have 
people insured, and this is the thing about this and we talk 
about Medicare overhead is only 3 percent but we find that is a 
false number because doctors are always complaining they are 
not getting paid enough and so they have to find other ways to 
subsidize this so that number isn't--I don't know what the real 
number is. I look at the difference here, $700 billion, $120 
billion, is a pretty big difference. I mean, I have trouble 
with CBO scoring things but this would be a nightmare. What is 
the cost of universal healthcare?
    Mr. Parente. I could tell you one reason why the 700, why I 
sort of stand behind that number. That assumes basically that 
an average health plan that everyone has. It doesn't assume an 
SCHIP expansion. An SCHIP expansion is going to be far less. It 
is going to come closer to essentially coming up with that cost 
but keep in mind, SCHIP expansion for 47 million people, you 
will reduce costs and you will reduce costs but one of the 
concerns you are going to have is whether the providers will 
see them on 20-cents-on-the-dollar payment.
    Mr. Murphy. Well, so you can reduce costs by just saying we 
are not going to pay you?
    Mr. Parente. Correct.
    Mr. Murphy. OK. I mean, I am concerned that one of the 
things I referred to earlier with the problems with safety and 
quality, there is about $400 billion of waste in the system. I 
know Governor Corzine alluded to some of those things and I 
think it is a massive savings we all ought to go after. I am 
just not comfortable that government could do it. For the last 
few years I have been fighting to have just hospitals report 
their infection rates. We can't get it past the lobbyists to 
say that hospitals ought to report how many people get 
infections and get killed. We can't get it past the Senate to 
say that doctors should be allowed to volunteer. I mean, we 
can't get through things that say we ought to be able to do 
disease management, which saves lots of money. We can't get it 
through Congress to show how we can be doing electronic medical 
records to save $162 billion directly, another $150 million in 
indirect. So my concern is, when we come up with these numbers, 
that assumes that everything works right, and this is where I 
struggle with this. But let me add a couple more points here. 
How do we pay for this?
    Mr. Parente. The thing that I mentioned to you about 
covering just 10 million people would effectively be free. Now, 
there could be argument about whether or not----
    Mr. Murphy. How is it free?
    Mr. Parente. You buy insurance across State lines.
    Mr. Murphy. But what about if the government ran universal 
healthcare? Who would pay for that?
    Ms. Edwards. The way we have suggested is that by rolling 
back the tax cut for the people who make over $200,000, one 
proposal $250,000, another not to renew that tax cut would 
provide a revenue stream with which you could pay for it.
    Mr. Murphy. How much would that stream be? Do we know?
    Ms. Edwards. Is it $180 billion? I would like to be able to 
modify that number when I find out exactly what it is.
    Mr. Murphy. Well, people in the top 5 percent of income 
earners pay about 60 percent of all taxes in American and the 
bottom 50 percent don't pay----
    Ms. Edwards. That is an ideological argument with respect 
to it, but where the money comes from, that is where the money 
can come from. If I could make one other point, you had said 
earlier Medicare has 3 percent overhead.
    Mr. Murphy. No, that was what Dr. Davis said.
    Ms. Edwards. But you said that is a false number because 
doctors aren't reimbursed. Well, the overhead would be the same 
if the doctors were reimbursed more.
    Mr. Murphy. It also doesn't include insurance companies 
subcontracting with Medicare and then the doctor's office has 
to do their own management of those things too so that is a lot 
of other overhead that is not included, but I do understand the 
issue too of insurance company overhead versus government 
overhead.
    Ms. Edwards. But the doctors have to do that as well, don't 
they? The doctors also have to do that for insurance companies.
    Mr. Murphy. They get paid more. They get paid to have the 
staff to do that.
    Ms. Edwards. But that doesn't affect the overhead number, 
which that is a separate number----
    Mr. Murphy. Sure, we say we are paying you less but you are 
going to have to eat the cost of overhead. I am just trying to 
figure out how this would work, and I know I am out of time 
here. Yes, Doctor?
    Ms. Davis. I think we have to focus on two things, taking 
waste out of the system that benefits everybody and then the 
federal budget cost. Taking waste out of the system, we 
funded----
    Mr. Murphy. Waste being what?
    Ms. Davis [continuing]. A study of doctors' administrative 
costs and the single biggest cost including the doctors' time 
are drug formularies that are different for every patient. So 
standardizing that would take that administrative burden off of 
doctors. System reform--
    Mr. Murphy. Standardizing formularies so that government 
chooses which drugs you get? That is what a formulary is. That 
is what the VA has. It says which drugs you can get and which 
ones you don't. I get a lot of calls in my office from people 
saying I can't get the drugs my doctor prescribed. So you are 
saying we will standardize this so the government----
    Ms. Davis. Either standardize it or electronic prescribing 
mechanisms so the doctor knows when he writes the prescription, 
is this covered, rather than writing a prescription, the 
pharmacy calling them back----
    Mr. Murphy. The government decides what is covered and what 
is not and that is how we get savings. It comes down to this. 
We ration, we restrict or refuse care. That is what has 
happened in a lot of other governments and I hope--I mean, 
clearly, we have to wrestle with this. And please understand, I 
am trying to find some answers here but I want to make sure 
we--we are always asking the tough questions and I just hope 
this is the kind of hearings and discussions we continue to 
have because we have to get to the bottom of this and stop the 
political rhetoric but just say how does this work, what 
happens with taxes, what is the impact to the economy, who pays 
for it, what is all this, and we are a long way from there.
    Mr. Chairman, thank you so much for indulging me a couple 
extra minutes. I appreciate the time.
    Mr. Pallone. Sure. The gentlewoman from California, Ms. 
Capps.
    Ms. Capps. Thank you.
    One aspect of the healthcare system that is costly, in line 
with the previous questions but also very frustrating to all 
Americans, is its mind-numbing complexity. Getting coverage, 
trying to figure out what a plans covers and navigating the 
paperwork confounds patients and providers alike. Ms. Edwards, 
you are a person who has had considerable dealings with the 
health system, yourself, and for your family members. Do you 
think this kind of mess would be improved or would be worsened 
by several of the different approaches toward coverage that 
have been discussed today?
    Ms. Edwards. I think that if we had uniformity just in 
paperwork, we would see not only a great amount of savings in 
the system but we would also see a lot less frustration with 
the system. I know in my own treatment, you would receive a 
denial of coverage and you would have no idea, is this actually 
not covered under my policy or did somebody not check the right 
box at the doctor's office. There would be no way for you to 
discern from the document you received what exactly the problem 
was. Could you just submit some additional information and get 
it covered or was it never going to be covered? And this is my 
response, this is after I have been involved in talking about 
healthcare for a long time and spent 17 years as a lawyer, and 
I still couldn't make heads or tails of what I was receiving. 
An indication of how outrageous the system is and how irregular 
the responses are that you get, the lack of uniformity, I have 
an 8-year-old and a 10-year-old. They both had tonsillectomies 
this past year. We tried because we thought it would be a good 
idea to schedule them on the same day so they are going to go 
through the process together. This wasn't necessarily a good 
idea, I will tell you. But they were scheduled for the same 
day, the same doctor, the same anesthesiologist, the same 
operating room. Everything went smoothly. Later we started 
getting mail from the insurance company. Some things were 
covered for one child that were not covered for the other, 
exactly the same insurance company but that is the kind of 
irregularities you see when the system doesn't operate in a way 
that is clear to all the participants. I assume that the 
doctors all filled out the same forms but I don't know whether 
the person on the other end who was processing was the same 
person and we got a different result, and that is very 
frustrating and expensive. It means that I am going to 
communicate with the insurance company, which is going to cost 
them money to try to figure it out, and we are burdening the 
system unnecessarily. There are easy ways for us to fix some of 
these problems. Uniform electronic transmission of records is 
obviously one. Single kinds of forms that we use that are 
written in plain English would be another way in which we could 
alleviate some of the burden of the system both economically 
and emotionally for the participants.
    Ms. Capps. Thank you very much.
    I want to turn to you, Karen Pollitz, with a California 
kind of orientation, if you don't mind. I represent a district 
there. You testified that health insurance must be available, 
affordable, and adequate all of the time but that in the 
individual health insurance market some insurers have been 
pulling the plug on their policyholders, leaving them uninsured 
and uninsurable. Specifically, you mentioned the practice of 
rescinding policies--that is the part that we have had some 
high-profile cases on in California--retroactively canceling 
policies after expensive claims start to come in, refusing to 
pay the claims and returning the premiums. Unfortunately, this 
is not just fly-by-night companies either that engage in this 
practice in California. The State Department of Managed 
Healthcare recently fined five large nationally known insurers 
a total of $14 million for unlawful rescissions and 
cancellations. Why do you believe it is the case that these 
insurers rescind or cancel so many policies when there was no 
fraud against them by the policyholder? Is this just the way 
business is done today and what should we be doing about it?
    Ms. Pollitz. This is actually not just a California 
problem, it happens everywhere, and it is not a new problem. It 
is recently reported on by the L.A. Times but it has been going 
on for a long time, and practices do vary across insurance 
companies. A lot of it has to do with having an underwritten 
market in the first place but this is competition based on risk 
selection. This is what happens when the market competes to the 
bottom without any rules, and insurers are different. Some I 
think are more meticulous and careful with their underwriting 
to try to screen people out at the beginning and not issue them 
coverage but there are companies that have kind of adopted the 
philosophy that I don't need to spend as much time and energy 
underwriting at the front end because I will catch it on the 
back end if I need to. The rules vary that govern this. It is 
not only rescissions that can be the result. Post-claims 
investigations can also result in a preexisting condition 
exclusion or a rider being imposed retroactively on a policy, a 
premium surcharge imposed retroactive, and it is not just an 
individual market problem. Post-claims investigations also 
occur in small group coverage. So unless there are very strict 
and standard rules of the road that govern these practices, 
they will continue.
    Ms. Capps. I know my time is up, but yesterday our ranking 
member had a very poignant story when we were discussing breast 
cancer on this very topic, and just a quick question with a 
quick answer if you don't mind. Is there a role then we should 
be playing here in setting these guidelines or in making some 
kind of standard here?
    Ms. Pollitz. Absolutely. I mean, the easiest rule is to 
just say there isn't any underwriting, people get coverage and 
once they have got it, it sticks, and short of that in an 
underwritten market, you can have much more standardized rules 
about how questions are asked so there aren't these kind of 
gotcha questions where you can make a mistake. I mean, you 
already have a federal standard that says except in the case of 
fraud you can't cancel a policy. I think in many States the 
insurance industry is operating below that standard and you can 
enforce what you have in current law.
    Ms. Capps. Thank you very much.
    Mr. Pallone. Thank you. This concludes our questions, but 
as Mr. Murphy suggested, we could obviously go on all day and 
several days and several weeks, and I appreciate the fact that 
you are willing to come here today, and we did have, I think, a 
very good discussion about the need for healthcare reform. My 
intention is that beginning next year, because this is probably 
the last hearing the subcommittee will have before we adjourn 
next week, that we will start the year and have many more 
opportunities like this to talk about what needs to be done. I 
mean, obviously there is going to be a change in the White 
House regardless of who is elected, and we want to sort of get 
the ball rolling, if you will, on different options, because 
the problems with cost, the problems with the uninsured, the 
problems with access I think are only getting worse and I do 
appreciate the fact that all of you spent the time today and 
were able to answer our questions very effectively.
    Let me mention that we may get members that send you some 
written questions to follow up, and those are submitted to the 
committee clerk within the next 10 days, so you may get some 
questions to answer in writing within the next 10 days or so, 
and we will certainly appreciate your response.
    Thank you again, and without objection, this meeting of the 
subcommittee is adjourned.
    [Whereupon, at 1:00 p.m., the subcommittee was adjourned.]

                                 
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