[Senate Hearing 110-562]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-562
 
       AFFORDABLE HEALTHCARE: A BIG PROBLEM FOR SMALL BUSINESSES

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

                             FIELD HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP



                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 10, 2008

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


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

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                 JOHN F. KERRY, Massachusetts, Chairman
CARL LEVIN, Michigan                 OLYMPIA J. SNOWE, Maine,
TOM HARKIN, Iowa                     CHRISTOPHER S. BOND, Missouri
JOSEPH I. LIEBERMAN, Connecticut     NORMAN COLEMAN, Minnesota
MARY LANDRIEU, Louisiana             DAVID VITTER, Louisiana
MARIA CANTWELL, Washington           ELIZABETH DOLE, North Carolina
EVAN BAYH, Indiana                   JOHN THUNE, South Dakota
MARK PRYOR, Arkansas                 BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         MICHAEL B. ENZI, Wyoming
JON TESTER, Montana                  JOHNNY ISAKSON, Georgia

                 Naomi Baum, Democratic Staff Director
                Wallace Hsueh, Republican Staff Director


                            C O N T E N T S

                              ----------                              

                                                                   Page

                           Opening Statements

Coleman, the Hon. Norm, United States Senator from Minnesota, 
  presiding......................................................     1

                           Witness Testimony

Ludeman, Cal, commissioner, Minnesota Department of Human 
  Services, St. Paul, Minnesota..................................     4
Carlson, Mark A., president, Minnesota Mailing Solutions, Golden 
  Valley, Minnesota..............................................    15
Kuba, Sanjay, president GCI Systems, Shoreview, Minnesota........    21
Flohrs, Jason, director of Government Affairs, Twinwest Chamber 
  of Commerce, Plymouth, Minnesota...............................    26
Oemichen, William L., president and chief executive officer, 
  Minnesota Association of Cooperatives and Wisconsin Federation 
  of Cooperatives, St. Paul Minnesota............................    30
McLaughlin, Patrick, director of marketing, Employers 
  Association, Inc., testifying on behalf of Susan Eskedahl (vice 
  president).....................................................    38

          Alphabetical Listing and Appendix Material Submitted

Carlson, Mark A.
    Testimony....................................................    15
    Prepared statement...........................................    19
Coleman, Hon. Norm
    Opening statement............................................     1
Eskedahl, Susan
    Prepared statement...........................................    50
Flohrs, Jason
    Testimony....................................................    26
    Prepared Statement...........................................    28
Kuba, Sanjay
    Testimony....................................................    21
    Prepared statement...........................................    23
Ludeman, Cal
    Testimony....................................................     4
    Prepared statement...........................................     8
McLaughlin, Patrick
    Testimony....................................................    38
    Prepared statement*
Oemichen, William L.
    Testimony....................................................    30
    Prepared statement...........................................    34

                        Comments for the Record

Miller, Darlene M., president and CEO, Permac Industries.........    56

*see Susan Eskedahl's statement


       AFFORDABLE HEALTHCARE: A BIG PROBLEM FOR SMALL BUSINESSES

                              ----------                              


                       THURSDAY, JANUARY 10, 2008

                      United States Senate,
                    Committee on Small Business and
                                          Entrepreneurship,
                                                    Washington, DC.
The Committee met, pursuant to notice, at 2:12 p.m., in the 
  Reading Room, James J. Hill Reference Library, 80 West 4th 
  Street, St. Paul, Minnesota, the Honorable Norm Coleman 
  presiding....................................................
Present: Senator Coleman.......................................

    OPENING STATEMENT OF THE HONORABLE NORM COLEMAN, SENATE 
 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP AND A UNITED 
                      STATES SENATOR FROM 
                           MINNESOTA

Senator Coleman [presiding]. This hearing of the Small Business 
  Committee is called to order. I want to first say what a 
  great pleasure it is to be here, to be back in St. Paul, a 
  very special place for me. There is a hockey team that has a 
  new owner, by the way, that is just around the corner from 
  here. So it is always a special place in my heart............
I want to thank the panelists for being here, for helping to 
  educate me and my colleagues, this testimony will be 
  transcribed and will become part of the official record......
I also want to thank Chairman Kerry and Ranking Member Snowe 
  for scheduling this field hearing in Minnesota. I am sorry 
  that they are not going to be able to be here firsthand to 
  hear from our panelists......................................
Let me start by saying that James J. Hill, this library's 
  namesake, the empire builder who changed the economic destiny 
  of this whole region, did not start as a tycoon. He began as 
  a small business person. So did William McKnight, who began 
  3M. So did Dick Schulze, who began Best Buy. So did Rose 
  Totino, the frozen pizza queen. So did Earl Bakken, who 
  started Medtronic. Not every small business becomes a Fortune 
  500 company, but almost every business starts out small. By 
  encouraging and sustaining our small business base, we make 
  possible the big businesses of the next generation...........
In Minnesota, and across the country, small businesses form the 
  backbone of our economy. They are our job creators, our 
  innovators, our producers, from the farm to Main Street. Yet 
  they face unique challenges in order to grow and remain 
  competitive, challenges borne not only by the owners but also 
  by their employees. This is especially evident in regard to 
  health insurance where small businesses are often at a 
  disadvantage with their larger competitors and are 
  increasingly struggling to offer affordable health coverage 
  to their employees...........................................
Health insurance costs in Minnesota have risen dramatically, 
  growing at twice the rate of inflation over the past 10 
  years. I believe the data shows that premiums increased 7.6 
  percent in 2006 alone. This not only leads to higher health 
  care costs for business owners, but also higher out-of-pocket 
  expenses for employees. In fact, between 2000 and 2008, the 
  number of Minnesotans who spent more than 10 percent of their 
  pre-tax income on health care increased by 490,000. These 
  figures reflect the real-life stories I have heard from small 
  business owners and families across Minnesota. When I travel 
  the State, the single issue that is most prevalent, that is 
  raised most often, is health insurance, and among small 
  business people, this is also the issue that is raised most 
  often........................................................
Today, we will have the opportunity to hear some more of these 
  compelling stories. We will hear from Sanjay Kuba, CEO of GCI 
  Systems in Shoreview. Despite years of success, president 
  Kuba recognizes the challenges he will face while trying to 
  expand his company over the next few years. As health care 
  costs continue to increase at record rates, Mr. Kuba must 
  decide if he can continue to add the employees needed to meet 
  growing demand. We will also hear from Mark Carlson from 
  Minnesota Mailing Solutions who recently sold his business to 
  Pitney-Bowes. He will share that a major factor in his 
  decision to sell his business was based on the unsustainable 
  small business health care market. Both these stories show 
  that without reform, health care costs can prevent small 
  businesses throughout this country from truly meeting their 
  economic potential...........................................
As many of you know, this is a problem which dates back to the 
  1940s. Since World War II, health insurance has moved toward 
  an employer-based system. Because a large majority of folks 
  are insured through their job, there is a misconception that 
  most of the uninsured in America do not have jobs. In 
  reality, of the 47 million who will be uninsured at some 
  point this year, almost half are employed by small business..
For example, one survey showed that only 9 percent of workers 
  in large firms--and that is firms of a thousand or more 
  employees--and their families were uninsured compared to 
  small firms--less than 10 employees--where 34 percent were 
  uninsured. The statistics make clear that increases in health 
  care costs have forced many small business owners into a 
  position where they are simply not able to afford to offer 
  health insurance to their employees. Besides its obvious 
  negative impact on the health of families across the country, 
  the lack of a health plan can also make it difficult for 
  small businesses to maintain and keep the talent that they 
  need in order to be competitive..............................
In order for our small businesses to prosper and ensure that 
  working families have access to affordable quality health 
  care, we need to find effective and reasonable solutions. As 
  a Member of the Senate Small Business Committee, I am 
  dedicated to finding ways to expand insurance coverage for 
  employees of small businesses. As with most issues, the best 
  ideas will undoubtedly come from folks who are personally 
  dealing with this challenge in their communities far from 
  Washington, DC, which is why I am pleased that we are holding 
  this field hearing in my favorite city, St. Paul. No offense 
  to Minneapolis or any other city, but as a former mayor of 
  this great city, I know how important small businesses are to 
  the overall economy of St. Paul, Minnesota, and to the entire 
  States and the entire country................................
In addition, our State is a natural location for a field 
  hearing on this issue because of its strong leadership on 
  health-related issues, as well as our State's large number of 
  small businesses. Minnesota not only has the second highest 
  health care quality ratings as measured by the Agency for 
  Healthcare Research and Quality, AHRQ, but also the lowest 
  rate of uninsured residents in the country. Yet with all our 
  State's success, Minnesota's more than 500,000 small 
  businesses still cite increasing health care costs as their 
  number one concern impeding future economic growth--the 
  number one concern impeding future economic growth...........
As we explore the possible fixes, I continue to support 
  association health plans, AHPs, which would allow small 
  business associations to band together across State lines to 
  offer affordable health insurance. AHPs would allow small 
  employers to tap into the same health care system utilized by 
  large employers. According to the Congressional Budget 
  Office, AHPs could provide small businesses with premium 
  reductions of 13 percent, on average, and as high as 25 
  percent. That is about $450 to $1,250 savings per covered 
  employee--savings that would translate into millions of 
  people getting health insurance..............................
While this certainly is not a silver bullet, it is a good 
  option for one segment of the uninsured population. I also 
  look forward to hearing today from our excellent panel some 
  of the other potential solutions to this national problem. In 
  the end, we must do what we can to help both small business 
  thrive and working families receive the health coverage that 
  they desperately need. After all, it is access to health care 
  that is the key to keeping your family healthy, and no one 
  should ever be left out simply because of the size of their 
  employer.....................................................
I will close with a quote that many of you have heard me say 
  time and again. Winston Churchill once said, ``Some people 
  see business as a predator to be shot. Some see it as a cow 
  to be milked. Few see it for what it really is: A sturdy work 
  horse pulling the wagon of human progress.'' We all want to 
  see that strong, sturdy horse continue to pull the wagon of 
  progress, and I think we will hear today that progress cannot 
  continue without comprehensively reforming the small business 
  health care system...........................................
I want to thank everyone again for attending. I would now like 
  to take a minute to introduce our witnesses..................
Cal Ludeman is Commissioner of the Minnesota Department of 
  Human Services. As the Commissioner of Minnesota's Department 
  of Human Services and co-chair of the State's Smart Buy 
  Alliance, I am looking forward to Mr. Ludeman's insight on 
  how we need to reform the way we purchase health insurance. I 
  certainly support the idea of bringing more transparency and 
  quality data into the health care system.....................
Mr. Mark Carlson is president and CEO of Minnesota Mailing 
  Solutions. Mr. Carlson will share his 9 years of experience 
  as CEO of a small business and provide insight on some of the 
  challenges he faces in purchasing health insurance for his 
  employees....................................................
Mr. Sanjay Kuba is president of GCI Systems. As someone who 
  employs parents of children who suffer from chronic diseases, 
  Mr. Kuba will discuss the impact of health insurance mandates 
  and other regulations on small businesses. Like Mr. Carlson, 
  his personal experience will help us understand some of the 
  disadvantages small businesses face and the need to level the 
  playing field................................................
Jason Flohrs is director of Government Affairs, Twin Cities 
  Chamber of Commerce. Mr. Flohrs will be testifying on behalf 
  of TwinWest's 1,000 members and will provide some 
  recommendations on how to achieve better health outcomes and 
  slow the rate of cost increase. I had a chance to be at 
  TwinWest yesterday, and it is good to see you again today, 
  Mr. Flohrs...................................................
And Bill Oemichen is president and CEO of Minnesota Association 
  of Cooperatives and Wisconsin Federation of Cooperatives. Mr. 
  Oemichen will share with us how the Minnesota and Wisconsin 
  cooperative model works and make suggestions for reducing the 
  health care costs of small business. I often say, Mr. 
  Oemichen, that the family farmer is the ultimate small 
  business in this State, and certainly in this country........
Mr. Patrick McLaughlin is director of Marketing and Membership, 
  Employers Association, Incorporated. We had another witness, 
  Sue Eskedahl, who could not be here. She had a family 
  emergency and will not be able to make it. Patrick has been 
  kind enough to take her place here today, and he will discuss 
  Employers Association's success with health care purchasing 
  pool and highlight the benefit of association plans. I worked 
  with Mr. McLaughlin for many, many years, if not at this 
  point actually decades, and so I appreciate his leadership 
  and his being here today.....................................
I want to make it clear to the witnesses that this testimony 
  today will be entered into the formal record, and so the 
  hearing will remain open for 2 weeks after we are done, for 
  additional testimony, and if I send questions to you, there 
  is time for you to submit additional answers.................
Commissioner Ludeman, I know you have to leave at 3, so we are 
  going to start with you. We will hear your testimony, and I 
  may have some questions for you..............................

STATEMENT OF CAL LUDEMAN, COMMISSIONER, MINNESOTA DEPARTMENT OF 
              HUMAN SERVICES, ST. PAUL, MINNESOTA

Mr. Ludeman. Thank you very much, Senator Coleman. I appreciate 
  your indulgence for my----...................................
Senator Coleman. If you could move the mike closer.............
Mr. Ludeman. I will say it again. Thank you, Senator Coleman, 
  for your invitation, the Committee's invitation for this 
  testimony from me and the other panel members. While I am 
  Commissioner of the Department of Human Services in 
  Minnesota, the largest State agency and the largest purchaser 
  of health care in Minnesota, I am also what you called an 
  ``ultimate small business owner,'' and so I have been faced 
  with this issue for a lifetime of career in small business as 
  well. And I appreciate your indulgence for my need to leave 
  in about an hour.............................................
There is no question--you have said it extremely well--this is 
  a very important issue facing our Nation and our State, the 
  rising health care costs. It is no news to anyone that health 
  care costs are consuming all our pocketbooks, not just small 
  businesses but Government as well. And so every business, 
  individual, and the State of Minnesota will be facing a major 
  financial crisis, already are in many regards, if we do not 
  change the current health care delivery system...............
We must address, I think, a very important flaw in the system. 
  We currently pay on a fee-for-service model based on volume. 
  We pay for volume. Someone does a service and we pay for it. 
  The more volume that they do, the more services they provide, 
  the more that goes out of the checkbook......................
But we do not pay on value, which leads to unnecessary, 
  repetitive, and even unsafe care. Many people are familiar 
  with the Rand study of 2006 which revealed that, on average, 
  a person receives recommended care only 55 percent of the 
  time, yet pay every time that they are seen. The small 
  business owners here today know that they would be out of 
  business if their customers were satisfied 55 percent of the 
  time.........................................................
So what is acceptable in health care? I will tell you today 
  what is happening today in the status quo is not acceptable. 
  The problem is that when we buy health care or use the health 
  care system, not only are costs unknown to us, they are 
  unknown to everyone, including your doctor or even major 
  purchasers. If the quality--and I think generally most just 
  do not believe that that is an issue at all, quality--but the 
  truth is that the system is largely a black hole in a black 
  box, which is left grossly unaccountable for outcomes and 
  costs alike. This black box of the health care system must be 
  open and transparent, and that is my major message today. We 
  must address quality of care and payment reform. As we head 
  into the 2008 election year, you will hear a lot of debate 
  about access to health care and the uninsured, which are very 
  important issues. But we must look beyond access alone, 
  especially in the State with the lowest uninsured rate. If we 
  do not, health care will not be affordable to anyone, small 
  business, large business, or Government alike................
The State of Minnesota is addressing this issue by building 
  alliances with other purchasers of health care. The State of 
  Minnesota has a majority of the market share, spending over 
  $4 billion a year on health care, covering over 770,000 
  Minnesotans, which is not enough to even effect the change of 
  the entire market. That is why in 2004 Governor Pawlenty 
  announced the formation of the Smart Buy Alliance, a private-
  public purchasing alliance made up of large, small, and mid-
  sized businesses, including the State of Minnesota as a 
  health care purchaser. The alliance members leverage their 
  purchasing power to drive value into the health care delivery 
  system. The goals are to improve quality and lower cost by 
  reducing inappropriate and unnecessary care and also hope to 
  achieve savings in the long run through coordinating their 
  members' expectations on quality and value based on four key 
  buying principles. And I will tell you those principles, and 
  then I will ask if you have any questions....................
The first principle is to reward or require ``best in class'' 
  certification. The marketplace that small business is used to 
  knows that they are best positioned in the market if they are 
  regarded as ``best in class'' in whatever it is that they do. 
  Customers come to their door knocking when they know that 
  they are going to get the best or the best value. We do not 
  do that in health care. Employers need to buy health care 
  from the best and send their employees to the facilities and 
  physicians where they can receive the best care..............
The second principle is to adopt and utilize uniform measures 
  of quality and results. The alliance adopts uniform methods 
  of measuring quality of care so that we are able to implement 
  pay-for-performance programs and to reward health plans and 
  providers of high quality. That is underway today. Having 
  organizations like Minnesota Community Measurement and the 
  Institute for Clinical Systems Improvement, called ICSI, 
  helps steer employees and businesses to the high performers. 
  Minnesota is the only State in this Nation that has a 
  measuring organization like Minnesota Community Measurement 
  and any organization based on subscription by physicians 
  themselves which help establish what is called ``best 
  practice.''..................................................
The third principle is to empower consumers with easy access to 
  information. It will be impossible for consumers, whether 
  empowered by a high-deductible HSA account, for example, to 
  use their health care dollar wisely if they do not have cost 
  and quality information. Therefore, the Smart Buy Alliance 
  works to make this information available to consumers........
The fourth principle is to require the use of information 
  technology. Virtually every other industry in this world has 
  made major productive advances through the use of information 
  technology. That is not as true in health care as in almost 
  any other industry. The alliance requires the use of health 
  information technology. I am sure that within your business, 
  from the folks at this table, efficiencies and quality 
  improvements come with the use of this technology, and the 
  health care system has to catch up. Because of the Smart Buy 
  Alliance's demand, Governor Tim Pawlenty joined with leaders 
  from Minnesota's largest health organizations, including 
  providers, to announce what is called an ``electronic health 
  information exchange.'' It is a business environment that we 
  are engaged in even at DHS that now has an organization that 
  will see that we will have electronic exchange of information 
  as it relates to patient safety, as it relates to increasing 
  the efficiency amongst health care providers, and as it 
  relates to reducing administrative costs for all health care 
  organizations................................................
I think an inevitable question that may come from you is: What 
  can the Federal Government do? Although the Smart Buy 
  Alliance represents a large portion of the State's health 
  care market, it does not include Medicare. Minnesota has been 
  very successful in using our purchasing power to leverage 
  better results; however, Medicare is not in sync with these 
  principles. Some examples where the Federal Government can 
  help and Medicare can line up with the State's effort are to 
  continue the hospital pay-for-performance model that HHS 
  administered called the ``Premier Hospital Quality Incentive 
  Demonstration.'' This option could result in substantial 
  savings in the health care system, with a major share 
  accruing to the Federal Government through reduced Medicare 
  payments primarily from decreased hospital readmissions. But 
  this savings would also accrue over time to everyone in this 
  room.........................................................
We also need to look at what is called ``episode-of-care 
  payment'' to transform the current Medicare fee-for-service 
  payment system, which I spoke about earlier, to payments for 
  episode of care, which is about changing the current 
  distribution of cumulative fee-for-service costs per episode. 
  So when you add up all the CPT codes, as they are called, for 
  each service, there is no gathering of this information to 
  say this is what it takes to have this episode of care and 
  have it compete in the marketplace for cost or quality, and 
  we should pay for those episodes, not for each procedure. 
  This policy would change Medicare payment methods to reward 
  and encourage more efficient and coordinated care, and the 
  savings would also accrue to everyone else in this room......
Also, Medicare needs to think about how to strengthen primary 
  care and care coordination. One of the reasons Minnesota 
  enjoys one of these positions of the lowest uninsured rate 
  and high-quality care is that our percentage of primary care 
  physicians to the population is one of the highest in the 
  Nation. We need to change the reimbursement so that the 
  primary care physician practices to coordinate and support 
  enhanced services, such as care coordination, care 
  management, and easy access to appropriate care. The 
  physician practicing in Minnesota today has few of those 
  responsibilities because they are simply not paid for or 
  encouraged...................................................
And then we need to correct the market signals, the price 
  signals in the health care market. We have simply all glided 
  along on a medical trend cost rise that we have accepted. The 
  options need to address the tendency of current pricing 
  mechanisms to send the wrong signal to participants in the 
  market. So physicians are confused; governments are confused; 
  small businesses are confused; and I am reminded of the 
  champions in Minnesota's business history that you outlined 
  in your opening comments that, with the exception of Earl 
  Bakken, for example, those champions were not in the business 
  of health care. The small business owners you see here today 
  have had to become health care insurance experts, and that is 
  not what their intention was. And so that is what we can do 
  the most for small business in Minnesota.....................
Thank you, Mr. Chairman........................................
[The prepared statement of Mr. Ludeman follows:]...............

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Senator Coleman. Thank you.....................................
Mr. Earl Bakken was an engineer. He was a fix-it guy...........
Mr. Ludeman. He turned into a health care guy..................
Senator Coleman. He turned into health care in a big way. Thank 
  you, Commissioner. Just a couple of observations, and I have 
  a couple questions. But in my travels around the State, your 
  next to the last point, talking about primary care 
  physicians, one of the challenges we face is getting folks to 
  be primary care physicians. And in part it is about--
  reimbursement. Part of that and pay is part of that, and we 
  have got young folks or folks getting out of med school with 
  huge debt, and you have got a choice to be going into a 
  specialty or becoming a primary care physician. What I am 
  hearing time and again is folks are deciding from economic 
  necessity to go one path, and that is creating a real 
  challenge for us. So it is something we are not addressing at 
  this hearing. But I really believe that we have to be 
  cognizant of it..............................................
The other comment or question is I appreciate--and I have heard 
  some discussion of this--episode-of-care payment versus 
  procedure. The benefit is that you can look at things in a 
  holistic way. So it is not isolated--and I would presume an 
  offshoot of that would be coordinated care and quality of 
  care that could be enhanced. So I think it is a concept 
  certainly worth looking at...................................
I heard loud and clear your message about quality and your 
  message about transparency, and I hear it again and again, 
  and certainly it is something that we have to take to heart. 
  And I appreciate your kind of preempting my question about 
  what the Federal Government can do because that is important.
As we talk, though, about transparency--and we talk about, 
  empowering consumers--one of my concerns has to do with 
  consumers shopping around, making choices. But you really 
  need an educated consumer to do that. Are we at that point 
  today? And what is it going to take us to get to that point?.
Mr. Ludeman. Senator Coleman, that is a great question. The 
  answer to that question today is no, we are not at a very 
  high plane or level of consumer education about the literacy 
  of people. When you talk about CPT codes, I doubt that there 
  is even maybe a lot of people in this room that know what 
  some of these coding arrangements are or how it relates to a 
  physician's office...........................................
Talking about to be able to measure adequately enough so that 
  we can get to an outcome is where the consumer wants to be, 
  and that is what they need to find out. So when you can say 
  that if you are a diabetic or have diabetes in your family 
  and you want the best possible diabetes care, whatever that 
  is--you may not know it yet, but you can at least find out 
  what these measures are so that you can find the best 
  possible performers in the marketplace to say--and we can do 
  that in Minnesota today, one of the few States in the Nation 
  that can do it. Let's say Norm Coleman's Physician Clinic is 
  the best in this State in the diabetes care, whatever that 
  is. But you have to have at least that much literacy to know 
  I have diabetes, this is going to take--it is a life-changing 
  event. I am going to have to have a lot of care coordination 
  and self-care involved. I need to go to the best. So at least 
  we have that information public today. Adding price 
  information to say is this episode-of-care management, as you 
  described it, getting that price in a basket of care or 
  episode of care, whether it be in the acute world or even 
  over a lifetime, is the harder part, but we are going to 
  announce soon a new pricing transparency project that will be 
  launched this year as well. So you can tell both the price 
  and the quality based on what your particular health care 
  need is......................................................
Senator Coleman. So there are really three parts to this. There 
  is, one, the information itself, information about quality. 
  There is then the ability to access--is it accessible 
  information? And with computer technology, what I am hearing 
  in Minnesota, we can access. But the third piece is do you 
  have the ability, the literacy, the level of literacy to 
  understand how to get there..................................
We have looked at this issue. I am co-author of the Health 
  Literacy Act of 2007 to educate the individual to be able to 
  access information. But what I am hearing in Minnesota, I 
  understand we do a good job having the information available, 
  and having a way to get there. It is that other element to 
  connect people with that pool of information that I think is 
  critical.....................................................
Also, you talked about requiring use of information technology. 
  That is an expensive proposition for a lot of institutions. 
  Who pays for that? Is there a role that the State or the 
  Federal Government has in dealing with the cost of utilizing 
  information technology in the delivery of health care?.......
Mr. Ludeman. Senator Coleman, about 60 percent of Minnesota 
  consumers today, which is now a brand-new platform, have 
  available to them electronic medical record or personal 
  health records available to them electronically, which is 
  good, and that is a high level across this Nation. A lot of 
  that is because of our large integrated care systems in the 
  metropolitan area. The State government sends out through the 
  Department of Health anywhere from $15 to $20 million a year 
  in what are called ``electronic medical information grants,'' 
  mostly to small clinics in certain parts of the State based 
  on their need. They are connecting together more. There is 
  actually a concentration on the market based on the need for 
  electronic projects that have to happen, and physicians, 
  clinics, and hospitals all know it, and they are searching 
  for the money. But the basic intrinsic cost is borne by the 
  provider, and some of the argument has been that they never 
  are able to recover some of that cost. However, if it does 
  lead to higher productivity on the part of that clinic or 
  hospital, they should be able to regain those costs just like 
  any other business environment that is represented here 
  today........................................................
Senator Coleman. Again, I understand the importance. The only 
  concern--and this concern has been articulated to me--is that 
  there are costs. And businesses, by the way, have to make 
  those judgments. But if we require them to do it--it is one 
  thing to say I am going to make this investment, even though 
  it will take me X period of time to recover it, but you are 
  going to make the decision because we require you to do it or 
  because you have reached that point where you think it is to 
  your benefit--I just think it is an issue that is worth 
  further discussion. Particularly with small businesses, some 
  of them simply may not be in the position to have the capital 
  up front, particularly small operations, and there are rural 
  health clinics and a range of others, many of the rural 
  hospitals which operate on, very thin lines in terms of being 
  able to continue operating. Critical access hospital 
  designation plays an important role in that. But I just think 
  that this is an issue that should require further discussion 
  between the folks at the State level, the Federal level, and 
  then those folks at the local level..........................
Commissioner, I greatly appreciate your presence here today. I 
  know you have to leave at a certain point in time. What I am 
  going to do now is to proceed with the rest of the panelists, 
  and each of them will provide their testimony. Then at the 
  end, I will then have a series of questions, I presume, based 
  on the testimony. But why don't we at least have the 
  panelists present their testimony one at a time, and then I 
  will have the complete record in front of me. Commissioner, 
  thank you....................................................
Mr. Carlson, you may proceed...................................

  STATEMENT OF MARK A. CARLSON, PRESIDENT, MINNESOTA MAILING 
              SOLUTIONS, GOLDEN VALLEY, MINNESOTA

Mr. Carlson. Senator, it is an honor and a privilege to be able 
  to present my testimony to you today. I am going to give you 
  my statement in four parts. I am going to give you a little 
  background of my company so it puts the healthcare issue in 
  context for my size of business. I am going to give you our 
  experience with cost and problems over the last 6 years in 
  particular. I am going to give you a little bit of human 
  impact from two of my employees' experiences. And then a 
  couple of my thoughts about--as naive as I am--answers that I 
  might be able to suggest to approach this problem............
For the past 9 years, Minnesota Mailing Solutions was a small, 
  locally owned distributor of office automation equipment, 
  particularly postage meters, folding inserting equipment, 
  address printers and software, and letter openers. My 
  testimony reflects these 9 years as a small business owner...
Minnesota Mailing Solutions has been in business for more than 
  20 years, and until last month, this business was always 
  independently owned and operated. Last month, I did sell my 
  business to Pitney-Bowes. Part of my decision, a big part of 
  my decision, was making sure my employees could stay whole 
  and be able to have affordable health care--something that I 
  was no longer able to really provide for them................
We employ 17 people, and we have an annual payroll of around 
  only $750,000 a year. The average age of our employee over 
  the last 5 years ranges from 33 to 40 years old, so we are 
  not an old population by any means. And all have been in good 
  health. Dependent coverage is carried by 45 percent of my 
  employee group, and the average cost to an employee to cover 
  their dependent has been over $6,000 annually. Employees pay 
  100 percent of their dependent portion of the coverage, and 
  they utilize the section 125 pre-tax premium option to help 
  offset some of that cost.....................................
As the employer, I have always paid 100 percent of my 
  employees' coverage. On December 1, I sold my business to a 
  major U.S. corporation, as I said, to keep the employees and 
  offer them some relief. The average employee realized a 
  savings of over $3,000 a year by going to a major employer 
  and their coverage...........................................
My experience over the last 6 years, we have had 18 to 24 
  percent premium increases annually. These premium totals are 
  greater than 2\1/2\ times higher than they were 5 years ago 
  and over $50,000 a year annually. That is a full-time 
  equivalent person for my company. I could have hired a 
  marketing person at that rate. It is $50,000 less for me to 
  reinvest in employee training, in capital equipment, in 
  growing the business, or even in just profit. It really begs 
  the question: Do I grow the business or do I remain status 
  quo?.........................................................
We have had no catastrophic events in our employee group to 
  fuel increases, just normal life events: Three or four babies 
  born over that period of time, one gall bladder surgery, 
  maybe a broken limb here or there, prescription drugs. 
  Nothing out of the ordinary of everyday life.................
Every year we have increased deductibles; we have increased co-
  pays, we have increase out-of-pocket maximums, just to limit 
  that increase of a 20-percent increase annually. Had we not 
  done that, we would have had 30-, 40-, 50-percent increases 
  in premium. Without these changes and reductions in services, 
  we would have ended health care a long time ago. We had to do 
  this just to remain stable and to keep our employees covered 
  as best we could.............................................
The average, fully insured plan for a small employer like mine 
  utilizes about 95 percent of the premium dollars they pay in 
  in health care coverage. Last year, our usage was only 79 
  percent of all the premiums we paid. I was expecting no 
  increase this year. I got a 10-percent increase instead. I 
  was not rewarded for having a healthy workforce. I was 
  penalized for it. The reason I was given by my carrier for 
  the increase in my premiums was that there were so many 
  gastric bypass surgeries performed that it is now a mandated 
  coverage in Minnesota; the cost had to come and be paid for 
  somewhere. And so as a small business owner, I had to help 
  cover that...................................................
Additionally, a fully insured plan such as mine and a small 
  employer, I am required to pay additional taxes to cover the 
  uninsured--maybe this is just a Minnesota issue; I am not 
  sure--to cover the uninsured in Minnesota, the underinsured, 
  and the uninsurable. And those tax rates added another 10 
  percent of my premium, which only small business has to pay. 
  Large employers are exempt from this if they are self-insured 
  carriers. And so, again, the bulk of carrying the load falls 
  on small business............................................
What happens with this kind of a situation is that small 
  employers that go to associations and things as such--this is 
  not in my testimony, but it is a thought that just occurred 
  to me--is that we start to eliminate the pool of healthy 
  employees and the pool of uninsured gets bigger and bigger...
Senator Coleman. Mr. Ludeman, before you go, there was one more 
  question I was going to ask you..............................
Mr. Carlson. Sure. No problem..................................
Senator Coleman. Mr. Ludeman has talked about data--cost and 
  quality data. Do you think employers are going to utilize 
  this data? As a small business person, do you even have the 
  ability to tap into that?....................................
Mr. Carlson. Personally, I would. My employees are all 
  connected. I have a server system within my network, and we 
  are small enough that as a driver, because it is important to 
  me, I would be able to do that. I cannot say that for other 
  small businesses. I think that would be a challenge..........
Senator Coleman. I would like Mr. Ludeman just to hear that. 
  And, Mr. Kuba, I turn to you and probably would ask you the 
  same thing with the Commissioner here. This data, would this 
  be helpful to you? Give me a sense for the Commissioner 
  because he is the guy that is putting the time and energy 
  into this....................................................
Mr. Kuba. You know, like Mr. Carlson, we can do it. You know, 
  we are fully networked and everything. I would like to learn 
  more about it. I cannot really say how helpful it would be 
  based on what I know right now. But we could easily do it....
Senator Coleman. OK. I just wanted to take the opportunity with 
  the Commissioner here to provide a little feedback. 
  Commissioner, thank you very, very much......................
Mr. Carlson, please finish at this point.......................
Mr. Carlson. Sure. So small businesses, once again, like in 
  property tax, seem to be the ones who have to carry the brunt 
  of the load..................................................
A couple of experiences I want to share with you regarding two 
  of my employees. One employee has two family members who are 
  diagnosed with a bipolar disorder. In addition to the $8,000 
  in premium he pays to cover his family on his $48,000-a-year 
  salary, he is paying $300 to $400 additional per month--and 
  this is what I know of; it may even be more than that--in 
  prescription out-of-pocket expenses that are not covered or 
  that require much higher co-pays.............................
I have another employee, he is married, he has three children 
  on his plan. They are healthy, yet because of the dependent 
  coverage, he pays $9,000 annually in premium on his $50,000 
  earnings. That is almost one-fifth of his pay................
Both of these employees are earning over $23 an hour, yet the 
  strain on their family is tremendous. They are hard-working, 
  stable, middle-class families. I cannot imagine the 
  difficulty less fortunate workers might have.................
While I wished I had the magic bullet or the right answer, from 
  a small business perspective I fully support the idea of 
  employee responsibility and for employee incentive to use 
  their plan wisely, to share in the costs and to control 
  expenses. I think that is a wise and prudent thing for all of 
  us. However, I think employees are also responsible for 
  making healthy lifestyle choices and practices and to 
  minimize their risks. However, these costs must be realistic 
  and affordable. Health care mandates for coverage are 
  designated to protect individuals. I know they are necessary, 
  but mandates should not have to be borne by only small 
  business but, rather, by users of such services, all 
  employees, and the entire public in general..................
The system rewards practitioners for the number of services 
  provided. I think that is backwards. Service providers that 
  are cost-effective, efficient, and have higher results, they 
  should be rewarded, and they should be rewarded by additional 
  business. That is the same way it works in my business. The 
  better I am, the more business I get. Until we change the 
  model of performance and result, the spiraling costs will 
  only continue. In my own business, we are not rewarded for 
  how many calls we make to a customer but, rather, the fewer 
  calls we made; and the higher satisfaction level the customer 
  has, the more reward we get. I think the same should be in 
  our health care system.......................................
I thank you for your time......................................
[The prepared statement of Mr. Carlson follows:]...............
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[GRAPHIC] [TIFF OMITTED] T2908.007

Senator Coleman. Thank you very, very much, Mr. Carlson........
Mr. Kuba.......................................................

 STATEMENT OF SANJAY KUBA, PRESIDENT, GCI SYSTEMS, SHOREVIEW, 
                           MINNESOTA

Mr. Kuba. Thank you. Well, I would like to say thank you to the 
  Senate Small Business and Entrepreneurship Committee and 
  Chairman Kerry for the work in tackling this very important 
  issue. Also, thank you to Senator Norm Coleman and his staff 
  for their work in putting this event together and for 
  providing me the opportunity to testify......................
GCI Systems is an information technology distributor and 
  consulting and services company that started in 1988. We 
  currently have 23 employees. We started as a one-person 
  business and have grown nicely over the last 20 years. We 
  began to offer health insurance to our employees in 1995. We 
  have seen an increase in our health care expenses every year 
  since 1995, with the exception of this year, 2008. Most of 
  those years involved double-digit increases. Each year we 
  spent a great deal of time going out to the market to price 
  the three or four carriers that offer health insurance in the 
  small business marketplace in Minnesota. That exercise has 
  also included an analysis of co-pay amounts, hospitalization 
  percentages, and maximum out-of- pocket amounts to get the 
  most palatable blend of company premium increase versus 
  benefit and related expense to the employee..................
Since 1998, the company has had two employees who each has one 
  child with a chronic medical condition. The annual medical 
  expense of each of those children is substantial and 
  sometimes approaches $100,000. This is completely beyond the 
  company's and the employee's control. We do not have enough 
  employees to adequately spread the risk to a carrier offering 
  health insurance based on these two cases; therefore, 
  everyone in the company must have either considerably higher 
  out-of-pocket expenses or opt out of our program.............
In 2005, we moved to an HSA. When we moved to an HSA, the 
  increase in our health insurance premium and combined with 
  the HSA contribution expense dropped to single digits. And in 
  2008, the company's total health care expense will drop based 
  on our current employee count. However, we are in a sense 
  passing an additional burden onto our employees as the out-
  of-pocket maximum has increased from $5,250 to $5,900 for 
  family coverage..............................................
Today, only 12 of our 23 employees participate in our plan. Ten 
  of those 12 are covering only themselves as part of a single 
  plan. The only two that are opting for the family plan are 
  the two people mentioned earlier.............................
Based on the current employee count, the company will spend 
  approximately $50,000 on premium and HSA contribution 
  expenses. The 12 employees' combined out-of-pocket expenses 
  will be between $28,000 and $52,000 this year. The two 
  employees who have a child with a chronic condition will most 
  likely have out-of-pocket costs of $12,000 and $15,500, 
  respectively. And these are truly burdensome amounts.........
We do offer a solid health plan as the company contributes 
  $1,300 to $2,000 annually to each employee's health savings 
  account, depending on which plan they participate in, single 
  or family. However, I am hearing from other businesses, and 
  many much larger than ours, that they make no contribution to 
  their employees' HSAs........................................
How is this impacting our business? First, we spend a great 
  deal of time analyzing the marketplace and our options in 
  going out for bids each year. Second, the expense is 
  burdensome for both the company and its employees, as 
  described earlier. Third, it is a constant obstacle in 
  attracting new, highly skilled, and qualified employees. In 
  fact, we just lost another prospective employee last week 
  because of extremely high family medical insurance costs. 
  When you compare the amount of out-of-pocket expenses that 
  our employees pay versus a company that is self-insured, we 
  are paying sometimes twice as much or more for family 
  coverage.....................................................
The marketplace is clearly broken. In particular, Minnesota has 
  some extremely burdensome regulations. The requirement that 
  carriers must be not-for-profit and must have minimum loss 
  ratios makes this market very unattractive for competitors. I 
  believe that only four companies participate in the small 
  business market today........................................
The carriers that participate in the market are mandated to 
  cover some 150-plus treatments and conditions. Only the 
  companies participating in a small business marketplace 
  contribute to Minnesota Comprehensive Health plan, or MCHA. 
  That is unfair as it is a benefit to the entire market.......
Insurance is supposed to be about spreading risk. How can there 
  be any kind of competitive marketplace when 3M is treated as 
  one group and 23-employee GCI Systems is treated as one 
  group? There is no real risk spread in the small business 
  marketplace. Association health plans are not allowed. 
  Association health plans can be a great way to spread risk. 
  And only health insurance premiums made as part of an 
  employer-sponsored plan or flexible spending plan are tax 
  deductible. Why is that?.....................................
What do I think should be done about this? Here are some of my 
  recommendations:.............................................
Pass association health plan legislation, first................
Two, increase the small business health insurance eligibility 
  size to 100 employees; 100 employees is really the minimum to 
  self-insure. We were in that 50 to 100 size at one time and 
  could only find one carrier that would write insurance for us 
  at that time, and we could not self-insure...................
Three, reduce the regulations tied to the market like minimum 
  loss ratios and excessive mandates to allow more competition 
  and provide more choice......................................
Find another funding source for MCHA...........................
Five, make personal health insurance premiums tax deductible 
  like the premiums that employers pay. Get employers out of 
  the health insurance business................................
And, six, move quickly to drive electronic medical records to 
  lower administrative costs, provide better service, and 
  increase the transparency to the system......................
Thank you again, Senator Coleman, for this opportunity to 
  testify......................................................
[The prepared statement of Mr. Kuba follows:]..................

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Senator Coleman. Thank you very much, Mr. Kuba.................
Mr. Flohrs.....................................................

  STATEMENT OF JASON FLOHRS, DIRECTOR OF GOVERNMENT AFFAIRS, 
       TWINWEST CHAMBER OF COMMERCE, PLYMOUTH, MINNESOTA

Mr. Flohrs. Good afternoon, Senator Coleman. Thank you for the 
  opportunity to be here today. I am pleased to submit the 
  following testimony for the record, and thank you for holding 
  this hearing here in Minnesota...............................
My name is Jason Flohrs. I am director of Government Affairs 
  for the TwinWest Chamber of Commerce. TwinWest Chamber is a 
  regional business organization representing about 1,000 
  business members in the western suburbs of Minneapolis. Of 
  those 1,000 members, 78 percent are small businesses with 
  less than 50 employees; 95 percent have fewer than 100 
  employees....................................................
Health care remains the number one issue facing the business 
  community in Minnesota. In a scientifically valid sampling 
  conducted last summer with businesses statewide, over half of 
  the respondents cited ``access to affordable health care'' as 
  the number one or two issue facing their business. This level 
  of concern is rising rapidly. This year, 40 percent selected 
  it as their top issue, up from only 33 percent a year before.
Affordability of health care dramatically outweighs other 
  concerns related to business competitiveness, including 
  workforce education, recruitment and retention of good 
  employees, taxation, energy costs, and even foreign 
  competition. In our own, non-scientific surveys, ``Business 
  Ballots,'' and questionnaires, health care is consistently at 
  the top of the list among our member businesses' concerns. In 
  addition, in company visits made through the Grow Minnesota 
  program, which is a business retention and expansion program 
  that we partner on with the Minnesota Chamber of Commerce and 
  the Minnesota Department of Employment and Economic 
  Development, we continually hear anecdotal evidence and 
  horror stories, really, of the difficulties that small 
  employers especially are having in providing health care to 
  their employees..............................................
Growth in health care costs per person that are paid for by 
  private insurance is still 2 to 3 times higher than growth in 
  per capita income or wages and over 5.5 times higher than 
  inflation. Employers continue to be the major source of 
  health insurance for Minnesotans, but these cost pressures 
  are causing a decline. Double-digit premium increases are 
  squeezing employers, and employer-sponsored insurance dropped 
  from nearly 70 percent in 2001 to barely 60 percent in 2004, 
  only 3 years.................................................
TwinWest supports creating a functioning health care 
  marketplace that will achieve better health outcomes and slow 
  the rate of these cost increases. The business community 
  hopes to achieve this through a combination of both 
  legislative action and individual responsibility for 
  purchasing decisions.........................................
Our initiatives are guided by five principles intended to work 
  toward a viable health care market:..........................
First, create understandable and comparable standards for 
  pricing and quality of services so consumers can make 
  decisions based on value. As you have already heard, 
  Minnesota is a leader in this endeavor, but much more can and 
  needs to be done. Business owners are committed to getting 
  this information into the hands of their employees and 
  helping them make value-based, cost-conscious decisions......
Second, we have to reward doctors and hospitals for value, not 
  volume. Our health care system should pay based on results 
  and outcomes, not just on the number of procedures performed. 
  Again, efforts are underway in Minnesota that do attempt to 
  address this, but without similar alignment of incentives 
  within Medicare, no large-scale progress or nationwide 
  progress will be made........................................
Third, reform health care insurance so purchasers have more 
  stability and predictability. This is especially important 
  for small businesses, as one or two major adverse health 
  events within a small employee pool can radically impact 
  premium costs. You have heard some of those stories already 
  today........................................................
Fourth, we need to increase the use of health information 
  technology to improve quality of patient care................
And, fifth, reward health and promote wellness. In order to 
  decrease the cost of health care, we must also prevent the 
  need for those services......................................
Finally, I would like again to stress our belief that efforts 
  need to be focused on actually lowering the cost of health 
  care. Without first controlling these skyrocketing costs, 
  there is no viable financing solution........................
Thank you for the opportunity to be here today. As an advocate 
  for small business owners, TwinWest looks to you to continue 
  to protect our members' ability to be competitive and to 
  create jobs by solving one of our biggest challenges. Fixing 
  the Nation's health care system is no easy task, but I hope 
  it is one you will carefully deliberate and constructively 
  approach in this Congress....................................
Thank you......................................................
[The prepared statement of Mr. Flohrs follows:]................

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[GRAPHIC] [TIFF OMITTED] T2908.012

Senator Coleman. Thank you, Mr. Flohrs.........................
Mr. Oemichen, am I pronouncing the name right?.................
Mr. Oemichen. Oemichen, Senator. But I found being in St. Paul, 
  growing up here, it was an advantage to be Irish as opposed 
  to German....................................................
[Laughter.]....................................................

STATEMENT OF WILLIAM L. OEMICHEN, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, MINNESOTA ASSOCIATION OF COOPERATIVES AND WISCONSIN 
        FEDERATION OF COOPERATIVES, ST. PAUL, MINNESOTA

Mr. Oemichen. Thank you, Senator and Members of the Committee. 
  We are very pleased to be here. I am Bill Oemichen, president 
  and CEO of the Minnesota Association of Cooperatives and 
  Wisconsin Federation of Cooperatives, and I am going to talk 
  about what appears to be a pretty unique project of joining 
  individuals together for purchasing health care as a group. 
  But I want to just set the stage here for just a couple of 
  seconds......................................................
We are proud that Minnesota is the leading cooperative State in 
  the Nation. We have over 1,000 cooperative businesses in the 
  State. Our sister organization in Wisconsin is proud that 
  Wisconsin is the second leading cooperative State in the 
  Nation. Between the two States, 6.3 million residents have 
  ownership interest in a cooperative, and it is more than half 
  of the State's population in both States. And these numbers 
  are all according to statistics developed by the U.S. 
  Department of Agriculture, so Federal Government statistics. 
  Here in the Twin Cities, three of the largest businesses 
  operate as cooperatives, including Land O' Lakes, CHS or 
  Cenex Harvest States, and HealthPartners HMO.................
The health care challenge for agriculture is what I would 
  really like to talk about today, and for us it is both a 
  combination of price and access. There have been a number of 
  surveys done of agriculture populations. One of the best that 
  we have looked at was done by the University of Wisconsin-
  Madison, and they found that 41 percent of farm families in 
  the Upper Midwest could not afford to insure every member of 
  the farm. In addition, about 18 percent of farmers operate 
  uninsured, and probably more importantly, for many of the 
  farmers, even though they are considered to have insurance, 
  what they have is a high-premium, high- deductible, what can 
  really be only called a catastrophic health care plan. And, 
  unfortunately, what we are finding in Wisconsin--and we think 
  the same statistics are going to be verified in Minnesota--is 
  that most farmers also do not have coverage as part of their 
  health insurance plan for any farm-related injuries. So if 
  they are injured milking the cow in the barn, that would not 
  be covered...................................................
The net result is health care is agriculture's number one 
  problem. We know this from surveying farmers. One survey from 
  4 years ago of dairy farmers in the Upper Midwest showed that 
  even though dairy prices were at record lows, the number one 
  reason dairy farmers were exiting was the fact that they 
  could not get affordable quality health care.................
So this led to a challenge, or this leads to a challenge for 
  agriculture in our State of Minnesota because to the extent 
  farmers cannot get health care, they are making decisions to 
  leave, and much of the State's economy depends on 
  agriculture..................................................
So how did the cooperative community and agriculture community 
  respond? We moved forward legislation in Minnesota and 
  Wisconsin back in 2001, 2002, and 2003, to create purchasing 
  alliances. In Wisconsin, they were specifically made 
  cooperative purchasing alliances, and I am pleased to 
  recognize State Senator Sheila Harsdorf, who is here today 
  sitting in the audience. She was the principal author of the 
  Wisconsin legislation. And Liz Quam, who is also here, was 
  the originator of the idea here in the State of Minnesota, 
  and she is a former Assistant Commissioner of Health. Forming 
  cooperative purchasing alliances is a cooperative way. You 
  can remember--not personally--but remember back to the years 
  of rural electrification and rural telephone service. When 
  there has been a need, people have banded together to try to 
  deal with the problem........................................
So the whole idea was to leverage buying power amongst all 
  these individuals because farmers typically buy their health 
  insurance as self-employed individuals, and a statistic you 
  might be interested in is farmers pay 3 times as much as 
  salaried individuals for their health insurance. They pay 
  twice as much, on average, as other self-employed 
  individuals. And one of the principal reasons for that is 
  farmers are typically seen as being in dangerous occupations. 
  And if Commissioner Ludeman were still here, he probably 
  could talk about that from a very personal perspective.......
So we decided to work on forming a health care cooperative. We 
  approached Congress and we are very appreciative to you, 
  Senator, and your colleague Senator Herb Kohl from Wisconsin, 
  and Representative David Obey for providing $4.4 million in 
  Federal appropriations for an initial stop-loss fund for the 
  Farmers' Health Cooperative. This has been used primarily as 
  a risk fund to get insurers interested in providing insurance 
  for the Farmers' Health Cooperative. And prior to getting 
  that money, we had approached every insurer in the State of 
  Minnesota, every insurer in the State of Wisconsin, and they 
  said they were not interested. Once they saw there was 
  actually some stop-loss fund dollars there, they understood 
  that this is a serious project...............................
So we launched the Health Care Cooperative in Wisconsin on 
  April 1, 2007, working on a very similar project here in the 
  State of Minnesota, and as part of the co-op care legislation 
  sponsored by Senator Harsdorf, there have actually been, in 
  Wisconsin, a number of small employer health care 
  cooperatives--one in Brown County, Wisconsin, for example, 
  and forgive me for saying ``home of the Green Bay Packers.'' 
  But there are 120 small businesses in that cooperative and 
  buying their health insurance together for over a year now, 
  and they report that it is operating quite successfully......
As part of the health cooperative, we are providing much better 
  benefits than what farmers typically receive. We are 
  providing that 24-hour coverage, so if they are injured in 
  their barn, they are covered for that. We are providing 
  prescription drug coverage, which most farmers do not 
  currently get. We are also providing--very importantly, we 
  think--preventative health care for farmers, up to $500 per 
  family member per year. It is probably well known in 
  agriculture that farmers are proud about the fact they have 
  not seen their physician in 10 to 20 years. But as you can 
  imagine, we need to encourage them to get in, and this has 
  certainly helped to do that..................................
So we commend Congress for looking at health care reform, and 
  especially you, Senator, and your interest in association 
  health plans. We think that that certainly represents a 
  viable model that can work very successfully across the 
  country. We tend to be a little biased and express a little 
  bit of preference for the cooperative model for obvious 
  reasons, as the Federation and the Association of 
  Cooperatives. But we like that model because it is a health 
  care entity that is actually owned by the members who are 
  buying their health care insurance from that entity, and so 
  they really have a strong input on what their health care 
  looks like...................................................
When we developed the Farmers' Health Care of Wisconsin 
  Cooperative, we surveyed over 4,000 farmers by telephone, 
  brought several hundred farmers into focus groups, and said, 
  ``What would you like in your health care plan?'' And the 
  health care plan that was designed was based on what they 
  wanted to see, and the board of the cooperative is totally 
  made up of farmers. And we think that is something that gave 
  a lot of confidence to the farmers who are members there.....
Another thing, one of the issues that I think you will find in 
  association health plans--this is not an argument against 
  association health plans and perhaps we can suggest a way to 
  deal with this--is if you have a small business member from 
  New York and a small business member from Minnesota, 
  typically health care costs are going to be higher in New 
  York. We have found that in Minnesota you see similar things. 
  Where I grew up out in western Minnesota, in the Benson area, 
  health care costs are typically lower than in the Twin 
  Cities. And what we did is we were able to price that health 
  care in part based on the geographic location of where that 
  member is, and we were allowed to do that under law. And so 
  may I suggest that to you as part of the association health 
  plan.........................................................
We also very much like the idea of multi-State plans. One of 
  the desires, obviously, here in Minnesota is to have a health 
  care cooperative like the one operating in Wisconsin and that 
  has been very successful to date. And we have to go through--
  get separate State legislation in every State we go to, and 
  we have to deal with the complex State insurance regulations 
  in each State. And in saying that, I used to work for the 
  State office of the Commissioner of Insurance, and I also 
  served in Wisconsin as the chief consumer protection official 
  for the State when Tommy Thompson was Governor. And so 
  perhaps in some cases, I put those regulations into place, 
  but they are very, very difficult for consumers and providers 
  to understand. So allowing cross-border operations I think 
  would help in efficiency.....................................
A couple other requests we would make to Congress: ERISA 
  currently preempts cooperatives from State insurance 
  regulation for electric co-ops and telephone cooperatives. We 
  would suggest the possibility of looking into expanding that 
  preemption for other types of cooperatives as well, and this 
  is not--and I tell you as a former consumer protection 
  official this is not an effort to get around mandates. We 
  actually fully comply voluntarily with all of the mandates, 
  but basically the idea is to give us the ability to build 
  these efficient--more efficient, at least--health care 
  entities across State borders................................
Health savings accounts. One of the issues we have run into 
  there in operating Health Care Cooperative is Federal law for 
  HSAs does not allow for a family deductible, and for farm 
  families this has been a problem. They are each looked at 
  individually, and so they have to satisfy their individual 
  deductibles. And for farmers, they would like to do that as a 
  family, if possible..........................................
Prescription drugs. We are glad we are able to finally provide 
  that type of coverage to farm families, but they are 
  certainly concerned about the cost of those prescription 
  drugs. And I know Congress has been looking at ways to 
  address that.................................................
And just very quickly, I would like to echo or put an 
  exclamation point on everything that Commissioner Ludeman 
  said on transparency of claims. In our contract with Aetna, 
  who is our health insurance company, we have negotiated 
  transparency with them. So all of that health care data flows 
  through to the cooperative, so the cooperative can make real 
  pricing decisions and have a greater ability to negotiate 
  with Aetna in future rate increases, or hopefully someday 
  maybe even rate decreases. And that we thought was really, 
  really important.............................................
Senator Coleman. He is an optimist.............................
[Laughter.]....................................................
Mr. Oemichen. Yes, absolutely. So we appreciate the effort to 
  be here, and I will point out that the Congressional Research 
  Service is publishing a report on State health care 
  innovations, and they have informed us that they are citing 
  this as one of the principal State health care innovations 
  for 2007.....................................................
Thank you again for the opportunity to testify.................
[The prepared statement of Mr. Oemichen follows:]..............

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Senator Coleman. Thank you, Mr. Oemichen.......................
I do want to note the presence of Senator Harsdorf and thank 
  her for her leadership on this issue. I think you are doing 
  extraordinary things, and it is nice to be able to do it, to 
  have a framework that allows you to operate. So to both Ms. 
  Quam, who apparently had the idea, had the thoughts behind 
  this originally, and then for the leadership of Senator 
  Harsdorf, I certainly express my appreciation. Thank you.....
Mr. McLaughlin.................................................

    STATEMENT OF PATRICK McLAUGHLIN, DIRECTOR OF MARKETING, 
                  EMPLOYERS ASSOCIATION, INC.

Mr. McLaughlin. I am Pat McLaughlin, director of marketing for 
  the Employers Association, and I appreciate the opportunity 
  to share some thoughts, Senator, with you and the Committee 
  today........................................................
We were established over 70 years ago to provide assistance to 
  employers in the areas of employer/employee relations and 
  management and leadership training and project assistance in 
  basically the HR area. We serve over 1,500 members, of which 
  over 70 percent have 300 or fewer employees. But that 
  represents nearly a million employees that are members 
  through their employer of Employers Association. And a key 
  issue for our membership is affordable and competitive health 
  care options. That is no secret to anybody. Too many of our 
  members, though, are questioning the decision to continue to 
  offer health care as an option. Over 80 percent of the people 
  employed in Minnesota are employed by organizations having 
  fewer than 200 employees.....................................
Among the efforts in health care that we have spearheaded and 
  begun, we successfully ran a health care purchasing pool from 
  1991 to 1996, which at its peak covered well over 20,000 
  lives. We spent 3 years, from 2001 to 2003, in due diligence 
  to find a fiscally prudent option after the plan that we did 
  have was forced away from the market based upon, among the 
  limited options out there, none of the health insurers 
  wanting to book the business.................................
We were looking for something that would allow small and mid-
  sized employers to come together under a self-funded plan to 
  minimize health care cost fluctuations and bring more 
  competition to the marketplace. A couple of our panel members 
  today have already talked about one in particular. Mark, I 
  think you said that by selling to Pitney-Bowes, your 
  employees saved 3,000 bucks apiece for family coverage. It is 
  not a level playing field, and the ability to pool some risk 
  is about one of the main ways that we are going to get there.
The average size of employers that showed interest in our plans 
  was about 150 employees, and about two-thirds of those were 
  manufacturing entities. In 2004, we formulated a separate 
  trust comprised of our members who would spearhead the 
  development of a competitive health care option for fellow 
  association members. At the same time, bills were co-authored 
  in the Minnesota House of Representatives and Senate to 
  change four components of the Multiple Employee Welfare 
  Arrangement, MEWA, in State statute. Technical changes were 
  approved which allowed us to move forward with an application 
  to the Minnesota State Department of Commerce, and in 
  December of 2004, conditional approval was granted--only to 
  be recinded in April of 2005. This application also had 
  strong bipartisan support from State House and Senate 
  lawmakers who realized the benefits of the association's 
  approach for businesses in their areas.......................
In July of that year, our president, Tom Ebert, stated in part 
  the following:...............................................

    The health care crisis to which we responded in the early 1990s 
persists today with little substantive change. The fundamental issues 
causing spiraling health care rates are still the same: the lack of 
full disclosure of health care costs and the absence of a true 
marketplace where consumers can shop for health care based on price and 
on quality.
    To solve the health care crisis, enlightened governmental 
leadership, rather than political rhetoric, is required. A way must be 
found to truly pool the risk of small employers and to level the 
playing field for all employers and employees in the health care 
market.

    In 2004, the Minnesota Legislature recognized the need for 
health care marketplace reform to benefit small employers when 
it amended the MEWA regulations. EA spent considerable time and 
money in its MEWA application effort over the past 3 years.
    Disappointingly, the Department of Commerce rescinded its 
initial conditional approval. The DOC's contention that MEWAs 
would fail in the future because they have failed in the past 
is frustrating. In light of new health care product choices and 
plan design and more sophisticated leadership, we believe that 
MEWAs could be successful in Minnesota, as they have been in 
other States.
    We believe passage in the U.S. Congress of a law permitting 
national associations to form health care co-ops would be a 
health care marketplace reform that would benefit small 
employers.
    But there is another hope, another way. If Governor 
Pawlenty sees the need for exploring the MEWA option and 
encourages the Minnesota Commissioner of Commerce to waive MEWA 
restrictions--powers which he has been given by the 
legislature--the Governor would help Minnesota's small and 
medium-sized employers in providing cost-efficient health care 
coverage to their employees.
    Over the past 2 years, we have tried to form strategic 
relationships to offer our members an opportunity to get bids 
on an individual-employer, self-insured health plan design, and 
developed and delivered training around designing and 
implementing various wellness and employee engagement 
initiatives. The first employer self-insurance plan design for 
the small employer has been met with anticipated hesitancy 
based on fear of fluctuating health care costs and few 
competitive marketplace options from which to choose. We 
ourselves as an employer went self- insured 2 years ago for 
health and dental care for our employees. Thus far, we have had 
one bad experience year, but a more positive second year, 
keeping in mind that we only had one viable option from which 
to choose.
    Secondly, we implemented a population health management 
program for our employees, incenting healthy behaviors and 
action plans. Many of our members have also either come to 
training at EA to learn about a variety of health program 
designs or, more importantly, have moved into action and 
created programs that are working for them. Some examples range 
from offering only healthy vending machine foods to free dental 
checkups to full-blown comprehensive wellness programs. Our 
small and mid-sized employers are doing things differently. 
They are encouraging and in some cases mandating participation 
but, most importantly, realizing savings on health care 
premiums and potentially preventing more serious health 
problems in their employee populations.
    Despite our efforts, small employers to compete effectively 
for talent, they must offer high- quality--and we heard that 
earlier--affordable health care to their employees. One way to 
accomplish this at the Federal level is to pave the way for 
small employers to collectively pool their risk, whether it is 
in association health plans or some other competitive market 
option, such as Taft-Hartley trust plans or successful MEWAs in 
existence today.
    So provide pooling cost and quality information 
accessibility, and people will do that. We have learned that 
people will go after the information if it is out there. They 
have done it for years. The unfortunate part is that still 
today people are much more adept at finding out information on 
what toaster they ought to buy than where they ought to go for 
important health care.
    We should also encourage embracing new ideas, and I think 
the Government can have a role in actually trying them in sort 
of control group fashion, to keep them under control, not have 
them run out of sight in terms of large numbers of people 
becoming involved, but rather use control groups of smaller 
numbers of people and approach new ideas and give them a chance 
to work in a marketplace economy.
    Thank you.
    [Mr. McLaughlin testified on behalf of Susan Eskedahl, vice 
president, Employers Association, Inc. Ms. Eskedahl's statement 
appears in Appendix Material Submitted, page 50.]
    Senator Coleman. Thank you, Mr. McLaughlin.
    I have a series of questions, some may be for individuals, 
some may be for the panel. One of them, Mr. Carlson, is up 
front. I was struck by your comment about selling the business 
to Pitney-Bowes, to a large employer. I think you said there 
was about $3,000 in savings for employees. Help me understand 
why. What are the competitive disadvantages that you have as a 
small business versus what the larger business could offer?
    Mr. Carlson. Although I do not know the intricacies of 
their plan, as a large employer, they are able to contribute 
more toward that dependent coverage that I could not pay, but 
they also have a greater risk pool so their premium rates are 
lower, so they are able to contribute more, so their overall 
cost is less. Thus, it is less expensive for the employee.
    Senator Coleman. One of the common denominators in all of 
this testimony is--by the way, there are a number of common 
denominators that I have heard, and I will kind of walk through 
a couple of them, just to make sure I clearly understand them, 
but increasing the pools--and I want to make sure I understand 
this. Mr. McLaughlin, you talked about the MEWAs, the Multiple 
Employee Welfare Arrangements. And then at the same time, you 
also talked about the possibility of AHPs, kind of the national 
pooling, where as I understand these Multiple Employee Welfare 
Arrangements that typically it is kind of State focused. And 
perhaps the question is to you, Mr. Oemichen, or to Mr. 
McLaughlin. Are these in conflict? You mentioned that there are 
some things that if you are going to do AHPs to look at multi-
State, to look at the reality that there may be more efficient 
and lower-cost operations in one area than the other. Do you 
see them--can you envision where they can co-exist in the same 
health care marketplace, or are they entirely separate 
entities?
    Mr. McLaughlin. My view may be slightly myopic because the 
majority of our membership lies within the State of Minnesota. 
I would rather see, and from a personal standpoint, think it 
would work better if there were a national multi-State 
arrangement which would provide this kind of access for people.
    Could they exist at the same time and in the same place? 
Perhaps so. But you do get into situations all the time within 
the MEWA of employees for a company that are located all over 
the country, and there are some considerations within that.
    So that is not a perfect answer, but it is as close as we 
have found to date, and the association health plan from our 
standpoint would probably be a better solution.
    Senator Coleman. Mr. Oemichen, could you see them existing 
in the same place? One of the other concerns that comes up 
again and again is added choices drive down cost. Would it be 
possible that, in fact, existing in the same place would 
actually provide greater choice and drive down cost?
    Mr. Oemichen. I believe so. I do not think there is any 
inconsistency. One of the things that we found out when we 
created the Farmers' Health Cooperative in Wisconsin is that we 
started to see resulting decreases in premiums and additions to 
plan offerings by competitors in the State. So competition from 
our perspective is something that is very good for the health 
care marketplace. And so we think whether it is an association 
health plan, whether it is a cooperative, whether it is a 
Multiple Employer Welfare Arrangement, MEWA, the more options 
that are out there, I think the better it is for the consumer.
    The one issue is to make sure that they are dealing with 
the law of numbers. The greater number of people they have in 
them, the greater ability they are going to be able to 
negotiate for a better price. The large companies, as has 
already been said, have figured out how to do that, and because 
of that the health care providers--not to give too much of my 
resume, but I sit on a hospital board, and I see this 
happening. With the large employers--they can negotiate a much 
better rate with the hospital. Where does that cost get pushed? 
It gets pushed down to the small employers who have not been 
able to band together to negotiate for a better price.
    So I think all these things can work together, and 
competition would be very good for the marketplace.
    Senator Coleman. Speaking about competition, one of the 
concerns that is reflected--I think, Mr. Kuba, you talked about 
a very systematic kind of searching for the best plan, the best 
option among the carriers. But the reality is that there are--
what? I think the first largest carriers in the State have 98 
percent of the market. There are a limited number of carriers.
    Would any of you gentlemen suggest anything we could do on 
the Federal level to inject more competition into the State 
small group markets? Is there anything--or do you feel that the 
level of competition we have today is sufficient? And I think 
almost everyone here has dealt with that.
    Mr. Kuba. I will take a crack at it. I do not think the 
level of competition is adequate, and if the four or five--we 
usually,I think, we get bids from usually four. They are very 
similar in price. There is not a whole lot of difference. I 
think the marketplace overall seems to be set up so that you do 
not get a lot of price variation between the major carriers.
    I think it is a statewide issue, so from a Federal 
Government perspective, I do not know exactly what can be done. 
But, you know, the idea that these carriers have to be not-for-
profit so they set up not-for-profit subsidiaries or things 
like that and then have to carry minimum loss ratios. I believe 
the percentage is 78 or 80 percent or something like that. They 
cannot make more than 20 percent a year, so if they do lose 
money, it takes a long time to make that up.
    Now, any carrier entering this marketplace to compete with 
Blue Cross and the others is probably going to incur losses 
just entering the market like you would entering--any business 
entering any new market. But they do not have--with loss ratios 
and things like that, they just do not have the ability to make 
that up. In my opinion, it really prevents other carriers to 
get involved in the market.
    And, you know, the way the market is set up, if we are 
paying to insure companies, they are paying to providers, what 
is their incentive to get more efficient, the insurance 
company? You asked about IT for the providers, and the small 
providers. I mean, there could be an incentive from an 
administrative standpoint because the amount of time, the 
amount of manual time that small providers spend in just 
getting the records created correctly and compliance and 
submitting to the payers and those kinds of things, they could 
really benefit from IT to lower those administrative costs. I 
think their problem is that the market is so uncertain and the 
cost pressure is so high that there is too much uncertainty.
    But what is the incentive from a large insurance provider 
right now to lower their costs? I mean, we basically are--and 
if their costs go up, they just charge us more money.
    Senator Coleman. Anybody else want to address that issue of 
what we could do at the Federal level, things that we could do 
at the Federal level to increase competition in the State small 
markets?
    Mr. Oemichen. Senator, I would say association health plans 
is one of the steps in the right direction because you are 
going to allow an association on broader than a State boundary 
level to put together a health care plan and get an insurer, 
and they will have to meet perhaps some State regulations 
depending on how you write the Federal legislation. But we 
would love it right now, for example, if the Wisconsin Farmers' 
Health Cooperative could start offering health insurance to 
cooperative members in the State of Minnesota. In many cases, 
they belong to the same dairy co-op, the same farm supply co-op 
that already operates across State boundaries. But the health 
care co-ops cannot because of State regulations.
    So it is taking us fairly considerable time to get State 
approval here in Minnesota to get a health care cooperative or 
health care trust put in place. It would be a lot easier matter 
if we could have some type of reciprocity, or the ability to 
operate across State lines, and by doing so, going back to that 
word again, ``competition.'' It would create competition, and 
we think just like in Wisconsin, it might help provide better 
benefits at a lower cost to Minnesota residents.
    Senator Coleman. Mr. Oemichen, you made a point in talking 
about expansion of ERISA to explain that we are not looking to 
get around mandates. Let me talk about mandates. In fact, Mr. 
Flohrs' testimony really mirrored what Mr. Carlson said, 
talking about gastric bypasses, for instance. You had a great 
record, you were saving costs, and all of a sudden, you find 
yourself, Mr. Carlson, with an increase. In part, you 
indicated, I believe, it was a certain mandated coverage that 
is now impacting that.
    I have been working with the Mayo Clinic. This is 
politically a difficult issue. In Minnesota, we have lots of 
mandates. I think there are over 60 mandates. And any time you 
talk about eliminating a mandate, a group will come forth and 
say, hey, that is not fair to us. On the other hand, you know, 
if you are 21 years old and carrying health insurance, you need 
to carry 61 mandates; what is that going to do to costs? And 
for employers, even if we would have AHPs, if you have to carry 
61 mandates, affordability is still going to be an issue.
    The question is how you deal with that in a non-political 
way. The Mayo Clinic has talked about setting up some sort of 
independent commission. I wonder if I could get a reaction as 
to, one, your reflection on the issue of mandates, and whether 
that is an idea that makes sense. Or do you have another idea 
of how we could deal with it? Anybody want to raise that? I 
know at least two panelists raised the issue.
    Mr. Carlson. I will address it just from my own naive 
perspective. I really feel for families who have these major 
issues that need attention, and they can be very expensive. And 
so it becomes an entire issue for the entire population to deal 
with. And again, the problem is that a majority of it is 
falling on small business.
    But I think we need to--as Mr. Ludeman has said--let us get 
back to the practitioners who are providing these services. The 
health care industry is the only industry I know that gets 
rewarded for how many times you go see the doctor. They can 
fail miserably in their diagnosis, and I still have to pay 
them. If I fail in my delivery to my customer, they do not pay 
me. And so if we can get control on that, we can get control 
under the mandates, and it can become more affordable for 
everyone. The mandates may not be that big an issue. Who is the 
best provider? Who is the best healer in that area of mandates? 
Who is most effective at it? Let us reward them and encourage 
others to get better at it, and then I think we all win.
    Senator Coleman. Mr. Flohrs, I would like your perspective.
    Mr. Flohrs. The Mayo idea that you brought up is actually a 
point that is included in our health care policy agenda for the 
coming year. I think it is an idea that does make sense as you 
are dealing, as you mentioned, in a political environment, and 
oftentimes with very charged emotional cases where individual 
families and individual people are suffering great losses and 
great challenges. There needs to be a response to that, 
certainly. But looking at it from a statewide perspective or a 
nationwide perspective, the overall health of the system also 
has to be considered. That is why we have called for an 
independent third-party kind of review of that based on 
scientific evidence, based on economic evidence, what it will 
do to a health care marketplace, to insurance premiums in 
general, and bring that back to the legislature to allow them 
to use that in making those decisions.
    Senator Coleman. I want to take advantage of the panel 
here. I know we are just starting to get back some of the data 
on health savings accounts that I have heard anecdotally, high-
deductible health plans. Could I get some reaction from folks 
as to what your own experience has been and how worthwhile 
these offerings are? Mr. Carlson?
    Mr. Carlson. I have never offered that in my company. I 
seriously looked at it this year, and we do have that option 
now under our new employer. I am not aware of any of my 
employees taking advantage of that yet. It takes a lot of 
education and a lot of understanding of why that would work. I 
think they are a good idea. I am just new to this, so I really 
cannot add much. Sorry.
    Senator Coleman. I appreciate that.
    Mr. Kuba.
    Mr. Kuba. We adopted it in 2005. It slowed the growth of 
our health care expenses. We went to a high-deductible plan. We 
have about 50 percent of our people participating. The reason 
why we went that way was to add some--for two reasons. One is 
to add some predictability. So if you know you are going to be 
in a situation where you are going to incur high medical 
expenses, at least you have got some predictability as to what 
that is. Number two is that with HSAs, employees can contribute 
to their own HSA; it is tax deductible; and it is a way to pay 
the out-of-pocket expenses in a tax deductible manner, as 
opposed to going with a cafeteria plan like a section 125, or--
I mean, excuse me, a flexible spending plan like a section 125, 
and a section 125 plan is much more onerous and much more risky 
for an employer than an HSA, is what we have found.
    Senator Coleman. One of the complaints about HSAs, one of 
the criticisms has been that they are not helpful to employers 
at certain socioeconomic levels. Can you respond to that at 
all? Is there an income level where somehow it is less 
effective or people are less interested? And then let me--I 
hate to do two questions at one time, but I want to kind of 
follow up on this HSA question. Mr. Carlson's comment about the 
level of sophistication or knowledge that one would need to 
make those choices, could you comment on that? And, Mr. Flohrs, 
I would love to hear the TwinWest Chamber's perspective on that 
also.
    Mr. Kuba.
    Mr. Kuba. The 12 people who are participating in our plan 
right now are at all income levels. They are across the board. 
There is not any income level. However, only two people are 
participating in the family option. Everybody else is just 
covering themselves, whether they are married, with children or 
not. And those two are the ones that have the children that 
have chronic medical conditions.
    Senator Coleman. Mr. Flohrs, could you give your 
perspective on this issue?
    Mr. Flohrs. Yes. I do not know if I can speak to the 
different income disparities and who would select them or not. 
The HSA model or the health reimbursement account model is 
something that the chamber has supported, really because of a 
desire to bring the marketplace back into health care. And the 
current system as we have it, without that, it does not provide 
a direct incentive for an individual to shop around, to compare 
that cost and value, to be careful about how they utilize their 
health care dollars or how they spend their health care 
dollars. It really puts that control directly back in their 
hands and reconnects them to those purchasing decisions, which 
does lead to real savings. It is not just a different way to 
finance it.
    Senator Coleman. Mr. Oemichen.
    Mr. Oemichen. Senator, with our Farmers' Health 
Cooperative, about 40 percent of the members are utilizing a 
HSA. Of our six plans, two of them are HSA eligible. And you 
might be interested to know that, regardless of income, the 
typical farmer, if he is in a family plan, has a $5,000 
deductible, and so that is much higher than the $1,000 
threshold. So if they can put that money in a tax- advantaged 
way, they absolutely would want to do it, and they very much 
appreciate the existence of HSAs.
    Can I make one comment on mandates, Senator?
    Senator Coleman. Please.
    Mr. Oemichen. I want to go back to your previous question, 
because I said we have been complying with mandates. I 
understand from the consumer protection perspective the idea of 
having mandates because of the philosophical feeling that when 
a consumer is negotiating with a large insurance company, there 
is unequal bargaining power. I just want to point out that in a 
cooperative that is a little bit different because the consumer 
is the owner of the cooperative and making that health 
insurance choice. So I am not sure that same paternalistic 
thought really applies in that situation. And so I think that 
that could be a compelling case to say that perhaps the State 
should back off somewhat on requiring mandates when it is the 
consumer who owns the health care entity.
    Senator Coleman. Mr. McLaughlin.
    Mr. McLaughlin. We have an HRA in our plan, and the reason 
is that--and I think this speaks to the income disparity a 
little bit, the HSA was--one of the requirements of the HSA had 
to do with prescription co-pays, that they had to be covered 
under the HSA at one particular point in time. And the lower-
income people would use up an HSA very quickly because they 
were not able to put as much into the HSA, and so the tax 
advantage of saving for the future was not there for those 
people.
    In our plan, we as an employer--when there is a balance at 
the end of the year--put half of it into next year's HRA so 
that over time, hopefully you can offset the out-of-pocket 
increases that we have incurred as individuals.
    I think over time it will work, but in my experience, those 
people that are of somewhat lower income are always going to be 
struggling almost regardless of what the plan is.
    Senator Coleman. Let me ask, just if I can, one or two 
other questions. I do want to end this in a few minutes just to 
stay within the time that we allowed. You talk about allowing 
small businesses--and I will ask you, Mr. McLaughlin, or 
others--to pull together, self-fund. Are there protections or 
requirements to assure sustainability? Mr. Oemichen, I would 
ask you in terms of other--in Minnesota, we kind of pride 
ourselves on, you know, ``co-ops are us,'' and we have got a 
long history. But that in and of itself does not guarantee 
sustainability, and I wonder are there kind of basic protection 
requirements that need to be in place to ensure the 
sustainability of some of these small business pooling and 
self-funding proposals.
    Mr. McLaughlin. Absolutely. That is absolutely necessary. 
There is a long history of that, of certain trust plans getting 
into financial trouble. So the funding requirement needs to be 
policed. It needs to be regulated. But that can still be done 
and in the long haul save the consumer some dollars.
    Senator Coleman. Mr. Oemichen, do you want to add to that?
    Mr. Oemichen. I was just going to add there is a long 
history of cooperatives operating successfully. HealthPartners 
HMO, as I mentioned, operates on a cooperative basis, and they 
have a million members and have operated for several decades. 
And there are a number of examples across both States. The one 
issue I get concerned about is that because there is a 
potential threat we should not do any of them. And we need to 
have more experimentation out there, and there are going to be 
some risks that some are going to fail, but there is also the 
chance that many of them, like HealthPartners, like other 
cooperatives that have been successful, are going to go forward 
and have a very long life and provide that competition that is 
necessary.
    So this is maybe more of a philosophical response to your 
question, but I think that the proof is in the pudding. There 
are many examples where they have already been very successful.
    Senator Coleman. Mr. Kuba, do you want to respond? I see a 
nodding of the head to indicate agreement with the previous 
comments.
    Mr. Kuba. Yes. I do not have anything to add. I agree with 
all that.
    Senator Coleman. Let me ask the last question, then. We 
have talked about the Tax Code allowing tax deductions for 
health care costs and some of the advantages. You know, Big 
Business has it. Just one open question to all the panelists. 
Tax policy can impact behavior and can make it easier to move 
into a certain arena, can provide greater opportunity. What 
additional tax policies can Congress enact to provide the most 
meaningful assistance to small businesses in the area of health 
care? Is there anything we did not discuss today? Are there 
other things we should actually go back to the Finance 
Committee and say it is strongly recommended that if you really 
want to do something meaningful, beyond what we have talked 
about, to help small business, this is it? Are there other 
things that should be put on the table, something that we have 
not discussed here today?
    Mr. Flohrs.
    Mr. Flohrs. Senator Coleman, while I do not have any 
specific recommendations on Federal tax policy, I think that 
many of the things that can be done using that tax policy 
should be done in the way that puts decisions and puts the 
market back into the health care system, because we have talked 
a lot about different financing models this morning, different 
ways of grouping together, spreading risk. If something is not 
done about actually controlling just rising costs in the 
delivery of health care itself, all of those financing 
solutions are in the end unsustainable. The State has a large 
pool as it sponsors its uninsured, and yet those costs are 
still continuing to go up. So until we address the costs, many 
of the financing solutions need that cost piece to go along 
with it.
    Senator Coleman. I have indicated before that I am going to 
keep the record open for 2 weeks. I lay that question out to 
the panelists, and within 2 weeks, if individually or any of 
the associations with which you work have some advice or 
counsel that you would so offer, I would love to hear from you 
on that very specific question.
    Mr. Flohrs, your comment, that is perhaps a good comment to 
draw this to a close, but realize that we have got to deal with 
the cost of health care, and as that continues to rise, it 
makes it more and more difficult for small businesses, for the 
average individual to have the coverage that they need, 
regardless of what the pooling arrangements are and regardless 
of what the cooperative arrangements cost, is an issue that 
clearly has to be dealt with.
    What I heard today, if there are themes, reward value not 
volume, again and again and again, quality, transparency, 
competition. So as I go back, those concepts will certainly be 
ringing in my ears and I will look for specific ways in which 
to do that.
    I want to thank all the panelists for your participation. 
This has been very, very helpful. As I said, I will keep the 
record open for 2 weeks, and with that, this hearing is now 
adjourned.
    [Whereupon, at 3:48 p.m., the Committee was adjourned.]

                      APPENDIX MATERIAL SUBMITTED

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                        COMMENTS FOR THE RECORD
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