[Senate Hearing 110-653]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-653
 
                    SCRAMBLING FOR HEALTH INSURANCE 
        COVERAGE: HEALTH SECURITY FOR PEOPLE IN LATE MIDDLE AGE 

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             APRIL 3, 2008

                               __________

                           Serial No. 110-25

         Printed for the use of the Special Committee on Aging



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon                    GORDON H. SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas         RICHARD SHELBY, Alabama
EVAN BAYH, Indiana                   SUSAN COLLINS, Maine
THOMAS R. CARPER, Delaware           MEL MARTINEZ, Florida
BILL NELSON, Florida                 LARRY E. CRAIG, Idaho
HILLARY RODHAM CLINTON, New York     ELIZABETH DOLE, North Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
ROBERT P. CASEY, Jr., Pennsylvania   DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           BOB CORKER, Tennessee
SHELDON WHITEHOUSE, Rhode Island     ARLEN SPECTER, Pennsylvania
                 Debra Whitman, Majority Staff Director
            Catherine Finley, Ranking Member Staff Director

                                  (ii)

  














                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Ron Wyden...........................     1
Opening Statement of Senator Gordon Smith........................     1
Opening Statement of Senator Thomas Carper.......................    72

                                Panel I

Mike Roach, owner, Paloma Clothing, Portland, OR.................     5
Lee Anne Fitzpatrick, employee, Paloma Clothing, Lake Oswego, OR.     9
Benjamin Lindner, owner, Nutshell Enterprises, Redmond, OR.......    13

                                Panel II

Paul Fronstin, director of Health Research and Education Program, 
  Employee Benefit Research Institute (EBRI), Washington, DC.....    24
Jeanne Lambrew, associate professor, LBJ School of Public 
  Affairs, Austin, TX............................................    36
John Sheils, senior vice president, The Lewin Group, Falls 
  Church, VA.....................................................    53

                                APPENDIX

Mike Roach Responses to Senator Smith's Questions................    79
Lee Ann Fitzpatrick Responses to Senator Smith's Questions.......    79
Paul Fronstin Responses to Senator Smith's Questions.............    79
Jeanne Lambrew Responses to Senator Smith's Questions............    82

                                 (iii)

  


SCRAMBLING FOR HEALTH INSURANCE COVERAGE: HEALTH SECURITY FOR PEOPLE IN 
                            LATE MIDDLE AGE

                              ----------                              --



                        THURSDAY, APRIL 3, 2008

                              United States Senate,
                                Special Committee on Aging,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:36 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Ron Wyden 
presiding.
    Present: Senators Wyden, Carper, and Smith.

             OPENING STATEMENT OF SENATOR RON WYDEN

    Senator Wyden. The Senate Special Committee on Aging will 
come to order.
    The ranking minority member, Senator Smith, who has a 
longstanding interest in these issues, is here, and I think he 
is being summoned to the floor. I think what I would like to do 
is recognize him first for his comments. Then I will have my 
opening statement.
    We are very pleased to have a terrific group of Oregonians 
here, and we are anxious to have their comments in a moment.
    But let's recognize Senator Smith first.

   OPENING STATEMENT OF SENATOR GORDON SMITH, RANKING MEMBER

    Senator Smith. Thank you, Senator Wyden.
    Mr. Chairman, I appreciate so much your courtesy and more I 
appreciate your laser-like focus on health care. There just 
simply is not a more pressing problem in our country, both for 
the health of our people, particularly, as is the focus of this 
Committee, on elder Americans, but also for the health of our 
economy, and there are many senators and elected 
representatives who are trying to get a handle around this, and 
there are probably as many ideas as there are members. But 
there is a convergence coming, and that is why this hearing and 
Senator Wyden's focus and mine, as well, is timely and 
appreciated.
    With your permission, Mr. Chairman, because I am being 
asked to come to the floor to speak literally in 10 minutes 
with Senator Kerry on an important housing amendment that we 
have, I would like to put my statement in the record.
    Senator Wyden. Without objection, that will be so ordered.
    [The prepared statement of Senator Smith follows:]

               Prepared Statement of Senator Gordon Smith

    Good morning and thank you all for being here today.
    I would like to extend a personal welcome and thank you to 
Ms. Lee Anne Fitzpatrick, Mr. Mike Roach and Mr. Benjamin 
Lindner for traveling all the way from Oregon to be with us. I 
look forward to hearing from each of you this morning.
    I also would like to thank Senator Wyden for chairing this 
important hearing and for his on-going efforts to make health 
care reform a top priority of this Congress.
    As Senator Wyden and I know from our many years of working 
together, to truly make progress on improving the health of 
this nation, lawmakers must put partisanship aside and work 
towards a common goal.
    I commend Senator Wyden for his bipartisan efforts to 
reform the current health care delivery system; and I 
appreciate the ideas he has put forth.
    Over my tenure as a United States Senator, I have fought 
year after year to protect both Medicaid and Medicare for our 
most vulnerable individuals. But now it is time to turn our 
attention toward crafting new solutions.
    Today's discussion will focus on the challenges that some 
individuals in their late middle age face to maintain or access 
health insurance coverage, and on the challenges that small 
business employers' face to provide health care benefits to 
their employees.
    We understand that while individuals in this age group have 
more health problems than other age groups; fortunately they 
also are more likely to be insured--67.4 percent have 
employment-based insurance.
    However, their health problems can have a significant 
financial impact on them and their employers, especially for 
those with small businesses.
    Of the 46 million Americans without health insurance, more 
than 27 million, or nearly 60 percent, are small business 
owners, their employees or dependents.
    Small business owners and their employees are 
disproportionately burdened by the current structure of our 
health care system and health care costs.
    Under current law they do not enjoy the same tax breaks, 
coverage or pooling options as large businesses and 
corporations, and on average, they pay 18 percent more for the 
same healthcare benefits.
    To deliver real and meaningful healthcare reform we must 
recognize the challenges faced by small business and develop 
reform proposals that support them.
    Before becoming a Senator, I managed a small company called 
Smith Frozen Foods. I was fortunate to be able to provide 
health care to my employees. I do, however, understand the 
difficulties small business owners face in offering quality 
health care coverage to their employees without bankrupting the 
business.
    I know that small business owners want to provide health 
care, they just need an affordable way to do it. That is why I 
have been working on legislation that will partner the federal 
government with states and small businesses to deliver 
comprehensive health care coverage to small businesses at an 
affordable rate.
    Just by focusing on small businesses, we can cut the ranks 
of the uninsured in America by more than half.
    While a more comprehensive approach, like the one offered 
by my colleague Senator Wyden, certainly could be ideal, it's 
important to point out that America's health insurance system 
was established incrementally. For this reason, it very well 
may take incremental steps to improve it to ensure all 
Americans have access to care.
    Senator Wyden and I share the same goal of providing high-
quality health care in this country that is accessible and 
affordable for all Americans. We understand that finding real 
solutions require the cooperation of diverse, bipartisan groups 
willing to work together for change.
    I look forward to learning more from our panelists about 
these issues and to discuss what options we, as a government, 
have in order to improve upon our health care delivery system.
    With that, I turn to Senator Wyden.

    Senator Smith. I would like to personally welcome Ms. Lee 
Anne Fitzpatrick, Mr. Mike Roach, and Mr. Benjamin Lindner, who 
are all the way with us from Oregon. The Oregon Trail is a long 
way, and you appreciate the ride that Senator Wyden and I make 
on a weekly basis. But your testimony--I have reviewed it, and 
you have added measurably and competently to the record of the 
United States Senator, and so I thank you for that.
    I thank you, Mr. Chairman.
    Senator Wyden. I thank you, Senator Smith, and I know you 
have a tight schedule, been there and done that, in terms of 
trying to get to the floor. If it is possible for you to come 
back, we would welcome you.
    Today, the Senate Special Committee on Aging is going to 
look at an increasingly stressed part of American health care, 
the spectacle of hundreds of thousands of Americans between the 
ages of 55 and 64 scrambling to obtain quality, affordable 
health coverage in the strongest and richest country on earth.
    In helping to arrange this hearing, we are grateful to 
Chairman Kohl who has done outstanding work on a score of 
senior issues ranging from ending Medicare private insurance 
marketing abuses to the quality of long-term care for older 
people.
    We also want to thank Senator Smith because all of those 
initiatives have been bipartisan, and Senator Smith has had a 
great interest in these matters.
    I have been told that this is the first time that the 
Senate Special Committee on Aging has actually held a hearing 
on the issue of health coverage for those who are in the late 
middle age period. I am certain with the prospect of troubled 
economic waters leaving more Americans between 55 and 64 
without a health care lifeboat, this hearing is not going to be 
the last time this matter is considered.
    The big question before the Committee on Aging is 
straightforward: How can it be that so many Americans between 
55 and 64 are falling between the widening crack of American 
health care? They are not old enough for Medicare, they are not 
poor enough for Medicaid, and many of them, if they work for an 
employer, are often one rate hike away from losing the even 
limited health coverage that they have.
    I was struck, in fact, in putting together the Healthy 
Americans Act, which we are going to talk about some today, by 
how many older people came up to me at home, at town hall 
meetings, and would say, ``Ron, I just hope my employer can 
hang on to my health coverage until I am 65 and I am eligible 
for Medicare.'' Increasing numbers of employers in this country 
have not been able to live up to that hope.
    According to the Kaiser Family Foundation, between 2000 and 
2007, 9 percent fewer employers offered health coverage for 
their workers. Even more prevalent has been the problem of 
employers facing crushing increases in their health care costs, 
keeping the coverage they have for the employees, but 
constantly whittling that coverage down with more co-payments 
and more deductibles.
    So fresh approaches for addressing the health needs of 
workers in late middle age is especially important right now. 
The facts show that in tough economic times, the job market is 
especially harsh on the older worker. A recent study of the 
challenges facing older workers during the last two recessions, 
1981 and 1982 and the early 1990s, found that in each 
recession, older workers lost significant ground. Serious 
economic downturns, according to researchers, can be used as an 
excuse to get rid of older workers who finds themselves pushed 
towards the door under the guise of ``corporate 
restructuring.''
    The pressures that dedicated older workers and their 
sympathetic employers are under are illustrated by the 
testimonies of the Oregonians who have joined us--Lee Anne 
Fitzpatrick, Mike Roach, and Ben Lindner. I consider you all 
the human faces of this scramble for health coverage for folks 
between 55 and 64, and we really appreciate your making the 
trek back here to Washington.
    I was struck--and Mr. Roach will go into it a bit further--
about how so often it seems that for these workers in late 
middle age, what they mostly have is hope. I think, as Mr. 
Roach points out, hope is not exactly an effective game plan, 
if that is all you have, to make it through those years in 
terms of what you need in health care.
    The desperation that workers feel is also illustrated by 
some especially important accounts offered by the journalist 
Reed Abelson. Ms. Abelson has described what I thought was a 
particularly telling example of how a retiree who was not 
eligible for Medicare. He could not find private insurance 
because of a previous illness so he started down the road with 
the COBRA program, the federal program to continue coverage 
with a former employer.
    He still was not eligible for Medicare after his first 
stint with COBRA coverage expired. So he went back to work for 
the same employer again, thereby earning eligibility for COBRA 
coverage once more. After finishing this round of work with the 
employer, he retired, again getting COBRA once more. Finally, 
he became eligible for Medicare after turning 65.
    As I read this and have heard from so many folks at home, I 
had to ask myself, ``Is this the best America can do for these 
patriotic, dedicated citizens?'' Pushing workers into some kind 
of COBRA-orama just to get health coverage in the middle-aged 
years.
    Now, fortunately, some employers have been championing the 
cause of quality health coverage. We know at home, for example, 
Intel, a very important employer in our home state, offers 
retirees options to buy a fine health care package, but, 
obviously, most companies have not been able to afford it.
    So, today, we have two excellent panels to talk about a 
variety of approaches to address the needs of workers. I am 
very pleased that this was the special focus of what we tried 
to do in the Healthy Americans Act. Fourteen United States 
senators--seven Democrats, seven Republicans have sponsored the 
legislation. We believe that several of the key features of the 
Healthy Americans Act--cost-containment guarantee of coverage, 
insurance reform, portability, and the largest subsidies to 
low-income people that have been proposed to date--go at least 
part of the way to meet the needs of this very vulnerable 
group.
    We are going to hear from a panel of people with a lot of 
good ideas, on how to approach meeting the needs of this age 
group, and we will enjoy having them here.
    So our first panel: Ms. Fitzpatrick and Mr. Roach of Paloma 
Clothing in Portland; Mr. Lindner, the owner Nutshell 
Enterprises in Redmond, OR. Then our next panel of witnesses 
includes three of the most influential and thoughtful people 
who have looked at health care for many years: Paul Fronstin, 
director of health research and education programs at the 
Employee Benefit Research Institute; Jeanne Lambrew, associate 
professor at the LBJ School of Public Affairs; and John Sheils, 
senior vice president of The Lewin Group.
    So we have a very fine group. Why don't we just begin at 
this time?
    Let us start with you, Mr. Roach. Welcome. Let me thank you 
for the many, many hours you gave us as part of the group of 
small employers that worked as we tried to develop the Healthy 
Americans Act. So please proceed.

 STATEMENT OF MIKE ROACH, OWNER, PALOMA CLOTHING, PORTLAND, OR

    Mr. Roach. Chairman Kohl, Mr. Wyden, Ranking Member Smith, 
and members of the Committee, thank you for inviting me here 
today to share my experiences as a small business owner 
navigating the small employer health insurance market.
    My wife, Kim Osgood, and I own and operate Paloma Clothing 
in Portland, OR, and we have been in business for over 30 
years. Paloma Clothing specializes in dressing middle-aged 
women and older and, as such, most of our employees are also of 
the same age group. This presents a particular set of problems 
when shopping for health insurance, including but not limited 
to pre-existing conditions and higher premiums.
    When my mother and I started the business in 1975, we did 
not offer health insurance to our employees. At the time, I 
paid out of pocket for an individual health insurance plan. In 
1980, I chose to drop my individual coverage and opt in to my 
wife's less expensive employer-sponsored health insurance. In 
1982, my wife left her job and joined our business. At that 
time, we purchased a family plan that was very expensive.
    We began offering our employees health insurance in 2006. 
We did this not because we could afford it, but in order to 
retain our highly valued manager, Lee Anne Fitzpatrick, seated 
beside me. Lee Anne was previously covered by her husband's 
employer-sponsored insurance, but he was laid off from his job 
and they subsequently lost their coverage. Lee Anne explained 
to me that she would need to find a new job that would provide 
her and her husband with health insurance.
    Because of Lee Anne's commitment to Paloma Clothing, I have 
been able to spend much more time with my family, I have been 
able to coach my daughter Isabel's soccer team from 
kindergarten through 8th grade, volunteer in her school every 
Monday from kindergarten through high school, and very rarely 
miss any of her important activities and special events.
    It is solely in the effort to retain quality employees like 
Lee Anne that we made the choice to offer health insurance. We 
felt it was our duty as her employer to help her meet her 
health care needs. Unfortunately, offering health insurance was 
not a simple or an affordable decision to make.
    When our accountant, David Downs, cautioned that he felt 
that, should sales and profits decline at all, the cost of 
group health insurance would seriously threaten the financial 
health of our business, I made it clear to David that losing 
Lee Anne would be even more threatening to the financial health 
of our business, not to mention the quality of life of both of 
our families. David reluctantly agreed that we could move 
forward with buying group health insurance coverage for our 
employees.
    Fortunately, sales and profits increased that year by just 
enough to cover most of the cost of our group health insurance. 
As Lee Anne accurately predicted, offering health insurance has 
helped us attract and retain the best customer service team our 
business has ever employed in our 33 years of doing business. 
But only in the past few years has our revenue per employee 
grown to a point that we can barely afford to offer group 
health insurance.
    As we head into the uncharted waters of a clearly troubled 
economy, we, like all other small locally owned mom-and-pop 
businesses offering employee health insurance, hope that our 
revenues can grow enough to keep pace with the seemingly 
unending increases in health insurance costs. While hope would 
not normally be considered a viable small business strategy, 
hope is really all we have at this point.
    I want to thank you again for holding this hearing today 
and shining a spotlight on the health care crisis facing small 
businesses. I greatly appreciate your interest and your 
willingness to listen to my story.
    [The prepared statement of Mr. Roach follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. Mike, thank you. Again, you have been so 
helpful. As a member of NFIB, the National Federation of 
Independent Business, at home, your voice on these issues has 
been really constructive. We thank you for it.
    Mr. Roach. Thank you.
    Senator Wyden. Ms. Fitzpatrick, welcome. We will get your 
microphone set. It works. There we go.

 STATEMENT OF LEE ANNE FITZPATRICK, EMPLOYEE, PALOMA CLOTHING 
                     COMPANY, PORTLAND, OR

    Ms. Fitzpatrick. Thank you.
    Senator Wyden. All right.
    Ms. Fitzpatrick. Chairman Kohl, Mr. Wyden, Ranking Member 
Smith, and members of the Committee, thank you for inviting me 
here today to share my story with you.
    My name is Lee Anne Fitzpatrick, and I am 57 years old. 
When I was 5, I was in a serious accident, and two surgeries 
were required to save my life. The accident has left me with 
pre-existing conditions, which have presented me with 
additional problems when looking for insurance.
    As Mike already explained, I currently have insurance, but 
that has not always been the case. Before joining Paloma 
Clothing, I worked for 10 years as a nurse, owned my own 
restaurant for 12 years and a flower shop for one year. When I 
was self-employed, I applied for an individual health insurance 
plan from Blue Cross. They sent me a letter stating that they 
would insure me, except for most of my internal organs.
    Senator Wyden. Can I make sure I understand that? They sent 
you a letter saying that they would insure you for a part of 
your body?
    Ms. Fitzpatrick. Yes.
    Senator Wyden. OK. Could you make that letter a copy of the 
record? Do you still have it?
    Ms. Fitzpatrick. I doubt if I have it. I actually should 
have looked for it, but it was, quite a few years ago. But they 
listed the organs they would not cover and the organs they 
would cover.
    Senator Wyden. They went organ by organ?
    Ms. Fitzpatrick. Yes.
    Senator Wyden. OK. Please go ahead.
    Ms. Fitzpatrick. They would not cover my internal organs 
because of the accident I had when I was 5 years old and the 
health problems that resulted from it. I did not purchase the 
insurance and instead went without health insurance for about a 
year until my husband, Chip, got a job that gave us health 
insurance.
    Soon after, I was admitted to the hospital where I spent 
the next month and had two surgeries. The bill was around 
$75,000. Thankfully, about 80 percent of the cost was paid for 
by my insurance. After being discharged, I was unable to work 
for three months. I remember how fortunate I felt to have had 
insurance when I became ill.
    During Chip's last year at Intel, he was diagnosed with 
cancer and underwent surgery to treat it. In 2006, my husband 
was laid off from his job. At that time, Paloma Clothing did 
not offer a health insurance plan, so we chose to go on to 
COBRA to avoid losing insurance. Our monthly payment was the 
entire cost of the premium, almost $1,000.
    When my husband was laid off, I explained to Mike that I 
would need to find a new job with health benefits. I did not 
want to leave my job, but the fear of being uninsured and the 
burden of paying out of pocket for insurance for two adults 
with pre-existing conditions, as well as a history of illness, 
made it necessary. I am fortunate to have an employer who cares 
enough about his workers to make the difficult and costly 
decision to offer them health insurance.
    As Mike has stated, our accountant gave the green light or 
blinking red light to obtain coverage, and I undertook the task 
of finding a plan that would work for me and the other 
employees. Much of my original research on insurance was 
conducted via word-of-mouth referrals and calling insurance 
companies directly. Plan comparisons took a great deal of time 
and involved a subjective decision-making process. All had big 
bucks riding on making the right decision for Mike's business.
    Paloma Clothing is in the midst of changing insurance 
providers due to an increase in cost. Under our old coverage, 
Mike paid 85 percent of the monthly cost of the plan, or 
$2,662. Under the new plan, Mike will still pay 85 percent, but 
his monthly cost will fall by about $450 a month, to just over 
$2,200 per month.
    Even with the reduction in cost, offering insurance to 
employees will continue to be a stress on the financial 
security of Mike's business. As he mentioned, all we can do now 
is hope that the business makes a profit greater than the cost 
of the health insurance.
    It baffles me that in a country of such opportunity and 
wealth, so many of us live in fear of losing our financial 
security due to the lack of access to health insurance. My 
husband and I are lucky that I work for an employer who with 
considerable financial difficulty is able to offer me health 
insurance. Not all employers are in his position. As a small-
business employee, I believe that we must find a solution to 
the ever-increasing cost of health care in our country.
    I hope that the testimony given today will inform and guide 
you to crafting a solution that will lift the costly burden of 
health care, as well as reduce our fear and uncertainty.
    Thank you.
    [The prepared statement of Ms. Fitzpatrick follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. Thank you. It is very helpful to hear your 
account.
    Mr. Lindner, welcome.

  STATEMENT OF BENJAMIN LINDNER, OWNER, NUTSHELL ENTERPRISES, 
                          REDMOND, OR

    Mr. Lindner. Good morning, Senator Wyden. Thank you for 
this opportunity to testify before this committee.
    It is my hope that my testimony may shed some light on the 
challenges faced by small business owners and more mature 
Americans in obtaining health insurance. I would particularly 
like to highlight the difficulties faced by those with pre-
existing medical conditions obtaining health care insurance. I 
would also like to touch on some of the challenges that we as 
consumers have experienced in accessing insurance benefits.
    By way of background, my wife and I founded a small 
business in 1993 and live and work in central Oregon. We have 
had one health insurance provider supplied through our business 
and one type of policy since 1993. Prior to 1993, we had been 
continuously insured through previous employers or personal 
policies.
    In 1993, when we contracted for our small business 
insurance policy our annual out-of-pocket expenses, including 
premiums, were approximately $5,000 combined. Today, we have 
the same healthcare policy. However, our annual expenses are 
now about $21,600. This works out to $5.19 per hour per person 
in health care costs.
    From a national perspective, I believe that this level of 
cost constitutes a significant disincentive to employing mature 
workers. Mature workers raise the average age and corresponding 
health care costs of a company's workforce. Businesses then 
have further incentive to retire older workers and staff with 
younger employees or to outsource.
    Every year at our policy renewal period, we search for a 
better rate from insurance providers. Unfortunately, the market 
is such that health insurers now pick and choose whom they wish 
to insure, rejecting any potential client that they view as 
unprofitable.
    I have psoriasis and psoriatic arthritis, chronic 
inflammatory diseases that affect my skin and joints. Seven-
and-a-half million other Americans suffer from these 
conditions. If my psoriasis were not treated, my ability to 
work would be severely impacted.
    My business partner and wife, Leslie, has cancer. As a 
result of these pre-existing conditions, we are simply 
uninsurable through any means other than continuing the 
business policy that we have had for 15 years. Frankly, we are 
thankful that we can obtain this insurance coverage at any 
price. We are, in fact, captive not only by our insurance 
company, but to staying in business in order to maintain our 
coverage. We are lucky to have access to excellent medical care 
in our area.
    Unfortunately, the barriers to accessing that care erected 
by our insurance company are formidable. The amount of time 
invested by us in resolving claim issues and by our health care 
providers in justifying treatments and prescriptions represents 
a significant burden and expense to all of us. I believe that 
the tug of war between our health care providers and our 
insurance company is responsible for a substantial portion of 
the cost of care. The expenditures in time that we as consumers 
make in this area are tremendous. My wife has been on a first-
name basis with claims representatives at our insurance company 
for 5 years since her diagnosis.
    An example of the frustrations connected with these methods 
of operation occurred when Leslie was recently diagnosed as 
being in renal failure. Her physician ordered an immediate MRI. 
Our insurance company initially refused coverage for this test. 
We assumed financial responsibility and had the test performed. 
Some time later, the insurance company reconsidered and 
approved the claim.
    Regarding prescriptions, our insurance company's adherence 
to Nancy Reagan's policy of ``Just say no to drugs'' can be 
relied on to reject any prescription other than the most 
routine generic drugs. Remarkably, even after an appeal process 
in which coverage has been granted, a subsequent refusal may 
occur.
    Our insurance company utilizes an exceptionally complex 
formula for calculating drug co-pays. This allows assessments 
of co-pays for cost differentials for branded drugs that are 
four time or more higher than what is represented and what 
would be expected.
    The health care cost system in general is so complex and 
obtuse as to be indecipherable to even the most sophisticated 
consumer. This is because of the practice of cost shifting to 
insured by providers.
    As an example, I compared the costs of a procedure 
recently. An uninsured individual was charged $1,000. An 
insured individual was charged $700. The same procedure at a 
clinic that does not accept insurance costs $175. I think 
tiered pricing should be eliminated and cost information 
readily available to consumers.
    A structure in which an insurance company can arbitrarily 
choose to exclude all those but the most desirable risks is 
really the antithesis of what insurance is. We need inclusive 
access for all people, not exclusive acceptance. In short, we 
need all Americans to be insured.
    [The prepared statement of Mr. Lindner follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. You all are probably being too logical for 
much of Washington, but I think you have said it very, very 
well, and I just so appreciate what you have described. I think 
what you have really highlighted is essentially how much of the 
health care system in our country is melting down on people. We 
have to make some changes. What I am going to do now is ask 
some questions to kind of highlight what I think are the most 
important things to change.
    First, Ms. Fitzpatrick, beginning with you, I am still 
unclear about the coverage that you can get. Are you still 
faced with insurance companies saying that they will only cover 
certain body parts and not cover others? Can you now get 
coverage, for your entire body?
    Ms. Fitzpatrick. A private policy or a group policy?
    Senator Wyden. Yes, either one.
    Ms. Fitzpatrick. Well, group policies, most of them, as 
long as I have been continually covered, then I would be 
continually covered completely. But if I tried to get a private 
policy, I would be pretty much waivered between, I always say, 
my neck and the top of my legs, so most of my internal organs 
probably because I have had continual problems because of my 
surgeries and because of the accident that I had.
    So, no, I would be covered probably, but it may be very 
high premiums and also I have not actually tried to get a 
private policy for so many years because it was so scary when I 
was told that I would not be covered that I have not tried and 
I have not been in the position that I had to.
    Senator Wyden. I think what you and Mike have described, 
are a dedicated, capable worker and a compassionate employer 
who wants to stand up for the worker. Your testimonies sort of 
highlight how broken our health care system is and how 
important it is to modernize the employeremployee relationship.
    Mike, you have spent some time thinking about this. Some 
questions for you: First, it sounds to me like you are one rate 
hike away from having to either drop coverage or whittle it 
down very dramatically. Is that right?
    Mr. Roach. If you ask our accountant, yes. I mean, when I 
initially showed him the numbers on what it could be--again, we 
did not know exactly how many employees were going to opt in to 
the plan--but when I initially showed him, he was very 
skeptical that we should go forward with it, and, you know, we 
sort of argued back and forth, and he finally said, ``Okay. If 
you want to do it, but, boy, things better go right or you are 
going to be in trouble.'' So far, so good.
    But it is a cost that is a really significant burden to 
trying to stay in business, and you do have this constant fear 
that you are suddenly going to be unable to offer the 
insurance, and then you are letting your employees down, you 
may lose your employees, they go to some larger employer that 
can offer insurance that buys it generally at a much more 
favorable rate.
    So, for small businesses, small locally owned businesses 
like ours, if we can do the group health insurance, it is a way 
to attract capable employees, and if you cannot offer it, it is 
much more difficult to attract the kind of talent to deliver 
the customer service that our customers expect when they walk 
into our store. So it is a tough situation.
    Senator Wyden. I would assume that this also makes it very 
hard for you to grow your business because you would like some 
predictability and some certainty about where you would be in 
terms of your workers and how much you would have to pay for 
their expenses, health and others. It also sounds to me like 
the crushing cost that you have throws your entire business 
plan out of whack.
    Mr. Roach. It is absolutely an issue, and as I think Ben 
maybe alluded to, there is an incentive to always want to have 
fewer employees instead of more. Even when you can identify 
where you could move your business forward with more employees, 
you have this nagging thing, more employees, higher health care 
costs. It is not just what you are going to pay the employee 
for their wage. You have the added burden.
    Then as Ben pointed out, in our business, we really need to 
have middle-aged workers to serve middle-aged customers, and we 
know that they add the most to the insurance cost when we hire, 
when we add on a middle-aged employee, and yet that is the kind 
of employee that best serves our customers.
    Senator Wyden. You have talked to me in the past, Mike, 
about this phenomenon known as job lock. In effect, both a 
worker, like Ms. Fitzpatrick, and yourself, to some extent, are 
paralyzed in terms of your options. Can you talk to me a little 
bit more about that and how prevalent the problem is?
    Mr. Roach. Well, I guess, as a locally owned business owner 
for 33 years, I see an awful lot of benefits to having a lot of 
locally owned businesses in your community. You know, it is 
sort of like the more, the merrier. The locally owned business 
owners are the ones who volunteer to do a lot of the civic 
work. They volunteer on school boards. They volunteer on a lot 
of different things.
    So to me any person who is locked into a job who wants to 
start their own business but cannot because they feel like if 
they go off, if they are over 50, 55, they know what they are 
going to have to pay for health insurance costs, and the 
thought of going out there and leaving their health insurance 
behind is frightening.
    Senator Wyden. Well, that is bad.
    Mr. Roach. It holds them back.
    Senator Wyden. That is bad for our economy then.
    Mr. Roach. Exactly. I mean, I have been in business with my 
wife now for a long time, and I see the benefits that we have. 
The skills we have developed in managing a family, we are able 
to apply to running our business. I will not say that having 
employees is like having children, but, to some degree, it is, 
and so to me couples--older couples--could be the best people, 
best group in this country to successfully start businesses, 
albeit they are older, but they life experience, they generally 
have good credit and so on.
    But for a couple to go out at 55 and say, ``Okay. We are 
quitting our jobs, and we are going to go start a business,'' 
they go, ``Well, what about health insurance? Do you know what 
that is going to cost us?'' It is a significant added cost of 
startup capital that they would have to have set aside, so most 
couples do not do it.
    But I feel like you know, the couples I see that run their 
businesses together do very well. They already have complete 
trust in each other. There is no question about trusting your 
partner, and I want to say if you have managed to get your kids 
through adolescence, that is a pretty significant skill that 
probably would help you manage employees as well and manage a 
business.
    So I really feel like if we could remove the huge health 
cost burden for couples that want to start a business of their 
own, they have always dreamed of that--but by the time they are 
65 and eligible for Medicare, they are probably not going to 
have the energy to start that business, but at 50, 54, 57, they 
have still got energy, they have life skills, they could be 
successful. But the health insurance burden is too great today.
    So somehow if we can get that burden to go to something 
reasonable and not scary, I think you would see business 
formation among older couples could be a whole new source of 
entrepreneurship in this country and not leave it just to the 
20-something who do not even have to think about health 
insurance and generally do not even have it.
    Senator Wyden. I so appreciate your making that argument 
because I think it really has not been highlighted in the past. 
What people have heard so often in the past is, ``We have older 
people. They have tremendous health costs. Let's figure out a 
way to meet them.'' Rather we should look at the fact that if 
we did this right and if we modernized the employer-employee 
relationship, a lot of those older people that you have 
described who have entrepreneurial skills could go off and set 
up some of their own small businesses, and put people to work. 
Not only would we be able to deal with health care more 
efficiently, but we would also give our economy a boost this is 
going to be very, very important, given what we see now 
continually in the morning newspapers.
    Mr. Roach. I would just throw in it might end up saving 
some marriages. You know, it gives you something to work on 
together after your kids are gone. You have something to focus 
on.
    Senator Wyden. I have made virtually every claim for the 
Healthy Americans Act that I could. Now I will talk about how 
it is--[Laughter.]
    Pro marriage.
    Mr. Roach. Okay. All right.
    Senator Wyden. Thank you.
    Ms. Fitzpatrick, tell me a little bit more about the 
situation that you are faced with. You have been just jostled 
around by the health care system as far as I can tell for years 
and years. You and Mike have sat down and with Herculean 
efforts managed to secure coverage.
    But what is going to happen if Mike has those, rate hikes, 
as you know, in a very fragile economic situation in Oregon? 
What is going to happen if any of these things tip in a way 
that is not favorable to you?
    Ms. Fitzpatrick. Well, I try not to think about the unknown 
and try to work on, what I can do, and I feel like I kind of 
have had to develop a lot of skills which has been interesting 
and great. But I think it is a very scary feeling for myself 
and my husband, especially since Chip's developed cancer and as 
we get older.
    But I think Mike is, you know, a really important key to my 
wellbeing and the business, and I feel like I have a very 
important role in making sure our business stays, growing, but 
faced with not having health insurance, I have to say because I 
am kind of an entrepreneur myself, it has stopped me from going 
out and starting another business.
    It is not so much the fear as my responsibility to myself 
and other people that would, you know, maybe need to help take 
care of me, and I feel like I should be responsible for what I 
do in my life, and so I will stay probably with Mike as long as 
we can keep health insurance.
    Senator Wyden. Now your husband has cancer.
    Ms. Fitzpatrick. Yes.
    Senator Wyden. How are you all dealing with that in terms 
of meeting your expenses? I mean, when you think of cancer, of 
course, it just means that the whole family drops everything 
they are doing to try to deal with it. Do you think about 
catastrophic coverage and these very large bills? How are you 
all wrestling with that?
    Ms. Fitzpatrick. You know, some parts of us kind of look 
the other way about it and just try to concentrate on our day-
to-day life, but it is difficult.
    Senator Wyden. Do you all have catastrophic coverage?
    Ms. Fitzpatrick. No, no, no. We have worked really hard 
both of our lives and, Chip does have a job now. He became 
employed again, and we are just, hoping that he will stay 
employed. Chip's on his own policy with the work that he does, 
but you just really, I guess, hope.
    The closer I get to 65, it seems like it is farther away 
than ever in some aspects, and sometimes that is kind of scary 
because I enjoy working, and I want to continue working, but 
probably if I had my choice and we both had health insurance 
right now, I would start another business. I love business, and 
I enjoy it.
    Senator Wyden. You would be able to do something that would 
be better for you and your husband. It would also be better for 
the country at a time when we so need entrepreneurship and 
extra jobs in a sluggish economic situation where in the daily 
paper you read about the prospect of recession.
    That is why those studies from 1981 and 2001 and 2002 are 
so important. That is, there is no question the tough economic 
circumstances are especially punishing on older workers and 
will accelerate the problems that we are talking about, today 
because it is those older workers. They are the first to be 
laid off. When companies run into extra expenses, coverage is 
further whittled down.
    So you two have, I think, been especially helpful because 
you have highlighted how in an ideal situation where a caring 
employer and dedicated talented workers want to work hand in 
hand, it still is an enormous challenge to navigate in these 
kinds of troubled health care times. So we really appreciate 
what you are doing, and we thank you.
    Let me turn to you, Mr. Lindner. I mean, what you have 
described, is bureaucratic water torture where your wife is on, 
a first-name basis wish everybody in the claims department. 
This is a story we hear continually. I gather that you cannot 
change insurance companies at all at this point. Is that right?
    Mr. Lindner. We have a company insurance policy, and each 
year we examine other company insurance policies. We do not 
even bother to apply because, in general, there is no advantage 
financially, and we have no chance of getting a personal 
policy. Personal policies are substantially less money, but we 
are unacceptable risk candidates for those types of policy. So 
we are stuck.
    Senator Wyden. So these so-called small employer market 
policies or the individual, non-group market policies are just 
not available to you?
    Mr. Lindner. No. They will not accept any pre-existing 
conditions.
    Senator Wyden. You said you and your wife paid $21,000 a 
year plus for the coverage you have?
    Mr. Lindner. That is correct.
    Senator Wyden. What do you get for your $21,000?
    Mr. Lindner. We actually have fairly extensive coverage. We 
do the calculations every year and determine what deductibles 
are economical and things like that, and we generally end up 
with just about the maximum coverage that you can purchase.
    Senator Wyden. What would you like to see most out of this 
upcoming effort to fix American health care? I mean, you have 
seen most of the big challenges. We need to fix the insurance 
market, obviously. There needs to be a stronger containment of 
costs. I feel very strongly about portability. I cannot tell 
you how critically needed that is.
    This country essentially set up the employer-based system 
in the 1940s pretty much by accident because there were wage 
and price controls. We did not have the situation we have today 
with workers. A typical worker today changes a job seven times 
by the age 35. What Mike and Lee Anne have described are 
instances where older people want to be able to change jobs, 
but it has not been possible to get a portable product.
    The coverage today as it relates to portability is not very 
different than it was in 1948 where somebody went to work at 19 
years old and stayed put for 40 years. Then you gave him a 
steak dinner and a big retirement watch. I think we have to 
have portability.
    So, Mr. Lindner, what would you like to see most in this 
upcoming effort to fix health care?
    Mr. Lindner. Well, actually, I think we are interested in 
the same things by different names. You call it portability. I 
call it accessibility. If someone had access to health care 
insurance through all stages of their life and through all 
health challenges, that would give the flexibility necessary 
for people to move around. So if I did want to change 
professions or directions in my life right now, I could not 
because of the structure of the insurance. So accessibility is 
critical, in my view.
    I believe that the cost shifting that is occurring that I 
mentioned really is a contributing factor to this not only 
accessibility but cost, and then, obviously, the cost of 
insurance as well. If everybody were insured, the premiums 
would drop, and if everybody were in the program, so to or if 
everybody was insured, the whole system would work a lot 
better, in my opinion.
    Senator Wyden. A great way to wrap up this excellent panel 
is to have a group of Oregonians talking about how you cannot 
fix American health care unless you cover everybody. It is very 
clear that if you do not do that, just as Mr. Lindner has 
described, the people who are uninsured shift their bills to 
the people who are insured. They shift the most expensive 
bills, and, of course, that is what goes on today as a result 
of a federal statute. A federal statute actually requires that 
hospital emergency rooms serve people who do not have coverage, 
and those costs are shifted.
    So, once again, Oregonians sum up the big challenges very 
well. It has been an excellent, excellent panel. You three are 
really the face of this scramble. You know, Lee Anne, you have 
faced so much. Mike, you have described the many efforts you 
have done. I love the fact that I can go home and I can see you 
in the stands at the high school football game. All your life 
you have backed every good cause around.
    Mr. Roach. Thank you.
    Senator Wyden. You try to work with your workers. The 
question remains about how to make this system work.
    Mr. Lindner, I know that you see things much the same way, 
and a big part of what we want to do in 2009 is to fix the 
health system. I think you have called it accessibility. I 
think people sometimes call it portability. I think the point 
is we have to deal with the costs and we have to make sure 
people are covered. It has to be done more efficiently, and, 
boy, are you on target when you talk about getting information 
about costs and quality out to people because, right now, it is 
possible to get a lot more information about buying a washing 
machine than it is to find out about health care costs and 
quality. So we will keep your answer in mind.
    Mr. Lindner. Actually, Senator, for time reasons, I had to 
remove a sentence in my statement that was just about exactly 
that. You can access information about a car repair more easily 
than health care.
    Senator Wyden. Right.
    Thank you all. It has been great. I appreciate it.
    Let's bring our next panel up: Paul Fronstin, director of 
health and research and education benefits of the Employee 
Benefit Research Institute; Jeanne Lambrew, associate professor 
of the LBJ School; and John Sheils, senior vice president of 
The Lewin Group.
    We will make prepared remarks a part of the hearing record. 
I know you three have testified once or twice in the course of 
your very distinguished careers. So why don't you, if you 
would, summarize your principal points and we will have some 
time for questions.
    Mr. Fronstin, welcome.

  STATEMENT OF PAUL FRONSTIN, DIRECTOR OF HEALTH RESEARCH AND 
EDUCATION PROGRAMS, EMPLOYEE BENEFIT RESEARCH INSTITUTE (EBRI), 
                         WASHINGTON, DC

    Mr. Fronstin. Thank you.
    Chairman Kohl, Senator Wyden, Senator Smith, and members of 
the Committee, thank you for the opportunity to appear before 
you today.
    My written testimony includes information on trends in 
coverage for workers. So I am going to limit my comments to 
trends in coverage for persons ages 55 to 64.
    Older workers and individuals are particularly vulnerable, 
as we have heard, if they were to lose health insurance. Older 
workers may lose coverage because of job displacement and may 
be unable to afford or obtain health insurance on their own due 
to either their age or health status. Furthermore, retirees 
will be less likely than in the past to have access to retiree 
health benefits as employers have been cutting back on this 
benefit.
    Despite the vulnerabilities that older individuals face 
when it comes to health insurance, they are the least likely 
age group among adults to be uninsured. In 2006, nearly 13 
percent of individuals ages 55 to 64 were uninsured This is 
lower than the overall uninsured rate of roughly 18 percent 
among individuals under age 65 and lower than all other age 
groups except for children.
    Workers between the ages of 55 and 64 have experienced a 
slight erosion in coverage and a slight increase in the 
likelihood of being uninsured. In 2006, over 78 percent of 
workers between the ages of 55 and 64 were covered by an 
employment-based health plan, down from 80 percent in 2003, but 
higher than the levels seen in the late-1990s. The percentage 
uninsured increased from nearly 10 percent in 1999 to 11 
percent in 2006, which is essentially the same uninsured rate 
among these workers from back in 1994.
    We have not seen an overall erosion in health insurance 
coverage rates among retirees between the ages of 55 and 64. 
The percentage of these retirees with employment-based health 
benefits from either a former employer or other family member, 
mostly a spouse, has bounced around between 56 percent and 60 
percent between 1994 and 2006.
    In 2006, 58 percent of 55- to 64-year-old retirees had some 
form of employment-based health benefit. During this time 
period, the uninsured rate for this group bounced around 
between 13\1/2\ percent and 16\1/2\ percent. In 2006, nearly 15 
percent of retirees ages 55 to 64 were uninsured.
    It does appear, however, that retirees ages 55 to 64 are 
becoming more likely to get employment-based coverage through 
another family member and less likely to get it through a 
former employer. For the most part, the percentage of retirees 
with coverage through a former employer or through a spouse did 
not show a clear trend between 1994 and 2006. However, the 
percentage of retirees with coverage through a former employer 
was at about 35 percent in 2006, the lowest point between 1994 
and 2006 with the exception of 2000. The percentage of retirees 
with coverage through a family member was nearly 23 percent in 
2006, which is essentially the highest level during the same 
time period.
    Given the erosion in availability of retiree health 
benefits, it might be surprising that the percentage of 
retirees ages 55 to 64 with health benefits through a former 
employer have not fallen more than we have seen. Rates of 
retiree health benefits coverage may not be falling for a 
number of reasons.
     First, there is a strong link between the availability of 
retiree health benefits and the decision to retire early. 
Workers often remain in the labor force longer than expectedto 
maintain health insurance. EBRI's Health Confidence Survey has 
found that 30 percent of workers expecting to retire before 
becoming eligible for Medicare would not do so if they did not 
receive retiree health benefits.
    The declining availability of retiree health benefits may 
also, in part at least, explain the rising labor force 
participation rate among individuals 55 to 64. Between 1996 and 
2006, the labor force participation rate for men increased from 
67 percent to nearly 70 percent, while for women, it increased 
from nearly 50 percent to 58 percent.
    The percentage of retirees with health coverage from a 
former employer may not be declining as quickly as the 
availability of retiree health benefits because workers without 
access to this benefit may be remaining in the labor force 
longer than workers with access to retiree health coverage.
    Thank you.
    [The prepared statement of Mr. Fronstin follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. Thank you very much, Mr. Fronstin. We will 
be talking to you in a few minutes, and I know we will be 
talking to you often in the months ahead as well.
    Ms. Lambrew, welcome.

STATEMENT OF JEANNE LAMBREW, ASSOCIATE PROFESSOR, LBJ SCHOOL OF 
                   PUBLIC AFFAIRS, AUSTIN, TX

    Ms. Lambrew. Thank you.
    Thank you, Chairman Kohl, Senator Smith, distinguished 
members of this Committee, for holding a hearing on this 
important topic of health security for people in late middle 
age. But I especially want to thank you, Senator Wyden, for 
your leadership, not just on this narrow slice of health 
coverage, but for your focus and persistence in trying to 
address the broad-based problems in our health system starting 
with the uninsured.
    I would argue that this population is the window into a 
larger system crisis, and, in fact, it is often that proverbial 
canary in the coal mine showing where our system cracks are and 
how hard it is to solve them.
    What I would like to do is briefly profile some of the 
facts that Paul did not talk about in terms of the health and 
risk profile of this group, talk about incremental options for 
addressing this population because I think that John will talk 
about the comprehensive policies as well, and to present some 
pros and cons and tradeoffs of these options, but to start with 
a few facts.
    We cannot forget that this age group is growing rapidly. As 
the baby boomers move through this age cohort, the number of 
people ages 55 to 64 will increase by 50 percent between 2000 
and 2010 alone. This is not just a big demographic change. It 
is a very high-risk group.
    The risk of having health problems when you turn age 55 
increases more than you would expect. We know that people in 
this age group compared to people ages 45 to 54 have twice the 
death rate, the highest rate of obesity, and in addition have 
greater functional limitations. As a result, they have higher 
health costs, 50 percent higher than the next age group below 
them, in addition to having high out-of-pocket spending.
    We heard in the previous panel the issues of being 
underinsured. We know that people with private insurance spend 
twice as much in this age bracket than the next youngest 
generation.
    So to talk about the options for beginning to address this 
population, as Senator Smith noted, there are numerous options 
out there. What I would like to talk about is the four major 
incremental low-cost options that could be considered by 
Congress, one of which we heard about already, which is 
extending COBRA.
    The Consolidated Omnibus Budget Reconciliation Act of 1986 
requires employers to allow certain former employees and 
dependents to purchase into that coverage for up to 18 months. 
This option could be extended. There have been past proposals 
that would allow people to continue to buy this coverage for 
longer than 18 months, maybe as a bridge to Medicare.
    A second option is to extend an existing group insurance 
purchasing pool to these people. Group purchasing pools offer 
people a choice of plans at a fair premium with equal access to 
comprehensive benefits. Probably the only group large enough to 
accept the 55- to 64-year-old age cohort is the Federal 
Employees Health Benefit Pool, being the largest purchasing 
pool in the country. This could be done by charging a different 
premium or using risk adjustment to bring this population in, 
as another option.
    A third option would be to make individual health insurance 
more accessible and affordable for this group. We heard 
previously about some of the challenges people face getting 
access to this market. This could be changed through regulation 
that limits pre-existing condition exclusions. It could be done 
by limiting age rating, the practice of charging higher 
premiums to older people, or it could be done through some sort 
of reinsurance or risk pool to reduce the high risk in this 
group.
    A fourth option often considered is an early Medicare buy-
in, the idea of letting people join Medicare earlier than the 
age of 65 with some sort of premium that would effectively be 
self-funded; with participants paying a premium when they join 
the program prior to age 65 and paying a so-called risk premium 
after they retire.
    How do we assess these four options? There are very simple 
questions: Who pays for the high-risk people, who is most 
helped, and what are the political prospects for change?
    In incremental reform, we basically do not necessarily have 
the option of spreading the cost of these people across the 
entire population. You have to spread the cost over the group 
that you are adding them to. What we know about COBRA is that 
you are basically backloading the cost on active workers, 
potentially making it harder for those workers and employers to 
continue offering that coverage.
    With group purchasing pools, you have a broader base across 
which you are spreading the risk, but there is really no 
connection among participants and there are concerns that come 
up with this politically.
    In the individual market, you are shifting the cost down to 
younger workers who are a members of that market. With the 
Medicare buy-in, you are pushing the cost to later life. So you 
are spreading the risk in different ways.
    Who is helped? COBRA basically helps only those people who 
were lucky enough to have the types of jobs that we just heard 
about with employer-based coverage, not small business workers, 
not many other workers. Individual market will effectively help 
your lower-risk people, while a group purchasing pool will help 
your higher-risk people. Medicare will help those people who 
are risk averse and really want to get into the program 
earlier.
    Now we can go through the political implications in greater 
detail in the Q&A, but I would argue that this is a population 
for whom there is tremendous political pressure to figure out 
what we do as they move through this age cohort. What I think 
is the interesting question is: Will that pressure result in 
incremental policy changes that are difficult to implement 
given how these are the highest-cost people in the non-elderly 
population, or will it fuel ground efforts for major reform 
because, at the end of the day, the best way to help these 
people is probably comprehensive reform that gets them into the 
broad-based pool?
    Thank you.
    [The prepared statement of Ms. Lambrew follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. Very well said, and I think it is especially 
helpful to have you and John Sheils coming together to talk to 
us about some of the specific options and the role of 
comprehensive reform. It is a good way to trigger the debate.
    So, Mr. Sheils, welcome. You have done wonderful work for 
so many years, and we appreciate your involvement today.

  STATEMENT OF JOHN SHEILS, SENIOR VICE PRESIDENT, THE LEWIN 
                    GROUP, FALLS CHURCH, VA

    Mr. Sheils. I thank the Committee for inviting me. It is a 
real privilege to be here.
     My name is John Sheils. I am a senior vice president with 
The Lewin Group. We are a non-partisan group. We do not 
advocate for or against any particular legislation.
    Today, I have been asked to talk about some of the ideas on 
how you could expand coverage for the group. There are about a 
dozen bills out there right now that would expand coverage in 
the country and all of them would touch on this age group.
    Some of the background: There are about 5.1 million 
uninsured people age 55 to 64. Nineteen percent are below 
poverty. Twenty percent have out-of-pocket spending for health 
care in excess of 15 percent of their income. The average 
premium for a typical employer policy would be about $9,000 for 
someone in this group. That is about four-and-a half times as 
high as it would be for someone, say, under the age of 25, and 
that is what makes this group require special attention.
    One of the proposals--more modest in size, but one of the 
proposals--to come out is something called a Medicare buy-in. 
People age 62 to 64 would be able to buy into the program by 
paying the full cost premium in a policy we looked at where 
there is a cap on what the premium would be to 10 percent of 
your income. That would cover only about 285,000 uninsured 
people, and the key reason for it is that even with the buy-in, 
the premium will still be very high relative to what most 
people are facing in their health care costs.
    Another idea is to expand Medicaid to cover people in this 
age group. Right now--let's see--a non-disabled individual who 
does not have responsibility for a child is not eligible for 
the program regardless of their income, and one of the things 
you could do is--it has been proposed several times--to expand 
coverage under the program to the poverty level, for example. 
That would get you about 1.1 million uninsured people. You 
would still have a lot of people remain uninsured, and the 
reason for that is that even at 125 percent of poverty, 
premiums for health care in this group are going to be 
prohibitively high.
    We have also seen some tax credit proposals that would 
essentially replace the tax exclusion for employer-provided 
benefits with a flat tax credit. An example would be a credit 
of about $2,000 with $5,000 per child. We looked at the impact 
of these, and we have estimated that this could cover perhaps 
22 million uninsured people. About 2.2 million of those would 
be people 55 to 64, and that approaches 50 percent of the 
uninsured population.
    The big problem here is that the credit is fixed at, let's 
say, $2,000, for example. That really does not give you very 
much help in paying a premium if you are facing a $10,000 
premium, as some people do, in some of these high risk pools. 
So we find that it is fairly ineffective. Also, the lower-
income people in this group will require additional subsidies 
to purchase it.
    Now, over the past year, I have had the privilege of 
working with Senator Wyden and helping them work through his 
bill, and this is a comprehensive health reform bill which I 
think is going to be particularly advantageous to this 
particular age group.
    Under this bill, all individuals have to have insurance. 
Your benefits at work are cashed out, which means your wages 
are increased by the amount of what the employer has been 
spending on your health benefits. You then buy the insurance 
either through your own employer or through private health 
plans.
    The program includes what we call community rating. 
Everybody pays the same premium, regardless of their age or 
health status characteristics. So the average premium would be, 
for example, $4,300 in the example I have been using. That 
compares with $9,000 for those 55 to 64. Of course, the 
youngest people spend more. They would spend $2,700 under the 
current law, but they would be paying $4,320 under this policy.
    The program also provides subsidies through 400 percent of 
the poverty level, people between the poverty line and 400 
percent of the poverty line. I think it is easy to argue that 
they need at least some level of subsidies to help them pay for 
their policies, and it is this combination of community rating 
and the subsidies to this higher income level that I think 
makes the bill unique, and I believe there are other bills that 
include features like this, but we are still working on them to 
figure what they would mean.
    Thank you very much.
    [The prepared statement of Mr. Sheils follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Wyden. Mr. Sheils, thank you, for all of your 
collaboration and assistance. We are very, very appreciative. 
Let me just ask a few questions of each of you and feel free, 
the three of you, because you are so renowned in this field, to 
chime in at any point. This is not some kind of Star Chamber 
kind of grilling thing, but a chance to really get an education 
on these critical questions.
    Mr. Fronstin, what do you make of this situation described 
by Mr. Roach and others. How are these trends going to actually 
hurt the economy? They are saying that some older persons who 
are 56, 57 years old, would like to go out and set up their own 
business. In today's health care system, there are many 
challenges you have in front of you like pre-existing illness 
problems. They are claiming that not only is this an issue and 
others going to effect people getting health care coverage, but 
they assert that this situation is going to be harmful to the 
economy.
    Forty-five minutes ago Ms. Fitzpatrick just sat where you 
are now and said her first choice would be to be able to go out 
and set up her own business--hire people, help our economy 
during these kind of troubled times--but she cannot do it. What 
do you make of that?
    Mr. Fronstin. Well, I thought her comments were very 
interesting because towards the end of the Q&A she had 
mentioned that her husband gets coverage from his own job now, 
and while they are concerned about his ability to continue 
working because of his health status, I presume she does have 
the ability to go onto his policy and start her own business, 
and she did not talk about that.
    Her employer offered coverage to keep her employed at his 
company. He was making a business case for that as well. 
Listening to that exchange and the comment that came up from 
the other witness, I just found it interesting, because the 
middle witness--I forget the name--was agreeing with you and 
agreeing with Lee Anne. Yet, if we made coverage more portable 
he would potentially lose a valued employee, someone who he 
added a benefit for his entire company to keep this one person. 
At least that is what I heard in the testimony. I just found 
that interesting.
    That is not to minimize the fact that there are some real 
issues here with the impact on the economy. I think health care 
costs in general are having a huge impact on the economy. They 
are having a huge impact on wage growth, and portability in 
general is an issue whether you are 55 to 64 or even younger. 
It does not matter what your age is if you have a pre-existing 
condition and you try and go out on your own. Chances are if 
you have not met the HIPAA rules that pre-existing condition is 
going to be excluded, and even if it is not, you may not be 
able to afford the premiums.
    Senator Wyden. Dr. Lambrew.
    Ms. Lambrew. Just a quick comment: This issue of job lock, 
I think, is interesting because it cuts in both directions. On 
one hand, it means that people continue to work longer or in 
types of jobs that they do not want to be in because of the 
health insurance situation, and vice versa, so that people may, 
when there is a choice, decide to retire earlier. That might be 
a choice that people want, although some people say it would 
depress economic activity.
    But all the trends you see are in the opposite direction, 
which is given since health care costs are fairly high. People 
want different types of jobs. There is this whole literature on 
what are called bridge jobs to retirement meaning that people 
want a new second career or to go into self-employment or work 
part time as a way to work their way through a retirement that 
is now lasting longer than it used to.
    So, having the freedom of having health insurance 
independent of jobs will potentially prevent some people from 
being locked into working longer than they would like, but also 
could free up some people to go into these part time self-
employed bridge jobs to retirement.
    Senator Wyden. Do you want to respond to that?
    Mr. Sheils. Well, anything that restricts one's ability to 
innovate or be an entrepreneur, to develop some new ideas in 
the economy, anything that does that is really a drag on the 
economy, and you have me wondering whether I should start my 
own business all of a sudden.
    But it is a complicated issue, and I know, knowing people 
who have started their own business in this age group, that it 
is baffling when you try and work through the different options 
available on insurance coverage. It is very difficult to figure 
out what these health plans really do and what they do not do, 
and I am talking people who are health experts who have gone 
out in their own business and they are totally lost when it 
comes to the insurance for their small group.
    So anything that limits one's ability to innovate, like the 
fear or the concern about how difficult it is to arrange 
insurance, anything like that, has the potential to really be a 
drag on the economy.
    Senator Wyden. I think this is particularly important for 
people like yourselves who are the scholars to get us more 
information. I think this is going to be a big deal because we 
are clearly faced with huge economic challenges, even beyond 
what we have seen with the subprime, mortgage mess and Wall 
Street and credit card debt.
    I will tell you, Mr. Fronstin, I do not get the sense that 
it is going to be real easy for somebody to go off and set up a 
business, find coverage and coordinate with a spouse who has 
existing coverage. I think it is going to be a huge challenge, 
and I would like to see the three of you take a further look at 
this because I think it is going to be hugely important as we 
figure out what to do for this group between 55 and 64.
    Mr. Fronstin. I did not mean to imply that in my comments. 
I was just trying to bring up the fact that it seemed like 
there was a constraint that was being talked about that did not 
really exist in the example that we heard about during the 
testimony.
    Senator Wyden. Well, I have heard it so many times from so 
many people, I think it would be helpful if the three of you 
could look at that further.
    Ms. Lambrew, you make a number of points that are very 
helpful. I especially like your conclusion--that as you look at 
the incremental, options, it really does push you down the road 
to examining comprehensive reform, which is essentially the 
conclusion I came to.
    But I am curious about the costs of those four incremental 
options, and how one would raise, the revenue for it. When we 
started the Healthy Americans Act, the first thing we came up 
with was, well, we are spending $2.3 trillion today. There are 
300 million of us. You divide 300 million into $2.3 trillion, 
and you could go out and hire a doctor for every seven families 
in the United States, pay the doctor $200,000 for the year, and 
say, ``Doctor, that is going to be your job, taking care of 
seven families.''
    Whenever you bring it up with the physicians, they always 
says, ``Where do you go to get your seven families?'' Because 
they like the idea of being doctors again and using the dollars 
in the system more efficiently. But if we are going to look at 
these incremental options that you have described, clearly, 
that will cost additional money. What are your thoughts about 
how much these various four options would cost, and what are 
the options for generating the revenue?
    Ms. Lambrew. Well, I will just say that my task as I 
understood it, my mission as I understood it, was to look at 
incremental reform, and I would define that as being relatively 
low cost and at the margin. When we used to do the Medicare 
buy-in policies, the cost was $5 billion, $10 billion over a 
five year period, although John could answer this question as 
well as I can.
    Senator Wyden. That is Medicare buy-in, would be $5 billion 
to $10 billion?
    Ms. Lambrew. The way that these policies are designed, 
there is an upfront cost that gets paid back later by the 
premiums that get paid after you turn 65. So it is a timing 
issue. So you seed the pool, get people in, and then, over 
time, they pay back the excess cost of their risk during this 
period.
    But I wanted to say that there are public costs and private 
costs, and we are not ever very good at talking about this. You 
are absolutely right. We have a $2.2 trillion health care 
system of which about 45 percent is public and 55 percent is 
private, and when you talk about federal budget costs, you take 
that 45 percent slice and go down further because this includes 
state and local spending too.
    We oftentimes try to jam into our federal spending slice 
the subsidies for the entire system and try to figure out how 
we spread that, and it is very difficult. Almost all the 
policies I outlined would try to do that by using implicit 
private-sector subsidies, either by, in the individual market, 
using rate bands, which causes the lower cost people in that 
market to pay more to cross subsidize. If you are talking about 
group purchasing pools, the federal employees cross-subsidize 
the people who come in. If you are talking about COBRA, the 
active workers are going to be cross-subsidizing the older 
workers who are retired.
    At the end of the day, it is all this kind of cost shifting 
that goes on short of a comprehensive system where we think 
through as a society how much we want to raise, how do we want 
to spend, do we want to target some of the options like John 
mentioned, to poor people or high-risk people, or do we want to 
cross-subsidize in different ways.
    So the short answer is these are all low-budget items in 
the federal budget, but that is only looking at the federal 
budget perspective, and these are largely costs that have to be 
spread somewhere.
    Senator Wyden. I think it would be very helpful--because I 
read your testimony and I thought it was very good--if you 
could give us for the record and for the staff in the days 
ahead some sense of what those options would cost and--to the 
extent you can--on the public and private side. That would be 
very helpful.
    One other question I had for you just as we look at this 
whole question of funding. I think you and the panel know that 
I feel very strongly about the tax code. The group working on 
the Healthy American Act have had some briefings. There is a 
$200 billion expenditure--or, I guess, it would be more 
accurate to say $200 billion in revenue forgone. It is more 
likely to be $300 billion in revenue foregone. It would be the 
biggest single item in terms of revenue foregone in this whole 
debate, and I feel very strongly that this is regressive in 
terms of its very nature.
    I mean, if you are a high flyer in this country today and 
you want to get a designer smile put on your face and your 
company has a plan, you can go off and get a designer smile put 
on your face, and the federal taxpayer, picks it up. If you are 
a hardworking woman in the local furniture store, your company 
does not have a plan, you do not get anything other than really 
getting your federal tax payment out there to subsidize the 
high flyer.
    It seems to me most economists agree on this, and I want to 
just ask you, Ms. Lambrew. Here is what Bob Greenstein who 
heads the Center of Budget and Policy Priorities, somebody I 
respect very much, said. Mr. Greenstein said, ``I do not think 
there is much disagreement that the current tax treatment of 
health care is regressive.'' Would you by and large share Bob 
Greenstein's view?
    Ms. Lambrew. Yes.
    Senator Wyden. Great. Very good.
    Let me turn to Mr. Sheils, and for you Mr. Fronstin and you 
Ms. Lambrew, feel free to just chime in at any point.
    What I want to see, Mr. Sheils, is how the Healthy 
Americans Act addressees what I think are the big issues that 
people between 55 and 64 care about. They care about 
affordability, they care about portability, availability, loss 
of insurance. So could you just answer a few questions with 
respect to that?
     Under the Healthy Americans Act, could a person in this 
age group move to another job if it did not offer health 
insurance?
    Mr. Sheils. Yes.
    Senator Wyden. Could they get employer health benefits if 
they worked less than full time?
    Mr. Sheils. Yes.
    Senator Wyden. Since they have health problems in my 
example, would it be possible to purchase or afford to buy 
health insurance on the individual and non-group market?
    Mr. Sheils. I think that much is done in the plan to try 
and address the question of affordability. Community rating is 
a key part of that. It gets the premium to a level that is more 
affordable for everyone, rather than unaffordable for some and 
pretty affordable for others, and then it provides subsidies 
through a mechanism which we think will be fairly easy to use 
through the tax code to help people pay for that coverage and 
to essentially have that assistance at the point when they 
actually need it. So the premium subsidies are a key feature of 
what will assure that sort of availability.
    Senator Wyden. If we were to take somebody who was 62, say 
a woman who was 62, and her husband was retiring at 65 and is 
going to sign up for Medicare, but they would no longer have 
health insurance through his employer. What would happen in the 
next three years to that person until they were Medicare 
eligible?
    Mr. Sheils. Well, really nothing. The way the program works 
is that your employment is really independent of where you 
work. You can get any insurance policy that is offered in your 
area. You can move from one job to another and never change 
your plan. You could move in and out of the labor force and 
never change your source of health coverage, and if you decided 
to change coverage, you became unhappy with your plan and you 
want to move on, you would still be able to do that. You would 
be able to do that as freely as would a person who has employer 
coverage available at work.
    Senator Wyden. Now we are going to have to be very 
sensitive to the financial situation of small businesses. That 
is where most of the jobs are in our country. That is where 
certainly most of the jobs are in our state. I would be 
interested in knowing your view under the Healthy Americans 
Act. How would Mike Roach's responsibility change in paying for 
health insurance coverage for his employees?
    Mr. Sheils. Well, the change would come first in the form 
of a cashout. He would just figure out what he is spending on 
health benefits. There will be a weighted procedure for that. 
Then they will take that amount and give it to the workers in 
the form of a wage increase. Individuals would then be 
responsible for buying the insurance.
    If their employer is offering coverage and they want to use 
the employer's plan, they would be permitted to do that. If 
they would prefer to go to a health plan available in their 
area through--they are called health help agencies--if they 
want to go to a plan in the area that--you will be able to make 
those changes.
    After two years, the employer is going to have to start 
paying an amount equal to up to 25 percent of the premium. For 
the very smallest firms, it is around 2 percent of the premium, 
which is a fairly small amount. As you work your way up, you 
know, the discounts off of the 25 percent requirement are 
pretty substantial. So the small firms in particular are going 
to find themselves contributing at least after the second year, 
and that contribution will for a lot of them be fairly small, 
but for no one it will be greater than 25 percent of the 
premium.
    Senator Wyden. I have just a couple of other questions, and 
then we have been joined by my friend from Delaware who has a 
great interest in these issues. So I will just ask a couple of 
additional questions. Then we will recognize the senator from 
Delaware.
    Some of the health insurance problems, Mr. Sheils, that 
people in late middle age face are essentially these various 
locks. There is a job lock, where they cannot leave or move to 
another job for fear of losing insurance. There is an insurance 
lock--they cannot change insurance companies. That was 
essentially the situation Mr. Lindner described. Or they cannot 
get individual non-group insurance or they cannot afford to pay 
for it.
    So how would the Healthy Americans Act, in effect, unlock 
some of these precarious economic circumstances that our 
citizens face?
    Mr. Sheils. Well, they make it possible for you to make 
changes without hurting yourself, without disadvantaging 
yourself. As I said, the premiums that you pay under the plan 
are community rated. They are the same regardless of your age 
or health status. So you are in the labor force, you know. In 
that respect, in terms of your health insurance premium, you 
are as healthy as anyone else is.
    That does not create any kind of a barrier to your moving. 
The arrangement is such that there will be an open enrollment 
period at the end of every year, and individuals would be able 
to acquire a change in their coverage without going through any 
sort of extraordinary steps. It will be irrelevant whether you 
are working, who you are working for, how much you make. All 
those things would be irrelevant in the process of selecting a 
health plan, retaining that health plan, or moving to another 
health plan when you decide you would prefer a different source 
of insurance.
    Senator Wyden. The last question I had for you, Mr. Sheils, 
deals with an issue that is getting a lot of discussion in our 
country. That is, how much is health reform going to cost? 
Certainly, there is no consensus in the United States about 
this. There are people saying it will cost hundreds of billions 
of dollars more but then there are a wide variety of 
projections.
    What we felt very strongly about in the Healthy Americans 
Act was right at the center of the reform effort. That is, the 
key issue of showing that this is not going to dramatically 
increase health spending. When The Lewin Group looked at the 
legislation, the judgment was that in the short term that it 
would essentially be revenue neutral. It was possible to do 
that for the short term. For the longer term, after 10 years, 
the plan generates a substantial amount of savings, close to 
$1.48 trillion.
    What are some of the critical elements in the legislation 
that you found helped to hold the costs down?
    Mr. Sheils. Well, I think that, you know, typically if you 
were to just talk about covering the uninsured under today's 
system, we would get an increase in health spending of about 
$50 billion. But that is because you are using the existing 
system and you are continuing to rely upon a system that does 
is really very expensive to administer. It also has some poor 
incentive structures for individuals and for physicians that 
actually cause us to use more health care.
    Under your proposal, you included provisions which are 
first designed to reduce administrative costs. Those uninsured 
people, yes, they may go out and start using more health care, 
but you are going to adopt a system which makes it simpler and 
easier to administer the system. So you have some savings 
there. You also change incentives in the system by really 
replacing the existing tax exclusion for employer-provided 
benefits with a fixed tax credit. I am sorry. In your case, it 
is a deduction.
    The idea here is that in today's system the system actually 
rewards you if you spend more on health care. Right now, the 
premium that your employer spends for your health benefits is 
not taxable. Any contribution you make for your health benefits 
generally is not taxable. Some people have flexible spending 
accounts, which allow them to take, say, $3,000, put it in an 
account, use it to pay for their out-of-pocket expenses. All of 
that is in pretax dollars. So there is quite a tax benefit 
there.
    Under your system, you give people a standard deduction for 
health care that is uniform. You get on average roughly the 
same tax benefit you are already getting from a tax exclusion, 
but it is set up so that you are not going to lose any tax 
benefits because you decided to go to a less costly plan, and 
the idea here is to make the tax code as neutral as possible 
when it comes to consuming health care.
    A lot of economists believe that this tax exclusion is 
really distorting the way people see their health care 
expenses. A lot of people do not even know what the premiums 
are for the benefits they have. I had a meeting--a brown bag 
lunch--at our work, and I asked people what they thought the 
health benefits costs were for our firm, and I actually offered 
$100 to whoever got it right.
    Virtually, no one knew the answer. I did not know the 
answer until I had checked a couple of days before. This is a 
firm filled with health care experts, half of whom are 
economists. We have no idea what we are spending on the health 
benefits we get.
    Under a system like this, you are going to see that. You 
are going to write the check for the full amount, and if you 
can find a lower-cost source of insurance, the check you write 
can be smaller. You can save some of that money for other 
purposes. This is a change in incentives. This is intended to 
fuel competition. It is intended to get people more cost 
conscious about their utilization of health care.
    It is a controversial ideal. But it is one of the few ideas 
out there, outside of regulating what providers are paid, 
outside of regulating payments for providers. There is really 
very little else out there right now in terms of a 
comprehensive cost-containment initiative, and I think this 
would have that feature.
    You are not alone. There are other plans with this in it. 
So your leadership has certainly been noticed, but it is 
certainly a feature in your plan.
    Senator Wyden. Well, thank you very much.
    In fact, thank all three of you. We have a very strong 
advocate for older people here with Senator Carper, and let me 
recognize him for whatever questions he may have.
    Do not feel constrained by the 5-minute rule.
    Senator Carper. Thank you.
    Senator Wyden. I want you to be able to ask what you 
choose.

           OPENING STATEMENT OF SENATOR THOMAS CARPER

    Senator Carper. Thank you. Thank you, Mr. Chairman. Thanks 
for pulling this together today.
    This is the second panel. I have four Committees that are 
meeting today, and we are working on housing legislation on the 
floor which I am keenly interested in, so I apologize for 
arriving here at the tail end. I would like to say we saved the 
best for last, that being me, but that is not at all the case.
     Senator Wyden indicated that I have a real concern for 
older Americans, and I used talk a lot about my mom. She died 
about two years ago, and I would always talk about my care for 
her and for her generation. Now I guess I am getting to be an 
older American, I am 61 years old, and I try to take pretty 
good care of myself.
    I am going to ask you really two questions.
    One of the questions I want to ask is I presume some of you 
are pretty familiar--is it Mr. Sheils?
    Mr. Sheils. Yes.
    Senator Carper. Mr. Sheils, I presume that you are pretty 
familiar with the Healthy Americans Act which Senator Wyden has 
worked on for years and which I am pleased to co-sponsor with 
him, and you may have already had some discussion about the 
aspects of the legislation that you like, particularly within 
the context of the age 55 to 64 group.
    But let me just ask if when you look at this legislation, 
our legislation, what are some areas that you all think we can 
do better?
    Mr. Sheils. Well, I have been working with Senator Wyden on 
it.
    Senator Carper. I say that knowing everything I do, I can 
do better.
    Mr. Sheils. Yes. I am sure everything I do can be done 
better, too. So it is probably a better question for my 
colleagues here. But, occasionally, we see features of it that 
we want to tailor. It comes up time and time again, and I know 
that during the year we added in the ability for employers to 
continue to provide health insurance, if they want, and that 
has been a very important improvement in the bill. So we have 
made those changes.
    We have added some cost-containment provisions, things 
having to do with clinical trials research, health information 
technology--a lot of people have come up with these ideas--all 
in an effort to strengthen the cost containment package. The 
incentives plus the clinical trials research so that you know 
what works and what does not, all those things together, we are 
hoping, is going to have a long-term cost-containment effect.
    Senator Carper. All right. Let me ask our other witnesses. 
If I am asking an unfair question, I do not know how familiar 
you are with the legislation, but are there some aspects to it 
that you would like to see improved? Mr. Sheils has just 
mentioned a couple of changes that have been made in the past 
year.
    Ms. Lambrew. Sure. I will say this in the context of giving 
you all credit for what you have done so far. It is a universal 
coverage bill with access that really matters, as we talked 
about previously. Accessibility for this particular age group 
is particularly important because their ability to access 
quality coverage is limited given their risk. I think access 
is, as John Sheils has mentioned before, pretty well dealt 
with.
    A couple open questions about affordability. This issue is 
something that is difficult to define. We are learning that as 
Massachusetts is unfolding its health reform plan. Whether the 
premiums are considered affordable for middle-income, low-
income families is an open question weall have to look at, as 
is the issue of cost sharing. We know that right now people are 
underinsured in greater extents, so will there be sufficient 
and adequate protections on the cost-sharing front? I think 
this comes up especially important in this bill in the context 
of eliminating Medicaid and having Medicaid play a supplemental 
role. Will that be sufficient to make the cost of services 
affordable for low-income people and people with disabilities 
who rely on the key protections in that program?
    I will also throw in a concern that I have about health 
savings account, which is, I think, what we are seeing in the 
Medicare medical savings account demonstration. When you have 
medical savings account, i.e., health savings account, next 
door to a comprehensive plan, people will fit themselves into 
where they are going to be most benefited, and if, like in the 
Medicare plan, the people can join them when they are healthy, 
get that account buildup and then switch to a comprehensive 
plan when they are sick, there are some concerns about whether 
or not that is a viable long-run model.
    But these are some of the things that I am happy to talk to 
your staff about.
    Senator Carper. Sure. Thank you, ma'am.
    Is it Fronstin?
    Mr. Fronstin. Fronstin.
    Senator Carper. Fronstin. Mr. Fronstin.
    Mr. Fronstin. Clearly, a lot of thought has been put into 
this bill, and a lot of work behind it. As far as 
recommendations go for improvement, that is not what we do at 
EBRI. We stay away from recommending changes. So I am going to 
pass on the rest of the question.
    Senator Wyden. You have the best deal in town.
    Senator Carper. All right. One last question I would like 
to ask you. There are some folks around the country, employers 
around the country in an employer-based health insurance system 
who have done a pretty good job of not only providing coverage 
for their employees, but also finding ways to rein in the 
growth of their health costs and premiums, hopefully not at the 
expense of their employees' health. Starbucks is one that comes 
to mind.
    But there are a lot of other companies that are trying to 
figure out how to incentivize healthier behaviors, healthier 
lifestyles for their employees, and I think must be succeeding 
to some extent because they are demonstrating maybe some growth 
in health care cost premiums, but not double-digit growth, not 
the kind that some others are incurring.
    What might we do to help incentivize, to encourage more of 
that behavior to emulate those that are doing well, doing well 
by their employees and doing well by their bottom lines?
    Mr. Sheils. Well, I think I spent too many years as an 
economist, I guess, but I think that incentives are the key 
thing for Congress to work on at every turn of the corner.
    Providers have to have an incentive to do it right, but to 
do it without waste. Individuals have to have an incentive to 
seek out those sources of coverage that are going to help them 
reduce costs.
    We need to be open to ideas. The bill, for example, is open 
to HSAs, for example. These are hot issues. Some people do not 
like them. We need to basically do as much as possible to set 
up these incentives.
    When employer insurance works, it works really well, and if 
a firm wants to continue providing coverage, they would be able 
to do that, and I know a lot of the larger firms are already 
working on wellness programs. So they have this financial 
incentive to help people more. So I tend to think in terms of 
these incentives.
    Senator Carper. All right. Thanks.
    Anyone else on that?
    Ms. Lambrew. Just quickly two points. I actually want to 
underscore this because I think that in the absence of seeing a 
revised bill, in addition to giving people a choice of joining 
HSA, giving firms that self-insure that are doing a good job 
the option of continuing to offer that coverage is something 
that is right now, without that being changed in your bill, a 
major concern among some people who think that they have been 
doing a good job and people should have the choice of that type 
of insurance option.
    But the second thing I will say is that I have been 
spending a lot of time thinking about this issue of prevention 
and wellness because, with our chronic disease epidemic, it has 
to be a priority, and this bill clearly does take this on at 
some level.
    But sometimes we rely on insurance for too much. There is a 
point at which insurance is not supposed to be doing prevention 
per se. Why would they want to invest now in a benefit that is 
going to accrue to people in society 10, 20, 50 years out?
    So I have been working on a proposal called the Wellness 
Trust where we pull the prevention money out of the system, 
consolidate it, and figure out pay-for-performance and other 
incentive mechanisms to pay for it ubiquitously, get it out 
into supermarkets and schools and workplaces to really move 
prevention to a new model that is not an insurance model. That 
is something I would recommend you think about.
    Senator Carper. All right. Thanks.
    Ms. Lambrew. Thank you.
    Senator Carper. Mr. Fronstin, anything you want to add?
    Mr. Fronstin. In the work that we have done in the past 
year, employers want a number of things. They want provider 
accountability, they want more price and quality transparency, 
they want more information technology, and they specifically 
told us that they viewed government as a partner. So they are 
certainly willing to partner with you to work at this, because 
they are concerned about health care costs as much as anyone 
else. Even those that are having success would like to continue 
to manage those costs in the future.
    Senator Carper. All right.
    Mr. Chairman, I am sorry I got here so late, and I am glad 
I got here at all.
    Thank you to this excellent panel, and we appreciate very 
much your being here and your responding to my questions, I 
know to all of our questions. Thank you for your testimony.
    Thank you, Mr. Chairman, again for your leadership.
    Senator Wyden. Well, I thank my friend for all his interest 
and involvement, and we are just thrilled to have you part of 
the group of 14. Thank you.
    A couple of points--I want to give you a chance--one on 
this question of prevention, Dr. Lambrew, is that I think you 
are absolutely right about the nature of what happens to 
prevention in today's insurance market, no question about it. 
One of the reasons I feel so strongly about reforming the 
private insurance market as it stands today is that I think in 
the future when individuals stay with companies with private 
insurance because they like it, because they get better 
treated, that creates new incentives for the private insurers 
to offer prevention.
    So we envision under our legislation that, when private 
insurance companies can no longer cherry pick and focus just on 
taking healthy people and sending sick people over to 
government programs more fragile than they are, they compete on 
the basis of price, benefit, and quality. You will see private 
insurers use as a draw for their particular package during the 
open enrollment season, ``We have the best prevention programs 
around,'' ``We have the best programs for dealing with early 
incidence of diabetes,'' that kind of thing.
    In fact, I will keep the record open for all three of you 
on this issue for prevention because I think it is an area 
where there is widespread interest in incentives. We try to do 
that with the Medicare portion of the bill where there would be 
reductions for seniors' premiums if they lower their blood 
pressure and cholesterol. We try to do that for parents with 
young children where if the parents take the kids to preventive 
programs, the parents are eligible for reductions in their 
premiums. As far as I am concerned, we cannot do enough to 
create incentives for prevention, and we will just keep the 
record open for the three of you on that point.
    I want to give you three, actually, the last word. I am 
particularly glad we had a chance with Senator Carper's 
question to get into what we have accepted in terms of a change 
in the bill from its original version to provide this role for 
the employer. It was our judgment that once you have allowed 
the worker to really see what their compensation is all about, 
because that is what health benefits are, it is kind of a myth 
that it is the employer's money. It is really part of the 
compensation package for the worker, and as Mr. Sheils said, a 
lot of the most knowledgeable people in the country do not even 
know what is being spent.
    Once you have made that change people will see what is 
being spent and that it is their money, I think it is very wise 
to say that if the worker wants to choose between the various 
private-sector offerings--we offer that in the Healthy 
Americans Act--and the employer wants to offer coverage we feel 
very strongly about preserving that option. I think all three 
of you have today and in the past made statements indicating 
that you were interested in that sort of thing.
    So the last word to you three for being so patient and all 
the good work you have done. Mr. Fronstin, Ms. Lambrew, Mr. 
Sheils, last word for you three.
    Mr. Fronstin. Real quickly I would just say, in response to 
your comment about worker compensation and choice, there are 
some employers, large employers, very concerned about--even 
though they are cutting back on retiree health benefits--the 
implications of that, and they are trying to create markets for 
retirees to give retirees choices and accessibility that they 
do not have, and I just want to recognize two examples out 
there.
    One is a consortium of about 50 colleges and universities 
that is known as Emeriti Retirement Health Services that has 
created this coalition, is partnering with an insurance company 
to offer benefits right now to Medicare-eligible retirees, but 
eventually they plan on extending that to early retirees, and a 
sizeable number of the 50 never offered retiree health benefits 
to begin with. So they have been brought into this group.
    Then there is a group of large, private-sector employers 
organized by the Human Resources Policy Association that has 
created their retiree health access program that is, providing 
guaranteed issue benefits without, exclusions for health status 
to early retirees that are associated with those organizations. 
So they are very concerned about choice, and it is voluntary. 
It is a very small step in terms of the number of people that 
are covered, but I think it is very significant that this is 
where they are thinking.
    Senator Wyden. I agree with you.
    Dr. Lambrew.
    Ms. Lambrew. I will give you unsolicited advice;--which is, 
given the jurisdiction of this Committee, I think it would be 
useful in your future hearings and study to look at why it is 
important to Medicare for us to solve the health system crises, 
and I say that from the narrow perspective of today's hearings.
    What we know is uninsured people, when they join Medicare, 
are sicker and more expensive. You find that after five years 
of being on Medicare, you can reduce some of that sickness gap 
by about 50 percent, but there is still a cost to the program 
of being uninsured prior to Medicare. We know that the chronic 
disease epidemic cannot be stemmed after the age of 65. We have 
to each back into the younger populations to do it, and, more 
importantly, a lot of the cost drivers of Medicare are 
systemic.
    There is the lack of a high-quality, high-value system. It 
is a lack of prevention that we talked about. So, as a 
potential topic for future hearings, we hear a lot of 
``Medicare is the problem,'' but I would argue that the health 
system is the problem, and if you call could focus on that as 
well, that would be greatly appreciated.
    Senator Wyden. Spot on. Absolutely agree.
    Mr. Sheils.
    Mr. Sheils. Thank you. I think we are very fortunate right 
now that we have--I think there are a dozen health reform bills 
in Congress right now--three presidential candidates who have 
plans that would greatly expand coverage in the United States. 
We are very, very fortunate, and I think that one of the things 
that you have clearly explored in your work here is a 
bipartisan approach to making some choices and making some 
decisions, and I am very encouraged by your leadership in that 
regard.
    I guess my one word of advice--and this is very easy to 
say, very difficult to figure out how to actualize on--is 
incentives, incentives, incentives. We need to change the 
incentives in the system. People have been saying this for 14 
years. We need to change the incentives in the system as much 
as possible so that we have incentives for people to be 
efficient, for people to stress wellness, and for people to 
moderate their use of health care, frankly, in cases when it is 
of little or no benefit.
    Very difficult issues, but I think that focusing on 
incentives in those regards, continuing to be clever, 
continuing to try and change incentives for everybody in the 
system in any way that you can is going to be the key to the 
cost problem. I do not see how any program would be sustainable 
if we have costs growing as they are now for the indefinite 
future.
    Senator Wyden. Good one to quit on. It is very obvious that 
if you can make it attractive for people to do something, 
rather than taking yet another government approach where people 
feel like they are beaten over the head with a stick, it is 
much more attractive. So we have a lot of work to do in the 
days ahead, and I think this time there is a real sense that 
this is doable. One of the reasons it is doable is because we 
have good people like you three out there helping and offering 
good counsel and good suggestions.
    So thank all three of you for the work you do and your 
patience this morning.
    With that, the Committee is adjourned. [Whereupon, at 12:23 
p.m., the Committee was adjourned.]
                            A P P E N D I X

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           Mike Roach Responses To Senator Smith's Questions

    Question. As an owner of a small business trying to provide 
health insurance, what do you think of this type of assistance? 
Would you support this type of assistance at the federal level 
(i.e. a federal tax credit to small businesses who employ low-
income workers)?
    Follow Up: Mr. Roach, what are your thoughts on this 
program?
    Answer. The Oklahoma program would improve the status quo 
but still leaves our business with the significant burden of 
being responsible for our employees' health insurance. I am 
very interested getting out of the health insurance business 
and just running our clothing store. I am prepared to 
contribute toward a health insurance pool but prefer not to be 
involved with making health insurance decisions for our 
employees.
    Young or Old: Sick Individuals Pay Higher Costs
    We understand older workers tend to be sicker. However, 
whether young or old it's clear even one sick employee or 
dependent can drive up an employee's health care costs.
    Question. Are there situations in which younger workers at 
your firm have had an illness that impacted your company's 
overall health care costs? In your experience, have you seen a 
difference in cost impact to your company depending on the 
employee's age?
    Answer. As far as I know, employee age drives the cost of 
health insurance more than individual experience. Our older 
employees definitely increase our premiums substantially.
                                ------                                


      Lee Anne Fitzpatrick Responses To Senator Smith's Questions

    Question. The issue of health reform is gaining increased 
attention both in the media and in Congress. Over the next 
year, my colleagues and I will devote time through hearings 
like these, and on the Senate floor, to this critical issue. 
It's important for Congress to hear directly from the men and 
women who are struggling to afford health insurance coverage.
    Would you rather we make changes to the current system to 
make health insurance more accessible and affordable--so you 
could pick your health care plan and providers? Or would you 
like the government to provide your health care coverage?
    Answer. I feel that all Americans dependent of age, race 
and their economic situation should have equal availability and 
access to good health insurance. We should have good health 
options whether that be resources for well health or treatment 
for a serious illness or accident. I am more interested in a 
government program but I also feel it is our responsibility to 
help pay for this expense based on our incomes.
                                ------                                


          Paul Fronstin Responses To Senator Smith's Questions

    Employer Perspectives
    According to EBRI, almost 60 percent of employers with 
three to 199 employees provide health care coverage to their 
employees.
    Question. How do employers view the current employer-based 
health care system? What types of improvements do employers 
think should be made to the system?
    Follow Up: What are the differences, if any, between how 
small and large employers view the existing employer-based 
health care system?
    Answer. Employers offer health benefits voluntarily because 
they think there is a business reason for doing so. They think 
it affects the overall success of their business, in that it 
helps with recruitment and retention. They also think that 
offering health benefits has a positive impact on worker health 
and therefore worker productivity. Both small and large 
employers share these opinions.
    In terms of improvements, you can say that employers are 
all over the map on what they think should happen with the 
system. Large employers generally think that they should be 
getting more value for the money that they spend. They would 
also like to see the adoption of health information technology 
with an enhanced focus on wellness and prevention. They would 
like to see the measurement and publication of quality and 
price information. They would like to see the promotion of 
quality and efficiency. They would like a more competitive and 
accountable marketplace. Most medium and large employers, and 
employer associations, think that employer should continue to 
offer health benefits and continue to play an active role in 
the health care system, while other employers do not share this 
sentiment. Small employers are generally not as engaged on 
these issues as are large employers.
    Tax Deduction To Purchase Health Insurance Outside The 
Workplace
    During the budget debate last month, the Senate voted on an 
amendment offered by Senator DeMint that would have created an 
above-the-line federal income tax deduction for individuals 
purchasing health insurance outside the workplace. Although I 
voted for the amendment, it failed by a vote of 45 to 51. One 
of the arguments against the amendment was that if this change 
were to be enacted, it would mean the end to the current 
employer-based health care system.
    Question. What are your thoughts with respect to this 
argument?
    Answer. Any change to the way in which employment-based 
health benefits are taxed could mean the end of such a system 
of financing health insurance coverage in the United States. 
Presumably, young and/or healthy workers would be the first to 
leave employment-based health benefits for the individual 
market were a tax preference given to the individual market in 
its present form, where premiums charged generally vary by age 
and health status. This would be less true where an individual 
market is regulated to provide flat community rating so all 
would pay the same amount, with guaranteed issue to assure that 
even the sick can purchase coverage. To the degree that this 
happens in the present individual market environment, workers 
remaining in the employment-based system would be 
disproportionately old and unhealthy, which would drive up 
premiums in the employment-based system. The employment-based 
system would then be in a vicious cycle: As premiums increase, 
the youngest/healthiest workers would move to the nongroup 
market, leaving relatively older/less healthy workers in the 
employment-based system, which would continue to drive up 
premiums for employer coverage. This phenomenon is known as the 
``death spiral'' because it means the death of employment-based 
health benefits as a result of continued and increased adverse 
selection. As workers leave the employment-based system, for 
the nongroup market and drive up premiums in the employment-
based system, employers would find coverage less and less 
affordable, and would eventually drop that coverage. 
Furthermore, as fewer workers demand health benefits through 
work, employers could respond to this lack of demand by 
dropping benefits.
    Retiree Coverage
    Based on your testimony, surveys show there has been no 
erosion in health insurance coverage rates among retirees ages 
55 to 64 from 1994 to 2006. However, I understand these 
retirees are more likely to get employment based coverage 
through another family member rather than through their former 
employer.
    Question. Are you finding that retirees are getting 
coverage through a family member because it is less costly or 
more generous in terms of benefits?
    Are you finding that employers are passing on a greater 
cost to early retirees?
    Answer. Retirees may be getting coverage through a spouse 
as opposed to through a former employer for a number of 
reasons. First, fewer employers are offering those benefits. 
The Agency of Healthcare Research and Quality (AHRQ) reports 
that only about 13 percent of private-sector establishments 
offer health benefits to early retirees in 2005, down from 
nearly 22 percent in 1997. When the benefits are offered, 
employers have generally made it more difficult for retirees to 
qualify for health benefits and retirement, so not all of those 
who work for an employer that offers the benefit will qualify 
to receive it. They have been tightening eligibility 
requirements to control spending and reward longer-service 
employees. This might involve requiring workers to attain a 
certain age and/or tenure with a company before they qualify 
for health benefits in retirement. In addition to tightening 
eligibility for benefits, some employers have simply made the 
cost of participating in retiree health benefits more expense 
for retirees and some employers have gone so far as to 
eliminate their subsidy for retiree health benefits altogether 
for workers hired (or retiring) after a specific date.
    Health Insurance Challenges for Workers Ages 55 to 64
    Today's hearing focuses on some of the unique issues 
individuals 55 to 64 face to obtain and afford health insurance 
coverage, especially if they have pre-existing medical 
conditions.
    Question. Do workers age 55 to 64 face any special problems 
if they lose their health insurance--and do they have any 
special options for obtaining new coverage?
    Follow Up: If a worker age 55 to 64 loses coverage and has 
to obtain it on the individual market, what is the premium 
likely to be compared with the premium offered through an 
employer?
    Answer. Individuals ages 55-64 have a limited number of 
options for obtaining health insurance coverage. If a person is 
working they may be able to obtain health insurance coverage 
through a new job. Some retirees may have to go back to work to 
obtain health insurance coverage. Some individuals can continue 
to be covered under COBRA though they will be required to pay 
102 percent of the premium on an after-tax basis, which may not 
be affordable. Married persons may be able to maintain 
employment-based health benefits through a working spouse.
    Individuals not eligible for employment-based benefits face 
a daunting situation when it comes to health insurance. 
Individuals seeking insurance on the individual market will be 
subject to medical underwriting and are likely to face 
preexisting condition exclusions or outright denials of 
coverage. Even when coverage is available, premiums are often 
unaffordable for an older person with health conditions with 
limited retirement income. Medicare is available for persons 
under age 65 with disabilities after a 29 month waiting period. 
Medicaid is available for certain low income people.
    Premiums for persons 55-64 will depend heavily on an 
individuals state of residence, health status, and choice of 
health plan. Individuals may be able to choose less 
comprehensive coverage by either picking plans with high cost 
sharing requirements or plans that exclude certain benefits. 
Coverage is more affordable when an individual chooses a less 
comprehensive plan, though that usually means an individual 
will be responsible for higher out-of-pocket costs.
    Finally, under the current system, employees generally pay 
only a small portion of the total premium, while they would pay 
all of it in the individual market. This approach allows the 
employer to keep all workers in the pool, rather than driving 
out the young and the healthy.
    Health Promotion & Worker Productivity
    As you stated in your testimony, employers have a 
motivation to provide health insurance and additional benefits 
as a means of protecting their investment in their workers. 
Health promotion programs have shown to decrease health care 
costs due to diet-related chronic disease and obesity, and to 
increase employee productivity through lower rates of 
absenteeism. Studies have reported a proven rate of return 
within 12 to 18 months, ranging from $2 to $10 for each dollar 
invested.
    Question. Based on your experience with employers, if they 
no longer offer health care coverage, would these wellness 
programs go away? Would employees have access to wellness 
programs on the individual market?
    Are employees less likely to enroll in these programs if 
they are not offered on-site?
    Answer. Employers offer health benefits because they think 
there is a business case for offering benefits. The 
availability of health benefits helps employers be competitive 
in the labor market and to the degree that health coverage 
improves worker health, it also improves worker productivity. 
If employers stop offering traditional health benefits they may 
or may not continue to offer wellness programs. If employers 
think that there is a business case for offering a wellness 
programs then they will offer such a program.
    Insurers already offer wellness programs to employers and 
may continue to do so to the individual market. If insurers 
find that offering such programs help them manage population 
health and controls health care use and costs, they are very 
likely to offer these programs. Whether insurers offer these 
programs depends on whether they expect individuals who would 
benefit from these program will stay with the insurer 12-18 
months so that they reap some reward.
    Insurers and employers have found that most workers do not 
take advantage or wellness and prevention programs. This has 
led them to try many methods of increasing the use of such 
programs ranging from paying all costs to provision of dollar 
incentives and/or penalties. None of these experiments to date 
have led a majority of workers to participate. Were the 
employer to no longer provide health insurance these financial 
tools that have served to increase use at least somewhat would 
be less available. Employer interest in health employees would 
be no lower, but the capacity to affect health status would 
decline.
                                ------                                


         Jeanne Lambrew Responses To Senator Smith's Questions

    Medicare Buy-in
    In your testimony, you mention health care reform proposals 
that would expand Medicare eligibility to Americans under age 
65 and would allow Medicare to ``compete'' with private health 
plans.
    Question. As we are aware, individuals in the commercial 
market experience higher costs or cost-shifting because of 
uncompensated care and underpayments in public health programs. 
I am curious if you or any of the second panel witnesses have 
done any research to determine whether expanding Medicare to 
early retirees, or everyone under age 65, would exacerbate the 
cost-shifting phenomenon?
    Answer. I have not conducted research on this topic. 
However, most research suggests that the premiums of insurance 
in the commercial market are higher than larger, self-insured 
plans due to greater administrative costs and less ability to 
bargain for lower provider payment rates. Uncompensated care 
does contribute to higher costs, but the shift due to an unpaid 
bill for an uninsured person is greater than that of a low 
payment from public programs. To the extent that a policy like 
a Medicare buy-in insures the uninsured and better manages the 
chronic illnesses and risks of people in this age group, it 
should lower uncompensated care and costs, not raise them.
    Could this type of proposal push health insurance coverage 
further out of reach of small businesses?
    If a Medicare buy-in was a viable option for people in this 
age groups, who tend to have higher health risks and thus 
premiums, it could lower the premiums for small businesses 
since the workers left in their insurance plans would be 
younger and less expensive.
    Should Reforms Target the Uninsured or the Employer Market?
    Question. As we have heard today, nearly 162 million 
individuals under age 65, or 62 percent, are covered by an 
employment-based health plan, while 18 percent of this 
population is uninsured. According to an EBRI survey, we also 
understand that most employees are satisfied with their 
employer-sponsored coverage. There are several reform proposals 
being considered, including those which would convert the 
employer system into an individual market.
    What is your opinion? Should reforms target the 18 percent 
of the uninsured population or make large-scale changes for the 
62 percent of the population who already have coverage?
    Answer. In my opinion, policy makers cannot solve the 
problem of the uninsured without making health coverage more 
affordable for all Americans. The uninsured is not a single, 
static group. Over the course of two years, 85 million 
Americans have some gap in coverage. The problem is increasing 
affecting middle-income workers, people with higher education, 
and young adults. Policy makers could target subsets of the 
uninsured, but until systemic reforms are implemented to 
promote high-value care, coordinated care, continuous coverage, 
and prevention, people will continue to fall from the employer 
system into the widening cracks in our health insurance system.
    Question. What are your thoughts on this disparate tax 
treatment--and what are the pros and cons to moving to a tax 
system that treats people who get their health care through 
their jobs the same as those who do not?
    Follow Up: Jeanne or Paul, do you have thoughts on this?
    Answer. I believe that public financing--both when it is 
provided as direct premium assistance or indirect tax breaks 
for insurance--can and should be used to leverage value-
oriented, accessible, and affordable health insurance. The tax 
breaks for employer coverage support coverage that: (a) 
guarantees access to all workers and their dependents; (b) 
charges enrollees the same premiums regardless of age or health 
risk; (c) sets benefits based on employer and employee, not 
insurer, preferences; and (d) has lower administrative costs 
than policies sold in the individual market. These tax breaks 
could be improved; for example, they could be linked to benefit 
packages that promote high-value services and calibrated to 
provide greater assistance to low-income than high-income 
workers to make the premiums for such coverage more affordable.
    I do not believe that the goal of using public financing to 
leverage value-oriented, accessible, and affordable health 
insurance would be achieved by extending the current tax break 
for employer coverage to individual coverage. Currently, in 
most states, individual insurers can: (a) deny applicants 
coverage; (b) charge enrollees higher rates if they are older, 
have greater risks, or have had a health problem in their past; 
(c) set benefits to exclude coverage for preexisting conditions 
or high-cost services like maternity coverage; and (d) pass 
along underwriting and marketing costs to enrollees through 
higher premiums. In short, this idea would use good money for 
bad coverage.
    That said, policy makers must develop viable accessible, 
and affordable insurance options for the large and growing 
number of people who lack access to employer-sponsored 
insurance. Numerous solid ideas would achieve this, from 
building on group purchasing pools to using regulation to make 
individual-market insurance function more like group health 
insurance. People without access to employer coverage should 
receive a comparable tax subsidy, but only for coverage that 
shared the positive features of employer-sponsored insurance.

                                 
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