[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                       FULL COMMITTEE HEARING ON
                           HEALTH CARE REFORM
                        IN A STRUGGLING ECONOMY:
                         WHAT'S ON THE HORIZON
                          FOR SMALL BUSINESS?

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

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            February 4, 2009
                               __________

             [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Small Business Committee Document Number 111-003
Available via the GPO Website: http://www.access.gpo.gov/congress/house

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman
                          DENNIS MOORE, Kansas
                      HEATH SHULER, North Carolina
                     KATHY DAHLKEMPER, Pennsylvania
                         KURT SCHRADER, Oregon
                        ANN KIRKPATRICK, Arizona
                          GLENN NYE, Virginia
                         MICHAEL MICHAUD, Maine
                         MELISSA BEAN, Illinois
                         DAN LIPINSKI, Illinois
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                        BRAD ELLSWORTH, Indiana
                        JOE SESTAK, Pennsylvania
                         BOBBY BRIGHT, Alabama
                        PARKER GRIFFITH, Alabama
                      DEBORAH HALVORSON, Illinois
                  SAM GRAVES, Missouri, Ranking Member
                      ROSCOE G. BARTLETT, Maryland
                         W. TODD AKIN, Missouri
                            STEVE KING, Iowa
                     LYNN A. WESTMORELAND, Georgia
                          LOUIE GOHMERT, Texas
                         MARY FALLIN, Oklahoma
                         VERN BUCHANAN, Florida
                      BLAINE LUETKEMEYER, Missouri
                         AARON SCHOCK, Illinois
                      GLENN THOMPSON, Pennsylvania
                         MIKE COFFMAN, Colorado
                  Michael Day, Majority Staff Director
                 Adam Minehardt, Deputy Staff Director
                      Tim Slattery, Chief Counsel
                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  


                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)

  
?

               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                  HEATH SHULER, Pennsylvania, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)











                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Ratner, Mr. Dave, Owner, Dave's Soda & Pet City, Agawam, 
  Massachusetts, On Behalf Of The National Retail Federation.....     4
Davis, Ms. Janette, CPA, President And CEO Southeast American 
  Financial Group, Inc., Pembroke Pines, Florida, On Behalf Of 
  The U.S. Women's Chamber Of Commerce...........................     6
Haynes, Mr. Thomas, Executive Director, The Coca-Cola Bottlers' 
  Association, Atlanta, Georgia..................................     8
Fox, Ms. Alissa, Senior Vice President, Office Of Policy And 
  Representation, Bluecross Blueshield Association...............     9
Beene, Mr. R. Michael, Senior Health Advisor, National 
  Association For The Self-Employed..............................    11
Clark, Mr. Dirck, Chief Business Development Officer, Heartland 
  Regional Medical Center, Saint Joseph, Missouri................    14

                                APPENDIX


Prepared Statements:
Ratner, Mr. Dave, Owner, Dave's Soda & Pet City, Agawam, 
  Massachusetts, On Behalf Of The National Retail Federation.....    32
Davis, Ms. Janette, CPA, President And CEO Southeast American 
  Financial Group, Inc., Pembroke Pines, Florida, On Behalf Of 
  The U.S. Women's Chamber Of Commerce...........................    44
Haynes, Mr. Thomas, Executive Director, The Coca-Cola Bottlers' 
  Association, Atlanta, Georgia..................................    48
Fox, Ms. Alissa, Senior Vice President, Office Of Policy And 
  Representation, Bluecross Blueshield Association...............    58
Beene, Mr. R. Michael, Senior Health Advisor, National 
  Association For The Self-Employed..............................    74
Clark, Mr. Dirck, Chief Business Development Officer, Heartland 
  Regional Medical Center, Saint Joseph, Missouri................    82

Statements for the Record:
National Funeral Directors Association...........................    84
National Federation Of Independent Business......................    94
American Optometric Association..................................    97
The Small Business Coalition for Affordable Healthcare...........   101
The Main Street Alliance.........................................   104
Small Business United for Health Care Coalition..................   111
American Society of Association Executives.......................   115

                                  (v)

  

 
                       FULL COMMITTEE HEARING ON
                           HEALTH CARE REFORM
                        IN A STRUGGLING ECONOMY:
                         WHAT'S ON THE HORIZON
                          FOR SMALL BUSINESS?

                              ----------                              


                      Wednesday, February 4, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:05 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] Presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Schrader, Altmire, Sestak, Bright, Griffith, Graves, Gohmert, 
Buchanan, Luetkemeyer, Schock, and Thompson.
    Chairwoman Velazquez. Good morning. I call this hearing of 
the House Small Business Committee to order.
    My colleagues, the "American Recovery and Reinvestment Act" 
will go a long way in helping entrepreneurs weather the storm 
of recession. But even after it is enacted, the new stimulus 
won't clear every cloud. The rising cost of health care 
continues to be a major stumbling block for small firms, an 
obstacle that threatens to restrict their ability to create new 
jobs for American workers. Until that roadblock is cleared, 
these businesses will be unable to grow and unable to help lead 
the path to economic recovery.
    Most of the country's attention is now fixed on the 
faltering economy, but that does not make health care reform 
any less urgent. In fact, reining in health care costs is as 
critical to financial recovery as restoring accountability on 
Wall Street. As soaring premiums cut deeper and deeper into 
profit margins, many entrepreneurs are slashing coverage for 
their employees and families. Still others are dropping it 
altogether. But perhaps worst yet, countless businesses have 
been forced to scale back their workforce. With unemployment at 
a 16-year high, we simply cannot afford to lose more small 
businesses' jobs, especially considering that entrepreneurs are 
the country's greatest job creators.
    Clearly, health care reform for small firms is more than a 
moral obligation; it is an economic imperative. In today's 
hearing, we will discuss the rising cost of small business 
health care and the barriers it creates for financial recovery. 
We will also explore ways to break down those barriers and to 
bring the economy back on track.
    In the last 2 years, health care costs have climbed at 
twice the rate of inflation. For small firms, premiums have 
jumped 80 percent since the year 2000. As a result, coverage 
for small-business workers has dropped off significantly. In 
less than a decade, it has declined by 16 percent for some of 
the smaller firms. Today, in the face of growing economic 
challenges, small businesses can no longer absorb these 
outlays. With lending down and credit tightening, few 
entrepreneurs have the resources to meet basic obligations like 
payroll, let alone provide health insurance.
    Clearly, the current health care system is unsustainable 
for employers, as well as their employees. As Congress 
discusses health care reform, one of the issues before us is 
that of employer mandates. I understand there is significant 
concern about whether health care reform will include mandates 
that small firms offer coverage. This issue must be addressed 
in a way that will not unduly burden small businesses. The 
reality is that reform cannot work if it does not meet the 
needs of our Nation's entrepreneurs.
    Beyond mandates, this Committee has been working to find 
consensus on the broader health care reform issues. Last 
Congress, working in a bipartisan manner, members of this 
Committee introduced the CHOICE Act, legislation that would 
have gone a long way in addressing small employers' health care 
needs. Today, along with Mr. Graves, I am reintroducing the 
bill. It is our hope that it will make health care more 
accessible for small businesses.
    As the country continues to consider recovery legislation, 
it is critical that health care reform play a role in the 
process. Yes, the "American Recovery and Reinvestment Act" 
promises billions of dollars in tax relief to entrepreneurs, 
and, yes, it will help unfreeze credit markets. But unless we 
can find a way to make small business coverage more affordable, 
the benefits of the stimulus may be blunted by health care 
costs.
    How can we expect entrepreneurs to lead the way out of 
recession when they cannot afford to insure their employees? 
The more money that small firms are forced to pour into health 
care, the less capital they have for bringing on new workers. 
And, at the end of the day, that is what a stimulus should be 
about: creating jobs. Small businesses can do it, but they are 
going to need all the means necessary, beginning with increased 
capital through health care reform.
    I am pleased our witnesses could join us today, and thank 
them in advance for their testimony.
    With that, I now yield to Ranking Member Graves for his 
opening statement.
    Mr. Graves. Thank you, Madam Chair.
    And I, too, would like to echo the chairwoman's thoughts on 
thanking you all for coming today. I appreciate it. I 
appreciate her having this hearing to give us some more insight 
on health care and how it is affecting our businesses.
    Forty-seven million Americans are uninsured. By itself, 
that is a staggering number. Unfortunately, given the Nation's 
economic crisis, we can expect that that number is going to 
rise and rise significantly unless we work together to find 
some reforms that are practical, efficient, and realistic.
    The United States has the best health care system around, 
but a wasteful and inefficient system for delivering that care. 
According to the Institute of Medicine, the United States 
spends nearly $100 billion per year to provide the uninsured 
with health care, often for preventable diseases that 
physicians could treat more efficiently with earlier diagnosis.
    Clearly our system of health insurance and health care is 
financially unstable and threatens the health and financial 
security of small-business owners, their employees, and their 
families. Several consecutive years of double-digit premium 
increases have hit the business community pretty hard, 
especially small firms. An employee in a firm with fewer than 
10 employees pays 18 percent more for health insurance than a 
worker in a firm with 200 or more employees. And disturbingly, 
health care costs are continuing to rise for small businesses. 
As a result, a significant number of the uninsured, 60 percent, 
are workers or dependents of workers in small companies.
    Health care reform should make the market for health 
insurance more competitive, resulting in greater access to 
affordable health care. Many Members in Congress, including me, 
supported associated health plans, or AHPs, which would permit 
small-business owners to pool together to purchase their health 
insurance at lower rates. These arrangements could increase 
negotiating leverage and administrative efficiencies and help 
to ensure more consistent benefits among the States.
    Another area to explore as we attempt to fix this problem 
is the way health benefits and spending are taxed. Federal tax 
treatment of health insurance is widely understood as a 
fundamental element in achieving affordable health care. It is 
arguably the most important factor shaping the health insurance 
markets and, thus, a key driver of the incentives that dominate 
health care financing and delivery.
    Beneficial initiatives like health savings accounts need to 
be expanded and made more affordable through the Tax Code. 
Additionally, we must eliminate the inherit inequity within the 
Tax Code when it comes to the treatment of self-employed 
individuals, by allowing them to deduct their health insurance 
expenses when calculating their payroll tax returns. I also 
believe that changing the Tax Code to allow everyone to deduct 
non compensated health expenses on their taxes would provide a 
significant benefit in making health care delivery more 
affordable.
    To this end, as Chairwoman Velazquez pointed out, I have 
decided to be an original cosponsor on the "Small Business 
CHOICE Act," which she will be introducing shortly. The bill 
tackles two of the most significant challenges facing small 
employers: the high cost of providing comprehensive health 
insurance and the volatility of insurance premiums.
    The bill would allow small businesses to form health 
insurance cooperatives, which would function similar to risk 
pools and provide insurance against high-cost or catastrophic 
claims. Additionally, the bill offers a key incentive in the 
form of a refundable tax credit to small businesses that choose 
to join a cooperative.
    This is a good start, Madam Chair, and I look forward to 
working with you on it.
    There are many ways to tackle this problem, however I 
firmly believe that mandating employers to offer coverage to 
their employees is not a workable option. Just last week, the 
National Federation of Independent Business released a study 
measuring the economic impact of a national employer health 
care mandate and what it would do on small businesses. The 
study conducted business simulations to measure the effects of 
a hypothetical national mandate requiring employers to offer 
private health insurance to all employees starting in 2009 and 
to finance a minimum of 50 percent of the cost. Among other 
findings, the research found that a mandate could lead to more 
than 1.6 million jobs lost between 2009 and 2013, and small 
businesses would account for more than 1 million, or 66 
percent, of those lost jobs. Additionally, small businesses 
would lose roughly $113 billion in real output and account for 
56 percent of all real output that is lost. Labor-intensive 
industries with 20 to 99 employees would experience the most 
job-loss.
    There is no way to fix a problem as big as this. We must 
continue working towards a solution because America's small 
businesses can't wait any longer.
    And I look forward to working with you, again, Madam Chair. 
And I appreciate, again, the witnesses for being here and for 
everybody that has worked on this bill that you are getting 
ready to introduce.
    Chairwoman Velazquez. Thank you, Mr. Graves.
    And it is my pleasure to welcome our first witness this 
morning, Mr. Dave Ratner. He is the owner of Dave's Soda & Pet 
City, a small chain of four pet stores in Springfield, Amherst, 
and Northampton, Massachusetts.
    He is here to testify on behalf of the National Retail 
Federation. The NRF protects the interests of the retail 
industry and represents an industry that has more than 1.6 
million U.S. retail companies and more than 25 million 
employees.
    Welcome, Mr. Ratner. You have 5 minutes to make your 
presentation.

                    STATEMENT OF DAVE RATNER

    Mr. Ratner. Thank you very much. Madam Chairwoman and 
members of the Small Business Committee, my name is Dave 
Ratner. I am pleased and actually pretty honored to appear 
today on behalf of the National Retail Federation.
    And I have got to say this right away. They didn't know I 
was going to say this. I love the National Retail Federation. 
They really look after little guys like me. It is a great 
organization.
    I am the owner of Dave's Soda & Pet City--yes, I sell soda 
and I sell pet food--a four-store business in greater 
Springfield, Massachusetts. My business has been named the 
Greater Springfield Chamber of Commerce Small Business of the 
Year. We are the habitual winners of the People's Choice Award. 
We sponsor every little league team. We sponsor every church, 
every cheerleader. Every everything that has anything to do 
civically in western Massachusetts, we are involved with. I am 
sure that all of you in your communities have a business like 
Dave's Soda & Pet City, and I am in the 20-to-99-employee group 
that is really nervous about what is going on.
    The retail industry, as you know, is one of the biggest 
supporters of the employer-based health insurance system, 
despite not having an easy workforce to cover. We are strong 
supporters of health coverage in spite of these challenges. It 
is not that we don't want health care for everybody, we just 
want to do it right and equitably.
    As an industry that frequently endures wafer-thin profit 
margins, we are also well-acquainted with the need to manage 
the collective cost of labor in as an effective manner as 
possible. And maintaining the balance between these two 
imperatives is not always easy. It is borderline impossible, as 
you said, even in the best of times. And Lord knows, these 
ain't the best of times.
    We hope to work with you and other Members of the U.S. 
House and Senate to bring about a meaningful relief from rising 
health care costs. And, to be honest, I am almost elated to 
just hear you two talk about what you think. It is fabulous.
    The key, in our view, to reaching universal health care is 
getting rid of the high costs. The NRF has proposed a 
comprehensive solution to increase access to more affordable 
health coverage in our vision of health care reform. And I ask 
that it be included at the end of my written testimony. I would 
like to touch on just a couple of points.
    Retailers who don't offer consistent value to their 
customers simply don't survive. Amazingly, the same is not true 
in our health care system. We need to develop consumer-friendly 
comparative cost and quality information. My customers know 
more about the pet products on my shelves than they do about 
the doctors or the health plans that they do. People should be 
able to select the best quality care just as they choose 
between me and my competitors on a daily basis.
    And you do need competitors in order to have real 
competition. This was the first year in 20 years when my 
renewal came up that my health care costs didn't go up at least 
15 percent. Why? Because there was a new legitimate player that 
came into western Mass, and they came in with a better plan at 
the same rate. It is amazing. Auto insurance in Massachusetts, 
when they finally let that get competitive, auto rates went way 
down. It is really about good competition.
    Reducing the health care costs should be a central goal in 
all health care reform. Employer mandates, as you said, they 
add costs. The NRF particularly looks forward to working with 
the Committee on the Chairwoman's proposal to create a market 
for high-risk claims. I think it is a fabulous idea. When it 
comes to increasing access to coverage, we believe we can reach 
universal coverage without mandating that employers provide 
coverage.
    The problem with employer mandates either to provide 
coverage or to provide specific coverages is that they directly 
increase the cost of coverage and, hence, the cost of labor. 
Here is the real-world deal: It will kill jobs. Employers 
simply will not bring on new employees if they get mandated. It 
is just basic common sense. Employer-mandated health insurance 
will leave everybody unhappy and ton of people unemployed. Who 
is going to pay the doctor bills if these people don't have 
jobs?
    Yes, we urge policymakers to be wary about doing what 
Massachusetts did. I will tell you, it has not worked. Rates 
have skyrocketed, and many people are still unemployed. It 
didn't work.
    And I understand one of the biggest challenges you will 
face will be building a consensus around the reform. And I 
would venture to guess that there isn't an industry or any 
American who doesn't have an idea about how it should be done. 
We hope that the NRF vision will help add to the growing 
consensus around reform. And it is time to get it done now with 
only the right reforms enacted into law.
    I thank the Committee. I look forward to your questions. 
And let me just say, I am so elated to hear what you guys are 
saying. It is great.
    [The statement of Mr. Ratner is included in the appendix in 
page 32.]
    Chairwoman Velazquez. Thank you, Mr. Ratner.
    Our next witness is Ms. Janette Davis. She is the president 
and CEO of Southeast American Financial Group, Inc. Her firm is 
a residential and commercial real estate lending firm based in 
Pembroke Pines, Florida.
    Ms. Davis is testifying on behalf of the U.S. Women's 
Chamber of Commerce. The Women's Chamber of Commerce was 
founded in 2001 to increase economic growth opportunities for 
women.
    Welcome.

                   STATEMENT OF JANETTE DAVIS

    Ms. Davis. Chairwoman Velazquez, Ranking Member Graves, 
members of the Committee, thank you for giving me the 
opportunity to share with you my challenges.
    I am a small-business owner who is a president and CEO of 
Southeast American Financial Group, which is owned and operated 
by my husband and I. Through the years, I have employed as many 
as a dozen employees and subcontractors. However, during this 
economic downturn, we had to reduce our staff to one and a 
half.
    The expensive cost of health care makes it extremely 
difficult for us to continue to afford, especially during this 
current economic crisis. Currently, I pay 50 percent of the 
monthly health insurance payment for my employee. To keep costs 
down, I chose an HSA, but this becomes a challenge for an 
employee who has a pre-existing health condition earlier in the 
year before they are able to see their deductible. And for 
small businesses like mine, it is very important that our 
employees get the health care they need so that they can 
proactively manage their care and be available for our business 
needs.
    Like many husbands and wives who work together, my husband 
and I have to purchase individual policies instead of a family 
policy. In 2007, the insurance coverage increased for us to 
$1,400 per month. To continue to carry insurance, I switched my 
company to a high-deductible HSA policy. Now we pay $881 
monthly for just both of us. However, we have to cover the 
first $3,000 of our expenses, and prescriptions are covered 
only after we exceeded these deductibles.
    While our policies include preventative care, the insurance 
company almost always excludes something and sticks us with a 
co-pay. My doctor recommended a preventative procedure. I 
verified with my insurance company that the procedure would be 
covered 100 percent. During the procedure, the doctor 
discovered a minute issue and recommended two additions to my 
diet. Consequently, my health insurance company changed the 
preventative classification and charged me $562.50.
    The families of small-business owners bear the brunt of the 
inequalities in our health care system that is heavily skewed 
in favor of big business. When I worked for a larger business, 
I had a more affordable family policy, which also covered my 
husband. Because I am younger and healthier, our coverage was 
cheaper because it was issued to me as the primary. My husband 
had an eye emergency that resulted in a bill in excess of 
$80,000. The insurance company paid 25 percent of the street 
price based on its discounted arrangements with the hospital.
    Why is it that the hospital services have to be priced at 
such exorbitant sums for the cash-paying customer who, in most 
cases, cannot afford to pay these astronomical bills? If we 
could reduce those costs to reasonable amounts, individuals 
could then afford to pay their bills.
    We need affordable solutions now. I ask that you put health 
care back in the hands of the doctors and prevent insurance 
companies from dictating the care we receive. Remove the fine 
print and provide clarity so that we know what we are getting.
    Health insurance companies shouldn't be able to wiggle out 
of paying for health care services. The restrictions should be 
lifted as to what doctor or hospital that you may be able to 
use.
    Allow small businesses to pool together to purchase 
insurance under a national group umbrella policy. Provide tax 
credits to small business that purchase coverage. Remove the 7 
1/2-percent-of-AGI threshold on income tax for medical 
expenses. Do not mandate that small business provide coverage. 
Remove the 75-percent threshold for business to cover employees 
before they can get coverage.
    Divide insurance into medical and catastrophic care. Allow 
tax credits to individuals for direct pay to their doctor; then 
they can purchase insurance coverage for surgery and other 
catastrophic illnesses.
    In conclusion, it is time to end the stranglehold health 
insurance companies have on American citizens. Small-business 
owners and their employees have been forced into paying 
exorbitantly high premiums, risking high deductibles, and then 
being nickel-and-dimed by the insurance companies. We need to 
wrestle the control of our health out of their hands and put it 
back into the hands of individuals and doctors.
    Get rid of the endless administrative overhead, which is 
often aimed at finding ways to reject payment care. Help 
America's small businesses to pool together to leverage our 
scale and bring the cost of care down.
    Thank you. I am open to any questions after.
    [The statement of Ms. Davis is included in the appendix in 
page 44.]
    Chairwoman Velazquez. Thank you, Ms. Davis.
    Our next witness is Mr. Thomas Haynes. He is the executive 
director of the Coca-Cola Bottlers' Association. Mr. Haynes 
previously served as president of the Association Health Care 
Coalition, which helped improve the health care options 
available to their small-business members.
    Established in 1914, the Coca-Cola Bottlers' Association 
assists its members in reducing costs and improving efficiency 
by meeting their needs in numerous areas.
    Welcome back.

                   STATEMENT OF THOMAS HAYNES

    Mr. Haynes. Well, thank you, Chairwoman Velazquez, and 
thank you, Ranking Member Graves, for the invitation to address 
this Committee again. As Chairwoman Velazquez referred to, this 
is my third appearance before this Committee.
    I won't go into quite as much detail about what the Coca-
Cola Bottlers' Association does and some of our own history as 
a result of a lot of it is laid out in my statement. What I 
will say is that we are in the business of serving our members 
in every way we can, and a particular focus of that service is 
on our smaller members.
    Our members range in size from the largest, which has 
50,000 employees, down to a number of bottlers that are much 
like Mr. Ratner's companies, have 50 or fewer employees. So 
approximately half of our remaining 73 members have less than 
150 employees, so they qualify as small businesses.
    We serve them in every way that we can, and we are 
successful in almost every arena, in providing the same level 
of service to them and getting their cost to the same level as 
the largest members, ranging from liability insurance to 
employee benefits to purchasing to any number of other areas. 
The one place we cannot provide that service in the way we need 
to is in the health care arena. And I think that speaks volumes 
about the problems facing small business. Because it alone, 
among all of our challenges, is the one that we need help from 
Washington in solving.
    Our small members were once part of a pool that the 
Bottlers' Association managed. Yet, in 2000, shortly before I 
joined the Bottlers' Association, we were forced to abandon 
that pool because of the administrative cost associated with 
compliance with State mandates, State regulations, and a number 
of other administrative issues. And, as a result of that, our 
members' costs went up astronomically very quickly.
    What happened to them is reflective, I think, of what is 
happened in the small-business community in general. And why we 
have such a challenge with the uninsured is that a number of 
the members cut back on their policies. Many of them 
discontinued family coverage and offer only individual 
coverage. And, frankly, a lot of their employees have lost 
their health insurance, either because they can't afford the 
co-pays, they can't afford the share that our members have to 
charge in order to be economically viable, or the benefits have 
been cut in a way that they choose not to participate because 
of the remaining costs.
    Now, why is that? Well, as I said, part of the issue is 
State regulation, but it is not the entire issue. I have 
attached to my testimony a study that Mercer did for us that 
looks at the sources of the 18 percent disparity that 
Congressman Graves referred to. And what it shows is there are 
three primary drivers of that. One is higher administrative 
costs. The second is the significant difference in the premiums 
paid for shifting the risk. And the third is what I believe is 
some differences in terms of the effectiveness of chronic 
disease management by the employer.
    The issue is, quite simply, that large employers operate in 
a self-insured environment, have efficient plans with scale in 
their administration, and don't pay a profit-driving premium to 
carriers to take on risk because they are largely self-insured. 
If we were in a position to create the same kind of pooling, 
the same kind of scale for our smaller members, we could 
achieve the same savings and reduce that disparity to a 
significant degree, even leaving State regulation in place.
    So where does that leave us? Well, what that leaves us 
with, in my view, are three basic needs that small businesses 
have in order to solve the challenge they are facing relative 
to providing health care. One is an uneven playing field, so we 
need Congress's help in making the playing field even. Second 
is an opportunity do risk pooling and, in the process of doing 
risk pooling, do risk retention. And the third is to create a 
system where incentives between the employer, the employee, the 
people who are likely to be driving decisions as to health care 
utilization, are aligned in terms of the economic interest.
    I believe that the bill that the Congresswoman Velazquez 
and Congressman Graves are introducing today, the CHOICE Act, 
will achieve all of those objectives, from our perspective, by 
creating a tax credit to facilitate the formation of the 
cooperative pools and by providing a sufficient tax credit to 
make the playing field more even.
    In our case, our members will be able to offer affordable 
health care once again. It is the only solution, frankly, that 
our members need. If it were enacted by Congress, we would have 
no reason to oppose mandates, because our members would be able 
to provide coverage.
    Now, I am not about to speak for every other small business 
and say that this is all they need. But, in our situation, 
based upon the way we do business, it is all we need to restore 
coverage and restore affordable health care for our smaller 
members.
    [The statement of Mr. Haynes is included in the appendix in 
page 48.]
    Chairwoman Velazquez. Thank you, Mr. Haynes.
    Our next witness is Ms. Alissa Fox. She is the senior vice 
president of the Office of Policy and Representation for the 
BlueCross BlueShield Association. BCBSA is a national 
federation of 39 independent and locally operated BlueCross 
BlueShield companies that provide health care coverage for more 
than 102 million Americans.
    Welcome.

                    STATEMENT OF ALISSA FOX

    Ms. Fox. Thank you very much, Madam Chairwoman, Ranking 
Member Graves, and other distinguished members of the 
Committee. Thanks for being here. I am Alissa Fox, senior vice 
president of the BlueCross BlueShield Association.
    As you mentioned, the BlueCross BlueShield Association 
represents 39 BlueCross BlueShield plans across the country, 
and, collectively, we provide coverage to 102 million people. 
We are unique in that we provide coverage in every ZIP code, in 
every part of the country. And all Blue plans offer coverage to 
small employers, a sign of our strong commitment to the small-
employer market. We believe that expanding coverage and 
improving affordability for small employers must be a 
centerpiece of health care reform.
    Today I would like to focus on three areas. First, I would 
like to talk a little bit about how States regulate health 
insurance sold to small employers today; second, highlight what 
Blue plans are doing to increase coverage for small employers; 
and third, outline our recommendations for Federal legislation.
    Today, State and Federal law require insurers to offer 
coverage to every small business regardless of their employees' 
health. It is called guaranteed issue. Every insurer has to 
offer coverage to small employers, and the small businesses 
can't have their coverage turned town or cancelled if one of 
their employees becomes sick. That is both Federal and State 
law.
    In addition, State law requires health plans today to pool 
all their small employers together when establishing premiums. 
And they limit the extent to which insurers can vary the 
premiums today based upon the health status of individual 
employees. These reforms spread the medical costs of all small 
employers more evenly to generate more affordable premiums for 
employers with less healthy members. However, this does result 
in higher premiums for the healthiest employers.
    As you have heard this morning, affordability is a central 
challenge facing small employers. To help address these 
challenges, our plans across the country have been pursuing two 
strategies.
    First, we are working on a variety of initiatives to rein 
in costs for everyone. Everyone is facing health care costs 
that are growing at much too high a rate. The initiatives we 
are pursuing range from changing the way we pay providers, to 
promote better care, not just more services; and to focusing on 
prevention, wellness, and managing chronic illnesses. We have a 
Web site we just put online that highlights many of the 
BlueCross BlueShield initiatives under way in each of these 
areas.
    Second, our plans are developing special programs designed 
to make coverage more affordable for smaller employers. My 
formal statement includes several examples. I would just like 
to highlight one.
    BlueCross BlueShield of Oklahoma worked closely with their 
State legislature to develop Insure Oklahoma, a program that 
provides subsidies to low-income workers in small businesses to 
help cover the cost of health insurance. This program has been 
very successful. To date, nearly 4,000 small employers are 
participating in the program and more than 11,000 employees and 
their families receive subsidized coverage from the program. 
According to a recent survey, 56 percent of new enrollees were 
previously uninsured and 37 percent of employers offered 
coverage for the first time.
    While these types of programs are making a difference, 
Federal action is needed to address the problems facing the 
small-employer health insurance market as part of comprehensive 
health reform. We have three recommendations for your 
consideration.
    First, we are recommending legislation to encourage States 
to establish what we are calling State insurance marts, to 
simplify shopping for small employers, increase competition 
among insurers, and help educate small employers on potential 
subsidy options. These marts would make it easier to shop for 
coverage by, for the first time, creating a central point in 
every State where a small employer knows they could go to 
identify what insurance options are in their marketplace and 
apply for coverage and for subsidies.
    Our vision is that you go to the one site; if you want to 
get--you fill out an application, one application, regardless 
if you are applying for Aetna or BlueCross--you can check boxes 
that you want Aetna, BlueCross, etcetera, price quotes, push a 
button and get quotes pretty instantaneously. And then you 
could actually find out what subsidies might be available, and 
also enroll online.
    Second, we are recommending four types of targeted 
subsidies. I am including one patterned after the Oklahoma plan 
that I mentioned earlier that would provide tax credits to 
small employers for their low-wage workers.
    And third, we believe the underlying cost drivers in our 
current health care delivery must be addressed. And we have 
very specific recommendations in our "Pathways to Covering 
America."
    I would like to close by saying reforming how we pay for 
and deliver care won't be easy, but it is the only way that 
affordability challenges facing small employers can be solved 
over the long term. We look forward to working with you, this 
Committee, other Members of Congress, the new administration, 
and other stakeholders to enact health care reform that works 
for everyone.
    Thank you.
    [The statement of Ms. Fox is included in the appendix in 
page 58.]
    Chairwoman Velazquez. Thank you, Ms. Fox.
    And now I yield to the ranking member and recognize him for 
the purpose of introducing our next witness.
    Mr. Graves. Thank you, Madam Chair.
    Madam Chair, our next witness is Michael Beene. He serves 
as the senior health advisor and general counsel for the 
National Association for the Self-Employed.
    The National Association for the Self-Employed is a 
national membership association, and they represent 250,000 
micro-businesses. Those are businesses with 10 or less 
employees. As a senior health advisor, Mr. Beene works with the 
NASE's legislative staff. They educate policymakers on the 
health coverage issues faced by the self-employed and health 
policy options that would assist the micro-business community 
in gaining access to affordable health care coverage.
    Thank you, Mr. Beene, for being here and for testifying.

                 STATEMENT OF R. MICHAEL BEENE

    Mr. Beene. Well, thank you.
    Thank you to the Committee for visiting this important 
issue early in the session. And we do support the CHOICE bill, 
and I am pleased to hear that it is going to be introduced 
again.
    The plight of micro-business owners, those with 10 or less 
employees, is becoming more challenging as our employee 
continues to decline. The pool of money these entrepreneurs 
have to draw upon for both business and family expenses has 
been dwindling, forcing many self-employed to make tough 
choices. Most distressing, many of the self-employed are 
scaling back their health coverage, and some are dropping 
coverage completely in order to keep the doors of their 
business open.
    As discussions on health reform progress, the National 
Association for the Self-Employed would like to emphasize that 
proposals must address two key issues, affordability and 
choice--those two issues being key in order to approve the 
ability of micro-business owners to obtain quality health 
coverage.
    The common denominator for all small businesses is that 
they must pay taxes. Thus, the Tax Code is an excellent vehicle 
to provide financial relief to micro-business. A key step 
forward in addressing the affordability issue faced by the 21 
million self-employed would be to tackle the current 
inequalities in the Tax Code that this segment of the business 
population faces as they purchase health coverage. And several 
of those things have been mentioned; I believe Mr. Graves 
mentioned in his remarks.
    All business entities, except sole proprietors, receive a 
business deduction for health insurance premiums. Employees and 
owners pay for their health insurance premiums pretax, and, 
therefore, they are not subject to FICA taxes. However, a sole 
proprietor's premiums are not paid with pretax dollars, and 
they are exposed to the 15.3 percent self-employment tax.
    The most recent Kaiser Family Foundation study indicated 
that the self-employed pay, on average, $12,000 a year annually 
for family health coverage. Because they cannot deduct these 
premiums as an ordinary business expense, that would require 
them to pay an additional $1,800 in taxes that no other 
business pays. Removing this inequity would be a significant 
economic stimulus for the self-employed and just a fair 
leveling of the playing field.
    Discrimination against the self-employed also persists in 
health reimbursement arrangements, HRAs. HRAs, distinguishing 
from HSAs, HRAs are a flexible benefit option that allow small-
business owners to reimburse employees for out-of-pocket 
medical expenses, including health insurance premiums. An HRA 
gives an owner of a business predictability when it comes to 
benefit costs, since the owner determines the maximum amount of 
annual reimbursement each employee will receive. It has to be 
the same across the board for the owners and employees. The 
reimbursements are tax-deductible for the business and tax-free 
for the employees.
    An important component of HRAs is the nondiscriminatory 
rules that apply to them. If an HRA is set up, the benefits 
must apply equally to all employees. At present, self-employed 
persons are not eligible to participate in an HRA. Expansion of 
HRAs to allow the self-employed business owner to participate 
in the plan would likely significantly increase the number of 
businesses that use HRAs. And HRA reimbursements would likely 
be more generous if the owner also got to put his or her health 
coverage in that. So we would like to see that inequity 
removed.
    As we look at our health insurance markets, it is important 
to consider the potential impacts of market reform on micro-
business. The self-employed micro-business can purchase health 
insurance in two markets: the small-group market, which was 
referenced, and the individual market. We have seen a 
definitive shift of micro-businesses from the small-group 
market to the individual market in the past 3 years. Thus, for 
health reform to be beneficial to the micro-business sector, 
proposals must tackle cost issues in the individual market.
    The creation of pooling mechanisms can be utilized to begin 
addressing the high costs and lack of negotiating power faced 
by the self-employed. In current reform proposals, discussion 
has centered on creating a national pool managed by the Federal 
Government to allow small businesses and individuals to 
purchase coverage. Micro-business owners are evenly split in 
their opinion on whether a government-run health option is the 
right approach. Chief concerns expressed are the quality of 
their health care, would it be as good or not, would they have 
as many choices. And there also is a worry among micro-
businesses that taxes would significantly increase.
    The establishment of mandates, either for individuals or 
employers, has been a hot topic. The NASE does not support the 
mandating of health coverage at this time. In particular, an 
employer mandate to purchase and provide health coverage that 
does not exempt micro-business, 10 employees or less, would put 
millions of owners out of business and would leave millions of 
workers unemployed. The NASE believes that an individual 
mandate would be harmful in this current climate. This is not 
the time to do more harm to business.
    As you look to reform the system, don't forget that the 
needs of the 10-or-less-employee micro-business may be very 
different than the 200-employee small business.
    Thank you.
    [The statement of Mr. Beene is included in the appendix in 
page 74.]
    Chairwoman Velazquez. Thank you, Mr. Beene.
    And now, again, I recognize the ranking member for the 
purpose of introducing our next witness.
    Mr. Graves. Thank you, Madam Chair.
    Our next witness is Dirck Clark, and Dirck serves as the 
chief business development officer for Heartland Health Systems 
in Saint Joe, Missouri. His responsibilities include strategic 
planning, advocacy, regional development, and medical student 
education.
    Prior to coming to Heartland, Mr. Clark spent 7 years 
working in the United States Senate with Senator Kit Bond. Most 
of his tenure with Senator Bond was spent working on health 
care and rural development issues.
    Originally from Savannah, Missouri, he received his 
bachelor's degree in business administration and master's 
degree in health care administration from the University of 
Missouri. In addition, Mr. Clark serves on the Board of 
Governors of Missouri Western State University, the Board of 
the Missouri Chamber of Commerce, and the Executive Council of 
the Boy Scouts of America there in St. Joe.
    So thanks for being here, Dirck.

                    STATEMENT OF DIRCK CLARK

    Mr. Clark. Thank you.
    Madam Chair, members of the Committee, I appreciate the 
Committee's interest in the effect of health insurance of small 
business and this opportunity to testify.
    As background, St. Joseph is a town of about 75,000 people, 
located an hour north of Kansas City. Heartland is comprised of 
the only hospital in St. Joseph. We also have a small rural 
insurance company and a physician group practice of about 110 
physicians.
    Heartland is the only tertiary hospital between Kansas 
City, Omaha, and Des Moines. Like many hospitals in rural 
areas, we are the largest employer in town. It is in that role, 
as an employer, that I am here today. Fifty-one percent of our 
costs, of our expenses, are related to labor, and 10 percent of 
that goes to health care costs.
    As a health care provider, we have an understanding of the 
effect of health status on health care cost and insurance 
rates. We have a team that works with local employers to help 
them keep their health care costs down.
    My main focus today is on the subject of individual 
responsibility and the role an employer can have in improving 
employee health, ultimately impacting health care expenses. 
With our employees at Heartland, we have implemented some 
ambitious programs to help employees with their health status, 
at the same time giving them an incentive as a reward for 
helping keep their health care costs down.
    Some examples would be the following. If you are an 
employee of Heartland and on our insurance program and are 
injured in an automobile accident, we will only pay 60 percent 
of the health care costs associated with that accident. I would 
note that Missouri is a mandatory seat-belt State, and so all 
employees would have to do is comply with the law.
    Like many other businesses, we offer a 10 percent health 
insurance differential incentive for employees who choose not 
to use tobacco products, along with reimbursement for smoking 
cessation programs and free nonsmoking classes.
    This year, based on research showing an increased medical 
cost for those whose body mass index, or BMI, is above certain 
benchmarks, we started a program to offer a premium discount 
for lower BMIs. If you are a Heartland employee and on our 
insurance plan and have a BMI below 35, you receive a premium 
discount of 10 percent. In this first year, if an employee has 
a BMI above 35 and wants to improve, we will offer the 
incentive to the employee if they agree to participate in 
wellness programs.
    In order to help the employees earn this benefit, we have 
built an on-site fitness center that is free to employees and 
spouses. Along with the fitness center, we offer free classes 
on weight loss, nutrition, and exercise, to name a few. Our 
hope is to break ground this spring on a daycare that will 
allow employees to exercise before work and after work and have 
their children nearby.
    This first year, the BMI threshold is 35. However, each 
year the BMI threshold will be decreased until it reaches 29. 
Our goal is to work with employees to help them stay below the 
threshold as it decreases.
    The result has been that 92 percent of eligible employees 
have signed up for the benefit; 84 percent of those who signed 
up have earned the discount outright; and an additional 12 
percent are earning the discount through participation in 
wellness programs.
    As this is the first year of the BMI incentive, we don't 
yet have trend data showing its impact. However, the effect of 
these programs has been a dramatic increase on participation in 
the self-help programs and a fitness center that is nearing 
capacity 4 months after it opened. This was the second fitness 
center; we had to expand the first one.
    When the fitness center initially opened, as you would 
guess, it was populated primarily with employees who were 
already in good physical condition and enjoyed exercise. What 
we are finding now is that more employees are showing up to 
exercise and participate who have higher BMIs. Our hope is that 
we can continue to work together with the employees to improve 
their overall health risks and keep their BMI under the 
insurance threshold as it decreases.
    My hope, as you look at health insurance challenges for 
small business, that you also look at programs that provide 
workers incentives to improve their health and help keep health 
care costs down.
    I thank you for the opportunity to testify and look forward 
to your questions.
    [The statement of Mr. Clark is included in the appendix in 
page 82.]
    Chairwoman Velazquez. Thank you.
    I would like to address my first question, if I may, to Ms. 
Davis.
    You mentioned that you offer high-deductible coverage for 
your employees. For many here in Congress, these plans were 
supposed to be the answers to all the problems in the small-
group market. And while these plans may be lower-priced, can 
you talk to us about some of the shortcomings of these plans in 
controlling health care costs?
    Ms. Davis. The major shortcoming with the high-deductible 
policy--Congresswoman Velazquez, the major shortcoming with the 
high-deductible policy is that for the employee who, say, for 
example, has a pre-existing condition and they have not yet 
saved that deductible, that becomes an issue for them in terms 
of they may have to scale back on their care because they 
cannot afford to pay all the funds up front to pay for 
themselves.
    That is a major issue that employees face. Face it, not 
everyone can find $3,000 up front right away if they become 
sick early in the year. Maybe, say, after 12 months of saving, 
that money is there. But that is a major issue that they have.
    Chairwoman Velazquez. Ms. Fox, this Committee held a series 
of hearings last Congress focusing on consolidation of the 
health care industry. What we have learned is consolidation has 
left small businesses with fewer insurance carriers to choose 
from and higher prices.
    According to your testimony, State-based connectors or 
exchanges are better for small businesses than national ones. 
Given that consolidation threatens to eliminate competition in 
the State insurance markets, why would the State-based 
connector be better?
    Ms. Fox. Thank you.
    Well, first of all, we don't think that consolidation has 
really reduced the number of insurers in the marketplace in a 
significant way. GAO looked at this back in 2005, and what they 
estimated was that, on average, there are 28 insurers in most 
States, which is a lot of competition. I think when we--
    Chairwoman Velazquez. Down from how many?
    Ms. Fox. I am not sure, but I think still 28--
    Chairwoman Velazquez. Well, that is the real question.
    Ms. Fox. I don't know that. I would be happy to look for 
that. But I think 28 insurers in a State is a significant 
number of competitors.
    I would say that, when you look at the States where there 
have been a lot of competitors leaving the market, the reason 
has not been consolidation; it has been the regulation has been 
very, very tight. You look at places like Maine, Massachusetts, 
New Jersey. That is where you have seen a lot of insurers leave 
the marketplace. And our perception--and I think it is best to 
ask them--is that they have left because the rules have been 
very tight.
    Chairwoman Velazquez. Well, perception is not fact.
    Ms. Fox. Right. I understand. That is only our perception.
    Mr. Haynes. If I could interject, in another life I was an 
antitrust lawyer, and the one thing I would say is you never 
measure competition by counting competitors. You have to 
measure it by share.
    And I think, you know, you have looked at that issue, and 
there are definitely some issues in terms of shares that would 
suggest from an antitrust perspective that there might be 
market power in at least some markets.
    Ms. Fox. Well, I would add to that that the Federal 
Government has looked at this. And they have--where there has 
been consolidation, and, you know, when insurers get to a 
certain size, they use it to get leverage with hospitals and 
doctors, and it directly benefits the consumers. So this is 
something that has been examined very closely. And, you know, I 
will just be candid. On our market share, we have about a third 
across the country in market share.
    And State connectors, we think State connectors would be 
better because it would be piggybacked on the existing State 
infrastructure. There are State regulators who have excellent, 
long-term expertise in protecting consumers, and we don't think 
that it makes sense to reinvent that at the Federal level when 
we have State experts there.
    So what we designed is a program to get the benefits of 
what we have heard of from a national exchange, which is to 
simplify shopping for small employers. I think when you go and 
you try to shop as a small employer--I used to be a small 
employer, and it is very difficult to shop for insurance. So we 
designed this to really simplify the process, make it easier. 
And I think it would also reduce the administrative costs for 
us, as well as small employers.
    Chairwoman Velazquez. But don't you agree that a national 
exchange will provide more transparency, and that consumers 
care more about what is out there for them to see and to choose 
from?
    Ms. Fox. We agree 100 percent that we need transparency, 
but we think you can get all that transparency at the State 
level and having State connectors; and require every insurer to 
be listed on that site, so it is not just some, but everybody, 
so you know everybody in the market. I think it will really 
increase competition.
    Chairwoman Velazquez. So why do you think that--you know, 
the real issue here in terms of cost, bringing down cost, that 
the rising health care costs is a systemic one. So how could 
you explain that the premium cost has not come down, even after 
you talk about putting together a strategy that will have the 
effect or the goal of bringing costs down?
    Ms. Fox. I agree. You know, bringing costs under control is 
a huge problem facing this country, and we all need to work 
together. We have strategies in place, but we can't do it 
alone. We need to partner with the Federal Government. And we 
have very specific recommendations on how, working with the 
Federal Government, that we need to be looking at changing the 
incentives, for example, for providers. Right now, the way we 
and the government pay is that the more you do, the more money 
you make. We need to change those incentives.
    And I will give you just one example of a program that we 
have under way where we think it is really making a difference. 
Our plan in Pennsylvania is now paying hospitals to reduce 
their infection rates. And what they have shown is that, 
through giving them coaches to help them in the hospital and 
giving financial incentives, they were able to bring the 
infection rates, where people were getting sick unnecessarily, 
way down. We think these are the kinds of initiatives that need 
to be pursued.
    Chairwoman Velazquez. Anybody else who would like to 
comment?
    Let me ask you, Ms. Fox, why do you think that the 
Massachusetts experience has not been able to bring costs down?
    Ms. Fox. Well, I forgot who--I think it was Mr. Ratner who 
was talking about that. I think that they focused on expanding 
access first, and controlling costs is something that they are 
now working on. And we think you need to do both together. We 
think everybody needs to be covered, but you need to attack the 
rising costs at the same time. And I think they did the 
expansion first. And I think that is--you know, we would do 
them together.
    Chairwoman Velazquez. Thank you.
    Mr. Haynes, one of the reasons small businesses find it 
hard to maintain coverage is affordability. If pooling risk is 
part of the solution, what other kinds of reforms should we be 
discussing that will help move us in that direction?
    Mr. Haynes. Well, going back to, sort of, the core issue 
and what caused the abandonment of our small-group program, it 
was variability in State regulation. Particularly, mandates 
created so much complexity. That group had probably about 2,500 
employees in 40-some-odd different States. So we had a lot of 
States where we might have 15, 20, 25 employees, and having to 
write unique coverages with unique rules in that kind of a 
program just drove the administrative costs up.
    So if we could figure out a way to make State regulation 
more consistent--I mean, one example that I think probably 
added no value was, at one point, we had eight different rules 
to administer as to the age at which and the circumstance at 
which dependents had to come off the coverage. Because there 
are eight, nine, 10 different State rules on something as 
simple as that: 18, 19, 20, full-time student, part-time 
student. And just the complexity of managing that with a 
relatively small group across multiple States is a real 
problem.
    Chairwoman Velazquez. Thank you.
    Mr. Ratner, we are working here, both in the House and in 
the Senate, on this stimulus package that will have the goal of 
getting the economy back on track. And, to get this economy 
growing again, we need to create jobs. And, of course, we all 
know that the backbone of our economy are small businesses that 
creates all the new jobs, between 70 and 80 percent.
    In yesterday's New York Times, there was a story about how 
small firms were choosing between laying off workers and 
providing health insurance. So, with the current economy, how 
have the additional costs of health coverage affected your 
ability to hire or provide additional wages to your workers?
    Mr. Ratner. I think I am probably the luckiest guy in the 
business world right now that I am in a business, the pet 
business, that has not gotten whacked with the recession. So I 
have not had to lay off people or to deal with that.
    What I will tell you is that every person that we look to 
hire is a a part-time person so that we don't have to pay the 
benefits, especially in light with what our State wants to add 
on on top of what they already added on.
    So I will speak for a few friends of mine who have small 
businesses. They literally have laid off people solely for the 
reason of the health insurance. And they have laid off some 
people my age so the rates are even higher and they just 
couldn't do it, or they cut their hours to part-time. And it is 
happening.
    Chairwoman Velazquez. Yeah.
    Mr. Clark, to a lot of people in this country, you know, 
when presidential candidates were running, they were discussing 
health care reform as an important issue, especially for small 
businesses. But now we are dealing with the economic crisis 
that we are facing in this country.
    Your firm not only provides medical services, but you also 
provide insurance to many small firms. Can you talk to us about 
how health insurance coverage can be critical to the economic 
wellbeing of this country?
    Mr. Clark. I think the answer we just heard a minute ago is 
the most important one: because of layoffs. We are seeing that 
in our communities, layoffs with small business.
    One of the things that we do is we sit down with the small 
employers and look at their health care costs. We do a health 
risk assessment on their employees to help them determine what 
their issues are, and then we try to provide programs for them 
to help them keep their employees healthier and then help them 
keep their costs down.
    Chairwoman Velazquez. Thank you.
    Now I recognize Mr. Graves.
    Mr. Graves. My question is to Mr. Clark now, and I might 
open it up to some of you who represent associations or your 
own business.
    But out of curiosity, health care savings accounts--which 
we created, I don't know, what was it, 5 years ago or 6 years 
ago, something like that--I am hearing mixed feelings. You 
know, they were created as a possible alternative for small 
businesses to be able to create a health care savings account 
for their employees, rather than the expense of full-blown 
health insurance. But I have heard some small business saying 
it is too expensive or it is too tough to get them going.
    Are you seeing any of that as a provider, more health care 
saving accounts, or are you seeing any at all?
    Mr. Clark. Virtually none in our rural area at all right 
now.
    Mr. Graves. How about anybody--yes?
    Mr. Haynes. We have had some firsthand experience with 
that. We have encouraged some of our members who are in our 
health care plan to look at health care savings accounts. And 
the take rate is tiny.
    Mr. Graves. Really.
    Mr. Haynes. Virtually zero.
    And I think the reason is, frankly, making financial 
decisions about health care without knowing what is going to 
happen is very difficult for people. I think folks are simply 
reluctant to set aside money or to completely understand the 
tradeoffs between coverage and a health care savings account 
because of the uncertainty aspect of it.
    And I just think, as it has been discussed with both our 
modelers and their employees, I think there is an uncertainty 
and fear factor that is a significant impediment, particularly 
for folks who may not be highly educated.
    Mr. Graves. Ms. Fox?
    Ms. Fox. I would just add that, according to Kaiser Family 
Foundation, 13 percent of workers in small firms are now in 
high-deductible health plans. And many of our plans do sell 
HSAs with high-deductible health plans. And they have found, 
one plan has reported that 20 percent of its enrollment in 
their products are from people that were previously uninsured.
    And what our plans do is we give our customers a range of 
products, so that they could pick what best meets their needs. 
So it is not that we are favoring one versus another. But we do 
find that some previously uninsured workers, small employers 
have found that very attractive.
    Ms. Davis. I would like to add for the HSAs, I have an HSA 
with my company. But as the economic times get tougher and 
tougher, the employee tends to pull back the coverage, the 
money that they will be contributing, to use for something 
else.
    Mr. Graves. Kind of a--
    Ms. Davis. It is a Catch-22 situation.
    Mr. Graves. We all think we are going to be healthy 
forever, and so we don't worry about it.
    Mr. Ratner. And with my company, we have a lot of young 
employees. You couldn't get them to sign up for that. They want 
every nickel to come home. They are young. "Nothing is going to 
happen to me. I don't need to contribute to it."
    Mr. Beene. You know, the good side of the HSAs is that they 
do allow more comprehensive coverage for catastrophic events 
for less money. And so, all of this is such a tradeoff between 
what does it cost to get coverage.
    And, you know, we want to avoid this underinsured 
situation, as well. And I understand the people that say, well, 
the HSA may keep you from going to the doctor when they need 
to. But there are ways with the PPO that I think it can be 
structured well. But, obviously, it needs more education and 
more examination.
    Chairwoman Velazquez. Mr. Schrader?
    He is not here.
    Mr. Moore?
    Mr. Moore. Thank you, Madam Chair.
    I would like to direct my first question to Ms. Fox and Mr. 
Beene.
    Last summer, President Obama proposed a new tax credit for 
small businesses that offer quality health care to their 
employees. Specifically, under his proposal, small businesses 
would be offered a refundable credit of up to 50 percent on 
premiums paid on behalf of their employees.
    Some have recently expressed questions about whether or not 
such a tax credit would be sufficient, given the dire 
circumstances that most small businesses currently find 
themselves in and the difficulties associated with restraining 
costs and maintaining cash flow.
    Given your policy expertise in this area and your 
understanding of the circumstances that many small businesses 
currently find themselves in, do you think that a tax credit 
would do enough to encourage small businesses to provide health 
care coverage for their employees, or would additional 
incentives need to be offered?
    Ms. Fox. We are very supportive of the tax credit proposal 
that is in President Obama's plan. We think that it would go a 
long way. EBRI did a survey on that and surveyed small 
employers that didn't offer coverage. Seventy-one percent said 
they would be interested in offering benefits. That was a 
little while ago before the economic downturn. But 71 percent 
said it would make a big difference.
    We are finding in Insure Oklahoma that that really is being 
very successful, having some assistance to provide benefits. So 
we do think it would be helpful, but we think it needs to be 
more. We need to rein in costs across the board. So it needs to 
be a multiplicity of approaches.
    Mr. Moore. Good.
    Mr. Beene?
    Mr. Beene. Yes, well, we believe tax credits are really 
probably the key help that we can give small business. And we 
would like the tax credits to be refundable, and I think that 
they need to come monthly. They need to come at a time when a 
business can use them. Be refundable, I support and we agree 
with the concept.
    And, specifically, I think we--most small businesses in our 
surveys want to provide health coverage for their employees, 
and they think they need to from a competitive standpoint, 
because often they are competing with a big company. You put 
these things together. If you can just give some financial help 
so that it is not a question of paying the mortgage at home or 
getting some health coverage for the employee, and I think the 
one way you can really get an effect and help small businesses 
with the refundable tax credit issue.
    Mr. Moore. Anybody else care to comment?
    Mr. Haynes. Yeah, if I could comment briefly, I think tax 
credits are a good idea. I think it is necessary. But they only 
achieve one of the objectives that I think ought to be the 
focus, and that is to get more people covered.
    I think a targeted tax credit--and I think it needs to be 
larger than 50 percent because, after all, that is not a whole 
lot more than simply making it deductible--I think a targeted 
tax credit that works against market forces is very important. 
I think we need a tax credit that has enough effect on the 
market to reduce overall cost.
    And that is one of the reasons I would, frankly, prefer the 
CHOICE Act solution over a simple 50 percent tax credit.
    Mr. Moore. Anybody else?
    Okay. More broadly, do any of you have thoughts on various 
options that are out there that are designed to ensure that a 
higher percentage of small businesses are able to provide their 
employees with health insurance? Should the Federal Government 
be encouraging the development of purchasing groups, which 
would increase plan choice and lower administrative costs? 
Subsidize insurance coverage for high-cost individuals? 
Subsidize insurance coverage for low-income individuals?
    Any thoughts about any of those proposals?
    Mr. Beene. I would say yes to all three of those.
    Mr. Moore. Consensus, huh?
    Mr. Beene. We think that supported groups for certain 
individuals is one way to deal with the small business problem 
of the unhealthy individual. We don't want to see--I know the 
law is everybody hires equitably and doesn't base things on 
health, but you wonder out there--we have to give options to 
businesses, because we can't bankrupt businesses, especially 
now when things are tight. And I think all of those proposals 
have appeal to the small-business community.
    Mr. Moore. Any other comments?
    Mr. Ratner. I think that is a huge deal. I think it would 
help immensely, between the tax credits and the pooling.
    You know, no one here has had the problem of if you have 
four or five employees in their 30s and you have one who is in 
his 50s, the rate just goes right through the roof. Or you have 
someone who has a pre-existing condition, forget it, they won't 
write the policy.
    So I think that would be a huge deal to get more people 
signed up. And, again, you know, we still have to address the 
issue of controlling costs. That has to go along with it.
    Mr. Clark. I would just add from the providers standpoint, 
anything we can do to see more coverage. We are seeing a 
dramatic increase in our bad debt, as you would imagine. We are 
at a point now where 50 percent of the babies born in our OB 
unit are born into the Medicaid program. So anything you can do 
would be helpful.
    Mr. Moore. Thank you all. Thank you, Madam Chairman.
    Chairwoman Velazquez. Mr. Thompson.
    Mr. Thompson. Thank you, Madam Chairwoman and ranking 
member Graves. I very much appreciate your leadership on these 
issues. I am new here by about 5 weeks. I come from the 
hospital floor to the House floor, where for 26 years, these 
have been very important issues to me. I represent one of the 
more rural districts in the country. So small businesses are 
our backbone and having employers growing those jobs and health 
concerns are obviously very important for our economy and to me 
in my former profession, and now as a Member of Congress.
    Mr. Clark: In terms of rural America, rural residents rely 
more heavily on the individual and small group market and 
because these economies are dominated by small business and 
self-employed, they are less likely to be offered health 
insurance through an employer. Could you explain how much more 
difficult this makes things for people from rural areas, from 
rural America?
    Mr. Clark. We are seeing two things: We are seeing, one, 
fewer people insured obviously; but number two, more and more 
people that are underinsured. So they show up at the emergency 
room with a card that says they have got insurance only to find 
out it doesn't cover much. So it is causing, as I mentioned 
earlier, a tremendous increase in our bad debt and we are 
seeing it more and more every month.
    Mr. Thompson. Mr. Haynes, you stated that some form of 
financial support for the small business community is needed to 
create fundamental fairness. How would the Federal Government 
fairly distribute financial assistance to small businesses when 
given the situation with State by State, the small business 
community faces significantly different mandates and 
regulations?
    Mr. Haynes. Well, the issue with the mandates is not simply 
the cost of the individual mandates; it is the collective cost 
of the difference between the mandates. So it is simply a part 
of our Federal regulatory system when you have got a bunch of 
different regulations, it makes it much more expensive to 
comply with all of them. I was a supporter of the HP 
legislation but understand that there was concern about the 
federalism principles of it, and I respect and support that.
    A tax credit that recognizes the uneven playing field is 
really what I am talking about, and the uneven playing field is 
basically good because big businesses don't have to comply with 
these mandates. They simply create a self-funded program that 
is not treated as insurance for purposes of State rules and 
they don't comply with them.
    So all small businesses face pretty much the same issue. 
There may be differences in magnitude, but because they are not 
large enough to have an individually self-funded plan, they 
can't therefore take advantage of the ERISA preemption. They 
are in a position where economically the only way they can put 
together a viable plan is by pooling themselves with other 
businesses. I think the reality of a tax credit targeted to 
small businesses is it simply compensates for the extra costs 
that they pay because of an uneven regulatory system.
    Mr. Thompson. Thank you. Would anybody else like to comment 
on that?
    Mr. Beene. Well, just briefly, the mandates in certain 
States often--I mean there is a lot of good that comes from it. 
Often it is political. Obviously people in different interest 
groups want to have--it's easy, let's put it in, it's paid for. 
But then you look up and you are in a small business situation 
and you are completing with someone who has got ERISA plans. So 
you are faced with just that situation where on the one hand, 
regulation makes it impossible. On the other hand, some of it 
is just too expensive because there are things you don't need 
that you are having to pay for.
    Mr. Thompson. Thank you, Madam Chairwoman. I yield back the 
balance of my time.
    Chairwoman Velazquez. Mr. Griffith.
    Mr. Griffith. Thank you, Madam Chairman. I appreciate so 
much being here and hearing the comments. I do believe that we 
are trying to figure this out from within the box, and I 
appreciate all the calisthenics that we are going through to 
exist within a structure that, over the last four or five 
decades, have proven intractable to lowering costs, and 
although we are figuring out various ways to increase the 
deductible or a tax credit, it has nothing to do with lowering 
the cost of health care. I think we are not addressing the 
problem. I think maybe some stakeholders that need to be at the 
table are not at the table.
    Less than 2 percent of all of our medical school classes 
are going into primary care. A third of all of our primary care 
physicians are 55 years of age and older. We have a huge, huge 
deficit of primary care providers and that is what we need to 
preventative care. A child born today in America that does not 
smoke and is reasonably well informed about nutrition is going 
to live to be 100 years old. We now have the ability to cure 
many, many major diseases that are or at least allow the 
patient to live with them.
    My concern from business, and I am hearing the insurance 
industry, the small business hospital industry, etcetera. We 
are all advocates for our industry, but there are no patient 
advocates here. And I think that America is faced with a huge 
crisis that unless we come to grips with the fact that there 
are no primary care providers and they are distributed when we 
do have them so unevenly that we are going to have to look for 
other solutions, and one of those solutions is that we need 
traditional medicine, the American Medical Association and 
State medical associations, to allow our nurse practitioners 
who are certified in multiple specialties to be in touch and 
help us care for America.
    It is an artificial restraint, and I think that would go a 
long way to preventative care when we realize that half of all 
lives lost in the next century will be life-style-related 
disease, whether it be obesity, hypertension, and what have 
you. We have the solutions to affordable health care, but they 
are not going to be within the traditional boxes that we are 
looking in right now.
    Thank you, Madam Chair for allowing me to make that 
comment.
    Chairwoman Velazquez. Sure. Thank you. Mr. Gohmert.
    Mr. Gohmert. Thank you, Madam Chair. And I appreciate 
having the hearing. I appreciate the work in this area because 
this is something affects everybody and during the time I left 
the bench to run for Congress and the time I got elected, I 
learned some valuable lessons about health care. I also had 
learned them as when I was in a small business myself as an 
attorney. But they became more pronounced. For one thing, I had 
a relative who was in a car accident, the fault of the another 
driver; so I agreed to help this person with their 2 days of 
medical expense, make a claim from the other guy's insurance 
company. And we did so. And the way the practice goes, you 
gather all available medical receipts. We did that. Supply 
those to the car insurance company. And we had a settlement.
    And then under Texas law, once that is done, you can't 
distribute any proceeds until you pay back all of the medical, 
which I contacted the hospital, ambulance, doctors, MRI, all 
that procedures, and we had about $10,000 in medical bills. 
They all said we have been taken care of pursuant to our 
contract with the health insurance company.
    So once I had all those agreements in, that they had all 
not been taken care of pursuant to their agreement with the 
health insurance company, all I had to do was pay the health 
insurance company, and for the $10,000 in bills their total out 
of pocket was about $800. So it brings me to wondering if there 
wasn't some way to get total truth about what procedures cost 
in cash.
    I am told, and I have not allowed to see actual contracts, 
but I am told in some perhaps Blue Cross contracts there are 
provisions that do not allow hospitals or health care providers 
to charge a cash price that is as low as what the insurance 
company could get. I had a daughter that needed a procedure. We 
got a $200 discount for $2,300 or $2,400 procedure, but I am 
told that the health insurance companies pay a fraction of that 
but they couldn't charge us that little because of their 
agreement.
    So it just seems that what we have in this country, 
everybody talks about health insurance, but we most of what we 
have other than the catastrophic care is not health insurance. 
We have the insurance companies and we have the government 
running health care. And I also think for those who want to be 
entrepreneurs, since health care insurance has taken off so 
well, you could do the same thing with gasoline. The price is 
up; it is down. Tell America you pay us, you know, a big wad of 
money every month and we will give you a copay and a deductible 
and we will pay your gasoline bill every month.
    It is the same type thing. It is not insurance as much as 
it is management. So I would love to see us get back to the 
place where we were when I was younger when you could have 
catastrophic care. Insurance did a phenomenal job of taking 
their monthly payments, depositing them, making them grow, and 
then covering catastrophic events instead of managing health 
care. I would love to see us get back to a doctor/patient 
relationship that we don't have anymore. It is either patient/
government/doctor or patient/insurance company/doctor. I want 
to see the health insurance companies do well and take care of 
us on catastrophes.
    The HSAs seem like an avenue to address that, especially if 
it is pretax money, goes into an account, can't be spent on 
anything else, can be rolled over and not one of these if you 
don't use it you lose it. It could even be inherited. We could 
provide for future generations. I have had seniors say I am to 
too old and I am too sick to ever have an HSA. So we looked at 
numbers. We looked at 2006 and were told that the Federal 
Government spent the average for households in America of 
around $6,100 per household of America of tax dollars, that 
State governments spend around $2,200 or $2,300, about $8,400 
per household. Heck, for that much money, we could tell 
everybody here is your HSA. If you are too sick and too old or 
out of work, here is your HSA, here is your catastrophic care, 
you are covered. And we would save $3,000 or $4,000 worth of 
tax dollars for everybody in the country and it would be back 
to a doctor/patient relationship.
    So I am open to any proposals but I am not sure that we are 
back to where we should be where we can have a doctor/patient 
relationship. I saw socialized medicine in the Soviet Union 
when I was an exchange student there. I don't want to go there. 
Socialized medicine needs people to die before they get their 
care so it doesn't cost too much. I don't want to go there.
    So thank you, Madam Chair.
    Chairwoman Velazquez. Thank you. I don't know who is 
proposing that because even the President is talking about tax 
credits for small businesses. That is not socialism. But Mr. 
Ratner I would like to--Mr. Nye. I am sorry.
    Mr. Nye. Thank you. Just a quick question.
    Mr. Ratner, I am interested to hear from you if you 
wouldn't mind commenting from a small business owner. Clearly 
right now we are very focused on trying to create jobs. Small 
businesses we are counting on to create most of those jobs. And 
I just wanted to hear your input on how our treatment of health 
benefits from a tax perspective impacts your ability to hire 
people and to grow your business.
    Mr. Ratner. It is part of the package. Every time--if there 
is a mandate, every time there is an added cost to bringing on 
a new employer, it is one more thing in the liability column 
when you look at should I hire someone or should I not? So it 
is not 100 percent that I am not going to hire someone but you 
really have to have a real strong desire or need to hire that 
person. If not, you are just not going to hire them. There is 
no need to. There are too many costs. Frankly, what we are 
going through, and I should have said this before, is now 
instead of hiring new people we will just give our regular crew 
more hours and give them more overtime. It is cheaper to pay 
them overtime than it is to hire new people. So it kills job 
creation.
    Mr. Nye. I want to allow anybody else that had another 
comment if they want to join in.
    Mr. Haynes. If I could just add a little bit to that too 
because I hear a lot of this from my members, the smaller guys. 
Most of my small members compete with big public companies. It 
is just the way the system is configured. There are large 
bottlers and small bottlers throughout the country. They often 
can compete with each other. What they tell me basically, the 
smaller members, because they can't offer the same level of 
insurance is they keep losing people to big business. They keep 
losing people who are good employees and having to go through 
this cycle of hiring new employees and training them. So it 
drives up their costs from multiple perspectives. I don't think 
it should be lost on this committee that the Fortune 500 
companies are engaged in a fairly large-scale job reduction. It 
is going to happen.
    When a big public company misses an earnings report, they 
have a--they both have reduced needs for people but they also 
have unfortunately incentives to take one-time write-offs and 
have large-scale job reductions. And last week, I think the 
number between eight companies was over 100,000 job cuts, 
eight, nine public companies. And small business does have to 
scale down its employees when the needs change, but I don't 
think they have quite the same pattern of behavior in terms of 
eliminating people because there is an expectation they do so. 
And that is something that concerns me and I think would 
concern the members of this committee and Congress.
    Mr. Nye. I yield back the remainder of my time.
    Chairwoman Velazquez. Thank you.
    Mr. Ratner, I will recognize Mr. Sestak; then I will come 
back to you.
    Mr. Sestak. Madam Chair, maybe most of these questions have 
been asked.
    Mr. Ratner, if I could follow up with a mandate question. I 
think it was your testimony or, sir, it might have been yours 
of Coca-Cola, talking about the direct cost of a mandate. I 
understand the direct cost of a mandate. But the indirect cost 
of a mandate bodes in many studies a real benefit to--not 
directly to your cost, but to the Nation's cost for health 
care. So how do we take that on board when one-fifth of all 
uninsured in America earn more than $50,000 or above? Generally 
the youth of America that have a great job don't bother to 
spend the couple of thousand bucks out there for health 
insurance. They are in a car accident, and now we have to take 
care of the TBI with the Nation's money, which basically taxes 
you anyway.
    How do you measure the days off of your sick person, sir, 
down there that, yeah, you have got 10 employees, you don't 
want to raise another one, but you've got to give them some 
sick leave, but generally--but you lose that and there are a 
lot of studies that show that mandating--let us just say it is 
the Massachusetts health care plan way. You are from 
Massachusetts; correct?
    Mr. Ratner. Right.
    Mr. Sestak. That in the social cost, and I don't mean 
goodness, I just mean as a business, that mandating that 
everyone is involved drives the risk down for those pools when 
the healthy are in it as well as unhealthy, and by mandating 
that everybody is in it, people actually go in for your 
preventative care. For example, the unemployed--the young woman 
who testified here on the unemployed and self-employed. I read 
her testimony. Is she here? Was that you? I mean you didn't go 
in for some preventative care or I guess you went in and they 
switched it on you--
    Ms. Davis. I do have insurance.
    Mr. Sestak. There was one woman here--I can't remember who 
it was--that had testimony--
    Ms. Davis. But I had preventative care that I went in 
before and I got a bill after the fact.
    Mr. Sestak. Let me read get back. I probably just misread. 
My question is then why not mandate if we all benefit from it?
    Mr. Ratner. Well, that is the problem. We don't all benefit 
from it. If I was sitting here and I am from Massachusetts and 
it is mandated and I said to you, you know what, guys? My 
premium has dropped 20 percent. Everyone has got coverage. 
Everyone is healthy. Let us go for it. But that didn't happen.
    Mr. Sestak. But the Urban Institute study last June said 
that the Massachusetts health care plan seems to be working. 
Yes, it is costing a bit more, but so is doing nothing. 
Probably the premiums would have gone up even more than what 
Massachusetts tried to do.
    So my question is, overall, when you take direct and 
indirect costs, mandates--when we look at mandating it--and I 
am not saying single payer at all. I am not a single payer 
type--appear to say that we all benefit as a Nation with 
greater savings than if we don't mandate.
    Mr. Ratner. You know, I guess the devil is in the details, 
which is what everyone is struggling with here . If it came out 
in Massachusetts and you know, again, if the rates had dropped 
and if her business with two employees was paying--the playing 
field was level and she was paying the same as the guy with 200 
people and everything was level and all premiums were level, I 
don't know how much of an argument you would get from me, but 
the problem is getting all that stuff to work with you.
    And here is the other problem: We keep hearing that the 
small business, the entrepreneurs, are the backbone of the 
country. It is so out of whack that every time you add one of 
these costs to these micro businesses, you just literally 
cripple them. So if you came to me and said, listen, we are 
going to have this mandate but there is going to be a tax 
credit for the micro businesses and we are going to level that 
out so the cost doesn't cripple them, that is what I am afraid 
of.
    Mr. Sestak. I have to agree with you, how we do this. It 
just seems that so many people's testimony--and I am sorry, I 
had another hearing on Pakistan. It just seemed to me, as you 
said, how the mandate is done because there seems much good in 
getting those people who are healthy and uninsured into the 
risk premium pools.
    My second question, if I could ask one more, is I am very 
attracted to the idea of pooling and Massachusetts kind of goes 
head off, and the chairwoman has the CHOICE Act, but that is 
kind more of risk retention, as I believe her Act does. And one 
of you testified on that, or has it in written testimony, how 
do you compare risk retention to an assoc cooperative versus--
what I found also attractive, at least as it was supposed to 
have been done, was this quasi government connector that 
actually, with a mandate, then puts them in these same 20 
insurance plans theoretically that Congress has access to, the 
Federal Government. Is one better than the other of that 
pooling?
    Mr. Haynes. I can speak--I am not sure I can speak to 
superiority. I have an opinion on superiority. I can speak to 
what you can do with pooling because, as I indicated in my 
testimony--that may be my testimony you are referring to. We 
have a pooled captive-based program with our liability 
insurance. It works beautifully. We have got large members, we 
have got small members, and we take 100 percent of the risk or 
nearly 100 percent of the risk even though there is an admitted 
insurer that writes the paper, but we do the reinsurance. We 
take the money that goes into the lost fund and invest it. We 
have active claims management people. We have active loss 
control programs to reduce the cost. We are totally motivated 
to reduce the total cost.
    And we work very hard on that, sharing best practices. And 
that program delivers--we have been at it for 5 years. We 
deliver about a 25 percent reduction to our members that 
participate in that. So it works beautifully in the liability 
area, and I don't know why it wouldn't work just as well in the 
health insurance.
    Mr. Sestak. Can I make one last statement, Madam Chair?
    My prejudice, so you know, is I was in the military up to 
about 3 years ago, and only about 23 percent of high school 
graduates every year can qualify to go in the U.S. Military 
because physically and healthwise they don't qualify. So to 
some degree we get healthy kids. But once you are in it, there 
is this mandate that everybody and their families are covered. 
Now, it is a different health care plan. All that said, we 
don't deploy overseas; so everybody has 99 percent dental 
readiness. It sounds funny, but in a real sense, we are a real 
healthy force out there with this. Then I was quite struck when 
my daughter had a brain tumor and I needed to get out to take 
care of that by the failure to have transparency first off and 
who is the right doctor to go to, which is why fee for service 
has to change in Medicare and all. I mean, I love Medicare.
    Number two, that I could go to an 11-month war and my mind 
was strictly on the mission because I knew my family was there 
and I wasn't away from work, for this Nation's work at the 
time. So to my mind that model, and I understand TRICARE is 
different and all, bodes to me that if cost for the economy 
overall is to be something having healthy preventative care 
with everybody involved, the healthy as well as the unhealthy, 
and how you do that it seems to me is one of the most critical 
pieces that we can have, to have the most proficient economy we 
have because you do have people who wouldn't get sick if they 
had the preventive care.
    I am sorry to go on, but I think this is one of the most 
important hearings we can have. Thank you, and I am sorry I was 
late.
    Chairwoman Velazquez. Thank you, Mr. Sestak. Mr. Graves, do 
you have any questions? Mr. Moore?
    So let me thank all of you for your insight on this issue.
    Mr. Graves. I have one. Mr. Ratner, what came first? The 
soda pop or the pet food?
    Mr. Ratner. I was wondering if I should put that in the 
testimony and decided not to. I started selling all different 
brands of soda in an empty gas station in 1975 and about a year 
later I bought a dog. And I walked into a grocery store to buy 
dog food for Bentley, and I looked down the aisle and I said, 
holy smokes, there is more pet food in here than there is soda. 
So I bought dog food for Bentley and went back to my store and 
called 9Lives and Purina and went into the pet food business.
    Mr. Haynes. If I could just comment, as the owner of seven 
dogs and a representative of the soft drink industry, I think 
it is a marriage made in heaven.
    Mr. Ratner. Except soda is now 2 percent of my business. We 
can't compete with Costco, Wal-Mart, and these guys.
    Chairwoman Velazquez. I have just one.
    Mr. Beene, the issue of national mandates requiring 
employers to offer private health insurance, everybody has an 
opinion about that. But let me ask you to what extent do you 
think that the small employer will support such mandates?
    Mr. Beene. I think at this point, there is a lot of 
hesitancy from the small employer because of the fear of the 
unknown, especially in this economic time. We are talking at a 
time that people are--I think generally across the board things 
are pretty tight, and while I think as time goes, people will--
perhaps the ideas will come around because I do think there are 
some benefits to it. It is certainly one way to look at things. 
But I think that right now the reaction is from what will this 
do to me? How much is this going to cost? Will it ruin my 
business? So I think right now we have got issues with support 
of that from small business.
    Chairwoman Velazquez. Do any of you have an opinion as to 
being able to structure a mandate that could address concerns 
over costs?
    Mr. Beene. I think bringing the tax credit into it at the 
same time would be probably the place to start.
    Chairwoman Velazquez. Mr. Ratner.
    Mr. Ratner. I think the mandate, unless there are very good 
tax credits in it, would cripple the micro business. The guys 
with two and three folks like her, it would be a disaster.
    Chairwoman Velazquez. Ms. Fox?
    Ms. Fox. I would just add that we are supportive and I 
think there is becoming more broad support for an individual 
mandate. I know there is a lot of concern in the business 
community about--especially small employers and large employers 
have lots of concerns about the mandate but I am hearing a 
growing consensus that an individual mandate might make sense 
especially if we can address the affordability and provide 
reining in costs and provide appropriate subsidies because I 
think the issue we have heard about young people not purchasing 
coverage is a real serious issue. I know I have a 23-year-old 
son, and he would rather buy fancy phones than his insurance. 
So they tend to feel invincible and we need to get them in the 
system to make sure that everything works best for everyone.
    Ms. Davis. I think the mandate has to be on the individual 
as opposed to the small business owners because putting the 
burden just on the small business owners and not on the 
individuals to take care of themselves is not going to work.
    Chairwoman Velazquez. Mr. Haynes.
    Mr. Haynes. I have got a concern about individual mandates, 
and the question is how do you price it? The reality is that 
young person--the pricing on that insurance to be fair to that 
person is going to have to be very, very small, and so you 
can't have any kind of, you know, what typically happens in 
insurance markets, which is ratings and community ratings and 
all that kind of stuff. Otherwise, we are going to impose costs 
on our young people who are already paying a lot of costs 
associated with the aging of the population, that just isn't 
fair. So if there was a pricing mechanism that was fair to me 
and made that cost containable I could see it. But I think a 
lot of young people are making individually rational decisions 
not to be insured.
    Chairwoman Velazquez. Thank you.
    Mr. Sestak. Madam Chair, would you yield?
    Chairwoman Velazquez. Yes.
    Mr. Sestak. If I could, though, don't we end up paying 
anyway, you businesses, for that youth who decides not to be 
insured, and even on the tax credits; don't you pay anyway 
because you are going to pay it out of your income tax the 
Federal Government to give it? So anything great that is done 
is hopefully done in a bipartisan, shared responsibility 
between individual business and society. Can we really, in 
something like this that is so dramatic to our future, exclude 
one of those three?
    Mr. Haynes. The way I would put it is it should be an 
objective to have as many people insured as possible because it 
is correct that we all pay the cost for the uninsured. It is 
the reason why there is such a difference between the quoted 
price and what might be negotiated as part of a network.
    On the other hand, what I see as what should be your 
objective is to find a way to adopt policies that both provide 
coverage and affect the marketplace. And if your focusing is 
entirely on getting coverage you're not going to decrease the 
total costs that our society pays for health care, and that has 
to be at least as important an objective as obtaining universal 
coverage. So focus on things that will change the marketplace.
    Chairwoman Velazquez. Mr. Ratner, in terms of the 
Massachusetts experience, how much of an economic burden is 
imposing upon the State government?
    Mr. Ratner. At this level--imposing on the government?
    Chairwoman Velazquez. Yes.
    Mr. Ratner. That I don't know. I can tell you that at this 
level, it is tolerable by the employers, but there is a new 
wrinkle that they are trying to put in, which is insane. Now 
they want to take all your part-time employers and use them as 
full-time equivalents. So if you are not paying 33 percent of 
your full- time equivalents' insurance premiums, they are going 
to whack you another mandate, another fine of $275--this is the 
nuts part--even if that employee is covered somewhere else. And 
these are the costs that you don't think about. It is the other 
costs to the businesses and they want you to pay it four times 
a year. So now we have to hire--because we can't figure it out-
- we have to hire someone else to figure that out. So the cost 
goes up and that will have a real detrimental effect to 
everyone who has a seasonal business because this is not just 
for guys like me who are year round. Now you are talking 
seasonal businesses who just hire kids who may have coverage 
elsewhere. So I don't know what it is doing with the government 
but...
    Chairwoman Velazquez. Well, we will continue to have a 
discussion on this issue. It is a very important issue that has 
such a direct impact on our economy and particularly small 
businesses. So I want to thank all of you for coming here this 
morning.
    I ask unanimous consent that members will have 5 days to 
submit a state statement and support materials for the record.
    Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 11:45 a.m., the committee was adjourned.]

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