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

                            STRENGTHENING EMPLOYER-
                              PROVIDED HEALTH CARE

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

                                    HEARING

                                   before the

                            SUBCOMMITTEE ON HEALTH,
                         EMPLOYMENT, LABOR AND PENSIONS

                                  COMMITTEE ON
                              EDUCATION AND LABOR

                         U.S. House of Representatives

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                 HEARING HELD IN WASHINGTON, DC, MARCH 10, 2009

                                   __________

                                Serial No. 111-6

                                   __________

          Printed for the use of the Committee on Education and Labor

                           Available on the Internet:
          http://www.gpoaccess.gov/congress/house/education/index.html

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                        COMMITTEE ON EDUCATION AND LABOR

                      GEORGE MILLER, California, Chairman

    Dale E. Kildee, Michigan, Vice       Howard P. ``Buck'' McKeon,
        Chairman                             California,
    Donald M. Payne, New Jersey            Senior Republican Member
    Robert E. Andrews, New Jersey        Thomas E. Petri, Wisconsin
    Robert C. ``Bobby'' Scott, Virginia  Peter Hoekstra, Michigan
    Lynn C. Woolsey, California          Michael N. Castle, Delaware
    Ruben Hinojosa, Texas                Mark E. Souder, Indiana
    Carolyn McCarthy, New York           Vernon J. Ehlers, Michigan
    John F. Tierney, Massachusetts       Judy Biggert, Illinois
    Dennis J. Kucinich, Ohio             Todd Russell Platts, Pennsylvania
    David Wu, Oregon                     Joe Wilson, South Carolina
    Rush D. Holt, New Jersey             John Kline, Minnesota
    Susan A. Davis, California           Cathy McMorris Rodgers, Washington
    Raul M. Grijalva, Arizona            Tom Price, Georgia
    Timothy H. Bishop, New York          Rob Bishop, Utah
    Joe Sestak, Pennsylvania             Brett Guthrie, Kentucky
    David Loebsack, Iowa                 Bill Cassidy, Louisiana
    Mazie Hirono, Hawaii                 Tom McClintock, California
    Jason Altmire, Pennsylvania          Duncan Hunter, California
    Phil Hare, Illinois                  David P. Roe, Tennessee
    Yvette D. Clarke, New York           Glenn Thompson, Pennsylvania
    Joe Courtney, Connecticut
    Carol Shea-Porter, New Hampshire
    Marcia L. Fudge, Ohio
    Jared Polis, Colorado
    Paul Tonko, New York
    Pedro R. Pierluisi, Puerto Rico
    Gregorio Sablan, Northern Mariana
        Islands
    Dina Titus, Nevada
    [Vacant]

                         Mark Zuckerman, Staff Director
                    Sally Stroup, Republican Staff Director

             SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                    ROBERT E. ANDREWS, New Jersey, Chairman

    David Wu, Oregon                     John Kline, Minnesota,
    Phil Hare, Illinois                    Ranking Minority Member
    John F. Tierney, Massachusetts       Joe Wilson, South Carolina
    Dennis J. Kucinich, Ohio             Cathy McMorris Rodgers, Washington
    Marcia L. Fudge, Ohio                Tom Price, Georgia
    Dale E. Kildee, Michigan             Brett Guthrie, Kentucky
    Carolyn McCarthy, New York           Tom McClintock, California
    Rush D. Holt, New Jersey             Duncan Hunter, California
    Joe Sestak, Pennsylvania             David P. Roe, Tennessee
    David Loebsack, Iowa
    Yvette D. Clarke, New York
    Joe Courtney, Connecticut

                                C O N T E N T S

                                  ----------
                                                                       Page

    Hearing held on March 10, 2009...................................     1

    Statement of Members:
        Andrews, Hon. Robert E., Chairman, Subcommittee on Health,
          Employment, Labor and Pensions.............................     1
            Prepared statement of....................................     4
            Statement of the American Benefits Council...............    58
        Kline, Hon. John, Senior Republican Member, Subcommittee on
          Health, Employment, Labor and Pensions.....................     4
            Prepared statement of....................................     6
        Kucinich, Hon. Dennis J., a Representative in Congress from
          the State of Ohio, prepared statement of                       57

    Statement of Witnesses:
        Derbyshire, Mark, owner, Park Moving and Storage.............     9
            Prepared statement of....................................    10
        Pyenson, Bruce, FSA, MAAA, principal & consulting actuary,
          Milliman, Inc..............................................    11
            Prepared statement of....................................    12
        Sheridan, John, CEO, Cooper University Hospital..............    14
            Prepared statement of....................................    15
        Thorpe, Kenneth E., Ph.D., chair, Department of Health Policy
          and Management, Rollins School of Public Health; executive
          director, Center for Entitlement Reform, Emory University..    40
            Prepared statement of....................................    41
        Trautwein, E. Neil, vice president and employee benefits
          policy counsel, National Retail Federation (NRF)...........    33
            Prepared statement of....................................    35
        Winkler, Jim, health management practice leader, Hewitt
          Associates.................................................    22
            Prepared statement of....................................    25

                  STRENGTHENING EMPLOYER-PROVIDED HEALTH CARE

                                  ----------

                            Tuesday, March 10, 2009

                         U.S. House of Representatives

             Subcommittee on Health, Employment, Labor and Pensions

                        Committee on Education and Labor

                                 Washington, DC

                                  ----------

        The subcommittee met, pursuant to call, at 10:32 a.m., in
    Room 2175, Rayburn House Office Building, Hon. Robert Andrews
    [chairman of the subcommittee] presiding.
        Present: Representatives Andrews, Hare, Tierney, Kucinich,
    Fudge, Kildee, McCarthy, Holt, Sestak, Loebsack, Courtney,
    Kline, Wilson, McMorris Rodgers, Price, Guthrie, and Roe.
        Staff present: Tylease Alli, Hearing Clerk; Jody Calemine,
    Labor Policy Deputy Director; Carlos Fenwick, Policy Advisor,
    Subcommittee on Health, Employment, Labor and Pensions; David
    Hartzler, Systems Administrator; Jessica Kahanek, Press
    Assistant; Therese Leung, Labor Policy Advisor; Sara Lonardo,
    Junior Legislative Associate, Labor; Joe Novotny, Chief Clerk;
    Megan O'Reilly, Labor Counsel; Michele Varnhagen, Labor Policy
    Director; Robert Borden, Minority General Counsel; Cameron
    Coursen, Minority Assistant Communications Director; Ed Gilroy,
    Minority Director of Workforce Policy; Rob Gregg, Minority
    Senior Legislative Assistant; Jim Paretti, Minority Workforce
    Policy Counsel; Molly McLaughlin Salmi, Minority Deputy
    Director of Workforce Policy; Ken Serafin, Minority
    Professional Staff Member; and Linda Stevens, Minority Chief
    Clerk/Assistant to the General Counsel.
        Chairman Andrews [presiding]. Good morning. The
    subcommittee will come to order. We thank you for your
    participation today. It is a pleasure for you to join us for--
    to us to have you join us as we embark in what promises to be a
    challenging and, I would hope, historic consideration of how
    best to reform the healthcare system of our country.
        We are very fortunate to have a range of talent on this
    subcommittee on both sides of the aisle, and it is my
    intention, along with my friend, Mr. Kline, to try to draw upon
    each of those talents of the members of the subcommittee in the
    best way we can to produce ideas and a work product that meets
    the president's mandate, the president's challenge to try to
    enact legislation in 2009 that reforms our healthcare system.
        I want to say from the outset how pleased I am to be able
    to share this responsibility with Mr. Kline for the second
    consecutive Congress. He is a person who is well versed on the
    issues, is very easy to communicate with, believes deeply in
    his views and is a strong advocate for them, but is also a fair
    and balanced person. And it is a pleasure to work with him. I
    feel privileged to have this opportunity once again.
        I am honored to be joined today by my science and
    technology advisor, my 16-year-old daughter, Jacqueline, who
    was bitterly disappointed that she didn't get to go to the
    Usher hearing. This is her consolation prize. Small
    consolation, indeed.
        And also pleased I am able to be joined by my cousin and
    her husband, Laurel Schull and Walt Schull. They are very
    important people in my life, and they give me a way to
    understand these issues. They are both retired educators. They
    worked very hard for their health insurance over the years, and
    it is very important to them as they continue in their lives.
    And they, among many other people, give me a prism through
    which I can understand these issues. So I am delighted that you
    are here today.
        On Thursday at the White House, President Obama challenged
    the Congress and the country to enact healthcare reform
    legislation in 2009. This will be this subcommittee's first
    effort to meet that challenge and rise to the occasion. The
    president, I think, very well articulated what most Americans
    want. I think he articulated the consensus of what Americans
    want when it comes to change in health insurance.
        First of all, I think most Americans want to choose their
    own doctor or healthcare provider. We feel very passionately
    that we want to be connected to the person we have chosen to be
    the pediatrician for our children or the OB/GYN for our wives
    or daughters, or our own dentist, our own psychiatrist,
    whatever it is that we want to deal with. Americans feel very
    strongly about the sanctity of the doctor/patient relationship,
    and I believe we should do whatever we can to preserve and
    enhance that relationship.
        The second thing that I think most Americans believe about
    healthcare is it is costing them too much out of their take-
    home pay. Healthcare out-of-pocket costs for Americans have
    risen about five times as quickly as wages have risen in the
    last decade or so.
        That means, for a lot of Americans who are fortunate enough
    to have health insurance, to have a job, and who have received
    a pay increase in that job, that they very often find they took
    a pay cut anyway because their out-of-pocket contribution in
    healthcare went up by more than their paycheck did if they are
    among that increasingly dwindling group that has a job and gets
    a pay raise.
        So I think most Americans understand that they want
    healthcare costs to eat up a smaller portion of their paycheck
    or their family wealth. That certainly goes for small
    businesses, as well. Small businesses--all business,
    particularly small businesses, are struggling to cover the
    people who work for them and their families, and finding it
    increasingly difficult to do so.
        One hundred and sixty-nine million Americans derive their
    health insurance through an employer/employee relationship. And
    it is for that reason that this subcommittee and the full
    committee will be actively engaged in the process of writing
    and debating, and eventually legislating, bills on this
    subject.
        There are different views about whether the employer/
    employee system should continue to be a basis for the provision
    of healthcare. I believe it should be, but I understand there
    are different views. What I do assure all members of the
    subcommittee and the full committee is that we will have our
    full and robust opportunity to weigh in on that debate
    legislatively as the year goes on because the employee/employer
    system is such an important part of the care that is presently
    provided.
        This morning, we are going to begin our examination of
    these issues with a focus on the question of how much it is
    costing employers who choose to insure, to help carry the
    burden of employees and dependents of those who do not insure.
        Now, notice the formulation I use for this. Employers who
    choose to insure in recognition of the fact that, in virtually
    all cases in our country, the law today is that whether or not
    to insure one's employees is a matter of choice. We are very
    fortunate that many, many American employers make that choice,
    and they cover collectively 169 million people.
        Other employers do not do so, some by choice and some by
    necessity. This committee fully understands that there are
    millions of American entrepreneurs who are struggling to stay
    alive, and it is--they are not providing health insurance not
    because they are indifferent to their employees or because they
    do not understand the value of health insurance, but because
    providing health insurance would wipe out any net profit they
    have in their businesses. It is simply not a viable option for
    a lot of businesses in the country.
        There are other employers, however, who are not insuring
    their employees as a matter of choice and not of necessity. It
    is within their business purview, under present law, to make
    that choice. There are a variety of reasons for making that
    choice. Some are presumptively legitimate. Some are probably
    illegitimate.
        The purpose of today's hearing is to quantify and
    understand the cost of that choice that has been made. In other
    words, for employers who are in a position to provide health
    insurance but choose not to, what happens to the people who are
    not insured, and who pays for their care?
        This morning, I am certain, as we meet, there are at least
    hundreds of thousands, probably millions of Americans,
    receiving care in doctors' offices, hospitals, clinics and
    other settings, and they are not able to pay their bill. When
    they are not able to pay their bill, someone else pays for it.
        We have a system in this country, and I am thankful that we
    do, that people are not turned away, at least they are not
    supposed to be turned away, when they approach an emergency
    room or another healthcare provider and don't have an insurance
    card. I don't want to live in a country where people are turned
    away under those circumstances.
        But when they are accepted in that emergency room or
    accepted in that medical practice, someone pays for the care
    that they receive. In some cases, that someone is a healthcare
    institution or provider who simply eats the cost and provides
    free or reduced-price care. In other cases, that cost is passed
    along to other people who pay premiums in the healthcare
    system, in which case the cost is passed along to each of us
    who pays healthcare premiums in some way.
        In other respects, that cost is passed along to taxpayers
    when uninsured people are covered by public programs whether at
    the state or federal level. So our focus this morning is going
    to be to focus in on the question of how much is it costing for
    the employees who are not insured when they access healthcare,
    and who is paying for it. I think that is an important
    question, as we go forward, to frame this discussion.
        Again, I am very grateful to have a chance to work with the
    colleagues that we have on this subcommittee. We are very
    grateful for this morning's panel.
        And at this time, I would like to turn to my friend and the
    ranking member of the subcommittee, Mr. Kline, for his opening
    statement.
        [The statement of Mr. Andrews follows:]

    Prepared Statement of Hon. Robert E. Andrews, Chairman, Subcommittee on
                     Health, Employment, Labor and Pensions

        Good morning and welcome to Health, Employment, Labor, Pensions
    (HELP) Subcommittee's first hearing of the 111th Congress on
    ``Strengthening Employer-Sponsored Health Care.'' The purpose today's
    hearing is to initiate a series of hearings on health care reform. This
    morning, the Subcommittee will focus its attention on the problem many
    US employers offering health benefits to their employees are facing
    today; the cost shifting of covering health care for the uninsured.
    Furthermore, we will examine the reasons as to why this cost shifting
    is occurring and whether ``shared responsibility'' amongst all is
    employers is essential to reforming our health care system in the least
    disruptive way.
        In the United States today, over 169 million working Americans
    receive their health insurance through their employer. Moreover, these
    same employers contribute $386 billion to partially cover the cost of
    the $2.4 trillion we spend as a nation on health care annually.
        The success of employer-sponsored health care is due in large part
    to the purchasing pooling power of these noteworthy employers. However,
    as the cost of health care continues to precipitously increase, due in
    large part to the artificial inflation of pricing, many small to large
    employers have been forced to drop coverage to their employees. As the
    number of employers offering health coverage decreases, the number of
    uninsured increases, as well as the burden imposed onto insured
    employers and their employees to cover the cost of the uninsured. This
    cost shifting is reflected in their increased premium rates, co-pays,
    and deductibles and sometimes in the retraction of benefits.
        Coverage continues to grow increasingly unaffordable to employers,
    which has contributed to the precipitous decline in employer-sponsored
    health coverage over the past decade. In particular, small employers
    with low to middle-income workers have struggled to meet these rising
    costs. Furthermore, while over five million Americans have lost
    coverage during the past decade, it is expected that in the next four
    years, premiums will rise by another 20 percent, which will result in
    an additional 3.5 million Americans unemployed and without benefits. In
    the absence of health care reform in the United States, experts
    estimate an additional 53 million Americans will be uninsured by 2011.
        I believe that an all employer participation component is an
    essential element to health care reform. Such an approach is seen as
    the less disruptive method to reforming our health care system.
    Furthermore, it is estimated that an all employer participation
    component would increase the number of insured Americans by 83 percent,
    as well as drive down the overall cost of the system, prevent further
    erosion of health benefits for workers, as well as protect their right
    to choose their own doctor and maintain their existing level of
    benefits.
                                     ______

        Mr. Kline. Thank you, Mr. Chairman, for your kind words
    about me and your other colleagues. I too am looking forward to
    working with you and our colleagues on this committee. I am
    delighted to see that you have a very, very special guest here
    this morning. It is a pleasure to meet her.
        I don't have a special guest here this morning, but I would
    like to yield for just a moment to Mr. Wilson, who does.
        Mr. Wilson. Thank you, Ranking Member Kline.
        It is an honor that I have with me today shadowing the
    Honorable Tiperu Nasura. Member of Parliament Nasura is a
    member of the East African Legislative Assembly. She is a
    Parliamentarian representing Uganda.
        Chairman Andrews. Please stand, Ms. Nasura, so we can
    recognize you. Thank you for coming. Welcome. It is great to
    have you with us.
        Thank you, Mr. Wilson.
        Mr. Kline. Thank you, Mr. Wilson.
        Again, thank you, Mr. Chairman. I want to thank the
    witnesses for being with us today as we take up this morning's
    work.
        As the chairman said, we began this in the 110th Congress,
    addressing many of the issues confronting our nation's
    healthcare system, including efforts to improve healthcare
    quality, access and affordability. And clearly, we are going to
    be doing it again in this Congress, not only in this committee,
    but across the board.
        An important lesson we learned during the last Congress was
    that, though imperfect, the employer-based healthcare system
    has been successful in many ways. As we try to address
    weaknesses in the current system, we must be careful not to
    undermine a voluntary approach that provides the most common
    form of healthcare coverage for individuals and workers below
    retirement age.
        The current employer-based voluntary system delivers high
    quality coverage for over 160 million Americans. American
    businesses are true innovators when it comes to improving the
    healthcare system. Private sector employers are leading efforts
    to help people improve their health through wellness and
    disease management programs, improving the quality of
    healthcare, and helping people learn the true costs of medical
    services.
        The driver behind the successes of the employment-based
    system is the federal ERISA law. The existence of ERISA and its
    pre-emption of state insurance laws means that American
    businesses can provide uniform, high-quality benefits to all
    their employees across state lines, and that means companies
    don't have to worry about following 50 different sets of rules
    in order to offer insurance, which prevents headaches and saves
    money.
        Notwithstanding the success of ERISA, employers, employees
    and their families are very concerned about rising healthcare
    costs. While we explore solutions, I want to caution against
    proposals that would undermine ERISA by pulling one string at a
    time. However well intentioned, doing so would be an invitation
    to add benefit mandates and increases taxes on employers, which
    would likely stifle job creation and seriously undermine
    employers' ability to provide efficient, affordable healthcare
    coverage.
        At the same time, I would be remiss to not recognize the
    fact that ERISA stands at the crossroads of healthcare reform,
    which makes it all the more important that we do not unravel
    the system, but rather initiate comprehensive reform.
        Finally, attempting to define good actors and bad actors in
    the employer-sponsored system is fraught with danger. When we
    explore the issue of the uninsured, we must be mindful of the
    dangers of assigning a one-size-fits-all solution which may be
    difficult because of the different characteristics within a
    given population.
        For example, millions of people who already qualify for
    government programs have failed to take advantage of that
    coverage for a wide variety of reasons. Creating costly new
    programs to ensure such people, which would come on top of
    existing federal and state subsidies for uncompensated care,
    may not be necessary or wise.
        In addition, we must not forget that this committee has
    taken the lead in efforts to improve the current system,
    including efforts to help small businesses obtain affordable
    health coverage comparable to that provided by large companies.
    Private voluntary efforts to control healthcare cost growth and
    improve quality can be accomplished more quickly than using
    government programs, and should be encouraged.
        I am hopeful we can continue to work together to reach
    consensus on measures to provide more affordable and efficient
    ways of providing healthcare benefits. I look forward to this
    morning's hearing and, again, thank our witnesses for being
    with us today.
        I yield back.
        [The statement of Mr. Kline follows:]

       Prepared Statement of Hon. John Kline, Ranking Republican Member,
             Subcommittee on Health, Employment, Labor and Pensions

        Good morning. I would like to thank my colleagues and the witnesses
    who have joined us today.
        This morning's hearing continues our work--which we began in the
    110th Congress--in addressing many of the issues confronting our
    nation's health care system, including efforts to improve health care
    quality, access, and affordability.
        An important lesson we learned during the last Congress was that,
    though imperfect, the employer-based health care system has been
    successful in many ways. As we try to address weaknesses in the current
    system, we must be careful not to undermine a voluntary approach that
    provides the most common form of health care coverage for individuals
    and workers below retirement age.
        The current employer-based system delivers high quality coverage
    for approximately 160 million Americans. American businesses are true
    innovators when it comes to improving the health care system. Private
    sector employers are leading efforts to help people improve their
    health through wellness and disease management programs, improving the
    quality of health care, and helping people learn the true costs of
    medical services.
        The driver behind the successes of the employment-based system is
    the federal ERISA law. The existence of ERISA, and its preemption of
    state insurance laws, means that American businesses can provide
    uniform, high quality benefits to all their employees across state
    lines. And that means companies don't have to worry about following 50
    different sets of rules in order to offer insurance, which prevents
    headaches and saves money.
        Notwithstanding the successes of ERISA, employers, employees, and
    their families are very concerned about rising health care costs. While
    we explore solutions, I want to caution against proposals that would
    undermine ERISA by pulling one string at a time. However well-
    intentioned, doing so would be an invitation to add benefit mandates
    and increase taxes on employers, which would likely stifle job creation
    and seriously undermine employers' ability to provide efficient,
    affordable health care coverage. At the same time, I would be remiss to
    not recognize the fact that ERISA stands at the crossroads of health
    care reform, which makes it all the more important that we do not
    unravel the system, but rather initiate comprehensive reform. Finally,
    attempting to define ``good'' actors and ``bad'' actors in the
    employer-sponsored system is fraught with danger.
        When we explore the issue of the uninsured, we must be mindful of
    the dangers of assigning a one-size fits all solution may be difficult
    because of the different characteristics within a given population. For
    example, millions of people who already qualify for government programs
    have failed to take advantage of that coverage for a wide variety of
    reasons. Creating costly new programs to insure such people--which
    would come on top of existing federal and state subsidies for
    uncompensated care, may not be necessary or wise.
        In addition, we must not forget that this Committee has taken the
    lead in efforts to improve the current system--including efforts to
    help small businesses obtain affordable health coverage comparable to
    that provided by larger companies. Private, voluntary efforts to
    control health care cost growth and improve quality can be accomplished
    more quickly than using government programs, and should be encouraged.
    I am hopeful we can continue to work together to reach consensus on
    measures to provide more affordable and efficient ways of providing
    health care benefits.
        With that, I'd like to welcome our six distinguished witnesses
    today. I look forward to everyone's testimony.
                                     ______

        Chairman Andrews. Thank you, Mr. Kline.
        Well, welcome, ladies and gentlemen. Here is the procedure
    we are going to follow.
        We have received your written statements, the witnesses,
    and they will be entered into the record without objection.
    Also without objection, the opening statement of any member of
    the subcommittee who wishes to submit an opening statement will
    be submitted to the record.
        We will ask you, ladies and gentlemen witnesses, to give us
    a 5-minute synopsis of your written testimony this morning.
    Again, we have had access to your written testimony, had a
    chance to review it.
        You will notice in front of you a light box. The green
    light means you can start talking. The yellow light means you
    are within a minute of your 5 minutes being up. The red light
    means we would ask you graciously to stop.
        When we started this process a couple years ago, I
    mistakenly told people that there was a trapdoor underneath
    your seat and, if you talked beyond the 5 minutes, it would
    open. The trapdoor did not exist at that time, I will confess,
    but I am not telling you whether it does this morning or not.
        So we ask you--the reason we ask you to adhere to the 5-
    minute rule is that, as you see, a number of members are here.
    It gives the members a chance to interact with you and ask you
    questions and learn from you.
        We are going to now read the biographies of the witnesses,
    and I will start with Mark Derbyshire. Mr. Derbyshire, welcome.
        He is the owner of Park Moving and Storage in Aberdeen,
    Maryland. Mr. Derbyshire is a small business owner who is going
    to tell us about his current struggles with the high cost of
    healthcare for his employees. Welcome, Mr. Derbyshire.
        Bruce Pyenson is a principal and consulting actuary in the
    New York office of Milliman Incorporated. He has been with the
    firm since 1987, and works with employers, providers, HMOs and
    healthcare businesses. Mr. Pyenson has authored several reports
    on healthcare reform, among other topics. Welcome, Mr. Pyenson.
    Glad to have you with us.
        John Sheridan is the president and CEO of the Cooper Health
    System in Camden, New Jersey, the hospital at which I was born.
    The hospital overcame that setback and has thrived since then.
        Mr. Sheridan is responsible for the operations of Cooper
    University Hospital and more than 50 satellite offices. Mr.
    Sheridan has been with Cooper since July of 2005. Prior to
    that, he was a senior partner and co-chairman of the law firm
    of Riker, Danzig, Scherer, Hyland & Perretti. Mr. Sheridan
    graduated from St. Peters College and received his law degree
    from Rutgers Law School. John, welcome. Nice to have you with
    us this morning.
        Now, Mr. Courtney is going to introduce our next witness
    because he hails from Connecticut.
        Mr. Courtney. Thank you, Mr. Andrews, and thank you for
    holding this hearing today. We could not have a hearing on
    insurance without a witness from Connecticut because, as
    everyone from Woody Allen on down has observed that Connecticut
    and insurance are synonymous.
        And Jim Winkler from Hewitt & Associates in Norwalk,
    Connecticut, is here to testify this morning. Hewitt &
    Associates is a firm that consults with employers all over the
    world, and certainly all over the country. He is intimately
    familiar with, again, a lot of the pricing issues, quality
    issues, which are critical to us coming out with good ideas in
    this committee. And he is a graduate of University of Notre
    Dame and has an MBA from the University of Hartford.
        And I would yield back.
        Chairman Andrews. Welcome, Mr. Winkler. We are glad to have
    you.
        Neil Trautwein is returning to the committee. He joined the
    National Retail Federation in 2006 and has served as its vice
    president and employee benefits policy counsel since that time.
        Mr. Trautwein previously was an assistant vice president on
    union resources policy at the National Association of
    Manufacturers. He holds a bachelor's degree from the University
    of Louisville and a law degree from the George Washington
    University. Welcome back, Mr. Trautwein. Glad to have you with
    us.
        And then our final witness, Dr. Thorpe, hails from Dr.
    Price's district, so I would yield to him so that he can do
    that introduction.
        Dr. Price. Thank you, Mr. Chairman. I appreciate that.
        I am privileged to introduce Dr. Ken Thorpe, who is a
    Robert Woodruff Professor and Chair of the Health Policy and
    Management Department of the Public Health School at Emory
    University, where I did my residency training.
        He currently teaches public health and health resource
    allocations in health policy. From a public health perspective,
    he has always been knowledgeable and productive in his work. I
    have had the privilege of working with him as both a physician
    and as a state Senator, and we welcome him here today.
        He received his BA from the University of Michigan, my alma
    mater as well, his master's from Duke, and a Ph.D from the Rand
    Graduate Institute. So he is a huge Wolverine fan, so Go Blue,
    and welcome, Dr. Thorpe.
        Chairman Andrews. You guys didn't do very well last year,
    did you? That is all right. We have a lot of Michigan people
    associated with the committee, too, so that is okay. That is
    okay.
        All right. We are going to start with our first witness,
    Mr. Derbyshire. Welcome. We are going to proceed with the
    witness testimony, then begin with questions from the members.
    So welcome, Mr. Derbyshire. Happy to have you with us.

      STATEMENT OF MARK DERBYSHIRE, OWNER, PARK MOVING AND STORAGE

        Mr. Derbyshire. Okay. Thank you for having me.
        Again, my name is Mark Derbyshire. I am the owner of Park
    Moving and Storage in Aberdeen, Maryland. My parents started
    the business in 1956 as a small company, and Aberdeen is
    outside of Baltimore. It is just a small town.
        And in the area, there are many small businesses that we
    have to compete for employees from my industry and from other
    industries. I currently have about 30 full-time employees, and
    I invest a lot of time into them because I want to attract
    people who are interested in staying with the company for a
    long time.
        One of the benefits I am most proud of is, of course,
    providing health insurance. Times are tough. Good workers are
    looking for the best opportunities. It is important to me to
    limit turnover so I can try to make sure that the people I
    invest in, invest my time and energy, are committed to the
    company. I do not want to train people that might leave as soon
    as something better comes along.
        I have learned that higher compensation, the higher the
    motivation, and that is one of the reasons I provide health
    insurance. Also, I know my workers want to give 100 percent to
    their jobs. But if they have health problems that are left
    untreated, they can't. That hurts them, and it hurts my bottom
    line.
        It is not easy to provide health insurance to all the
    employees. Every year, the premiums go up, and every year I
    have got to go back to the employees and ask them for a little
    bit more. Right now, I am paying 85 percent of their premiums,
    individual rates, and 75 for the family rates. I can't continue
    to pay more. Year after year, the premiums are going at double-
    digits.
        Often, we small business owners are attacked for not
    providing health insurance. What people fail to realize is that
    high cost of administration coverage for each employee in
    addition to the rising cost of premiums. For a small business
    to increase costs for fuel and raw material, along with the
    decreased revenue, can be a lethal combination.
        Many of my fellow business owners have been struggling with
    the idea of ending employee's health insurance to reduce
    overhead. All around me, companies fold under the pressure of
    rising health costs, and they stop offering the benefit
    altogether. That choice I hope will not be one I have to make.
    I worry about what would happen to our employees if they do not
    have health insurance, and I cannot afford to have productivity
    decline because people are sick.
        Businesses like mine that do not provide health insurance
    end up bearing the brunt of the cost for the uninsured workers
    of other companies. That hardly seems fair, especially for
    small businesses like mine that--tight profit margin. It is
    difficult to provide insurance for my own workers.
        I cannot afford to have premiums go up every year to help
    pay for the care of uninsured workers of other businesses or my
    competitors. When those uninsured workers end up in the
    emergency room, the cost of that care shows up in the hospital
    bills for my workers. My insurance companies, in turn, pass
    these higher costs to me in higher premiums. Those of us who do
    the right thing by providing health insurance now have to bear
    the unfair burden placed on my businesses that do not do their
    fair share in paying for healthcare costs.
        It is a vicious cycle. When premiums go up, businesses drop
    coverage, resulting in more uninsured workers. Those of us who
    continue to do the right thing by providing insurance get left
    holding the bag. Every year, that bag gets heavier. This year,
    I do not know if I am able to continue paying for coverage for
    families.
        I try not to think about what would happen if I get rid of
    this benefit, what would happen to my employees, their kids,
    worried that some people would look for other jobs and that I
    might have a tough time finding the same caliber of hard-
    working, high quality employees. If all businesses were
    required to offer health insurance, the burden would be
    lightened for all of us that are providing health insurance,
    and all businesses.
        Businesses like mine need the federal government to help us
    level the playing field. All businesses should pay their fair
    cost of health coverage so that none of us have to take the
    extra burden.
        Thank you.
        [The statement of Mr. Derbyshire follows:]

     Prepared Statement of Mark Derbyshire, Owner, Park Moving and Storage

        My name is Mark Derbyshire. I'm the owner of Park Moving and
    Storage in Aberdeen MD. My father started the small packing and moving
    business in 1956. Aberdeen is a small town near Baltimore. In the area
    there are many small businesses and we often find ourselves competing
    to attract good employees. Park Moving and Storage employs about 30
    full time employees and I invest a lot in them. I want to attract
    people who are interested in staying with the company for a long time.
        One of the benefits that I am most proud to offer our employees is
    health insurance. Times are tough and good workers are looking for the
    best job opportunities. It is important to me to limit turnover so I
    try to make sure that the people I invest my time and energy in are
    committed to the company. I do not want to train people that might
    leave as soon as something better comes along. I have learned that the
    higher the compensation, the higher the motivation and that is one of
    the reasons why I provide health insurance. Also, I know my workers
    want to give 100 percent to their jobs, but if they have health
    problems that are left untreated, they can't. That hurts them and hurts
    my bottom line.
        It is not easy to provide insurance to all of our employees. Every
    year, the premiums go up, and every year I have to go back to our
    employees to ask them to give a little more. Right now we pay for 85%
    of the premiums for individual coverage and about 75% for family
    coverage. I can't continue to pay more, year after year as premiums go
    up by double digit percentages
        Often, we small business owners are attacked for not offering
    health benefits. What people fail to realize is the high cost of
    administering coverage for each employee, in addition to the rising
    cost of the premiums. For a small business the increased costs for fuel
    and raw materials, along with decreased revenue can be a lethal
    combination. Many of my fellow business owners have been struggling
    with the idea of ending employee health coverage to reduce overhead.
    All around me companies fold under the pressure of rising health care
    costs and stop offering benefits altogether. That's a choice I hope I
    will not have to make. I worry about what will happen to our employees
    if they do not have health insurance. And I cannot afford to have
    productivity decline because people are sick.
        Businesses like mine that do provide health insurance end up
    bearing the brunt of the costs for the uninsured workers of other
    companies. That hardly seems fair--especially for small businesses like
    mine with tight profit margins. It difficult enough to provide
    insurance for my own workers. I cannot afford to have my premiums go up
    every year to help pay for the care of the uninsured workers of other
    businesses or my competitors. When those uninsured workers end up at
    the emergency room, the cost of that care shows up on the hospital
    bills for my workers. My insurance company passes on those higher costs
    to me in higher premiums. Those of us who do the right thing by
    providing health insurance now have to bear the unfair burden placed on
    us by businesses that do not do their fair share in paying for health
    care costs.
        It is a vicious cycle. When premiums go up, businesses drop
    coverage, resulting in more uninsured workers. Those of us who continue
    to do the right thing by providing insurance get left holding the bag.
    Every year the bag gets heavier. This year, I do not know if I will be
    able to continue offering family coverage. I try not to think about
    what would happen if I got rid of this benefit. What would happen to my
    employees' kids? I worry that some people will look for other jobs and
    that I might have a tough time finding the same caliber of hard
    working, high quality employees.
        If all businesses were required to offer health insurance, the
    burden would be lightened for those of us who already provide
    insurance. Businesses like mine need the Federal Government to help us
    by leveling the playing field. All business should pay their fair share
    of the cost of health care coverage so that none of us have to take on
    an extra burden.
                                     ______

        Chairman Andrews. Thank you, Mr. Derbyshire, very much for
    your testimony.
        Mr. Pyenson, welcome. I think you need to push the ``On''
    button on your microphone there.
        Mr. Pyenson. There we go.
        Chairman Andrews. And if we don't like what you say, push
    it and we will turn it off, okay?

     STATEMENT OF BRUCE PYENSON, PRINCIPAL AND CONSULTING ACTUARY,
                             MILLIMAN, INC.

        Mr. Pyenson. Well, good morning, Chairman Andrews and
    members of the subcommittee. It is really my honor and
    privilege to be speaking to you today.
        I am Bruce Pyenson. I am an actuary with Milliman. It is a
    consulting firm, and we consult to a broad spectrum of the
    healthcare industry on actuarial issues and healthcare
    management expertise.
        We have seen, even before this economic crisis, that the
    cost of healthcare has made it more and more difficult for
    employers and others to buy health insurance, and that of
    course has only gotten worse with the recent crisis. In my
    view, the most important, and the single-most important issue,
    is the high cost of healthcare. It should be the number one
    issue in the healthcare debate, and I was gratified to see that
    mentioned very prominently in the recent summit.
        Two weeks ago, a few of my colleagues and I published a
    report entitled, ``Imagining 16 to 12,'' which refers to the
    current spending of the United States on healthcare, at 16
    percent of GDP, and the fact that the enormous amount of waste
    in the system accounts for at least 25 percent of that. In
    fact, we say that we can reduce our spending by becoming more
    efficient, from 16 percent to 12 percent, and still cover the
    uninsured.
        Much of the spending in the healthcare system today goes to
    services or administration that could be done more efficiently
    or do not bring value to patients, and even where some of that
    spending goes to services that harm the patient or fix mistakes
    that should not have been made.
        Fortunately, the magnitude--that huge magnitude of waste is
    illuminated by points of excellence in our healthcare system
    that exists in locales around the country and can actually
    apply those examples of excellence to the national averages and
    come up with numbers like what we came up with in our report,
    that we could dramatically reduce healthcare spending.
        Now, to get to 12 percent, we developed actuarial models
    that composite the best practices from those locales, and we
    applied those models to the entire US. So while our models show
    that we can reduce healthcare spending by 25 percent, we could
    actually reduce it by more than that and use the savings to
    cover the uninsured. That is not unique to our study. There
    have been a number of others that have come out with studies
    that show that considerably more than 25 percent of healthcare
    spending is waste or inefficiency.
        We consider that 12 percent as a target, not as a budget,
    but it is a foundation for consensus on healthcare. In short,
    we think that rationalizing care, efficient use of resources,
    is far superior to rationing it.
        Now, as with any economic change, there are winners and
    losers. In my view, the biggest winners in a more efficient
    healthcare system will be the consumers and the patients and
    the uninsured. Other winners will be those that can adapt to a
    system that has incentives for efficiency. And of course, the
    losers will be organizations that can't adapt to a quality and
    efficiency-based system.
        Our report includes recommendations for system and
    reimbursement change. I believe those can win consensus. In
    short, it means shifting payment and care towards evidence-
    based practices to reduce hospitalizations, avoid unneeded
    diagnostics, shift long-term care from nursing home to the home
    and provide quality care at the end of life. And again,
    patients will be the big winners.
        However, I think a focus on reducing cost is actually much
    harder than arguing about which of the tactics to adopt.
    Chairman Andrews, at the White House summit last week, you
    raised important issues, that employers who offer health
    benefits indirectly pay for cost-shifting from those who don't.
        I think many issues go into the calculation of premium
    rates for insurance. I would point out that employers also pay
    for cost-shifting from inefficiency, and not just within their
    own programs. Driving down the cost of healthcare makes all of
    that much more practical.
        I would like to note, in closing, that Milliman itself does
    not endorse any specific legislation, and I am presenting views
    that are found in the report.
        [The statement of Mr. Pyenson follows:]

    Prepared Statement of Bruce Pyenson, FSA, MAAA, Principal & Consulting
                            Actuary, Milliman, Inc.

        Good morning, Chairman Andrews and members of the Subcommittee on
    Health, Employment, Labor and Pensions. It is my pleasure and honor to
    testify before you today on ``Strengthening Employer-Based Health
    Care.'' My name is Bruce Pyenson. I am a Fellow of the Society of
    Actuaries and a Member of the American Academy of Actuaries. I am a
    Principal with Milliman, a leading actuarial firm. Milliman's clients
    span healthcare--we provide actuarial and care management expertise to
    insurers, hospitals, employers, Medicaid programs, advocacy groups and
    many others. I have been with Milliman for 22 years and have
    specialized in healthcare costs, benefits, and the value of treatment.
    Today, I present on the need for and possibility of reducing healthcare
    costs.
        Even before the current economic crisis, we observed that high
    healthcare costs were pushing many employers to reduce or drop health
    insurance, and the affordability crisis has only accelerated in recent
    months. In my view, the single most important problem in healthcare is
    that it costs too much, and cost should be the number one issue in the
    healthcare debate.
        Two weeks ago, several colleagues and I published a report
    entitled, ``Imagining 16% to 12%.'' The title refers to the fact that
    we are spending over 16% of our GDP on healthcare, but if we got rid of
    the waste, we could spend under 12%. In fact, there is so much waste in
    the system that, at 12%, we could also cover the uninsured. My comments
    today are based on that report, and I ask that the entire report be
    included in the hearing record.
        Much spending in our healthcare system goes to services or
    administration that could be done more efficiently or that do not bring
    value to patients. Even worse, some spending also goes to services that
    harm the patient or to fix mistakes that should not have been made.
    Fortunately, the huge magnitude of waste is illuminated by comparing
    national averages to the bright spots of healthcare excellence.
        To get to 12%, we developed actuarial models that composite best
    practices from locales across the US--and we applied those models to
    the entire US. Our models show that we could reduce healthcare spending
    by 25% after covering the uninsured, while improving the quality of
    care. Other researchers have come to similar conclusions using
    different approaches. We consider 12% a target for what is possible,
    and a foundation for consensus on healthcare reform, not a budget. We
    believe rationalizing care--in other words, efficient use of
    resources--is far superior to rationing it.
        As with any economic change, there will be winners and losers under
    our vision. The biggest winners would be the uninsured, consumers and
    patients, who would see improved quality and coverage. Other winners
    will include those who adapt to an efficiency and quality-driven
    delivery model. Losers include those who can't adapt.
        Our report includes recommendations for system and reimbursement
    changes, which, I believe, can win consensus. In short, these changes
    include shifting payment and care toward evidence-based practices to
    reduce hospitalizations, avoid unneeded diagnostics, shift long term
    care from nursing home to the home, and provide better quality care at
    the end of life. Patients will be the big winners. However, keeping the
    focus on reducing waste and cost is much harder than arguing about
    which tactics to adopt.
        Reducing U.S. healthcare spending by 25%--from 16% of GDP to 12%--
    would be less of a reduction than many prominent estimates of
    healthcare waste. Even at 12%, we would still spend far more than any
    other country. Speaking here in 2009, I am not suggesting to further
    shrink the GDP. Rather, healthcare payers (governments, employers, and
    individuals) could reallocate more than half a trillion dollars
    realized each year, using the money for increased wages, infrastructure
    investments, deficit reduction, reduced taxes or prices.
        Chairman Andrews, at the White House summit last week you raised
    the important issue that employers who offer health benefits indirectly
    pay for cost-shifting from the uninsured. Many factors and complex
    calculations can go into insurance premiums or costs that employers
    pay. I would add that employers also pay for inefficiency--and not just
    inefficiency in their own programs. In my opinion, driving down costs
    through efficiency is the key to solving cost-shifting or, at least,
    making cost-shifting tolerable.
        I would like to note that there was no external funding for ``16 to
    12.'' Our report reflects the findings of the Milliman co-authors, of
    which I was one. The report does contain important details about our
    findings, sources and methodology. Please note that Milliman does not
    endorse specific legislation.
        Thank you for the opportunity to present to you today.

        Attachment: ``16 to 12''

        [The referenced attachment may be accessed at the following
    Internet address:]

       http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/
                         imagining-16-12-RR02-01-09.pdf

                                     ______

        Chairman Andrews. Thank you very much, Mr. Pyenson. We
    appreciate that.
        Mr. Sheridan, welcome to the committee.

      STATEMENT OF JOHN SHERIDAN, CEO, COOPER UNIVERSITY HOSPITAL

        Mr. Sheridan. Good morning. Mr. Chairman, thank you for the
    opportunity, and also to your fellow members of the committee
    for the opportunity to address you this morning.
        I am the president and CEO of Cooper University Hospital,
    which is based in Camden, New Jersey. It is a major teaching
    hospital and a regional tertiary care center serving southern
    New Jersey. It is also a level one trauma center, and we are
    the clinical campus for the Robert Wood Johnson Medical School
    in Camden.
        Camden City is one of the poorest cities in the United
    States, with approximately 40 percent of its households living
    below the federal poverty level, and Cooper is the city's main
    healthcare provider. While the national recession has impacted
    Cooper's finances, the Camden environment and its poor economy
    has presented financial challenges to us for decades.
        We have managed to grow over the past 8 years by recruiting
    some of the top doctors in the country and developing clinical
    centers of excellence, and this has enabled Cooper to attract
    New Jersey residents who at one time relied on the major
    medical academic centers in Philadelphia for their healthcare.
        Our strategy is to attract suburban insured patients to
    help us carry out our mission for the people of Camden.
    Cooper's payor mix represents a microcosm of the financial
    care--I am sorry, of the healthcare financial dynamics at work
    in New Jersey. Those without healthcare insurance and patients
    qualifying for charity care and Medicaid totaled over 38
    percent of Cooper's patient base in 2006, and this number has
    grown over the past 3 years to nearly 41 percent.
        Cooper receives state funding for its charity care
    services, but they cover only about 50 percent of the costs.
    Medicaid funding typically in New Jersey covers 60 to 70
    percent of costs. Thus, for Cooper, this uninsured and under-
    insured population combined represents approximately 30 percent
    of our costs over the past 3 years but only about 15 percent of
    our revenue.
        The reason why 38 percent of Cooper's patients account for
    only 30 percent of revenue is explained by the fact that the
    uninsured typically use hospitals for less acute primary care
    type services, thus their hospital costs per person is lower
    than average. However, this represents a huge misallocation of
    resources in our healthcare economy in that expensive hospital
    resources are being utilized to provide that which could be
    done very well at the primary care physician level.
        What are the economic consequences of this pattern?
    Hospitals such as Cooper must shift expenses to those with
    health insurance. Patients with employer-sponsored health
    insurance constitute just over 30 percent of our patient base
    and approximately 30 percent of our costs. However, this
    segment of our business over the past 3 years represents about
    40 percent of our revenue.
        Unfortunately, these underlying dynamics of our healthcare
    economy are not sustainable. As costs are shifted to the paying
    patients, premiums rise and individuals and businesses aren't
    able to pay for health insurance coverage. This increases the
    number of uninsured and under-insured, which leads to further
    cost shifting.
        The picture I have drawn of Cooper and the healthcare
    economy in Camden can be found throughout New Jersey, albeit to
    somewhat lesser extent in the state as a whole. Over the last 6
    years, the percentage of uninsured, charity care and Medicaid
    hospital cases have grown from 14.8 percent to 18.5 percent.
    Insured cases have declined from 47.6 percent to 41.9 percent.
        During the same period, provision of hospital charity care
    service priced at Medicaid rates grew from 624 million to 945
    million annually. This represents an annual growth rate of 8.6
    percent per year.
        These trends regarding the decline of healthcare coverage
    and increase in uninsured and under-insured in New Jersey are
    taking a serious toll on the hospital industry. More than half
    of New Jersey's hospitals are operating in the red, and eight
    hospital have closed their doors since 2002.
        In conclusion, it would seem clear that employer-sponsored
    healthcare insurance has been, and will continue to be, crucial
    to the financial health of hospitals such as Cooper and New
    Jersey's healthcare economy. However, businesses have a right
    to be seriously concerned about the increasing cost of
    healthcare. The trends are not sustainable. The cornerstone of
    healthcare reform is the expansion of insurance coverage to all
    Americans, and employer-sponsored plans will play a key role.
        It will also be important for there to be stability in
    health insurance premiums so that businesses and individuals
    are able to adequately plan to meet their obligations. This in
    turn will require a decline in the rate of healthcare cost
    inflation. We stand ready to do our part to better manage care
    and reduce unnecessary hospitalizations and improve the quality
    and cost efficiency of healthcare services.
        Thank you.
        [The statement of Mr. Sheridan follows:]

      Prepared Statement of John Sheridan, CEO, Cooper University Hospital

        ``How significant is uncompensated care due to free rider employers
    in the health care system in the rising cost of health care;
    particularly, insurance premiums, deductibles, co-pays and other cost-
    sharing arrangements?''

        Good morning. Thank you, Chairman Andrews, for your introduction. I
    would like to thank the Chairman and his fellow esteemed members of
    this Committee for the opportunity to address you on this important
    topic.
        Cooper University Hospital, based in Camden, New Jersey, is a major
    teaching hospital and regional tertiary-level referral center serving
    the southern New Jersey region. Cooper University Hospital is the
    flagship of The Cooper Health System. It is the premier university
    hospital serving South Jersey and the Delaware Valley. As the core
    clinical campus for the Robert Wood Johnson Medical School in Camden,
    Cooper is a national leader in medical education and research. With its
    comprehensive services and cutting-edge technology, the hospital is
    renowned for its prestigious Centers of Excellence in cardiology,
    cancer, critical care, trauma, orthopedics and neurology. Cooper has
    embarked on a $500 million expansion of its Camden Health Care Campus
    including the new $220 million patient Pavilion which opened in
    December 2008. Cooper and its community partners earned a 2008 Smart
    Growth Award from New Jersey Future for the vision of the Health
    Sciences Campus in Camden.
        As many of you are aware, Camden city is one of the poorest cities
    in the United State, with approximately 40% of its households living
    below the federal poverty level. Cooper is the city's main health care
    provider, serving as its community hospital and provider of primary and
    sub-specialty medical care. As a consequence, Cooper is the largest
    provider of charity care services in South Jersey and is recognized as
    a ``safety-net'' hospital--one of the largest providers of charity care
    services in New Jersey.
        While the national recession has taken a serious toll on Cooper's
    finances in the course of the past year, the Camden environment and its
    poor economy has presented difficult financial challenges for Cooper
    for decades. We have managed to grow over the past eight years by
    recruiting some of the top doctors in the country and developing
    clinical centers of excellence with national reputation. This has
    enabled Cooper to increase its patient utilization and attract New
    Jersey residents who in the past have depended on the major academic
    medical centers in Philadelphia.
        Cooper's payer mix presents a microcosm of the healthcare finance
    dynamics at work in New Jersey and the country at large. Fundamentally,
    healthcare providers such as Cooper with a great volume of patients
    that are uninsured or under-insured, must shift their costs to their
    paying patients. Those without healthcare insurance, and patients
    qualifying for charity care and Medicaid, totaled over 38% of Cooper's
    patient base in 2006, and this number has grown over the past three
    years to nearly 41% in 2008. While Cooper receives State funding for
    its charity care services, it only covers approximately 50% of the
    costs of these services; Medicaid funding typically covers only 60-70%
    of costs. Thus, for Cooper, this uninsured and underinsured population
    combined represents approximately 30% of our costs over the past three
    years, but only 15% of our revenue.
        The reason why 40% of Cooper's patients only account for 30% of
    Cooper's costs is explained by the fact that the uninsured typically
    use hospitals for less acute, primary-care related services. Thus,
    their hospital cost-per-person is lower than the average. However, this
    represents a misallocation of resources in our health care economy in
    that expensive hospital resources are being utilized in place of less
    expensive physician-based primary care.
        So Cooper is a safety-net health care provider, and we are there
    for our patients without regard for the patients' ability to pay for
    care--a mission Cooper has maintained for 120 years. But what are the
    economic consequences of this pattern of hospital utilization?
    Hospitals such as Cooper must shift expenses to those with health
    insurance.
        Patients covered under Medicare insurance represent 30% of our
    patient base and Medicare rates pay close to actual cost of care,
    though in recent years, Medicare has not kept up with the increased
    cost of providing care.
        Patients with employer-sponsored health insurance constitute just
    over 30% of our patient base over the past three years, and
    approximately 30% of our cost structure. However, this segment of our
    business over the past three years represents approximately 40% of our
    revenue. One might say that this premium of ten percent over the cost
    of care for this segment of business represents part of the price of
    the social contract to care for those unable to pay for themselves.
        Unfortunately, the underlying dynamics of our healthcare economy
    are not sustainable. As costs are shifted to the paying patients,
    premiums rise, and individuals and business are unable (or unwilling)
    to pay for health insurance coverage. This increases the number of
    uninsured and underinsured, which leads to further cost shifting, and
    the precarious healthcare economy we all face today.
        Increasing health care insurance coverage will help to stabilize
    the inflation of health care expenses. While this is a necessary
    component of health care reform, it will be insufficient to reduce
    health care costs, unless greater resources are allocated to primary
    care and the proper clinical management of chronic diseases. There are
    numerous primary care initiatives and interventions being tested around
    the county, and at Cooper as well, which demonstrate that we can
    substantially reduce health care expenses by ``case management'' and
    patient education which facilitates better disease management and
    reduction in the use of expensive emergency departments and
    hospitalization.
        The picture I have drawn of Cooper and the healthcare economy in
    Camden can be replicated for the State of New Jersey. Over the last six
    years, the percentage of uninsured, Charity Care, and Medicaid hospital
    cases have grown from 14.8% to 18.5%, while non-governmental health
    insurance payers including commercial, HMO, and point of service health
    insurance coverage has declined from 47.6% in 2002 to 41.9%.
    Approximately 90% of this category is employer-sponsored, according to
    O'Conco Healthcare, a prominent health care consultancy.
        During the same time period, provision of hospital charity care
    services--priced at Medicaid rates, which are approximately 60%-70% of
    actual costs--grew from $624MM to $945MM--a 51% increase over six
    years. This represents an annual growth of demand for charity care
    services in New Jersey of 8.6% per year. New Jersey State payments for
    hospital charity care services have grown from $381MM in 2002--covering
    60% of hospitals' charity care services priced at Medicaid rates--to
    $715MM in 2008--covering 75% of charity care at Medicaid rates. The
    cumulative impact on the hospital industry of the shortfall in hospital
    payments for New Jersey charity care represents $2.32 billion over the
    past six years!
        These trends regarding the decline in health care coverage and
    increase in the uninsured and underinsured in New Jersey, along with
    the continued deficit in hospital charity care funding, have take a
    serious toll on the hospital industry. More than half of New Jersey
    hospitals are operating in the red and eight hospitals have closed
    their doors since 2002.
        It is useful to put these trends in perspective of the business
    community in New Jersey, and the pressure it faces in response to the
    continued increase in health care costs and the cost of health
    insurance coverage.
        In 2008 the New Jersey Business and Industry Association's annual
    ``Health Benefits Survey'' found that health insurance costs rose by an
    average of 9.4 percent in 2007. Employers spent an average of $7,139
    per employee. More startling, it found that costs have doubled in the
    past six years, given the effects of compounding. In spite of this, the
    vast majority of employers in New Jersey are continuing to provide
    health insurance coverage for their employees (98% of companies with
    51+ employees and 95% of companies with 20-50 employees), though the
    beneficiaries have faced increased out-of-pocket expenses. Very small
    companies, however, seem to be reaching the breaking point. Some 75% of
    companies with 2-19 employees provided coverage last year, but 92%
    provided coverage just four years ago. Many small employers continued
    to provide coverage by cutting costs in other areas. Sixteen percent of
    small employers limited salary increases and another 10 percent scaled
    back hiring.
        The latest New Jersey Business & Industry Association's Health
    Benefits Survey was conducted in January 2008, and included over 1,000
    New Jersey businesses, 88 percent of whom were small companies with 2-
    50 employees, representing all major industry sectors and all 21 New
    Jersey counties. Among their findings:
         The average cost of $7,139 per covered employee in 2007
    included coverage of both full-time employees with no covered
    dependents and full-time employees with covered spouses and/or
    dependents. This was the amount paid by the employer. It did not
    include the share of premium costs paid by employees.
         The average increase of 9.4 percent for all companies in
    2007 followed increases of 11.3 percent in 2006, 12 percent increase in
    2005, and 11.2 percent in 2004. Factoring in increases of 13.2 percent
    and 15 percent recorded by the NJBIA survey in 2002 and 2003, and given
    the effects of compounding, employers paying these average cost
    increases would have seen their costs double over the past six years.
         The cost of health insurance, as a percentage of wages and
    salaries, also rose for many companies last year. The average cost of
    $7,139 per employee represented 15 percent of reported average wages of
    $47,414. This is up from 2006, when employer health insurance costs
    represented 13.5 percent of average wages.
         As a group, employers do not expect their health plan
    costs to moderate anytime soon. Survey participants anticipate that
    their costs will increase by an average of 9.7 percent in 2008.
         The proportion of the smallest companies, those with 2-19
    employees, sponsoring coverage has fallen as costs have risen. Seventy-
    five percent of this group reported providing coverage in the current
    survey, down from 92 percent four years ago. The average size company
    in this group has six employees.
         When companies that no longer provide coverage were asked
    why, 76 percent said they could no longer afford it. Another 10 percent
    said they were unable to satisfy the State's requirement that at least
    75 percent of their workforce participate in the plan.
        Nationally, the American Hospital Association is a useful source
    for data on uncompensated care nationwide. Among its findings:
         In the aggregate, both Medicare and Medicaid payments fall
    below costs and the shortfall has been growing.
         Combined underpayments rose from $3.8 billion in 2000 to
    nearly $32 billion in 2007
         For Medicare, hospitals received payment of only 91 cents
    for every dollar spent by hospitals caring for Medicare patients in
    2007
         For Medicaid, hospitals received payment of only 88 cents
    for every dollar spent by hospitals caring for Medicaid patients in
    2007
         In 2007, 58 percent of hospitals received Medicare
    payments less than cost, while 67 percent of hospitals received
    Medicaid payments less than cost
        I have attached some relevant data on these trends provided by the
    AHA below in Table #x.
        The AHA's policy position on the uninsured echo's the Institute of
    Medicine's report which focuses on the ``cost of health care,
    particularly the cost and access to health care insurance, as well as
    the decline in employer sponsored health care as the key contributing
    factors to the recent rise in the uninsured. Solving the problems of
    health care coverage will be a critical step in solving the burden of
    hospital uncompensated care.''
        In conclusion, it would seem clear that employer-sponsored
    healthcare insurance has been and will continue to be crucial to the
    financial health of hospitals such as Cooper and New Jersey's
    healthcare economy. However, employer-sponsored healthcare insurance is
    endangered. Businesses have a right to be seriously concerned about the
    cost of their coverage and the increasing cost of health care. The
    trends are not sustainable. The cornerstone of health care reform will
    be to expand insurance coverage to all Americans, and employer-
    sponsored plans will necessarily play a key role. It is likely that
    business will need substantial incentives to increase their
    participation, particularly small businesses that are unable to afford
    coverage for their employees. Secondly, it will be important for there
    to be stability in health insurance premiums so that businesses and
    individuals are able to adequately plan for meeting their obligations.
    This, in turn, will require a decline in the rate of healthcare cost
    inflation. Health care providers stand ready to do their part to better
    manage care and reduce unnecessary hospitalizations, and improve the
    quality and cost-efficiency of health care services.
        I would be pleased to take any questions that members of the
    committee may have.
                         references and sources of data
        1. O'Conco Healthcare Consultants, Hospital Utilization by Payer
    Mix, 2002-2008. NJ MIDS Data.
        2. New Jersey Hospital Association, Trends in Charity Care Funding
    in NJ, 2009.
        3. New Jersey Business and Industry, Changes in Employer-Sponsored
    Health Insurance Coverage.2008.http://www.njbia.org/news--newsr--
    080429.asp;http://www.njbia.org/hbs08.ppt.
        4. American Hospital Association, Underpayment by Medicare And
    Medicaid: Fact Sheet, November 2008
        5. American Hospital Association, Uncompensated Hospital Care Cost
    Fact Sheet, November 2008

                                     ______

        Chairman Andrews. Mr. Sheridan, thank you very much for
    your testimony.
        Mr. Winkler, welcome to the subcommittee.

     STATEMENT OF JIM WINKLER, HEALTH MANAGEMENT PRACTICE LEADER,
                           HEWITT ASSOCIATES

        Mr. Winkler. Mr. Chairman and members of the subcommittee,
    thank you for the opportunity to testify at this important
    hearing.
        My name is Jim Winkler, and I am the health management
    consulting practice leader at Hewitt Associates. At Hewitt, we
    consult with large employers, helping them improve employee
    health and reduce absence through better program design. In
    addition, we are the leading provider of benefits outsourcing
    services, administering health and welfare benefit programs for
    195 employers representing nearly eight million participants.
        I am pleased to focus my remarks today, as requested, on
    the experience of large employers, the majority of whom do
    provide healthcare coverage today. While large employers are
    not a homogenous group, I do want to be clear in saying that
    employers and Hewitt support the concept of healthcare reform
    and believe that all efforts to cover working Americans should
    build upon and further strengthen the employer-based system
    which provides coverage to more than 160 million participants
    today.
        Employers have a vested interest in the health and
    productivity of their workforce, and the employer-based system
    has helped foster that interest. However, despite the positive
    actions of employers, there are many problems to solve in the
    current US healthcare system.
        As we all know, healthcare is too costly. Average annual
    healthcare costs for a typical large employer will exceed
    $13,000 per employee by 2014, a 50 percent increase over
    current costs. Both employers and employees will find it
    difficult to afford such an increase.
        We also believe that systemic changes are needed to reverse
    current cost acceleration. The federal government, employers
    and health plans must work together to change the payment
    system to better focus physicians and hospitals on wellness,
    primary and preventative care, with strong incentives for
    evidence-based medical treatment.
        Finally, we spend too much on chronic conditions without
    measurable quality. We must attack the root causes of smoking,
    poor nutrition, obesity and physical inactivity by providing
    financial incentives for healthy behaviors.
        This will not only lower healthcare costs, but will also
    reduce absence. This is critical, as lost workforce
    productivity is a very real cost to the US economy.
        The cost of healthcare for large employers and their
    employees is higher because of gaps in coverage and differences
    in reimbursement rates between public and private healthcare
    programs. Large employers pay somewhat higher premiums to cover
    provider costs for uncompensated care.
        Further, employers fund higher cost for medical treatments
    because Medicare and Medicaid payment rates are comparatively
    lower than rates for employer-sponsored group health plans.
    Large employers are concerned that cost shifting could increase
    further if rising healthcare costs encourage small and medium
    size businesses to drop health coverage in order to remain
    competitive, particularly in these difficult economic times.
        So how do we address these issues? In our written
    testimony, we identified five imperatives for healthcare
    reform, and I would like to highlight three of them today.
        First is we need to preserve and promote the employer-based
    healthcare system that generally works, while imperfect, for
    160 million people today.
        Second, we must protect and strengthen federal ERISA pre-
    emption of state laws to promote uniformity in coverage and
    reduce administrative costs. The vast majority of large
    employers operate across multiple states, and they must be able
    to continue to offer administratively efficient uniform benefit
    packages to their employees.
        And third, we must allow employers flexibility in how they
    meet any new standards for health coverage. For example, they
    should be able to demonstrate that their plans are equivalent
    in value to any standard benefit requirements, similar to the
    rules in place for the retiree drug subsidy under Medicare Part
    D today.
        As I noted at the outset, large employers support
    healthcare reform that will lead to sustained affordability for
    themselves and their employees. How large employers react to
    specific reform proposals will depend in large part on the many
    critical details in any proposed reform and whether or not
    large employers view that specific reform as likely to increase
    versus mitigate their healthcare costs.
        The earlier that Congress can make details available for
    discussion and analysis, the better that employers can react.
    Congress has the challenge of sorting through the details of
    how reform will be accomplished, with competing approaches and
    viewpoints. Hewitt would be pleased to offer its data analysis
    and its experience in helping the subcommittee evaluate the
    impact of detailed reform plans on coverage provided by large
    employers today and in the future.
        Thank you.
        [The statement of Mr. Winkler follows:]

                                    ------

        Chairman Andrews. Thank you, Mr. Winkler, and I am sure
    that we will call upon you and your expertise for that
    assistance. Thank you.
        Mr. Trautwein, welcome.

      STATEMENT OF E. NEIL TRAUTWEIN, VICE PRESIDENT AND EMPLOYEE
              BENEFITS COUNSEL, NATIONAL RETAIL FEDERATION

        Mr. Trautwein. Thank you, Mr. Chairman, Ranking Member
    Kline and members of the subcommittee.
        By way of introduction, the NRF is the world's largest
    retail trade association. We represent all retail formats and
    channels to distribution. We represent an industry with more
    than 1.6 million retail establishments everywhere from Main
    Street to commercial streets. We represent 24 million
    employees, about one in every five American workers today.
        We had 2008 sales of about $4.6 trillion, though obviously,
    in the current economy, that is a goal we won't reach in the
    coming year.
        We, too, strongly support the voluntary employer-sponsored
    healthcare system, even though times are tough, and even though
    we have a tough population to cover. Even in the best of times,
    we endure wafer-thin profit margins, and it is really tough,
    particularly as you go down in size, for many retailers to
    survive. We really have no choice, in the current environment,
    but to manage the cost of labor very, very carefully in as
    cost-effective a way as possible.
        Maintaining that balance between healthy workers and the
    running of the business is not always easy. In fact, it can be
    borderline impossible, even in the best of times.
        I have attached the NRF's comprehensive healthcare reform
    proposal to the end of my written testimony. I would be happy
    to answer any specific questions on this.
        But we share the concern among the panel on lowering
    healthcare costs. That really, to us, is the key to making
    healthcare reform work. Lower the cost of coverage, the more
    people who can obtain the coverage.
        I would like to focus on our shared goal of strengthening
    the employer-based system. As I noted, retailers, by and large,
    are still committed to this voluntary system even in these
    tough times. This mix of compensation, both wages and benefits,
    are part of how employers have distinguished themselves in
    attracting employees through the years. In a minute, I will
    talk about an alternative to an employer mandate that we think
    makes better sense in terms of leveling the playing field.
        We share the concern of larger employers. In fact, we have
    many large retailers that the rising cost of care will threaten
    our ability to maintain the benefit. We also agree with
    President Obama, that the current cost trajectory is
    unsustainable. We have to bring healthcare costs back down to
    earth.
        We also need to be able to find the quality in healthcare,
    something that has been sorely lacking. An NRF small
    independent retailer recently testified before another
    committee of this House that his customers know more about the
    pet products on his shelf than they do the doctor down the
    street, and that is something that we all can work to improve.
    People should be able to select the best quality care, just as
    they choose between different retailers on a daily basis.
        I would like to focus on three particular reform elements,
    some of which have already been discussed, that some might have
    you consider. First, a mandate on employers to provide coverage
    or pay into a public fund we feel would have the perverse
    effect of lowering wages and lowering the number of jobs in the
    local community. In the current environment, we can't afford
    new government mandates or minimums on the coverage we offer,
    and I would ask who will be available to pay doctor bills if
    there are no jobs in hand to help pay for the coverage.
        We would urge consideration, instead, of an individual
    mandate to obtain basic health insurance coverage, and thus
    leverage voluntary employer contributions, keeping employers in
    the mix in supplement of the basic benefit, and to help
    employees accept the coverage we offer. We have a number of
    employees who don't accept the coverage we offer today.
        Second, we would strongly urge you not to disrupt the
    federal ERISA law, which we agree with many of our panelists is
    the backbone of the employer-based system. Without ERISA,
    multi-state employers--and retailers are also multi-state
    employers--we couldn't offer common benefit packages across
    state lines.
        We don't agree with the proposition that ERISA pre-emption
    should only be brought to plans that meet federal minimums on
    the composition of benefits or on the size of employer
    contributions to plans. Unraveling ERISA will take employer
    dollars off the table and greatly complicate the task of
    achieving healthcare reform and universal coverage.
        Finally, we would urge you to reject efforts to limit or
    eliminate the tax-favored treatment of employer-provided health
    insurance. Efforts to cap or eliminate the employee income tax
    exclusion could create a backlash against healthcare reforms as
    employees face higher taxes for benefits over the cap or lower
    benefits to stay under the cap. Enacting healthcare reform is
    going to be tough enough without creating big constituencies
    against it.
        Finally, in conclusion--I see my light is up--we want to be
    able to play a supportive, positive and nonpartisan role in
    furthering healthcare reform. We really feel like the talking
    phase has gone long enough, and we hope to get to enactment of
    the right kinds of healthcare reform .
        Thank you, Mr. Chairman.
        [The statement of Mr. Trautwein follows:]

     Prepared Statement of E. Neil Trautwein, Vice President and Employee
           Benefits Policy Counsel, National Retail Federation (NRF)

        Mr. Chairman, Ranking Member Kline and honored members of the
    Health, Employment, Labor and Pensions Subcommittee, I thank you for
    the opportunity to appear before you today and to share our views
    regarding the employer-based health care system. My name is Neil
    Trautwein and I am Vice President and Employee Benefits Policy Counsel
    of the National Retail Federation (NRF).
        The National Retail Federation is the world's largest retail trade
    association, with membership that comprises all retail formats and
    channels of distribution including department, specialty, discount,
    catalog, Internet, independent stores, chain restaurants, drug stores
    and grocery stores as well as the industry's key trading partners of
    retail goods and services. NRF represents an industry with more than
    1.6 million U.S. retail establishments, more than 24 million
    employees--about one in five American workers--and 2008 sales of $4.6
    trillion. As the industry umbrella group, NRF also represents more than
    100 state, national and international retail associations. www.nrf.com.
        The retail industry is one of the biggest supporters of the
    employer-based health insurance system--despite not having an easy
    workforce population to cover. We have a fairly young workforce (though
    increasingly with a significant senior cohort) coupled with a high
    turnover rate. We employ half of all teenagers in the workforce and a
    third of all workers under 24 years old. More than a third (35 percent)
    of our workforce is part-time. Two-thirds of our part-time employees
    are women. Often retail industry employees are second wage earners,
    mainstays of family economies. Frequently, qualified retail workers
    opt-out of the coverage we offer because they already have alternative
    coverage through a family member or another job. Smaller retailers
    often experience problems making health insurance plan participation
    requirements because too many employees opt out.
        As a labor-intensive industry, retailers are strong advocates of
    quality and affordable health coverage in order to help keep our
    employees healthy and productive. As an industry that frequently
    endures wafer-thin profit margins or worse, we are also well acquainted
    with the need to manage the collective cost of labor in as cost-
    effective a manner as is possible. Maintaining balance between these
    two imperatives is not always easy--it is borderline impossible, even
    in the best of times * * * and these are far from being the best of
    times.
        We hope to work with you and other members of the U.S. House and
    Senate to bring about enactment this year of real health care reform
    including meaningful relief from rising health care costs--that is the
    key, in our view, to reaching universal access to health coverage.
    Recognizing that health care would be a key priority regardless of the
    outcome of the November 2008 elections, NRF proposed a comprehensive
    solution to increasing access to more affordable health coverage in our
    ``Vision for Health Care Reform.'' We believe our reform vision can
    lead to a sustainable path to preserve the voluntary employer-based
    health care system. Please allow me to first focus on our shared goal
    of strengthening employer-based health coverage, particularly three key
    issues that could bear on the future of employer-based health coverage.
    Strengthening Employer-Based Health Care
        Most everyone loves employer-based health coverage, though the
    degree of their affection for it varies greatly. Retailers by and large
    are still committed to this voluntary system, even in tough times like
    these. We still have an interest in keeping our employees healthy and
    at work. This mix of compensation--wages and benefits--is a key element
    in how one employer distinguishes itself from another in attracting
    employees.
        Employer commitment to voluntary coverage is strained by the high
    cost of care and coverage and the wildly uneven quality of medical care
    today. We agree with President Obama and OMB Director Orszag that the
    current cost trajectory is unsustainable. For the reform to succeed and
    for the sake of our collective financial future, we must bring health
    care costs back down to earth.
        It can be as hard to find quality in health care today as it is to
    follow the shells in a confidence game. We simply must work together
    both to demystify health care as well as to make it more accessible and
    user-friendly. The commitment to health information technology (HIT)
    already enacted this year will make that task easier, but we will all
    be challenged by resistance to comparisons on cost and quality.
    Threats to Employer-Based Health Care
        We strongly urge policymakers to be wary of three reform elements
    that some would have you consider. A mandate on employers to provide
    coverage or pay into a public fund would have the perverse effect of
    reducing jobs or depressing wages. Retailers are struggling
    particularly in the current environment to keep our doors open. We do
    not need and cannot afford any new government mandates or minimums on
    the coverage we offer. Surely maintaining and expanding employment
    while lowering health care costs should be our collective goal.
        We would urge, however, consideration of an individual mandate to
    obtain basic coverage and leverage voluntary employer contributions
    with government subsidies to help employees to accept available
    coverage or purchase other coverage. That is clearly a better and more
    sustainable path towards universal coverage.
        We would also strongly urge you not to disrupt the federal ERISA
    law that is the crucial backbone of employer-based health coverage.
    Without ERISA, multistate employers could not offer common benefit
    plans across state boundaries. We also reject the idea that ERISA
    preemption should only be granted to plans that meet federal minimums
    on the composition of benefits or the size of employer contributions to
    plans. Reducing the number of plans that enjoy ERISA preemption will
    take most of those employer dollars off the table, further complicating
    and increasing the cost of our task of reaching universal coverage.
        Finally, we urge you to reject efforts to limit or eliminate the
    tax-favored treatment of employer-provided health insurance--the single
    largest federal health care expenditure. Efforts to cap or eliminate
    the employee income tax exclusion could create a backlash against
    health care reform as employees face higher taxes for benefits over the
    cap or lesser benefits to fit under the cap.
        I would argue that the task of enacting and implementing health
    care reform will be difficult and controversial enough without exciting
    large scale employee opposition to it. Taxing or reducing health care
    coverage for some to fund coverage expansion for others is too high a
    price to pay.
    NRF Vision for Health Care Reform
        The National Retail Federation's Vision for Health Care Reform\1\
    was approved in final form by the NRF Board of Directors in January
    2008. We are proud of this document, but are also flexible enough to
    look beyond its corners for other good ideas. We are aggressive
    proponents for enacting the right kinds of health care reform as soon
    as is possible. We hope to be a nonpartisan ally in this crucial
    effort.
    ---------------------------------------------------------------------------
        \1\ A copy of the complete NRF health care reform proposal is
    attached at the end of this testimony.
    ---------------------------------------------------------------------------
        Elements of our Vision document were recommended by a special
    Health Care Taskforce and associated Health Care Taskforce Workgroup
    formed by the NRF Board in 2006. Both groups contained both small and
    large retailers, chain restaurants and representatives of member state
    associations. Individual sub-workgroups (Retail Industry and Health
    Care; Innovation in Health Care; Innovations in Plan Design; and
    Ongoing Policy Debates) were formed to study the health care crisis in
    depth before developing these recommendations for the NRF Board. Our
    Vision document is the product of that intensive review process.
    Four Pillars for Reform
        The four key elements of the NRF Vision are to: improve health care
    quality; lower health care costs; increase access to coverage; and
    reform state health insurance markets. Stated differently, our proposal
    seeks to increase access to a value-oriented health care and coverage
    system.
        We believe that until we can create better value in health care and
    coverage, we will never be able to spend enough collectively to expand
    quality and affordable health coverage to all Americans--a goal we
    retailers share. The challenge, clearly, will be getting there.
    Retailers who don't offer consistent value to their customers don't
    survive; amazingly the same is not true for our health care system.
    Improving Health Care Quality
        We spend more than any other nation on health care but get only
    middling to poor returns on life expectancy, disease states and other
    health care quality indices. Connecting the myriad disorganized
    elements of our health care system through health information
    technology (HIT) will help, as will development of consumer friendly
    interoperable electronic personal health records.
        One of the biggest changes will be the development of consumer-
    friendly comparative cost and quality information. An NRF small
    independent retailer recently testified before another House
    committee\2\ that: ``[his] customers know more about the pet products
    on [his] shelf than they do about the doctor down the street, and that
    is not right.'' People should be able to select the best quality care
    just as they choose between retail competitors on a daily basis.
    Competition encourages lower prices and better quality. More and better
    competition could do wonders for health care.
    ---------------------------------------------------------------------------
        \2\ Dave Ratner (Dave's Soda and Pet City) on behalf of NRF, House
    Small Business Committee, February 4, 2009
    ---------------------------------------------------------------------------
    Lower Health Care Costs
        We believe that the key to making health coverage more accessible
    lies in reducing its cost. This should be the central goal in all
    health care reform efforts.
        We have identified a number of proposals in this area including:
    better engaging consumers in self-management and value-conscious
    shopping for care; promoting wellness and better managing chronic
    conditions; and preserving the federal ERISA law to help more employers
    sponsor uniform benefits across state boundaries.
    Increase Access to Coverage
        As I have noted previously, reducing the cost of health coverage
    will help many more businesses and individuals gain access to that
    coverage. Increasing access will help better spread insurance risk and
    help reduce overall costs.
        We believe that we can reach universal coverage (a goal we
    retailers share) without mandating that employers provide coverage. We
    would urge the Congress to consider requiring all individuals to obtain
    a basic level of health coverage and make it as easy as possible for
    employers to voluntarily offer employees access to coverage.
        As noted previously, the problem with employer mandates--either to
    provide coverage or provide specific coverages--is that they directly
    increase the cost of coverage and hence the cost of labor. Higher labor
    costs mean fewer employees to enjoy less coverage: the opposite effect
    that pro-mandate policymakers seek.
        As rational businesspeople, our members want to employ as many
    people as they can afford to employ and their business can support.
    Employer mandated health insurance will distort that balance and leave
    everyone--including the employer--unhappy. I would surmise that someone
    would gain from an employer mandate, but who will pay the doctor bills
    if people don't have jobs? It is a classic lose-lose proposition.
        We also continue to support various pooling mechanisms to
    facilitate purchasing of coverage, particularly for small businesses.
    We urge policymakers to be wary about trying to transplant the bulky
    and bureaucratic Massachusetts exchange to other states: there was a
    particular set of circumstances that helped make the Massachusetts
    Connector possible. Policymakers might have done just as well (or
    better) by implementing an electronic portal-type exchange (like the
    commercial ``Travelocity'' website, but for health insurance) at lower
    cost and better choice.
    State Insurance Market Reform
        In order to help encourage more affordable access to state-based
    and regulated insurance coverage, we urge steps to help reduce the
    complexity and expense of state markets. Weeding out or applying sunset
    dates to coverage mandates, encouraging more flexible plan designs
    (especially for part-time workers) and shoring up access to high risk
    pools or carriers of last resort for the medically uninsurable will all
    help. We would also encourage the states to enact less restrictive
    rating reforms to help encourage lower-paid employees to obtain
    coverage and thus reduce costs for older workers in the process.
    Building Consensus for Reform
        As proud as we are of our Vision for Health Care Reform, we are
    under no illusion that Congress or the Obama Administration will turn
    to us and say ``oh, there's the final answer.'' I would venture that
    there is no industry in America--and practically no American--without
    big ideas for health care reform. There are quite a few ideas that have
    appeared in Congress and during the recent Presidential campaign as
    well.
        But, we do hope that our Vision will help add to the growing
    consensus around reform. I would be glad to discuss any of the elements
    of our proposal that interest you in greater depth.
        Our members want, need and expect to see real relief from rising
    health care costs enacted and are determined to play a positive role in
    the reform cause. Success will also depend in part on whether a strong
    pro-reform coalition can be built among the myriad, diverse and
    frequently contrary interests outside the political process.
        It's relatively easy to build a coalition of the disaffected to
    oppose reform. We hope to work with you to help build a stronger
    coalition of the eager and willing supporters of reform. The talking
    phase has gone on for long enough, at least in our view.
    Conclusion
        Again, NRF greatly appreciates the opportunity to appear before you
    today. In sum, we urge you to work to create a value-oriented health
    care system that promotes lower cost and higher quality care and
    coverage for employers of all sizes and individuals from all walks of
    life. We urge you to carefully consider the downstream implications of
    specific proposals on the cost and quality of care and coverage and
    particularly how different proposals interact. We look forward to
    working with you to help promote the enactment of positive health care
    reform.
    NRF Vision for Health Care Reform
        The retail industry employs one out every five workers in today's
    economy and is an important source of health coverage for our
    associates and their dependents. The industry is eager to assist in
    efforts to improve the quality, cost and access to health coverage.
    Americans deserve better value for our collective health care dollar.
    The National Retail Federation supports the following principles to
    help reform our nation's health care system:
        Improve Health Care Quality--we need better value (defined as the
    quality and cost of care) from our health care system. We spend more
    than any other country but lag behind other countries in leading health
    care indicators.
         Promote the implementation of health information
    technology as quickly as possible to transform health care
    administration from paper to interoperable electronic records. This
    will allow health care professionals to better coordinate care and also
    make timely clinical information available to health care professionals
    to help reduce medical errors and avoid duplicative or unnecessary
    procedures.
         Promote the development of an interoperable, electronic
    Personal Health Record that can be used by licensed health care
    professionals in any setting and can be used by patients to transfer
    their medical history as they move from plan to plan.
         Encourage the use of evidence-based medical standards
    wherever possible.
         Encourage the availability of comparative health cost and
    quality information (e.g. transparency). Encourage the availability of
    this information in easy-to-understand consumer guides.
         Encourage a team-based approach to medicine with the
    patient as an active participant in managing his or her health.
    (Electronic medical records can help).
         Encourage quality-based payment programs (a.k.a. value-
    based purchasing) and other payment reforms to encourage the highest
    quality integrated care.
         Facilitate the reporting of information through financial
    incentives for providers.
         Lower Health Care Costs--the key to making health coverage
    more accessible is in reducing its cost. The NRF believes effective
    measures to improve health care service delivery and reduce costs must
    be a first and central focus of health care reform at any level.
         Support initiatives that serve to engage consumers in
    managing their health and shopping for high quality and lower cost
    health care services when needed.
         Promote initiatives to promote wellness within the
    workforce and better manage and prevent chronic illness conditions.
         Preserve the federal ERISA law to help employers sponsor
    uniform benefits across state boundaries.
         Permit the medical management of covered benefits
    (including mental health benefits) to help provide necessary and
    equitable coverage.
         Enact medical liability reforms to reduce the downstream
    costs of medical litigation. Reforms should clearly differentiate
    process failure, human error, negligence and malpractice, including
    errors caused by obsolete processes and practices.
         Continually work to eliminate waste and inefficiencies in
    the health care system.
         Establish a ``no tolerance'' position on fraud and abuse
    by health care service providers and consumers alike.
         Encourage participation in local and regional reform
    coalitions that align themselves with broader national initiatives that
    are consistent with this vision.
        Increase Access to Coverage--reducing the cost of health coverage
    will help many more businesses and individuals gain access. Increasing
    access will spread insurance risk and help reduce overall costs. In
    addition, the NRF recommends the following steps:
         Consider requiring individuals to obtain health insurance
    coverage. Encourage but do not require businesses to offer employees
    access to coverage.
         Consider voluntary coverage options for part-time workers
    that emphasize wellness and prevention coverage and help protect
    against catastrophic health expenses.
         Consider group purchasing or other risk-pooling programs
    to increase access to coverage for small businesses and individuals.
    Encourage access to state, regional or national high risk pools or
    carriers of last resort for the medically uninsurable.
         Consider tax credits for individuals or small businesses
    to help make coverage more affordable.
         Consider creating personal health savings accounts to
    accumulate personal savings and voluntary contributions from one or
    more employers, along with public subsidies or credits and individual
    funds to help pay for health insurance premiums.
         Add additional flexibility to Health Savings Accounts
    (HSAs) to make them more attractive to businesses and individuals.
    Allow Health Reimbursement Arrangements (HRAs) and Flexible Spending
    Accounts (FSAs) to more effectively coordinate with HSAs. Allow FSA
    funds to roll over from year to year.
        State Insurance Market Reform--in order to encourage more
    affordable access to state-regulated insurance coverage, the NRF
    recommends the following principles:
         Help reduce the complexity and cost of coverage by
    encouraging lawmakers to refrain from passing benefit coverage
    mandates, employer mandates or mandatory employer contributions.
         Consider setting a sunset date for existing coverage
    mandates or allowing the coexistence of lower-cost benefit coverage
    alternatives.
         Consider more flexible plan designs (especially for part-
    time workers) that emphasize wellness and prevention coverage and help
    protect against catastrophic health expenses.
         Encourage states to maintain access to high risk pools or
    carriers of last resort for the medically uninsurable.
         Consider less restrictive rating reforms to encourage
    younger employees to obtain coverage and thus promote more equitable
    generational cross-subsidization.
                                     ______

        Chairman Andrews. Thank you, Mr. Trautwein, for both the
    spirit and substance of your testimony. Thank you.
        Dr. Thorpe, you are our clean-up hitter.

      STATEMENT OF KENNETH THORPE, CHAIR OF THE HEALTH POLICY AND
                MANAGEMENT DEPARTMENT, EMORY UNIVERSITY

        Mr. Thorpe. I appreciate that. Thank you, Chairman Andrews,
    Representative Kline, members of the subcommittee, Dr. Price
    for that kind introduction and for his thoughtful leadership on
    this issue as well.
        We all know the statistics, but I am going to give them to
    you anyways because they are grim. Since 1999, the cost of a
    family private insurance policy has gone up 119 percent. A
    typical family, either through lower wages or directly in
    premiums, pays about $12,600 a year on healthcare.
        So in healthcare reform, we have got to find a way to get
    to the root cause of why healthcare spending is rising. We can
    come back to that, but it really deals with the absolute
    explosion in chronic disease prevalence that is fueled by a
    doubling of obesity in this country, and secondly, the fact
    that three-quarters of our total healthcare bill is linked to
    chronically ill patients that, particularly in the Medicare
    program, we do a very poor job of managing, so we will have to
    come back and deal with that.
        There are certain costs, as we talked about, associated
    with employer-based health insurance that are less apparent
    than we see in the frequent tallies of spending. I am going to
    focus on two of them. First are the costs associated with
    uncompensated care that is not directly paid for through
    federal or state sources. And second of the costs that
    employers bear who offer insurance for providing coverage to
    workers they don't employ--the spouses of their employees.
        In 2008, the last year we had data, for the 47 million
    people who don't have coverage, they incurred expenditures of
    over $57 billion. So we are paying, through different sources
    and different arrangements, for the healthcare bills of the
    uninsured today. This is a very fragmented, very unorganized,
    and a very uncoordinated way.
        When they can, hospitals and physicians shift the cost of
    these dollars that aren't explicitly paid for onto the cost of
    private insurers. Now, this differential pricing is seen as a
    rational market response to the ability and willingness of some
    payors to pay more than others, similar to what you find in the
    airline and hotel industries. Regardless of what we call it, it
    is clear that private insurers pay more for healthcare, and
    that these higher payments are used by providers to defray the
    costs of care for other patients, particularly the uninsured.
        On its most recent report to Congress, MedPac reported that
    the average Medicare/Medicaid margins are projected to fall.
    The shortfall is made up for what MedPac characterizes as
    unusually high hospital margins on private payer patients; that
    is, a private insurance plan, on average, pays about 20 percent
    more than the cost of care in order to offset the losses that
    hospitals and healthcare providers face from underpayments in
    Medicaid and from nonpayments from the uninsured.
        There is a second significant cost shift to employers in
    providing health insurance, however, that is even more opaque
    than the cost of uncompensated care, and that is the cost of
    providing health insurance to spouses.
        Nationally, 51 percent of people under the age of 65 with
    private health insurance are covered through their own
    employer. Another 10 percent directly purchase private
    insurance, and the remaining 39 percent of individuals with
    private health insurance get coverage through their spouse and
    their spouse's employer. It is this last category I want to
    focus on.
        In 2006, there were 31 million families in which both
    adults worked. An analysis I conducted at Emory showed that
    more than half of those families, 55 percent, received health
    insurance coverage through one, but not the other, employer.
        Nationally, the costs of workers receiving health insurance
    through their spouses amounted to an increase of $46 billion in
    payments from employers that do offer health insurance.
    Employers who don't offer health insurance, for a variety of
    reasons that we can all understand, are called by some ``free
    riders'' because at least some of their workers get coverage by
    a spouse's employer.
        As we have heard, many small employers would love to have
    health insurance. It is oftentimes just very expensive and not
    affordable to do so. And so we need to find ways to make
    healthcare less expensive.
        Well, what are the costs of these free riders to businesses
    that offer insurance today? I already mentioned the one figure
    of $46 billion. Another way to think about it is that the
    incremental cost of employers that offer insurance of covering
    employees that are in firms that largely don't offer coverage
    is about $2,800 a year.
        So if you think about it, the rise in the number of dual
    working families combined with the decline in the share of
    employers offering health insurance, is placing continued
    financial pressure on employers that continue to want to stay
    in the game.
        So we really have three problems, in closing.
        One, we have got to get to the fundamentals and find ways
    to make health insurance less expensive for everybody.
        And two, we have got to deal with the fact that we are
    doubling and tripling up on employers that offer health
    insurance both through cost shifting from the uninsured,
    underpayments on the Medicaid side, and by the fact that
    employers who do offer insurance are paying for the costs of
    those workers that don't offer insurance.
        In closing, thank you for inviting me to testify.
        [The statement of Mr. Thorpe follows:]

       Prepared Statement of Kenneth E. Thorpe, PhD Chair, Department of
        Health Policy and Management, Rollins School of Public Health;
      Executive Director, Center for Entitlement Reform, Emory University

        Chairman Andrews and Representative Kline, as well as all the
    Subcommittee Members, thank you for inviting me here today to address
    important issues related to employer-based health insurance.
        Employers in the United States face significant constraints on
    profitability due to rising health insurance costs. Many of these costs
    are well known:
         National health expenditures reached a record high last
    year: $2.4 trillion, about $7,900 per person.\1\
         A quarter of our nation's health spending is supported by
    businesses. The largest share of that spending--77 percent--is employer
    contributions to health insurance plans for their employees. In 2007,
    businesses spent a total of $518 billion dollars on health services:
    $398 billion in employer contributions to private health insurance
    premiums, $82 billion in contributions to the Medicare Hospital
    Insurance Trust Fund, and $38 billion to workers' compensation,
    temporary disability, and worksite health services. Health spending by
    private businesses grew 3.9 percent in 2006 and accelerated 5.6 percent
    in 2007.\2\
         Employer-sponsored health insurance (or ESI) covers 160
    million individuals, about 62 percent of the nonelderly population.
    Overall, 63 percent of American businesses offer health insurance to
    their workers.\3\
         In 2008, the average employerbased health insurance
    premium for family coverage was $12,608, a rise of 5 percent from the
    previous year. Of that, employers paid $9,325 (74 percent) and workers
    paid $3,354 (26 percent). In contrast, the average cost for a single
    worker's health insurance was roughly half: $4,704. Of that, employers
    paid $3,983 (85 percent) and workers paid $721 (15 percent).\4\
         Since 1999, average family coverage premiums have risen
    119 percent.\5\ Premiums for employersponsored health insurance in the
    United States have been rising four times faster on average than
    workers' earnings since 2000,\6\ and health insurance costs are on
    track to overtake profits in this decade.\7\
        However, certain costs associated with employerbased health
    insurance are less apparent in the frequent tallies of spending. Today
    I will focus on two: First, the costs associated with uncompensated
    care that are shifted onto America's employers. And, second, the costs
    employers bear for providing coverage to workers they do not employ,
    the spouses (and, increasingly, domestic partners) of their employees.
    Shifting costs of uncompensated care to the private sector
        In 2008, uncompensated care for America's 47 million uninsured ran
    to an estimated $57.4 billion. Overall, uncompensated care has been
    roughly 6 percent of hospital costs for many years, despite a steady
    increase in the percentage of people uninsured.\8\
        When they can, hospitals (and physicians) shift rising
    uncompensated costs from the uninsured as well as the underinsured to
    private payers. Providers also subsidize belowcost reimbursements from
    Medicare, Medicaid, and CHIP through costshifting. The extent of this
    costshifting is uncertain, in part because some economists do not
    define charging private payers higher rates as ``cost shifting.''
    Differential pricing is instead seen as a rational market response to
    the ability and willingness of some payers to pay more than others,
    analogous to the airline and hotel industries.\9\ In my view, however,
    regardless of what we call it, it is clear that private payers pay more
    and that these higher payments are used by providers to defray the
    costs of care for other patients.
        Several potentially countervailing factors affect costshifting to
    private payers, such as:
         Patient mix: Uninsured and underinsured patients, along
    with Medicaid and CHIP beneficiaries, are disproportionately cared for
    in safety net facilities, which do not serve large numbers of privately
    insured patients, limiting private payer crosssubsidization. Of course,
    because these costs are supported by tax dollars, including corporate
    taxes, employers are bearing some of the burden, along with individual
    taxpayers. Estimates of the costs of uncompensated care vary, depending
    on what is counted, as do assessments of who pays. The Institute of
    Medicine puts public support from federal, state, and local governments
    at 7585 percent of the total value of all uncompensated care estimated
    to be provided to uninsured people each year.\10\ An analysis I
    conducted of the costs of care for uninsured patients alone puts
    governments' contributions for this population at 33 percent, with the
    remainder covered by patients with private insurance.\11\ Medicare
    patients, in contrast, are largely cared for in private hospitals,
    which can shift costs to privately insured patients. Medicare's recent
    decision to no longer reimburse hospitals for eight ``never events,''
    which several private insurance plans followed, may result in
    additional costshifting, as institutions seek to recover the costs of
    these rare but costly events, including wrongsite surgery, mismatched
    blood transfusions, and major medication errors.
         Hospital type: There is evidence that forprofit hospitals
    provide less uncompensated care but also costshift more than nonprofit
    institutions do. On the other hand, however, research by former CMS
    director Mark McClellan indicates that areas with forprofits have lower
    labor and capital costs, and, overall, about 2.4 percent lower levels
    of hospital expenditures per patient as do areas without forprofit
    hospitals. The net effect of lower costs overall on any costshifting
    has not been determined.\12\
         The level of uninsurance in the community: There are
    significant differences in communitylevel uninsurance rates across the
    nation, as well as within states and even counties. For example, in
    2007, uninsurance rates ranged from 6 percent in Massachusetts to
    almost 28 percent in Texas. Within Los Angeles county, uninsurance
    rates for people under age 65 ranged from 6 percent to 45 percent in
    2005. In addition to costshifting, research suggests that when
    communitylevel rates of uninsurance are relatively high, insured adults
    have difficulty obtaining needed health care and to be less satisfied
    with the care they receive.\13\ Clearly, job loss is associated with
    health insurance loss. The current economic downturn has already
    resulted in larger numbers of uninsured individuals as well as
    increases in the numbers of Medicaid and CHIP beneficiaries, which may,
    in turn, result in additional cost shifting to private payers.
         Hospital negotiating power: Some hospitals, particularly
    large urban teaching hospitals, have sufficient market power to
    negotiate higher payment rates from employers and private insurers. So
    do some large physician groups. But research has not been definitive on
    the frequency and amount of shifting.
        In sum, the costs of health care for uninsured, underinsured, and
    publicly insured individuals are, to an unknown extent, supported by
    higher payments from privately insured individuals and employers. In
    its most recent report to Congress, the Medicare Payment Advisory
    Commission, MedPAC, reported that average Medicare margins are
    projected to fall to 6.9 percent this year, a shortfall made up for by
    what MedPAC characterized as ``unusually high hospital margins on
    privatepayer patients.'' \14\ Rising premiums, along with higher copays
    and deductibles, result, in part, from this crosssubsidization. Because
    the majority of uncompensated care is paid for by governments through
    tax revenues, uncompensated care thus amounts to a double levy: once in
    the form of taxes and twice in the form costs hidden in escalating
    payments for employersponsored health insurance.
    Shifting the costs of spouses to covered workers' employers
        There is a second significant cost to employers in providing health
    insurance, even more opaque than the costs of uncompensated care: The
    cost of providing health insurance to spouses and domestic partners.
        Nationwide, 51 percent of people under age 65 with private health
    insurance are covered through their own employer; another 10 percent
    directly purchase private health insurance. The remaining 39 percent of
    individuals with private health insurance receive coverage through
    their spouse or partner.\15\ It is this last category of worker I will
    address.
        In 2006, there were 31 million families (62 million adults) in
    which both adults were employed all or part of the year. An analysis I
    conducted with colleagues at Emory University showed that more than
    half of dualincome families (55 percent) received health insurance
    through one but not the other employer; a quarter of families elect
    separate coverage under both employers.\16\ Nationally, the cost of
    workers receiving health insurance through their spouses amounted to
    $46 billion in 2006.
        Employer contributions to health insurance premiums average 77
    percent, as I noted earlier. However, there are notable locality
    differences in average contributions. For example, in the District of
    Columbia, the typical employer contribution to employeeplusone coverage
    is 81 percent, or about $6,265 per employee. In Louisiana, the average
    is just 68 percent for the same coverage.\17\
        Employers who do not offer insurance--37 percent in 2008--have been
    called ``free riders,'' because at least some of their workers receive
    coverage via a spouse's employer. There are significant differences in
    insurance offerings by firm size: Just under half (49%) of firms with 3
    to 9 workers offer coverage, compared to 78 percent of firms with 10 to
    24 workers, 90 percent of firms with 25 to 49 workers, and over 95
    percent of firms with 50 or more workers.\18\ Thus, larger firms are
    subsidizing health insurance in smaller firms. It is important to note
    that many smaller employers say they would like to offer health
    insurance, but cannot afford to do so. Because smaller employers have
    fewer employees to spread risk among, insurers consider their risk
    profile less predictable and more vulnerable to highcost claims.\19\ As
    a result, premiums are considerably higher, often beyond the reach of
    employer and employee alike.
        There are also disparities across business sectors. Industries that
    benefit the most from being freeriders include retail, agricultural,
    fishing, and forestry. Among U.S. dualincome families who receive ESI
    coverage and work in the retail or other services industry, 45 percent
    of workers receive insurance through their spouses' employers. In
    agriculture, fishing, and forestry, the percentage is slightly less at
    42 percent. These aggregate figures mask noteworthy differences,
    however. Among the 73 percent of people working in the retail or other
    services industry covered under one policy, 45 percent are freeriders
    and 28 percent are the actual policyholders; and, among the 74 percent
    of persons working in the agriculture, fishing, and forestry industry
    who are covered under one policy, 42 percent are freeriders and 32
    percent are the actual policyholders. Populations of freeriders in
    other industries in the U.S. range from 21 to 34 percent. Freeriders
    are least prevalent in the mining and manufacturing industries,
    comprising only 21 percent of these industries' insured workers.
        There are two ways to examine the costs of freeriders. The first is
    in terms of incremental cost savings to the freeriding employer--that
    is, how much the freeriding employer would have contributed to its
    employee's health insurance had that employee not been covered by her
    or his spouse. For each employee covered by a spouse's policy, the
    freeriding U.S. employer would have spent $2,886 in 2006 had that
    business provided health insurance to its own worker. Another way to
    examine the cost of freeriders is to calculate the cost to the
    employers who cover the working spouse of an employee. In 2006, the
    incremental cost to employers covering a worker from a freeriding firm
    was $2,713 per employee. Either way the costs are totaled, they are
    substantial: $46 billion versus $49 billion, respectively.
    Conclusions
        The rise in the number of dualincome families combined with a
    decline in the share of employers offering insurance is placing
    continued financial pressure on those employers that continue to offer
    insurance. The ``doubling up'' of both workers on a single policy
    results in added costs to those employers covering both workers. These
    issues raise important questions regarding equity in the distribution
    of spending among businesses in the United States.
        Additional equity concerns are raised by costshifting from
    uninsured, underinsured, and publicly insured individuals to privately
    insured individuals and employers. This care is largely funded by
    governments through tax receipts from corporate and individual taxes.
    Rising premiums affect both employer and employee; in addition,
    employees face higher out of pocket costs in the form of increasing
    copays and deductibles. Uncompensated care thus amounts to a double
    levy: once in the form of taxes and twice in the form of costs hidden
    in escalating payments for employersponsored health insurance.

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        \1\ Andrea Sisko, Christopher Truffer, Sheila Smith, Sean Keehan,
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    ger%20FINAL%20for%20web.pdf (accessed March 4, 2009).
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                                     ______

        Chairman Andrews. Well, thank you, Dr. Thorpe, and thank
    you to each of our witnesses for doing a very, very good job
    this morning and giving the committee a lot to think about.
        We are now going to begin the question phase of the
    hearing, and I will begin.
        There are 30 million people who live in a family that is
    headed by someone--the 30 million uninsured people living in a
    family headed by someone who is working but uninsured, 30
    million out of the 47 million. We have heard Dr. Thorpe testify
    that the cost of uncompensated care nationwide is about $57
    billion a year. we heard Mr. Winkler testify that, in premiums
    alone, a conservative estimate is that premiums are 2 to 3
    percent higher for insuring employers than they would be but
    for this uninsurance problem.
        And I thought it was striking to hear Mr. Sheridan talk
    about the fact that, at Cooper Hospital in New Jersey, 30
    percent of their patients are people insured, but they pay 40
    percent of the bills in the hospital. I think I got that right.
    So there is a significant cost shift there.
        I also think that we have heard a consensus, and I think
    this is very true, that improvements in quality and ways to
    address chronic disease problems is absolutely a major
    component of controlling costs. I don't think there is any
    doubt about that. But in addition to that, there is the problem
    of shifting the costs of uninsured people onto insured people.
        Mr. Trautwein, I just want to focus on a person who might
    be in Mr. Sheridan's hospital this morning who makes 27,
    $28,000 a year, maybe working for one of your members, or a
    similar employer, and is not insured. Her children are now
    insured because of SCHIP, but she is not. And she goes into Mr.
    Sheridan's hospital because she has a severe problem and
    requires hospitalization.
        If I understand correctly, your proposal that you want to
    have us help deal with this is that we pass a law requiring her
    to get health insurance coverage, an individual mandate on her.
    In my state, that would cost her, at a minimum, just for
    herself at a minimum, between 2,500 and $3,000 a year at a
    minimum. How is she going to pay for that?
        Mr. Trautwein. Well, in our view, a better way to level the
    playing field and make sure that everybody gets basic coverage,
    beside the--for the young woman in the hospital, she would have
    had preventative care, would have identified the condition.
        Chairman Andrews. But she doesn't. She is uninsured.
        Mr. Trautwein. Exactly. I think everybody should have
    health coverage, basic health coverage, and we should find a
    way for employers to stay in the game by supplementing that
    coverage with additional benefits. States could also supplement
    that coverage.
        But it is a dilemma for hospitals to pay for that
    treatment. It is a problem under current law.
        Chairman Andrews. But if I may, I think it is a dilemma for
    her because your proposal is to pass a law saying she has to
    buy health coverage the way she has to buy auto insurance. How
    is she going to pay for it? Where is the money going to come
    from?
        Mr. Trautwein. Well, I think we need to ease access in the
    marketplace. I think insurance is more expensive in New Jersey
    than perhaps it should be.
        Chairman Andrews. What if we achieved a 35 percent
    reduction in health insurance premiums, though I doubt very
    much we could, and it would cost her $2,000 instead of $2,500?
    How is she going to pay for it?
        Mr. Trautwein. Well, I think the federal government should
    subsidize access to income on an income-graduated basis, to
    that----
        Chairman Andrews. Well, now President Obama has talked
    about that as well, and he has proposed paying for that by
    repealing the tax cuts for the top 5 percent and by getting rid
    of the Medicare Advantage program. That is how he would pay for
    it. How would you pay for it?
        Mr. Trautwein. I am certainly not a budget expert. The
    politician in me, or the student of politics that is in me,
    would say it would be difficult to support a proposal that
    concentrates on such a narrow slice of the tax scale and----
        Chairman Andrews. So you would want to tax everybody, not
    just the top 5 percent?
        Mr. Trautwein. Well, after all, access to health coverage
    has been a shared goal from many different constituencies for a
    very, very long time. And figuring out how we build on the
    employer dollars that are currently in the system, how we cover
    that cap for people who don't have access to employer-based
    coverage while maintaining jobs and building the economy is a
    tough job.
        Chairman Andrews. It is a very tough job.
        Mr. Trautwein. And we would do well to work with you and
    others to get to that end.
        Chairman Andrews. We welcome your participation. And
    obviously, I am pointing out what I think is where the rubber
    will meet the road.
        We sat in the White House last Thursday and heard a lot of
    very good-willed people talk about improving quality and
    productivity. I think we all agreed with that. Talked about the
    proposition that covering everyone will help reduce costs for
    everyone, which I think just about everybody agreed with.
        But the reality here I think is that short-term
    productivity improvements will never pay for the subsidies
    necessary to cover 47 million people, and that the job that is
    in front of us, this figuring out how to pay for that--and by
    the way, I commend you for making a proposal in your testimony.
        I am not sure that I embrace an individual mandate. I
    certainly don't embrace it without a very sufficient subsidy to
    pay for it. But I think the Federation deserves a lot of credit
    for not ducking that question and raising the point that you
    did.
        We are now going to turn to Mr. Kline for 5 minutes.
        Mr. Kline. Thank you, Mr. Chairman. And again, thanks to
    all the witnesses for really terrific testimony on a very, very
    tough subject and one which, as I said in my opening comments,
    we are going to be dealing with as a Congress and as a nation
    as we try to work through what the new paradigm is going to be
    in providing health insurance.
        I don't think any of us sitting here today know exactly
    what that is. As Mr. Winkler said, the large employers, as I am
    paraphrasing here, are sort of waiting to see what the critical
    details are. Well, as are we all, as we work towards what those
    critical details are going to be, because it is very, very
    important.
        The idea of everyone owning their own health insurance is
    one that appeals to many of us. Again, the devil, as they say,
    is in those details, or how you are going to pay for it. What
    is the federal government's role? What is the state
    government's role? How would you do that?
        And again, as I said in my opening statement, as we go
    through this, and I think that Mr. Winkler and Mr. Trautwein
    and others probably all agree, we cannot afford to pull the
    string on the sweater, if you will, of ERISA and look around
    and find that we don't have 47 million uninsured, but over 200
    million uninsured.
        With that, let me turn to Mr. Pyenson, if I could. You
    know, really an interesting study, and I think probably very
    helpful as we look at--start to look underneath at how this is
    going to work.
        You commented that waste and inefficiency in the healthcare
    system exists, and everybody in this room would agree with
    that. There is no question, is there, in big, big numbers.
        And you pointed out that healthcare management experts know
    thousands of ways--I think that is in your testimony--to
    improve the system. Why hasn't this been done already?
        Mr. Pyenson. Well, that is a great question, Mr. Kline, and
    thank you.
        The challenge of changing the healthcare system to make it
    more efficient is, in my view, largely one of the incentives
    that are in place in the current healthcare system. We are
    addressing the issue here this morning of federal pre-emption
    on the employer's space compared to the state regulation.
        I would point out that there is a bigger issue with the
    federal and state counterpart, which is between Medicare and
    Medicaid. And the largest insurance company in the world is the
    federal Medicare program, and the interaction between Medicare
    and Medicaid has, in my opinion, been a destructive one for
    patients and for efficiency. We see that most profoundly in the
    interaction of patients in nursing homes on Medicaid, which is
    a huge issue, as we all know, for state Medicaid budgets.
        And unfortunately, with poor quality care, those patients
    often end up in the hospital where Medicare pays for their
    hospitalization. So the lack of coordination of getting better
    care to the nursing home patients, which the states can't
    afford to do, is a challenge.
        If they had better care, the benefit would accrue to
    Medicare. So fixing that interaction between the federal and
    state programs I think is one of the keys to creating
    incentives in place. The other piece of that, of course, is
    that no single insurer or employer has anything close to the
    clout that the Medicare program has.
        Mr. Kline. I am not sure that answers the question of why
    we haven't improved the system. I mean, I would certainly
    agree, and I think most people in this room would agree,
    although I never presume to talk for the chairman.
        But it is clear that, with Medicare and Medicaid, to follow
    up on your point, we hear complaints all the time about
    enormous waste there, but also about underpayment. We know
    stories of doctors and facilities, healthcare facilities, who
    are saying they won't take Medicare patients, for example,
    because the reimbursement rate is so low. So we have this huge
    insurer, if you will, in the federal government, a huge program
    that is not paying, or is reimbursing at such low rates that
    people are turning it down.
        It does seem to me, and I know it is frustrating to all of
    us, that we all know of waste and abuse and inefficiencies. You
    have pointed them out. And yet, we can't seem to get at those
    and to make the improvements. It looks like that employers and
    employees and providers would be clamoring for those
    efficiencies.
        Well, magically, my time has run out here, so thanks very
    much. I yield back.
        Chairman Andrews. You noticed it?
        The chair recognizes the gentleman from Illinois, Mr. Hare,
    for 5 minutes.
        Mr. Hare. Thank you, Mr. Chairman. Thank you for having the
    hearing. It is a very important issue.
        Mr. Derbyshire, just a couple questions to you. What would
    you like to see the federal government do to help spread the
    burden of covering the uninsured? And then the second part of
    that question was how can we as a government make it easier for
    small businesses like you to continue to provide healthcare
    coverage for employees?
        Mr. Derbyshire. What I would like to see, and--is that--and
    I said in my testimony, I would like to see more employers, all
    across the board, be able to--there be a mandate that all
    employees pay sort of a tax to offset the premiums that I am
    paying for now by insuring the uninsured so that that would
    level the playing field and reduce my premiums and balance the
    cost of insurance among all employers and all my competitors.
        Mr. Hare. Thank you.
        Dr. Thorpe, in your opinion, how can we guarantee coverage
    for these 47 million Americans that--including 9 million kids
    who are uninsured? Do you know of any systems at the state
    level that have been successful, or do we need to just start
    from scratch, from your opinion, completely overhaul this
    healthcare system?
        Mr. Thorpe. Well, on the coverage side, I think that, as
    Mr. Trautwein talked about, I think you have to look at a
    requirement for individuals to purchase coverage, but with the
    caveat that, if you are going to do that, to the chairman's
    point, that we have to make sure that the healthcare is
    affordable. So, we just can't require it, but we have got to
    make sure that what people pay for health insurance is
    reasonable, and that will be part of the discussion that we
    have about healthcare reform.
        So Massachusetts did this a year ago. They went from a
    very--10 percent of the population uninsured. Now they are down
    to 3 percent of the population uninsured in a very short period
    of time.
        They could have done more on the cost side. They could have
    probably done more on the affordability side, but I think that
    is certainly--if we are going to get to universal coverage, we
    have to go the direction of requiring people, I think, to
    purchase it, and make it affordable.
        On the cost side, that is where I think we do need more
    sweeping reforms. To the point that Mr. Kline was raising, why
    don't we do this, I think the problem is is that to really get
    at the underlying cost drivers really means that we are going
    to have to do three things, and they are major things.
        One, we are going to have to change the way that we pay for
    healthcare, I think led by the Medicare program, to look more
    towards bundled payments, episode-based payments.
        Two, we are going to have to redesign our healthcare
    delivery system. If all the money in healthcare is linked to
    chronically ill patients, and if we have a delivery model that
    has very little to do with managing those patients to keep them
    out of the hospital and keeping them from being re-admitted to
    the hospital, then we need to really look very hard at
    redesigning our delivery model.
        And the third thing, which is a fairly sweeping reform, is
    that we need to do a better job of preventing disease in the
    first place. There are great models out there, great case
    studies that are school-based, community-based, workplace
    models that have lowered cost and improved productivity that we
    need to understand how they are designed. We need to replicate
    them and scale them.
        So those are all going to be fairly major changes on the
    cost side.
        Mr. Hare. Thank you.
        Then, my last question would be to Mr. Winkler. You talked
    about several reasons why healthcare costs are so high. How
    much of these costs are administrative or caused by antiquated
    health information technology or record-keeping? In other
    words, of this high cost, how much of this is just
    administrative and duplicative stuff that we are spending so
    much on? I have heard it is up to a third of what we are
    spending.
        Mr. Winkler. Really sort of two parts to that. One is the
    administrative cost that large employers have for coverage
    overall, which for larger employers, generally, runs 10 to 12
    percent, a little different than for smaller employers.
        But to the point specific to healthcare information
    technology, we have seen estimates. We don't, at Hewitt, have a
    specific number, but I have seen estimates ranging anywhere
    from probably 20 percent on the low side to 30 percent on the
    high side, I think similar to what the gentleman from Milliman
    alluded to before.
        I think the challenge in capitalizing on that is figuring
    out not only how you broadly adopt technology, but what
    incentives you can build into the system for the medical
    community to use that, for patients to avail themselves of it,
    and then, ultimately, for the payment model to track along with
    that.
        Mr. Hare. Thank you, Mr. Chairman.
        Chairman Andrews. Thank you, Mr. Hare.
        Gentleman, Dr. Roe, is recognized for 5 minutes.
        Dr. Roe. Thank you, Mr. Chairman, and thank you all for
    being here. It made my head swim to hear all this again.
        And I practiced in a facility like yours, Mr. Sheridan, and
    just left one not long ago.
        Mr. Chairman, in Tennessee, we had a program called
    TennCare, which virtually bankrupted the state. The governor
    backed off from that and started a new program where the
    employer pays $50 a month, the employee pays $50, and the state
    pays $50. So there is a shared responsibility. Now, it is not a
    Cadillac plan, but it is a basic health plan.
        And Mr. Winkler, what you said a moment ago is absolutely
    correct. Taking care of chronic disease is one of the biggest
    challenges I had in the practice of medicine for over 30 years
    is to convince people to do that. And I think you have to
    change incentives. I think we are going to have to change
    incentives.
        Right now, I am incentivized to take care of sick people.
    That is how I get compensated. And we have got to change that
    scheme where physicians and providers are compensated for
    wellness.
        Now, we had a program in Johnson City, where I was--in
    Tennessee, where I was mayor before I came here--and the city
    employees, where we did a chronic disease management, diabetes,
    hypertension and cholesterol management. And right now, we are
    seeing our healthcare costs not go up at nearly the level of--
    of the national level. So those disease management programs do
    work.
        One of the things that I have become incredibly frustrated
    with, though, and I--actually, Mr. Pyenson, I want you to kind
    of look at this. Back in the 1980s and 1990s, remember, managed
    care was going to be the--that was how we were going to control
    costs.
        And all we did was manage to shift that money around, but
    we didn't control the costs. And right now, I hear information
    technology, and our practice just moved, 70 of us--it was one
    of the most painful things I have ever done in my life, is to
    change from a paper record to an electronic medical record. We
    have 70 providers and 350 employees in our practice. And that
    has been about a 2-year process to get there.
        Do you really think that a 25 percent reduction is
    possible, and are you--with this information technology, or is
    this just another wishful thing that we are going about,
    another exercise I have seen once before?
        Mr. Pyenson. Thank you very much, Mr. Roe.
        I think information technology is certainly going to be
    very good for the information technology companies. If you
    examine the organizations that are extremely efficient and the
    locales that are extremely efficient, it is interesting that
    there is--it is hard to attribute that efficiency to
    information technology.
        But of course, information technology has to be a boon to
    everything, just as it has to the retail sector and every other
    sector, and I am certainly not opposed to it.
        In the ``Imagining 16 to 12,'' we emphasized that we want
    people to imagine the possible. It is possible because we see
    those sorts of efficiencies in locales, typically with
    integrated physician/hospital--physician practices, where the
    incentives are for the sorts of things that Dr. Thorpe and
    others this morning have addressed.
        And we believe those sorts of programs are using existing
    knowledge optimally, so I truly think it is possible, and it is
    really creating the environment where the talents and the
    skills of medical professionals can really be used.
        Dr. Roe. Mr. Chairman, one of the things that you mentioned
    a minute ago I have spent a lot of time thinking about, is
    where we have 47--45, 47 million people in this country that
    are uninsured. And obviously, the payments of Medicaid and
    Medicare don't cover the costs in many situations. And so that
    is an issue that hospital systems and physicians and providers
    have to deal with.
        Well, you have got half of the people who are uninsured are
    in families who work, who are offered insurance at their
    current business, but they can't afford it. It looks to me like
    some sort of tax credit or subsidy would help immediately take
    a lot of those people off the rolls.
        Any comment from any of you about that?
        Mr. Trautwein. Certainly it is a problem for retailers with
    a lot of part-time workers. A third of our workforce is part-
    time. And getting those eligible for coverage to accept is a
    real problem.
        So we share your belief that subsidies can help get people
    into coverage. Tax credits can be a little bit cumbersome to
    administer, and it may be that a subsidy is a cleaner way to
    approach that. But we strongly support it.
        Dr. Roe. Thank you, Mr. Chairman.
        Chairman Andrews. Thank you, Dr. Roe, for bringing your
    experience and perspective to the committee. We are glad to
    have you with us, very much so.
        Now, a different experience and perspective, one of the, I
    guess, two nurses in the House? Three nurses in the House--our
    friend from Long Island, Mrs. McCarthy, who practiced nursing
    before joining us here in the House, is recognized for 5
    minutes.
        Mrs. McCarthy. Thank you, and I thank you for the hearing.
    And obviously, I am going to go to the nursing issue because it
    was mentioned on home care, end-of-life care. This is something
    that I certainly experienced, because I did a lot of private
    duty during my nursing career.
        But with that being said, we are seeing a lot of the care,
    especially coming out of the hospital, going to healthcare
    aides. And the charges that a healthcare aide gets, her salary
    is probably--her or his salary is probably between seven and
    $8. The company that she works for probably picks up the $13 or
    $14, or if not more, on that, and that is something I think we
    need to look at.
        But you can't just bring people home, even for end-of-life,
    unless you have the experience of someone being able to take
    care of somebody there, and that is where high-tech does come
    in. A number of programs that we have seen in my hospitals out
    on Long Island, where there is a camera there to work with the
    aide and to work with the patient so that an RN or a doctor
    every morning, or if there is a problem, can get immediately--
    does that patient need to go to the hospital, or is it just
    something that can be taken care at home?
        So I do believe that there is a lot to do, but the end-of-
    life care is a discussion that this country needs to have. And
    it is a serious conversation, because there are many patients
    that are in ICU that will never have a chance of surviving. And
    the cost to those patients, and to the hospital, is extremely
    high.
        While we were talking, I was just looking, and I was doing
    a little bit of math for my healthcare. We have government
    healthcare, obviously, and I pay $159 a month. Then, we add up
    my co-payment for my insurance.
        By the way, I have got good insurance, Blue Cross/Blue
    Shield. I have got everything in there, bells, whistles and
    everything else like that. It comes out, on my share, $2,258,
    which I feel is reasonable for a year for a single person.
        So I think one of the things that I was interested in, Mr.
    Derbyshire, on your testimony, that you are paying 85 percent
    of premiums for individual coverage. Do the workers actually
    know how much you are paying out for that care? How transparent
    are the insurance companies about their costs, both to the
    employees and to the employer? These are things that need to be
    worked out and to be looked at.
        I know that we were trying to have a bill come through on
    the federal level, anyhow, where a business like yours could
    connect with many other businesses. And I think the National
    Association of Manufacturers Retail would like to see that so
    they can bring it up to the larger employee companies that have
    lower costs. And I would just like your opinion on that.
        Mr. Derbyshire. Yes, thank you.
        Yes, they do know the cost. I do pass it on. I had a
    critical junction of whether I could continue to pay family,
    because that is just a phenomenal cost. I cap it at $50 a week
    that comes out of their paycheck, and it has been that way for
    years. I just cannot pass anything more onto them, because my
    employees are lower middle class.
        A pooling system, yes, anything to reduce costs would be
    very attractive. I know in Maryland, the state that I am from,
    of course, they regulate pricing--the state regulates pricing
    through the insurance company of groups of 50 employees or
    under. So my rates are somewhat controlled in the state, and I
    don't know what the impact that is compared to other plans.
        Did I answer your question?
        Mrs. McCarthy. It does.
        Mr. Derbyshire. Okay.
        Mrs. McCarthy. Thank you.
        Mr. Derbyshire. You are welcome.
        Mrs. McCarthy. Now, I will throw this out to anybody. To
    what extent do you believe that healthcare costs are
    contributing to our current economical crisis? And I will throw
    that out to anybody out there.
        Mr. Thorpe. I will take a shot.
        Well, I think that if you look at it on two dimensions,
    certainly if you look at it from the business perspective,
    rising healthcare costs are one of the less controllable
    aspects of the overall level of compensation, and it has done
    two things.
        One is that it leads to lower wage increases for individual
    workers. And two, for some companies that can't fully shift it
    back, they are finding that it, (A) cuts into profits, (B) cuts
    into their ability to make capital investments and improvements
    in their operations, and (C) puts them at a competitive
    disadvantage in a global economy.
        So from the business perspective, I think it is clear. If
    you look at state and local governments, it is a major source
    of uncontrollable growth in those budgets, which means that it
    is either going to crowd out other state and local functions,
    or you are going to have to look at tax increases to pay for
    it.
        We have seen the budget numbers at the federal level. You
    know, Medicare is the big issue in terms of entitlement reform,
    in terms of driving the budget deficit, and we need to have a
    coherent strategy that really deals with the core issues around
    why Medicare spending is rising and really take that issue on.
        And just finally, from an individual standpoint, we know
    the tradeoffs that families have to make in terms of do they
    keep health insurance or not. We know the numbers, and we can
    debate them on how prevalent of a role that plays in individual
    bankruptcy cases, but is a big deal in terms of people losing
    their homes when they can't afford to pay their bills.
        So I think it is a major component and contributor that has
    to be to the economy. It is 16 percent of our overall GDP, so
    it really is a key issue that, at the same time we are dealing
    with trying to find ways to fix the economy, we really need to
    get to the core of this issue of healthcare costs as well.
        Chairman Andrews. Gentlelady's time has expired.
        Mrs. McCarthy. Thank you.
        Chairman Andrews. Thank you very much.
        Turn to a gentleman from Connecticut who has made a
    significant contribution already in the area of pre-existing
    conditions, Mr. Courtney for 5 minutes.
        Mr. Courtney. Thank you, Mr. Chairman.
        And I would actually like to follow up on that issue a
    little bit with Mr. Thorpe, because, I mean, your description
    of the free riders, the spouses who kind of gravitate towards
    lowest cost, I mean, really that is not the only issue for
    families.
        I mean, to take a hypothetical in Connecticut, if somebody
    works at Pratt & Whitney where the large group plan and the
    spouse is a realtor, and if you are expecting the self-employed
    realtor to pull her or his burden, I mean, the fact of the
    matter is there is obviously a huge pricing difference in terms
    of the small group/self employed market versus the group.
        But frankly, there are also other issues in terms of the
    fact that pre-existing condition exclusions, high deductibles,
    I mean, which really undercuts the ability of wellness and
    prevention programs. I mean, really, it is not--it is a totally
    rational decision for that spouse. And to sort of characterize
    it as, a ``free rider'' I think is a little pejorative, in my
    opinion.
        And frankly, it kind of--again, I think there are other
    structural issues in the market that need to be fixed to help
    families not sort of go in the direction that maybe is more
    burdensome for the large group plans. I was just wondering if
    you could comment on that.
        Mr. Thorpe. Well, I completely agree with you, and that is
    why, when I said it, I characterized that very carefully as,
    ``Some call them free riders.'' And they are--this was just a
    description of the facts, the underlying reasons why it
    happens. I completely agree with you on that. So there is a
    good reason for why--and rational reasons for why a spouse
    would choose to go to a more generous policy at lower cost.
        I think the solution to it is some of what we have been
    talking about here. One is to get more comprehensive coverage
    to everybody through the workplace, and that obviously--if you
    think about it from the employer that is offering the coverage,
    they really have a triple-whammy.
        Healthcare costs a lot anyways. They have built into the
    cost of their premium 2 to 9 percent, so we can debate what the
    number is, due to uncompensated care from the uninsured, and
    they are covering the cost of spouses that are working for
    companies that don't offer.
        So a way to deal with that is to expand coverage to get the
    uninsured piece out, broaden the employment based system so
    that employers that don't offer coverage, or individuals that
    don't get coverage through employers can now afford to do it by
    requiring them to acquire coverage, but making it affordable.
    Provide the requisite government funding to make sure that they
    can afford it, and that way it spreads the burden out more
    evenly.
        Mr. Courtney. But it is more than a funding issue, which it
    clearly is, and I think all the witnesses are pretty much
    agreed on that. But it is also--I mean, we have to do something
    structurally to the market for the small firm and to the
    system.
        And the president has talked about this, that we have got
    to create some kind of pooling mechanisms that allow the risk
    to be spread out and the harshness of some of the underwriting
    rules to be relaxed more. Because, I mean, there is just no
    question that, if you are somebody who has got any kind of
    chronic illness and you are out there in a small group area, I
    mean, you have got a major problem in terms of trying to find a
    plan. And all the mandates in the world and all the subsidies
    in the world are really, not by themselves, enough to sort of
    fix that problem.
        And I don't know if, Mr. Winkler, you wanted to focus on
    that in terms of whether we have got to create structures for
    the smaller--and I realize you do group as a general rule,
    but----
        Mr. Winkler. Well, I think--and Mr. Derbyshire underscored
    the challenges, that the employers who really are squeezed are
    those sort of in the middle of that under-50 group, which in
    most states are already pooled in some capacity, as he
    described in the state of Maryland.
        But if the employer is just above that, on up to the large
    insurers that organizations like Hewitt work with, who find
    themselves, I think struggling with some of the purchasing
    dynamics that you have described, that does logically make it
    such that a married couple would look and say, ``My coverage
    from XYZ Large Employer is more attractive for us as a family
    than the coverage underneath.'' And there may be sort of group
    cooperative or pooling mechanisms that could work in that
    smaller above-50 lives market that could help.
        Mr. Courtney. And Mr. Derbyshire, I mean, you must talk to
    a lot of your colleagues from the business community, I mean,
    where these pricing differences and pre-existing condition rule
    differences are much harsher than families and individuals who
    are--and companies that have large groups to spread out the
    risk.
        Mr. Derbyshire. Well, I don't know. I think in Maryland,
    they do regulate it, that the--in the Maryland system, with the
    health maintenance plan, that you have to accept everyone into
    the plan. So there aren't preconditions that would leave you
    out of the plan.
        But--am I answering your question?
        Mr. Courtney. It is, and that is by law and by government
    intervention. That is the case.
        Mr. Derbyshire. Right--exactly.
        Mr. Courtney. And that is helpful for us to know that in
    terms of dealing with that problem.
        Chairman Andrews. I think it is one of the reasons why the
    gentleman introduced his legislation in the last Congress. I
    know that he has, once again, taken a step forward on that. And
    I think the president has expressed his interest in the same
    concept the gentleman from Connecticut is interested in, so I
    think we will move forward.
        The gentleman from Michigan, Mr. Kildee, is recognized for
    5 minutes.
        Mr. Kildee. Thank you, Mr. Chairman. Thank you for
    assembling this panel. You all, collectively and individually,
    have been very helpful. I appreciate it very much.
        I will address my question to the--friend that is down
    there, end of the table. In Flint, Michigan, employers for
    years would seek to hire those whose spouse worked at General
    Motors. General Motors basically is self-insured using Blue
    Cross/Blue Shield as their fiscal agency. That, along with
    their own direct employees being insured, adds about well over
    $1,000, sometimes $2,000 to the price of a car.
        Now, General Motors right now is in the midst of trying to
    qualify for additional funds under the Troubled Assets Recovery
    Program. One of the things they are required to do is to change
    their--they have switched over their health program now to the
    Union, and it is called the Voluntary Employer Beneficiary
    Association.
        But the federal government now is asking them to give half
    the money for that in General Motors stock rather than dollars.
    General Motors' stock is not that great a shape right now. This
    is an enormous company, a large company, that--I talked to Rick
    Wagoner yesterday. He is spending so much of his time trying to
    settle this healthcare program.
        What we can we do, first of all, to relieve a company like
    that that is really, really in difficulty and let them get back
    to the business while keeping up their responsibility of
    producing cars? Do you have any suggestions of what we might
    do?
        Mr. Thorpe. I appreciate the question.
        I would sort of point to five things, and this kind of
    relates to the dialogue I just had with Mr. Courtney on this
    issue. And the five things that I would focus on would be:
        One is to move towards an individual requirement that
    people have health insurance.
        That, two, that you put in appropriate funding, federal
    funding to make sure that it is affordable for families to buy
    insurance through another employer if they choose, or through a
    health insurance exchange if they want to go that direction.
    That then spreads the cost out in a much broader way.
        So at a place like, as I mentioned in my statistics, if you
    have got half of the family sort of doubling up--and my mom got
    coverage through GM exactly for that reason, because it was a
    great policy--that is two things to do.
        I think the other three is that you have got to make sure,
    if you go in this direction, that you have got to require
    guaranteed issue, that you have got to make sure that people,
    when they apply, they get a guarantee issue to it. The health
    insurance industry is certainly on board with that.
        We have got to reform how we do rates in terms of how
    premiums ratings are established. And you have got to find new
    pooling mechanisms to deal with issues around a lot of the
    inefficiencies around individual and small group coverage. The
    president has put on the table one approach through these
    health insurance exchanges. There are others that we could look
    at, as well, but those would be five things that I would do.
        And then, one last thing, and it goes back to the
    healthcare cost issue, those unions are now in a position of
    managing a pot of dollars. And unless they find a way to change
    the growth trajectory of per capita spending in that union mix,
    those dollars are going to run out much faster than they think.
        Mr. Kildee. Thank you very much, Dr. Thorpe. I like your
    concise answer, and I just, again, think this has been a very,
    very helpful hearing.
        Thank you, Mr. Chairman.
        Chairman Andrews. Thank you, Mr. Kildee, for your
    participation.
        I would like now to call on the ranking member for any
    concluding comments he may have.
        Mr. Kline. Thank you, Mr. Chairman.
        And again, thank you to the witnesses today. It has been a
    great panel, a lot of discussion.
        I think that there is a universal recognition that we have
    a problem. There is not a universal recognition on what those
    critical details might be, and that is part of what we are
    about. So I thank you very much for your thoughtful
    presentation and your terrific answers to the question.
        And I thank you for the hearing, Mr. Chairman. I yield
    back.
        Chairman Andrews. Thank you.
        I would also like to add my words of appreciation for the
    way the witnesses have helped us on our project, our journey to
    try to learn more about how to fix this problem.
        I think everyone's comments were offered in the spirit of
    instruction and cooperation, which emanated from the White
    House summit last Thursday. We appreciate you picking up on
    that spirit.
        It occurs to me that our job is a huge one, and it is to
    convert a dysfunctional relationship between cost and coverage
    into a functional and positive one. If you don't control costs,
    more people become uncovered. They don't have health insurance.
    As more people become without health insurance, costs go up,
    for that and a number of other factors.
        So we really embark upon an effort to try to figure out
    ways that we can reduce cost pressures on American families and
    businesses. We have explored several of them today.
        One of them is trying to find a way to get everyone
    insured, which I think is the top priority on the list. We have
    looked at increasing productivity in dealing with a medical
    technology, which is very important. Each of the witnesses, one
    way or another, has talked about dealing with the chronic
    diseases that absorb a huge percentage of healthcare outlays,
    and I think we can find common ground on that.
        Again, I am very pleased that each of the witnesses, in his
    own way, was able to start to tackle the issue that
    policymakers have failed to tackle for 40 years, which is
    acknowledging the fact that there is a significant cost to
    getting everyone insured--how do you pay for it? And I do think
    that the president set an excellent example by giving his
    answer to that question. I think you gentlemen have followed
    that example by giving your own in various ways, in various
    positions, and it is now up to us to do the same thing.
        If we are able to have a mature and intelligent process, it
    will lead to an answer, and I believe it will lead to the
    president signing a health reform bill in 2009 that will very
    much benefit the country. If we shy away from that issue, if we
    tiptoe around it, we will be right back where we have been for
    four decades, which is describing the problem, but not solving
    it.
        I think you have given us a very strong start to go about
    the business of solving the problem. We thank you for that
    participation.
        As previously ordered, members will have 14 days to submit
    additional materials for the hearing record. Any member who
    wishes to submit follow-up questions in writing for the
    witnesses should coordinate with the Majority staff within 14
    days.
        [The statement of Mr. Kucinich follows:]

      Prepared Statement of Hon. Dennis J. Kucinich, a Representative in
                        Congress From the State of Ohio

        Thank you Mr. Chairman for holding this hearing on what I believe
    to be possibly the most critical economic and moral issue we face
    today. Our haphazard, complex, regressive, inefficient method of
    delivering health care has been in desperate need of an overhaul for
    decades.
        I am glad to see that Congress and this Administration is serious
    about bringing the American people health care reform. As we begin to
    navigate the options for reform, we should be asking difficult
    questions. Will costs be contained? If so, how? Will there be anyone
    left uninsured? Will the 50 million underinsured increase in ranks?
    Will we continue to have the best health care for those lucky enough to
    afford it and poor quality care for those who cannot?
        I believe the root of our health care problems is simple: It is the
    health insurance companies. They make money by denying care and in so
    doing, they drive up health care costs. Their success is partially
    evidenced by the growth they have caused. The growth in professionals
    who actually deliver health care since the 1970s is under 300%. But the
    increase in administrators--those who do not deliver care--is upwards
    of 2400%. Increases in complexity of health care demand more
    bureaucracy to handle it.
        Unfortunately, employer based health care relies on health
    insurance companies. But we will not solve our health care problems
    with the insurance industry still thriving. Because American businesses
    provide health insurance for over 60% of the country, American
    employers are bearing the burden of this inefficient system. It is
    making them less competitive than their international counterparts
    whose health care systems are far less expensive, not to mention more
    efficient, equitable, and comprehensive.
        Employer based health care also means that people who get sick
    enough to lose their job, will also lose their insurance when they need
    it the most. It means there will continue to be a substantial number of
    uninsured. It means that health care will continue to be the number one
    source of contention between labor and management. And because
    insurance companies make money when they are successful at denying
    care, they will continue to sell products that leave people financially
    vulnerable.
        Millions of Americans are under the false assumption that having
    insurance necessarily means they are insured. Only after they get sick
    do they realize that their plan leaves them extremely financially
    vulnerable. One of the most important statistics in the health care
    field summarizes this problem. About half of all bankruptcies in the US
    are tied to medical bills. Of all those medical bankruptcies, three-
    quarters of those had insurance before they got sick. They had
    insurance and they still went bankrupt. Doesn't that defeat the purpose
    of insurance? Imagine what would happen to our economy if we could get
    rid of those medical bankruptcies by fully insuring everyone. That is
    what HR 676 does.
        HR 676 builds on a model with proven success in the US and abroad.
    It eliminates hundreds of billions of dollars in administrative waste
    and uses that money to cover everyone in the US for all medically
    necessary services with no copayment, no premium and no deductible.
    Everyone in the U.S. would get a card that would allow access to any
    doctor at virtually any hospital.
        The support for HR 676 is undeniable. HR 676 had 93 cosponsors in
    the previous Congress and is up to 64 in this Congress so far. More
    than a third of the Members of this Subcommittee are now cosponsors or
    were cosponsors in the previous Congress. A 2008 poll published in the
    Annals of Internal Medicine showed that 59% of all doctors and over 70%
    of pediatric subspecialties support a plan like H.R. 676, which
    dispenses with the myth that doctors don't want it. It is supported by
    the American College of Physicians, deans of major medical schools,
    former editors of the New England Journal of Medicine, and former
    Surgeons General. They are joined by groups like the Presbyterian
    Church USA, the US Conference of Mayors, and State legislatures in
    Kentucky and New Hampshire who have endorsed H.R. 676. Single payer
    bills have twice been passed by the California legislature in the last
    three years and are currently making their way through other state
    legislatures like Minnesota. HR 676 has been endorsed by 484 union
    organizations in 49 states including 39 state AFL-CIOs.
        Finally, thousands of advocates all over the country represent the
    American people whose support for a plan like H.R. 676 is consistently
    greater than 50%. A February New York Times/CBS News poll found that,
    ``59% [of Americans] say the government should provide national health
    insurance, including 49% who say such insurance should cover all
    medical problems.'' The poll found that only 32% think that insurance
    should be left to private enterprise. Many members on this Subcommittee
    know how strong the grassroots movement behind this bill is because
    they are getting the calls about it.
        As we evaluate a path forward on health care, I urge my colleagues
    to stand up to the health insurance companies and demand a proven model
    that guarantees comprehensive health care for everyone, controls costs,
    and provides high-quality care.
                                     ______

        [The statement of the American Benefits Council, submitted
    by Messrs. Andrews and Kline, follows:]

    Prepared Statement of James A. Klein, President, the American Benefits
                                    Council

        Dear Chairman Andrews and Ranking Member Kline: I am writing to
    respectfully request that the summary of our views and attached report
    of the policy recommendations of the American Benefits Council's (the
    ``Council'') on health care reform be included in the record for
    subcommittee's March 10, 2009 hearing on ``Strengthening Employer-based
    Health Care''. The Council is a trade association representing
    principally Fortune 500 companies and other organizations that assist
    employers of all sizes in providing benefits to employees.
    Collectively, the Council's members either sponsor directly or provide
    services to retirement and health plans covering more than 100 million
    Americans.
    Summary of Views of the Council on Health Care Reform
        The American Benefits Council believes we can, and must, achieve a
    more affordable, inclusive and higher quality health care system. Our
    vision for health care reform was drawn from the diverse expertise and
    experience of our members, particularly our Board of Directors, which
    shaped a set of 10 practical prescriptions to improve our health care
    system. Each of these prescriptions is aimed at achieving a stronger,
    more sustainable health care system to serve the needs of all
    Americans.
        These are times of extraordinary economic turmoil and some have
    suggested that health reform may need to wait until we address other
    more urgent economic recovery priorities. We take the opposite view.
    Addressing the nation's health policy challenges is an integral element
    of--rather than an obstacle to--economic recovery and personal
    financial security. We agree with President Obama, OMB Director Orszag
    and a growing number of members of Congress, economists and business
    leaders that the current rate of spending for health care is not
    sustainable for individuals, employers, state or federal government or
    the American economy. Health reform is an urgent national priority and
    requires our best, collective efforts to see that it is achieved as
    swiftly as possible.
        We believe that the employer-based health care system that now
    serves as the primary source of health coverage for more than 160
    million Americans provides a solid foundation for health care reform.
    We need to build on that foundation by moving toward more affordable,
    higher quality health care services. Indeed, without such measures, it
    will not be possible to reach the widely shared goal of providing
    health coverage to all Americans.
        We believe that a vitally important component of maintaining a
    strong employer-based health system starts with protecting the federal
    regulatory framework established by the Employee Retirement Income
    Security Act (ERISA) which allow employers to offer valuable benefits
    to their employees under a single set of rules, rather than being
    subjected to conflicting and costly state or local regulations. While
    employers that operate in multiple states or on a national basis
    consider ERISA's framework essential to their ability to offer and
    administer employee benefits consistently and efficiently, this
    regulatory approach also translates into better benefits and lower
    costs for employees. In addition, holding employer-sponsored benefits
    accountable under a single set of rules, interpreted by a single
    regulatory authority, is also fundamentally fair to all employees
    covered under the same plan regardless of where they may live.
        In addition to strengthening employer-based health coverage, we
    believe that public health insurance programs such as Medicaid,
    Medicare and the Children's Health Insurance Program (CHIP) must be
    improved, particularly by moving toward payment systems that reward
    health care providers who consistently meet evidence-based performance
    standards and away from payments based simply on the quantity of
    services delivered. Our recommendations for health care reform also
    call for the establishment of a federal eligibility floor for coverage
    for adults under Medicaid and more effective outreach and incentives
    for states to reach the more than 10 million individuals who are
    estimated to be eligible for health coverage under state-based health
    programs, but are not yet enrolled.
        Health care reform will also require measures to ensure that those
    outside of employment-based health coverage are able to obtain
    meaningful, affordable coverage through the individual health insurance
    market. Our proposals include recommendations that would ensure that
    any person without health coverage through an employer and who is not
    otherwise eligible for coverage under a state or federal health
    insurance program could obtain at least one individual market insurance
    plan in any state that meets minimum federal requirements. These
    products would also be exempt from additional state benefit mandates,
    but for all other purposes--such as consumer protections, solvency
    requirements, rating rules and other requirements--state standards
    would continue to apply.
        We also believe that reformed state-based high risk pools that meet
    minimum federal standards for coverage and rating can play a
    significant role in helping to keep the individual insurance market
    more affordable and competitive. In order to keep coverage affordable
    for those enrolled in high-risk pools, we propose that premiums paid by
    enrollees in these state-based programs be limited and claims expenses
    that exceed the funding from enrollee premiums be shared by state and
    federal governments.
        The Council and its members believe that all Americans need and
    deserve health care coverage. A key condition for closing the coverage
    gap would be the establishment of a federally-prescribed individual
    obligation for all Americans to obtain at least a basic level of
    coverage in a reformed health care system. We also recognize, and
    support, the need for federal premium subsidies to make coverage
    affordable for lower-income individuals who do not qualify under an
    income-based public program such as Medicaid or CHIP. Individuals could
    meet their health coverage obligation by electing coverage offered
    through an employer, by enrolling in a plan in a reformed individual
    insurance market, or through a state or federal health insurance
    program such as Medicaid, Medicare, CHIP or a state high-risk pool.
        The Council's recommendations call for ten ``prescriptions'' for
    achieving health care reform and our ``Condition Critical'' report
    includes over 40 specific and practical policy recommendations for
    achieving them:

                      PRESCRIPTION #1: BUILD ON WHAT WORKS

        Building on--and not undermining--our voluntary, employer-based
    health coverage system is the best foundation for health care reform.
    We believe that the best reform options are those that strengthen, not
    impede, the voluntary employer-based system.

                 PRESCRIPTION #2: MAINTAIN A FEDERAL FRAMEWORK

        A single set of federal rules, rather than a state-by-state
    approach, for health care reform is essential, particularly for
    employers with a national or multi-state workforce. In particular,
    health care reform should maintain the fundamental concepts and
    provisions of the Employee Retirement Income Security Act (ERISA).
        This framework makes it possible for employers to maintain and
    administer a uniform set of benefits for their employees and allows for
    innovative benefit practices to be applied consistently for all plan
    participants, regardless of where they live.

       PRESCRIPTION #3: IMPROVE THE QUALITY AND EFFICIENCY OF HEALTH CARE

        Urgent action is needed to make our health care system more
    efficient and ensure more consistent delivery of high quality care.
        In particular, a nationwide interoperable health information
    network should be adopted by a specified date to permit the exchange of
    vital health records and patient information much more efficiently and
    to provide a backbone for a wide range of emerging quality improvement
    initiatives.

      PRESCRIPTION #4: PROVIDE CLEAR, RELIABLE INFORMATION TO MAKE BETTER
                             HEALTH CARE DECISIONS

        A transformed health care system is one that makes price and
    performance information easily accessible so consumers can quickly
    determine where to find those providers who have a proven record of
    delivering high quality care.
        A more transparent health care system will also give health care
    providers the tools they need to compare their performance with other
    professionals in their field in order to support and encourage
    continuous quality improvement.

    PRESCRIPTION #5: MAKE HEALTH COVERAGE AN INDIVIDUAL OBLIGATION FOR ALL
                                   AMERICANS

        All Americans need to be part of a health coverage solution and we
    each have an obligation to obtain at least a basic level of coverage in
    a reformed health care system. An obligation to obtain coverage must
    also be accompanied by income-based premium subsidies to make health
    coverage affordable for lower-income individuals. To encourage
    employer-sponsored coverage whenever possible, these subsidies should
    be applied to assist qualified individuals with their share of the
    premium whenever such coverage is available

     PRESCRIPTION #6: ESTABLISH A MINIMUM STANDARD FOR QUALITY, AFFORDABLE
                                HEALTH COVERAGE

        A federal minimum standard for a basic and affordable level of
    coverage should be developed as a benchmark for whether individuals
    have met their health coverage obligation. Key components of this basic
    benefit standard would be established by a broad multi-stakeholder
    advisory panel. The standard should also permit individuals to meet
    their coverage obligation by enrolling in a plan that is at least
    actuarially equivalent to the basic benefit standards.
    prescription #7: reform the individual insurance marketplace for those

               WHO DO NOT HAVE ACCESS TO EMPLOYER-BASED COVERAGE

        All those without access to employer-based coverage should be able
    to enroll in a basic benefit plan in the individual insurance market
    that meets federal minimum coverage requirements or in an enhanced and
    affordable state high risk pool that provides comparable coverage.

     PRESCRIPTION #8: STRENGTHEN STATE SAFETY-NET HEALTH INSURANCE PROGRAMS

        Sensible improvements are needed in public programs providing
    health coverage, including establishing a federal eligibility floor for
    coverage of adults under Medicaid. Stronger incentives are also needed
    for states to reach the more than 10 million individuals estimated to
    be eligible for coverage under state-based health programs, but are not
    yet enrolled. Premium subsidy programs should also be expanded for
    individuals eligible for coverage under both an employer-sponsored plan
    and Medicaid or the Children's Health Insurance Program (CHIP).

       PRESCRIPTION #9: IMPROVE TAX POLICY TO MAKE HEALTH COVERAGE MORE
                           AFFORDABLE AND ACCESSIBLE

        Current tax rules must continue to permit employers to deduct their
    expenses for the cost of health benefits they provide to employees.
        In addition, rather than subjecting employees to income and payroll
    taxes on the cost of employer-sponsored health care coverage, we
    believe that favorable tax treatment should be extended to individuals
    who do not have access to health coverage under an employer plan and
    who obtain coverage in the individual insurance market.

      PRESCRIPTION #10: ENABLE EMPLOYERS AND EMPLOYEES TO DEVELOP RETIREE
                             HEALTH CARE SOLUTIONS

        An above-the-line tax deduction should be permitted for retiree
    health insurance premiums. Employers and employees should also have a
    wider range of options to fund retiree health care needs, starting by
    improving existing benefit vehicles.
        Finally, the most important prescription for health reform may well
    be the willingness of all major stakeholder groups to engage in a
    collaborative effort to develop health reform solutions. As an
    organization whose members either directly sponsor or administer
    employee benefits covering more than 100 million Americans, we are
    committed to working with all those who believe, as we do, that health
    reform is both urgently needed and can only succeed if it is developed
    through an open, consensus-based process. If we take this path and are
    guided by a set of pragmatic prescriptions, we can succeed in achieving
    fundamental and urgently needed health care reform.
        We look forward to working with this Committee, the Obama
    Administration, and other major stakeholders in our health care system
    in developing sensible solutions to deliver on the promise of making
    quality, affordable health care a reality for all Americans.

        Attachment: ``Condition Critical: Ten Prescriptions for Reforming
    Health Care Quality, Cost and Coverage''

        [The referenced attachment may be accessed at the following
    Internet address:]

          http://www.americanbenefitscouncil.com/documents/condition--
                                critical2009.pdf

                                     ______

        And without objection, the hearing is adjourned.
        [Whereupon, at 12:04 p.m., the subcommittee was adjourned.]