[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


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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.

                               REFERENCES

    \1\ Andrea Sisko, Christopher Truffer, Sheila Smith, Sean Keehan, 
Jonathan Cylus, John A. Poisal, M. Kent Clemens, and Joseph Lizonitz, 
``Health Spending Projections Through 2018: Recession Effects Add 
Uncertainty To The Outlook,'' Health Affairs Web Exclusive, February 
24, 2009, http://content.healthaffairs.org/cgi/reprint/
hlthaff.28.2.w346v1?maxtoshow=&HITS=1 
0&hits=10&RESULTFORMAT=&fulltext=NHE&andorexactfulltext=and&searchid=1&F
 IRSTINDEX=0&sortspec=date&resourcetype=HWCIT (accessed March 4, 2009).
    \2\ Centers for Medicare and Medicaid Services, Sponsors of Health 
Care Costs: Businesses, Households, and Governments, 1987--2007, http:/
/www.cms.hhs.gov/NationalHealthExpendData/downloads/bhg07.pdf (accessed 
March 5, 2009).
    \3\ Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits, 2008, http://ehbs.kff.org/pdf/7790.pdf 
(accessed March 4, 2009).
    \4\ Ibid.
    \5\ Ibid.
    \6\ Henry J. Kaiser Family Foundation. Employee Health Benefits: 
2007 Annual Survey. 11 September 2006. http://www.kff.org/insurance/
7672/index.cfm.
    \7\ McKinsey and Company, ``Will Health Benefit Costs Eclipse 
Profits?'' The McKinsey Quarterly Chart Focus Newsletter, September 
2004, http://www.mckinseyquarterly.com/newsletters/chartfocus/2004--
09.htm (accessed March 4, 2009).
    \8\ Jack Hadley, John Holahan, Teresa Coughlin, and Dawn Miller, 
``Covering The Uninsured In 2008: Current Costs, Sources Of Payment, 
And Incremental Costs,'' Health Affairs, September/October 2008; 27(5): 
w399w415, http://content.healthaffairs.org/cgi/reprint/27/5/w399 
(accessed March 4, 2009).
    \9\ Michael A. Morrisey, ``Cost Shifting: New Myths, Old Confusion, 
and Enduring Reality,'' Health Affairs 22 (2003): w489--w491, http://
content.healthaffairs.org/cgi/reprint/
hlthaff.w3.489v1?maxtoshow=&HITS=10& 
hits=10&RESULTFORMAT=&fulltext=cost+shifting&andorexactfulltext=and&sear
chid =1&FIRSTINDEX=0&resourcetype=HWCIT (accessed March 4, 2009).
    \10\ Institute of Medicine, Hidden Costs, Values Lost Uninsurance 
in America, Washington, D.C.: The National Academies Press, 2003.
    \11\ Families USA, Paying a Premium: The Added Cost of Care for the 
Uninsured, June 2005, http://www.familiesusa.org/assets/pdfs/Paying--
a--Premium--rev--July--13731e.pdf (accessed March 6, 2009).
    \12\ Mark B. McClellan, Administrator, Centers for Medicare and 
Medicaid Services Department of Health and Human Services, ``Tax 
Exemption for Hospitals and Federal Payment for Uncompensated Care,'' 
Testimony before the House of Representatives Committee on Ways and 
Means, May 26, 2005, http://www.hhs.gov/asl/testify/t050526c.html 
(accessed March 4, 2009).
    \13\ Institute of Medicine, ``America's Uninsured Crisis: 
Consequences for Health and Health Care,'' February 2009, http://
www.iom.edu/Object.File/Master/63/122/America's%20Uninsured%206%20pa 
ger%20FINAL%20for%20web.pdf (accessed March 4, 2009).
    \14\ Medicare Payment Advisory Commission (MedPAC), Report to the 
Congress: Medicare Payment Policy, page xiv, March 2009, http://
www.medpac.gov/documents/Mar09--EntireReport.pdf (accessed March 6, 
2009).
    \15\ U.S. Census Bureau, Current Population Survey, Annual Social 
and Economic (ASEC) Supplement, Table HI05: Health Insurance Coverage 
Status and Type of Coverage by State and Age for All People: 2007, 
http://pubdb3.census.gov/macro/032008/health/h05--000.htm (accessed 
March 6, 2009).
    \16\ Kenneth E. Thorpe, Jennifer Flome, and Katya Galactionova, 
Health Insurance Coverage of DualIncome Families: The FreeRider Effect 
and the Cost to Employers, Missouri Foundation for Health, December 
2006.
    \17\ Kaiser Family Foundation, Kaiser State Health Facts: Average 
EmployeePlusOne Premium per Enrolled Employee for EmployerBased Health 
Insurance, 2006, http://www.statehealthfacts.org/
comparetable.jsp?ind=272&cat=5 (accessed March 5, 2009).
    \18\ Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits, 2008.
    \19\ National Health Policy Forum, NHPF Background Paper: Health 
Insurance Coverage for Small Employers, April 19, 2005, http://
www.allhealth.org/BriefingMaterials/
healthinsurancecoverageforsmallemployers297.pdf (accessed March 4, 
2009).
                                 ______
                                 
    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.]

                                 
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