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


 
                       WAYS TO REDUCE THE COST OF 
                    HEALTH INSURANCE FOR EMPLOYERS, 
                      EMPLOYEES AND THEIR FAMILIES 

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

                                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, APRIL 23, 2009

                               __________

                           Serial No. 111-15

                               __________

      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 April 23, 2009...................................     1

Statement of Members:
    Andrews, Hon. Robert E., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     2
        Statement of the Aircraft Mechanics Fraternal Association    62
        Questions for the record.................................    64
    Clarke, Hon. Yvette D., a Representative in Congress from the 
      State of New York:
        Statement of Richard H. Anderson, CEO, Delta Air Lines, 
          Inc....................................................    65
    Kline, Hon. John, Senior Republican Member, Subcommittee on 
      Health, Employment, Labor and Pensions.....................     3
        Prepared statement of....................................     4

Statement of Witnesses:
    Ford, Gary M., principal, Groom Law Group....................    32
        Prepared statement of....................................    34
    Friend, Patricia A., international president, Association of 
      Flight Attendants--CWA, AFL-CIO............................    11
        Prepared statement of....................................    13
    Kight, Rob, vice president, compensation, benefits, and 
      services, Delta Air Lines, Inc.............................    18
        Prepared statement of....................................    27
        Response to and letter from the Pension Benefit Guaranty 
          Corp...................................................    59
        ``The Evolution of Non-Contract Delta Air Lines Retiree 
          Benefits,'' April 2008.................................    19
    Kochan, Thomas A., George M. Bunker professor of management, 
      co-director, MIT Institute for Work and Employment Research    35
        Prepared statement of....................................    37
    Roach, Robert, Jr., general vice president, International 
      Association of Machinists and Aerospace Workers............     6
        Prepared statement of....................................     8


                       WAYS TO REDUCE THE COST OF
                    HEALTH INSURANCE FOR EMPLOYERS,
                      EMPLOYEES AND THEIR FAMILIES

                              ----------                              


                        Thursday, April 23, 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, Wu, Hare, Tierney, 
Kucinich, Fudge, Kildee, Loebsack, Clarke, Courtney, Kline, 
Guthrie, Hunter, and Roe.
    Also present: Representative Cassidy.
    Staff present: Aaron Albright, Press Secretary; 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; Sharon Lewis, Senior Disability Policy 
Advisor; Joe Novotny, Chief Clerk; Megan O'Reilly, Labor 
Counsel; Meredith Regine, Junior Legislative Associate, Labor; 
James Schroll, Junior Legislative Associate, Labor; Robert 
Borden, General Counsel; Cameron Coursen, Assistant 
Communications Director; Ed Gilroy, Director of Workforce 
Policy; Rob Gregg, Senior Legislative Assistant; Alexa Marrero, 
Communications Director; Jim Paretti, Workforce Policy Counsel; 
Ken Serafin, Professional Staff Member; and Linda Stevens, 
Chief Clerk/Assistant to the General Counsel.
    Chairman Andrews [presiding]. Good morning, ladies and 
gentlemen, thank you for your attendance this morning, and 
welcome to the Subcommittee.
    On March 5th, the President gathered people of all walks of 
life and all points of view at the White House and launched 
what I think is the most significant effort in many years to 
try to address the very severe problem of the health care 
system in our country.
    Let me start, from the outset, with a personal bias of 
mine. We have a health care financing and legal problem as 
opposed to a health care problem. We have a terrific health 
care system where doctors and nurses and therapists and 
researches and institutions do a great job. And we are blessed 
to live in a country with the talents of those men and women.
    Because of the legal and economic structure that supports 
that system, we have a problem where far too few--far too few 
people get access to that system, where a lot of providers feel 
they are being driven out of the system because their very good 
judgments are being second guessed by people who do not share 
their expertise, and where many of us feel that money is wasted 
in the system not to provide and promote good health and to 
deal with illness, but for other purposes.
    So I start from the premise that we want to preserve the 
very high quality and very great talents of so many people who 
have given so much of that system. But we want to extend its 
benefits to everyone. And we want to allocate its resources in 
a way that smart and fair and rational.
    It was a remarkable experience on March 5th at the White 
House. We had people from very different points of view who 
agreed that the goals this time should be held in common.
    And one of the goals that was, I think, universally shared 
was that we spend too much in the health care system relative 
to our national income. That we spend far more per capita than 
really anyone else in the developed world on health care, and 
do not get the results we should get from it.
    So first and foremost in the health care debate that this 
Subcommittee, this Congress and this country is going to have 
over the next couple of weeks and months is the question of how 
to allocate costs in a more relational and sensible way in that 
system.
    Closely related to that question obviously is how to cover 
everyone.
    The two questions are clearly integrated and one depends on 
the other in every respect.
    We are going to explore a number of different points of 
view this morning that deal with that question of cost and 
coverage in the health care system.
    We have assembled what I think is an outstanding panel of 
people with a broad array of experiences, rich diversity of 
opinions. And we want to encourage a dynamic interchange 
between the members of the Committee and them members of the 
panel.
    So the way that we are going to proceed this morning is, 
after the opening statements are done, we are going to hear 
from the witnesses.
    And I would just finish my opening statement by saying 
this. The core problem, as I see it, is that for Americans, 
American families, out-of-pocket health care costs have gone up 
at three times the rate that they are pay check has. So insured 
people have taken a pay cut because of the explosion in out-of-
pocket health care costs. The number of uninsured people has 
metastasized as a result of this cost explosion.
    So I think the two issues go hand-in-glove. That until we 
have a more rational allocation of costs in our system and get 
costs under control, we will not get everyone covered. And 
until we get everyone covered, we will not have a rational cost 
allocation and get the costs under control. I think they are 
very much integrated questions and suggest integrated answers.
    At this time, I am going to ask my friend from Minnesota, 
the senior Republican on the Subcommittee, Mr. Kline, for his 
comments.
    Mr. Kline. Thank you, Mr. Chairman.
    I want to thank the witness. It does indeed look like we 
have another terrific panel here today.
    I agree with the chairman's opening comments that we have 
got a problem here on how to pay for health care, who is going 
to pay for it, who is going to be covered, how are we going to 
do it and how are we going to make it work efficiently and 
effectively.
    But we have wonderful health care, wonderful medical care 
in this country.
    I am from Minnesota. The Mayo Clinic in Rochester is a 
destination point in the world. World leaders fly in to the 
United States to get their medical treatment there.
    We need to be careful as we go forward that we do not 
destroy that wonderful health care, that wonderful medical 
care, the wonderful incentives that we have here and the 
opportunity that we have in this country to get medical care.
    Being from Minnesota, our neighbor, Canada--I happen to 
know that many Canadians chose to or are forced to come to 
Minnesota for their medical care. They simply cannot get an 
MRI. Or they cannot get the care that they need.
    So as we go forward, I would caution all of us to be 
careful to not destroy the good that we have here.
    One of my concerns here is that some 160 million Americans 
get their health insurance under ERISA from their employers. We 
may be changing the paradigm. That is part of the debate that 
we are having here. But we need to be very careful, it seems to 
me, not to do harm and not to pull a thread on the sweater that 
is ERISA and start unraveling it and end up with millions of 
Americans not getting the coverage that they need.
    So I am going to submit my statement for the record, 
without objection, if that is all right, Mr. Chairman?
    I am very eager to get to the testimony of our witnesses.
    And I yield back.
    [The statement of Mr. Kline follows:]

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

    Good morning, and welcome to our distinguished panel of witnesses. 
We look forward to hearing your perspectives and gaining the benefit of 
your expertise on issues of great national importance.
    This morning's hearing is the second hearing on health care reform 
this year, and will try to address a very broad range of issues 
confronting our nation's health care system. While I am hopeful that 
meaningful changes can be made to improve health care cost, access and 
delivery, I am concerned that some of the proposals being considered 
and talked about may have the exact opposite effect.
    We have learned from prior hearings that the employer-based health 
care system, though imperfect, has achieved a number of successes. Over 
160 million Americans obtain insurance coverage from their employers, 
satisfaction levels are relatively high, and the number of people 
covered under this system has remained more or less constant through 
good and bad economic times. The main reason for this success is the 
federal ERISA law, which lets American businesses provide uniform, high 
quality benefits to all their employees across state lines, free from 
costly state benefit mandates.
    Employers, employees, and their families are, justifiably, very 
concerned about rising health care costs. I continue to believe that as 
we try to address weaknesses in the current system, we must be careful 
not to undermine ERISA by pulling one string at a time.
    As we discuss ways to reduce the cost of health insurance for 
employers, we must be mindful of the fact that ERISA is the basis of 
our voluntary employer-based system, and we must build on what works 
within that structure. Policies to permit greater pooling of resources 
to purchase insurance and the development of innovative, cost-efficient 
benefit designs would expand access by encouraging more employers to 
provide coverage and reduce costs.
    Some of the ideas to reform insurance systems being discussed could 
have the effect of driving people out of the voluntary, private 
employer-based health care system, make them more reliant on government 
programs and subsidies, and could ultimately lead to the 
nationalization of health care in America. I believe this could 
increase costs, stifle medical innovation, and reduce health care 
quality.
    Mr. Chairman, we must be mindful that proposals which undermine 
ERISA should not be adopted. These include employer mandates, which 
would require employers to provide coverage or pay a tax. Similarly, 
adding benefit mandates increases the costs of coverage, and makes it 
more difficult to provide health insurance. Also, creating a 
``government plan'', modeled on Medicare or some other government 
structure, to ``compete'' with private coverage could result in unfair 
competition and eliminate a private health insurance market.
    Finally, Mr. Chairman, the cost of health reform and expanding 
access to health insurance coverage must be carefully considered before 
we vote to enact health care reform legislation. Merely passing 
legislation that expands access to benefits, without meaningful steps 
to control underlying health care costs, would not be wise, and will 
only lead to more unsustainable spending.
    That said, I remain hopeful we can continue to work together to 
reach consensus on legislation to provide more affordable and efficient 
ways of delivering health care benefits.
    With that, I'd like to welcome our seven distinguished witnesses 
today, and we should hear from them directly. I yield back my time.
                                 ______
                                 
    Chairman Andrews. Thank you very much, Mr. Kline.
    Without objection, the opening statements of any member of 
the Subcommittee or Full Committee who wishes to submit a 
statement in the record will be accepted.
    Well, good morning, to the panel. We appreciate very much 
your written statements. They were terrific.
    And without objection, they will be entered into the record 
of the hearing so the members will have the benefit of them.
    The way we operate is we ask you to synopsize your written 
testimony in a 5-minute oral summary. That is difficult to do, 
but keep in mind the members have your written testimony. I am 
sure they have all read every word of the written testimony. 
Now, they certainly have it in front of them. And it is 
available to them.
    The 5-minute summary gives us ample time for exchange 
between the members of the Committee and the members of the 
panel, which is our objective. We find that we learn more that 
way, so we appreciate that.
    There is a system of lights that are in front of you. When 
the green light it on, it means your time to speak. When the 
yellow light goes on, it means you have 1 minute remaining in 
your 5 minutes. And when the red light goes on, it means we 
would ask you to quickly summarize your comments, that we can 
move on to the next person and keep things moving along.
    I want to introduce the witnesses, read a brief biography 
of each, and then we will turn to your statements.
    Mr. Ron Pollack has been working on this issue long before 
it became first-page news. He is the founding executive 
director of Families USA, a national organization for health 
care consumers whose mission is to achieve high-quality, 
affordable health coverage for everyone in the United States. 
In that capacity, Mr. Pollack helped prepare the Patient's Bill 
of Rights that has been enacted by many state legislatures. He 
received his J.D. from New York University where he was an 
Arthur Garfield Hayes Civil Liberties fellow.
    Mr. Pollack, thank you for your years of work on this 
issue. We are glad to have you with us today.
    Mr. Michael Langan is a principle at the Towers Perrin law 
practice and has over 30 years experience in health and 
insurance law, employee welfare benefits and related public 
policy issues.
    Before joining Towers Perrin, Mr. Langan was assistant 
counsel in the Corporate Law Department of the Prudential 
Insurance Company of America headquartered in Newark, New 
Jersey--very wisely on their part--and worked in his HMO 
subsidiary PRUCARE. He received his B.A. from King's College 
and a J.D. from the Seaton Hall University School of Law in 
South Orange, New Jersey.
    Nice to have you with us, Mr. Langan.
    Mr. William Vaughan is a senior health policy analyst for 
the Consumer's Union. Starting in 1965, he worked for various 
members of the House of Representative's Ways and Means 
Committee and retired in 2001 as a Health Subcommittee staff 
director for the minority. He graduated with a B.A. from the 
American University.
    And, Mr. Vaughan, we all understand that the real yeomen 
and yeowomen around here are the staff members. And I remember 
your work at Ways and Means and appreciate it. And we are happy 
you are with us here this morning.
    Ms. Janet Trautwein----
    Did I pronounce your name correctly?
    Chairman Andrews. Is a returning witness to the committee, 
I believe. I think she has been here before.
    Is the executive vice president and CEO of the National 
Association of Health Underwriters in Arlington, Virginia. She 
also worked 4 years as legislative director and lobbyist for 
the Texas State Association of Health Underwriters. Ms. 
Trautwein received her B.A. in English literature from Elmhurst 
College.
    And one of your members--last Friday I was sitting in a 
coffee shop across from a theater. I have a young child who 
performs in theater. And your member came in and saw me there 
and talked for a half an hour about all your talking points. So 
I heard already what you had to say. [Laughter.]
    He was very persuasive.
    Mr. William Oemichen----
    Did I pronounce your name correctly?
    Is the president and CEO of the Wisconsin Confederation of 
Cooperatives and the Minnesota Association of Cooperatives. He 
previously served as Wisconsin's top Consumer Protection and 
Trade Practices official from August of 1996 to September of 
2001. And prior to that, as an accountant, malpractice, 
antitrust and cooperative attorney at a major Midwestern law 
firm.
    Mr. Vaughan also worked for two Minnesota members of 
Congress in Washington, D.C. And has a B.A. in economics from 
Carlton College and a J.D. from the University of Wisconsin at 
Madison.
    Welcome, we are happy to have you with us.
    Dr. David U. Himmelstein--did I pronounce your name 
correctly, Doctor?
    Is an associate professor of medicine at Harvard Medical 
School and practices primary care internal medicine. He 
currently serves as chief of the Social and Community Medicine 
Division at Cambridge Hospital. Dr. Himmelstein graduated from 
Columbia University's College of Physicians and Surgeons, 
completed a medical residency at Highland Hospital in Oakland, 
California, and a fellowship in general internal medicine at 
Harvard.
    It is an honor to have you with us this morning, Doctor, 
thank you. Glad you are here.
    And Ms. Karen Davenport is director of health policy at the 
Center for American Progress where she leads the Center's 
efforts, along with Mr. Podesta, to reinvigorate the national 
debate on health coverage for all Americans. She earned a B.A. 
in political science from Whitman College and an MPA from the 
Maxwell School of Citizenship and Public Affairs at Syracuse 
University.
    We are very honored, fortunate to have you all with us.
    And, Mr. Pollack, you are up.

   STATEMENT OF RON POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA

    Mr. Pollack. Thank you, Mr. Chairman, and thanks for 
inviting me to this panel.
    Your staff asked that we focus on some improvements that 
can be made on employer-based health coverage. And 
predominately, that is what my testimony will focus on.
    I will be happy during the question and answer period to 
take up the challenge that you raised in the beginning about 
what are the different ingredients that can get us to universal 
coverage.
    We believe that employer-based coverage can work together 
with public program coverage to recreate a uniquely American 
hybrid private and public approach to achieving the goal of 
quality, affordable coverage for all. This hybrid approach 
would strengthen employer-based health coverage by improving 
regulation of the market, subsidize private coverage for many 
workers with moderate incomes and expand public safety net 
programs, like Medicaid, to fill in gaps for low-income people 
whose needs are often not met by the employer-based system.
    Employer-based coverage does provide critically important 
protections to consumers. It is guaranteed. That is people will 
not be denied coverage based on their health. Under current 
law, insurers are limited in their ability to exclude coverage 
of pre-existing conditions. And employees within a group cannot 
be charged higher premiums based on their age, health status or 
gender. Further, large employers are generally able to 
negotiate for good, comprehensive coverage for their employees.
    However, there is room to improve our employer-based system 
from a consumer perspective.
    First, under current law, insurers can exclude coverage for 
pre-existing conditions for up to 1 year for employees who 
previously had less than 12 months of continuous coverage. 
These exclusions cause employees to postpone or forego 
treatment for serious illness such as cancer.
    This law should be amended so that people have protections 
against pre-existing conditions when they first become employed 
and buy coverage.
    Therefore, we at Families USA support the Pre-Existing 
Condition Patient Protection Act of 2009, introduced by 
Congressman Courtney, which would amend the risks to entirely 
prohibit pre-existing conditions exclusions in employer-based 
plans.
    Second, under current law in 40 states, insurers can charge 
small employers high premiums if the employees, as a group, are 
in poorer health and/or because they have a higher proportion 
of women employees. This means that small businesses with 
higher numbers of people with health care needs or with higher 
numbers of women face unfair higher health insurance costs.
    Therefore, Families USA recommends that Congress improve 
employer-based coverage for all workers by banning health 
status and gender rating nationally. Insurers should charge all 
businesses buying the same plan the same price.
    Third, more must be done to address affordability. This 
requires that both low and moderate-income individuals receive 
premium subsidies that put their share of the cost of coverage 
within the family's financial reach. These subsidies should be 
larger for those with lower incomes or the least able to afford 
coverage. Further, these premium subsidies should be 
accompanied by appropriate out-of-pocket cost protections, 
deductibles, co-payments, limits on total coverage and 
uncovered benefits.
    One key way to protect consumers from unaffordable high 
out-of-pocket costs is to make sure they can buy a 
comprehensive benefits package that covers the full range of 
health care services that people need.
    I should note that a comprehensive benefits package must 
have reasonable annual and lifetime caps on the total dollar 
amount of health care services that will be covered.
    In 2007, 22 percent of workers had caps from $1 million to 
$2 million. And some workers had caps as outrageously low as 
$250,000, a cap that would preclude coverage from typical 
cancer treatments.
    Therefore, Families USA recommends passage of legislation, 
such as the Health Insurance Coverage Protection Act, H.R. 
1085, co-sponsored by Congressman Kildee, that will increase 
the life time cap to $10 million in employer-based coverage for 
employers with 20 or more employees.
    I notice my time is up, so I will stop there.
    And happy to respond to questions.
    [The statement of Mr. Pollack follows:]

  Prepared Statement of Ron Pollack, Executive Director, Families USA

    Mr. Chairman, Members of the Committee: Thank you for inviting 
Families USA to testify today at this very important hearing about 
health care reform. We are excited that Congress is moving forward with 
health care reform this year, and happy to help you think through the 
implications for employer-based health insurance.
    We have two core goals for health care reform: that everyone who 
currently has satisfactory health care coverage can keep that coverage, 
and that those who do not currently have health care coverage can get 
it. We believe that the most effective and efficient way to achieve 
both of those goals is to build upon the existing health care system. 
The employer-based health insurance sector is of great importance, 
covering well over half of all non-elderly insured Americans. In health 
reform, we must do the following:
     strengthen employer-based health coverage by improving 
regulation of the market,
     subsidize coverage for those workers with low and moderate 
incomes to enable them to obtain and keep health coverage, and
     expand the Medicaid program to fill in the gaps for low-
income people whose needs are not met by the employer-based system.
Strengthen Employer-Based Coverage
    Employer-based coverage provides important protections: It is 
guaranteed--that is, people will not be denied coverage based on their 
health; insurers are limited in their ability to exclude coverage of 
pre-existing conditions; and employees within a group cannot be charged 
higher premiums based on their age, health status, or gender. Further, 
large employers are generally able to negotiate for good, comprehensive 
coverage for their employees. These protections are not provided in the 
individual insurance market in many states, much to the detriment of 
consumers, and they are essential protections to build upon in health 
care reform.
    However, there are also weaknesses in the protections described 
above. Even limited pre-existing condition exclusions create inequities 
and contribute to the phenomenon of ``underinsurance.'' And although 
employees performing similar jobs in a company cannot be charged 
different health insurance premiums, the business as a whole may pay 
higher premiums based on its employees' health or other 
characteristics. The variability of insurance offered by employers 
means that some employees get good coverage at work while others get 
coverage that leaves them exposed to high out-of-pocket costs or 
provides limited benefits, or they get no coverage at all. And finally, 
in the current health care system, even if people have very minimal 
incomes, many are not eligible for public coverage or any help paying 
their premiums.
    I'd like to spend a few minutes talking about each of these 
problems and then talk more specifically about protections people with 
low incomes will need in a reformed market.
Improvements Needed in Employer-Based Coverage
            Prohibit pre-existing condition exclusions
    Under the Health Insurance Portability and Accountability Act 
(HIPAA), people have some protections against pre-existing condition 
exclusions when they receive coverage through their employers:
     They cannot be subject to a pre-existing condition 
exclusion if they have had 12 months of continuous coverage;
     Only conditions which have been treated or diagnosed by a 
medical professional in the last 6 months count as pre-existing 
conditions; and
     Insurers cannot decline to offer group coverage due to the 
health of an employee.
    (In Medicaid and CHIP, people are not subjected to pre-existing 
condition exclusions at all.)
    However, HIPAA does allow insurers to exclude coverage for a pre-
existing condition for up to one year for employees who previously had 
less than 12 months of continuous coverage. (The exclusionary period is 
reduced by the amount of time that they had previous continuous 
coverage.) These exclusions cause employees to postpone or forgo 
treatment for serious illnesses such as cancer.\1\
    Pre-existing condition limitations are intended to serve a policy 
goal of encouraging people to keep insurance, but this does not make 
much sense in the group market. Mostly, the people who go without 
coverage are those who do not have help paying premiums from their 
employer and who cannot afford to maintain coverage on their own. 
People who try to purchase coverage on their own in the individual 
market often face extremely high premiums, especially if they are older 
or in less than perfect health, and many are denied coverage 
altogether. And many adults, no matter how poor, do not qualify for 
Medicaid.
    In passing the American Recovery and Reinvestment Act (ARRA),\2\ 
Congress recognized the unfairness of counting a time that someone 
cannot afford coverage as a ``break'' that subjects people to pre-
existing condition exclusions. Congress directed that any gaps in 
coverage between the time a person was laid off and when the new COBRA 
subsidy became available cannot be counted as a break in coverage and 
therefore the person cannot be subjected to new pre-existing condition 
exclusions. At the very least, this principle of not counting 
unavoidable gaps in coverage should be extended to a reformed market. 
Families USA recommends that ERISA be amended to entirely prohibit pre-
existing condition exclusions in employer-based plans. The Pre-existing 
Condition Patient Protection Act of 2009 would do this.
            Prohibit premium variation based on health status and 
                    gender
    In 40 states and the District of Columbia, small group insurers can 
charge employers higher premiums if the employees as a group seem to be 
in poorer health than average. In most of those states, insurers can 
also raise premiums in future years based on a business's medical 
claims.\3\ This means that though employers are not supposed to 
discriminate in their hiring practices, they will pay more if they hire 
people who already have health conditions or who develop health 
problems. Similarly, gender rating in many states puts businesses with 
higher concentrations of female employees at a disadvantage.
    Some states have addressed these problems through laws requiring 
community rating or adjusted community rating: Insurers must charge all 
small employers equally, no matter the health status (and in some 
states, the gender) of their employees. This effectively spreads the 
risk of the highest cost enrollees equally among all employers buying a 
particular health insurance policy. Families USA recommends that 
Congress further improve employer-based coverage by banning health 
status and gender rating nationally.
            Spread costs and responsibility for health care equitably 
                    across employers
    States confront several problems when they try to reform the 
employer-based health care system to better spread risk and ensure 
coverage. First, if they try to redistribute the cost of high claims 
across the population through risk pools or reinsurance systems, they 
can only readily assess insurers that they regulate to pay those 
claims--they cannot easily assess large, self-insured employers. High-
cost claims should be spread to larger employers as well, and across 
policies offering different benefit designs. Second, if states try to 
subsidize coverage for people who do not have access to employer-
sponsored care, they can easily create disincentives for employers who 
do provide coverage, yet state attempts to hold employers responsible 
for health care payments quickly confront ERISA challenges.
    An employer-based system can only work if all employers either 
provide health benefits for their workers themselves or pay into a 
public system that provides care. Without this provision, employers and 
employees face great inequities: Through their premiums, those paying 
for coverage are also paying for the uncompensated care of workers in 
another business that did not provide coverage. Of course, employers 
could be exempted from a pay or play responsibility based on their 
size, revenues, and expenses if they did not have the funds to 
contribute. Massachusetts and Vermont currently require very small 
employer assessments to help pay for their health care systems. San 
Francisco requires a more significant contribution to the city's 
program for the uninsured by employers who do not elect to provide 
coverage themselves. San Francisco's system has withstood legal 
challenges thus far, but Congress could help to clarify a framework 
within which other states and localities can act.
    Families USA recommends that Congress develop large national pools, 
including both large and small employers, to share the risk of high-
cost claims. Further, Families USA recommends that Congress either 
establish an equitable system for employer contributions to health care 
nationally, or clarify that ERISA allows states to assess employers for 
public health care and to give tax credits to those that already cover 
their own workers. Some small employers will need federal subsidies in 
order to provide coverage for their workers.
            Require adequate benefits
    Some employers and some subsidized coverage programs have sought to 
control costs by purchasing minimal coverage. This is penny wise and 
pound foolish. Unable to afford the care that is not covered, consumers 
delay seeking care until they are much sicker. When they do finally 
seek care, they pay what they can--and go into debt doing so. The share 
they cannot pay--the uncompensated care--is shifted to other payers; we 
all pay a portion of these costs in our health insurance premiums.\4\
            Limit cost-sharing and the sale of high deductible plans
    When employers offer high-deductible health plans, the policies 
require families to spend an average of nearly $4,000 out of pocket 
before coverage begins. Half of working families with HSA-qualified 
high deductible plans are offered no other insurance options by their 
employers, and nearly half of employers offering these plans leave 
families on their own to pay the high deductibles out of pocket.\5\ An 
analysis of Census data showed that only one in 10 families with 
incomes up to about $52,800 annually (about 300 percent of poverty for 
a family of three in 2008) could afford to pay the average deductible 
with their savings,\6\ so if they have serious illnesses, these 
families will be left with medical debt. Employers should offer their 
employees a reasonably priced, low-deductible coverage option. When 
high-deductible plans are offered, there is a danger that healthier 
employees will gravitate to them and less-healthy employees will choose 
low-deductible plans; this ``adverse selection'' will drive up the 
premiums of low-deductible plans, which will encourage more people to 
opt for high-deductible plans, and so on. If health reform includes an 
exchange with a variety of cost-sharing options, the option with the 
lowest cost-sharing should not be priced higher due to the risks of 
those who select it. Instead, Families USA recommends development of a 
price structure for all product lines within an exchange that treats 
everyone in the exchange as being part of the same risk pool. The 
coverage option with the lowest cost-sharing should be priced as low as 
possible, and low-income people should receive meaningful subsidies to 
pay its premiums.
            Retain important benefit mandates and raise benefit caps
    Over the years, states have mandated that the plans they regulate 
provide certain benefits. Generally, these mandates were to fill holes 
that insurers typically left in coverage. For example, states have 
mandated that plans cover well-child care, colorectal screening, and 
diabetes supplies when some plans previously failed to cover these 
important services. Mandates do not now regulate the amount of 
hospital, doctor, and drug coverage the plans must provide. Some people 
have advocated for exemptions from benefit mandates as a way to save 
money. However, this leaves people without needed health care and 
creates hidden costs that still exist in the health care system. States 
that have analyzed the cost of various benefit mandates have found that 
most mandates enacted in their states raised premiums by less than 1 
percent.\7\ Further, when looking at the total cost of state mandates, 
one state found that the net cost impact of all 26 of its mandates was 
only 3-4 percent.\8\ These findings suggest that the elimination of 
mandates from insurance plans would reap little in the way of premium 
reductions. Federal law currently sets few benefit mandates: It 
requires employer-based health plans to cover newborn care, certain 
care for women with cancer, and to provide mental health parity. If 
federal and state relationships change with respect to health insurance 
regulation, Congress or an independent body should look carefully at 
benefits mandates enacted by states to set a floor on coverage.
    Further, annual and lifetime caps create barriers to care. In 2007, 
22 percent of workers had caps from $1 million to $2 million,\9\ and 
some workers had caps as outrageously low as $250,000 \10\ --a cap that 
would preclude coverage for typical cancer treatment. Few people ever 
hit their lifetime caps but for those who do, the consequences are 
disastrous.\11\ Caps mean, for example, that cancer patients stop 
getting treatment. Premature infants on ventilators and toddlers 
receiving heart transplants are among those who may exhaust a $1 
million cap, and the infusions that allow hemophiliacs to live normal 
lives can easily eat through a $2 million cap. While these treatments 
are too expensive for any one person to afford, since so few people 
need them, the cost is miniscule when spread across a population. 
Families USA recommends passage of legislation such as the Health 
Insurance Coverage Protection Act (S. 442/H.R. 1085) to increase the 
lifetime caps to $10 million in employer-based coverage for employers 
with 20 or more employees.
            Provide for oversight of the health insurance market
    Some states have done a better job than others of overseeing health 
insurance company behavior by requiring prior approval of health 
insurance rates and by setting standards about how much health insurers 
must spend on medical expenses (as opposed to administration and 
profit). In addition, they have looked at factors such as excessive 
compensation and whether a nonprofit insurer was investing in services 
that benefit the larger community when determining whether the insurer 
met its obligations in the marketplace. Standards such as minimum 
medical loss ratios and strong oversight are essential to controlling 
costs. New York, New Jersey, and Maine are examples of states that 
provided premium refunds to employers and individuals when plans failed 
to spend at least 75 percent of premium dollars on medical care. 
Colorado, Maryland, and Pennsylvania are examples of states where 
nonprofit insurers are now using surpluses that they had built over the 
years to make substantial contributions to community health needs. 
Families USA recommends setting federal and state responsibilities and 
standards for oversight of the health insurance marketplace.
            Provide Adequate Subsidies for Moderate-Income Individuals
    A regulated private health insurance market is an absolutely 
essential part of health care reform, but these reforms are not enough 
to help those with moderate incomes afford coverage. Moderate income 
individuals whose employers do not offer health coverage, or whose 
employer-based coverage is too expensive, need more than just a better-
regulated insurance market; they also need subsidies that put private 
coverage within financial reach. These subsidies should be larger for 
those with the lowest incomes, who are the least able to afford 
coverage. Further, these subsidies should be accompanied by appropriate 
limits on out-of-pocket costs for low-income individuals. Research 
points out the serious barriers that unaffordable out-of-pocket costs 
erect between moderate income individuals and needed health care.\12\ 
If subsidies are insufficient for these individuals, they will continue 
to be left out of the nation's health care system.
    Subsidies must be built on a regulated market as described above: 
Premiums should not vary based on health or gender; coverage must be 
available regardless of pre-existing conditions; benefits must be 
adequate and cost-sharing limited; and the federal government, together 
with states, should oversee the system to be sure that public dollars 
actually go to health care and that companies do not make unreasonable 
profits.
            Expand and Improve Medicaid for Low-Income Individuals
    Moderate-income individuals will benefit greatly from subsidized 
coverage available in a reformed private insurance market. But for the 
lowest-income Americans, the most appropriate coverage vehicle is 
undoubtedly the Medicaid program. Health reform must also address 
expanding and improving Medicaid to ensure that all Americans can have 
affordable, quality health coverage. Medicaid is specifically designed 
to meet the unique needs of low-income people with complex health care 
needs, while the private insurance market is not. With respect to 
coverage for low-income Americans, Families USA recommends: (1) that a 
national Medicaid eligibility floor be established, and (2) that the 
enrollment process in Medicaid be streamlined to facilitate easier 
enrollment for all eligible individuals.
Why Medicaid?
    Medicaid is already the backbone of the health care system for the 
most vulnerable Americans. It covers approximately 60 million low-
income people: 29.4 million children, 15.2 million adults, 6.1 million 
seniors, and 8.3 million people with disabilities. What's more, it is 
specially designed to meet the unique needs of these populations, who 
tend to be sicker and have more intensive health care needs than the 
general population.\13\
    As in any coverage expansion, special attention will need to be 
paid to ensuring that the Medicaid delivery system is retooled to 
handle an increase in the number of Medicaid enrollees without 
compromising access to care. However, Medicaid is the most efficient 
and effective way to cover more low-income Americans who cannot obtain 
coverage in the private market. Every state already has a Medicaid 
program with an existing provider network and administrative 
infrastructure. It makes sense to build on this foundation, 
particularly since it has a proven track record of effectively serving 
low-income individuals.
    A little-known fact is that Medicaid is actually more efficient at 
covering low-income people than private coverage. After controlling for 
health status (since Medicaid enrollees tend to have greater health 
care needs), it costs more than 20 percent less to cover low-income 
people in Medicaid than it does to cover them in private health 
insurance.\14\ In this cost-conscious climate, it only makes sense to 
expand coverage in the most cost-effective ways possible. The most 
cost-effective way to expand coverage for low-income uninsured people 
is Medicaid.
Cost-sharing protections
    Medicaid includes very important protections against out-of-pocket 
costs to ensure that these costs do not prevent people from getting the 
health care services they need. Unlike private health insurance, 
Medicaid typically does not require premiums or enrollment fees, and 
there are limits to how high other forms of cost-sharing can be. 
Certain services (preventive care services for children, emergency 
services, pregnancy-related services, and family planning services) and 
certain populations (children of certain ages and incomes, foster 
children, hospice patients, institutionalized patients, and women in 
the Medicaid breast or cervical cancer programs) are exempt from any 
kind of cost-sharing, and copayments on individual services are limited 
to so-called ``nominal'' amounts of a few dollars or less.
    These protections are absolutely imperative to the success of the 
Medicaid program for low-income people. Low-income adults with private 
insurance pay more than six times as much on out-of-pocket costs as do 
low-income adults with Medicaid.\15\ Research abounds demonstrating the 
serious burden these out-of-pocket health care costs can pose for low-
income people.\16\ When people cannot afford these costs, they often 
delay or forgo care, which can result in more costly complications 
later on.\17\ Because Medicaid incorporates such strong cost-sharing 
protections, people enrolled in Medicaid are more likely to get the 
care they need, when they need it.
Comprehensive benefits
    Medicaid's comprehensive benefit package ensures that the program 
provides appropriate coverage to people with diverse health care needs. 
For example, Medicaid has specific protections that are designed to 
ensure that children get both preventive care and treatments for any 
health complications they may have (referred to as Early and Periodic 
Screening, Diagnostic, and Treatment, or EPSDT, services). Medicaid 
also covers services that low-income people need that are not usually 
covered in private health insurance. For example, Medicaid covers 
transportation to doctors' appointments, services that help people with 
disabilities live independently, and services provided at rural and 
community health centers. It is unlikely that a private health 
insurance plan would ever cover these services.
    Medicaid is also a key source of coverage for people who are very 
sick or who have disabilities. While most private health plans have 
annual or lifetime maximums that people with intensive health care 
needs can quickly exceed, Medicaid has no such limits. It provides 
coverage to all those who need it, even people with serious health care 
problems, whom the private market is simply not interested in serving. 
Similarly, while private coverage often excludes coverage for pre-
existing health conditions, people enrolled in Medicaid are guaranteed 
to receive the health care services they need, regardless of any past 
or current health care problems. The Medicaid benefits package is 
specifically designed to meet the health care needs of low-income 
individuals, and as a result, people enrolled in Medicaid are less 
likely than both the uninsured and those with private coverage to lack 
a usual source of health care or to have an unmet health care need.\18\
Medicaid appeal rights and protections
    Because low-income people cannot afford health care services that 
are not covered by their insurance, Medicaid's appeal rights are 
particularly important. These rights ensure that low-income people who 
are sick can appeal coverage denials without jeopardizing ongoing 
treatment. They can also appeal enrollment or eligibility decisions, 
and have the right to a fair hearing. Also, unlike the private health 
insurance market, there are no pre-existing condition exclusions in 
Medicaid, nor are there waiting periods before an otherwise eligible 
person can enroll. Medicaid is guaranteed to be available to all who 
are eligible; people cannot be turned away because they are sick or 
have experienced health problems in the past, and they can begin 
receiving services as soon as they are determined to be eligible. In 
addition to the cost-sharing protections and the comprehensive benefits 
package, these design features make Medicaid particularly well-suited 
to providing coverage to low-income people.
Create a National Medicaid Eligibility Floor
    To be eligible for Medicaid under federal law, a person must not 
only have a low income; he or she must also belong to one of the 
following Medicaid eligibility categories: children, pregnant women, 
parents with dependent children, people with disabilities, and seniors. 
If a person does not fall into one of these categories, he or she can 
literally be penniless and still be ineligible for Medicaid. Also, 
because the Medicaid program is a state-federal partnership, states set 
their own eligibility levels. There are federal minimums, but 
eligibility levels vary widely from state to state. Only 16 states and 
the District of Columbia cover working parents at least up to the 
poverty level ($18,310 for a family of three), and the national median 
eligibility level for parents is a mere 67 percent of poverty ($12,268 
for a family of three).\19\ The picture is even grimmer for low-income 
adults who do not have dependent children: in 43 states, these 
individuals are ineligible for Medicaid no matter how low their income. 
An estimated 45.1 percent of non-elderly Americans with income below 
the poverty level were uninsured in 2007.\20\
    Health reform offers an opportunity to address these gaping holes 
in the health care safety net, and to ensure that, in addition to 
improving coverage for those with moderate incomes, the very lowest-
income Americans are covered as well. Families USA recommends that 
Congress establish a national Medicaid income eligibility floor, below 
which any individual is guaranteed to be eligible for Medicaid, 
regardless of age, parental, or health status. More than one in three 
uninsured Americans has an income below the poverty level.\21\ 
Establishing a federal floor for Medicaid would significantly reduce 
the rate and number of uninsured Americans.
Streamline Medicaid Enrollment
    In order to ensure that the new Medicaid expansion attracts the 
highest possible enrollment among those who are eligible, Families USA 
recommends that Congress establish a new, simplified enrollment process 
for both current and newly eligible people. Experience with the 
Children's Health Insurance Program (CHIP) has shown the importance of 
establishing simple, streamlined enrollment policies and procedures to 
help eligible people get and keep coverage.\22\ Examples of these 
simplifications include allowing 12 months of continuous eligibility to 
individuals once they are enrolled in Medicaid, minimizing the amount 
of documentation people need to provide when they apply and renew their 
coverage, eliminating asset tests, allowing application by mail and 
online, and simplifying the application itself so that it is short and 
easy to understand.
    It will also be crucial that there be coordination in the 
application process for Medicaid and the subsidy for purchasing private 
health insurance coverage. Experience tells us that low-income people 
have fluctuating incomes, and those with incomes ``at the margins'' may 
not know in advance for which program they are eligible. It is 
imperative that the process for screening applications include 
provisions that facilitate enrollment, such as a ``screen and enroll'' 
requirement similar to that in CHIP, be included in any Medicaid 
expansion and any new program to subsidize private health coverage for 
low- to moderate-income individuals. Such a requirement would ensure 
that individuals who apply for the subsidy, but are actually eligible 
for Medicaid are enrolled in Medicaid and vice versa. The enrollment 
process should make sure that the right people get into the right 
program, and should not make people jump through unnecessary hoops to 
get there.
Conclusion
    Strengthening the employer-based health coverage sector and 
expanding Medicaid are key components of health care reform. By 
addressing the problems described above, Congress will make great 
strides towards the goal of ensuring access to high quality, 
comprehensive, affordable health coverage for all Americans, while 
reducing the long-term costs of health care coverage.
                                endnotes
    \1\ Karyn Schwartz, et al., Spending to Survive: Cancer Patients 
Confront Holes in the Health Insurance System (Washington: Kaiser 
Family Foundation and American Cancer Society, 2009).
    \2\ Cheryl Fish-Parcham and Claire McAndrew, Squeezed! Caught 
between Unemployment Benefits and Health Care Costs (Washington: 
Families USA, 2009).
    \3\ Mila Kofman and Karen Pollitz, Health Insurance Regulation by 
States and the Federal Government: A Review of Current Approaches and 
Proposals for Change (Washington: Georgetown University, April 2006).
    \4\ Kathleen Stoll, Paying a Premium: The Added Cost of Care for 
the Uninsured (Washington: Families USA, 2005).
    \5\ Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits: 2007 Annual Survey (Washington: Kaiser 
Family Foundation and Health Research and Educational Trust, September 
2007); Paul Fronstin and Sara R. Collins, Findings from the 2007 EBRI/
Commonwealth Fund Consumerism in Health Survey (Washington: Employee 
Benefits Research Institute and Commonwealth Fund, March 2008).
    \6\ Paul D. Jacobs and Gary Claxton, ``Comparing the Assets of 
Uninsured Households to Cost Sharing under High Deductible Health 
Plans,'' Health Affairs 27, no. 3 (2008): W215-W221.
    \7\ Massachusetts Division of Health Care Finance and Policy, 
Comprehensive Review of Mandated Benefits in Massachusetts: Report to 
the Legislature (Boston: DHCFP, July 2008); Susan K. Albee, Esther 
Blount, Mulloy G. Hansen, Tim D. Lee, Mark Litow, and Mike Sturm, Cost 
Impact Study of Mandated Benefits in Texas, Report #2 (Austin: Texas 
Department of Insurance, September 28, 2000); Maryland Health Care 
Commission, Annual Mandated Health Insurance Services Evaluation 
(Baltimore: MHCC, January 1, 2008).
    \8\ Massachusetts Division of Health Care Finance and Policy, op. 
cit.
    \9\ Kaiser Family Foundation and Health Research and Educational 
Trust, op. cit.
    \10\ Sarah Rubenstein, ``Novel Approach to Health Care Gains 
Traction,'' Wall Street Journal, April 19, 2009.
    \11\ Tom Murphy, ``Health Insurance Caps Leave Patients Stranded,'' 
Associated Press, July 13, 2008.)
    \12\ Samantha Artiga and Molly O'Malley, Increasing Premiums and 
Cost Sharing in Medicaid and SCHIP: Recent State Experiences 
(Washington: Kaiser Commission on Medicaid and the Uninsured, May 
2005).
    \13\ Teresa A. Coughlin, Sharon K. Long, and Yu-Chu Shen, 
``Assessing Access to Care under Medicaid: Evidence for the Nation and 
Thirteen States,'' Health Affairs 24, no. 4 (July/August 2005): 1073-
1083.
    \14\ Jack Hadley and John Holahan, ``Is Health Care Spending Higher 
under Medicaid or Private Insurance?'' Inquiry 40, no. 4 (Winter 2003/
2004): 323-342; Leighton Ku and Matt Broaddus, ``Public and Private 
Insurance: Stacking Up the Costs,'' Health Affairs 27, no. 4 (July/
August, 2008): w318-w327.
    \15\ Leighton Ku and Matt Broaddus, op. cit.
    \16\ Leighton Ku, The Effect of Increased Cost-Sharing in Medicaid: 
A Summary of Research Findings (Washington: Center on Budget and Policy 
Priorities, May 2005).
    \17\ Key Findings of the RAND Health Insurance Experiment Study are 
described in Geri Dallek, A Guide to Cost-Sharing and Low-Income People 
(Washington: Families USA, October 1997).
    \18\ Kaiser Commission on Medicaid and the Uninsured analysis of 
2007 National Health Interview data.
    \19\ Families USA calculations.
    \20\ Kaiser Family Foundation, StateHealthFacts.Org, ``Health 
Insurance Coverage of Adults 19-64, states (2006-2007), U.S. (2007),'' 
available online at http://www.statehealthfacts.org/
comparebar.jsp?cat=3&ind=130&typ=2&gsa=1.
    \21\ Kaiser Family Foundation, StateHealthFacts.Org, ``Distribution 
of the Nonelderly Uninsured by Federal Poverty Level (FPL), states 
(2006-2007), U.S. (2007),'' available online at http://
www.statehealthfacts.org/comparebar.jsp?cat=3&ind=136&typ=2&gsa=1.
    \22\ Victoria Wachino and Alice Weiss, Maximizing Kids' Enrollment 
in Medicaid and SCHIP: What Works in Reaching, Enrolling and Retaining 
Eligible Children (Washington: National Academy for State Health 
Policy, February 2009).
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Pollack. And as I say, you 
are written statement has been entered into the record in its 
entirety, which we appreciate.
    Mr. Langan, welcome to the Committee.

     STATEMENT OF MICHAEL LANGAN, PRINCIPAL, TOWERS PERRIN

    Mr. Langan. Thank you.
    Mr. Chairman, Ranking Member Kline and members of the 
subcommittee, good morning. Thank you for the opportunity to 
join you today at this important hearing.
    My name is Michael Langan. I am a principle at Towers 
Perrin, an employer benefit consulting firm, where I lead a 
group of benefit attorneys who analyze legislative and 
regulatory developments that affect our clients' employee 
benefits and compensation programs.
    I am here today on behalf of the American Benefits Council, 
which is a trade association representing principally Fortune 
500 companies who either sponsor or provide services to 
retirement and health plans that cover more than 100 million 
Americans.
    The American Benefit Council's recommendations on health 
reform are contained in its January 2009 Condition Critical 
Report.
    I would like to ask permission to submit the entire list of 
those recommendations for the hearing record.
    Chairman Andrews. Without objection, they will be entered 
into the record.
    Mr. Langan. Thank you.
    Description number one in our report calls for building on 
what works. We believe that the best health reform options are 
those that preserve and strengthen the voluntary role that 
employers currently play as the source of health coverage for 
more than 160 million Americans.
    Health reform that continues to engage employers as 
sponsors of employee health coverage will enable employers to 
apply their considerable health benefit expertise and 
innovation in a reformed system.
    According to a 2008 Kaiser Family Foundation survey, 99 
percent of employers with 200 or more employees offered health 
benefits to their workers. Moreover, that percentage has never 
been lower than 98 percent at any time in the last 10 years.
    By comparison, the same survey shows that 62 percent of 
firms with fewer than 200 employees offered health coverage.
    We believe the strategies that focus on making health 
coverage more affordable for employers of all sizes is the best 
way to ensure both the continuation of the high-levels of 
participation by large employers and to increase the levels of 
participation by smaller employers.
    Indeed, one reason that we believe that a pay or play 
approach would be an inappropriate coverage solution is that it 
could easily lead to a net reduction in employer-sponsored 
coverage. Our concern is that this approach could drive some 
companies simply to pay rather than play. This would lower the 
level of employer engagement as an innovator and a demanding 
purchaser of health care services.
    We believe that an essential component for maintaining a 
strong employer-based system starts with protecting the 
comprehensive federal regulatory framework established by 
ERISA. Employers that operate across state borders 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.
    Our vision of health reform also calls for improvements 
both in private health insurance products, especially in the 
individual market, and in existing public programs. Both have 
important roles to play in a reformed and robust health care 
system. However, we also think that both of these sources of 
health coverage have worked best by serving distinctly 
different roles in populations.
    The Council's health reform recommendations also include 
numerous recommendations directed at improving the quality and 
affordability of health care services.
    For 20 years now, my firm has conducted an annual survey of 
large employers regarding their health care strategies and 
their plan costs. In the most recent Towers Perrin survey of 
health care costs, employers reported that the average per-
employee costs for health coverage in 2009 is $9,660, almost 
$10,000 per employee. And this represents an average increase 
of 6 percent over last year. Employers also told us that the 
average cost of family health coverage will exceed $14,000 this 
year.
    While these numbers alone are sobering, the impact of 
relentless health care increases is most starkly evident when 
compared with average wage increases over the last eight to 10 
years. This gap between wage increases and the annual increase 
in health costs results in what we call the affordability gap. 
Over time, this widening gap erodes total compensation and 
employee purchasing power.
    On page 5 of my statement, there is a chart that 
illustrates this gap.
    Clearly, we believe that urgent action is needed to make 
the health care system less costly and more efficient while 
achieving more consistent delivery of high-quality care.
    Our recommendations call for accelerating the development 
and implementation of consensus-based quality and performance 
measures, introducing these measures into our payment system 
starting with Medicare.
    We feel that we need to reward health care providers on the 
basis of proven performance rather than simply the volume of 
services they deliver.
    We also call for other measures to help bring health care 
costs under control, including building on the initial 
investments and health information technology, as well as 
independent research on therapies and procedures that consumers 
and providers can freely access.
    Mr. Chairman, I will conclude with the observation that the 
most important prescription for health reform may well be the 
willingness of all major stakeholder groups to work 
collaboratively to achieve our shared goal of a stronger, more 
sustainable health care system. The members of the American 
Benefits Council and those of us at Towers Perrin are committed 
to working towards those goals to achieve heath care reform 
that it both urgently needs and can only succeed if it is 
developed through an open, consensus-based approach.
    Thank you again for the opportunity to share our views, and 
I look forward to addressing any questions you may have.
    [The statement of Mr. Langan follows:]

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    Chairman Andrews. Thank you, Mr. Langan.
    Mr. Vaughan, welcome.

  STATEMENT OF WILLIAM VAUGHAN, SENIOR HEALTH POLICY ANALYST, 
                        CONSUMERS UNION

    Mr. Vaughan. Mr. Chairman, members of the Committee, thank 
you for the invitation to testify on how to save money in 
health insurance. That is a little bit like being invited to 
shoot fish in a barrel. And we appreciate the opportunity.
    Consumers Union is the nonprofit, independent publisher of 
Consumer Reports. And we do not just test toasters. We try to 
help people with health issues.
    We are really using comparative effectiveness research to 
save folks millions and millions of dollars on the safest most 
effective brand and prescription drugs.
    We support reform of the health system. Our readership 
tells us it is a top priority. My testimony documents why. And 
we have stories from many of your congressional districts, 
particularly moving ones from Mr. Courtney's and Mr. Loebsack's 
districts, in the back of my statement.
    So how to save money. One thing to do would be to set up a 
federal office to work with the states, not take over, but work 
with the states in collecting and sharing information about 
consumer complaints and emerging fraud issues. State 
enforcement of insurance laws, antifraud issues, is very 
uneven, and we need to do better.
    And the basis of that recommendation comes out of a court 
case in the Newark area, sir, and a settlement by New York A.G. 
Cuomo this spring in the United case that is so seemingly 
obvious. And how did this go on for so long? You feel it is 
almost Homer Simpson like.
    The issue involved--and I will show you some math on this. 
This issue involved, is most of us, 70 percent of us, have a 
point of service, or PPO, kind of health policy where, if we 
need a specialist, we can go out----
    Chairman Andrews. Maybe the young lady can stand so all the 
members can see the chart.
    Mr. Vaughan. Okay, sorry.
    If we go out of network for specialty care or if you want 
to go up Hopkins for a specialty operation, you can go. But you 
have to pay, of course. And let's say the doctor charged you 
$200. And the usual customary and reasonable fees in the area 
were $200. So in and 80-20 policy, you would owe $40. Well, 
another procedure, the doc charges $200. Usual customary and 
reasonable is $150; you, the insured, pay $120, you owe $80. 
You still owe the doctor the $200 he charged. UCR, where does 
that come from? Believe it or not, it is from subsidiaries 
owned by the insurance companies. And Cuomo and the court cases 
basically found that over a period of a decade, those numbers 
were getting low-balled.
    Thank you very much.
    Those numbers were getting low balled. And consumers were 
paying hundreds of millions of dollars over a decade more than 
should have.
    Senator Rockefeller says they were paying a billion bucks 
or more.
    That was such an obvious conflict of interest. Why did it 
take so long? If we had a federal office where--the first 
complaints were coming in around 2000 from AMA. We need 
somebody to help say, hey, guys, something is happening out 
there. Let's get together and protect consumers.
    As a consumer rep, I hate to say it, but most of us are 
pretty terrible shoppers for health insurance.
    Sorry, Neil.
    But, ``Honey, let's go shopping for health insurance this 
Saturday morning,'' would put and fear and dread in most of our 
hearts. [Laughter.]
    And we leave a lot of money on the table. We do not get a 
great deal. And the documentation for this is in--Part D and in 
C plans. We are not getting the best deal.
    In this reform bill, if you want to use consumers to drive 
towards value and to drive towards savings, we need some help 
big time. We need an office that will maybe grant the states 
for one-on-one counseling. We need a site that would compare 
quality and effectiveness and price of insurance plans.
    Very important, we need some standardization of 
definitions. Our current issue has a couple, thought they had 
hospitalization insurance. Fine print, it started on the second 
day, after the lab tests, after the surgery room charges. They 
ended with a huge bill. Darn it, hospitalization means 
hospitalization, drug coverage means drug coverage, means 
chemotherapy, means the antiemetic that lets you take the 
chemotherapy. We need some definitions like that so that people 
know what they are buying.
    But most, most, most important is there needs to be a 
market place or a forum where people can make meaningful 
choices among a manageable number of plans. In C, in Part D, in 
Part C--We are looking at 40, 60, 80 plans. Consumers just shut 
down. Most of these are meaningless, picky little differences. 
Give us some major choices in a format where we can shop. And 
before you sign up for that policy, you see the price and the 
quality ratings of the comparable plans in that category.
    Thank you very much, and I hope that this can become a 
great historic Congress which will finally solve a century-old 
effort to get dependable, affordable, quality health care to 
all Americans.
    [The statement of Mr. Vaughan follows:]

    Executive Summary: Statement of Consumers Union, April 23, 2009

    A national health reform law is a huge opportunity to reduce the 
cost of health insurance for employers, employees and their families. 
Savings can be achieved by
    Establishing a permanent insurance anti-fraud watchdog unit to work 
with States to prevent and detect the kind of abuses seen in the 
HealthNet and UnitedHealth-Ingenix case, where consumers have lost 
hundreds of millions of dollars over the past decade because of 
insurers underpaying for out-of-network costs;
    Empowering consumers in the marketplace:
     Create an honest database where consumers can see 
beforehand what their out-of-network costs are likely to be, thus 
enabling some increased shopping;
     A new Office of Consumer Health Insurance Education and 
Information that will:
     Provide general and comparative information about 
insurance quality, prices, and policies using consumer-friendly formats
     Require standardization of insurance definitions and forms 
so consumers can easily compare policies on an ``apples-to-apples' 
basis
     Require insurers to clearly state (in standardized 
formats) what's covered and what's not in every policy offering, and to 
estimate out-of-pocket costs under typical treatment scenarios
     Maintain an insurance information and complaint hotline, 
and compile federal and state data on insurance complaints and report 
this data publicly on a Web site
     Manage a greatly expanded State Health Insurance 
Assistance Program that would provide technical and financial support 
to community-based non-profit organizations providing one-on-one 
insurance counseling to consumers
     An insurance ``exchange'' or ``connector,'' offering a 
choice of plans, that will:
     Include an optimal number of plan choices--not too few and 
not too many--and limit excessive variations in benefit design so that 
plans compete more on price and quality
     Ensure that before selecting a plan, the consumer sees the 
price and quality ratings of comparatble plans
     Require plans to provide year-long benefit, price, and 
provider network stability
     Protect against marketing abuses and punish insurers that 
mislead consumers
     Make consumers fully aware of their rights to register 
complaints about health plan service, coverage denials, and balance-
billing and co-pay problems, and to appeal coverage denials
    Investigate the growing concentration (mergers) in the insurance 
and provider sectors and determine why, despite their purchasing power, 
insurers are unable to adequately slow health inflation.
                                 ______
                                 

     Prepared Statement of William Vaughan, Health Policy Analyst,
                            Consumers Union

    Mr. Chairman, Members of the Committee: Thank you for inviting 
Consumers Union to testify on Ways to Reduce the Cost of Health 
Insurance for Employers, Employees and their Families.
    Consumers Union is the independent, non-profit publisher of 
Consumer Reports.\1\
    We not only evaluate consumer products like cars and toasters, we 
rate various health care providers and insurance products, and we apply 
comparative effectiveness research to save consumers millions and 
millions of dollars in purchasing the safest, most effective brand and 
generic drugs.\2\ Our May 2009 issue features an article on ``hazardous 
health plans,'' and points out that many policies are ``junk 
insurance'' with coverage gaps that leave you in big trouble.
    We believe (1) a structured marketplace where consumers can shop 
intelligently for insurance and (2) increased oversight, to prevent the 
type of abuses revealed in the UnitedHealth-Ingenix case, can create 
enormous, multi-billion dollar savings in insurance for taxpayers, 
employers, employees and their families
The Crisis in Health Insurance: The Uninsured and the Underinsured
    Our readers and our polling tell us that the high cost of health 
care and the insecurity in the current system are the #1 long-term 
consumer problem facing American families.
    As the Committee is painfully aware, the cost of health insurance 
has increased dramatically in recent years. Consumers are both paying 
more in premiums, and shouldering a higher burden for out-of-pocket 
expenses, including deductibles, co-payments and other expenses not 
covered by their health insurance.
    According to the Kaiser Family Foundation, the cumulative growth in 
health insurance premiums between 1999 and 2008 was 119%, compared with 
cumulative inflation of 29% and cumulative wage growth of 34%. The 
rapid growth in overall premium levels means that both employers and 
workers are paying much higher amounts than they did a few years ago. 
The average employee contribution to company-provided health insurance 
has increased more than 120 percent since 2000. Too many under age 65 
Americans are just another premium increase, a pink slip, an accident 
or an illness away from losing insurance or facing bankrupting medical 
costs.
    The uninsured and the insured alike are facing serious financial 
problems because of the extraordinary high cost of American health 
care, which is forcing millions of Americans into the condition of 
being `underinsured.' While the definition of the ``underinsured'' 
varies, quantitative definitions used by the government tend to focus 
on the percent of adults between 19 and 64 whose out-of-pocket health 
care expenses (excluding premiums) are 10 percent or more of family 
income.\3\ The ranks of the underinsured have grown. The Commonwealth 
Fund estimates that 42 percent of U.S. adults were uninsured or 
underinsured in 2007.\4\ You can be sure that with the recent loss of 
millions of jobs, these numbers will rise dramatically in 2008 and 
2009.
    Research by the Consumer Reports National Research Center used a 
series of questions to determine the percent who were underinsured 
based on answers to questions such as whether they considered their 
deductible too high, and whether they felt adequately covered for costs 
of surgery, doctors visits, and catastrophic medical conditions. We 
found that 41 percent of the adult population sampled lacked adequate 
health coverage. Nine percent of the underinsured (by our survey) took 
extraordinary measures to pay medical bills, including dipping into 
IRAs, 401(k)s or pension funds, selling cars, trucks or boats, or 
taking on home equity or second mortgage loans.
    Underinsurance is a problem for two key reasons: Inadequate 
coverage results in the financial burden of uncovered health care. In 
our survey, for example, 30% of the underinsured had out-of-pocket 
costs of $3,000 or more for the previous 12 months.\5\ Underinsurance 
can lead to medical debt and even bankruptcy. The second problem posed 
by underinsurance is delayed or denied health care and poorer health 
outcomes, caused by the financial barrier to care.
    The key breakdowns of the health coverage marketplace that have 
fueled the growth in the underinsured included the increase in high 
deductible coverage, annual caps in coverage, lifetime benefit limits, 
limited benefits, pre-existing condition exclusions, higher co-pays, 
out-of-network charges, barebones policies, and a flawed individual 
health insurance market.
Real Examples of People with Insurance Market Problems
    Last summer, Consumers Union traveled around the country and 
collected over 5,000 `stories' documenting why our nation needs 
fundamental health care reform. Appendix 1 is a tiny sample of those 
stories from some of your constituents, focusing on the particular 
problems of high cost, inadequate benefits, pre-existing condition 
exclusions, and administrative hassles in the individual insurance 
market.
Solutions
    We hope that this year Congress will enact reform legislation to 
ensure that a comprehensive package of benefits is always available and 
affordable for every American. That legislation will mean a number of 
big changes, including insurance reform: no pre-existing conditions and 
no waiting periods.
    Assuming you enact that kind of reform, it will probably include 
some form of annual open enrollment period in some type of 
`marketplace' or `connector' where private and--we hope--a public plan 
could compete for consumers.
    It is in that marketplace of enrollment that we ask you to provide 
critical consumer reforms which will lower costs and save money for 
America's employers, employees, their families, and taxpayers.
Why Consumers Need Help Shopping for Insurance
    The honest, sad truth is that most of us are terrible shoppers when 
it comes to insurance.
    The proof is all around you.
    -In FEHBP, hundreds of thousands of educated Federal workers spend 
much more than they should on plans that have no actuarial value over 
lower-cost plans.\6\
    -In the somewhat structured Medigap market where there is a choice 
of plans A-L, some people spend up to 16 times the cost of an identical 
policy.\7\
    -In Medicare Part D, only 9 percent of seniors at most are making 
the best economic choice (based on their past use of drugs being likely 
to continue into a new plan year), and most are spending $360-$520 or 
more than the lowest cost plan available.\8\
    -In Part C, Medicare has reported that 27% of plans have less than 
10 enrollees, thus providing nothing but clutter and confusion to the 
shopping place.\9\
    The Institute of Medicine reports that 30 percent of us are health 
illiterate. That is about 90 million people who have a terrible time 
understanding 6th grade or 8th grade level descriptions of health 
terms. Only 12 percent of us, using a table, can calculate an 
employee's share of health insurance costs for a year.\10\ Yet 
consumers are expected to understand ``actuarial value,'' ``co-
insurance'' versus ``co-payment,'' etc., ad nauseum.
    If Congress wants an efficient marketplace that can help hold down 
costs, you need to provide a structure to that marketplace.
    We recommend the following in any legislation you enact:
Empower Consumers in a New Health Insurance Marketplace
     A new Office of Consumer Health Insurance Education and 
Information that will:
    -Provide general and comparative information about insurance issues 
and policies using consumer-friendly formats.
    We need a Medicare Compare-type website (with some improvements) 
applied to all health insurance sectors where policies can be compared 
on price and quality. Extending this comparison site to all insurance 
would help stop the waste in the Medigap market where seniors are 
talked into buying a standard policy that may be up to 1600 percent of 
the cost of the low-cost plan in their state.
    -Require standardization of insurance definitions and forms so 
consumers can easily compare policies on an ``apples-to-apples' basis.
    This is key. Hospitalization should mean hospitalization. Drug 
coverage should mean drug coverage, etc. In our May magazine article, 
we describe a policy in which the fine-print excluded the first day of 
hospitalization--usually or often the most expensive day when lab and 
surgical suite costs are incurred.
    NAIC could be charged with developing these definitions, backed up 
by the Secretary if they fail to act.
    -Require insurers to clearly state (in standardized formats) what's 
covered and what's not in every policy offering, and to estimate out-
of-pocket costs under typical treatment scenarios.
    See Appendix II for how much policies can vary--to the surprise and 
shock of consumers.
    The Washington Consumers' Checkbook's ``Guide to Health Plans for 
Federal Employees (FEHBP)'' does a nice job showing what consumers can 
expect, but even in FEHB policies they find it impossible to provide 
clear data on all plans.\11\
    -Maintain an insurance information and complaint hotline, and 
compile federal and state data on insurance complaints and report this 
data publicly on a Web site.
    The States would continue to regulate and supervise insurers 
operating in their state, but with the continual merger and growing 
concentration of insurers, consumers need a simple place where 
complaints can be lodged and data collected, analyzed, and reported 
nationally concerning the quality of service offered by insurers. This 
type of central complaint office may have allowed quicker detection of 
the UnitedHealth-Ingenix abuse of underpaying `out-of-network' claims.
    -Institute and operate quality rating programs of insurance 
products and services.
    This would be similar to the Medicare Part D website, with its `5 
star' system.
    -Manage a greatly expanded State Health Insurance Assistance 
Program that would provide technical and financial support (through 
federal grants) to community-based non-profit organizations providing 
one-on-one insurance counseling to consumers.
    These programs need to be greatly expanded if you want the 
marketplace/connector to work. The SHIPs should be further 
professionalized, with increased training and testing of the quality of 
their responses to the public. Instead of roughly a $1 per Medicare 
beneficiary for the SHIPs, the new program should be funded at roughly 
the level that employers provide for insurance counseling. We 
understand that can range from $5 to $10 or more per employee.
     An insurance ``exchange'' or ``connector,'' offering a 
choice of plans, that will:
    -Like Medigap, include an optimal number of plan choices--not too 
few and not too many.
    - Limit excessive variations in benefit design so that plans 
compete more on price and quality.
    Consumers want choice of doctor and hospital. We do not believe 
that they are excited by an unlimited choice of middlemen insurers.\12\ 
Fewer offerings of meaningful choices would be appreciated. There are 
empirical studies showing that there is such a thing as too much 
choice, and dozens and dozens of choices can paralyze decision-
making.\13\ The insurance market can be so bewildering and overwhelming 
that people avoid it. We think that is a major reason so many people 
having picked a Part D plan, do not review their plan and fail to make 
rational, advantageous economic changes during the open enrollment 
period.
    It is shocking that CMS allowed roughly 1400 Part C plans with less 
than 10 members to continue to clutter the marketplace. What a waste of 
time and money for all concerned. Reform legislation should set some 
guidance on preventing the proliferation of many plans with tiny 
differences that just serve to confuse a consumer's ability to shop on 
price and quality.
    We hope you will enact a core benefit package which all Americans 
will always have. If people want to buy additional coverage, there 
would be identical packages of extra coverage (as in the Medigap 
program) that many different companies could offer for sale.
    Consumers would have to be shown the pricing and quality ratings of 
those different packages before purchase. (Chairman Stark's AmeriCare 
bill includes much of this concept.\14\)
    We believe standard benefit packages (and definitions) are the key 
to facilitating meaningful competition.\15\
    -Require information on price and quality to be presented in user-
friendly formats
    Medicare law requires a pharmacist to tell consumers if there is a 
lower-priced generic available in their plan. A similar concept in the 
insurance market might be scored by CBO as driving savings. That is, 
before you enroll in a plan, you must be told if there is an insurer 
with equal or better quality ratings offering the same standard 
structured package.
    -Require plans to provide year-long benefit, price, and provider 
network stability
    In Medicare Part D, we saw plans advertise certain drug costs 
during the autumn open enrollment period, and then by February or March 
increase prices on various drugs so much that the consumer's effort to 
pick the most economical plan for their drugs was totally defeated. 
This type of price change--where the consumer has to sign up for the 
year and the insurer can change prices anytime--is a type of bait and 
switch that should be outlawed.
    -Protect against marketing abuses and punish insurers that mislead 
consumers
    We urge stronger penalties against sales abuses. We assume that any 
reform bill will include the best possible risk adjustment so as to 
reduce insurers constant efforts to avoid the least healthy individuals 
(e.g., rewarding sales forces for signing up healthy individuals). This 
would have the added benefit of encouraging development of best 
practices for efficient treatment of these complex cases--which is a 
key part of controlling costs over time.
    -Make consumers fully aware of their rights to register complaints 
about health plan service, coverage denials, balance-billing and co-pay 
problems, and to appeal coverage denials
    We urge you to require the standardization and simplification of 
grievance and appeals processes, so that it is easier for consumers to 
get what they are paying for.
    Many are worrying that comparative effectiveness research (CER) may 
lead to limits of what is covered. We believe CER will help us all get 
the best and safest care. It makes sense to give preference to those 
items which objective, hard science says are the best. But if a drug, 
device, or service does not work for an individual, then that 
individual must be able to try another drug, device, or service. The 
key to this is ensuring that the nation's insurers have honest, usable 
appeals processes in place. This legislative effort is where we should 
be putting our energy to address the otherwise legitimate concern of 
many people about CER.
Do More to Fight Fraud in Insurance
    American consumers need a better system to prevent, detect, and 
correct insurance fraud and abuse.
    We are surprised that there has not been more outrage over the 
recent court findings and discoveries of the New York Attorney General 
that for at least a decade American consumers have been ripped off by a 
combination of health insurers and subsidiary data collection firm 
practices.
    In the midst of this escalating crisis of out-of-pocket costs, 
consumers have also been forced to contend with a gravely-flawed out-
of-network reimbursement system. According to a recent investigation by 
New York Attorney General Andrew Cuomo, and recent settlements with 
some the nation's largest insurance carriers, it now appears that 
consumers may have been underpaid for their out-of-network 
reimbursements by hundreds of millions of dollars. Senate Commerce 
Committee Chairman has said ``billions of dollars.'' \16\ The databases 
used to calculate out-of-network reimbursements are riddled with 
serious data quality problems and massive financial conflicts of 
interest.
    Over the last several years, Consumers Union has become 
increasingly concerned about consumer problems in obtaining fair, 
appropriate and timely reimbursement for out-of-network health 
services. These problems came to our attention as a result of consumer 
complaints, concerns expressed by physicians and employers, reports in 
the news media, and litigation. In particular, in New York state, we 
were aware that the American Medical Association, the Medical Society 
of the State of New York, other state medical societies, New York State 
United Teachers, Civil Service Employees Association (CSEA), other 
public employee unions and other consumer plaintiffs had sued 
UnitedHealth Group in 2000, alleging that they were being 
systematically shortchanged regarding out-of-network payments.
    We were therefore very pleased when Attorney General Andrew Cuomo 
initiated a national investigation of problems relating to out-of-
network charges in February, 2008. The methods used by insurance 
companies to calculate ``usual, customary and reasonable'' rates (also 
known as UCR rates) have long been obscure and mysterious to consumers. 
It was not easy for consumers to verify the basis of the alleged UCR 
rates, or to contest perceived underpayments. Companies are supposed to 
disclose the details of how they calculate these charges upon request. 
But in practice many consumers found it difficult to find out how the 
charges are calculated, and what they are based on.
    Over 110 million Americans--roughly one in three consumers--are 
covered by health insurance plans which provide an out-of-network 
option, such as Preferred Provider Organizations (PPOs) and Point of 
Service (POS) plans This includes approximately 70% of consumers who 
have employer-sponsored health coverage.
    Consumers and employers often pay higher premiums to participate in 
an out-of-network insurance plan, because it gives patients greater 
flexibility in seeking care from doctors, specialists and providers who 
are not in a closed health plan network. In most out-of-network plans, 
the insurer agrees to pay a fixed percentage of the ``usual, customary 
and reasonable'' rate for the service (typically 80% of the rate), 
which is supposed to be a fair reflection of the market rate for that 
service in a geographic area. Because the health plan does not have a 
contract with the out-of-network doctor or provider, the consumer is 
financially responsible for paying the balance of the bill--whatever 
the insurance company doesn't pay. By law, the provider may pursue the 
consumer for the entire amount of the payment, regardless of how little 
or how much the insurer reimburses the consumer.
    Even if UCR charges were calculated accurately, consumers could 
still experience ``sticker shock'' when they get the medical bills for 
out-of-network care. Why? They may not understand that the insurance 
company didn't agree to pay 80% of the doctor's bill--they only agreed 
to pay 80% of the ``usual and customary'' rate, which is a kind of 
average of charges in a geographic area.
    For example, suppose a patient went to visit the doctor for a 
physical, and was charged $200. Eighty percent of $200 is $160. But if 
an impartial and accurate calculation of ``usual and customary rate'' 
shows that what other comparable doctors charge for physicals is an 
average of $160, the insurance company would only pay $128, or 80% of 
$160. The consumer would be responsible for paying the balance of $72.
    The key problem with the out-of-network reimbursement system is 
that the UCR rates were not calculated in a fair and impartial way. For 
the last ten years or so, the primary databases that are used by 
insurers to determine ``usual, customary and reasonable'' rates have 
been owned by Ingenix, a wholly-owned subsidiary of UnitedHealth Group. 
Ingenix operates a very large repository of commercial medical billing 
data, and prepares billing schedules that are used to calculate the 
market price of provider health services. In 1998, Ingenix purchased 
the Prevailing Healthcare Charges System (PHCS), a database that was 
first developed by the Health Insurance Association of America, an 
insurance industry trade association started in 1974. Also in 1997, 
Ingenix purchased Medical Data Research and a customized Fee Analyzer 
from Medicode, a Utah-based health care company.
    Thanks to the Attorney General's investigation, however, we now 
know that there were serious problems with the Ingenix database that 
appear to have consistently led to patients paying more, and insurers 
paying less. In January, 2009, Attorney General Cuomo announced key 
findings from his office's investigation regarding the out-of-network 
reimbursement system:
     According to an independent analysis of over 1 million 
billing records in New York state, the Ingenix databases understate the 
market rate for physician visits by rates ranging from 10 to 28 percent 
across New York state. Consumers got much less than the promised UCR 
rate, so that instead of getting reimbursed for 80% of the UCR charge, 
they effectively got 70%, 60% or less. Given the very large number of 
consumers in out-of-network plans--110 million nationally--this 
translates into hundreds of millions of dollars in losses (perhaps 
more) over the last ten years for consumers around the country.
     UnitedHealth has a serious financial conflict of interest 
in owning and operating the Ingenix databases in connection with 
determining reimbursement rates. Ingenix is not an independent 
database--it is wholly-owned by UnitedHealth Group, Inc. It receives 
billing data from many insurers and in turn furnishes data back to 
them, including to its own parent company, UnitedHealth. UnitedHealth 
had a financial incentive to understate the UCR rates it provided to 
its own affiliates, and other health insurers also had an incentive to 
manipulate the data they submit to Ingenix so as to depress 
reimbursement rates.
     In general, there is no easy way for consumers to find out 
what the UCR rates are before visiting a medical provider. The Attorney 
General characterized Ingenix as a ``black box'' for consumers, who 
could not easily find out what level of reimbursement they would 
receive when selecting a provider. When they received a bill for out-
of-network services, consumers weren't sure if the insurance company 
was underpaying them, or whether the physician was overcharging them.
     As an example of the lack of transparency, when 
UnitedHealth members complained their medical costs were unfairly high, 
the United hid its connection to Ingenix by claiming the UCR rate was 
the product of ``independent research.''
     The Ingenix database had a range of serious data problems, 
including faulty data collection, outdated information, improper 
pooling of dissimilar charges, and failure to conduct regular audits of 
the billing data submitted by insurers.
    As a result of the Attorney General's investigation, on January 13, 
UnitedHealth agreed to close the two databases operated by Ingenix, and 
pay $50 million to a qualified nonprofit organization that will 
establish a new, independent database to help determine fair out-of-
network reimbursement rates for consumers throughout the U.S.
    As a central result of his investigation, Attorney General Cuomo 
concluded that:
    ``* * * the structure of the out-of-network reimbursement system is 
broken. The system that is meant to reimburse consumers fairly as a 
reflection of the market is instead wholly owned and operated by the 
[insurance] industry. The determination of out-of-network rates is an 
industry-wide problem and accordingly needs an industry-wide solution.
    Consumers require an independent database to reflect true market-
rate information, rather than a database owned and operated by an 
insurance company. A viable alternative that provides rates fairly 
reflecting the market based on reliable data should be set up to solve 
this problem * * * Consumers should be able to find out the rate of 
reimbursement before they decide to go out of network, and they should 
be able to find out the purchase price before they shop for insurance 
policies or for out-of-network care.''
    While UnitedHealth did not acknowledge any wrongdoing in the 
settlement, its agreement with the New York Attorney General ended the 
role of Ingenix in calculating UCR charges, and created a new national 
framework for a fair solution. In fact, in a press release announcing 
the settlement, Thomas L. Strickland, Executive Vice President and 
Chief Legal Officer of UnitedHealth Group, expressed strong support for 
a nonprofit database to maintain a national repository of medical 
billing information:
    ``We are committed to increasing the amount of useful information 
available in the health care marketplace so that people can make 
informed decisions, and this agreement is consistent with that approach 
and philosophy. We are pleased that a not-for-profit entity will play 
this important role for the marketplace.''
    Shortly after settling with the Attorney General's office, 
UnitedHealth also settled the lawsuit brought by the AMA and Medical 
Society of the State of New York, other physician groups, unions and 
consumer plaintiffs for $350 million, the largest insurance cash 
settlement in US history. As sought by MSSNY and the other physician 
groups, United also agreed to reform the way that out-of-network 
charges were calculated.
    Since January, nine other insurers with operations in New York 
State, including huge national insurers such as Wellpoint, Aetna and 
Cigna, have also agreed to stop using data furnished by Ingenix, and to 
contribute funds in support of the new nonprofit database. The leaders 
of other insurance companies have also expressed support for a new 
nonprofit database to increase transparency and reduce conflicts of 
interest, and pledged to use the database when it becomes available. 
Two insurance companies agreed to also reprocess claims from consumers 
who believe they were underpaid for their out-of-network charges.
    All told, the Attorney General has now collected over $94 million 
to support the new independent database, which will be based at a 
university in New York.
Implications of the New York State Investigation
    From a consumer point of view, Attorney General Cuomo's 
intervention has been extremely helpful for consumers in New York and 
across the U.S. This investigation squarely exposed the problems 
resulting in underpayment of consumers and physicians, and created a 
sweeping new framework for a national solution. The plan set out in the 
agreements reached by Attorney General Cuomo will help bring 
comprehensive, sweeping reform to the out-of-network reimbursement 
system.
    The investigation has exposed a swamp of financial shenanigans, and 
now reached a critical juncture. Consumers Union is calling for 
coordinated action by state and federal policymakers and regulators to 
help to consolidate the investigation's gains, and ensure that the new 
database for calculating out-of-network charges will be broadly used 
across the entire marketplace.
    First, regulators need to hold insurance companies accountable to 
their contractual promises, on an ongoing basis. Consumers clearly have 
the right to expect that their health insurance policies will pay the 
bills that they are legally obligated to pay. We rely on the promises 
our insurance companies make in their contracts, and we expect the 
provisions of those contracts to be enforced by regulators and the 
courts. If your policy says it will pay you 80% of the ``usual and 
customary'' charge for a medical service, it should pay that amount.
    To enforce this principle in New York state, Attorney General Cuomo 
used his authority under New York's General Business Law Sec. 349 and 
Sec. 350, which prohibits deceptive acts and practices against 
consumers, to bring the insurance industry into compliance in New York 
state, as well as sections of the insurance law and the common law. 
Other states have similar laws, and they should be appropriately used 
when needed to prevent egregious consumer rip-offs.
    Everyone can easily agree that insurance companies should not 
engage in deceptive or unfair practices against consumers. But the 
reality is that it takes sustained effort and political will to achieve 
the vigorous, comprehensive enforcement of state and federal insurance 
and consumer protection laws and regulations. In this case, the 
technical nature of the subject matter, and the obscure, veiled nature 
of the Ingenix database, resulted in a persisting rip-off that 
unfortunately took far too many years to rein in.
    This case raises very troubling questions about why financial rip-
offs persist in the marketplace for many years without effective 
intervention at the state or federal level. Why didn't the alarms go 
off earlier about unfair practices that created very large financial 
losses for consumers? Since this rip-off was occurring all across the 
Nation, why didn't a Federal agency or official step in to stop it and 
help consumers?
    As part of health care reform, we hope you will create a national 
office charged with working with and assisting State regulators, to 
monitor and investigate health insurance issues such as this. In 
addition, perhaps a way can be found to extend the qui tam or Lincoln 
law whistleblower provisions to abuses such as this. In addition, the 
insurance ``hotline'' idea we proposed earlier in this testimony could 
serve as a locus for citizen complaints that could help ensure timely 
investigations.
    Second, in any reform bill, consumers should be able to obtain up-
to-date information on usual and customary charges through a national, 
free web site, and have a good fix on what their potential 
reimbursements will be when they visit physicians and other health care 
providers.
    Third, by arranging for some of the largest health insurers in the 
country to support the new database, Attorney General Cuomo has paved 
the way for a comprehensive national resolution of these issues. We 
would note, however, that there are many other health insurance 
companies who used data from the Ingenix databases, including state-
based and regional health plans in the South, Midwest and Western 
states, who do not have operations in New York state. These companies 
were not reached by the investigation or the agreements, so they have 
not necessarily halted their use of the Ingenix database, or notified 
consumers of its shortcomings. We therefore encourage Congress to 
investigate the nature and extent of the use of the Ingenix databases 
by other health insurance companies throughout the U.S., and solutions 
for halting this practice and securing restitution for consumers.
Is There Too Much Market Concentration Among Insurers, and If So, Why 
        Are They Failing to Control Costs So Badly?
    For decades, the health delivery marketplace has been inflating 
roughly twice as fast as the rest of the economy, creating special 
burdens for American businesses and taxpayers, and raising rates of un-
insurance, under-insurance, personal bankruptcy and increased morbidity 
and even mortality for uninsured consumers.
    Recently, there have been rumors of possible further mergers among 
some of the nation's largest health insurers.
    We believe it would be useful for Congress--perhaps with several 
Committees working together--to investigate the level of market 
concentration in the health insurance versus health provider sectors to 
determine if there are steps that should be taken in health reform to 
bring us a system which is better at reducing the Cost of Health 
Insurance for Employers, Employees and their Families.
    A Congressional investigation could address the following kinds of 
questions:
    It is often thought that a large buyer can demand discounts and be 
able to control costs better than many small purchasers. At the same 
time, it is usually feared that a monopolist will collect excessive 
profits from their market dominance. There are reports that in a sixth 
of our large metropolitan areas, a single insurer/purchaser has 
enrolled 70 percent or more of the local consumer-patient population. 
It would seem that in such a situation, the insurer could both control 
costs and reap windfall or oligopolistic profits. Obviously the 
insurers are not doing a good job controlling costs, but are they 
collecting higher than expected profits? That is, do we have the worst 
of both worlds: higher profits being added to failure to control costs?
    But at the same time that insurers have been consolidating, there 
are reports that in many markets, hospital and physician practices have 
been merging and have formed a dominant countervailing force. Has the 
consolidation of providers been a contributing factor in the crippling 
rate of health inflation? Yet while oligopolistic or even monopolistic 
behavior among providers is a source of concern, so is quality of care. 
And there is strong data that smaller hospitals, which do limited 
numbers of procedures, often have a difficult time delivering quality 
outcomes. In general, consumers needing complex treatments are well-
advised to seek out hospitals and practices which do large volumes of 
such treatments (centers of excellence) and which coordinate care. From 
a quality, medical education, and research point of view, a larger 
health care provider can often be a good thing.
    The March 2009 Medicare Payment Advisory Commission report to 
Congress provides a remarkable chart showing that an eighth of the 
nation's larger hospitals which deliver the highest quality care have, 
on average, positive Medicare margins and are below average cost 
hospitals. The other seven-eighths of the hospitals have poorer quality 
and higher costs. It is MedPAC's thesis that while Medicare is paying 
approximately 100% of the costs of an efficient provider, the private 
insurers (who have become relatively consolidated and may be planning 
further consolidation) are paying about 132 percent of cost at most 
hospitals. Basically, MedPAC is saying that the private insurers, 
despite their growing consolidation, have become toothless buyers, and 
are often turning a blind eye to the unacceptable rate of medical 
inflation.
    This raises a fundamental question: if large private buyers who 
feel a need to maintain a broad network of health care providers cannot 
control costs, what is the alternative? As we consider health care 
reform, doesn't this argue for a public plan option (like Medicare) 
that can set rates at the approximate level of cost that an efficient 
provider can deliver quality care?
    If the current situation does not argue for a public plan option, 
then why are these large insurers not doing a better job in controlling 
health care inflation, and what hope is there that they will do a 
better job in the future? What kinds of amendments would Congress need 
to make to ensure that the private payers can hold inflation down to at 
least Medicare's past rates of growth?
Conclusion
    We thank you again for this opportunity to testify. The American 
health care system can be fixed, but consumers need tools to help drive 
the system toward quality and cost savings. And we need strong 
regulators who prevent future gross abuses like those revealed in the 
UnitedHealth-Ingenix case. The reforms we have suggested are keys to 
this goal.
                               appendix i
    Examples of why America needs comprehensive health care reform, 
collected in 2008 during Consumer Union's tour of the United States
    This is a small sample of the 5000-plus stories we collected. The 
sample concentrates on cost, pre-existing condition exclusion, and poor 
coverage problems in the individual market, along with examples of what 
it means to be uninsured because one cannot afford a policy. All of 
these individuals are willing to be contacted upon request for further 
discussion.
Kristin from Beaverton, OR--1 Wu
    I am a single mom who has been out of work for almost a year. I 
started working 2 months ago and was diagnosed with Interstitial 
Cystitis last week. I went to fill my prescription of ``Elmiron'' and 
to my horror found out that AFTER my insurance discount, I will still 
have to pay $283/mo. for my medication. I also take buproprion and 
effexor xr. This means that I will be paying $420/mo for medication 
alone. I already pay almost $400 for my insurance. I live on $1000/mo 
after paying my mortgage (which I currently can't do anything about due 
to the market) payment. Now I will live on $200???? Yet, because I took 
a contract position until the end of the year, I make too much money 
for any assistance programs. I am very frustrated with the system and 
I'm tired of being taken advantage of for insurance and medication that 
I need. Maybe I would be better off not working and getting assistance. 
This is a serious problem with our society! Sometimes not working and 
depending on assistance is the ONLY way to get our medications * * * 
what else can I do?
Melinda from Lakewood, OH--10 Kucinich
    I'm a 46 year old self-employed woman. I have not had health 
insurance since 2002 or 2003. As a company of one/an individual, I am 
denied more favorable underwriting/rates/cost savings and benefits 
afforded to companies of 2 or more. I have pre-existing conditions. 
From 2003 through 2007, I estimate I paid (out of pocket) an average of 
$7,000 per year in medical expenses. Most of these payments have been 
made using funds saved for retirement. The last ``best'' proposal I 
received for individual health insurance included a $10,000 deductible 
and an annual premium of over $5,000. Most of my $7,000 in annual 
medical expenses would be considered uncovered and would not count 
towards meeting my deductible. From my perspective, I would need to 
receive benefits in excess of $22,000 before I would ``break even''. If 
I work, I can make very good money, often grossing in excess of $75,000 
per year. As far as I know, this income would exclude me from 
participation in any existing or proposed program supporting guaranteed 
access to health care. I have never benefited from government supported 
programs. No scholarships or loans, worker's comp, unemployment or 
Social Security. I have always planned on providing for myself--
including paying for my health care during both my working and 
retirement years. I do not expect a ``free ride''. I want guaranteed 
access to competitively priced health care/insurance and I am willing 
to pay for it. I just need help leveling the playing field. No denial 
of coverage. No exorbitant premiums. No limited benefits--just because 
I am an individual with pre-existing conditions.
Keith from Lakewood, OH--10 Kucinich
    ``My wife and I are retired, more by reason of lost employment than 
anything else. We are not yet eligible for Medicare. When our coverage 
under COBRA was soon to end, I searched high and low for affordable 
health insurance. I called agents. I searched over the internet. I 
called insurance companies directly. What I found is that, because I 
have high blood pressure (which has been under control for years) and 
she has Type 2 diabetes (also under control), we are unable to buy a 
private policy for anything less than $3000 a month, for each of us! 
And even at that price, I couldn't get a firm commitment without paying 
three months premiums in advance. That's $18,000! As a result, my wife 
was forced to find another job (she's an RN, and therefore much more 
employable than I am) just for the health insurance. So instead of 
traveling the US in our RV, as we had hoped, she's working the night 
shift at a local hospital, and I'm picking up odd jobs as I can while 
we wait for Medicare.''
Neil from Pepper Pike, OH--11 Fudge
    ``Due to pre-existing conditions, I have been relegated to few 
choices for insurance coverage, and all at extremely high costs. 
Premiums for my wife and myself, with $1000 deductibles, have been 
exceeding $24,000 per year for many years! I have not been able to find 
insurers willing to cover us at a reasonable cost. Regulated, universal 
coverage is the only answer to provide health coverage for all persons 
without bankrupting so many.''
Jamie from Clio, MI--5 Kildee
    ``With the faltering economy my small cell phone business of 12 
years is slowly sinking. I had Blue Cross Blue Shield of Michigan. In 
1999 it cost $450.00 a month to cover myself, my husband and our three 
daughters. When I could no longer afford the coverage it was up to 
$1600.00 per month for my husband and I and only two of our college age 
daughters. Same coverage, an 80/20 split, so there were some `out of 
pocket' expenses too. I have also been unable to maintain my term life 
insurance policy of 10 years I still can't believe after 12 years in 
business that I wouldn't be able to pay my bills. It is very heart 
wrenching. Especially when we had to cut our daughters off while they 
were still in college.''
Carolyn from Media, PA--7 Sestak
    ``After my COBRA coverage ended, I applied for health insurance as 
an individual. I decided to work for myself and I am 53 years old. A 
couple of companies rejected me but finally I received coverage but 
with exclusions for depression, migraines, and high cholesterol and a 
high deductible. All of these conditions are treated with medication. 
Originally, the rate was about $350, which I thought was reasonable. 
Unfortunately, after just 4 years my rate is now over $512. My agent 
tells me the plan has closed which means that my premiums will continue 
to skyrocket since no new members will be added to the pool. I applied 
for insurance again and was rejected for the same reasons. I see these 
conditions as somewhat common and assume that only someone in perfect 
health can receive an individual health plan. On the other hand, 
someone with cancer can obtain insurance as long as they are employed 
(typically). Since I have many years before I am eligible for Medicare, 
this situation is a big concern. I do not understand why individuals 
cannot have guaranteed access like employed people since the insurance 
company's overall risk is still spread. But, I suppose the rate they 
would charge would be astronomical. I wish there was some organization 
that individuals could join and gain coverage as part of a large pool. 
One other issue is the treatment of these costs at tax time. My total 
costs run about $10,000 which is a large percentage of income. If costs 
do skyrocket, I might have to lower my standard of living. The overall 
health care situation in this country is astonishing given our supposed 
wealth as a nation. We claim to have the best health care but this is 
not borne out by surveys and studies. Certain politicians scare the 
populace with terms such as ``socialized medicine'' and drown out other 
voices of reason. Shame on us.''
Keith from Hilton Head, SC--2 Wilson
    I am a currently partially retired but still practicing physician. 
I am still under 65 and have a high deductible ($5200) Blue Cross 
Policy (SC). The premiun went up $250 per month this year. This 
represented an almost 50% increase. We had made no claims on the policy 
during the last 3-4 years we have had it. I contacted BC and was told 
that the rate increase was approved by the State of SC Insurance 
Commission. I contacted them and have received no acceptable answer. 
This is just one of the outrageous examples of the appalling state of 
the US Health Care System. I am currently working as a Physician in New 
Zealand where good care is delivered at a third of the cost of the US 
and actually medical professionals are reimbursed as well or even 
better than in the US. It is not difficult to figure where the wastes 
are!!
June from Spokane, WA--5 McMorris-Rodgers
    I just retired early at 60, I have RA and have struggled for years 
to support myself on what I earn. My pension income covers all my 
expenses but I am unable to get an insurance company to take me because 
of my `pre-existing' condition. I am exploring all possibilities for 
health care but make just enough monthly to disqualify me for state 
programs. Medication is soooo expensive with no co-pay. I have five 
more years before I qualify for medicare.
Jean from Marietta, GA--6 Price
    I own a small business and cannot find affordable health care 
coverage. I pay way too much money for a high deductible policy and 
every year on my birthday I get hit with another huge increase in 
premium. Because I am the only empolyee of my business I don't have 
enough people to make up a group policy so I pay what I think is about 
the highest rates that are out there. I am in excellent health and had 
hoped the current administration would have created a health care plan 
to allow small business owners like myself to pool together to get a 
better rate. I find it unfair that I have to pay such high rates simply 
because I am not part of a larger group. I am in excellent health so 
the insurance company is making 100% profit on me.
Eileen from Roswell, GA--6 Price
    A few years ago, when we had group coverage, I had my first 
colonoscopy. A BENIGN polyp was removed during that procedure. We 
subsequently had to sign up for individual insurance. We applied to 
Golden Rule (who required our payment information before even accepting 
our application). Once the acceptance letter arrived, I found that they 
had disallowed any further colonoscopy procedures * * * and any disease 
that has to do with my colon, and various other organs, as a 
preexisting condition! I called the Georgia insurance commissioner's 
office to see if that was even legal. They told me that a preexisting 
condition is anything you have now or have ever had * * * so it is 
perfectly legal for them to deny me coverage.
Nancy from Atlanta, GA--6 Price
    ``I work for a small employer and pay about $90 every two weeks 
totaling $2,136 a year. Then add what my employer pays for me and it is 
probably $4,000 a year. Our current plan has a $2,000 deductible, 
meaning any tests we get we pay for until we hit $2,000. And so, most 
of us skip needed tests because we cannot afford it. So, we are paying 
lots into the plan and getting nothing back. What is wrong with this 
picture, everything. Americans deserve affordable healthcare and 
preventative tests so we do not become seriously ill. I spend most of 
my disposable income on healthcare costs, energy and food with little 
left for anything else, including a well needed vacation. We need a 
united movement to demand Washington wake up and start to take care of 
us and they get taken care of with our tax money. This has impacted our 
national economy and our Government has become Wall Street vs Main 
street. No one seems to care about our lack of adequate care and the 
costs to individuals and business. The healthcare industry has bought 
our government and sold the citizens of the USA as the cost. Help us 
start the fight to come up with a system we can all be proud of and 
afford.''
Rick from Canton, GA--6 Price
    I am unemployed and just lost my insurance on Jan 1, 2009. I am 59 
and have a few health and mental health issues. First of all, I had 
prostate cancer that was diagnosed in the end of 2006 and treated in 
early 2007. All went exceptionally well, I am glad to say. However, I 
need Prostate-Specific Antigen (PSA) tests every quarter to make sure 
that it doesn't come back; then, I will need the tests twice a year and 
eventually once a year as time goes on. I do not know how I am going to 
pay for an urologist or the blood work until I begin working and 
receive a salary and insurance. Oh, wait--it is a preexisting 
condition! Unless I get hired by a large enough company, and it doesn't 
exclude pre-existing conditions, I'll have to wait a year to have my 
post-cancer visits covered or anything else tied in with the treatment.
Bruce from Cloverport, KY--2 Guthrie
    I am a 57 year old man in bad health. My wife is 6 years younger 
than I am. Health insurance is so expensive that I will have to work 
until I am 71, so my wife can be covered under Medicare.
Michael from Iowa City, IA--2 Loebsack
    ``I wanted to switch to a healthcare policy with the highest 
deductible in order to lower my premiums. My individual policy was with 
Wellmark of Iowa and I also got my current policy with Wellmark. In 
order to get virtually the same policy, except with a higher 
deductible, they called me and said that I would have to agree to waive 
coverage for mental health, anything to do with my eyes, and anything 
to do with my G.I. tract. Their request for the waivers surprised me 
because I had had very little problems with those things. I agree to 
sign the waivers in order to save money because of the lower premiums 
that come with the high deductible policy.''
Joel from Brooklyn, NY--11 Clarke
    ``I am among the uninsured. I cannot afford health insurance. I am 
a published, prizewinning novelist and I have been, among other things, 
in chronic pain for about seven years, in both knees. I also have other 
health problems I cannot see to, even though I know that this is 
dangerous, especially at the age of 61. I make enough money not to 
qualify for Medicaid, or even New York State's budget/help-out plan, 
but I am far from being able to afford health insurance at anything 
approaching the current rate. I'm in trouble and do not know if there 
is anything I can do about it. How's that for a story?''
Jan from Lebanon, CT--2 Courtney
    ``My husband and I were squeezed out of our jobs as we approached 
the age of 60. We moved to a less expensive area, and are now self 
employed. At age 62 we spend as much on our monthly health care 
premiums as we used to spend on our mortgage. Together we pay over 
$1300/mo. for premiums and the copays we are responsible for are 
higher. Having health insurance tied to employment does not make sense 
in the present atmosphere of job insecurity. We feel caught in a 
financial bind until we reach Medicare age.''
Grace from Danielson, CT--2 Courtney
    ``I work for a healthcare services company. In short I do provide 
necessary services to disabled and elderly clients who would not 
otherwise be able to remain in their homes. They all have Social 
Security or Disability income that provides for doctor visits and 
medications and emergency surgeries when necessary. I have no health 
insurance from the company for whom I work. In 2006 I had to have an 
incisional hernia surgery. I waited until it had started to strangle 
itself. I received help through a federal program to pay my hospital 
bill. But there was no program to pay for my anesthesia bill or my 
doctor bill. The total bill was somewhere between $10,000 and $12,000 
with about $7600 being paid on the hospital bill. The doctor has been 
real good to me and not pushed the issue. The anesthesia bill went to 
collection and is now registered with the credit reporting agencies. 
There is nothing I can do about this. This is a non-profit company. My 
weekly hours are less than 40 and I live in Connecticut which is the 
2nd or 3rd most expensive state to live in. Every penny I make is tied 
up in survival. My rent has gone up $50 since the operation. My gas for 
the car (I pay all but a $50 stipend) has tripled, my electric bill has 
nearly doubled and my grocery bill has tripled. I am 58 years old and 
am having a hard time finding a good paying job. I got a $.25 raise in 
February and already the groceries and a recent raise in the electric 
bill have eaten that raise and next year's as well. I could very easily 
be homeless by this time next year. If it were not for help with 
heating oil I would already be there. Not because I don't work for a 
living but because what I make is less than an existence at this point. 
I suspect my electric will be shut off in May due to my inability to 
pay. If I become seriously ill I have nothing to help me with expenses 
or medical bills. I make nearly $20,000 per year. Unless something is 
done to change this I am going under. I need help for a lot of things 
but I have no where to turn. According to the State of Connecticut I 
make too much money. Once upon a time I could have done well on this 
but not now.''

                               APPENDIX II
------------------------------------------------------------------------
* * * and out-of-pocket
   expenses can vary        Massachusetts plan        California plan
         widely
------------------------------------------------------------------------
With its lower premium   Monthly premium for any  Monthly premium for a
 and deductible, the      55-year-old: $399        healthy 55-year-old:
 California plan at      Annual deductible:        $246
 right would seem the     $2,200                  Annual deductible:
 better deal. But        Co-pays: $25 office       $1,000
 because California,      visit, $250 outpatient  Co-pays: $25
 unlike Massachusetts,    surgery after            preventive care
 allows the sale of       deductible, $10 for      office visits
 plans with large         generic drugs, $25 for  Co-insurance: 20% for
 coverage gaps, a         nonpreferred generic     most covered services
 patient there will pay   and brand name, $45     Out-of-pocket maximum:
 far more than a          for nonpreferred brand   $2,500, includes
 Massachusetts patient    name                     hospital and surgical
 for the same breast     Co-insurance: 20% for     co-insurance only
 cancer treatments, as    some services           Exclusions and limits:
 the breakdown below     Out-of-pocket maximum:    Prescription drugs,
 shows.                   $5,000, includes         most mental-health
                          deductible, co-          care, and wigs for
                          insurance, and all co-   chemotherapy patients
                          payments                 not covered.
                         Exclusions and limits:    Outpatient care not
                          Cap of 24 mental-        covered until out-of-
                          health visits,$3,000     pocket maximum
                          cap on equipment         satisfied from
                         Lifetime benefits:        hospital/surgical co-
                          Unlimited                insurance
                                                  Lifetime benefits: $5
                                                   million
------------------------------------------------------------------------
 Service and total cost        Patient pays            Patient pays
------------------------------------------------------------------------
Hospital                            $0                     $705
------------------------------------------------------------------------
Surgery                            981                     1,136
------------------------------------------------------------------------
Office visits and                 1,833                    2,010
 procedures
------------------------------------------------------------------------
Prescription drugs                1,108                    5,985
------------------------------------------------------------------------
Laboratory and imaging             808                     3,772
 tests
------------------------------------------------------------------------
Chemotherapy and                  1,987                   21,113
 radiation therapy
------------------------------------------------------------------------
Mental-health care                 950                     2,700
------------------------------------------------------------------------
Prosthesis                          0                       350
------------------------------------------------------------------------
  TOTAL $104,535                  $7,668                  $37,767
------------------------------------------------------------------------
Source: Karen Pollitz, Georgetown University Health Policy Institute,
  using real policies and claims data from state high-risk pool.
  Copyright (c) 2002-2007 Consumers Union of U.S., Inc. May, 2009 issue

                                endnotes
    \1\ Consumers Union, the nonprofit publisher of Consumer Reports, 
is an expert, independent organization whose mission is to work for a 
fair, just, and safe marketplace for all consumers and to empower 
consumers to protect themselves. To achieve this mission, we test, 
inform, and protect. To maintain our independence and impartiality, 
Consumers Union accepts no outside advertising, no free test samples, 
and has no agenda other than the interests of consumers. Consumers 
Union supports itself through the sale of our information products and 
services, individual contributions, and a few noncommercial grants.
    \2\ See www.ConsumerReportsHealth.org/BBD
    \3\ Jessica Banthin, AHRQ, ``Out of Pocket Burdens for Health Care, 
Insured, Uninsured, and Underinsured,'' September 23, 2008.
    \4\ Cathy Schoen, et.al., How Many are Underinsured? Trends Among 
U.S. Adults, 2003 And 2007, Health Tracking, Health Affairs--Web 
Exclusive, June 10, 2008. See also: Jessica S. Banthin and Didem 
Bernard, Changes in Financial Burdens for Health Care--National 
Estimates for the Population Younger than 65 Years, 1996 to 2003, JAMA, 
December 13, 2006.
    \5\ Health Care Experiences of the American Public: May 2007 
Survey, Consumer Reports National Research Center Survey Research 
Report
    \6\ Washington Consumers' Checkbook Guide to Health Plans, 2008 
edition, p. 5.
    \7\ See also, TheStreet.com Ratings: Medigap Plans Vary in Price, 
9/15/06.
    \8\ Jonathan Gruber, ``Choosing a Medicare Part D Plan: Are 
Medicare Beneficiaries Choosing Low-Cost Plans?'' (prepared for the 
Henry J. Kaiser Foundation) March, 2009.
    \9\ SeniorJournal.com, March 29, 2009.
    \10\ HHS Office of Disease Prevention and Health Promotion
    \11\ Op. cit., p. 68.
    \12\ ``Nearly three-fourths (73 percent) of people ages 65 and 
older felt that the Medicare Prescription drug benefit was too 
complicated, along with 91 percent of pharmacists and 92 percent of 
doctors. When asked if they agreed with the statement: ``Medicare 
should select a handful of plans that meet certain standards so seniors 
have an easier time choosing,'' 60 percent of seniors answered in the 
affirmative.'' Jonathan Gruber, ``Choosing a Medicare Part D Plan: Are 
Medicare Beneficiaries Choosing Low-Cost Plans?'' (prepared for the 
Henry J. Kaiser Foundation) March, 2009. Page 2.
    \13\ Mechanic, David. Commentary, Health Affairs, ``Consumer Choice 
Among Health Insurance Options,'' Health Affairs, Spring, 1989, p. 138.
    \14\ HR 193, Sec. 2266(c)(2) SIMPLIFICATION OF BENEFITS-`(A) IN 
GENERAL-Each AmeriCare supplemental policy shall only offer benefits 
consistent with the standards, promulgated by the Secretary, that 
provide----
    `(i) limitations on the groups or packages of benefits, including a 
core group of basic benefits and not to exceed 9 other different 
benefit packages, that may be offered under an AmeriCare supplemental 
policy;
    `(ii) that a person may not issue an AmeriCare supplemental policy 
without offering such a policy with only the core-group of basic 
benefits and without providing an outline of coverage in a standard 
form approved by the Secretary;
    `(iii) uniform language and definitions to be used with respect to 
such benefits; and
    `(iv) uniform format to be used in the policy with respect to such 
benefits.
    `(B) INNOVATION--The Secretary may approve the offering of new or 
innovative and cost-effective benefit packages in addition to those 
provided under subparagraph (A).
    \15\ Center for Budget and Policy Priorities, ``Rules of the Road: 
How an Insurance Exchange Can Pool Risk and Protect Enrollees,'' by 
Sarah Lueck, March 31, 2009.
    \16\ Senate Commerce Committee, Opening Statement at hearing of 
March 31, 2009.
                                 ______
                                 
    Chairman Andrews. Thank you, Mr. Vaughan. Although, I would 
find it a bit odd that a great and historic achievement would 
be based upon citing Homer Simpson. [Laughter.]
    So hopefully that--we will have better luck than Mr. 
Simpson does. But thank you very much.
    Ms. Trautwein, welcome. We are glad to have you back.

STATEMENT OF JANET TRAUTWEIN, EXECUTIVE VICE PRESIDENT AND CEO, 
          NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS

    Ms. Trautwein. Thank you.
    I am here today representing over 20,000 employee benefits 
specialists nationally. Because of our experience with 
employer-sponsored coverage, we believe that any reform 
proposal, like many of our other panelists, should begin and 
center on employer-sponsored coverage.
    And I just want to reiterate the reasons for that.
    First of all, there are many different reasons why 
employer-sponsored coverage is an advantage. But one of the 
most important that I want to make sure, as we move forward 
with reform, that we do not leave out the significant financial 
contributions that employers make towards the cost of coverage 
for employees and their dependents. Without the funding 
provided through employers, many people who have coverage today 
would be uninsured.
    Now, a number of stakeholders in the health reform debate 
have articulated the belief that a public-slant option is 
necessary in the marketplace and should be offered as an 
alternative to traditional private market, employer-sponsored 
and individual health insurance coverage.
    All right, I have to share. And it is probably--you are 
probably not surprised that we have a lot of concern about such 
a program. Chief among them is a potential for an unlevel 
playing field and the difficulty that a public program would 
have competing on a level playing field with the private plan. 
We believe this would complicate and make the pooling process 
much more difficult for private insurance carriers and 
employer-sponsored plans.
    Now, another key issue is the cost impact a public plan 
option would have on all Americans due to cost shifting or the 
hidden tax imposed when providers of medical care are forced to 
adjust their prices they charge to private companies and 
employers in order to offset losses from government programs.
    A recent Milliman Report estimated that over $1700 of the 
annual premium for an average family of four is due to cost 
shifting alone. And if another public program is added, we are 
concerned that this amount would go higher.
    Finally, we question the need for such a system in light of 
the insurance reforms that have been proposed by the insurance 
industry.
    We guarantee issue, no pre-existing conditions and no 
rating for health status. We fail to see the economic or social 
benefit in spending vast sums of money on a new government 
system that could be better utilized on the subsidies to help 
real people get the coverage they need.
    And I want to stress, our intent is not to discourage 
health reform itself. We firmly believe that the current system 
is unsustainable. There is no doubt that changes are needed. 
But we believe that we have to address those changes by 
addressing the true underlying problem with our existing 
programs.
    And you mentioned that in your opening remarks, and that is 
the cost of care.
    We have identified some key health care cost containment 
mechanisms that should be included in a national comprehensive 
reform effort. And we have outlined these in the written 
statement. But, in summary, I would just say that they include 
an emphasis on wellness and prevention, better use of evidence-
based medicine, pay for performance, and ensuring 
interoperability of electronic medical records. And we believe 
that government and employer plans can lead in these efforts.
    As a part of overall health reform, we all realize that tax 
and other subsidies will be needed to make coverage available. 
And some immediate changes need to be made in our system simply 
to provide equity for individual market consumers with our 
counterparts and our employer-sponsored plans.
    And I have detailed what those specific changes should be. 
And they would help self-employed people, which I know are a 
concern of this group as well.
    I would like to stress though that this should not be done 
at the expense of those participating in employer-sponsored 
plans. We urge Congress not to tamper with the current tax 
exclusion and employer deduction.
    Additional subsidies will also be needed for low-income 
individuals and very importantly for risk adjustment in plans. 
These are essential components of reform. And they will be 
critical to its success.
    Reform discussions have also included increasing the role 
of employers in providing coverage. And although most larger 
and many small employers provide health insurance coverage, we 
believe a mandate to force employers to provide coverage to 
their employees, while well-intentioned, would have a negative 
impact on wages and jobs creation. And it would principally 
impact low-skilled employees because employers would be forced 
to cut jobs to control their skyrocketing labor costs. We just 
do not think that is what is needed in today's economy. And we 
believe that there are other roles that employers can play that 
may actually be more valuable than the role of being mandated 
to provide coverage.
    I would like to close by briefly mentioning Connector. 
There is nothing inherently wrong with the pooling of groups of 
insurance purchasers. Insurers and employer plans do this all 
the time. But we have to remember that pooling alone does not 
impact costs enough to make the significant difference that all 
of us are looking for, because it does not impact the cost of 
care which drives the cost of insurance. And if we expected 
different results, we just can look to history where these 
purchasing arrangements have been tried before.
    And over a period of time, the pools actually end up being 
a more expensive option in the environment. And we are 
concerned that if a national connector exchange does not allow 
for competitive market outside of the connector, a situation 
could develop where there would be nothing left for people to 
go to if the pool imploded.
    And I see that my time is us, so I will close for now. And 
I look forward to questions later.
    [The statement of Ms. Trautwein follows:]

Prepared Statement of Janet Stokes Trautwein, Executive Vice President 
          and CEO, National Association of Health Underwriters

    Good morning. My name is Janet Trautwein, and I am the CEO of the 
National Association of Health Underwriters (NAHU). NAHU is the leading 
professional trade association for health insurance agents, brokers and 
consultants, representing more than 20,000 employee benefit specialists 
nationally. Our members oversee the health insurance plans of millions 
of Americans and work on a daily basis to help employers purchase, 
design and implement health plans for their employees. We appreciate 
the opportunity to be here today to share our thoughts on ways to make 
health insurance coverage more affordable for both employers and their 
employees.
    We believe all Americans deserve a health care system that delivers 
both world-class medical care and financial security. Americans deserve 
a system that is responsible, accessible and affordable. This system 
should boost the health of our people and should improve rather than 
drain our country's economy.
    NAHU believes that any reform proposal should build on the 
strengths of our current system, which centers on employer-sponsored 
coverage. Our support for the employer-based system is well-founded, as 
this system efficiently combines key elements that make health care 
accessible to individuals and families all over America by providing 
the financing to pay for health care services.
Benefits of Employer-Sponsored Coverage
    The federal government supports employer-sponsored coverage through 
the Tax Code by recognizing health insurance premiums paid by employers 
on behalf of their workers as a business cost, which are generally 
deductible by the employer for tax purposes. These same premium 
payments by employers are currently not taxable to employees as a part 
of their compensation. NAHU believes the preservation of this current 
federal employer deduction and employee exclusion is critical to the 
success of any health reform effort.
    For working individuals, there are a multitude of advantages to 
employer-sponsored coverage, not the least of which is the significant 
contribution most employers make toward the cost of coverage for 
employees and their dependents. The average employee receives an 84 
percent subsidy from his employer toward the cost of coverage, 
regardless of income. This subsidy--on average--has remained constant 
over time even though health care costs have increased substantially. 
This high level of subsidy results in a very high ``take up'' of 
coverage by employees. Without the funding provided through employers, 
many people who have coverage today would be uninsured.
    Employers provide coverage to their employees for an important 
business reason: to attract and retain the best employees. Even the 
smallest of employers that struggle with the cost of coverage want to 
be able to distinguish themselves from their competitors by being known 
as a great place to work with comprehensive benefits. When designing 
health care solutions, we need to make sure we preserve the employer's 
connection to their plan and the funding that goes along with it for 
their employees.
    For larger employers, group purchasing power helps them obtain 
preferential pricing and enables them to provide benefits that are 
generally more extensive than what is available to consumers spending a 
similar amount in the individual market. Administrative costs are also 
lower than in the individual market because coverage is provided to 
many individuals through a single transaction with one employer.
    With any size of employer plan, controlled entry into the plan at 
the time of hire ensures that those entering employer sponsored plans 
are doing so as a result of their employment rather than as a result of 
their believing they need to seek health insurance coverage. For this 
reason, risk is spread more efficiently and effectively with less 
adverse selection than in the individual market. The ease of group 
purchasing and enrollment, combined with the reliable payment of group 
coverage, results in many more insured persons than if they were 
required to obtain coverage on their own.
    Employer-based health insurance is also more flexible than 
government-run public insurance programs such as Medicare, as it allows 
benefits to be customized to the specific employer groups. Even a small 
employer has many choices in plan design. Driven by their bottom line 
and utilizing a relatively streamlined management system, employers 
strive to obtain the best coverage at the lowest cost to meet their 
goal of hiring and retaining the best possible workers. Employer 
flexibility allows their plans to be modified over time to take 
advantage of current cost and quality considerations and to meet the 
specific needs of their group of workers. Employers also have the 
capability to pick and choose among new benefit, payment and 
organization innovations, and can implement new programs and halt 
unsuccessful ones relatively quickly. In contrast, public programs are 
less likely to be able to meet the precise needs and wants of their 
entire constituency, and response to innovations and changes in the 
insured population's needs is likely to be slower because of the 
political and regulatory process.
    Regarding a government-run public plan option, there are many 
stakeholders in the health care reform debate that have articulated the 
belief that such a plan is necessary in the marketplace and should be 
offered as an alternative to traditional private-market, employer-
sponsored and individual health insurance coverage. NAHU feels that, 
when crafting comprehensive health reform legislation, Congress needs 
to avoid creating a public health plan option to be offered as an 
alternative to, or in competition with, private-market health plan 
offerings.
    NAHU has many concerns about a public health coverage program buy-
in option that competes with the private insurance market. Chief among 
them is the potential for an unlevel playing field between the two 
coverage options. Even if extreme care was taken to ensure that factors 
such as subsidies, rating and issuance requirements were the same 
relative to the public and private plan options, the two options could 
never truly be equal.
    It will cause significant problems if the rules that apply to 
public plan coverage differ from those that apply to private insurance 
markets. Bad products will drive out good ones. If a level playing 
field between public and private cannot be established and sustained, 
it could deprive patients and providers of access and appropriate 
incentives and payment mechanisms to achieve the best value for health 
care dollars.
    The creation of a government-run public plan insurance program also 
would likely complicate and make more difficult the most efficient 
pooling of risk among private insurance carriers, especially in 
employer-based coverage. Current natural groups relating to geography 
or age would likely become fragmented and discrete, thereby diminishing 
the advantages and efficiencies of group purchasing.
    As but one possible scenario, to the degree that younger and 
healthier people enroll in a government-run public plan, the 
``remaining'' employer-based market could become a less healthy mix of 
insurable risk, as sicker, older workers stay with their employer-based 
coverage while more of the healthier workers move to a public plan. And 
the exodus of younger and healthier populations from an employer's pool 
would likely drive up the costs of the employer plan, for both the 
employer and beneficiary alike. The likely destabilization of group 
risk pools that could well result raises the question of whether 
employers would continue to offer health insurance to their workforce.
    Another key issue is the cost impact a public plan option will have 
on all Americans, particularly in this economic climate. If Congress 
creates a public health plan option for the under-65 population, 
privately insured people will be forced to bear significant indirect 
costs due to its existence because of cost-shifting, or the ``hidden 
tax'' imposed when providers of medical care adjust the prices they 
charge to private insurance companies in order to offset losses from 
partial or non-payers. These losses are primarily attributable to 
uncompensated care costs and declining reimbursements from Medicare and 
Medicaid, and they have a significant impact on private health 
insurance premiums. A recent Milliman report estimated that annual 
health care spending for an average family of four is $1,788 higher 
than it would be if Medicare, Medicaid and private employers paid 
hospitals and physicians similar rates, with total provider 
reimbursement unchanged.
    The ideal solution for this would require that providers be 
reimbursed at the same level they are commercially for all public 
plans. Given the changing nature of commercial provider contracts, this 
may not be possible for public programs, but efforts to equalize 
payments would go a long way toward resolving the payment disparity and 
would provide significantly greater payment and premium stability for 
providers and employers and their employees.
    NAHU's final concern regarding a new government-run public plan 
option is such a plan's long-term fiscal and actuarial sustainability, 
which is already a significant issue with the federal Medicare program. 
From the 2008 Trustees' Report, Medicare's liabilities are expected to 
exceed revenue dedicated to paying for the program by $36 trillion over 
the next 75 years, and the trust fund that pays for hospital services 
is expected to go bankrupt in 2019. Total Medicare spending is 
projected to more than triple as a share of the national economy, 
rising from 3.2 percent of GDP in 2007 to 6.3 percent in 2030, 8.4 
percent in 2050, and 10.7 percent in 2080. Federal individual income 
tax collections amount to only about 8.5 percent of GDP. Covering just 
the increase in Medicare spending expected by 2030 would require a 36-
percent, across-theboard individual income tax hike.
    By contrast, there are very few industries in the United States 
that are as heavily regulated as private health insurance markets. 
Private health insurance markets are subject to stringent actuarial and 
solvency standards, standards that a government-run public plan option 
is unlikely to be held against, if the experiences of Medicare and 
Medicaid are any lesson. This is not to say that health insurance 
markets cannot be improved upon through government reforms to enhance 
access, affordability and consumer rights but, whether through the 
federal government or state governments, there are myriad laws and 
regulations that address a range of standards and requirements that 
currently oversee health plans and health insurance.
Cost Containment
    NAHU applauds government leaders and others who have put forward 
comprehensive reform proposals, even when we disagree with their 
proposed solutions. There is no doubt that changes are needed, but 
changes must begin by addressing the true underlying problem with our 
existing system: the cost of medical care. The reality is that 
consumers pay for all health care costs in one of three ways: through 
taxes, health insurance premiums or out-of-pocket expenditures. If the 
cost of health care becomes too great, the method of payment no longer 
matters--the country and its people will be bankrupt and/or unable to 
access care.
    Constraining skyrocketing medical costs is the most critical--and 
vexing--aspect of health care reform. It is the key driver in rising 
health insurance premiums and it is putting the cost of health care 
coverage beyond the reach of many Americans. There is no one magic 
answer to health care cost containment and there are many reasons 
health care costs are skyrocketing. Addressing this massive societal 
problem requires a multitude of comprehensive actions by individual 
citizens and elected officials.
    However, NAHU has identified some key health care cost containment 
mechanisms that should be included in any national comprehensive reform 
effort. First among them is wellness promotion. Unhealthy behavior and 
lifestyle choices are two key factors in the increased cost of health 
care. Research shows that behavior is the most significant determinant 
of health status,\1\ with as much as 50 percent of health care costs 
attributable to individual behaviors such as smoking, alcohol abuse and 
obesity. Furthermore, the Centers for Disease Control and Prevention 
estimates that 75 cents of each U.S. health care dollar is spent on 
treatments for patients with one or more chronic condition (such as 
heart disease, asthma, cancer or diabetes). These diseases are often 
preventable, and frequently manageable through early detection, 
improved diet, exercise and treatment therapy.
---------------------------------------------------------------------------
    \1\ Mercer Management Journal 18; Centers for Disease Control and 
Prevention.
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    We believe that the first step by government should be by example, 
and that all federal and state governments should be required to 
incorporate wellness and disease-management programs into medical 
programs for employees and government-subsidized health coverage 
programs such as Medicaid, Medicare, CHIP and the Veterans Health 
System. Standards for the most effective programs have been developed 
by URAC, and would provide benchmarks for best practices in this area. 
We also believe that private employers should be provided with legal 
protection, tax incentives and premium incentives for implementing 
smoking, drug, alcohol and other wellness programs to encourage their 
employees and their families to adopt healthier lifestyles.
    A second effort toward cost containment would be to identify ways 
to avoid duplication of procedures and overuse of high-end procedures 
in situations where they add little value. Both patients and the 
provider community should focus on identifying less expensive but 
equally efficacious alternatives. In addition, preventable mistakes by 
providers of medical care not only drive up health care costs, but also 
cost lives.
    We believe incentives should be provided for doctors and medical 
facilities to improve system efficiencies and eliminate errors with pay 
for performance, best-practice guidelines and support for evidence-
based medicine. And although we are greatly encouraged by the funds 
included in the stimulus bill for creation of electronic medical 
records, they will be of little use unless standards for 
interoperability are created to unify the health care system, reduce 
errors and duplicative procedures, and improve patient satisfaction.
Access for All
    Although we are strong supporters of employer-sponsored coverage, 
it is important to include solutions to help those accessing health 
insurance through the individual health insurance market too. 
Controlling cost in this market is more difficult than in an employer-
sponsored plan, not because of an inability to pool like policies 
together--all insurers pool their individual market business--but 
rather because individuals may voluntarily enter the system whenever 
they want to, and because they pay for coverage on their own, with 
after-tax dollars and with no employer contribution. For this reason, 
the market is prone to a phenomenon known as ``adverse selection.'' 
Adverse selection occurs when a person delays buying an insurance 
product until he or she anticipates an immediate need for the benefit. 
Since individuals always know more about their own health status than 
anyone else does, and because all of the cost of buying individual 
health coverage is borne by the insured, the amount of adverse 
selection occurring in the individual market is very high. This has a 
direct impact on the pricing of individual-market policies and is the 
reason why most states today use medical underwriting for individual 
health insurance coverage.
    From a pure access perspective, it would seem that one of the 
simplest ways to get individual-market buyers covered would be to 
require that all individual health insurance policies be issued on a 
guaranteed-issue basis without regard to pre-existing medical history. 
However, in addition to being accessible to all Americans, individual 
coverage also must be affordable. As you are aware, America's Health 
Insurance Plans and the Blue Cross Blue Shield Association have 
recently announced that they would be able to guarantee-issue coverage 
in the individual health insurance market and rate without regard to 
pre-existing conditions IF everyone is required to carry coverage. It 
is important to note that this is distinctly different from our 
voluntary system today. If such a purchase mandate is passed, 
enforcement will take time to become effective. Without near-universal 
participation, a guaranteed-issue requirement in this market would have 
the perverse effect of encouraging individuals to forgo buying coverage 
until they are sick or require sudden and significant medical care. It 
is very important that some type of financial backstop or risk adjuster 
be used to ensure that the result of market reform is not the 
exorbitant premiums we currently see in states that already require 
guaranteed issue of individual policies but do not require universal 
coverage or have a financial backstop in place.
    As we look at premium stability and the demonstrated importance of 
an adequate risk-adjustment mechanism, one good model to look at for 
both the individual and small-employer market is New York with its 
Healthy New York program. Small employers, sole proprietors and 
uninsured working individuals, regardless of health status, who meet 
set eligibility criteria and participation rules can purchase a limited 
range of comprehensive coverage options offered through private 
carriers and backstopped with a state-level reinsurance pool for 
extraordinary claims. Although New York is a guaranteed-issue state for 
all markets, it still uses this mechanism to spread the risk of higher-
risk participants. If we compare the rates for similar coverage in 
neighboring New Jersey, which is also a guaranteed-issue state but with 
no financial backstop, it becomes clear that, although premiums are 
higher in New York than in non-guaranteed-issue states due to community 
rating laws, the financial backstop provided by the reinsurance 
mechanism has improved affordability there.
Portability of Coverage--Pre-existing Condition Clauses
    Many people interchange the terms ``health status or medical 
underwriting'' with ``preexisting condition clauses.'' These are two 
distinct insurance terms and need to be discussed separately.
    Underwriting based on health status or medical history has to do 
with how initial health insurance premium rates are determined. In most 
states, insurers are able to consider a person's health status, along 
with other important factors, when determining initial rates in the 
individual and small-group markets. In the individual market, the 
personal health history of the individual or family applying for 
coverage is one of the factors used; in the case of small-employer 
groups, the overall health of the group is considered. In larger 
groups, where risk is spread more broadly, actual claims experience is 
used as the primary rate determinant. After the initial premium rate is 
determined in the individual and small-group markets, then the 
individuals or small groups are pooled internally by their health 
insurance carrier, and subsequent rate increases are based on the 
overall claims experience of the internal pool.
    A pre-existing conditions clause applies to coverage already in 
force and limits the amount of time a particular condition may be 
excluded from coverage. Pre-existing condition clauses are used to 
prevent the adverse selection caused by people from failing to obtain 
coverage until they know they need the benefit.
    Pre-existing condition clauses are rarely a problem for those with 
employer-sponsored coverage because the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) established uniform rules in 
this area for the group market. Carriers can look back at a new group 
member's medical history for no more than the six months prior to when 
the individual joined the group and may exclude coverage for certain 
conditions for up to 12 months. However, the law rewards those who have 
consistently maintained health insurance coverage. As long as a new 
group member has no more than a 63-day break in coverage, the group 
health plan must give the individual credit for their prior coverage. 
This credit for prior coverage, as well as the controlled entry and 
exit into group plans, means that preexisting condition clauses rarely 
need to be exercised in the group market. They only come into play to 
prevent true adverse selection, and their timeframe is limited and 
relatively consistent across the states.
    In the individual market, though, there are no consistent rules. 
Right now, state exclusionary and look-back periods for pre-existing 
conditions in the individual market range from none at all to five 
years. NAHU believes greater standardization could easily be achieved 
in a similar way as was done relative to the small-group market in 
HIPAA when a federal maximum look-back window of six months and a 12-
month exclusionary period was established for the states. Having a pre-
existing conditions rule that is consistent in both the individual and 
group model would also be much simpler for consumers to understand.
    Additionally, there is no protection for individuals who want to 
change carriers or health insurance products within the individual 
market. A simple way to change this would be to allow consumers credit 
against any pre-existing conditions limits for prior individual 
coverage when changing insurance plans, if there is no greater than a 
63-day break in coverage, just as is required in the group market by 
HIPAA. In the absence of a fully implemented and enforceable individual 
purchase mandate, plans and high-risk options must be able to look back 
at a new applicant's medical history and impose reasonable waiting 
periods in order to mitigate adverse selection. Until implementation is 
complete, greater standardization of limitations is necessary and 
warranted.
    Another inconsistency among both individual and small-group state 
individual health insurance markets is the way that premium rates are 
determined at the time of application. Most states allow for the use of 
medical history or health status as an underwriting factor, as I just 
discussed. In a few states, the laws require that rates be the same for 
everyone regardless of gender, age, health status or geographic 
location (community rating). In a number of others, rating factors are 
determined by the state but are limited in nature (i.e., age, gender, 
industry, wellness, etc.), which is known as modified community rating. 
However, even in states with modified community rating, the rating 
factors and how they may be applied vary significantly by state. It is 
NAHU's view that state individual health insurance markets would 
benefit from greater standardization as to how premium rates are 
determined.
    The federal government could require that all states meet a minimum 
standard of rate stabilization by requiring modified community rating 
instead of health status rating. However, this would need to be 
undertaken slowly in order to protect against extreme rate shock to 
some populations, especially younger individuals. Additionally, it is 
extremely important that wide adjustments be allowed for non-health 
measures. At a minimum, variations need to be allowed for applicant age 
of at least five to one (meaning that the rate of the oldest applicant 
may be no more than five times the rate of the youngest applicant). In 
addition to age, variations in premium rates should be allowed for 
other factors such as wellness plan participation, smoking status, 
industry, family composition and geography.
    Finally, the federal government should also make improvements to 
existing law to make health insurance coverage more portable for people 
who leave their jobs and employer-based coverage and need to buy 
coverage in the individual market. Examples of such individuals include 
early retirees or people who are starting a small business or 
freelancing, perhaps because they are having trouble finding other work 
with employer-based coverage. HIPAA attempts to provide individuals who 
are leaving group health insurance coverage with portability 
protections to make it easier for them to purchase coverage in the 
individual market. Unfortunately, the protections are confusing and 
many consumers unintentionally invalidate their HIPAA guaranteed-issue 
rights without realizing it, and then risk being denied coverage when 
they apply for individual coverage.
    Under current law, individuals who are leaving group coverage must 
exhaust either COBRA continuation coverage or any state-mandated 
continuation-of-coverage option if COBRA is not applicable, before they 
have any group-to-individual portability rights under HIPAA. Once the 
consumer exhausts these options, if available, then he or she can 
purchase certain types of individual coverage on a guaranteed-issue 
basis, provided that there is no more than a 63-day break in coverage.
    Most people who leave group coverage are unaware of all of the 
stipulations required to receive federal portability-of-coverage 
protections. Faced with high COBRA or state-continuation premiums, many 
individuals decline such coverage initially or after a few months. 
Then, depending on their health status or a family member's, they may 
experience extreme difficulty obtaining individual-market coverage. To 
solve this problem, the HIPAA requirement to exhaust state continuation 
coverage or COBRA before federal guarantees are available should be 
rescinded, and individuals leaving group coverage should be able to 
exercise their federal group-to-individual portability rights 
immediately, provided that there is no more than a 63-day break in 
coverage.
Subsidies
    Some changes need to be made in our tax system simply to provide 
equity for individual market consumers with their counterparts in 
employer-sponsored plans. For example, removing the 7.5 percent of 
adjusted gross limit of medical expenses on tax filers' itemized 
deduction Schedule A form and allowing the deduction of individual 
insurance premiums as a medical expense in itemized deductions would 
help many people who are part-time workers or who work for employers 
that don't offer health insurance coverage. And to put self-employed 
individuals who are sole proprietors or who have Sub-S corporations on 
a level playing field with businesses organized as ``C'' corporations, 
their current deduction from gross income should be changed to a full 
deductible business expense on Schedule C.
    NAHU also supports targeted premium-assistance programs for low-
income individuals purchasing private coverage, and we feel that the 
federal government should help finance such programs. A subsidy program 
could be national in scope, or each state could be required to create 
one that suits the unique needs of its citizens in partnership with the 
federal government. Several states have already created successful 
subsidy programs and their existing structures could be used as a model 
framework for a national reform. I have included a link to a chart that 
itemizes some of the state subsidy programs that provide us with some 
good models and creative ways to help both employers and their 
employees with the cost of health insurance coverage. Two states in 
particular should be looked to as models:
Oregon
    The Oregon Family Health Insurance Assistance Program (FHIAP) \2\ 
is one state program that could serve as a model. FHIAP is an 
innovative state coverage initiative that subsidizes both employer-
sponsored coverage and individual insurance coverage. Eligible families 
making over 150% of the Federal Poverty Level who do not receive cash 
assistance must participate if employer coverage is available, and 
others can participate on a voluntary basis. Licensed health insurance 
professionals help employers and individuals with enrollment and 
participation. The program subsidizes coverage on a sliding scale 
according to income. Subsidies range from 50% to 95% of the premium. 
Individuals and families use FHIAP subsidies to pay for insurance at 
work or to buy individual health plans if insurance is not available 
through an employer. FHIAP members pay part of the premium. They also 
pay other costs of private health insurance, such as co-payments and 
deductibles. Once approved for FHIAP, members are eligible to remain in 
the program for 12 months. Three to four months before the member's 
eligibility ends, FHIAP sends a new application and members may re-
apply. FHIAP provides direct premium assistance through the insurer for 
people who use its benefits to purchase individual coverage. For those 
with employer coverage, FHIAP reimburses employees for the cost of 
their premium within four days of receipt of a valid pay stub denoting 
the employee contribution. This program has been around for a number of 
years and struggles each year with funding, but many have benefited 
from it and it is a streamlined approach with little administrative 
cost.
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    \2\ http://www.oregon.gov/OPHP/FHIAP/
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Oklahoma
    Oklahoma's Employer/Employee Partnership for Insurance Coverage 
(OEPIC or Insure Oklahoma) \3\ is another very successful state subsidy 
program that works with both employer-sponsored and individual health 
insurance coverage for self-employed people, certain unemployed 
individuals and working individuals who do not have access to small-
group health coverage. In 2008, 9,923 employees and dependents were 
directly subsidized by Insure Oklahoma, which is a 234% increase from 
the previous year.\4\ Licensed insurance agents and brokers help 
identify applicable participants and enroll people and employers in the 
plan. Through the program, the employer pays only 25% of the premium of 
the low-wage worker, the employee pays up to 15% of the premium, and 
the state pays the remainder. The program's passage was supported by 
insurers, small employers, agents and brokers, and providers. It is 
funded by a state tobacco tax and federal funds based on a Medicaid 
Health Insurance Flexibility and Accountability waiver. Twenty insurers 
participate, offering dozens of qualified products that meet simple 
specified coverage standards.
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    \3\ http://www.oepic.ok.gov/
    \4\ Blue Cross Blue Shield Association. ``Insure Oklahoma: Overview 
and Impact.'' http://www.bcbs.com/issues/uninsured/background/insure-
oklahoma-overview.html
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Connectors and Exchanges
    In 2006, Massachusetts policymakers enacted a far-reaching health 
reform plan, creating what is known as the Massachusetts health 
insurance ``connector,'' along with other reforms all designed to 
improve health insurance coverage affordability and accessibility. Now 
many policymakers, both in Congress and in other states, are exploring 
whether the connector concept, which is also sometimes referred to as 
an exchange or portal or one-stop-shop among other terms, is an 
effective means of reducing the number of uninsured Americans.
    NAHU has thoroughly evaluated the policy ideas behind health 
insurance connector proposals. We recognize that some believe the 
connector concept has promise. But NAHU believes Congress needs to 
carefully weigh the pros and cons of any connector or exchange proposal 
concerning access to health insurance.
    An important point to remember is that the Massachusetts connector 
is a form of purchasing pool. While purchasing pools may provide more 
health plan options for individuals to choose from, history shows that 
they do not reduce health insurance costs. The most successful state 
purchasing cooperative was operational in California for 13 years, and 
the costs for small businesses always exceeded what was available in 
the traditional private market. This pool, the Health Insurance Plan of 
California (HIPC), closed its doors on December 31, 2006, because it 
was not financially viable. NAHU is concerned that if a national 
connector or Exchange is established in such a way that does not allow 
for a competitive market outside of the connector, a situation could 
develop that could endanger the ability of individuals and employers to 
find health care financing in the future.
    In many ways, a connector operates like the Federal Employees 
Health Benefit Plan, in which many private insurance plans compete to 
provide coverage for federal workers. But, unlike the FEHBP, a 
connector does not achieve the marketing and other advantages of a 
homogenous group. All health insurance products sold through a 
connector are individual policies, even if they are purchased by an 
employer in lieu of traditional group insurance coverage. Employers 
purchasing coverage through a connector may be required to establish 
premium-only Section 125 ``cafeteria'' policies through which the 
connector policies would be purchased. In Massachusetts, the connector 
replaces the individual insurance market and is a means for qualified 
individuals to enroll in a state-subsidized health insurance option 
known as Commonwealth Care. Due to legal obstacles, the Massachusetts 
connector was only recently able to begin marketing policies to small-
employer groups, three years after the Connector was created.
    Since the creation of the Massachusetts connector, connector or 
exchange bills have been introduced in more than 30 state legislatures 
and the U.S. Congress, as well as many think tanks and foundations, 
some of whom are represented today at this hearing. Some proponents of 
a connector believe that our nation's health coverage system should 
evolve from a primarily employer-based insurance system to an 
individually based one. A connector would partly achieve this goal and 
could potentially expand individual employee health insurance options, 
but it could also cause employees who have traditional group coverage 
now to lose important benefits.
    Proponents say that connectors are government-managed markets that 
sell individual private and portable health insurance while preserving 
market forces and fostering competition. Furthermore, it has been 
argued that pooling a group of individual policies within the connector 
can mitigate some risk and stabilize premiums. NAHU is not convinced 
these arguments are true.
    There are several reasons why past large-scale health insurance 
purchasing cooperatives have failed, including adverse selection and an 
inability to reduce administrative costs. Risk adjustment has been a 
particular problem. The fact is that when an individual in an employer 
group can select the coverage that will benefit his or her specific 
situation the most, they will do exactly that. This usually results in 
the sickest employees choosing the most flexible coverage that will 
allow them the greatest degree of provider selection and treatment 
options. After a while, this pool coverage option is selected so often 
by sick people that it can not sustain the financial losses and is 
forced to leave the pool to offer coverage outside the pool environment 
in a situation where it's more likely to get a variety of risks.
    Purchasing cooperatives also have failed to yield significantly 
lower administrative costs for employers, employees and insurers, and 
the same will likely hold true for connectors. It is often argued that 
many individuals and small businesses purchasing coverage together will 
be able to translate their bulk purchasing power into discounts 
normally achieved by large businesses. However, many diverse 
individuals buying insurance together do not have the same rating and 
risk profile as one large and generally more homogenous employer group, 
even if one were to merge individual and small-group markets.
    In addition, the cost savings associated with large-employer 
coverage primarily comes from the fact that the enrollees work for the 
same employer and have a standardized point of contact. A connector 
would have to individually address the needs of many subscribers 
separately. Finally, a connector with 5,000 participating individuals 
isn't really a pool of 5,000. If there are 10 plan choices with 500 
people selecting each choice, what you really have are 10 500-person 
groups insured by different carriers, not one group of 5,000. As a 
William M. Mercer study on health insurance purchasing cooperatives 
commissioned by the Commonwealth of Virginia concluded:
    ``The historical success of HIPCs has been disappointing in 
general. The enrollments have never reached the expected levels 
required to enable the HIPCs to be significant negotiators in the 
market and the hoped-for cost savings have not materialized.'' \5\
---------------------------------------------------------------------------
    \5\ Mercer, William M. Review of Health Insurance Purchasing 
Cooperatives (HIPCs). Private study Commissioned by the Commonwealth of 
Virginia. September 15, 1999.
---------------------------------------------------------------------------
Potential Conflicts with ERISA, HIPAA and COBRA
    NAHU has serious legal concerns about connectors, particularly with 
regard to situations in which employers would be purchasing or 
sponsoring individual coverage for employees. Depending on a 
connector's structure, we see potential conflicts with a number of 
federal laws, including ERISA, COBRA and HIPAA. These laws serve 
essential functions to protect consumers, and NAHU does not want to see 
these protections diminished.
    Many connector proposals would require participating employers to 
create Section 125 cafeteria plans and mandate coverage of certain 
benefits and employer contributions. This could trigger potential ERISA 
challenges. These administrative burdens would add to health insurance 
administrative costs with little, if any, value to consumers or 
employers. Potential conflicts with HIPAA and COBRA are also of great 
concern to NAHU. In Massachusetts, all policies sold through the 
connector are individual policies even if they are offered through an 
employer. This raises important COBRA and HIPAA questions for employees 
of companies that previously offered traditional group health insurance 
coverage but are now offering such coverage through a connector. For 
example:
     Do employees forfeit their COBRA rights?
     If not, when is COBRA eligibility triggered--upon 
termination of employment or at the time of the employer group 
enrollment in the connector individual policy?
     When would group-to-individual portability guaranteed-
issue rights under HIPAA be triggered?
    These eligibility concerns will likely need to be addressed by 
Congress if a national connector is created, or it may become a matter 
for the federal courts. And the potential for such courts limiting 
existing rights of group health insurance consumers is significant and 
worrisome.
    HIPAA group health provisions also appear to be problematic for 
connector proposals. HIPAA requires that health plans that involve an 
employer must comply with all of the group health insurance protections 
the law mandates. Connector plans sold through employer groups would 
seem to clearly fall under the category of employer involvement, 
particularly if employer contributions or the creation of a Section 125 
plan were involved. Therefore, Congress would need to clarify that 
individual health insurance policies purchased by employees with no 
premium financed by the employer are not the same as group health 
insurance policies and are not subject to the group insurance 
requirements specified in HIPAA or ERISA.
    Finally, and most important, NAHU feels that connector proposals 
would do nothing to address the rapidly rising costs of providing 
medical care in this country, which is the true source of high health 
insurance premiums. Health insurance market reform measures, no matter 
how they are structured, do little to reduce costs. In fact, overall 
state health program costs in Massachusetts have increased by 42 
percent since the enactment of the 2006 reforms. The cost of medical 
care is the key driver in rising health insurance premiums. It is 
what's putting the cost of health care coverage beyond the reach of 
many Americans.
Structuring of a Connector or Exchange
    Despite all of our concerns about a traditional health insurance 
exchange, NAHU does recognize the need for greater opportunities to 
enroll individuals in health insurance coverage. In particular, the 
issue of individuals who are eligible for programs like Medicaid and 
CHIP but are not actually enrolling in the coverage needs to be 
addressed. There is also the perception that uninsured individuals need 
a centralized place to access coverage option, connect with qualified 
professionals and make choices based on their individual needs and 
budgets. Finally, the employer-sponsored health insurance system 
provides tax advantages but it's not always an available option for 
everyone.
    If Congress does decide to create a national connector or exchange, 
it is critical that such an entity be structured in such a way that it 
does not damage or eliminate the traditional private insurance 
marketplace. If pools totally replace other private-market options, 
there may be no other vehicle for coverage if the pool fails. One of 
the most key structural decisions that will need to be made is if a 
national connector will be a ``portal'' or a bricks-and-mortar 
institution and regulatory body that also sells private coverage or 
offers a public program option. The flea-market approach may be the 
best way to provide consumers with easier access to coverage options 
without disrupting the existing private insurance market.
    The Internet-based travel company Travelocity is an example of a 
flea-market approach to access to a service: Private companies compete 
and sell their products in one place. Travelocity does not regulate the 
routes airlines fly, nor does it regulate the prices that vendors 
charge consumers.
    Another structural issue Congress will need to address is how a 
national connector or exchange will mesh with existing and varying 
state coverage rules and consumer protections. Plan rating rules and 
other requirements should mirror state laws outside the connector, 
otherwise adverse selection will be rampant. National experience with 
purchasing pools of all kinds shows that pools that operate at the 
state level that also fairly compete with plans outside the pool are 
the least disruptive to the market. Under no circumstances should 
rating laws be less restrictive inside the connector, and rating laws 
more restrictive than the outside market will cause selection against 
the connector. Also, in terms of rating requirements, Congress should 
keep in mind that current state rating law differences reveal that more 
restrictive age bands result in higher costs and lower participation 
over time.
    Greater stability will also be realized by not mixing market types 
(i.e., not combining individuals purchasing coverage independently with 
small businesses or other group coverage). State laws differ 
significantly between the group and individual markets and, 
actuarially, these segments are quite different. Combining them would 
cause adverse selection to the pool. And although including the self-
employed in a connector is an attractive idea, it should be done 
cautiously as it can cause the same problems as combining individual 
and small-employer markets. If both small groups and the self-employed 
are eligible for participation, extra restrictions should be made on 
the self-employed to control entry into the pool and to ensure the 
existence of a business.
    One function of the Massachusetts connector is to administer the 
state's subsidized coverage program, Commonwealth Care. If a national 
connector is utilized as a means of subsidy administration, such 
subsidies should be broad-based and available to eligible individuals 
and businesses both inside and outside the connector. If subsidies are 
available only inside the connector, crowd-out from existing private 
plan coverage will be dramatic and could destabilize the market. 
Subsidies only available in the pool can also result in higher-than-
expected costs for those in the pool and an apparent larger number of 
uninsured than actually exist.
Employer Mandates
    Although we are strong proponents of employer-sponsored coverage, a 
mandate to force employers to provide health insurance to their 
employees, while well-intentioned, could actually hurt American workers 
and health insurance coverage by decreasing jobs and economic growth, 
as well as do little to reach the current uninsured population. It 
would have a negative impact on wages and job creation, and would 
principally impact low-skilled employees because employers would be 
forced to cut jobs to control skyrocketing labor costs.
    Measures that would force an employer to spend certain dollar 
amounts or percentages of their payroll on a health plan that may bear 
little resemblance to what is needed by a particular employee 
population merely provide a disincentive for responsible spending and 
health insurance rate containment.
    Additionally, such proposals often come with an opportunity for 
employers to ``opt out'' of providing coverage themselves and instead 
pay into a government-sponsored plan or fund that would provide 
coverage in lieu of the employer's plan. Such programs would compete 
unfairly with the private market and cause employers that continue to 
provide coverage to experience higher costs due to cost-shifting. In a 
similar vein, proposals that allow employees to opt out of their 
employer-sponsored plans in favor of some type of pooled purchasing 
arrangement would jeopardize the ability of employers to continue to 
offer their plans by decreasing pooling efficiencies, increasing 
employer administrative cost for tracking plan selection, and 
jeopardizing the employer's ability to meet plan-participation 
requirements.
Conclusion
    The United States health care system works for the vast majority of 
its citizens, yet we can do better. Improvement will require strong 
leadership, a thorough debate of all proposals and, ultimately, 
difficult compromises and decisions. All stakeholders will feel some 
pain in order to achieve a universal gain. NAHU agrees with those who 
recognize that the status quo can no longer be everyone's second 
choice, and we pledge full participation in the coming debate.
    Ultimately, we believe the time is right for a solution that 
controls medical care spending and guarantees access to affordable 
coverage for all Americans. We believe this can be accomplished without 
limiting people's ability to choose the health plan that best fits 
their needs and without creating an expensive, unneeded new government 
bureaucracy. We look forward to working with all interested parties in 
achieving our common goal: a world-class and affordable health care 
system for all Americans.
    I would be happy to respond to any questions or comments.
                                 ______
                                 
    Chairman Andrews. Ms. Trautwein, thank you very much. We 
appreciate your testimony.
    Mr. Oemichen, welcome. We are happy to have you with us.

 STATEMENT OF WILLIAM OEMICHEN, PRESIDENT AND CEO, COOPERATIVE 
                            NETWORK

    Mr. Oemichen. Good morning, Chairman Andrews, Ranking 
Member Kline and members of the Subcommittee. Thank you for the 
opportunity to testify in support of federal reforms that would 
allow small employers, their employees and their families to 
gain greater access to affordable, quality health insurance 
coverage.
    I am Bill Oemichen. I am president and CEO of Cooperative 
Networks, a Minnesota and Wisconsin association of more than 
600 cooperative businesses owned by more than 6.3 million 
residents of both states.
    I am testifying today on behalf of the Alliance for 
Employee Benefits Cooperative, a broad-based coalition of 
cooperative organizations committed to advancing health care 
and benefits coverage for American workers and families through 
the creation of employee benefit cooperatives. Our alliance 
members operate in all 50 states, represent over 13,000 member 
owners and approximately 40,000 local businesses and more than 
700,000 employees.
    We all know that a critical piece of the health care puzzle 
is the need to expand coverage among small businesses and their 
employees. Small businesses lack economies of both scale and 
expertise in providing health and other employee benefits to 
their workers. Small employers that attempt to provide health 
insurance for their employees face far greater challenges than 
larger employers, including stricter underwriting, higher 
prices, fewer choices, lower quality benefits and little or no 
data upon which to make informed decisions. For these reasons, 
millions of small business employees do not receive health care 
and benefits coverage.
    To address this problem, an aggregation method for small 
businesses that allow them to achieve the economies of scale 
and expertise they need is essential.
    Employee benefit cooperatives would provide such a method 
and would do so in such a way that ensures small businesses, 
small business employees receive quality coverage.
    This leads to a logical question, ``What is an employee 
benefit cooperative?'' An employee benefit cooperative would be 
a cooperative organized under Internal Revenue Code subchapter 
T, with at least 21 shareholders, all in the same line of 
business. Under this approach, small employers would join with 
employee benefit cooperatives as shareholder-members. And the 
employee benefit cooperative would be the aggregating vehicle 
utilized to purchase and deliver health insurance and other 
employee benefits to their employees or to the employees and 
their shareholder-members. Employee benefit cooperatives would 
be required to cover all the employees of its shareholder-
members.
    We believe that cooperatives are ideally suited to serve as 
a small business aggregator vehicle for employee benefit 
purposes.
    Cooperatives have a long and deep history in our nation and 
have been utilized by Americans for centuries to achieve 
economies of scale and expertise. In many instances, they are 
built to band together to achieve group purchasing power and 
provide value-added expertise and organization is the driving 
force behind the creation of a cooperative.
    To date, our nation's employee benefit laws generally have 
not recognized the ability to utilize the cooperative form for 
benefits delivery. This problem can be fixed relatively simply 
by clarifying that an employee benefit cooperative is 
recognized as a single employer under federal employee benefits 
law.
    I want to take a minute to distinguish employer benefit 
cooperatives from other proposals in recent years that have 
sought some form of business aggregation for health care 
delivery purposes, most notably Association Health Plans, or 
AHPs. The employee benefit cooperative model is different in 
several important respects.
    First and foremost, employee benefit cooperatives are not 
attempting to avoid state benefit standards, such as community 
rating and guaranteed issue. In addition, self insurance is not 
a necessary competent of the proposal. Employee benefit 
cooperatives can partner with the existing private insurance 
system so long as the employee benefit cooperatives have the 
right of negotiation as a single employer. Finally, the 
structural characteristics of Internal Revenue Code, subchapter 
T, cooperatives generally, and of the employee benefit 
cooperative in particular, provide additional protection.
    I know first hand from experience in Minnesota and 
Wisconsin and, hopefully shortly in Michigan, that the 
cooperative model works.
    My organization, the Cooperative Network, is working to 
provide health insurance to small businesses and farmers 
throughout the state of Wisconsin. And as I said, I also hope 
to do the same shortly in Minnesota and Michigan.
    For example, with the Farmers health Cooperative of 
Wisconsin, we have successfully used the power of group 
purchasing to negotiate a lower renewal rate increase, provide 
first-dollar coverage of preventative coverage up to the first 
$500, and ensure that farm-related accidents are covered by 
health insurance. We were able to accomplish all this without 
denying insurance to anyone that meets our membership criteria.
    We have also helped create small business school districts 
and even physician cooperatives that are providing expanded 
benefits to the member-owners.
    In closing, let me reemphasize how necessary it is that 
there be an aggregation vehicle for small businesses to achieve 
the economies or scale and expertise to maintain health and 
other employee benefits programs for their employees.
    Thank you very much for the opportunity to testify, and I 
also am very willing to answer questions for you.
    [The statement of Mr. Oemichen follows:]

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                                ------                                

    Chairman Andrews. Thank you. We are happy to have you here. 
We very much appreciate your testimony.
    Doctor, welcome to the Committee. We are pleased that you 
are with us.

    STATEMENT OF DAVID HIMMELSTEIN, ASSOCIATE PROFESSOR OF 
                  MEDICINE, HARVARD UNIVERSITY

    Dr. Himmelstein. Mr. Chairman, thank you so much for having 
me.
    I am a primary care doctor, and I am flying back after this 
hearing to make rounds at Massachusetts General Hospital and 
thank my internists and residents for being willing to stay 
until 8 o'clock tonight to do rounds with me.
    I also serve as a national spokesperson and was co-founder 
of Physicians for a National Health Program. Our 16,000 
physician members support single-payer, nonprofit national 
health insurance because of the overwhelming evidence that 
lesser reforms will fail us. And we support H.R. 676 that Mr. 
Conyers has introduced.
    Health reform must address the cost price of not only for 
the uninsured but for the insured as well.
    My research group found that illness and medical bills 
contributed to about half of all medical bankruptcies in the 
U.S. in 2001, and even more than that in 2007, I might say, in 
a study we have coming out shortly.
    Strikingly, three-quarters of these medically bankrupt 
American families--and remember 1 million Americans are 
bankrupted by medical problems each year. Three quarters of 
them had insurance when they first got sick. But that coverage 
was too skimpy to protect them from financial collapse.
    The employer-based system is not working, even for those 
who have employer-based coverage.
    A single-payer reform would make care affordable through 
vast savings on bureaucracy and profits. As my colleagues and I 
have shown in research published in the New England Journal of 
Medicine, administration now consumes $0.31 of every health 
dollar in the U.S., nearly double what costs are in Canada.
    In other words, if we cut our bureaucratic costs to 
Canadian levels, we would save nearly $400 billion annually, 
more than enough to cover the uninsured and to eliminate co-
payments and deductibles for all Americans. By simplifying the 
payment system, Canada has cut insurance overhead to 1 percent, 
one-twentieth of Aetna's level. They do not pay their CEO 
$225,000 each day, as Aetna's CEO receives.
    And they have eliminated mounds of expensive paperwork for 
doctors and hospitals. In fact, while cutting insurance 
overhead could save us $131 billion each year, our insurers 
waste much more than that because of the useless paperwork they 
inflict on hospitals and on doctors.
    A Canadian doctor gets paid like a fire department does in 
the U.S. It negotiates a global budget with a single insurance 
plan in its province and gets one check each month that covers 
virtually all costs. They do not have to bill for every Band-
Aid and aspirin tablet.
    At my hospital, we know our budget January 1, but we 
collect it piecemeal in fights with hundreds of insurers over 
thousands of bills each day. The result is that hundreds of 
people work for Mass General's billing department, while 
Toronto General employs a handful, mostly to send bills to 
Americans who wonder across the border.
    All together, U.S. hospitals could save $120 billion 
annually on bureaucracy under a single-payer system. And 
doctors in the U.S. waste about $95 billion each year fighting 
with insurance companies and the useless paperwork they inflict 
on us.
    Significantly, these massive potential savings can only be 
achieved through a single-payer reform. A health reform plan 
with a public plan option might realize some savings on 
insurance overhead, but as long as multiple private plans co-
exist with the public plan, hospitals and doctors would have to 
maintain our costly billing and internal cost tracking 
operations.
    Indeed, my colleagues and I estimate that if half of all 
privately insured Americans switch to a public plan with 
overhead at Medicare's levels, you would get administrative 
savings about 9 percent of what could be achieved under a 
single payer.
    While administrative savings from reform that includes a 
Medicare-like public option are modest, at least they are real.
    In contrast, other widely touted cost-control measures are 
completely illusionary. A raft of studies shows that prevention 
saves lives. But it usually actually costs money. I spend my 
day as a primary care doctor, doing it because it saves lives. 
But we have no illusions that we are saving money.
    The recently-completed Medicare demonstration project found 
no cost savings come from chronic disease management. And the 
claims that computers will save money are based on pure 
conjecture.
    We have a study about to be published, of 3000 hospitals, 
showing that hospitals with higher computerization levels 
actually have higher costs.
    My home state of Massachusetts' recent experience with 
health reform illustrates the dangers of believing overly 
optimistic cost-control claims. Before its passage, the 
reform's backers promised many of the things being promised for 
lesser reforms here in D.C. Instead, costs have skyrocketed, 
rising 23 percent in just 2 years. And insurance exchanges 
added 4 percent for its own administrative costs to the already 
high cost of care. One in five Massachusetts residents still 
say they cannot afford care.
    In sum, a single-payer reform would make universal 
comprehensive coverage affordable by diverting hundreds of 
billions of dollars from bureaucracy to patient care. Lesser 
reforms, even those that include a public plan, cannot realize 
such savings.
    While reforms that maintain a major role for private 
insurers may seem politically expedient, they are economically 
and medically nonsensical.
    Thank you.
    [The statement of Dr. Himmelstein follows:]

            Prepared Statement of David U. Himmelstein, M.D.

    Mr. Chairman, members of the Committee. My name is David 
Himmelstein. I am a primary care doctor in Cambridge, Massachusetts and 
Associate Professor of Medicine at Harvard. I also serve as National 
Spokesperson for Physicians for a National Health Program. Our 15,000 
physician members support non-profit, single payer national health 
insurance because of overwhelming evidence that lesser reforms will 
fail.
    Health reform must address the cost crisis for insured as well as 
uninsured Americans. My research group found that illness and medical 
bills caused about half of all personal bankruptcies in 2001, and even 
more than that in 2007. Strikingly, three quarters of the medically 
bankrupt were insured. But their coverage was too skimpy to protect 
them from financial collapse.
    A single payer reform would make care affordable through vast 
savings on bureaucracy and profits. As my colleagues and I have shown 
in research published in the New England Journal of Medicine, 
administration consumes 31% of health spending in the U.S., nearly 
double what Canada spends. In other words, if we cut our bureaucratic 
costs to Canadian levels, we'd save nearly $400 billion annually--more 
than enough to cover the uninsured and to eliminate copayments and 
deductibles for all Americans.
    By simplifying its payment system Canada has cut insurance overhead 
to 1% of premiums--one twentieth of Aetna's overhead--and eliminated 
mounds of expensive paperwork for doctors and hospitals. In fact, while 
cutting insurance overhead could save us $131 billion annually, our 
insurers waste much more than that because of the useless paperwork 
they inflict on doctors and hospitals.
    A Canadian hospital gets paid like a fire department does in the 
U.S. It negotiates a global budget with the single insurance plan in 
its province, and gets one check each month that covers virtually all 
costs. They don't have to bill for each bandaid and aspirin tablet. At 
my hospital, we know our budget on January 1, but we collect it 
piecemeal in fights with hundreds of insurers over thousands of bills 
each day. The result is that hundreds of people work for Mass General's 
billing department, while Toronto General employs only a handful--
mostly to send bills to Americans who wander across the border. 
Altogether, U.S. hospitals could save about $120 billion annually on 
bureaucracy under a single payer system.
    And doctors in the U.S. waste about $95 billion each year fighting 
with insurance companies and filling out useless paperwork.
    Unfortunately, these massive potential savings on bureaucracy can 
only be achieved through a single payer reform. A health reform plan 
that includes a public plan option might realize some savings on 
insurance overhead. However, as long as multiple private plans coexist 
with the public plan, hospitals and doctors would have to maintain 
their costly billing and internal cost tracking apparatus. Indeed, my 
colleagues and I estimate that even if half of all privately insured 
Americans switched to a public plan with overhead at Medicare's level, 
the administrative savings would amount to only 9% of the savings under 
single payer.
    While administrative savings from a reform that includes a 
Medicare-like public plan option are modest, at least they're real. In 
contrast, other widely touted cost control measures are completely 
illusory. A raft of studies shows that prevention saves lives, but 
usually costs money. The recently-completed Medicare demonstration 
project found no cost savings from chronic disease management programs. 
And the claim that computers will save money is based on pure 
conjecture. Indeed, in a study of 3000 U.S. hospitals that my 
colleagues and I have recently completed, the most computerized 
hospitals had, if anything, slightly higher costs.
    My home state of Massachusetts recent experience with health reform 
illustrates the dangers of believing overly optimistic cost control 
claims. Before its passage, the reform's backers made many of the same 
claims for savings that we're hearing today in Washington. Prevention, 
disease management, computers, and a health insurance exchange were 
supposed to make reform affordable. Instead, costs have skyrocketed, 
rising 23% between 2005 and 2007, and the insurance exchange adds 4% 
for its own administrative costs on top of the already high overhead 
charged by private insurers. As a result, one in five Massachusetts 
residents went without care last year because they couldn't afford it. 
Hundreds of thousands remain uninsured, and the state has drained money 
from safety net hospitals and clinics to kept the reform afloat.
    In sum, a single payer reform would make universal, comprehensive 
coverage affordable by diverting hundreds of billions of dollars from 
bureaucracy to patient care. Lesser reforms--even those that include a 
public plan option--cannot realize such savings. While reforms that 
maintain a major role for private insurers may be politically 
attractive, they are economically and medically nonsensical.
                                 ______
                                 
    Chairman Andrews. Doctor, thank you very much. And we 
appreciate the long day that you are putting in to be with us 
today. We appreciate it very much.
    Dr. Himmelstein. My residents are putting in a longer day.
    Chairman Andrews. Well, you will be there at 8 o'clock with 
them though, so thank you.
    Ms. Davenport, welcome.

STATEMENT OF KAREN DAVENPORT, DIRECTOR OF HEALTH POLICY, CENTER 
                     FOR AMERICAN PROGRESS

    Ms. Davenport. Thank you very much, Mr. Chairman and 
members of the Subcommittee. I am honored to be here today to 
testify on improving health coverage for American employers and 
American families.
    My focus today is on ensuring access to affordable, 
meaningful coverage for all workers who obtain health coverage 
through their employer, which in some circumstances may be 
outside the national insurance exchange, which is a prominent 
feature of the current health care debate.
    Headline stories usually focus on problems in the so-called 
non-groups market where individuals struggle on their own to 
obtain meaningful health insurance coverage at a reasonable 
cost, and mostly fail to find it.
    But the employer market where 160 million Americans obtain 
their health insurance poses plenty of problems too. Most 
importantly, nearly 9 million workers employed by larger 
employers were uninsured in 2007. In some cases, employees are 
not eligible for insurance. In others, they cannot afford to 
enroll in the coverage that their employer offers. Finally, 
even if workers are eligible for and can afford this coverage, 
they cannot be confident that it will be good enough to pay for 
their health care needs.
    We know that while adults with employer-sponsored health 
insurance are less likely to be underinsured than those who 
purchase coverage through the individual markets, even 
employees in large companies experience underinsurance.
    Of course, employers, and large employers in particular, 
have also pioneered innovative approaches to health coverage 
and cost control, including quality improvement initiatives, 
wellness programs and employee education efforts. These types 
of initiatives have reduced their health care spending and 
blazed the trail for delivery system improvements in the 
broader health care systems.
    With these market conditions in mind, Congress may wish to 
consider exactly how health reform addresses gaps in the 
employer market.
    While all employers and workers may benefit from obtaining 
coverage through the healthy competitive market an exchange 
will create, Congress may decide that opening the exchange to 
all employers outweighs the benefits to workers, particularly 
the possibility that employers with older or sicker workforces 
may enter the exchange in larger numbers, thus destabilizing 
rates during the start-up phase of an exchange.
    Instead, Congress may wish to consider improvements to the 
health insurance market outside the exchange, improvements that 
can guarantee coverage and consumer protections for all workers 
with employer-sponsored health insurance.
    In that case, there are several steps to consider.
    First, Congress can make sure that American families can 
access health care whether they obtain their coverage inside or 
outside the exchange.
    Regardless of where Americans obtain their health 
insurance, they need to know that their health benefits will be 
accessible and protected. Basic consumer protections include 
complaints and appeals processes, enrollment mechanisms, plan 
information requirements and the plan's responsibility to make 
data available for monitoring and oversight activities, as well 
as the vigorous oversight activities themselves.
    These protections should apply to all health insurance, 
whether the policy originates from within the insurance 
exchange, and employer-purchased policy or a self-insured 
employer plan.
    Second, health coverage should be adequate and affordable 
inside and outside the exchange. For example, to ensure 
affordability for families, Congress may choose to require 
companies that offer coverage outside the exchange to pay a 
minimum proportion of premiums.
    Similarly, to ensure that health benefits are adequate, 
Congress may choose to apply the same benefit standards to 
policies sold inside an outside the exchange.
    Of course, if the final reform package includes an 
individual requirement to carry health insurance, then this 
requirement will also interact with the standards for employer-
sponsored benefit packages.
    An individual coverage requirement would necessarily 
include a minimum-benefit standard and an expectation that 
workers could meet this requirement through the coverage 
offered by their employer.
    If Congress chooses to explicitly share responsibility for 
health coverage across individuals and employers, then it may 
be best to apply the same coverage standard to both parties, a 
standard that would apply to coverage inside and outside the 
exchange.
    Any steps Congress make take to guarantee good coverage 
outside the exchange will probably represent little or no 
change for many large employers, since any new requirements are 
likely to reflect what these employers do today. But 
affordability and coverage standards will increase costs for 
the employers who offer substandard benefits and for employers 
who cover only a modest proportion of health insurance premiums 
themselves.
    Therefore, Congress will want to consider the tradeoffs 
involved for these employers and their workers. Some employers 
may, if they can, drop coverage all together. Others may pass 
costs onto their employees, which will particularly affect 
lower-skilled and lower-wage workers. So Congress may choose to 
provide additional options for these vulnerable workers.
    While all workers should have access to affordable 
coverage, low-income workers should have additional avenues for 
enrolling in coverage that works best for them. By enabling 
these workers to obtain coverage through the exchange, even 
though they work for large employers who do not participate in 
the exchange, Congress can improve these workers' overall 
financial health and wellbeing.
    To conclude, Congress faces choices about how to guarantee 
adequate, affordable coverage for Americans who work for large 
employers. However, the benefits of making these decisions are 
irrefutable. Reforming our nation's health care system is a 
challenging task, but the results will be worth it--lower costs 
and better coverage.
    Thank you for your commitment to providing affordable, 
high-quality health coverage for all Americans.
    [The statement of Ms. Davenport follows:]

   Prepared Statement of Karen Davenport, Director of Health Policy, 
                Center for American Progress Action Fund

    Chairman Andrews, Congressman Kline, and Members of the 
Subcommittee, I am honored to be here today to testify on improving 
health coverage for American employers and American families. As you 
well know, health care reform is critical to restoring the financial 
health and well-being of our nation's families. Reform means reducing 
the crushing burden of rising health care costs on America's families, 
businesses, and governments at all levels. It also means ensuring that 
everyone has reliable, meaningful, affordable health coverage. Reform 
efforts that achieve one but not both of these goals will be 
incomplete. That's why policymakers and health care experts are 
considering the idea of a national health insurance exchange--an 
improved health care market that would offer individuals and employers 
a new avenue for acquiring private or publicly sponsored health 
insurance. My focus today, however, is on assuring access to 
affordable, meaningful coverage for all workers who obtain health 
coverage through their employer, which in some circumstances may be 
outside of the national insurance exchange.
Market issues
    Problems in the nation's health insurance markets are one of the 
driving forces behind health care reform. Headline stories usually 
focus on problems in the so-called nongroup market, where individuals 
struggle on their own to obtain meaningful health insurance coverage at 
a reasonable cost and mostly fail to find it. But the employer market--
where 160 million Americans obtain their health insurance--boasts 
plenty of problems as well. Most striking, of course, is the rapid 
escalation of premiums for employer-sponsored insurance, which have 
increased 119 percent since 1998.\1\ In addition, nearly 9 million 
workers employed by larger employers (companies with 100 or more 
workers) were uninsured in 2007.\2\
    The business characteristics of companies influence whether an 
employer offers coverage. Companies that employ a high proportion of 
low-wage workers, a high proportion of part-time workers, or a high 
proportion of younger workers are the least likely to offer health 
benefits.\3\ Workers employed by large companies are most likely to be 
offered benefits, with 99 percent of companies with 200 or more workers 
offering health benefits. Yet even the employees of these larger 
companies cannot be certain they will be eligible for this coverage or 
that health coverage will be within their financial reach.
    Even among these larger firms, for example, 21 percent of workers 
are not eligible for coverage. And regardless of company size, only 71 
percent of employees who work for companies with many low-wage workers 
are eligible for coverage, compared to 81 percent of employees at 
companies with a low proportion of low-wage workers.
    Large companies are less likely than small ones to require 
employees to pay a substantial portion of their health insurance 
premiums. But even among larger employers, 6 percent of them require 
employees to pay more than half the cost of a family premium.\4\ And 
even if workers are eligible for and can afford the coverage their 
employer offers, they cannot be confident that this coverage will be 
good enough to pay for their health care needs. The Commonwealth Fund 
2007 Biennial Health Insurance Survey, which examined the prevalence of 
underinsurance\a\ among adults with health insurance, found that while 
adults with employer-sponsored health insurance are less likely to be 
underinsured than those who purchase coverage through the individual 
market, even employees in large companies experience underinsurance.\5\
    Of course, employers--and large employers in particular--have also 
pioneered innovative approaches to health coverage and cost control. In 
a set of case studies examining employers' experiences offering health 
benefits, the Center for American Progress profiled two multinational 
employers' care coordination strategies and employee education efforts. 
One company worked with local providers to improve care for common 
conditions within their workforce and created employee education 
initiatives such as ``welcome to health insurance'' phone calls to 
educate employees about their benefits, appropriate use of the 
emergency room, and the importance of establishing a primary care 
provider.
    The other company created a decision-support program for employees, 
which provided information on best practices, treatment options, and 
provider quality ratings for employees with particular diagnoses.\6\ 
These initiatives--and similar efforts by other major employers--have 
reduced their health care spending and blazed the trail for delivery 
system improvements in the broader health care system.
    Nevertheless, the escalating costs and coverage gaps in the 
employer market suggest that as we seek to provide all Americans with 
guaranteed, affordable health insurance, we must find solutions for 
those with employer-sponsored coverage as well as the uninsured.
Principles for improving the employer market
    With these market conditions in mind, Congress may wish to consider 
exactly how health reform addresses the gaps in the employer market so 
evident today. Guaranteeing adequate, affordable coverage for all 
Americans regardless of where they obtain their health insurance is a 
key component of health reform. Health care reforms that establish 
fundamental inequities between a national health insurance exchange and 
the employer-based health insurance market (the source of most 
Americans' health insurance today) will ultimately compromise our 
efforts to fix our broken health care system. Therefore, as Congress 
moves forward with reform legislation, I urge you to keep in mind three 
basic principles for improving the employer market:
    First, make sure that American families can access health care 
whether they obtain their coverage inside or outside the exchange. 
Basic consumer protections should apply to all health insurance, 
whether the policy originates from the insurance exchange, an employer-
purchased policy, or a self-insured employer plan.
    Second, health coverage should be adequate and affordable inside 
and outside the exchange. Many employers who offer health coverage will 
be able to meet the benefit and affordability standards that apply 
within the exchange.
    Third, consider additional options for vulnerable workers. All 
workers should have access to affordable coverage, but low-income 
workers should have additional avenues for enrolling in coverage that 
works best for them. By enabling these workers to obtain coverage 
through the exchange--even though they work for large employers who do 
not participate in the exchange--Congress can improve these workers' 
overall financial health and well-being.
Steps forward for the employer market
    As Congress considers reforms to our nation's health insurance 
markets, it must consider changes that will help workers in large 
businesses acquire and maintain adequate, affordable health coverage. 
One option would be to enable all employers to purchase coverage 
through the exchange, including large employers. The principles behind 
the exchange--a healthy, competitive market that provides individuals 
with a range of easily comparable insurance options available without 
regard to health status or insurance history--would provide coverage 
guarantees that all workers should enjoy. Similarly, all workers can 
benefit from the opportunity to choose between private coverage and a 
public health insurance plan within the exchange, particularly because 
vigorous competition on price and quality across private and public 
plans should drive down costs.
    Members of Congress, however, may decide that the risks of opening 
the exchange to all employers outweigh the benefits to workers--
particularly the possibility that employers with older or sicker 
workforces may enter the exchange in large numbers, thus destabilizing 
rates during the start-up phase of the exchange. Instead, Congress may 
wish to consider improvements to the health insurance market outside of 
the exchange--improvements that can guarantee coverage and consumer 
protections for all workers with employer-sponsored health insurance.
    There are many issues to consider here, but I will examine some 
improvements that should provide additional coverage guarantees for 
workers outside of a health insurance exchange, and then discuss other 
choices the committee may consider with respect to low-income workers.
    First, to make sure that workers who obtain coverage outside of the 
exchange enjoy equivalent access to coverage and to health care, 
Congress may wish to consider coverage rules and insurance standards 
for all employers. Other witnesses will discuss problems with pre-
existing condition exclusions and lifetime limits on health insurance 
coverage. Additional issues include other types of access protections, 
such as complaints and appeals processes, enrollment mechanisms, plan 
information requirements, other enrollee rights, and plans' 
responsibility to make data available for monitoring and oversight 
activities as well as research. By imposing equivalent requirements on 
plans that sell coverage within and outside of the exchange, as well as 
employers who self-insure, Congress can ensure that regardless of where 
Americans obtain their health insurance they can know their health 
benefits will be accessible and protected.
    A second set of concerns relates to other issues at the heart of 
health care reform--whether coverage is adequate and affordable. It is 
likely that within the health insurance exchange, plans will offer 
policies designed around a standard benefit package. One of Congress's 
balancing acts will be to weigh the competing claims of adequate 
benefits and costs. Another challenge will be to ensure that health 
coverage and health services are affordable for low- and middle-income 
families. Congress will need to determine income eligibility for 
government help with premiums and cost-sharing, and the size of these 
subsidies. For families who obtain coverage through the exchange, the 
questions facing Congress are straightforward even if the answers 
require a balance between ensuring access and controlling public costs. 
But the balancing act between good benefits, family affordability, and 
total costs is equally important in the employer market that remains 
outside of the exchange.
    Any steps Congress may take to guarantee good coverage in this 
market will probably represent little or no change for many large 
employers, since these new requirements are likely to reflect many 
employers' current practices. For example, to ensure affordability, 
Congress may choose to require companies that offer coverage outside of 
the exchange to pay a minimum proportion of plan premiums. Similarly, 
to ensure that health benefits are adequate, Congress may choose to 
apply the same benefit standards to policies sold inside and outside of 
the exchange. Of course, if the final health reform package includes an 
individual requirement to carry health insurance, then this requirement 
will also interact with standards for employer-sponsored benefit 
packages. An individual coverage requirement would necessarily include 
a minimum benefit standard--and an expectation that workers could meet 
this requirement through the coverage offered by their employer. If 
Congress chooses to explicitly share responsibility for health coverage 
across individuals and employers, then it may be best to apply the same 
coverage standard to both parties--a standard that would also apply to 
coverage inside and outside the exchange.
    Many large employers will be able to meet new affordability and 
coverage thresholds. But these steps will increase costs for the 
employers who offer substandard benefit packages today, and for 
employers who cover only a modest proportion of health insurance 
premiums themselves. A pay-or-play requirement raises similar concerns. 
Congress will therefore want to consider the tradeoffs involved and 
likely outcomes for these types of employers and their workers.
    Employers who will experience new costs to reach coverage and 
affordability standards may drop coverage altogether unless they are 
required to maintain it. If they are mandated to maintain coverage, 
then they may cut wages or jobs to cover the cost, or they may directly 
pass increased benefit costs to workers while maintaining their current 
contribution levels. These possible employer reactions--wage and job 
losses or increased benefit costs for workers--would particularly hurt 
low-income or low-skilled workers. Of course, the availability of 
lower-cost coverage through the exchange--particularly with the 
additional competitive pressure of a public health insurance plan--
should also slow the growth of health care costs for the entire system, 
thus reducing pressure on wages. But in the short term, more highly 
skilled workers may simply find new employment if their employer drops 
coverage or passes increased costs to their work force. Lower-skilled 
workers, on the other hand, would have less ability to evade these 
consequences and to obtain affordable coverage.
    Congress may therefore want to establish good benefits and 
affordability standards for coverage outside the exchange while 
providing a safety net or escape valve to protect low-income workers. 
One option would be to enable workers to individually choose to enroll 
in exchange-based coverage. Employers could be required to pay into the 
exchange what they would have otherwise paid to cover the worker, and 
the worker would pay premiums to the exchange that would be reduced by 
the appropriate premium subsidy for their income level. Congress could 
limit this approach to those employees who would be better off with 
exchange-based coverage, largely because they would receive a premium 
subsidy through the exchange and therefore pay less for coverage in 
that market.
Conclusion
    While problems in the nongroup market have garnered the lion's 
share of attention in the policy debate, Congress must also make 
choices to guarantee adequate, affordable coverage to Americans who 
work for large employers. However, the benefits of making these 
decisions are irrefutable. Reforming our nation's health care system is 
a challenging task but the results will be worth the effort--lower 
costs and better coverage.
    Thank you for your commitment to providing affordable, high-quality 
health coverage for all Americans. I look forward to working with you 
to achieve this goal.
                                endnotes
    \a\ This study classified individuals as ``underinsured'' if they 
experienced either out-of-pocket medical expenses that equaled or 
exceeded 10 percent of income, deductibles that equaled or exceeded 5 
percent of income, or, if the respondent had income below 200 percent 
of the federal poverty level, out-of-pocket medical expenses that 
amounted to at least 5 percent of income.

    \1\ Kaiser Family Foundation, ``Trends in Health Care Costs and 
Spending'' (March 2009), available at http://www.kff.org/insurance/
upload/7692--02.pdf.
    \2\ P. Fronstin, ``Sources of Health Insurance and Characteristics 
of the Uninsured: Analysis of the March 2008 Current Population 
Survey,'' EBRI Issue Brief No. 321, September 2008, available at http:/
/www.ebri.org/pdf/briefspdf/EBRI--IB--09a-2008.pdf.
    \3\ Kaiser Family Foundation/Health Research Education Trust, 
``Employer Health Benefits 2008 Annual Survey,'' available at http://
ehbs.kff.org/pdf/7790.pdf.
    \4\ Ibid.
    \5\ C. Schoen, S. Collins, J. Kriss and M. Doty, ``How Many are 
Underinsured? Trends Among U.S. Adults, 2003 and 2007,'' Health Affairs 
27 (4) (2008): w298-2309.
    \6\ M. Seshamani, ``Opportunity Costs and Opportunities Lost: 
Businesses Speak Out About the US Health Care System'' (Washington: 
Center for American Progress, April 2007), available at http://
www.americanprogress.org/issues/2007/04/pdf/health--business--case--
study.pdf.
                                 ______
                                 
    Chairman Andrews. Thank you, Ms. Davenport.
    And thank you, ladies and gentlemen. I appreciate very much 
your efforts.
    I think what is most proper and impressive is that everyone 
here said what they are for. They advocated for a specific 
solution. And that is a big step forward in and of itself.
    We have had 40 years of dialogue in American politics about 
what is wrong. I think it is very refreshing that people are 
taking the responsibility to say what they are for. And it is 
our job to try to reconcile those very divergent points of 
view.
    We started the discussion with asking, how might costs be 
controlled so that coverage could be expanded. And we have 
heard a lot of different ideas. We have heard about increasing 
competitive options and competition. We have heard about 
employer cooperatives. We have heard about trying to root our 
fraud and conflict of interest from the system. We have heard 
about better education, lifestyle choices, chronic disease 
management. We have heard about excessive profits of the 
insurance industry and the paperwork burden on practitioners. 
We have heard about changes in the insurance laws that deal 
with pre-existing conditions and life-time policy caps, benefit 
caps and what not.
    Some combination of those, I am certain, will reduce costs 
and therefore insure more people and therefore reduce costs.
    But I am equally certain that the gap that exists between 
the income of most uninsured people and the price of an 
insurance policy will not get them covered even with each of 
those options having their most optimal impact.
    And as some of us discussed at the White House meeting, 
this is where the rubber really meets the road, is paying for 
insurance for uninsured people.
    And I wanted to walk through that with a number of 
witnesses.
    And I would start with Ms. Trautwein.
    Your group has played a very constructive role in this 
discussion. We appreciate that. And your testimony this morning 
had a lot of constructive ideas.
    But I wanted to talk to you about the cost of insuring 
uninsured people. And I think you would agree that the vast 
majority of those uninsured people have very low incomes, 
correct? That they are people who are 200 percent of the 
poverty or below. They do not make much money.
    Which, you know, is $40,000 for a family of four and under.
    You have indicated this morning that you oppose a pay-or-
play system and employer mandate. And you have stated your 
reasons. You oppose the idea of limiting the tax exclusion or 
deductibility for the so-called higher-cost plans. And I 
understand your reasons.
    What do you favor in raising the money to pay for the 
subsidies that you make reference to for uninsured people? You 
testified correctly that substantial subsidies are necessary to 
cover these men, women and children. How should be pay for it?
    Ms. Trautwein. Well, that is a tough question because I 
think----
    Chairman Andrews. Yes, it is.
    Ms. Trautwein. That is why I was first. I think that--you 
know, we have been advocating for refundable tax credits and 
other subsidies for this very category of people for at least 
12 years----
    Chairman Andrews. Okay. I know that it is a good idea. How 
would you finance the tax credits?
    Ms. Trautwein. I hope that we will be able to finance some 
of it through savings in the system. I think we are also going 
to have to look at other creative ways. One of them----
    Chairman Andrews. I will tell you, Congressional Budget 
Office--and I think this is wise because it is conservative--
gives us no credit for any projected future savings. So if we 
want to pass a law this year that covers the person who works 
in a convenience store or a gas station, and her children, the 
CBO will not give us a dollar's worth of credit for some 
savings we might get 10 years from now. So what are the other 
creative ways?
    Ms. Trautwein. Well, we have talked and we have a proposal 
called Healthy Access. It is a proposal for health reform. And 
we have talked about the fact that it is difficult and that it 
is pretty fiscally irresponsible to advocate all these things 
without any way to pay for it.
    Chairman Andrews. Right.
    Ms. Trautwein. Acknowledging the difficulty, we have looked 
at things that--the sin-tax type of thing, such as, you know, a 
cigarette tax, a Twinkie tax. That kind of thing.
    Chairman Andrews. I will grant that, of course, we raised 
the cigarette tax to pay for SCHIP expansion, and it was 
controversial. We did it. But I think we have kind of maxed 
that out for a while. What else?
    Ms. Trautwein. So I am not sure that I have any more 
constructive--I wanted to talk about----
    Chairman Andrews. The President--if I can? The President 
has two specific ideas. One is that the tax deductions for the 
top 5 percent would be repealed that are due to expire. He let 
them expire. Do you favor that?
    Ms. Trautwein. Gee, I do not want to be one of these people 
who says we do not have a position on it, but, you know, I 
think we are going to have to look at creative things. That may 
be one of them.
    Chairman Andrews. Okay.
    Ms. Trautwein. You know, that may be one of them----
    Chairman Andrews. Fair enough. Fair enough. So you----
    Ms. Trautwein. I think we are also----
    Chairman Andrews. Well, the other thing he has proposed is 
phasing out the subsidies to the insurance industries under the 
Medicare Advantage Program. Do you favor that?
    Ms. Trautwein. Did you say to phase out the Medicare 
Advantage Program?
    Chairman Andrews. Yes. The subsidies to the insurance 
industries in the Medicare Advantage, under Part D. Do you 
favor that?
    Ms. Trautwein. Well, the feedback that I get from my 
members is that specifically certain types of Medicare 
Advantage Programs really help people who are low to middle-
low-income. So I would be concerned if they all went away.
    Chairman Andrews. Okay. Well, you know, and I say this in 
good spirit. One can be concerned about anything. But the main 
concern that we have is to cover 47 million uninsured people 
takes a lot of money. It probably takes between $150 and $200 
billion a year.
    The President has made two very specific proposals that 
would raise about 40 percent of that money. We either support 
them or you oppose them. I support his ideas. But those who do 
not support his ideas, I think, have the responsibility to 
either offer an alternative, as the Doctor has, or, you know--
or understand that we are not going to get near universal 
coverage without that.
    And, Mr. Langan, you have talked about the effects of 
employer mandates actually depopulating the number of people 
who are insured. Has that happened in Massachusetts under their 
employer mandate?
    Mr. Langan. Mr. Chairman, not yet. But my reaction would be 
to stay tuned. I think there are stresses showing in the 
Massachusetts----
    Chairman Andrews. Well, why would it have not happened yet?
    Mr. Langan. Well, because it has been in place for a 
relatively short period of time. And also, I give credit to the 
authors of the program in Massachusetts, the multi-stakeholder 
effort that produced what is a--you know, an ingenious 
expansion of coverage. And I think employers recognize that.
    As someone who works with employers now, day in and day 
out, who are complying or seeking to comply with the 
Massachusetts mandate, it has been an epiphany. I think the 
spirit of that reform was that the requirements on employers 
would be set so low that most large employers would be 
unaffected. And that has----
    Chairman Andrews. Yes. And I do understand that it is a 
plan in flux.
    I see my time has expired. I want to give our colleagues 
plenty of time.
    Mr. Kline is recognized.
    Mr. Langan. Thank you.
    Mr. Kline. Thanks, Mr. Chairman.
    And thanks again to the witnesses. It is a fascinating and 
diverse group.
    For Dr. Himmelstein, I was a little bit surprised at the 
report that people from Massachusetts were moving up to Canada 
for the medical care. In Minnesota, we see the trickle working 
the other way.
    We are trying to explore ways to reduce the cost of health 
insurance for employers, employees and their families according 
to the title of this hearing. And it has been fascinating to 
hear your suggestions.
    Let me turn to you, Ms. Trautwein. I understand the 
chairman's interest in finding out where you would source the 
money. But we are really not a sort of tax or budget committee. 
And we looked at the president's budget. He is paying for a lot 
of stuff with several trillions of dollars in debt. Maybe that 
is just the answer. I certainly hope not. But we seem to have 
lost our aversion to trillions of dollars of debt in sort of a 
striking way.
    Ms. Trautwein, you noted that some states work voluntarily 
with employers to provide premium assistance subsidies for low-
income persons purchasing private coverage. Can you just take 
some of the time to explain how those work? And would not that 
argue against the concept of an employer mandate?
    Ms. Trautwein. Yes, there is actually--I will point out two 
of them. But there are a dozen--about a dozen of them that are 
really good.
    One of them is in Oregon. It is the Family Health Insurance 
Assistance Program. It has been around for many years. It is 
not a real overly bureaucratic system. It is simple subsidies 
to both employer-sponsored coverage for people who are low 
income, who cannot pay their share of the premiums there, as 
well as people that are individual plans. And it has been quite 
successful--helps people getting coverage many times over the 
years. And it is run by just a couple of people in the Oregon 
government. So it is not heavily bureaucratic. It is very 
simply run.
    The other one that is newer is very, very interesting, in 
Oklahoma. And it has actually increased its enrollment 200 
percent in 2008. And it is what you call one of the three-share 
programs, so the employee puts in part of the money. The 
employer puts in part. And then there is a fund in the state 
that funds the rest. And it is working very well. There is a 
good shared partnership, shared responsibility there. I think 
it is a great idea, and I think it could be replicated in other 
states if we had some encouragement for them to do so.
    Again, these programs just do not always have enough 
funding. But they have been able to figure out how to do some 
waivers and other things to keep that funding going.
    Mr. Kline. Thank you.
    Mr. Langan, I started this hearing talking about my 
concerns with unraveling ERISA. We may be looking at an 
entirely different paradigm. Dr. Himmelstein has a single-payer 
national health plan, for example. We are going to look at some 
paradigms.
    But I want to get to the issue of unraveling or weakening 
ERISA. And employer mandates--and we heard Mr. Pollack talking 
about some of those--it seems to me are part of that issue when 
you start to go and take away little pieces.
    These employer mandates, regardless of how they are 
structured, would that help or hurt employers' ability to 
provide the very insurance that we are talking about?
    Mr. Langan. I think that has a great deal to do with the 
structure of those requirements. I think one of the tremendous 
strengths of the current voluntary employer-based system is 
that it has enabled employers to offer uniform coverage across 
state lines and enjoy the efficiencies of doing so. If we move 
in the direction of multiple regional or now even municipal 
employer mandates for health coverage--you have not seen 
administrative costs until employers have to start to comply 
with the 50 or maybe 100 different regulators in terms of the 
requirements applicable to their health plans. So I think the 
structure of requirements are critical.
    ERISA's ability to establish a standard and give employers 
the ability to maintain a single, consistent plan across state 
lines is one of its essential strengths.
    Mandates, in and of themselves, add expense. There is no 
denying that. The health care reformers in Massachusetts have 
indicated that mandates add about 12 percent to the costs of an 
employer plan on average. So it has an added expense. But it 
would be exacerbated by multiple mandates which are 
characteristic of some reform programs.
    Mr. Kline. I see my time is expired.
    I yield back, Mr. Chairman.
    Chairman Andrews. Thank you, Mr. Kline.
    The gentleman from Illinois, Mr. Hare is recognized.
    Mr. Hare. Thank you, Mr. Chairman.
    Mr. Pollack, one of my biggest concerns is improving, you 
know, portability for people who lose their jobs. And let me 
put a human face on this and then ask you a question.
    I had a couple whose--the father worked at Butler 
Manufacturing in Galesburg, Illinois, had enough time. The son 
also worked there. The father, after Butler shut down, went 
over seas, had to spend two-thirds of his pension to continue 
his health care. The son did not have any because he did not 
have enough time in. So he went to work part time, had some 
heart problems, did not go because he did not have any 
insurance. They found him in the shower, dead of a heart 
attack.
    I can remember to this day when the press was asking his--
the parents of this young man, they said, you know, ``Are you 
upset with God that He took your son?'' And he said, ``God did 
not take my son. The government did because they did not have 
the courage to make health insurance portable for people like 
my son.''
    By the way, this man's wife went to the hospital to see her 
son when they brought him in. And she had a heart attack upon 
viewing her son. And now he is working for eight bucks an hour 
at repairing lawn mower engines at a hardware store.
    We could do a lot better than this. I think this is 
shameful.
    You know, I thoroughly support what Dr. Himmelstein is 
proposing here.
    But what I am trying to figure out is what do you think we 
can do to allow portability for people, who lose their jobs 
through no fault of their own, to be able to have health care 
that can follow them to a job that they are going to?
    Mr. Pollack. Well, thank you for your question. I think 
there are a couple of different responses. Obviously, the 
situation that exists today, when people lose their job, often 
the first thing they look to is can they secure COBRA coverage. 
And, of course, COBRA coverage is not an adequate means to 
this.
    We released a report not too long ago that looked at what 
the average COBRA premiums are compared to the average 
unemployment insurance benefits. And if you look at the average 
COBRA premiums compared to average unemployment insurance 
benefits, it consumes about 85 percent of those unemployment 
insurance benefits.
    Now, I think the Congress did a good thing with the 
president in providing subsidies for people. But it is only a 
temporary solution, obviously.
    I think having a system like a connector, like an exchange, 
where people can select coverage, and that coverage they can 
stay with, irrespective with what job they are in, could work. 
But obviously, what needs to go with that is for low-income 
people--we have heard several people on this panel talk about 
it. There have to be adequate subsidies for people so that 
those people who cannot afford coverage get some help with 
that.
    The average premiums today for employer-sponsored insurance 
for family coverage is about $13,000 a year. And that is simply 
unaffordable, particularly for a worker whose family is in 
moderate income.
    So I think coupling a system like an exchange or connector, 
including significant sliding-scale subsidies, would be very 
helpful.
    Mr. Hare. Mr. Oemichen, I have a lot of rural area in my 
district, a lot of farmers, a lot of small business. How can 
the employee benefit cooperative, a concept that you talked 
about in your testimony, you know, help the--like self-employed 
farmer in--that give them the opportunity? Because they are 
spending thousands of dollars on equipment, thousands of 
dollars on fertilizer and they are--they do not have the money?
    Mr. Oemichen. Mr. Chairman, Congressman Hare, let me just 
tell a quick story. In Wisconsin, we were seeing an exit of 
three dairy farmers a day from the dairy industry. We asked 
them why they were leaving the dairy industry, and they said 
because it was principally the failure to be able to get access 
to affordable, quality health insurance. It was not dairy 
prices. It was health insurance.
    We asked 4,000 Minnesota farmers exactly the same question, 
and they told us exactly the same answer.
    So we decided, well, it--from the cooperative model, we 
have always banded people together when there has been a need. 
So we asked the farmers, ``Do you want to own a health 
insurance cooperative?'' And fortunately, the response was 
very, very overwhelming. They said, ``You work to help us find 
an insurance company that will provide us insurance.'' In this 
case it is Aetna. And we were able to contract with Aetna for a 
cooperative that is totally owned, totally led by the farmers 
in the state of Wisconsin. And we can do the same thing in the 
state of Illinois.
    We would appreciate some thought to federal legislation 
much along the lines of what we are talking about to give us 
the ability to go across state borders. Because the primary 
difficulty we have had is trying to take a model that we 
developed in Wisconsin and bring it back to my home state of 
Minnesota, because there are different insurance regulations, 
different mandates.
    And then to the state of Illinois, I will tell you that we 
have almost one-third of the state's dairy industry now in the 
cooperative model. I have received many calls from farmers 
saying, ``Now my spouse can work back on the farm and 
contribute to the farm because we can have insurance.''
    And almost 80 percent of their benefits have gone up under 
our farm plan. And up to 50 percent have said their actual 
costs have gone down. And so we think that we have really 
contributed hopefully to the future success of the Wisconsin 
dairy industry, and hopefully agriculture, across the United 
States.
    We have also applied this in the small-business context. 
And I will be really short here. We never had dreamed and, 
excuse me, Doctor, that physicians had their own problems in 
accessing health care. [Laughter.]
    We have now formed two health care cooperatives for 
physicians in the state of Wisconsin.
    Mr. Hare. Well, my time is up. But if you would not mind 
getting maybe hold of me or my office, I would love to talk you 
about this for Illinois and my district.
    Mr. Pollack. I would be happy to do that.
    Mr. Hare. Thank you.
    Chairman Andrews. We just wish you were a little more 
enthusiastic about your program there. [Laughter.]
    Mr. Pollack. Sorry, Mr. Chairman.
    Chairman Andrews. Thank you very much.
    Thank you, Phil.
    The gentleman who is a member of the full committee, who is 
absolutely welcome here in the Subcommittee, the gentleman from 
Louisiana, Dr. Cassidy is recognized for 5 minutes.
    Dr. Cassidy. Thank you, Chairman Andrews. I enjoyed being 
here. You said earlier that it is wise because it is 
conservative. I think we are kindred spirits.
    Ms. Davenport, Ivan Seidenberg, the chair and CEO of 
Verizon, but also the chair of the Business Roundtable and 
Health and Retirement Task Force--he gave a great presentation 
to us. And he said that he did not want a single-payer plan 
even though the Business Roundtable really wants something 
done, because he has never seen government hold individuals 
accountable for their own health, whereas, at least in the 
business-sponsored programs, they can do wellness.
    And you mentioned yourself how they have put in innovative 
programs that have lowered their costs. I would just like your 
thoughts on that.
    Ms. Davenport. Well, the Center for American Progress, a 
couple of years ago, did a series of case studies around 
businesses and their experiences offering health insurance. One 
of the things that we profiled were some of the wellness 
initiatives and other efforts that a couple of the large multi-
national companies in United States have offered. And they 
included working with local providers to improve care for some 
conditions that are common among their employees, offering sort 
of a welcome-to-health-insurance phone call to help people to 
understand the importance of finding a primary care provider, 
and things like that.
    What was interesting was--is, first, the kind of 
innovations that they used and the results that they had. But, 
second, that while they were able to find savings and to 
improve health care through those innovations, that, to a large 
extent, they were still price takers in terms of health 
insurance. That was more true in our case studies----
    Dr. Cassidy. Price takers means what? I am sorry.
    Ms. Davenport. Means that they had relatively limited 
ability to negotiate with health insurance plans. So two 
companies chose to self insure. What we saw with other 
companies in the case studies that they did was that they 
really had to take whatever price was offered to them by the 
health insurance companies. They had to----
    Dr. Cassidy. So you do find that there is a benefit to 
these companies--they do have this innovation. They do put in 
successful programs but they are limited by other factors.
    Ms. Davenport. That is right.
    Dr. Cassidy. Yes, Dr. Himmelstein, I am actually not nearly 
as nihilistic as you regarding prevention. I will say this 
because obesity is killing our nation. And unless we--I saw a 
Health Affairs article which said that the amount of obesity in 
our nation is driving the tech boom, that is driving up the 
cost and, according to this article, could almost completely 
account for the difference in health care costs between the 
United States and Europe, if you normalize for obesity.
    Now, if we take what Ms. Davenport just said, that the 
private sector has been more innovative in terms of wellness 
programs, I actually am a little nihilistic--I am nihilistic 
that the public plan would have that same sort of 
accountability built into it that would help address, for 
example, obesity.
    Dr. Himmelstein. So there is that faulty study that you 
quote from Health Affairs. There is a much more carefully done 
study that actually shows that obesity saves us money in the 
health care system over the long term because it kills people 
early and we do not have to pay for their costs over the long 
term.
    Dr. Cassidy. Well, actually, I would be interested in 
seeing that article. I am a little surprised by that.
    Dr. Himmelstein. I would be happy to provide it for you.
    Dr. Cassidy. May I finish? Because I have limited time. 
Because if nothing else, dialysis, if look at Cooper's analysis 
of Dartmouth Atlas--and I truly think that in his analysis, 
that if you look at dialysis costs, diabetes, hypertension, 
coronary artery disease, et cetera, which is directly 
deliberate--in fact, Homer Simpson sprinkles are driving up the 
health care costs for the rest of us because he has obesity, 
has that little tire around his waste. [Laughter.]
    So the problem with obesity-related health conditions is 
they are chronic, unlike cigarette smoking, which kills you 
like that.
    Dr. Himmelstein. I mean, these are very attractive notions, 
but if you actually look at the medical literature--and this 
was summarized in The New England Journal last year--the 
overwhelming majority of preventive measures increase costs. 
They do not decrease. There were a few----
    Dr. Cassidy. But I am speaking specifically of obesity, 
because actually I think obesity may be related to things such 
as fructose, the lack of a walking environment in cities, et 
cetera, et cetera.
    Dr. Himmelstein. And those are clearly things we ought to 
be doing. And the pay off may be 50 years from now. But if we 
are talking about the next 5 years----
    Dr. Cassidy. But actually, if you look at the G.M. data, 
the G.M. data shows that for every decrease in BMI, that their 
cost per employee significantly decreases. And even if you put 
a cofactor, such as hypertension, if you lower their weight, 
their cost decreases, from G.M.
    Dr. Himmelstein. But if you look at Frank Sacks' recent 
article, in The New England Journal, comparing a variety of 
approaches to obesity, none of them have shown durable----
    Dr. Cassidy. Oh, now, I am not speaking about the treatment 
of obesity. That is a whole different piece of legislation. I 
am talking about the potential cost savings related to that.
    I think I have lost my time. I am sorry.
    Dr. Himmelstein. The question is can you actually do it? 
And just to answer the second part of your question, holding 
individuals accountable, yes, I think we have the ultimate 
accountability. And that is we have the death sentence for 
these people. Smoking, obesity, all of those things carry the 
death sentence. And when you----
    Dr. Cassidy. But besides, particularly the single-payer 
plan----
    Dr. Himmelstein [continuing]. Applying for that----
    Dr. Cassidy [continuing]. Pre-mortum care.
    Dr. Himmelstein [continuing]. Is a way to make people 
actually decrease costs. I----
    Dr. Cassidy. Thank you.
    Chairman Andrews. Thank you. The gentleman's time has 
expired.
    We have made history today that I have to note now, this is 
the first congressional hearing that ever cited Fredrick 
Nietzsche, the great nihilist. [Laughter.]
    And Homer Simpson. I think the two of them being lumped 
together is truly an historic occasion. [Laughter.]
    I am happy to call upon some of the more main stream 
cultural view, the gentleman from Connecticut----
    [Laughter.]
    Mr. Courtney.
    Mr. Courtney. From boring old Connecticut.
    Thank you, Mr. Chairman, and thank you for this hearing. 
This is, I think, an historic moment really sort of kicking off 
the dialogue and effort that this country is about to embark on 
to really rise to a generational challenge and fix our health 
care system.
    And all the testimony and witnesses have been just terrific 
this morning.
    I want to focus on the issue of pre-existing condition 
exclusion, which Mr. Pollack referenced in his testimony. We 
have a bill before us, 1588, which basically would abolish pre-
existing conditions across the board.
    And our research for this legislation which determined that 
45 percent of Americans have a chronic condition of one form or 
another. Twenty-six million Americans are enrolled in the 
individual market where there is basically no protection to 
speak of in terms of the really just harsh discrimination that 
is applied towards individuals. Obviously, this is an important 
issue for our committee because it goes right to the heart of 
our ERISA cognizance.
    And one of things that has happened since this bill has 
been filed has been really a gusher of outpouring from 
particularly provider groups, who have to deal with this issue 
on a day-in and day-out basis. The American Heart Association 
submitted a letter this morning.
    But that the one that really took my breath away was the 
National Association of Obstetricians and Gynecologists who 
talked about the fact that in many instances, a women, who has 
had a past caesarian delivery, is treated as someone with a 
pre-existing condition, although the likelihood of that 
resulting in any chronic costs is almost zero, as my wife would 
attest.
    And domestic violence victims are also sometimes subject to 
pre-existing condition exclusions. It is barbaric. I mean, 
there is really no other way to describe the way that this 
operates.
    And, Mr. Pollack, just, again, to walk through the state of 
the law right now, because HIPAA, in 1996, made a partial 
effort to address this issue. Some people feel that the group 
market is basically sort of, you know, solved the problem. But 
in fact, there really were gaps left in the group market as far 
as individuals being still subjected to it. And again, 
particularly with life-threatening chronic conditions, it 
sometimes can be just devastating.
    Again, I just wonder if you could reiterate again the fact 
that we do need to address that end of the market.
    Mr. Pollack. Well, there is no question that HIPAA left a 
lot of gaps. And, you know, it did provide guaranteed issue for 
those people with continuous coverage. Of course, it did not do 
anything about regulating premiums. And so you can be given the 
benefit of guaranteed issue, but if, then, you are charged an 
arm and a leg because you have got a pre-existing condition, 
that is not going to make coverage really truly available for 
you.
    I mean, we can actually go over the litany, by the way, of 
what constitutes a pre-existing condition. We came across a 
pre-existing condition exclusion because somebody was too 
short. I mean, we really can give you a number of examples that 
take this to the point of ludicrousness.
    So I think in terms of HIPAA, obviously, we have got to do 
something to make sure that when somebody is guaranteed that it 
can be issued to them, it is issued at an affordable price and 
there needs to be some regulation of underwriting.
    In addition to that, as I mentioned, and that it is very 
important with your legislation, is that you can provide 
essentially underwriting for an entire company, if that company 
has got a significant number of people, or even perhaps if it 
is a small company, even one individual who has got a major 
health condition. And even though employers are not supposed to 
check with their prospective employees what kind of health 
conditions they have, obviously it is going to make them very 
conscious of this. So this is something that clearly needs to 
be corrected.
    Mr. Courtney. Right. And when HIPAA passed--I mean, when 
the--obviously, the huge question was there before, what about 
the self employed and the individuals who really have virtually 
have no protection.
    You know, the answer back then was, well, we will have 
high-risk pools that will be out there at the state level to 
sort of pick up people who, again, have these conditions.
    Mr. Vaughan, I do not know if your organization has had 
much experience, but I suspect you might have in terms of what 
the--how those have operated.
    Mr. Vaughan. We have not done a comprehensive study, but 
they do not work. The rates get very high, very fast. And they 
cover very, very few people. And we need a national solution. 
It just is not working.
    Mr. Pollack. You know, high risk pools really have not 
worked. They are just--as Bill just indicated, there is a very, 
very tiny portion of the population are in the high-risk pools. 
They are often tremendously underfunded. A lot of people, who 
might think qualify for a high-risk pool, never get in. They 
are on a waiting list. And these high-risk pools do not do much 
in terms of dealing with getting the premiums down. And so 
those two are underwritten in such a way that the costs are, 
for too many people, unaffordable.
    Mr. Courtney. Thank you, Mr. Chairman.
    Chairman Andrews. The gentleman's time has expired.
    We very much appreciate the gentleman's leadership work on 
pre-existing condition issues since the day he first got here 
to the Congress.
    We are pleased to recognize the gentleman from California, 
Mr. Hunter.
    Mr. Hunter. Thank you, Mr. Chairman.
    Thank you, panel, for being here.
    And since I am not overly burdened by knowledge on this 
subject, neither Nietzsche, nor Homer Simpson, I am going to 
yield to one of the doctors here, my good colleague, Mr. Roe.
    We are surrounded by doctors, so we figure we will give 
them a chance to talk here. So I yield my time to Mr. Roe, Mr. 
Chairman.
    Chairman Andrews. The gentleman is recognized.
    Dr. Roe. Thank you, Mr. Chairman.
    And Mr. Chairman, thank you for having this hearing.
    You made a statement a moment ago that--about how to pay 
for this. It is not going to be less expensive to insure and 
pay for 47 million more people. I think there are some savings 
out there. But it is going to cost more money, I think.
    And let me just share with you, and I would like to make 
part of the record, a statement, if I could, later.
    Chairman Andrews. Without objection.
    [The information follows:]

 Prepared Statement of Hon. David P. Roe, a Representative in Congress 
                      From the State of Tennessee

    As a physician from Tennessee who has delivered babies for over 30 
years, I have seen our health care system change dramatically. Some 
people said I must have gone off off my meds when I decided to run for 
Congress, but having extensive experience as a physician enables me to 
lend my experience to the debate over health reform in Washington.
    I was part of a medical group with 70 physicians and 350 staff, and 
we've lived through many attempts at reform at the national and at the 
state level. Some may recall that in the early 1990s, managed care was 
pitched to physicians and the public as the cure for an ailing health 
care system, but all it managed to do was move revenue from providers 
and patients to insurance companies and third party payers and not 
decrease costs as advertised. It serves as a cautionary tale for anyone 
who would believe that there's a silver bullet out there for what ails 
our system today.
    In medicine, there's no such thing as a Republican disease or a 
Democratic disease--there's just disease; likewise, good ideas on 
health care reform shouldn't be defined by a party, but by meeting a 
series of principles for reform. Since arriving in Washington, I've 
listened to people from all sides of the political spectrum and have 
developed a few principles that I believe health care reform must 
encompass:
1. Above All, Do No Harm
    A doctor's Hippocratic Oath should be applied to any reform 
considered. While many have focused on what's wrong with the current 
system, there's still a lot that is right. 85 percent of Americans 
today have health insurance and for the vast majority of them, the 
system works. They go in and see their doctor, who in turn diagnoses 
them and sends them home with a prescription or remedy that addresses 
the problem. When Washington tries to ``fix'' our health care system 
for one person, I want to make sure the result isn't a downgrade of 
care for three others.
2. Doctors and patients should make medical decisions
    I prefer a system with private health insurers who ultimately do a 
better job of putting decision-making authority in doctors' and 
patients' hands. The problem with publicly-operated health insurance 
(the new way of saying government-run health care) is that care must be 
rationed to meet the budget. Consider that here in America, the five-
year survival rate for breast cancer has increased from 50 percent to 
98 percent, largely because of education, early diagnosis and 
sophisticated medical treatment. But in England, which has a national 
health system, they're no longer covering mammograms because too many 
false positives resulted in more costly biopsies being performed. While 
it's less costly to wait for a lump to develop, no American in their 
right mind would think this is a reasonable approach to providing care. 
But these are the choices that have to be made in a public health plan 
funded with taxpayer dollars.
3. Every American should have access to health insurance
    We should be able to agree that every American should have access 
to a basic benefits package that makes sure they are covered when they 
go to the doctors' office or hospital. This isn't Rolls Royce coverage 
that includes cosmetic surgery, hair transplants or fertility 
treatments, but basic benefits.
4. Health care costs shouldn't bankrupt you
    Basic catastrophic coverage will prevent many individuals from 
being wiped out when they get cancer or a life-threatening illness. We 
had a good start when we coupled health savings accounts with high-
deductible health plans. I'd like to see more done to move plans in 
this direction. I recently was helping a woman who worked in a local 
nursing home who was without health insurance and discovered she had 
lymphoma. What little money she had been able to save would soon be 
gone and then some to pay for her treatment--a low-cost catastrophic 
policy would prevent this from happening
5. Health coverage should be portable
    Individuals who get sick often feel trapped in their current job 
because if they chose to leave their job, their health insurance would 
be terminated, along with their protection against pre-existing 
conditions. We need some changes to how individuals purchase their 
insurance so that if your job ends--by choice or by layoff--you won't 
find yourself without the ability to afford treatment.
6. To lower costs, everyone should have ``skin in the game''
    Study after study proves that when care is free, it is 
overutilized. In Tennessee under TennCARE (our state's Medicaid plan), 
we saw first-hand that when patients got a cold, instead of simply 
going to the local drugstore and buying some cold medicine, they went 
to the doctor for a prescription so the cold medicine was free. Some 
argue that this is illogical or an anomaly, but the fact is, it's a 
logical, rational decision--they saved money by going to the doctor and 
getting a prescription.
    Everyone has a lot at stake in this debate, and there are many good 
ideas that deserve debate and a thoughtful vetting. I am hopeful if we 
come together to agree on a framework like what I've described, reform 
is possible. Then it will be incumbent on all of us to commit to 
getting it done--not fast, but right. Too much is at stake to fail.
                                 ______
                                 
    Dr. Roe. Thank you.
    I think there are some basic principles in health care that 
we would like to agree on. One is that we would like to see 
that every American have access to affordable health care. I 
think there is no question every body on this panel, even 
though you may see it in a different way, want that outcome. I 
certainly do.
    Number two, you should not be bankrupted by an illness. And 
I see this many times. If you develop a very expensive cancer 
or whatever, you do not want to be bankrupted.
    And I think it should be portable. We have mentioned that. 
You should not have to be Bill Gates to pay for the COBRA 
coverage, as Mr. Pollack pointed out.
    And everyone should have an--some investment in the--in 
their health care, be it a health savings account or some 
amount of money you have to pay.
    And I live in Tennessee--is where I am from. And we tried 
an experiment called TennCare--it is still going on--about 15 
or 16 years ago. And I went to the local hospital 
administrators before I came here and I said, ``What costs, 
what percent of costs did TennCare pay of your costs?'' And it 
is about 60 percent. Medicare pays about 90 percent.
    And then you have the uninsured. And then you have the 
privately insured, as I have. And I personally used the health 
savings account because I do believe that prevention works and 
saves money.
    Bottom line is, as those cost shifts are done, employers in 
Tennessee made a perfectly logical decision. They dropped their 
private health insurance. 45 percent of the people that went on 
TennCare when it first came into being had private health 
insurance when they started. But it cost less money, so they 
have dropped that business cost, driving the cost of private 
insurance, just one more cost-driver, higher.
    And what I predict what will happen here in the federal 
system, depending on how it is structured, is that very thing 
will happen again. You will have a situation where you have 
this cooperative or health plan and business will, again, make 
perfectly logical choices. They will drop that and drop--and I 
would think General Motors and Chrysler, it is the first thing 
they did, would be to use this publicly subsidized plan. From 
where the money is coming from, I do not know.
    What happens and what ultimately happens for the--for me, 
the patient, or the doctor, you have to understand, if you 
budget a certain amount of money, invariably waits are going to 
happen. It is going--it is invariable. It is going to happen.
    An example is this. In England, they used to do screening 
mammograms for all women. When I started my medical practice, 
the 5-year survival rate of breast cancer was 50 percent. 
Today, for a woman, it is 98 percent. That is a tremendous 
success that we have had in this country.
    In England, during the time that they were doing screening 
mammograms, it was 78 percent. And what has happened over there 
is the biopsies actually cost more money than the screening 
mammograms did. So they dropped doing screening mammography.
    And as Dr. Himmelstein knows, it takes about two 
centimeters, three-quarters of an inch to feel a mass, at which 
time a certain percentage of those have already metastasized. 
So that is going to cost life.
    We are not going to do that in this country. I cannot, for 
1 second, believe that we are going to do that.
    I am not sure who said it. We have a plan in Tennessee now. 
It is called Cover Tennessee. It is not--you cannot buy but so 
much care for $1,800 a year, but a similar situation to what 
Oklahoma has. We have had ours about 3 or 4 years, where the 
employee puts $50 in a month, the employer puts $50 and the 
state puts $50 a month to buy health basic coverage.
    Another comment I want to make is about the cooperatives. I 
think is a tremendous idea, where you bring various interests 
together, pool those interests, and then they are able to 
purchase health insurance.
    There are going to be unintended consequences of any 
proposal that we do. And what I do not want to do is to push in 
a system where the government--I say this laughingly, but it is 
also seriously--if you like the way the government has managed 
AIG, you are going to love the way they manage your health 
care.
    And I would like to just comment about the cooperatives and 
how you see that helping the uninsured right now.
    Chairman Andrews. We would just ask if you would briefly 
respond because the gentleman's time has expired, if you would 
answer the question.
    Mr. Oemichen. I will. I will not be quite so enthusiastic 
this time. [Laughter.]
    We have started----
    Chairman Andrews. Please do. Please do.
    Mr. Oemichen. We have 15 cooperatives underway in the state 
of Wisconsin, and they run across the whole range of small 
employer groups, whether it is agriculture or all the way up to 
physicians.
    And we think it is a very good model because it brings 
people together. They have bigger--better bargaining power to 
then contract with insurance companies. And we have gone to 
full insured modeling in the state of Wisconsin.
    Dr. Roe. Thank you.
    Chairman Andrews. Thank you, Doctor.
    The gentleman from Oregon has been interested working very 
quietly, but effectively on the issue of making health care 
more productive through technology for many years. And I am 
sure it must be satisfying for him to see that debate coming 
front and center.
    It is my pleasure to recognize the gentleman from Oregon, 
Mr. Wu.
    Mr. Wu. Thank you very much, Mr. Chairman. And I would very 
much like to get to those technologic issues, if I get another 
bite at the apple.
    I think the Chairman has very appropriately raised some 
issues of reality that we must face, fiscal reality. There are 
fiscal realities. There are policy and health care realities. 
And then there are sort of those special realities of 
perception that we deal with in this chamber and in this--and 
in this town, and one of those is my impression about health 
care as provided by employer-based plans.
    To the extent that you all know--and I will not restrict 
you to a yes or no, but if you could, try to stay as close as 
possible to yes or no, I do not know, or a couple-of-sentence 
explanation of the data on which you base your answer. For 150 
to 180 million people, who receive their health care through 
employer-based insurance plans, do these folks, by and large, 
like the health care or the health care insurance that they 
have?
    And I will just go across the board from Mr. Pollack 
across.
    Mr. Pollack. I would say most do.
    Mr. Langan. I would say a resounding, overwhelming yes. And 
we can provide the data that corresponds with that.
    Mr. Vaughan. I am in between the two. Most do.
    Ms. Trautwein. Yes, I do.
    Mr. Oemichen. Most do, and anecdotally, yes.
    Dr. Himmelstein. Surveys show they are much less satisfied 
than Medicare patients. But also they are happy generally until 
they get sick. And then they discover their insurance actually 
does not work. So Mr. Pollack says it is guaranteed coverage. 
It is guaranteed until you are too sick to work. And then you 
lose your coverage from your employer. That is what we found 
when we studied the medically bankrupt.
    Mr. Wu. Thank you.
    Ms. Davenport. I think most do.
    Mr. Wu. Okay.
    And I am just drawing the conclusion from that, that it 
would be relatively difficult to reform health care in a way 
which would be perceived as taking those health plans away.
    And Ms. Davenport, I would like to get to one part of your 
testimony--I believe it is on page 6--about Congress may wish 
to consider coverage rules and insurance standards for all 
employers. And elsewhere in your written testimony, you 
addressed standards for exchange programs.
    And in reading that over and thinking about it, would that 
preclude, say, a young person's approach of either that person 
or a company, an employer, taking a catastrophic insurance-only 
approach, making a cost-benefit analysis that I am healthy, and 
I am just going to get minimal coverage. Would rules preclude 
that?
    Ms. Davenport. Well, I think it depends on what kind of 
rules end up being implemented. If the goal is to make sure 
that everybody has comprehensive coverage, then I think that, 
by definition, would preclude catastrophic-only coverage, which 
we have--somebody with a severe health condition or unexpected 
health condition paying large out-of-pocket costs. But I think 
it will depend on what ends up being the standard for coverage.
    Mr. Wu. Okay.
    And, Mr. Langan, I know that you probably have some views 
on uniform national rules. And I would like to ask you to 
respond to that in writing, because I want to take my last 
minute to express a concern of mine.
    I think that it is a worthwhile goal to have broadly 
defined benefits. But I do remember a time, not very long ago, 
when I was sitting in this committee's room, when we were in 
the minority, and there was a president of the other party in 
office. And Oregon had a broader set of state requirements 
about benefits. And I paid a great price for fighting 
association health plans substantially because they overrode 
Oregon law about benefits. And I am at least a little bit 
concerned that we may override state law or other rules now.
    And it is inevitable--I hope it is not in my lifetime--that 
the other party will come back into control, and I am just 
concerned that the shoe may be on the other foot at that time, 
and we would be less able to resist rollback benefits for 
individuals on a state-by-state basis.
    And with that, I yield back.
    And thank you, Mr. Chairman.
    Chairman Andrews. I think the gentleman.
    The chair is pleased to recognize Dr. Roe.
    Dr. Roe. Thank you.
    Chairman Andrews. The gentleman from Tennessee.
    Dr. Roe. I do hope the gentleman is still young when the 
other party takes back control, too, like he his now. 
[Laughter.]
    Chairman Andrews. I hope he lives to be 125, Doctor. 
[Laughter.]
    Dr. Roe. One of the nice advantages of being an 
obstetrician is that you get to deliver a lot of your voters. 
So I have an advantage on a lot of people who run. [Laughter.]
    This is an extremely complicated issue. And I would love to 
spend the rest of the day discussing the various options 
because you all bring a lot to the table, every single one of 
you do. And this is not going to be easy to figure out.
    One of the things I think that you have to do is that you 
have to have ownership in your health care plan. And let me 
just explain to you that I saw people in my own practice who 
were on the state plan, who had come to me for maybe a bad 
cold. And again, this is a perfectly logical decision, because 
if you go to the local pharmacy or CVS or whatever, it is going 
to cost you $10 or $15 to buy those cold medicines if you have 
just a bad cold. Whereas, if you have a private insurance plan 
that has a fairly good $20, $40, $50 deductible, you will not 
do that. You will make the decision it is cheaper to go to the 
pharmacy. And this is a perfectly logical decision.
    We saw over utilization of those services in Tennessee. 
That is one of the problems that we have.
    And I just want to here, maybe, whoever can comment about 
this. Also, in the private health insurance, we have the same 
thing. The busiest month I had of the year was always December. 
And the reason is because you have met your deductible.
    And what we have got--and I liken this to if I had car-
buying insurance, and I have a $25,000 deductible, I am driving 
a Ferrari. I am not going to be driving a Honda or a Ford or a 
G.M.
    So how do you align those incentives? I think a single 
system only puts you in--gives one option, whereas the private 
insurers with the various options--I can choose to have a 
health savings account because I live a--hopefully a healthy 
lifestyle and so forth, and I can save my own money because I 
have got skin in the game.
    Comments?
    Mr. Langan. Doctor, I think a private employer, 
particularly large employer-sponsored plans, provide ample 
evidence of what really happens there that demonstrates the 
innovation and the creativity, the role that employers bring to 
the health care system currently.
    These 99 percent of employers, who are providing coverage 
to their employees, over 200 lives, do not provide a static 
plan that goes unchanged year to year. The plans evolve. The 
employer's strategy evolves. The employer is weighing the needs 
of employees, who the employer has to face everyday, and who 
need to be healthy and productive people and happy workers, 
with the resources that are available.
    And the programs that employers innovate, such as increase 
in personal responsibility, account-based health plans, the 
transparency that our employers are trying to bring to the 
health care market so that the $200 charge that Mr. Vaughan 
illustrated earlier that an employer might have for a service, 
is often unknown to the patient before the service is rendered. 
And so, large employers, at least, and many employers are 
trying to move towards systems that will bring that 
transparency into play. But that requires data. It requires 
electronic enhancement of the system.
    But I think employers are on the cutting edge of those 
innovations, some of which migrate, we hope, to the public 
programs Medicare and Medicaid.
    Dr. Roe. Well, just a quick comment on Medicare. Years ago, 
we did a particular test at our office. It cost--we negotiated 
the price with the pathologist for Medicare patients for $10. 
And we could not do that because Medicare paid $15 and we could 
not bring a lower cost. And so it cost our patients, just in 
one practice, an extra $50,000 a year because of the lack of 
this.
    I would like to have a comment in my brief time left on 
pay-or-play. I wanted to learn more about that and what your 
comments on. Whoever in the panel can pick that up?
    Mr. Langan. I think pay-or-play is often perceived as a 
somewhat benign health care reform proposition. I think the 
concern that the employers, at least those I work with every 
day, have about it is that it will begin a process. The ranking 
member mentioned the pulling the thread out of the garment 
earlier. It will begin a process in which the public option, 
the pay option that employers might have, will eventually eat 
up the rest of the system.
    It will not necessarily happen tomorrow. But it will begin 
a process that will begin to erode this record of success in 
covering 170-plus million people through the dynamic private-
employer system. And it would happen through the need for a the 
public program that was--needs--perhaps a company pay-or-play 
to set rates that will exacerbate the cost shifting that goes 
on between private plans and public options.
    Employers on the margins would eventually fall into the pay 
column, it is feared, and the dynamic environment in which 
large employers provide this coverage to 99 percent of 
employees above 200 lives would start to come apart.
    Dr. Roe. Yes, Mr. Pollack?
    Mr. Pollack. Yes, you know, every time we have this 
conversation, this issue turns out, you know, what is the new 
burden we are going to be creating for those businesses that do 
not provide coverage.
    Let's think for a moment about the burden of businesses 
that do provide coverage and the inequity that is established.
    You know, we are going to be releasing next month updates 
of numbers that we published in 2005 that looked at what are 
the added premiums that are borne by those who pay for health 
coverage, whether it is employers or individuals, to pay for 
the uncompensated health care costs of the uninsured. In 2005, 
for family coverage, it was $922. It is higher today.
    And so, what happens is, for those employers that are 
providing coverage, they are not just providing coverage for 
their workers, they are actually paying for the costs of their 
competitors, who are not providing coverage.
    And so, I think we have to think about this in a more 
equitable manner. And how that gets structured, you know, can 
be debated. And whether it is pay-or-play or whether it is some 
kind of a mandate, whether there is some contribution to pay 
for the costs that are going to be needed to subsidize 
benefits. You need to have something like that if you want to 
create equity in the system.
    And one last point. A lot was made about this public 
program option creating an unlevel playing field, which was 
actually kind of strange criticism because the unlevel playing 
field in Medicare today is actually tilted towards the private 
companies in Medicare Advantage than it is in terms of public 
coverage.
    But you can separate the role of a competitor and rule 
makers. And I think you can create a level playing field that 
would enable a true competition to take place that would 
hopefully generate savings.
    Chairman Andrews. The gentleman's time has expired.
    Dr. Roe. Thank you, Mr. Chairman.
    Chairman Andrews. We appreciate his knowledge.
    The gentleman from Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you very much.
    You know, look, I heard one of my colleagues indicate that 
he thought it would be difficult to address taking away health 
plans that people currently have. And I think that is probably 
an inappropriate way to discuss this. We are not talking about 
taking away people's health care. It ought to be phrased, well, 
us making sure that they have health care that continues to be 
available to them.
    And I think today's current economy is showing us that 
having an employer that gives you a health plan does not ensure 
that you are going to have health coverage once you lose your 
job. And in large numbers, that shifts the burden, who is 
paying for health care significantly.
    So as long as we are going to keep trying to talk about it 
with those words of taking away somebody's health plan, then I 
think we are going to have a result that is preconceived and 
not necessarily the good one.
    You know, we are not selling widgets here. I think 
everybody on the panel understands that. You know, there is a 
whole difference between health care and widgets. You know, not 
everybody needs a widget. And not everybody needs to be able to 
afford it or have access to a widget. But health care is 
different. And I think the 1,800-pound gorilla in this room has 
been unspoken. It is insurance companies.
    You know, if we really want to do something, we can talk 
about coverage, we can talk about quality, and most of the 
reforms that I have seen proposed do not really save us much in 
terms of money.
    The 2008 CBO report says we will save less than a one-tenth 
of a percent for a comparative effectiveness research if that 
is put into place. Prevention may cost you more money if it 
means more visits and things of that nature. Pay-for-
performance, there is no real evidence either way on that. So 
we are really talking about what are we going to do to control 
costs while we do those other things that may, in fact, cost us 
more.
    So, Doctor Himmelstein, maybe you can tell me what is the 
value added to your patients of insurance companies? What do 
they bring to the table?
    Dr. Himmelstein. Far from adding value, they detract value. 
They take my patient's time and effort often in a time in their 
life when they ill afford to have those efforts, and they are 
upset.
    Mr. Tierney. What I am hearing is there is--everybody is 
trying to find a reason to keep the insurance companies in 
business instead of cutting right to the quick of it here, 
which is, you know, what do we--what value to your patients--
their marketing costs? What value to your patients, those--
their excessive profits have? What value to patients and the 
CEO is making a quarter of a million every month bring to it on 
that? And what does their underwriting do except exclude people 
from the process?
    So why do not we try and find a process that just 
eliminates that or worse----
    You know, if we cannot eliminate them--let me ask you this, 
Mr. Pollack. Cannot we at least--if we feel it is an 1,800-
pound gorilla and we just cannot win the fight of getting rid 
of insurance companies and going into a much better 
administrative system that the good doctor tells us would lower 
our administrative costs from 31 percent to 3 percent--cannot 
we at least find the gumption to come down and say, ``All 
right, look, if you are going to administer this program as an 
insurance company, then you must spend'' and name the 
percentage we think is appropriate, on patient health care, not 
on marketing, not on salaries, not on underwriting or whatever.
    Now they are incentivized to get themselves paid the way 
they are handsomely paid, is going to be to improve on all 
those areas. But at least we are ensuring that the money the 
employers or employees are paying is going to health care.
    Dr. Himmelstein. Mr. Tierney, I think there are a lot of 
things we can do to improve the market that exists today. And I 
do not think we are going to eliminate insurance companies. 
That may a desirable outcome for some on the panel. But I do 
not think that is likely to happen.
    Mr. Tierney. Well, can you----
    Dr. Himmelstein. No, I would----
    Mr. Tierney. Tell me what you think the insurance companies 
had to value for a patient.
    Dr. Himmelstein. Well, I am--I do not represent insurance 
companies. So I am not----
    Mr. Tierney. I know you do not. That is why I am asking for 
your opinion on what they bring to the value.
    Dr. Himmelstein. I am not going to try to make that case.
    Let me do say however, there are a number of things we can 
do within what I think are going to be the parameters of this 
debate that address some of the questions that you are raising.
    Number one, as you suggested, we can establish medical-loss 
ratios so that we say that a very substantial percentage of the 
premium dollar actually gets used to health care as opposed to 
other administrative-related expenses.
    Number two, we should be regulating the insurance industry 
so that the practices that prevent people with pre-existing 
conditions from getting health coverage--we certainly should be 
changing that.
    As Bill Vaughan suggested earlier, I think we can do 
something better in terms of trying to standardize benefits. It 
is enormously confusing for there to be--for people to be 
comparing apples with oranges with elephants or kangaroos. It 
is very hard for people to understand. We saw that so clearly 
when Medicare Part D was established.
    So I would say that, just like we did with Medigap, I think 
we can create some standardization that is going to make it 
easier for people to make choices.
    And the last thing is--and this is going to be very tough--
and that is we need to create a platform in terms of how 
physicians and hospitals and other providers have to code their 
payments. You go to any physician office, you go to any 
hospital, such a huge portion of expenses are paid on 
administrative-related costs. If----
    Mr. Tierney. Well, that is essentially the value added by 
insurance companies. They add the confusion and they add the 
codes.
    Dr. Himmelstein. But unfortunately--cannot address those.
    Mr. Pollack. But we can create a platform that is going to 
enable us to make it easier for providers so that they do not 
have to deal with 30 different codes for 30 different insurance 
carriers.
    Dr. Himmelstein. But that is not our problem. The problem 
is actually the private insurance company wants not to pay. It 
is not the codes that are the problems.
    You do not understand, Ron.
    It is the multiple insurers not wanting to pay that is the 
problem. It is allowing the private insurance industry in the 
middle that is the problem. We already have a uniform bill for 
our hospitals, one bill. But the insurers abuse it. And there 
is no regulation you could not put in place.
    We have been talking about this for 70 years in this 
country. You have been trying to get the private insurance 
through the B.A. for 70 years. You have not been able to do it. 
You are not going to be able to do it.
    He was worried about can the federal government make AIG 
behave. What about AIG as an example of the private insurance 
agency behavior? Much bigger problem than the private--than the 
federal government's behavior in this case.
    Chairman Andrews. Thank you, Doctor.
    Thank the gentleman.
    Mr. Tierney. Mr. Chairman, I just hope that in future 
hearings you might have a hearing that really hits the 1,800-
pound gorilla on the head, is insurance, as opposed to having 
to hear about how can we all help insurance companies survive 
on that. I hope we----
    Chairman Andrews. Very much so.
    Mr. Tierney. Thank you.
    Chairman Andrews. And I welcome that opportunity.
    I am pleased to recognize the gentleman from Ohio, Mr. 
Kucinich, who has been a passionate advocate for health care 
reform through his career.
    Mr. Kucinich. Thank you, Mr. Chairman, for holding this 
hearing.
    And I want to associate myself with the remarks of Mr. 
Tierney.
    Our efforts in Congress should be about health care, not 
insurance care. And what we know and what Dr. Himmelstein was 
talking about is that the insurance companies make money not 
providing health care. There is a perverse disincentive set up 
in the system so they do not provide health care.
    How is it that we have 50 million Americans that do not 
have any health insurance? How do we have 50 million--another 
50 million, who are underinsured?
    And one of the things I am sure about, Mr. Chairman, is, in 
this whole health care debate, they are so concerned about 
protecting--and I am not thinking about the chair because he is 
a co-sponsor of my bill. But, you know, I heard what Mr. 
Tierney said, and I feel the same way. You know, there is such 
a concern about protecting the insurance companies and their 
profits.
    Now I, of course, and the co-sponsor, co-author of the 
bill, H.R. 676, with Mr. Conyers, a bill that provides for a 
single-payer plan. And this is a town which loves polls. Well, 
single-payer has the support of 59 percent of all physicians, 
60 percent of the American public, over 75 members of Congress.
    And I want to say, including the Chairman and several 
members of this Committee have signed on to the bill.
    And yet, everything I am reading about the health care 
debate is making me deeply concerned that this Congress is 
going to miss a rare opportunity to adopt a single-payer bill. 
And I am convinced we need a back-up plan.
    Now, Dr. Himmelstein, as you know, several state 
legislatures have shown interest in a single-payer health care. 
California has twice-passed a single-payer bill in the last 3 
years. But it has been vetoed by the governor. Illinois, 
Minnesota, Pennsylvania, Washington, New York and other states 
have strong single-payer efforts under way. In my own state, in 
Ohio, there is a strong civic action movement for single-payer.
    They all face barriers in the ERISA preemption and they 
needs to get a waiver to redirect their federal health care 
money.
    Now, Dr. Himmelstein, if a public-private plan, like the 
one being proposed, is adopted, would it be important to allow 
the states to allow the states to adopt their own single-payer 
plans?
    Dr. Himmelstein. I think if the federal government is going 
to head the nation down a dead-end street, a public-private 
plan, which we know will not work--it has been tried in three 
separate states during the 1980s and 1990s, and failed in all 
of those. At least give an option for the states to innovate 
and to help us get out of this mess.
    So there ought to be at least that exit strategy for moving 
us forward.
    I might say to you also, the state of Maine legislature 
passed, I understand, just two weeks ago, an endorsement of 
your bill, Congressman.
    Mr. Kucinich. Well, how did the single--thank you. How did 
the single-payer health care system take hold and grow in 
Canada where it is so popular?
    Dr. Himmelstein. Well, it started in the province of 
Saskatchewan where one bull politician, since voted by 
Canadians the most beloved of Canadian political leader of all 
times, innovated that program in that small province. It became 
such a popular program that conservative government in Ottawa 
actually adopted it nationwide.
    Mr. Kucinich. A number of people think that a hybrid 
public-private health care plan will lead to a single payer 
because the inefficient private plans will not be able to 
compete with the public plan. Do you agree?
    Dr. Himmelstein. I think unfortunately we have evidence 
from the Medicare program that that is not the case, that the 
private insurances can effectively lobby the rules to make sure 
that they get a subsidy from it. And one would have to believe 
that the Republicans of the 1960s were fooled, because they 
proposed, as a method to block the passage of Medicare, a 
public-private plan very much like the public-plan option that 
is being proposed today as an effort to block Medicare's 
passage back in 1961 and 1962.
    Mr. Kucinich. Well, let's talk about the overhead. Private 
insurance has a higher overhead than public plans. Why is that?
    Dr. Himmelstein. Well, first of all, they have to do the 
underwriting. We heard about 20,000 people, who work as 
underwriters for private employee benefit firms. That is an 
expensive proposition, which a public plans need not have. 
Advertising, collecting money through premiums and keeping 
track of that, the oversight of paying each bill, which in a 
Canadian-style program, does not exist.
    And, of course, the CEO salaries. And the one thing I 
missed--I disagree with Mr. Tierney about is at Aetna, the CEO 
made not a quarter of a million dollars a month, but a quarter 
of a million dollars a day, including weekends and holidays.
    Mr. Kucinich. All right. Okay. Final question, can you talk 
about single-payer reform offering mechanisms to moderate 
health care cost inflation.
    Dr. Himmelstein. Well, I have talked about the 
administrative savings, which CBO and GAO, in the past, have 
said would actually pay for all of the additional coverage 
needed in this country.
    But in addition to that, you have got mechanisms for 
rationalizing the investments in facilities in this country. We 
have now got a proliferation of machinery, which often actually 
worsens the quality of care. So when you have got five heart 
transplant programs in one city, none of those programs doing 
enough surgery to actually be good at it, you have worsened the 
quality of care and driven up the costs. And some reasonable 
health planning mechanisms would go a long way--and the 
Dartmouth Group has shown this--to moderating costs and 
simultaneously improving quality of care.
    Mr. Kucinich. Thank you very much, Doctor.
    Again, Chairman Andrews, I want to thank you for holding 
this hearing. It really gives us a chance to get into this. 
Thank you.
    Chairman Andrews. You are very welcome. And it is great to 
have you here.
    Now, Mr. Hare has expressed a desire to have a second round 
of questions. And because this is an issue of such gravity, we 
are going to accede to that.
    I am going to--here is what I propose that we do. I 
obviously will give the minority the first opportunity. It is 
their turn.
    Are there other members on the majority side that wish to 
ask a second question?
    John?
    Or Dennis?
    Mr. Hare. I would, yes.
    Chairman Andrews. Okay, well, then, we will have--Mr. Kline 
will have his time, and then Mr. Hare and then Mr. Kucinich. 
And then I will close the hearing, if that is acceptable to 
everyone.
    Mr. Kline. Yes, thank you, Mr. Chairman.
    I will not take all my time in the interest in time, both 
ours and the panels and all the people in the room.
    There is obviously a great deal of disagreement and 
diversity here. We have it on the panel.
    I am sure that my good friend, Mr. Kucinich, is not 
surprised that I am not a co-sponsor of his bill, and not 
likely to be.
    And we have seen differences here between physicians, with 
extraordinary physicians, some of my colleagues and Mr. 
Himmelstein. There are going to be differences. We have got a 
long way to go here.
    I will just reiterate that, as we go forward, we need to be 
mindful of the 160 million people who are getting their 
insurance now through employers, and that we not pull that 
string unless and until we are ready to replace the paradigm.
    And with that, I will yield back, Mr. Chairman.
    Chairman Andrews. I thank my friend.
    And I am pleased to recognize the gentleman from Illinois, 
Mr. Hare.
    Mr. Hare. Thank you, Mr. Chairman. And I appreciate you 
giving me the opportunity for a second round here.
    You know, Doctor, let me ask you this. The single-payer 
that you support, we hear a lot of the criticisms--long lines, 
cannot get tests. You know, we are going to have problems. 
First of all, I would like to find out if, in fact, you 
subscribe to that notion.
    Dr. Himmelstein. There are waits for a few high-technology 
services in Canada. But, in fact, Canadians visit the doctor 
more often than we do, have more hospital care per capita than 
we do in terms of days in the hospital, and even for many kinds 
of procedures, get as much or more than Americans do. So there 
are a limited number of things that there are shortages of and 
waits for in Canada.
    And one should say that they spend half as much per person 
on health care as we do in Canada. And if they were to double 
their budget, there would be no waits at all for any kind of 
care. And they will have much better access, not only than they 
do, but than we do.
    Mr. Hare. Does anybody on the panel--and I do not mean to 
be facetious about this. But does anybody on the panel know if 
there has been any movement at all in Canada to jettison their 
health care and adopt the American health care system?
    Dr. Himmelstein. There was a survey of Canadians, and 3 
percent of Canadians are prepared to go back to a U.S.-style 
system of care, which one of my Canadian colleagues tells me is 
their illiteracy rate. [Laughter.]
    Mr. Hare. Well----
    [Laughter.]
    Doctor, that is a hard one to follow.
    I just have to say I do support my friend Dennis' bill. And 
let me tell you, I--sometimes--I know the government is not 
always the answer for everything. But I have to tell you, I 
used to serve on the House Veterans Affairs Committee. And I 
think the VA health care--if you talk to veterans, we do a 
pretty darn good job of helping our veterans. So we can do 
more, and we need to.
    But, you know, I do not--I have a lot of veterans in my 
district that will tell me, ``I do not want to go to the 
hospital. I go to the VA because I get really good care 
there.'' That is a government program.
    I have people that are on Medicare and Medicaid. And they 
are grateful and thankful to God that they have that type of 
coverage.
    So, you know, at times, you would swear that the federal 
government cannot do anything right. And I will admit we have 
made some mistakes up here.
    But it would just seem to me that if we are really going to 
get serious about covering 50 million people and the 50 million 
that are under insured, and the people that Mr. Courtney talked 
about, with pre-existing conditions, for heaven's sake, with a 
caesarian birth, and those kinds of things that make absolutely 
no sense, and if we really subscribe to the notion that health 
care in this country ought to be a right and not a privilege, 
then I think we are going to have to do something. And I think 
we are going to have to do something bold, because it is not 
getting it the way we are doing it now.
    The administrative costs alone, as you said, doctor, was, 
what, 31 percent or--trying to think. Imagine the number of 
people we could insure if we eliminated the administrative 
costs of it.
    So, you know, I go back to saying this. I think all of us 
up here, all members of the House and Senate, we have got very 
good health care plans. We all pay for them obviously. They are 
not totally free. But I want to see the day when every person 
in this country--and as I said, for that young man who lost his 
job and, as that man said, he did not--he said, ``God, made a 
place for my son.'' He said, ``I do not blame God for this. I 
blame the government because they would not do anything about 
this.'' And this is a man, by the way, that had to borrow 
$8,000 to bury his son.
    Now, this is the United States of America. And, you know, I 
am not--you know, I do not--we can argue back and forth and all 
of this. But if we are really dead serious about making sure 
everybody has access to quality health care with the doctor 
they want to go to, the hospital they want to go to and do 
preventative care, then we have to invest in this. Because if 
we do not--it has not been working for the past--I do not know 
how many years. And it is not working now.
    And so I appreciate you all being here. But I have to tell 
you, I think whatever we do, we better be bold and we better 
get it right. And if we do not insure those that are uninsured, 
and we do not stop this hemorrhaging of people that are kicked 
off because of bogus pre-existing conditions, we are never 
going to get this right.
    So thank you, Mr. Chairman.
    Chairman Andrews. Thank you, Mr. Hare.
    The chair is pleased to recognize the gentleman from Ohio, 
Mr. Kucinich.
    Mr. Kucinich. Thank you very much.
    Picking up on what Mr. Hare said, the overhead is at least 
31 percent. Some say it is a size 33.
    Now, if you consider that, in the United States, about $2.6 
trillion a year is spent on health care, that is about 16 
percent or 17 percent of our gross domestic product. What that 
means is that about $800 billion a year goes for the activities 
of the for-profit system for corporate profits, stock options, 
executive salaries, advertising, marketing, the cost of 
paperwork. $800 billion a year.
    Now, if you took $800 billion a year and you put that into 
care for people, you would have enough to cover the 50 million 
who are uninsured and to provide full coverage for people who 
are under insured.
    So we are talking about a lot of money here, which is why 
there is such a ferocious battle going on in the capital over 
trying to maintain the position of private insurers, because of 
the--strictly because of the amount of money that is involved 
here. And, of course, then, has become an engine to accelerate 
the wealth of the nation upwards from the American people into 
the pockets of the insurance companies.
    Now, I want to go back to the questions that I was asking 
Doctor Himmelstein.
    Do other authorities--can you state any authorities that 
agree that a single-payer system would generate large 
administrative savings?
    Dr. Himmelstein. Back some years ago, the Congressional 
Budget Office looked at this question. They concluded that a 
single-payer system could cover everybody with completely 
comprehensive coverage without any increase in health care 
costs at all.
    The General Accountability Office, back at the request of 
Mr. Conyers in the late 1980s, concluded the same thing.
    I might say that Lou and Associates, which is actually 
owned by an insurance firm, owned by United Health Care, has 
done a number of studies commissioned by states around the 
country and has concluded the same thing. To their credit, they 
are honest enough to say that if you wipe our bosses out of the 
equation, you could cover everybody without any increase in 
health care costs. They made that estimate at the--on a 
contract for the Massachusetts Medical Society on a contract 
for the health reform debate in California, and for a number of 
other states around the country.
    So it is not just my conclusions. That conclusion has been 
reached by others in their studies.
    Mr. Kucinich. Now, you mentioned Massachusetts. 
Massachusetts gets a lot of discussion based on the plan that 
they have had. People have claimed that the reform is working 
well. And what--could you give us an assessment of the 
Massachusetts plan and its relevancy or lack thereof to the 
moment.
    Dr. Himmelstein. Well, I work in the plan. And what we know 
so far is the costs have been driven up substantially, as we 
had predicted. Government----
    Mr. Kucinich. Why?
    Dr. Himmelstein. Because essentially, the private insurance 
company has been kept in the middle. And the way we are 
increasing coverage is by buying additional coverage from them 
on top of the already high costs. And we have added the 
administrative costs of the insurance exchange, which adds 4 
percent to every policy they sell, the connecter, on top of the 
already high administrative costs. And we have had no means of 
cost containment.
    The survey actually shows that, of those directly affected 
by the reform, more say they have been hurt by it than helped 
by is because----
    Mr. Kucinich. Why?
    Dr. Himmelstein. The cost of coverage that you are required 
to buy is extraordinarily high. We had quite----
    Mr. Kucinich. So people are required to buy their coverage. 
And how much are they required to pay for the coverage?
    Dr. Himmelstein. For someone my age, the required coverage 
would be a $4,800 dollar per person, per year, and that carries 
a $2,000 deductible. So you lay out $6,800 out-of-pocket before 
you get a penny of coverage.
    Mr. Kucinich. So you are required. What happens if you do 
not buy it?
    Dr. Himmelstein. A $1000 fine. So the----
    Mr. Kucinich. Are they fining people? Have they fined 
people?
    Dr. Himmelstein. They are. They fined some people last 
year. And we have many more coming up with tax season this 
year.
    Mr. Kucinich. What if you cannot afford health insurance?
    Dr. Himmelstein. There is a standard that says if you are 
above that standard, it is deemed affordable, you must buy it. 
You pay the cover--you pay the fine. If you go to a hospital, 
you pay the fine and you pay a part of the required coverage. 
So that is why people----
    Mr. Kucinich. Is this plan going to fail, in your 
estimation?
    Dr. Himmelstein. I am sorry?
    Mr. Kucinich. Is the Massachusetts plan viable then? Is 
it----
    Dr. Himmelstein. I think it is economically not viable. And 
I think, for my patients, that it is not viable.
    Mr. Kucinich. Do you think it will fail?
    Dr. Himmelstein. Pardon?
    Mr. Kucinich. Do you think it will fail as a plan?
    Dr. Himmelstein. I think it will fail. And if I may say, I 
work at the public hospital system, which just has seen massive 
budget cuts in order to keep the system afloat. We are closing 
half of our in-patient psychiatric beds. And we have more 
psychiatric beds than all of the other teaching hospitals in 
Boston combined. So we are creating a massive shortage in the 
care of the chronically mentally ill.
    Mr. Kucinich. Thank you, Doctor Himmelstein.
    And I want to thank the chair for indulging this second 
round of questions.
    Thank you.
    Chairman Andrews. Absolutely. Glad to be able to hear the 
answers on the questions.
    The gentleman from Oregon, Mr. Wu?
    Mr. Wu. Thank you, Mr. Chairman.
    And I do intend now to take up Chairman Andrew's invitation 
to ask a question or two about health information technology.
    And I understand that you all are here to talk about 
general issues, but I would like to invite you all to talk a 
little bit about health information technology, a field that I 
have been laboring in for several years. And that is a high 
priority for this administration in its efforts to make health 
care more effective and more efficient, whether you call it by 
electronic medical records or personal records or any other 
name.
    I would just like--whoever wants to take a moment to 
address what benefits to patients and providers do you see 
coming from implementation of health information technology as 
a part of health care reform?
    Mr. Langan?
    Mr. Langan. I think employers who sponsor health plans now 
for their employees, many of them have been anxious and some 
have moved out front to try to tap the promise of electronic 
health records and health I.T. generally. I think our system is 
a very pluralistic system in terms of providers and provider 
settings and industries and so forth. And everyone knows, I 
believe, that the health insurance industry has come relatively 
late to the process of adopting standardization, which blew 
through many industries at an earlier time. And so it has been, 
for various reasons, resistant to the kind of standardization 
that can bring about efficiency and frankly better quality 
care.
    And so employers have been pushing this envelope within the 
limitations that currently exist.
    And it illustrates one of the things that I think employers 
bring to the systems currently that could be lost in the event 
we move to, say, in the direction of a single-payer system.
    Employers tend to seek to integrate the health care 
coverage that they provide to employees to other programs, 
absenteeism, disability. And the advent of electronic health 
records will help them to integrate those efforts. And that is 
why we have supported and applauded the initial funding that 
was in the economic recovery bill.
    Chairman Andrews. Thank you, Mr. Langan.
    They are calling a vote so I am going to--if folks could 
move along.
    Mr. Wu. Dr. Himmelstein?
    Dr. Himmelstein. I am an enthusiast for electronic medical 
records. I have spent 20 years a director of clinical 
computing. And it can clearly improve quality. But too often, 
commercial pressures actually distort the computer programs we 
are using. We are adopting inadequate records and we know they 
do not work. And there is no evidence at all that it saves 
money. I think it can upgrade quality. But at this point, it 
actually increases costs.
    Just to give you one example, at Partner's Health Care, the 
parent corporation of Massachusetts General and Brigham Women's 
Hospital, 1,000 people work in our health I.T. department. And 
there is no way we are going to get savings equivalent to that 
expenditure to keep that health I.T. program afloat.
    So, yes, it can improve quality. It takes more provider 
time. And someone who uses an electronic medical record, it is 
frustrating because you have to enter all that data. And it is 
worth doing, but let's not fantasize that it will save costs.
    Mr. Wu. I understand, Doctor Himmelstein. I think that that 
experience has been shared in some other places. That is why I 
always open by saying increasing patient safety, improving 
quality and perhaps reducing the rate of increase of medical 
costs, but we will see. We will hope for the best.
    And because we are getting to this cost issue, I would like 
to jump within my 5 minutes to how do you pay for health care 
I.T., whether it is in an employer-based plan, an insurance 
company or a single-payer plan.
    What do you see as the bump to practitioners, to a doctor 
in a solo office or any other care health care provider? What 
do you think the bump should be from whether it is from 
Medicare, a single payer or an employer-based health plan? What 
do you need to bump the compensation so that you have more 
uptake of technology of where it is abysmal right now, from 
small providers, because of cost concerns?
    Mr. Vaughan. We are a little surprised that this is one of 
the few industries in America you have to pay to get people to 
use a computer. I mean, local hardware stores have done it and 
everybody else has. And there is----
    Mr. Wu. Well, Mr. Vaughan, the reason why you have to pay 
to get someone to use a computer is because, as Doctor 
Himmelstein has pointed out, it costs you time to train up. It 
costs you time to deal with the system. And the provider pays 
for it. But it is the insurer who derives most of the economic 
benefit. And it is that--this juncture that really causes that 
phenomenon.
    Mr. Vaughan. Point well taken. There is good data from CMS 
that going to e-prescribing is saving lives, reducing duplicate 
prescriptions and avoiding counteractions. And I would urge as 
part of the reform bill, speeding the carrots and sticks to get 
to e-prescribing.
    And what you did in the stimulus package, that ought to be 
a heck of a lot of enough to get this ball rolling and----
    Mr. Wu. Could you address the issue of how much of a bump--
I know you do not like the bump.
    Chairman Andrews. The gentleman's time has expired.
    We will get this answer. And then we have a floor vote too.
    So, Mr. Vaughan?
    Mr. Vaughan. I think the bump----
    Chairman Andrews. So, no Simpson references. Please answer 
the question. [Laughter.]
    Mr. Vaughan. I sure will. Sorry.
    But I would just--well, I will conclude that just the point 
that the hearing has gone on a little over 2 hours, some time 
during this period, if the IOM is right, four fellow citizens 
have died because they were uninsured. So whatever you do, 
single payer, whatever, please do something.
    Chairman Andrews. That is a very sobering and appropriate 
note to end our discussion for today. But today's discussion is 
the beginning.
    It is interesting--I want to thank the panelists for two 
points. First is for your indulgence of time, the depths of 
your knowledge and the enthusiasm of your contributions. Thank 
you all very, very much.
    The other thing you have done though is given us a 
microcosmic example of the macro problem here. I think everyone 
here wants a really high-quality health care system, and they 
want every person to be able to access and use it. I think 
there is universal agreement on that. But it is very hard to 
accomplish that. And you have heard a microcosmic example this 
morning of the many issues that pop up when you are trying to 
get that done.
    This Committee, the House, the Congress, the country are 
going to be struggling through these questions over the course 
of the next couple of months.
    You have given us excellent material to work from.
    We are going to be back in touch with each one of you for 
further reviews as we go forward.
    And I, again, appreciate your effort.
    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 to the 
witnesses should coordinate with the majority staff within 14 
days.
    Without objection, the hearing is adjourned.
    Thank you.
    [The statement of Mr. Solmonese, submitted by Mr. Andrews, 
follows:]

 Prepared Statement of Joe Solmonese, President, Human Rights Campaign

    On behalf of the Human Rights Campaign and our over 700,000 members 
and supporters nationwide, I thank Representative Andrews for convening 
this hearing on ways to reduce the cost of health coverage. As the 
nation's largest civil rights organization advocating for the lesbian, 
gay, bisexual, and transgender (``LGBT'') community, the Human Rights 
Campaign strongly supports measures that will make coverage more 
affordable for all Americans.
    The high--and increasing--cost of health insurance is of particular 
importance to LGBT people. Nearly one in four lesbian and gay adults 
lack health insurance and these adults are more than twice as likely as 
their heterosexual counterparts to be uninsured.\1\ For some of these 
people, unfair taxation of employer-provided health benefits is partly 
to blame.
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    \1\ http://www.harrisinteractive.com/NEWS/
allnewsbydate.asp?NewsID=1307
---------------------------------------------------------------------------
    Families rely heavily on employer-provided health insurance, a 
benefit that is increasingly offered to same-sex couples. As of this 
hearing, over 57% of Fortune 500 companies now offer equal health 
benefits to their employees' same-sex domestic partners--up from only 
one in 1992. Unfortunately, our tax system does not reflect this 
advance toward true meritocracy in the workplace. Under current federal 
law, employer-provided health benefits for domestic partners are 
subject to income tax and payroll tax. As a result, a lesbian or gay 
employee who takes advantage of this benefit takes home less pay than 
the colleague at the next cubicle. Some families have to forego the 
benefits altogether because this unfair tax renders the coverage too 
expensive--adding them needlessly to the millions of uninsured 
Americans in this country.
    The following example illustrates how this tax inequity functions, 
and its result upon an average worker: In 2006 Steve earned $32,000 per 
year and owed $3,155 in federal income and payroll taxes. Steve's 
employer also paid the monthly premium of $907 for the insurance 
coverage for Steve and his wife. Of this amount, $572 was the amount in 
excess of the premium for self-only coverage. None of this coverage was 
taxable under current law, because employer contributions for the 
worker and a spouse or dependent child are excluded from taxable 
income. Steve's co-worker, Jim, earned the same salary and had the same 
coverage for himself and his same-sex partner. However, the value of 
the coverage provided to the partner is subject to federal income and 
payroll taxes. As a result, $6,864 of income is imputed to Jim and his 
federal income and payroll tax liability increased from $3,155 to 
$4,710. This represents nearly a 50% increase over Steve and his wife's 
tax liability.
    For many families, especially those with modest incomes, the tax 
hit is more than they can bear. In the example above, a family earning 
$32,000 would most likely find that the additional $1,555 in tax 
liability puts coverage beyond their means.
    Taxing these benefits also raises costs for employers. The benefits 
are not only considered imputed income, but also wages for payroll tax 
purposes. As a result, the employer must pay additional payroll taxes 
on these benefits that they do not pay for spouse and dependent child 
coverage.
    It is imperative that the federal government not pile unfair taxes 
onto some families who are coping with the spiraling cost of health 
care. The Tax Equity for Health Plan Beneficiaries Act, which was H.R. 
1820 in the 110th Congress, would eliminate the tax inequity and render 
health insurance more affordable for many American families.\2\ 
Regardless of which approach Congress takes to health care reform, 
federal policies for families must treat all families equally. As this 
Subcommittee considers the important question of reducing the cost of 
health insurance, we strongly recommend that it support eliminating the 
tax on employer-provided health benefits.
---------------------------------------------------------------------------
    \2\ A similar bill was introduced in the Senate in the 110th 
Congress--the Tax Equity for Domestic Partner and Health Plan 
Beneficiaries Act (S. 1556).
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                                 ______
                                 
    [Whereupon, at 12:42 p.m., the Subcommittee was adjourned.]

                                 
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