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


 
                    THE TRI-COMMITTEE DRAFT PROPOSAL
                         FOR HEALTH CARE REFORM

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

                                HEARING

                               before the

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 23, 2009

                               __________

                           Serial No. 111-29

                               __________

      Printed for the use of the Committee on Education and Labor


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



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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       John Kline, Minnesota,
    Chairman                           Senior Republican Member
Donald M. Payne, New Jersey          Thomas E. Petri, Wisconsin
Robert E. Andrews, New Jersey        Howard P. ``Buck'' McKeon, 
Robert C. ``Bobby'' Scott, Virginia      California
Lynn C. Woolsey, California          Peter Hoekstra, Michigan
Ruben Hinojosa, Texas                Michael N. Castle, Delaware
Carolyn McCarthy, New York           Mark E. Souder, Indiana
John F. Tierney, Massachusetts       Vernon J. Ehlers, Michigan
Dennis J. Kucinich, Ohio             Judy Biggert, Illinois
David Wu, Oregon                     Todd Russell Platts, Pennsylvania
Rush D. Holt, New Jersey             Joe Wilson, South Carolina
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 Kilili Camacho Sablan,
    Northern Mariana Islands
Dina Titus, Nevada
[Vacant]

                     Mark Zuckerman, Staff Director
                Sally Stroup, Republican Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on June 23, 2009....................................     1

Statement of Members:
    Andrews, Hon. Robert E., a Representative in Congress from 
      the State of New Jersey....................................     8
        Submission for the record: Statement of Hewitt Associates 
          LLC....................................................   209
    Kline, Hon. John, Senior Republican Member, Committee on 
      Education and Labor........................................     5
        Prepared statement of....................................     7
    Miller, Hon. George, Chairman, Committee on Education and 
      Labor......................................................     1
        Prepared statement of....................................     4
        Questions for the record submitted to Dr. Hacker.........   194
        Questions for the record submitted to Dr. Romer..........    29
        Submissions for the record:
            Statement of the HR Policy Association, Internet 
              address to.........................................   195
    Price, Hon. Tom, a Representative in Congress from the State 
      of Georgia.................................................    10
        Prepared statement of....................................    12
        Articles submitted:
            From the Hill, June 10, 2009, ``A Back-Door Path to a 
              Government Takeover''..............................   218
            From Politico, May 3, 2009, ``To Reform, Create a 
              Real Marketplace''.................................   220
            From the Washington Times, April 1, 2009, ``Getting 
              Health Care Reform Right''.........................   221
    Sablan, Hon. Gregorio Kilili Camacho, a Delegate in Congress 
      from the Northern Mariana Islands, prepared statement of...    13
    Scott, Hon. Robert C. ``Bobby,'' a Representative in Congress 
      from the State of Virginia, submissions for the record:
        Policy brief by the George Washington University 
          Department of Health Policy............................   195
        EPSDT amendment..........................................   207
        300 percent amendment....................................   208
        Medicaid and CHIP amendment..............................   208

Statement of Witnesses:
    Arensmeyer, John, founder & CEO, Small Business Majority.....    80
        Prepared statement of....................................    82
    Hacker, Jacob S., Ph.D., University of California, Berkeley, 
      professor of political science; faculty co-director, Center 
      on Health Economic & Family Security, Berkeley School of 
      Law........................................................    68
        Prepared statement of....................................    70
        Responses to questions for the record....................   194
    Klein, James A., president, American Benefits Council........   138
        Prepared statement of....................................   141
    Moffit Robert E., Ph.D., director, Center for Health Policy 
      Studies, the Heritage Foundation...........................   156
        Prepared statement of....................................   157
        Harvard Health Policy Review article, Internet address to   156
    Mullan, Fitzhugh, M.D., Murdock head professor of medicine 
      and health policy, George Washington University............   167
        Prepared statement of....................................   169
    Pollack, Ron, executive director, Families USA...............    46
        Prepared statement of....................................    48
    Pollitz, Karen, research professor, Georgetown University 
      Health Policy Institute....................................   127
        Prepared statement of....................................   129
    Romer, Christina D., Chair, Council of Economic Advisers.....    14
        Prepared statement of....................................    18
        Additional submission, ``The Economic Case for Health 
          Care Reform,'' Internet address to.....................    24
        Responses to questions for the record....................    30
    Shea, Gerald M., assistant to the president, American 
      Federation of Labor and Congress of Industrial 
      Organizations (AFL-CIO)....................................    52
        Prepared statement of....................................    54
    Speranza, Paul S., Jr., vice chairman, general counsel and 
      secretary, Wegmans Food Markets, Inc.......................    63
        Prepared statement of....................................    64
    Stapley, Michael, on behalf of the ERISA Industry Committee..    75
        Prepared statement of....................................    77
    Vaughan, William, senior health policy analyst, Consumers 
      Union......................................................   149
        Prepared statement of....................................   151
    Visco, Fran, J.D., president, National Breast Cancer 
      Coalition..................................................    86
        Prepared statement of....................................    87
    Wcislo, Celia, assistant division director, SEIU United 
      Healthcare Workers East....................................   134
        Prepared statement of....................................   136
    Young, ReShonda, Alpha Express, Inc..........................   164
        Prepared statement of....................................   165


                    THE TRI-COMMITTEE DRAFT PROPOSAL
                         FOR HEALTH CARE REFORM

                              ----------                              


                         Tuesday, June 23, 2009

                     U.S. House of Representatives

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The committee met, pursuant to call, at 12:05 p.m., in room 
2175, Rayburn House Office Building, Hon. George Miller 
[chairman of the committee] presiding.
    Present: Representatives Miller, Kildee, Payne, Andrews, 
Scott, Woolsey, Hinojosa, McCarthy, Tierney, Kucinich, Davis, 
Loebsack, Hirono, Hare, Clarke, Courtney, Fudge, Polis, Tonko, 
Sablan, Titus, Kline, Petri, Castle, McMorris Rodgers, Price, 
Guthrie, Cassidy, Hunter, Roe, and Thompson,
    Staff Present: Aaron Albright, Press Secretary; Tylease 
Alli, Hearing Clerk; Jody Calemine, General Counsel; Carlos 
Fenwick, Policy Advisor, Subcommittee on Health, Employment, 
Labor and Pensions; David Hartzler, Systems Administrator 
Jessica Kahanek, Press Assistant; Ricardo Martinez, Policy 
Advisor, Subcommittee on Higher Education, Lifelong Learning 
and Competitiveness; Alex Nock, Deputy Staff Director; Joe 
Novotny, Chief Clerk; Megan O'Reilly, Labor Counsel; Rachel 
Racusen, Communications Director; Meredith Regine, Junior 
Legislative Associate, Labor; James Schroll, Junior Legislative 
Associate, Labor; Michele Varnhagen, Labor Policy Director; 
Mark Zuckerman, Staff Director; Robert Borden, Minority General 
Counsel; Cameron Coursen, Minority Assistant Communications 
Director; Ed Gilroy, Minority Director of Worforce Policy; Rob 
Gregg, Minority Senior Legislative Assistant; Alexa Marrero, 
Minority Communications Director; Jim Paretti, Minority 
Workforce Policy Counsel; Molly McLaughlin Salmi, Minority 
Deputy Director of Workforce Policy; Ken Serafin, Minority 
Professional Staff Member; Linda Stevens, Minority Chief Clerk/
Assistant to the General Counsel; and Sally Stroup, Minority 
Staff Director.
    Chairman Miller. Good afternoon. The Committee on Education 
and Labor will come to order for purposes of conducting the 
hearing on the Tri-Committee Discussion Draft for health care 
reform in our country.
    But before we begin this hearing, I would like to welcome 
Congressman Kline to his first hearing as our new incoming 
Ranking Member from the Republican Party, the senior Republican 
on our committee, and welcome him to the committee in that 
position and say congratulations to him and that I look forward 
to working with him to continue our efforts to rebuild our 
country and improve the lives of American families.
    Welcome, Mr. Kline. Congratulations to you.
    Mr. Kline. Thank you, Mr. Chairman.
    Chairman Miller. Today, as I said, we will examine the 
House tri-committee discussion draft for health care reform. 
This hearing marks the next step in our critical and historical 
effort to guarantee all Americans access to quality affordable 
health care.
    No one can argue that our Nation's current health care path 
is sustainable. Premiums and health care costs have skyrocketed 
for families and businesses alike. In today's system, insurance 
company bureaucrats hold all of the power. They get to decide 
whether to cover a care that a doctor recommends for their 
patient. They can deny coverage or delay treatment based upon 
preexisting conditions, sending millions of people into 
devastating debt and prolonging anxiety or suffering from 
unattended care.
    Americans with health care are deeply concerned that their 
employer may scale back or even cancel their coverage, and if 
they lose their job they will lose their health insurance, too.
    The cost of 47 million uninsured people in our country is 
also unsustainable. The lack of coverage jeopardizes not only 
their personal health but our Nation's economic condition. The 
uninsured costs the rest of us about $1,100 per family in 
higher premiums. The numerous and serious weaknesses in our 
health care system have combined to deliver a crushing blow to 
America's families, businesses and to our country's fiscal 
future.
    Last Friday the three committees of jurisdiction in the 
House of Representatives unveiled our discussion draft for 
health care reform. It reflects months of hard work, of 
extensive meetings with Democrats and Republicans, with the 
Senators, with the Congressional Budget Office, with the 
administration officials and stakeholders in an opening 
collaborative process.
    Consistent with President Obama's goals, our draft builds 
on what works and fixes what is broken in our current system. 
It lays the foundation for an American solution that will 
reduce costs, guarantee choice of doctors and plans and ensure 
access to affordable quality health care for all.
    For Americans just beginning to pay attention to this 
health care debate, here are some critical ways that the reform 
will directly help you and your family. Our proposed reform 
will cover about 95 percent of all Americans. If you like your 
doctor or your health care plan, you can keep them. You won't 
have to worry about coverage if your employer drops it or you 
lose your job. Copays for preventive care won't exist. Premiums 
or coverage will not be based upon preexisting conditions, 
gender or occupation. You will have a choice of a high-quality, 
affordable public health insurance plan, and your doctors and 
nurses will have access to the best information organized in 
the best way to offer you individualized care.
    Our draft will help drive down health care costs in several 
ways.
    First, it ensures competition in the marketplace by 
establishing a new health insurance exchange that includes a 
strong public health insurance option that will compete on a 
level playing field to keep the insurance companies honest. 
This will help lower costs for everyone.
    Second, it trims costs by simplifying paperwork and 
preventing waste, fraud and abuse.
    Third and most importantly, it controls costs by reducing 
spending.
    These health care reforms will be fully paid for. President 
Obama has outlined a menu of cost reductions that we will 
consider and have to make some very tough decisions about. But 
this weekend's pledge by the pharmaceutical companies 
demonstrates that the President is successful in building a 
diverse coalition committed to reducing spending while 
improving affordability.
    Our draft outlines where other significant portions of this 
funding will come from, promotes efficiencies in Medicare and 
Medicaid, and ending overpayments to private plans. This does 
not mean that we will be cutting services; instead we will 
improve them and strengthen the long-term sustainability so we 
can continue to provide the quality and dependable health care 
service for years to come.
    Next, our reform will guarantee people a real choice of 
doctors, nurses and insurance plans through the exchange. Under 
our draft, as we said, if you like it you can keep it. People 
who aren't covered will be able to choose a menu of affordable 
plans, both public and private. This coverage will be portable 
and guaranteed no matter if an employer drops coverage or 
people lose their jobs.
    Finally, our draft ensures that all Americans can afford 
quality health care based upon a sliding scale. Every plan 
offered through the exchange will include essential benefits, 
including no copays for preventative service, coverage for 
dental and vision coverage for children, caps on annual out-of-
pocket expenses that will protect against medical bankruptcy. 
It ensures that care will be as it should be, and that is 
patient-centered, driven by patients' needs and the expertise 
of doctors. It will simply not invest in utilization, but more 
so in outcomes. It invests in prevention and wellness. It ends 
the insurance companies' discriminatory practices. It also 
requires shared responsibilities by individuals, employers, and 
the government to ensure that all Americans have access to 
these benefits.
    In the coming weeks we will continue to seek input from 
stakeholders and lawmakers, but many are also clamoring for 
inaction. Let me be clear on this one point. On behalf of every 
parent seeking care for their sick child, for every American 
hoping that health care costs are not their last stop before 
bankruptcy, I assure you that the one thing that is in fact off 
the table in this effort is saying no to health care reform.
    To succeed we will need the cooperation of all of our 
colleagues and of our President. There will be a tremendous 
pressure to think only about one narrow interest or another, 
but instead we must think about the future of our country and 
every American who expects that this year, this will be the 
year that we will make a health care system part of America's 
shiny future and not a cause of further financial chaos.
    [The statement of Mr. Miller follows:]

   Prepared Statement of Hon. George Miller, Chairman, Committee on 
                          Education and Labor

    Good afternoon.
    First, I'd like to welcome Congressman Kline to his first hearing 
as our committee's incoming Senior Republican.
    I look forward to working together to rebuild our country and 
improve the lives of America's families.
    Today, we will examine the House Tri-Committee discussion draft for 
health care reform.
    This hearing marks the next step in our critical and historic 
effort to guarantee all Americans access to quality, affordable health 
care.
Unsustainable costs to families
    No one can argue that our nation's current health care path is 
sustainable. Premiums and health care costs have skyrocketed for 
families and businesses alike.
    In today's system, insurance company bureaucrats hold all the 
power. They get to decide whether to cover the care a doctor recommends 
for their patient.
    They can deny coverage or delay treatment based on a pre-existing 
condition--sending millions of people into devastating debt and 
prolonging anxiety or suffering from unattended care.
Portability
    Americans with health care are deeply concerned that their employer 
may scale back or cancel their coverage, and that if they lose their 
job they will lose their health insurance too.
    The cost of the 47 million uninsured people in our country is also 
unsustainable. Lack of coverage jeopardizes not only their personal 
health but our nation's economic condition.
    The uninsured cost the rest of us about $1,100 extra per year per 
family in higher premiums.
    These numerous and serious weaknesses in our health care system 
have combined to deliver a crushing blow to America's families, 
businesses and our country's fiscal future.
Tri-committee draft proposal
    Last Friday, the three committees of jurisdiction unveiled our 
discussion draft for health care reform.
    It reflects months of hard work and extensive meetings with 
Democrats and Republicans, Senators, the Congressional Budget Office, 
Administration officials, and stakeholders, engaged in an open and 
collaborative process.
    Consistent with President Obama's goals, our draft builds on what 
works and fixes what's broken in our current system.
    It lays the foundation for an American solution that will reduce 
costs, guarantee choice of doctors and plans, and ensure access to 
affordable, quality health care for all.
    For Americans just beginning to pay attention to the health care 
debate, here are critical ways that our reforms will directly help you 
and your family:
     Our proposed reforms will cover at least 95 percent of 
Americans;
     If you like your doctor or health plan, you can keep them;
     You won't have to worry about coverage if your employer 
drops it or you lose your job;
     Co-pays for preventive care won't exist;
     Premiums or coverage will not be based on pre-existing 
conditions, gender, or occupation;
     You will have the choice of a high-quality, affordable 
public health insurance plan; and
     Your doctors and nurses will have access to the best 
information to offer you individualized care.
Reduce costs
    Our draft will drive down health care costs in several ways.
    Second, it trims costs by simplifying paperwork and preventing 
waste, fraud and abuse.
    Third--and most importantly--it controls costs by reducing 
spending. Health reform will be fully paid for.
    President Obama has outlined a menu of cost reductions that we will 
consider and have to make very tough decisions about.
    But this weekend's pledge by pharmaceutical companies demonstrates 
that the President is successfully building a diverse coalition 
committed to reducing spending while improving affordability.
    Our draft outlines where another significant portion of this 
funding will come from: promoting efficiencies in Medicare and Medicaid 
and ending overpayments to private plans.
    This does not mean cutting services. Instead, we will improve them 
and strengthen their long-term sustainability, so they can continue to 
provide quality, dependable health care for years to come.
Guarantee choice
    Next, our reforms will guarantee people a real choice of doctors, 
nurses, and insurance plans through the exchange.
    Under our draft, if you like what you have, you keep it.
    People who aren't covered will be able to choose from a menu of 
affordable plans, including quality public and private health insurance 
plans.
    This coverage will be portable and guaranteed--no matter if an 
employer drops coverage or people lose their jobs.
Quality and affordable care
    Finally, our draft ensures that all Americans can afford quality 
health care, based on a sliding scale.
    Every plan offered through the exchange will include essential 
benefits, including no copays for preventative care, dental and vision 
coverage for children, and caps on annual out-of-pocket expenses that 
will protect against medical bankruptcy.
    It invests in prevention and wellness and it ends insurance 
companies' discriminatory practices.
    It also requires shared responsibility by individuals, employers 
and the government to ensure that all Americans have access to these 
benefits.
`No' is off the table
    In the coming weeks, we will continue to seek input from 
stakeholders and lawmakers. But many are also clamoring for inaction. 
Let me be very clear on this one point. On behalf of every parent 
seeking care for their sick child, and every American hoping that 
health care costs are not their last stop before bankruptcy, I can 
assure you: The one thing that is `off the table' in this effort is 
saying `No' to health care reform. To succeed, we will need the 
cooperation of all of our colleagues and our President.
    There will be tremendous pressure to think only about one narrow 
interest or another. Instead, we must think of the future of our 
country and every American who expects that this year will be the year 
that we make our health care system part of America's shining future 
and not the cause of further financial chaos.
                                 ______
                                 
    Chairman Miller. With that, I would like to recognize Mr. 
Kline for the purposes of an opening statement.
    Mr. Kline. Thank you, Mr. Chairman, and thank you for your 
kind welcome. That may be the only time I ever get a round of 
applause from you, Mr. Chairman, so I am going to savor it as 
long as I can.
    I want to thank our witnesses for being here. I know you 
are going to introduce some very distinguished panels. There 
are a lot of interested parties sitting out here in front of us 
today, as well they should be, because health care spending 
today accounts for approximately one-sixth of our economy, more 
than any other industry.
    Millions of Americans have limited coverage or no coverage 
at all. Some of them, particularly young adults, voluntarily 
choose not to secure coverage, whether from a youthful sense of 
invincibility or an understandable skepticism that the cost is 
not worth the benefit. Still others are eligible for coverage 
through the job, but choose for a variety of reasons not to 
enroll. Many of the uninsured work for small businesses which 
cannot achieve the efficiencies or economies of scale of larger 
employers. As a result their costs are much higher, often too 
high for both the small business owner and the worker.
    I could go on, but the point is simple: The root causes of 
the high rate of uninsured Americans are many and varied, as 
are the reasons for the sustained increase in cost for those 
who are covered. The solution, however, is far from simple. A 
one-size-fits-all approach will not eliminate the problem or 
its root causes. Yet here we are this afternoon looking at the 
very definition of a one-size-fits-all approach, a health care 
system increasingly controlled and administered by the Federal 
Government. This draft legislation, as far as I can tell, fails 
to address many of the structural flaws at the root of our 
current crisis.
    The President has pledged, and I quote: If you like your 
doctor, you will be able to keep your doctor, period; if you 
like your health care plan, you will be able to keep your 
health care plan, period, no one will take it away, no matter 
what, closed quote.
    But the Congressional Budget Office projects that 23 
million Americans will lose their current coverage under a plan 
being debated in the U.S. Senate. Ideas in the bill before us, 
such as the National Health Exchange, would shift millions of 
Americans out of their current coverage and into a government-
run plan. It might be the 23 million in the Senate plan, it 
might be more, we just don't know. What we do know about the 
Democrats' plan, it is the Democrats' plan. We haven't seen it 
until we got a glimpse of the 852-page monster on Friday. The 
Democrats' plan is it increases the role of the Federal 
Government through a new government-run plan and an expansion 
of Medicaid. With government spending on health care already 
exploding and the Federal Medicare and Medicaid programs 
already on the road to insolvency, I can't imagine the 
reasoning behind intensifying the stress placed on these 
programs.
    Employers are struggling to maintain coverage for their 
workers at a time when costs continue to rise and the economy 
continues to flail. But rather than offer relief, the 
Democrats' plan saddles employers with a pay-or-play scheme 
that threatens harsh financial sanctions and puts jobs at risk.
    This may be my first hearing as the Education and Labor 
senior Republican, but today we are all first-timers. In fact, 
this is the very first hearing on health care reform held by 
the full committee in the 111th Congress. And unfortunately, it 
may be the only hearing before the Democrats' plan is marked 
up.
    The Speaker has announced earlier this year that a health 
care overhaul will be voted on in the House before the August 
district work period. That doesn't give us much time for a 
serious debate. And that is too bad, Mr. Chairman, because this 
is a very serious issue. It deserves a real debate. The 
American people deserve an opportunity to weigh in. You haven't 
allowed that to happen. The so-called tri-committee draft is 
852 pages. It was released on Friday afternoon. Perhaps most 
troubling, today's hearing has taken place when many Members of 
Congress are still in their congressional districts or on their 
way back to Washington. And I have to say, Mr. Chairman, I am 
very pleased at the turnout here today. I was skeptical that we 
would get this many to come in this early.
    It doesn't have to be this way. Last week the Republican 
Health Care Solutions Group released a plan that we believe 
could serve as a basis of a bipartisan reform package. It 
contains commonsense solutions such as allowing children to 
remain covered by their parents' plans until they reach age 25, 
and making it easier for Americans to get health coverage when 
they lose or change jobs. It makes these changes while 
maintaining and improving upon the parts of the system that 
function well.
    Of particular interest to this committee, the Republican 
plan keeps much of the ERISA-based system in place, which would 
enable Americans who like their current coverage, many of whom 
receive it through their employer, to keep what they have.
    But as much as I support these principles of the Republican 
plan I wish we didn't need to frame this debate in partisan 
terms. Health care reform is far too important for partisan 
gamesmanship. It is also far too important to rush. Today may 
be our first hearing, but I hope it won't be our last. The 
proposal we are debating today is clearly partisan, but I 
continue to believe that Republicans and Democrats can and 
should come together to develop an American plan that will make 
health care more affordable, reduce the number of uninsured 
Americans and increase quality at a price that our country can 
afford.
    Thank you, Mr. Chairman. I yield back.
    Chairman Miller. Thank you.
    [The statement of Mr. Kline follows:]

   Prepared Statement of Hon. John Kline, Senior Republican Member, 
                    Committee on Education and Labor

    Thank you Chairman Miller, and good afternoon.
    America is facing a crisis in our health care system. Costs are 
spiraling out of control, leaving families, employers, and taxpayers to 
shoulder the burden.
    Health care spending today accounts for approximately one-sixth of 
our economy--more than any other industry. That's up from 13.8 percent 
of GDP in 2000 and 5.2 percent in 1960.
    Millions of Americans have limited coverage or no coverage at all. 
Some of them, particularly young adults, voluntarily choose not to 
secure coverage--whether from a youthful sense of invincibility or an 
understandable skepticism that the cost is not worth the benefit. Still 
others are eligible for coverage through their job, but choose--for a 
variety of reasons--not to enroll. Many of the uninsured work for small 
businesses, which cannot achieve the efficiencies or economies of scale 
of larger employers. As a result, their costs are much higher--often 
too high for both the small business owner and the worker.
    I could go on, but the point is simple: the root causes of the high 
rate of uninsured Americans are many and varied--as are the reasons for 
the sustained increase in costs for those who are covered.
    The solution, however, is far from simple. A one-size-fits-all 
approach will not eliminate the problem or its root causes.
    Yet here we are this afternoon looking at the very definition of a 
one-size-fits-all approach: a health care system increasingly 
controlled and administered by federal government. This draft 
legislation, as far as I can tell, fails to address many of the 
structural flaws at the root of our current crisis.
    President Obama has pledged, and I quote, ``If you like your 
doctor, you will be able to keep your doctor, period. If you like your 
health care plan, you'll be able to keep your health care plan, period. 
No one will take it away, no matter what.''
    But the Congressional Budget Office projects that 23 million 
Americans would lose their current coverage under a plan being debated 
in the U.S. Senate. Ideas in the bill before us, such as the national 
health exchange, would shift millions of Americans out of their current 
coverage and into a government-run plan. It might be the 23 million in 
the Senate plan. It might be more. We just don't know.
    What we do know about the Democrats' plan is that it increases the 
role of the federal government through a new, government-run plan and 
an expansion of Medicaid. With government spending on health care 
already exploding, and the federal Medicare and Medicaid programs 
already on the road to insolvency, I can't imagine the reasoning behind 
intensifying the stress placed on these programs.
    Employers are struggling to maintain coverage for their workers at 
a time when costs continue to rise and the economy continues to flail. 
But rather than offer relief, the Democrats' plan saddles employers 
with a ``pay or play'' scheme that threatens harsh financial sanctions 
and puts jobs at risk.
    This may be my first hearing as the Education and Labor Committee's 
Senior Republican, but today, we're all first-timers. In fact, this is 
the very first hearing on health care reform held by the full committee 
in the 111th Congress.
    And unfortunately, it may be the only hearing before the Democrats' 
plan is marked up. Speaker Pelosi announced earlier this year that a 
health care overhaul would be voted on in the House before the August 
district work period. That doesn't give us much time for a serious 
debate.
    That's too bad, Mr. Chairman, because this is a very serious issue. 
It deserves a real debate. The American people deserve an opportunity 
to weigh in. But you haven't allowed that to happen.
    The so-called Tri-Committee draft is 852 pages. It was released on 
a Friday afternoon. Perhaps most troubling, today's hearing is taking 
place when many Members of Congress are still in their congressional 
districts or on their way back to Washington.
    It doesn't have to be this way. Last week, the Republican Health 
Care Solutions Group released a plan that we believe could serve as the 
basis of a bipartisan reform package.
    It contains commonsense solutions, such as allowing children to 
remain covered by their parents' plans until they reach age 25 and 
making it easier for Americans to get health coverage when they lose or 
change jobs.
    It makes these changes while maintaining and improving upon the 
parts of the system that function well. Of particular interest to this 
committee, the GOP plan keeps much of the ERISA-based system in place, 
which would enable Americans who like their current coverage--many of 
whom receive it through their employer--to keep what they have.
    But as much as I support the principles of the Republican plan, I 
wish we didn't need to frame this debate in partisan terms. Health care 
reform is far too important for partisan gamesmanship. It is also far 
too important to rush.
    Today may be our first hearing, but I hope it won't be our last. 
The proposal we are debating today is clearly partisan, but I continue 
to believe that Republicans and Democrats can--and should--come 
together to develop an American plan that will make health care more 
affordable, reduce the number of uninsured Americans, and increase 
quality at a price our country can afford.
    Thank you, I yield back.
                                 ______
                                 
    Chairman Miller. I would now recognize the Chairman of the 
subcommittee of jurisdiction, the Subcommittee on Health, 
Employment, Labor and Pensions, Mr. Andrews, for an opening 
statement.
    Mr. Andrews. I thank the Chairman. I also would like to 
welcome Mr. Kline to his new position and wish him the best. 
And we will get to Dr. Romer as well. Thank you.
    I did want to take a minute and respond to some of the 
things that Mr. Kline said in his remarks, that there is an 
estimate that 23 million would lose their coverage under the 
Senate bill. The Congressional Budget Office has not yet 
reviewed the House draft that was released on Friday. I am 
confident that when they do, they will find that employer-based 
coverage will be very strong for a very long time. As the 
President has promised, if you like the plan that you are in, 
you get to keep it. That is one of the cornerstones of the 
legislation that we have here.
    And the substance that backs up that promise is this: About 
80 percent of American employers are already doing what this 
bill calls for. That is, to provide a very healthy benefits 
package for people. And when they do, that employer gets 
exposed to what we call the Hippocratic principle: We do no 
harm. We say to about 80 percent of American employers, thank 
you for what you are doing, we are leaving you alone, we are 
not making any significant change to your ERISA preemption, we 
are not forcing you to join any exchange or any other 
marketplace, we are leaving you alone.
    What we are trying to do for American businesses and 
families and labor unions and other institutions is to make 
health care more affordable. And the way that we are doing that 
is to require something that has really never been required 
before under Federal law but that has always been required 
under our system of organizing our economy, which is 
competition.
    In too many instances, Americans live in circumstances 
where insurance companies are not compelled to compete for 
their business. In 36 States, in 36 States, the top two 
companies in the marketplace have at least 65 percent of the 
business. Let me say that again. In 36 States today, the top 
two providers have about two-thirds of the covered lives in 
two-thirds of the business.
    There is insufficient competition. Americans benefit from 
competition. At our grocery stores, in the housing market, 
financial services, in so many other areas of American life, 
when someone has to compete for your business, you as a 
consumer do better, you have higher quality, more choice and 
lower cost. That is not the reality of the health care 
insurance market in our country today, and this plan makes it 
the reality. One of the ways we make it the reality is to 
assure that every American who is in the exchange, who is 
uninsured and looking for health care, and eventually every 
buyer of health care in this country, will have the choice of a 
robust, nonprofit, public competitor to the private insurance 
plans.
    Let me be very clear about this. Rhetoric has been thrown 
about about nationalizing health care and forcing everyone to 
live under a government health care system. I would, first of 
all, say we should ask some of our moms and dads how they feel 
about a government health care system called Medicare. They are 
rather happy with it for the most part. But putting that aside 
for the moment, what this plan does is to say that uninsured 
people will have a choice, a choice of which health insurer is 
better for them. If they choose a private employer, that is 
where they will go and they will make a significant 
contribution from their own income to get there, and they will 
receive a subsidy to help them get the insurance they don't 
presently have. If they prefer the public option, they will 
have that.
    But for the first time, we will have a marketplace in 
health insurance policies that really does require competition 
among the insurance companies who offer this coverage.
    The final thing that I would say is that there was a 
reference to my friend from Minnesota about the pay-or-play 
structure and the confiscatory problems for employers. Let me 
be very clear about this. This plan divides the employer world 
into three categories: the vast majority of American employers 
who do provide very generous benefits voluntarily; this plan 
leaves them alone. For small businesses, for the person who is 
running a small business and struggling to stay ahead, this 
plan recognizes that an exemption from the employer mandate is 
necessary. The draft does not specifically speak to the scope 
of that exemption.
    Part of the purpose of the debate that begins today is to 
fill in that blank. It is for the Members on both sides of the 
aisle to come up with their best analysis of what that 
exemption ought to be. But I assure you this: There will be a 
small business exemption that takes into account the 
hardworking, struggling, entrepreneur who simply can't afford 
health insurance because his or her business would go under. 
And there is a third category of employer; that is, an employer 
that has the wherewithal to insure his or her employees but 
chooses not to. That will change. That employer will have the 
obligation to cover employees at a decent level, because when 
he or she chooses not to do that everyone else pays for that 
now--the employer who does insure, the family who does insure, 
the taxpayer who pays taxes. So we look forward to this 
beginning of a process to deliberate, look at these issues, and 
come to a solution.
    I just close with this one thought, Mr. Chairman. There is 
some concern about this being rushed. I think it is about 50 
years too late, and I think it is long past time we got to this 
business. I look forward to it and yield back.
    Chairman Miller. The gentleman's time has expired.
    Dr. Price is recognized.
    Dr. Price. Thank you. Thank you, Mr. Chairman. I want to 
thank you and Ranking Member Kline for holding this hearing 
today. I want to thank our distinguished panels of witnesses 
today, many with great experience. I appreciate the time that 
they have taken out of their busy schedules to be with us.
    As a physician, there is one certainty that I hear from my 
former colleagues, and that is that the status quo in health 
care is unacceptable. So no one--let me be clear--no one is 
clamoring for inaction.
    Today we are at a crossroads. Our broken medical delivery 
structure is in dire need of meaningful reform, and today's 
hearing represents the beginning of an historic debate on how 
we achieve full access to affordable, quality health care while 
preserving the patient-doctor relationship without undue 
governmental interference.
    When Congress established Medicare, a national health 
insurance program for seniors, over 40 years ago, it wrote into 
the law, quote: Nothing in this title shall be construed to 
authorize any Federal officer or employee to exercise any 
supervision or control over the practice of medicine or the 
manner in which medical services are provided.
    And that remains the law of the land. However, as any 
physician on the front lines of health care can tell you, these 
words ring hollow, as does its promise. As time has passed, and 
as I can attest to firsthand after nearly a quarter of a 
century as a practicing surgeon, there may have been no greater 
negative impact on the, quote, manner in which medical services 
are provided, unquote, than the intrusion of the Federal 
Government into health care.
    Under the current Medicare program, patients are told which 
doctors they may see and how frequently. Doctors in turn are 
often told which procedures or tests they may or may not order 
or provide.
    This is really the ability of patients and doctors to make 
independent health care decisions, some of the most personal 
that we make. And the doctor-patient relationship, once 
sacrosanct, is being trampled by coverage rules, inflexible 
regulations and one-size-fits-all policies. To exacerbate the 
matter, most medical practices, including some of the largest 
and most respected institutions in our Nation, find it 
necessary to limit, yes limit, the number of Medicare patients 
they see. The delivery system devised and controlled by 
Washington is clearly not the model for reform.
    As this committee begins to critically analyze this tri-
committee draft proposal, I raise these specific points because 
I fear that we are not only repeating the same mistakes, but 
taking them a step further by permanently institutionalizing 
them into our health care delivery system for all.
    Take, for instance, the newly created Health Benefits 
Advisory Committee that is being established to make 
recommendations on minimum health benefit standards and cost-
sharing levels. It will be comprised mainly of Federal 
bureaucrats and Presidential appointees, and, just like the 
Comparative Effective Research Council enacted earlier this 
year, will not necessarily have a single actively practicing 
physician among its members. Not one.
    This is the very type of Federal health board envisioned by 
some proponents of a government takeover which will dictate 
personal medical treatments allowed solely on the basis of 
cost. Having the government defining what quality medical care 
is, this is not what Americans view as the right direction or 
the change they desire. They know what you know; and that is 
that quality is best evaluated by patients and their families 
making decisions with a knowledgeable, concerned, and 
compassionate physician.
    Ask the veteran waiting endlessly for needed surgery, 
because the surgical unit has met its quotas. Ask the senior, 
the new Medicare patient, who can't find a doctor able to see 
any more Medicare patients. Ask those who utilize the Indian 
Health Service if they receive the choices necessary to respond 
appropriately to their needs. And ask the Medicaid mom if the 
system facilitates her treatment. Ask them. Ask them if their 
health care delivery system best responds to their needs.
    These are the four health systems Washington currently 
controls and none of them meet the principles of health care we 
all hold dear: accessibility, affordability, quality, 
responsiveness, innovation, choices.
    Now, there are positive solutions, ones that would improve 
each of these systems and ease coverage opportunities for those 
currently uninsured or underinsured. And that is what we should 
be doing; not forcing every single American into a system that, 
of necessity, will betray those principles dear to all.
    In the final analysis the question becomes: Will we allow 
Americans the opportunity to opt out? Will we allow free people 
the right to decide that this isn't the system that they want 
for themselves or for their family? And I would hope that the 
panelists would address that question. This is hardly a step in 
preserving the patient-doctor relationship.
    When you pore through the pages of this bill, as you will 
note, Mr. Chairman, and others on the panel, isn't on our desk 
this morning, we see that it is based on a government-as-
solution philosophy. This means more Federal supervision and 
more Federal administration. And it will ultimately come to 
rely on mandates, rationing, bureaucracy and third-party 
decision making, all of which interfere with personal-private 
medical decisions.
    This is hardly a step that preserves the patient-doctor 
relationship, the one thing that arguably has allowed America 
to have some of the greatest health care in the world. This 
bill offers an approach that is incapable of providing quality 
care which is accessible, innovative, and responsive. Achieving 
this positive type of change will only be possible by embracing 
a fundamental rethinking of our health care delivery system 
which champions personal ownership of coverage.
    There are positive solutions to the challenge we face, and 
I am hopeful that the committees in the House will allow for an 
open, vibrant, robust debate and deliberative process, one that 
respects America's doctors, but most of all, one that respects 
America's patients, and I yield back.
    Chairman Miller. I thank the gentleman.
    [The statement of Dr. Price follows:]

Prepared Statement of Hon. Tom Price, a Representative in Congress From 
                          the State of Georgia

    Good morning and thank you, Chairman Miller and Ranking Member 
Kline. I would like to begin by thanking our distinguished panels of 
witnesses for appearing today. We appreciate that they have taken time 
out of their busy schedules to share their expertise and experiences 
with us.
    As a physician, there is one certainty I hear from my former 
colleagues--the status quo in health care is unacceptable. So today, we 
are at a crossroads. Our broken medical delivery structure is in dire 
need of meaningful reform. And today's hearing represents the beginning 
of an historic debate on how we achieve full access to affordable, 
quality health care, while preserving the patient-doctor relationship, 
without undue governmental interference.
    When Congress established Medicare, a national health insurance 
program for seniors more than 40 years ago, it wrote into law, 
``Nothing in this title shall be construed to authorize any Federal 
officer or employee to exercise any supervision or control over the 
practice of medicine or the manner in which medical services are 
provided * * *''. This remains the law of the land. However, as any 
physician on the front lines of health care can tell you, those words 
and that promise ring hollow.
    As time has passed, and as I can attest to firsthand after nearly a 
quarter century as a practicing surgeon, there may have been no greater 
negative impact on the ``manner in which medical services are 
provided'' than the intrusion of the federal government into health 
care.
    Under the current Medicare program, patients are often told which 
doctors they may see and how frequently. Doctors, in turn, are often 
told which procedures or tests they may and may not order or provide. 
This has eroded the ability of patients and their doctors to make 
independent health care decisions--some of the most personal we make. 
And the doctor-patient relationship, once sacrosanct, is being trampled 
by coverage rules, inflexible regulations, and one-size-fits-all 
policies.
    To exasperate the matter, most medical practices, including some of 
the largest and most respected institutions in the nation, find it 
necessary to limit the number of Medicare patients they see. The 
delivery system devised and controlled by Washington is clearly not the 
model for reform.
    As this Committee begins to critically analyze the Tri-Committee 
Draft Proposal for Health Care Reform, I raise these specific points 
because I fear we are not only repeating the same mistakes but taking 
them a step further by permanently institutionalizing them into our 
health care delivery system.
    Take for instance the newly created Health Benefits Advisory 
Committee. It is being established to make recommendations on minimum 
health benefit standards and cost-sharing levels. It will be comprised 
mainly of federal bureaucrats and presidential appointees. It, just 
like the Comparative Effectiveness Research Council enacted earlier 
this year, will not necessarily have a single actively practicing 
physician among its members. Not one! And this is the very type of 
federal health board, envisioned by some proponents of a government 
takeover, which could dictate personal medical treatments allowed--
solely on the basis of cost.
    Having the government defining what ``quality'' medical care is, 
this is not what Americans view as the right direction. They know what 
you know, and that is that quality is best evaluated by patients and 
their families, making decisions with a knowledgeable, concerned, 
compassionate physician.
    Ask the veteran waiting endlessly for needed surgery because the 
surgical unit has met its `quota'. Ask the senior, the new Medicare 
patient, who cannot find a doctor able to see anymore Medicare 
patients. Ask those who utilize the Indian Health Service if they 
receive the choices necessary to respond appropriately to their needs. 
And ask the Medicaid mom, if the system facilitates her treatment. Ask 
them.
    Ask them if their health care delivery system best responds to 
their needs. Those are the four health systems Washington currently 
controls. None of them meet the principles of health care we should 
hold dear--accessibility, affordability, quality, responsiveness, 
innovation, and choices.
    There are positive solutions--ones that would improve each of these 
systems--and ease coverage opportunities for those currently uninsured 
or underinsured. That is what we should be doing, not forcing every 
single American into a system that, of necessity, will betray those 
principles dear to all.
    In the final analysis, the question becomes, will we allow 
Americans the opportunity to opt out? Will we allow free people the 
right to decide? This is not the system I want for my family, and I'd 
like the panelists to address that question.
    When you pour through the pages of this bill, you will see that the 
Tri-Committee Draft Proposal for Health Care Reform is based on a 
``government-as-solution'' philosophy. This means more federal 
supervision and administration. It will ultimately come to rely on 
mandates, rationing, bureaucracy, and third-party decision-making, all 
of which interfere with personal, private medical decisions. This is 
hardly a step that preserves the doctor-patient relationship--the one 
thing that, arguably, has allowed America to have some of the greatest 
health care in the world.
    This bill offers an approach that is incapable of providing quality 
care which is accessible, innovative and responsive. Achieving this 
positive type of change will only be possible by embracing a 
fundamental rethinking of our health care delivery system which 
champions personal ownership of coverage.
    There are positive solutions to the challenges we face. I'm hopeful 
the House will allow for an open, vibrant, robust debate and 
deliberative process--one that respects America's doctors--but most of 
all--America's patients.
    Thank you, and I look forward to hearing from the witnesses.
                                 ______
                                 
    Chairman Miller. Pursuant to committee rule 7(c) all 
members may submit opening statements in writing which will be 
made part of the permanent record.
    [The statement of Mr. Sablan follows:]

 Prepared Statement of Hon. Gregorio Kilili Camacho Sablan, a Delegate 
             in Congress From the Northern Mariana Islands

    I want to thank Chairman Miller, Mr. Andrews, the other Members of 
the Committee, and the staff for all the time and effort put forth 
towards the drafting of this plan to reform health care for all 
Americans. Thanks also to the witnesses for taking the time to discuss 
these issues. And thank you to my staff for their hard work examining 
and briefing me on this bill. Obviously this proposed legislation 
represents an enormous shift in American health care policy, and it is 
important that we take all available information into account before 
making decisions with such huge consequences.
    That having been said, I would also like to express my concern that 
Americans living in the territories, including my constituents in the 
Northern Mariana Islands, will not benefit from our work here if the 
current draft becomes law. These citizens, who face some of the 
greatest health disparities and the greatest challenges in finding and 
accessing affordable health care, must be included before we can 
consider the transformation of American health care complete.
    I agree with my colleagues that individual and employer health 
insurance mandates, along with the other reforms that this Congress 
will introduce into our health care system, will help fulfill the 
promise made by our President and my colleagues in Congress that all 
Americans should have access to affordable, quality health care. I hope 
my colleagues in the Committee will work with me towards the inclusion 
of all Americans in these programs, including the four and a half 
million Americans living in the territories.
                                 ______
                                 
    Chairman Miller. Our first panel this morning will be made 
up of Dr. Romer. Dr. Christina Romer is the Chair of the 
Council of Economic Advisors in President Obama's 
administration. She is also the former Vice President of the 
American Economic Association and the Garth B. Wilson Professor 
of Economics at the University of California, Berkeley. Dr. 
Romer holds a B.A. From the College of William and Mary and her 
Ph.D. from Massachusetts Institute of Technology.
    Dr. Romer, welcome to the committee. I know there were a 
lot of scheduling changes over the weekend to get you here, and 
I appreciate your cooperation and the administration's 
cooperation to make you available to the committee.
    I also know that we have a very short leash on your time, 
and Dr. Romer will be leaving pretty close to 1:30 if everybody 
holds to their schedule. That means not everybody is going to 
get to ask her a question, but we will go as rapidly and as 
quickly as we are allowed under the rules.
    Chairman Miller. Welcome to the committee, and your entire 
statement will be placed in the record, and you can proceed in 
the manner in which you are most comfortable. Thank you.

 STATEMENT OF DR. CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC 
                            ADVISERS

    Ms. Romer. Thank you very much.
    Chairman Miller. You will have ten minutes. Then at nine 
minutes an orange light will go on, I believe. And then you can 
start summarizing and we will allow for questions. Thank you.
    Ms. Romer. Wonderful. Chairman Miller, Ranking Member 
Kline, and members of the committee it is indeed an honor to be 
with you today to discuss the economics of health care reform. 
The President, as you know, has identified comprehensive 
meaningful health care reform as a top priority, and the 
administration is grateful to the Congress for working so 
quickly and tirelessly on this important issue.
    In my remarks today, I will discuss the economic 
comparative of reform that satisfies the President's dual goals 
of slowing the growth rate of health care costs significantly 
and providing quality, affordable, health insurance coverage 
for all Americans. The figures in the analysis that underlie my 
testimony today are contained in the Council of Economic 
Advisors report, ``The Economic Case For Health Care Reform.'' 
With your permission I would like to include a copy of that 
report in my testimony so that the sources and methodology are 
fully documented for the committee.
    Well, many of the crucial trends in American health care 
are well known, but the Council of Economic Advisors worked 
with others in the administration to develop projections of 
what will happen in the absence of reform. Spelling out these 
facts and trends makes a compelling case that the status quo is 
simply not an option.
    Now, one key fact is that health care expenditures in the 
United States are about 18 percent of GDP, thereby the highest 
of any country.
    And if we can go to the first figure. This figure shows our 
projections of the likely path of national health care 
expenditures. These expenditures are projected to rise sharply. 
By 2040, health expenditures could be roughly one-third of 
total output in the U.S. economy.
    How about for households? Well, for households rising 
health care expenditures will likely show up in rising 
insurance premiums. Even if employers continue to pay the 
lion's share of premiums, both economic theory and empirical 
evidence suggest that this trend will show up in stagnating 
take-home wages.
    This next figure shows our projections of total 
compensation and compensation less insurance costs, both in 
inflation-adjusted dollars. The wedge-shaped area between the 
two lines shows our predicted levels of insurance premiums. 
What you see is that without reform, the noninsurance part of 
compensation will grow very slowly and will likely fall 
eventually as premiums rise rapidly.
    Rising health care costs also mean that government spending 
on Medicare and Medicaid will rise sharply over time.
    If we go to the next figure, in this picture the dash line 
shows the projected path of combined Federal and State spending 
on Medicare and Medicaid. Our projections show that these 
expenditures, which are currently 6 percent of GDP, will rise 
to 15 percent of GDP by 2040. In the absence of tremendous 
increases in taxes or reductions in other types of government 
spending, this trend implies a devastating and frankly 
unsustainable rise in the Federal budget deficit.
    Another trend that is too crucial to be ignored is the rise 
in the number of Americans without health insurance. Currently 
46 million people in the United States are uninsured.
    In the absence of reform, if we look at the next picture, 
this number is projected to rise to about 72 million in 2040, 
an increase of 26 million people over the next 30 years. The 
President has emphasized that providing quality, affordable, 
health insurance for all Americans is a key goal of reform.
    For the many Americans who currently have health insurance, 
as has been noted here this morning, the President has promised 
that if you like your doctor and your existing plan you can 
keep them. The President and Congress are also proposing 
methods to make the existing system work better for all 
families, such as simplification of insurance forms and 
electronic health records that reduce duplication of tests and 
prevent medical errors.
    For the millions of Americans without insurance, the 
President is committed to working with Congress to design a 
sensible cost-effective method of coverage expansion. Expanding 
coverage will likely involve the creation of a health insurance 
exchange that gives individuals and small groups the same 
benefits of risk pooling and elimination of adverse selection 
that employees of large firms enjoy.
    One feature of health reform that the President has 
emphasized is that no one should be denied health coverage due 
to preexisting conditions. Americans with health problems need 
the security of knowing that if they change jobs or lose their 
jobs, they will still be able to get health insurance coverage.
    Now, there are important benefits to the economy and to 
society of coverage expansion. The most important of these 
involves the health and economic well-being of the uninsured. 
In our report we use the best available estimates to try to 
quantify the costs and benefits of expanding coverage to all 
Americans. Among the benefits that we attempt to put a dollar 
value on are the increase in life expectancy, the improvement 
in health, and the decreased risk of financial ruin from high 
medical bills.
    We find the benefits of expanding coverage to the uninsured 
are very large, and substantially greater than the costs. Our 
estimates show that the net benefits, the benefits minus the 
costs, are roughly $100 billion per year or about two-thirds of 
a percent of GDP.
    Another effect of expanding coverage is increased labor 
supply. With expanded coverage, some people who would not be 
able to work because of disability would be able to get health 
care that prevents or effectively treats the disability. They 
would therefore be able to stay in the labor force.
    Similarly, some workers currently in the labor force would 
be more productive if they had health care. We believe that the 
net impact on effective labor supply will be positive and will 
increase GDP.
    Expanding coverage will also improve the efficiency of the 
labor market. Creating an insurance exchange and eliminating 
restrictions on preexisting conditions would end the phenomenon 
of job lock, where worries about health insurance cause workers 
to stay in jobs even when better ones are available. Our 
estimate is that this benefit could be about two-tenths of a 
percent of GDP each year.
    Similarly, we examine the fact that small businesses are 
disadvantaged in the labor market because current employer-
sponsored insurance is so expensive for them. Moving to a 
system that removes that disadvantage could be beneficial to 
the competitiveness of the important small business sector of 
the economy.
    Now, while the benefits of expanding coverage are 
substantial, slowing the growth rate of health care costs is 
essential to moving the economy off its unsustainable path and 
securing a better economic future for the American people.
    And in discussing cost containment, I want to focus on the 
slowing of the growth rate of cost. This is the so-called 
curve-bending that can last for decades. Slowing cost growth is 
quite separate from the actions we might take immediately to 
cut the level of government medical spending. These immediate 
reductions are crucial for paying for the expansion of coverage 
and other health care reforms in the short run. But thinking 
about the changes that will save us from the unsustainable 
long-run trends slowing cost growth year after year is 
essential.
    Now, many meaningful reforms are necessary to slow the 
growth rate of cost over time. The CEA report focused on the 
conceptual importance of reforms rather than the mechanics. But 
the report does describe in broad terms the kind of changes 
that might be implemented. We discuss, for example, changes in 
payment systems such as bundling of payments for hospital and 
post-hospital care and change in the organization of care 
delivery, such as the formation of accountable care 
organizations and medical homes as ways to reduce fragmentation 
and promote more effective and more efficient care. We 
emphasize the crucial role of investments in health information 
technology and research on what works and what doesn't could 
play in reining in cost growth.
    The President in his speech last week to the American 
Medical Association made some specific suggestions for reforms 
along the lines that I have described. He also said that he was 
open to changes that would give the recommendations of the 
Medicare Payment Advisory Commission greater chance of adoption 
and implementation.
    The Congressional Budget Office has also outlined a large 
number of game-changing reforms that experts believe could slow 
cost growth. In our report we speak of the benefits of slowing 
the growth rate of health care costs, but each of our figures 
implicitly shows the impact of not slowing cost growth.
    To help emphasize the importance of doing reform well, I 
will describe them from that perspective this morning. 
Fundamentally, what slowing cost growth does is to free up 
resources. If we restrain costs by eliminating waste and 
inefficiency, we could have the same real amount of health care 
with resources left over to produce the other things that we 
value. This causes standards of living to be higher.
    In our analysis we consider varying degrees of cost 
containment. In particular, we look at the effect of slowing 
the annual growth rate of health care costs by 1\1/2\, 1, and 
just half a percentage point. We analyze the effects of freeing 
up resources in a standard growth accounting framework. Our 
framework includes the effect of slowing cost growth on the 
deficit and capital formation or investment.
    If we go to the next figure, this figure shows the crucial 
importance of slowing cost growth for standards of living. To 
make these numbers more concrete, we translate them into the 
effects on the income for a typical family of four, again in 
constant inflation-adjusted dollars. The bottom line shows the 
projected path of real family income without reform. The higher 
path show family income under different degrees of cost 
containment. Our numbers suggest that failing to slow cost 
growth results in substantially lower standards of living for 
American families. Without reform, our analysis predicts that 
the typical family income in 2020 will be roughly $2,600 lower 
than it would be if we managed to slow the growth rate of costs 
by 1\1/2\ percentage points. By 2030 it will be nearly $10,000 
lower than if we managed to slow cost growth.
    Failing to control the growth of health care costs will 
condemn American families to much lower standards of living 
than they would experience with successful reform. Slowing the 
growth of health care costs will also have enormous effects on 
the budget deficit.
    This last figure shows the reduction in the Federal budget 
deficit due to different degrees of cost containment. Consider 
the numbers in the middle for 2030. They show that slowing the 
growth rate of health care costs by 1\1/2\ percentage points 
will reduce the deficit by 3 percent of GDP. Put another way, 
failing to slow cost growth by 1\1/2\ points per year will 
result in a deficit that is higher by 3 percent of GDP. By not 
slowing costs we will leave our children a budget deficit in 
2040 that is 6 percent of GDP higher than it would have been 
with successful reform.
    The numbers illustrate the crucial truth that serious 
health care cost growth containment is central to our long-run 
fiscal stability. Taken together, the analysis by the Council 
of Economic Advisors shows that doing nothing on health care 
reform is simply not an option. Expanding coverage will 
unquestionably have benefits for economic well-being, the 
efficiency of the labor market, and the competitiveness of 
small businesses. But only by undertaking meaningful reforms of 
slowing the growth of health care costs can we assure American 
families of rising standards of living and falling, rather than 
ever-increasing, budget deficits.
    The President has spoken frequently of the need to provide 
the American economy with a new foundation. His goal is that we 
not only come through the current economic crisis, but emerge a 
stronger, more durable economy. Health care reform that 
provides quality affordable coverage for all Americans and 
genuinely slows the growth rate of cost significantly is a 
crucial part of that new foundation. Successful reform is 
fundamental to the long-run health of the American economy. 
Thank you.
    [The statement of Ms. Romer follows:]

          Prepared Statement of Dr. Christina D. Romer, Chair,
                      Council of Economic Advisers

    Chairman Miller, Ranking Member McKeon, members of the Committee, 
it is an honor to be with you today to discuss the economics of health 
care reform. The President has identified comprehensive health care 
reform as a top priority. The Administration is grateful to the 
Congress for working so quickly and tirelessly on this important issue. 
In my remarks today I will discuss the economic imperative of health 
care reform that satisfies the President's dual goals of slowing the 
growth rate of health care costs significantly and providing quality, 
affordable health insurance coverage for all Americans.
    I will first discuss the obvious, but sometimes forgotten point 
that the status quo is not an option. The projections for health care 
spending and what it means for households and the government budget 
show that we are on an unsustainable path. Without reform that slows 
the growth rate of costs, take-home pay for working families will 
stagnate and the budget deficit will mushroom. The projections for 
insurance coverage show that small employers are likely to reduce 
health insurance coverage substantially, leading to a swelling of the 
number of people without insurance in the United States over the coming 
decades.
    I will then discuss the economic impact of coverage expansion and 
the importance of cost containment. A study released by the Council of 
Economic Advisers (CEA) on June 2, 2009 estimated the benefits to 
society and the economy of expanding coverage.\1\ Our study found that 
coverage expansion has crucial positive effects on overall economic 
well-being, the efficiency of the labor market, and the competitiveness 
of the crucial small businesses sector. The CEA study also showed that 
successful cost growth containment was essential to the long-run health 
of our economy. I cannot emphasize enough the need to make meaningful 
changes that will genuinely slow the growth rate of health care costs. 
Only by doing so will we be able to avoid the dire long-term 
projections of stagnating living standards and crushing budget 
deficits.
    The figures and analysis that underlie my testimony today are 
contained in the CEA report The Economic Case for Health Care Reform. 
With your permission, I would like to include a copy of that report 
with my testimony, so that the sources and methodology are fully 
documented for the Committee.
I. Trends in the absence of reform
    Let me start with a discussion of where we are and where we are 
headed. Many of the crucial economic trends in American health care are 
well known. But, the Council of Economic Advisers worked with others in 
the Administration to develop projections of what will happen in the 
absence of reform. Spelling out these facts and trends makes a 
compelling case that doing nothing is simply not an option.
    Rising Health Expenditures. One key fact is that health care 
expenditures in the United States are currently about 18 percent of 
GDP, by far the highest of any country. These expenditures are 
projected to rise sharply. This figure shows our projection of the 
likely path of national health care expenditures. By 2040, health 
expenditures could be roughly one-third of total output in the U.S. 
economy.


    Effect on Households. For households, rising health care 
expenditures will likely show up in rising insurance premiums. Even if 
employers continue to pay the lion's share of premiums, both economic 
theory and empirical evidence suggest that this trend will show up in 
stagnating take-home wages for American working families. This figure 
shows our projection of total compensation and compensation less 
insurance costs, both in inflation-adjusted dollars. The wedge-shaped 
area between the two lines shows our predicted level of insurance 
premiums, again in constant dollars. We project that without reform, 
the non-insurance part of compensation will grow very slowly, and 
likely fall eventually, as premiums rise sharply over time.


    Effect on Government. Rapidly rising health care costs also mean 
that government spending on Medicare and Medicaid will rise sharply 
over time. The dashed line in this figure shows the projected path of 
combined Federal and state spending on Medicare and Medicaid. Our 
projections show that these expenditures, which are currently about 6 
percent of GDP, will rise to 15 percent of GDP by 2040. The solid line 
shows the projected rise in Medicare and Medicaid expenditures due only 
to demographic factors, such as the aging of the baby-boom generation. 
A crucial fact is that only about one-quarter of the total rise in 
government health expenditures is due to demographic changes. The other 
three-quarters is due to the fact that health care spending per 
enrollee is rising much more rapidly than GDP. In the absence of 
tremendous increases in taxes or reductions in other types of 
government spending, this trend implies a devastating, and frankly 
unsustainable, rise in the Federal budget deficit.


    Trends in Lack of Insurance. Another trend that is well known, but 
too crucial to be ignored, is the rise in the number of Americans 
without health insurance. Currently 46 million people in the United 
States are uninsured. In the absence of reform, this number is 
projected to rise to about 72 million by 2040, an increase of 26 
million people over the next thirty years.


II. The economic impact of coverage expansion
    The President has emphasized that providing quality, affordable 
health insurance coverage for all Americans is a key goal of reform. 
For the many Americans who currently have health insurance, the 
President has emphasized that if you like your doctor and your existing 
plan, you can keep them. He is committed to maintaining and building 
upon the employer-based health care system. The President and Congress 
are also proposing methods to make the existing system work better for 
all families, such as administrative simplification of insurance forms 
and electronic health records that reduce duplication of tests and 
prevent medical errors.
    Needed Reforms. For the millions of Americans without insurance, 
the President is committed to working with Congress to design a 
sensible, cost-effective method of coverage expansion. A crucial 
challenge of coverage expansion is designing mechanisms that overcome 
market failures. For example, the fact that individuals know more about 
their likely health expenditures than potential insurers leads insurers 
to charge rates for individual and small group coverage that are above 
the average cost of providing coverage for these segments in the 
population. Expanding coverage will likely involve the creation of a 
health insurance exchange that gives individuals and small groups the 
same benefits of risk-pooling and elimination of adverse selection that 
employees of large firms enjoy.
    One feature of health reform that the President has emphasized is 
that no one should be denied health coverage due to pre-existing 
conditions. Americans with health problems need the security of knowing 
that if they change jobs or lose their job, they will still be able to 
get health insurance coverage.
    Effects on Economic Well-Being. There are important benefits to the 
economy and society of coverage expansion. The most important of these 
involves the health and economic well-being of the uninsured. In our 
report, we use the best available estimates to try to quantify the 
costs and benefits of expanding coverage to all Americans. Among the 
benefits we attempt to put a dollar value on are the increase in life 
expectancy and the improvement in health. Evidence from the health 
economics literature suggests that if all of the uninsured had health 
insurance, there would be many fewer deaths among adults with chronic 
conditions, such as cancer and hypertension, and with acute conditions, 
such as heart attacks and injuries resulting from automobile accidents. 
Indeed, a 2002 study by the Institute of Medicine estimated that there 
are approximately 18,000 more deaths among uninsured adults each year 
than would occur if they had health insurance.\2\ We also consider the 
benefit of health insurance as a way to reduce individuals' chance of 
financial ruin from high medical bills.
    The costs to society of covering the uninsured represent a mix of 
public and private costs and come from existing studies, not estimates 
of plans currently being contemplated by Congress. We find the benefits 
of coverage to the uninsured are very large and substantially greater 
than the costs. Our estimates show that the net benefits--the benefits 
minus the costs--are roughly $100 billion per year, or about \2/3\ of a 
percent of GDP.
    Effects on Labor Supply. Another effect of expanding coverage that 
we consider is increased labor supply. With full health insurance 
coverage, some people who would not be able to work because of 
disability would be able to get health care that prevents or 
effectively treats the disability. They would therefore be able to stay 
in the labor force longer. A related effect is that some workers 
currently in the labor force would be more productive with better 
health care. How large these effects might be are hard to predict. And, 
there could be offsetting effects: for example, with a better insurance 
market some workers who are working just to get health insurance might 
retire earlier. But, we believe that the net impact on effective labor 
supply will be positive and will further increase GDP.
    Effects on the Efficiency of the Labor Market. The final impact 
that we identify is the effect of expanding coverage on the efficiency 
of the labor market. Expanding coverage and eliminating restrictions on 
pre-existing conditions would end the phenomenon of ``job lock,'' where 
worries about health insurance cause workers to stay in their jobs even 
when ones that pay more or are a better match are available. Our 
estimates, based on a range of economic studies, are that this benefit 
could be about \2/10\ of a percent of GDP each year. Similarly, we 
examine the fact that small businesses are currently disadvantaged in 
the labor market because current employer-sponsored insurance is so 
expensive for them (due in large part to the fact that they do not have 
a large workforce over which to pool risk). Moving to an insurance 
system that removes this disadvantage should be beneficial to the 
competitiveness of the important small business sector of the economy.
III. The crucial impact of slowing the growth rate of health care costs
    While the benefits of coverage expansion are substantial, slowing 
the growth rate of health care costs is also essential to achieving 
some of the fundamental benefits of health care reform. As discussed 
previously, the U.S. health care system is on an unsustainable path. 
Successful cost growth containment is central to changing that path and 
securing a better economic future for the American people.
    Needed Reforms. In discussing cost containment, I want to focus on 
slowing the growth rate of costs. This is the so-called ``curve-
bending'' that can last for decades. Slowing the growth rate of costs 
is quite separate from actions that we might take immediately to cut 
the level of government medical spending, such as the more than $300 
billion of Medicare and Medicaid savings proposed in our budget and the 
roughly $313 billion of additional savings the Administration proposed 
two weeks ago.\3\ These immediate reductions are unquestionably 
important for paying for the expansion of coverage and other health 
care reforms in the short run. Indeed, the President has frequently 
emphasized that health care reform must not add to the deficit in the 
next decade. But, for thinking about the changes that will save us from 
the unsustainable long-run trends I discussed earlier, slowing cost 
growth year after year is essential, and what we focus on in our study.
    Of course, coverage expansion is likely to make some types of cost 
growth containment possible. For example, with coverage, individuals 
have improved access to primary care and may be more likely to receive 
education about disease prevention and management of chronic 
conditions. Smoking cessation and weight management are two 
preventative measures that could reduce cost growth over time, while 
improving health and quality of life.
    Many other meaningful reforms are necessary to slow the growth rate 
of costs over time. The CEA report focused on the conceptual importance 
of reforms, rather than the mechanics. But the report does describe in 
broad terms the kind of changes that might be implemented. For example, 
we discuss changes in payments systems, such as bundling of payments 
for hospital and post-hospital care. We also discuss changes in the 
organization of care delivery, such as the formation of accountable 
care organizations and medical homes, as ways to reduce fragmentation 
and promote more effective and more efficient care delivery. We 
emphasize the crucial role that investments in health information 
technology and research on what works and what doesn't could play in 
reining in cost growth over time. The President, in his speech last 
week to the American Medical Association, made some specific 
suggestions for reform along these lines.\4\ He also said that he was 
open to changes that would give the recommendations of the Medicare 
Payment Advisory Commission greater chance of adoption and 
implementation. The Congressional Budget Office has also outlined a 
large number of ``game changing'' reforms that experts believe would 
slow cost growth.\5\
    Evidence that Slowing Cost Growth is Possible. The CEA report also 
surveys the evidence, much of it from international comparisons and 
comparisons across different parts of the United States, that there is 
substantial inefficiency in the current system. The finding of this 
survey is that up to 30 percent of health expenditures in the United 
States (which is equivalent to about 5 percent of GDP) could be cut 
without affecting health care quality or outcomes. This is important in 
making the case that slowing the growth rate of costs by improving 
efficiency is possible. For example, our estimates suggest that we 
could slow cost growth by 1.5 percentage points per year for almost a 
quarter of a century before we have exhausted the existing 
inefficiency.
    In our report, we speak of the benefits of slowing the growth rate 
of health care costs. But, each of our figures implicitly shows the 
impact of not slowing the growth rate of costs. To help emphasize the 
importance of doing reform well, I will describe them from that 
perspective this morning.
    Effect on Living Standards. Fundamentally, what slowing cost growth 
does is free up resources. If we restrain costs by eliminating waste 
and inefficiency, we can have the same real amount of health care with 
resources left over to produce other things that we value. This causes 
standards of living to be higher with a slower growth rate of health 
care costs. In our analysis, we consider varying degrees of cost 
containment. In particular, we look at the effects of slowing the 
annual growth rate of health care costs by 1.5, 1.0, and 0.5 percentage 
points. To be conservative, we assume that it takes a few years for 
genuine curve-bending to kick in.
    We analyze the effects of this freeing up of resources in a 
standard growth accounting framework. Our framework includes the effect 
of slowing cost growth on the deficit and capital formation (or 
investment). Because the government is a major provider of health care, 
slowing the growth rate of health care costs would lower the deficit 
and thus raise public saving. And, efficiency gains that raise income 
would lead to some additional private saving. All of this increased 
saving would tend to lower interest rates and encourage investment. 
This extra investment increases output even more.
    This figure shows the crucial importance of slowing cost growth for 
standards of living. To make these numbers more concrete, we translate 
them into the effects on the income of a typical family of four (in 
constant dollars). The bottom line shows the projected path of real 
family income without reform. The higher paths show family income under 
different degrees of cost containment.


    Our numbers suggest that failing to slow cost growth results in 
substantially lower standards of living for American families. Without 
reform, our analysis predicts that typical family income in 2020 will 
be roughly $2,600 lower than it would be if we managed to slow the 
growth rate of costs by 1.5 percentage points. By 2030, it will be 
nearly $10,000 lower than if we managed to slow cost growth. Failing to 
control the growth rate of costs will condemn American families to much 
lower standards of living than they would experience with successful 
reform.
    Effect on the Budget Deficit. I also want to discuss what our 
analysis implies about the effect of health care cost containment on 
the Federal budget deficit. I need to be very clear that our estimates 
are not official budget projections, which would be based on detailed 
projections of spending and revenues. Ours are more a back-of-the-
envelope calculation. And, they do not include the costs of coverage 
expansion, because the President has suggested spending cuts and 
revenue increases that are expected to cover the additional costs in 
the next decade. Our numbers show the effect of slowing cost growth 
over the long term.
    We find that the implications of not slowing cost growth for the 
deficit are very large. This figure shows the reduction in the Federal 
budget deficit due to different degrees of cost containment. Consider 
the numbers for 2030. They show that slowing the growth rate of health 
care costs by 1.5 percentage points will reduce the deficit by 3 
percent of GDP relative to the case of no reform. Put another way, 
failing to slow the growth rate of health care costs by 1.5 percentage 
points per year will result in a deficit that is higher by 3 percent of 
GDP. By not slowing costs, we will leave our children a budget deficit 
in 2040 that is 6 percent of GDP higher than it would have been with 
successful reform. The numbers illustrate the crucial truth that 
serious health care cost growth containment is central to long-run 
fiscal stability.


    Effect on Short-Run Macroeconomic Performance. Finally, by not 
slowing the growth rate of costs, we will also likely forego a period 
of better-than-average economic performance. When health care costs are 
growing more slowly, wages can grow without firms' costs rising, so 
firms do not raise prices as much. This allows monetary policy to lower 
the unemployment rate while keeping inflation steady. Our estimates 
suggest that slowing cost growth by 1.5 percentage points per year 
would lower normal unemployment by around \1/4\ of a percentage point. 
This translates into an increase in employment of about 500,000 jobs. 
While this is almost surely not a permanent effect, it could last for a 
number of years.
    Taken together, the analysis by the Council of Economic Advisers 
shows that doing nothing on health care is not an option. The country 
is on an unsustainable path. Expanding coverage will unquestionably 
have benefits for economic well-being, the efficiency of the labor 
market, and the competitiveness of small businesses. But, undertaking 
meaningful reforms to slow the growth rate of health care costs is 
absolutely essential. Only by doing so can we avoid a stagnation of 
living standards and skyrocketing budget deficits.
    The President has spoken frequently of the need to provide the 
American economy with ``a new foundation.'' His goal is that we not 
only come through the current economic crisis, but emerge a stronger, 
more durable economy. Health care reform that provides quality, 
affordable coverage for all Americans and genuinely slows the growth 
rate of costs significantly is a crucial part of that new foundation. 
Meaningful reform is absolutely essential to the long-run health of the 
American economy.
---------------------------------------------------------------------------
    \1\ Council of Economic Advisers, The Economic Case for Health Care 
Reform, June 2, 2009, http://www.whitehouse.gov/administration/eop/cea/
TheEconomicCaseforHealthCareReform/
    \2\ Institute of Medicine. ``Care Without Coverage: Too Little, Too 
Late.'' May 2002. http://www.iom.edu/CMS/3809/4660/4333.aspx.
    \3\ Office of Management and Budget, Fiscal 2010 Budget Fact Sheet, 
Transforming and Modernizing America's Health Care System, http://
www.whitehouse.gov/omb/fy2010--key--healthcare/; and The White House, 
``Paying for Health Care Reform,'' June 13, 2009, http://
www.whitehouse.gov/MedicareFactSheetFinal/.
    \4\ The White House, ``Remarks by the President at the Annual 
Conference of the American Medical Association, June 15, 2009, http://
www.whitehouse.gov/the--press--office/Remarks-by-the-President-to-the-
Annual-Conference-of-the-American-Medical-Association/
    \5\ Congressional Budget Office, ``Health Care Reform and the 
Federal Budget,'' Letter to the Honorable Kent Conrad and the Honorable 
Judd Gregg, June 16, 2009, http://www.cbo.gov/ftpdocs/103xx/doc10311/
06-16-HealthReformAndFederalBudget.pdf; and Budget Options, Volume 1: 
Health Care, December 2008, http://www.cbo.gov/ftpdocs/99xx/doc9925/12-
18-HealthOptions.pdf.
---------------------------------------------------------------------------
                                 ______
                                 
    [An additional submission by Dr. Romer, ``The Economic Case 
for Health Care Reform,'' may be accessed at the following 
Internet address:]

     http://www.whitehouse.gov/assets/documents/CEA--Health--Care--
                               Report.pdf

                                 ______
                                 
    Chairman Miller. Thank you for the study that the Council 
did, and also, again, for your testimony and being with us.
    I would like to return to--and speaking of concept level, 
the idea that the President has put on the table now, I think 
twice or more times, and that is that there are internal 
savings and cost-cutting that need to be made within how we 
deliver medicine today, how we deliver health care today.
    You, I believe, said it is 18 percent of the gross domestic 
product. Mr. Kline, or one of you, said that in your 
statements. And I think that is much higher than almost every 
other nation in terms of what we are spending.
    And yet we are saddled with the other side of that 
argument, which is our health status is not much better, and in 
many important indicators is worse than nations that spend 
less. And the President has suggested, I think, almost $600 
billion in cost-cuttings, changes, and savings that need to 
take place. Some of those I suspect will not be adopted by the 
Congress, but they all reflect the understanding that in the 
current system we are sort of just paying for utilization; the 
more you use, the more you are getting reimbursed, wherever you 
are, whatever plan you are in, whether you are in Medicaid, 
Medicare, and the private health insurance plans.
    And it also suggests that providers of health care, because 
of consolidation and changes, are becoming more and more 
powerful in how that is done. So we back up and these costs 
really become fundamental to--you talk about bending the curve, 
but if in fact we are going to get out of this box we are in 
now, most middle-class working people, any wage increase that 
they might get is taken over by increased share of their 
premiums or exclusions or co payments that have been added, and 
that has been the trend over the last ten years. They are 
offloading that onto workers. So as you point out, they 
essentially eat up any possible wage increase that you might 
have. Any discretionary income that you might get from that 
increase is essentially gone in those payments.
    I would just like you to expand a little bit on that idea, 
that to change from a utilization-based system to a system that 
is based upon outcomes and procedures and efficiencies, that 
there are an awful lot of studies suggesting that it would make 
a dramatic difference in the total cost to this Nation, whether 
it be a government program or with businesses and families who 
are paying for their coverage.
    Ms. Romer. I couldn't agree with you more that we 
absolutely--at the rate we are going, the numbers that we have 
show very much that most of that rising in total compensation 
that comes to workers because of productivity changes and all 
of that will be taken up by bigger health insurance premiums, 
so that they see their take-home wages basically being flat or 
even going down towards the end of the period.
    I think a crucial point that you make is that when we talk 
about curve-bending, slowing the growth rate of cost, we are 
talking about doing it through improving efficiency. And the 
crucial part is that as good as the American health care system 
is--we know it is a technological leader for example--we do 
feel there is a lot of inefficiency.
    And you mentioned the international evidence. People also 
talk about the huge differences in expenditure on medical care 
across the country, or even in the same counties within a 
State, that people say that--researchers say we just can't 
explain by differences in health needs or differences in the 
demographics of the population. So that the experts tell us 
there is up to about 30 percent of health care expenditure that 
is just being wasted.
    What that means is we have got a lot of fat that we can cut 
out of the system without having any diminution of care. And 
indeed what the President is committed to is maintaining and 
improving the quality of care.
    And I would just give you one other number, which is we 
have talked a lot about can we slow the growth rate of cost by 
say 1\1/2\ points a year. Well, the crucial thing is with the 
kind of inefficiency that is there, we can do that for 25 years 
before we actually use up the existing amount of inefficiency. 
So the kind of changes that we have mentioned, that the 
President has talked about, absolutely can do that. And they 
are just absolutely crucial to do.
    Chairman Miller. They are not without controversy, I might 
add. They are crucial. But I know that the President met with a 
number of the providers, with pharmaceutical groups, insurance 
groups, hospitals and others and they talked about taking out, 
I guess, about 1\1/2\ percent, about $2 trillion over the next 
ten years. Obviously, laying pencil to paper became more 
controversial than the discussions.
    But I think we as policymakers should recognize what they 
are telling us. We may have to screw up the courage to make the 
decisions, but that kind of money is lying on the table with 
that kind of rather small annual changes and outlays. And, 
again, if it is accompanied with a policy directed toward 
efficiencies and better outcomes and a better health care 
status for American citizens, it seems to me that a big chunk 
of this bill should take us in that direction. Thank you very 
much.
    Go ahead.
    Ms. Romer. I was going to say you are absolutely right, the 
1\1/2\ points may sound small, but it is enormous in terms of 
its effect on the economy. And you are absolutely right that it 
is going to step on some toes to get any of these.
    One example that I give, the bundling of care, one of the 
things we often talk about is a bundling post, you know, your 
hospitalization and the 30 days after. That is just such a win 
for patients and for cost effectiveness because we think that 
it gives hospitals and providers the right incentives to make 
sure you don't get sent home too early and that you don't end 
up back in the hospital. And that is just one that is going to 
be just a win-win and should absolutely not be as controversial 
as some of the others.
    Chairman Miller. Thank you. Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman. Thank you, Dr. Romer, 
for your testimony.
    I think that there is absolute agreement on both sides of 
the aisle here, as Dr. Price mentioned, that we all recognize 
that we need health care reform. And certainly if you could be 
reducing costs, that needs to be part of it.
    I must say I always cringe a little bit when I think about 
the government being the one stepping on toes, as you say, to 
make that happen. And I am also going to say that I am a little 
skeptical. Getting the government to cut out the fat would seem 
to defy its history, but I guess hope does spring eternal.
    We don't know, of course, right now what the cost of this 
draft is. We have looked at the CBO estimates already on the 
version in the Senate. We don't know what this is. It almost 
certainly is going to be over $1 trillion. So it is a little 
bit hard, I would think, for an economist--and you are here as 
an economist--to really assess the impact. But I know that or I 
suspect that you have looked at the issue of employer mandate 
and what it might--the employer mandate to provide health 
insurance coverage, what it might do to job losses.
    Do you know, is there any professional literature or some 
estimate of what the job losses might be with an employer 
mandate? And by the way, I might note that this draft has not 
only an employer mandate, but an individual mandate, thereby 
solving the debate that has been going on for several months 
about which way it should be. And I will have to give you 
credit, you did solve the debate, Mr. Chairman. Not in the way 
I expected, but there it is.
    So back to you, Dr. Romer. Have you seen estimates as to 
what job losses might be with an employer mandate such as is 
held in this draft?
    Ms. Romer. I think in answering that question the first 
thing we have to make clear is that the vast majority of 
employers currently do provide health insurance for their 
employees, and so an employer mandate will just be telling them 
to keep on doing what they have been doing. So it would have no 
effect at all on them. And then what effects it could have on 
other employers depends very much on how it is structured.
    And as has been mentioned, one of the things that people 
are being very cognizant of is how do we treat small employers 
and those kind of things. I think there is literature, but it 
certainly has a whole range of estimates, depending on how the 
system is structured. I do think it is important to realize the 
reason people talk about having shared responsibilities with 
employers, and that is that we do think that the employer-based 
system that we have is something that people are familiar with, 
and the President has committed to keeping that as a system 
going forward.
    Mr. Kline. So you don't have any estimates what the job 
losses might be? I have seen numbers as high as 4 million or 5 
million job losses with an employer mandate.
    Ms. Romer. I certainly have not seen numbers like that. 
That would be, I would think, exceptionally large.
    Mr. Kline. But again, we simply--we just don't know. And 
there are certainly some concerns with this draft bill that 
there would be reverse incentives or incentives for employers 
to drop their coverage. And that is something we are going to 
be analyzing as we go forward here with the debate on this and 
the other versions that are out there.
    And, of course, we are anxiously awaiting a score from the 
CBO so we know what we are talking about in terms of dollars 
here.
    I have several of my colleagues here who want to ask 
questions, including--I think we have three physicians with us 
here today. So in the interest of time and being ever the 
optimist that we can keep moving, Mr. Chairman, I am going to 
waive my time back.
    Chairman Miller. I thank the gentleman for that. Mr. Kildee 
is recognized.
    Mr. Kildee. Thank you, Mr. Chairman. Following through 
somewhat on Mr. Kline's question, Ms. Romer, CBO scores the 
Senate bill at $1.6 trillion, largely because it does not 
provide an employer mandate or a payroll tax. The House bill 
will cost about $1 trillion, largely due to the mandate to 
provide insurance or pay the 8 percent payroll tax except for 
small employers.
    How important is it that the employers continue to provide 
insurance or pay the 8 percent payroll tax along with other 
nonproviding employees? Is 8 percent adequate or realistic? 
Does the Senate bill meet the President's standards?
    Ms. Romer. I think you are all getting at certainly a key 
issue, which is how one structures the employer shared 
responsibility that is important to maintaining the system that 
we have, the insurance being employer-based, and for 
controlling costs, so that is certainly important. I think the 
details are something that we will be analyzing more and I am 
sure the Congressional Budget Office and your staffs will be 
analyzing more.
    One issue I do want to bring up that, as Mr. Kline was 
talking about, employment effects from the mandate. I have to 
tell you that slowing the growth rate of cost, in our report 
one of the things that we say is that that has a beneficial 
effect on employment; that by having a period when costs are 
not rising as much, that helps to give us a period of unusually 
good economic performance.
    And so I think we certainly want to look at the totality of 
the plan because we think it can certainly have some positive 
employment benefits.
    Mr. Kildee. But the omission in the Senate bill of the 
employer mandate is not a small issue. It is a rather 
fundamental part of the President's plan, is it not?
    Ms. Romer. The President has certainly expressed the view 
that he does very much want to stay within the current largely 
employer-sponsored health insurance, and some sort of shared 
responsibility is very important.
    Mr. Kildee. And the cost to the government of $1.6 trillion 
must concern the President, too, rather have part of that cost 
retained or taken up by the employer.
    Ms. Romer. Absolutely. The President has from the beginning 
said that we need to certainly make sure that anything we do 
does not increase the deficit in the 10-year budget window. And 
it needs to have the fundamental kind of reforms that I was 
talking about that will actually lower the budget deficit 
outside that window. So that is a top priority for the 
President.
    Mr. Kildee. Thank you, Ms. Romer.
    Chairman Miller. Dr. Price.
    Dr. Price. Thank you, Mr. Chairman.
    I want to thank you for your testimony, Dr. Romer. You 
mentioned at the beginning of your testimony that you are an 
economist, and we are going to talk about the economics of it, 
but you delved into the health care, so my questions will 
bounce back and forth, if that is all right. You started out 
talking about the fact that we spend 18 percent of our GDP on 
health care in this Nation. As an economist, how much should we 
spend?
    Ms. Romer. I think there is no single number. You are 
getting at a point, a good point, that is there is not some 
fixed amount. What I do feel we know is that we shouldn't be 
wasting; and so the estimates that maybe as much as 5 percent 
of GDP that we are spending is just wasted.
    Dr. Price. But it is not your testimony that the government 
ought to set a specific amount that we ought to be spending on 
health care; is that correct?
    Ms. Romer. No, of course not.
    Dr. Price. And in your testimony you also say that 46 
million folks are uninsured. Is that uninsured today?
    Ms. Romer. That is actually a crucial point. It is at a 
point in time. Because experts will certainly tell you over, 
say, a 2-year period, probably twice that many people go 
through some period of lack of insurance.
    Dr. Price. Isn't the 46 million number, though, those that 
are episodically uninsured at some point during the course of 
the last 12 months?
    Ms. Romer. No. That is at a point in time. And the number 
is like 82 million for over some 2-year period.
    Dr. Price. If you could provide the data on that, I would 
appreciate it.
    Ms. Romer. I believe the citations are in our report, but I 
will absolutely make sure you have it.
    Dr. Price. Thanks. And a breakdown of those 46 million is 
helpful to decide how we in fact get them insured, right? So it 
would be helpful to know exactly who those folks are and why 
they are not insured.
    [The information follows:]

            Questions for the Record Submitted to Dr. Romer

    Thank you for testifying at the Tuesday, June 23, 2009, Committee 
on Education and Labor hearing on ``The Tri-Committee Draft Proposal 
for Health Care Reform.''
    One of the Committee members had additional questions for which she 
would like written responses from you for the hearing record.
    Congresswoman Carolyn McCarthy (D-NY) asks the following questions:
    1. In many cases payments to providers from private insurance 
companies, as well as Medicaid and Medicare, do not reimburse providers 
for the full cost of the care provided. What, if anything, is being 
done to address this issue?
    2. There has been a great deal of discussion regarding the practice 
of payment bundling. Could you explain what this bundling is and how it 
would work?
    3. How can we address waste and fraud in a way that does not 
penalize providers who are providing appropriate services?
    4. Regarding efforts to close or reduce the donut hole--how will we 
pay for these efforts?
    5. The United States spends much more than other nations on 
healthcare. Part of this has been attributed to high administrative 
costs. Where do these high administrative costs come from? How will 
this reform bill reduce these administrative costs?
    6. The United States Currently Spends 18% of GDP on healthcare. 
Estimates suggest that if nothing is done to reduce those costs, the 
percentage could increase to 33% of GDP by 2040. How will this reform 
bill help to address this issue? What size reduction in growth in 
healthcare spending as a percentage of GDP is expected?
    7. Millions of people face financial hardships, including 
bankruptcy, as a result of healthcare costs. I've recently been working 
with the bleeding disorders community on a resolution calling for 
improvements in the diagnosis of care for bleeding disorders. These 
disorders, however, are costly and continue throughout the life of the 
individual. As a result, many individuals reach their lifetime 
insurance cap. Can you talk about the number of people that insurance 
caps affect and the expected benefits of removing the insurance cap?
    8. As you know, the United States is currently experiencing a 
severe nursing shortage and we are unable to meet our current and 
future healthcare needs. I have proposed a number of bills to be 
included in healthcare reform, including the Nurse Training and 
Retention Act, which I am pleased has been included in the released 
draft, and the Student-to-School Nurse Ratio Improvement Act. In 
addition, I had a number of provisions included in the Higher Education 
Act to increase the number of nurse faculty and nursing students. Do 
you have any proposals for how we can address the nursing shortage and 
how healthcare reform will affect nurses?
    Please send your written response to the Committee on Education and 
Labor staff by COB on Tuesday, July 24, 2009--the date on which the 
hearing record will close. If you have any questions, please contact 
the Committee. Once again, we greatly appreciate your testimony at this 
hearing.
            Sincerely,
                                   George Miller, Chairman.
                                 ______
                                 

          Responses to Questions for the Record From Dr. Romer

    1. In many cases payments to providers from private insurance 
companies, as well as Medicaid and Medicare, do not reimburse providers 
for the full cost of the care provided. What, if anything, is being 
done to address this issue?

    Based on analysis of the 2006 American Hospital Association Annual 
Survey data (the most recent year available), among community 
hospitals, the aggregate hospital payment to cost ratio was 91.3% for 
Medicare, 85.8% for Medicaid (includes DSH payments), and 130.3% for 
private payers. It is important to be mindful that these aggregate 
statistics do not suggest that all hospitals lose money on Medicare and 
Medicaid patients. Hospitals that are more efficient in their provision 
of care often make money.
    Since the final legislative language has not yet been released from 
the three committees, we are unable to comment on any specific 
proposals that are being considered with respect to Medicare and 
Medicaid payment rates.

    2. There has been a great deal of discussion regarding the practice 
of payment bundling. Could you explain what this bundling is and how it 
would work?

    Bundled payments represent one strategy to lower the number of 
unnecessary services and improve the quality of care in hospital-based, 
post-discharge, and outpatient care settings. Under a bundled payment 
system, an appropriately set payment is allocated for all treatment 
surrounding a well-defined episode of care (e.g., knee replacement, 6 
month period of care for a person with congestive heart failure), 
rather than independent charges for each prescribed service (e.g., 
office visit, lab tests, MRI).
    Bundled payments would function much like the prospective payment 
for hospitalizations that currently exist in Medicare today, but would 
extend across provider types and/or within the outpatient setting. 
There are exciting new innovations coming from the private sector with 
respect to developing the clinical coding algorithms and implementation 
designs to integrate bundled payments into current systems used by 
insurers.
    Bundled payments give providers a strong incentive to use resources 
wisely and get the treatment right the first time because if the costs 
of care exceed the bundled payment, providers bear financial liability. 
Bundled payment systems increase the efficiency of resource use by 
promoting care coordination among the multiple providers who supply 
care during an episode. Lack of care coordination has often been cited 
as a major contributing factor to preventable re-admissions among 
Medicare beneficiaries. The idea is not to reduce the amount of care, 
but to eliminate low value or redundant care, thereby reducing costs 
without compromising quality. Indeed, bundled payments can increase 
quality be giving a single provider crucial oversight responsibility, 
and by encouraging infection control, patient education, and other 
health investment measures that improve outcomes.

    3. How can we address waste and fraud in a way that does not 
penalize providers who are providing appropriate services?

    Private insurers, Medicare and Medicaid are making important 
investments to identify waste and fraud in the health care system. 
Examples of fraud include billing for services or items that were not 
provided, billing for work already reimbursed by another insurer, or 
altering claim forms; examples of waste may include claims for services 
that are not medically necessary.
    Insurers use a variety of tools when analyzing their data in order 
to detect fraud and waste. These techniques include edits, alerts, and 
pattern detection. Both private insurers and government purchasers 
continue to develop refinements to predictive models that will 
accurately detect fraud and waste and not inadvertently target 
providers who are prescribing appropriate services.
    Perhaps one of the most important things that private insurers, 
Medicare, and Medicaid can do is to have regular communications with 
providers about the importance of identifying fraud and waste so that 
everyone can be made better off (providers, government, and taxpayers) 
when the few ``bad apples'' are identified, denied payment, and in some 
cases prosecuted.

    4. Regarding efforts to close or reduce the donut hole--how will we 
pay for these efforts?

    In general, Medicare Part D is financed by beneficiary premiums and 
general revenues.
    In June, the pharmaceutical industry pledged to reduce by at least 
50% the cost of brand-name prescription drugs for Medicare 
beneficiaries who fall into the doughnut hole (the gap in coverage 
between annual total spending of $2700 and $6154 in 2009). We are 
currently awaiting details about how such a pledge will be formally 
implemented, including the mechanism by which plans and pharmaceutical 
companies will be able to distinguish when a beneficiary hits the 
doughnut hole.

    5. The United States spends much more than other nations on 
healthcare. Part of this has been attributed to high administrative 
costs. Where do these high administrative costs come from? How will 
this reform bill reduce these administrative costs?

    The United States spends significantly more on health care 
administrative costs than other countries. A McKinsey Institute report 
indicated that as of December 2008, administrative costs accounted for 
7% of overall health care costs ($145 billion) in the U.S., or $486 per 
person compared to an average of $103 for other OECD countries. For a 
typical medical group (including clinicians' time), the cost of 
administration ranges from 10% to 27% of revenues.
    High administrative costs are partially due to fragmentation in our 
health care system. Our system of multiple payers, independent 
providers, and the lack of coordination between them leads to greater 
administrative costs for hospitals and physicians. For instance, forms, 
billing, and other administrative details are not standardized across 
payers and providers, thereby increasing costs and potential mistakes. 
The individual and small group markets, where the high initial 
administrative cost burdens cannot be spread across a large pool of 
beneficiaries as in the large employer market are another source of 
high administrative costs.
    An insurance exchange may reduce administrative costs, especially 
those associated with the individual and small-group market, by 
standardizing application forms and streamlining insurance purchases 
for larger groups of employees. Other proposed strategies for 
administrative simplification and cost reduction include creating a 
standardized electronic billing system that could be used by all 
providers, suppliers and payers and increased adoption of health 
information technology in general to reduce mistakes and increase 
coordination.

    6. The United States Currently Spends 18% of GDP on healthcare. 
Estimates suggest that if nothing is done to reduce those costs, the 
percentage could increase to 33% of GDP by 2040. How will this reform 
bill help to address this issue? What size reduction in growth in 
healthcare spending as a percentage of GDP is expected?

    Any reform legislation needs to provide ways to not only pay for 
the new expenditures associated with the expansion of coverage and 
health care investments, but also to slow the growth rate of health 
care costs. Proposals to slow the growth rather of costs, often 
referred to as ``game changers,'' need to be targeted to address some 
of the key drivers of inefficiency in the health care system. In 
particular, ``game changer'' proposals should align provider incentives 
to promote efficiency and provision of high quality care. They should 
increase the flexibility of administered pricing systems to incorporate 
new information about the effectiveness of treatment and improvements 
in the productivity of inputs to medical care. They should reduce 
fragmentation in the system through standardization of billing and 
other administrative processes. And, they should include investments to 
strengthen the system, including implementation of information 
technology and electronic medical records, comparative effectiveness 
research, creation and dissemination of price and quality information 
for consumers, and generation of timely performance feedback for 
providers.
    Estimates by the Council of Economic Advisers suggest that slowing 
the growth rate of health care costs by 1.5 percentage points per year 
would result in health care expenditures in 2040 equal to 23% of GDP. 
This is dramatically less than the 34% of GDP that we project will 
occur in the absence of successful health care reform.

    7. Millions of people face financial hardships, including 
bankruptcy, as a result of healthcare costs. I've recently been working 
with the bleeding disorders community on a resolution calling for 
improvements in the diagnosis of care for bleeding disorders. These 
disorders, however, are costly and continue throughout the life of the 
individual. As a result, many individuals reach their lifetime 
insurance cap. Can you talk about the number of people that insurance 
caps affect and the expected benefits of removing the insurance cap?

    According to the AHIP December 2007 survey of individual health 
insurance plans, the average lifetime maximum benefit is $4.2 million 
for single coverage in a PPO or POS plan, $3.0 million for HMOs and 
$4.3 million for HSAs.
    Unfortunately, there are no public sources of data to tell us how 
many individuals with private insurance have reached annual and/or 
lifetime insurance maximum benefit limits on their policies.

    8. As you know, the United States is currently experiencing a 
severe nursing shortage and we are unable to meet our current and 
future healthcare needs. I have proposed a number of bills to be 
included in healthcare reform, including the Nurse Training and 
Retention Act, which I am pleased has been included in the released 
draft, and the Student-to-School Nurse Ratio Improvement Act. In 
addition, I had a number of provisions included in the Higher Education 
Act to increase the number of nurse faculty and nursing students. Do 
you have any proposals for how we can address the nursing shortage and 
how healthcare reform will affect nurses?

    The research literature suggests that there will likely be some 
workforce shortages in coming decades, particularly for nurses, non-
physician clinicians, and primary care physicians. Assuming health care 
reform expands coverage to a significant proportion of the 46 million 
Americans who are uninsured, there could be a noticeable increase in 
the demand for medical care. In turn, this will increase the demand for 
nursing labor as well as other types of medical personnel. While CEA 
does not have any specific workforce proposals that it endorses, we are 
working with the Department of Health and Human Services in the 
development of ideas to address this issue.
                                 ______
                                 
    Dr. Price. You also mentioned, as other folks have, that 
the President's goal--and it is reiterated over and over and 
over--that if you like your current plan or if you like your 
current doctor, you can keep them. Do you know where that is in 
the bill?
    Ms. Romer. Absolutely. And things like the employer mandate 
is part of making sure that large employers, that today the 
vast majority of them do provide health insurance.
    Dr. Price. I am asking about if an individual likes their 
current plan, and maybe they don't get it through their 
employer and maybe in fact their plan doesn't comply with every 
parameter of the current draft bill, how are they going to be 
able to keep that?
    Ms. Romer. The President is fundamentally talking about 
maintaining what is good about the system that we have.
    Dr. Price. That is not my question.
    Ms. Romer. One of the things that he has been saying is, 
for example, you may like your plan. And one of the things we 
may do is slow the growth rate of cost of your plan. So that is 
something that is not only----
    Dr. Price. The question is whether or not patients are 
going to be able to keep their plan if they like it. What if, 
for example, there is an employer out there--and you have said 
that if the employers that already provide health insurance, 
health coverage, for their employees that they will be just 
fine, right?
    Ms. Romer. Uh-huh.
    Dr. Price. What if the policy that those employees and that 
employer like and provide for their employers doesn't comply 
with the specifics of the bill; will they be able to keep that 
one?
    Ms. Romer. Certainly my understanding--and I won't pretend 
to be an expert in the bill--but certainly I think what is 
being planned is, for example, for plans in the exchange to 
have a minimum level of benefits.
    Dr. Price. So if I were to tell you that in the bill it 
says that if a plan doesn't comply with the specifics that are 
outlined in the bill, that that employer is going to have to 
move to a different plan within 5 years, would that be unusual 
or would that seem outrageous to you?
    Ms. Romer. I think the crucial thing is what kind of 
changes are we talking about? The President was saying he 
wanted the American people to know that fundamentally if you 
like what you have, it will still be there.
    Dr. Price. What if you like what you have, Dr. Romer, 
though, and it doesn't fit with the definition in the bill? My 
reading of the bill is that you can't keep that.
    Ms. Romer. I think the crucial thing, the bill is talking 
about setting a minimum standard of what can count as a plan.
    Dr. Price. So it is possible that you may like what you 
have, but you may not be able to keep it, right?
    Ms. Romer. I would have to look at the specifics.
    Dr. Price. Good. You talk about portability and the 
importance of portability. And it is extremely important. You 
got to be able to take your insurance with you. Isn't there a 
different way to do that, or aren't there other ways to do that 
besides what is being outlined in the bill? For example, if you 
owned your health insurance policy regardless of who would pay 
for it, wouldn't that be a way to accomplish portability?
    Ms. Romer. We certainly have seen, for example, a lot of 
trouble. People have trouble with portability. Certainly given 
that the vast majority of Americans have employer-provided, 
they don't have something that is----
    Dr. Price. Dr. Romer, if an individual owned their policy, 
regardless of who paid for it, couldn't they take it with them 
regardless of their job situation?
    Ms. Romer. Yes, that would seem to me that----
    Dr. Price. I notice in your testimony you didn't mention 
either liability reform or regulatory reform. Would you be able 
to tell the committee how much that contributes to the cost of 
health care in the Nation, liability cost and regulatory cost?
    Ms. Romer. We have actually been looking at that. One of 
the things in our report is to point out that there are a large 
number of things that are behind how much health care costs are 
today and how much they have been rising. My read of the 
professional literature is that the estimates are all over the 
map. It is certainly a part of why costs are high and a part of 
why they are rising. I think my read of the evidence is it is 
not the primary reason.
    Dr. Price. As an economist, though, you could put a number 
on that and you could get that for the committee.
    Ms. Romer. I will certainly do the research.
    Dr. Price. Thank you so much. Thank you, Mr. Chairman.
    Chairman Miller. Mr. Payne.
    Mr. Payne. Thank you very much. With expanded coverage, I 
assume that there should be more wellness prevention. When you 
are poor--you know when I was young, you know people think you 
are crazy when you go to a doctor if you weren't sick, because 
well people couldn't afford to go to the doctor even when we 
were sick, more or less when you weren't.
    However, how much do you think as this moves on the 
wellness, the prevention, if that can be an educational part of 
the coverage? Is there any quantifiable number that you think 
would show a slowing in the increase, or have you kicked in any 
leveling off by virtue of the preventive part?
    Ms. Romer. That is an excellent question because it does--
you know in our report, we often talk about the benefits of 
coverage expansion and the benefits of slowing the growth rate 
of costs. And, of course, those two things do intersect exactly 
where you talk about--with wellness and prevention--because 
when someone has health insurance coverage, they tend to have a 
relationship with a primary care physician who does do the 
education and the focus on wellness that we do think can slow 
the growth rate of cost.
    Especially, again, my understanding of the literature, 
things like smoking cessation programs, weight management, are 
absolutely things that can slow the growth rate of cost over 
time. I think the important thing is it is not the only thing 
we need to do, and that there are other things like how we 
reward value over volume and changing the delivery system that 
are also very important to slowing cost, but certainly wellness 
is one component.
    Mr. Payne. Thank you. Also I have had concerns. As we do 
know, there are certainly underserved communities in rural 
areas where it is difficult, and of course in urban areas, the 
type of part of the district that I represent--and of course, 
my concern continually is access to a physician or to quality 
care.
    And I am wondering, you know, kind of getting ahead of 
things, but how are we going to ensure in towns in the district 
that I represent that there will be the opportunity for 
wellness and the opportunity for preventive services, because 
we do know that there is certainly a lack of quality--or lack 
of any physicians in general in many of the underserved 
districts?
    Ms. Romer. I think, again, one the very strong features of 
the tri-committee bill is that it does address these workforce 
issues that we know. Especially if we are going to move to a 
system where there is more coverage, more access to primary 
care, we need more primary care physicians. So I think these 
workforce issues are going to be important. I know it is 
something that my staff and others in the White House are 
absolutely thinking about because that is going to be an issue.
    And your point about the geographical, it is not just the 
numbers but the geographical distribution is going to be very 
important.
    Mr. Payne. I will just yield back the balance of my time.
    Chairman Miller. Dr. Cassidy.
    Dr. Cassidy. Thank you, Dr. Romer.
    I enjoyed your Council of Economic Advisors report on the 
problem, but there are no prescriptions, as you say, and this 
effectively is a prescription. And in your testimony, you 
allude to some stuff; some of it seems as if you are telling me 
down is up and up is down. For example, Medicaid and Medicare, 
quite impressively, is driving cost. And yet we are going to 
increase Medicaid to 133 percent of Federal poverty level.
    I have an article here from Health Affairs, out of the 
Lewin Group, that points out when you have increased Medicare 
and Medicaid as a proportion of your payer mix, for the private 
insurance company it drives their cost up, the hydraulic 
effect. You push down here because you use your monopsony power 
to drive up rates and it pushes up there, gaming the system for 
the public thing.
    So one question I have is, how are we going to control 
Medicaid when we are increasing the reimbursement levels and we 
are increasing eligibility? Again, that is just cost purposes.
    Secondly, you know, next Tuesday morning, I am going to be 
treating lots of Medicaid patients in a public hospital in 
Louisiana, as I have for 20 years. I don't think a single one 
of them would say it is patient-centered. As I looked through 
800 pages this last weekend, I didn't see much that said 
``patient-centered.'' We are using that rhetoric, but as a guy 
that has been spending 20 years trying to address that, I don't 
see it.
    And the accountable care organization is an unproven 
concept. And even the advocates admit that there are lots of 
obstacles for it to be instituted. Bundling is unproven, 
frankly. I keep on wondering how we are going to save money and 
lessons by using the States' monopsony power to drive down the 
provider reimbursement. Which brings me back to this, which 
says that you are going to drive up the cost for the private 
insurance companies, effectively gaming the system so that 
people migrate towards the public.
    I have asked several questions, and I apologize. If you can 
address those, please.
    Ms. Romer. So the crucial thing that you are mentioning--
and something the President is well aware of--is what we are 
talking about in terms of extending coverage in some of the 
reforms we are doing now, like health information technology 
and the payment reforms. Those are absolutely going to cost 
money and that is why he has put $948
    billion of suggested savings and other revenue sources to 
pay for those kinds of expansions now in the budget window, and 
then to make the kind of fundamental changes that will slow the 
growth rate of costs over time.
    One of the things you did mention, like the accountable 
care organizations, one of the strengths, again, of the bill, 
the pilot programs that surely are going to be a part of how we 
move forward on this, is figuring out what does slow the growth 
rate of costs.
    Dr. Cassidy. We do know a couple of things that slow the 
growth rate. ACOs have not been proven to do so. But one thing 
that slows the growth rate is HSAs, Health Savings Accounts. I 
have a Kaiser Family Foundation thing that shows for similar 
benefits, similar demographics among beneficiaries, an HSA has 
30 percent lower costs than a fee-for-service. There is nothing 
in here and--that is a very patient-centered concept--there is 
nothing in here about an HSA.
    Secondly, I would say that there is nothing in here about 
what the Safeway program has, which has variable premiums for 
people who enroll in preventive medicine. Indeed, as best as I 
could tell, this would not allow that in the public option, and 
yet the one preventative measure that has worked is actually 
making the patient a little fiscally responsible for lifestyle 
choices.
    Ms. Romer. The main thing I would say is I would highly 
recommened the Big Fix CBO volume that I actually keep on my 
bedside table on budget options. There are 108 things that they 
proposed as things that could help to slow the growth rate of 
cost.
    What you are pointing out, there are a range of things; the 
tri-committee bill has some of them in it. The important thing 
is we have absolutely got to take these measures and and they 
are absolutely ones that the vast majority----
    Dr. Cassidy. I am almost out of time.
    Except for using monopsony power to negotiate lower rates, 
is there one thing in here that is proven to lower cost?
    Ms. Romer. Absolutely. I believe things like bundling, that 
the evidence is that that has worked in other places where we 
are bundling. So we are thinking of expanding that.
    Dr. Cassidy. If you had to bet your house on that, would 
you bet your house on that evidence? Because it is slender and 
it goes both ways.
    Ms. Romer. It is cited in our report, and I will make sure 
we track it down for you.
    Dr. Cassidy. Thank you very much.
    Chairman Miller. Mr. Andrews.
    Mr. Andrews. A lot of Americans are betting the house. That 
is the problem. They lose their house, they lose everything 
they had. So we are betting on fixing the problem.
    I want to come back to Dr. Price's questions to you about 
the President's commitment that if you like your plan, you get 
to keep it.
    Dr. Price posed an example where if a plan that an employer 
provides falls short of the credible minimum coverage that is 
in the House draft, the question is what would happen? The 
answer is the employer would have to come up with that, that is 
true. But I want to examine with you whether someone is likely 
to like that plan.
    The President said if you like that plan, you get to keep 
it.
    Ms. Romer. I think most people like something that is 
better.
    Mr. Andrews. It is my understanding in the House draft that 
the minimum coverage is based upon 70 percent of the actuarial 
value of the Federal Employees Health Benefit Plan. That is a 
pretty modest number. And do you think it would be likely that 
a plan below that number might not have access to primary care 
like OB-GYN care, annual checkups?
    Ms. Romer. There are certainly going to be limitations.
    Mr. Andrews. Do you think it is likely that a plan that 
would fall below that would probably have an immense copay in 
the middle, or deductible in the middle, where you get some 
primary care coverage but then have an enormous donut hole, 
something the majority is very familiar with and we are going 
to fill. Do you think it is very likely that they have that 
huge donut hole in the middle?
    Ms. Romer. I think it is likely.
    Mr. Andrews. How likely do you think that somebody would 
have catastrophic care coverage if their plan fell below that 
70 percent threshold?
    Ms. Romer. Exactly. They are likely to have high out-of-
pocket expenses.
    Mr. Andrews. So I guess it is metaphysically possible that 
somebody would like that kind of plan, and we think that the 
reality is that people would not like something like that.
    Let me come back to employee mandates that Mr. Kline asked 
about. Your projections of economic growth are based upon the 
President's conceptual plan; is that right?
    Ms. Romer. They are based--I mean, the crucial thing, the 
principles that the President laid down----
    Mr. Andrews. One of those was that all employers would have 
some fair share of responsibility, right?
    Ms. Romer. The main thing we were focusing on was slowing 
the growth of costs.
    Mr. Andrews. Your projections take into account the 
dynamics of a requirement of employer responsibilities; is that 
correct?
    Ms. Romer. Our projections are on a much broader level, so 
they don't have those kind of details in them, so they are 
based on----
    Mr. Andrews. But that is one of the ways we would get that 
cost growth curve to bend, I assume.
    What happens--you are an economist and I am sure you can 
tell us this--but let us say that you run a retail store and I 
run a retail store, and you voluntarily insure your employees 
and you are in excess of this minimum standard so this bill 
leaves you alone, lets you keep doing whatever you want to keep 
doing. And I don't, I don't provide health care to my 
employees. And one of my employees gets into a motorcycle 
accident, who pays the bill?
    Ms. Romer. Depends on whether they had private----
    Mr. Andrews. Let's assume that she is one of the uninsured.
    Ms. Romer. So it would be uncompensated care.
    Mr. Andrews. Who pays for uncompensated care?
    Ms. Romer. Well, all of us as taxpayers and all of us who 
have private insurance.
    Mr. Andrews. So you, as the retail owner who does insure 
your employees, is picking up part of the cost for me, who 
doesn't. Is that right?
    Ms. Romer. Absolutely, as do the rest of us.
    Mr. Andrews. So this plan would also take into account that 
economic issue where we are leveling that playing field a bit, 
and there are taxes imposed, aren't there, also at the State 
and local level to cover uncompensated care?
    Ms. Romer. Absolutely.
    Mr. Andrews. What would happen to those State and local 
taxes if this draft were enacted and people got health 
insurance under this plan?
    Ms. Romer. We absolutely expect that uncompensated care 
would go down.
    Mr. Andrews. Let me ask you one other question about your 
economic assumptions here.
    How many jobs do you think it would cost us to do nothing? 
And I know the other side says no one is in favor of doing 
nothing. That is rather odd; since everyone is in favor of 
doing something, nothing has been done for 50 years. What would 
it cost to do nothing in terms of lost jobs for the economy?
    Ms. Romer. Certainly. What we have numbers on are it what 
is going to cost in terms of, you know, our total standard of 
living; and there we have enormous numbers about how we are 
absolutely going to have lower standards of living. We 
certainly have the short-run impact on jobs.
    So our numbers were that, by not having successful reform, 
we get numbers like we are costing ourselves maybe 50,000 jobs 
that we could be having if we had successful reform, at least 
for a while, in terms of better economic performance.
    Mr. Andrews. I thank you and yield back.
    Mr. Castle. Dr. Romer, I have been trying to figure out out 
exactly what context you are here for. Is the administration 
supporting the tri-committee bill? Or there are other bills out 
there. There are Senate bills, there are Republican 
propositions. I am not exactly sure where the administration 
is. Is this now your bill?
    Ms. Romer. The crucial thing is I am here representing the 
administration, to tell you that health care reform is the 
President's number one priority, and I think what I was 
describing is what the President sees as kind of the key 
principles. We do know there are lots of bills, and each one of 
them has certain strength. And so we are here to help move that 
conversation along.
    Mr. Castle. So you are not supporting this bill, per se, 
but you are supporting the principles?
    Ms. Romer. We are absolutely supporting successful health 
care reform, which is the number one thing on the President's 
agenda.
    Mr. Castle. My numbers may not be exactly correct, and you 
can correct me. I have seen a chart on the 46 million people 
who are uninsured, and something like 9- or 10 million of those 
are people who are not legally in the United States of America.
    My question to you is, what would this plan or what does 
the administration propose with respect to those individuals; 
that they would have to be insured and would the government be 
in a position, if they are low-income, to have to pay for that 
insurance? I mean, you are dealing with a situation where it is 
what do we do with somebody who perhaps should not be here to 
begin with.
    Ms. Romer. So there are several things to point out. One is 
we talk--we mentioned with Dr. Price about the 46 million. That 
actually is more like 82 million when you think of people who 
are uninsured at a point in time. A crucial fact of that is 
probably 80 percent
    of those are workers, most of them are middle-class 
families that go kind of in and out of insurance.
    On the issue of undocumented workers, the President has 
said that he does not support government-provided health 
insurance for undocumented workers, but he has certainly also 
talked about the importance of comprehensive immigration reform 
that he thinks is important.
    Mr. Castle. So we should take that number away from the 46 
million in terms of those who we are concerned about protecting 
at this point?
    Ms. Romer. Yes.
    Mr. Castle. I am from Delaware. In my State--this is 
probably true of a lot of States--there is a lot of free or 
subsidized medical help. The Federal community health centers 
are a perfect example of that, but prescription drug programs 
that exist throughout the country, volunteer position programs. 
I just read about a cancer program we have in Delaware for 
people who are low-income. We have employer-based clinics, 
hospital clinics, et cetera.
    If we go to a universal system, what is going to happen to 
those programs? And my concern is that all of a sudden, people 
are going to say everybody is insured now and we don't have to 
do these. And we are going to lose a lot--from an economic 
point of view--a lot of relatively free medical help which is 
being provided in this country. Has that been factored 
economically into what is being done at the White House, or in 
this legislation or anywhere else that you know about?
    Ms. Romer. We certainly do know that there is a lot of 
uncompensated care in the country, and a lot of it ends up 
being paid for by the government. So I would think as we moved, 
certainly, from government-run programs that are providing 
uncompensated care, we would just be changing how they are paid 
for by making these now--workers that are currently uninsured 
would now have insurance. But so many of these wonderful 
programs, I would assume they would continue but in a different 
guise.
    Mr. Castle. I wish somebody would look at that. I don't 
think a lot of these are necessarily with cost-shifting over to 
the government, with the exception of public community health 
centers, the things I need are mostly volunteer activities by 
either corporations or different entities who are willing to 
help. I am concerned about that loss.
    Another insurance area that concerns me is the whole area 
of prevention and wellness, which I think is in this 
legislation. I haven't read it carefully at this point. And 
certainly, I think we all agree it is a key for improving 
health care for all of us in America. But has anyone looked at 
what cost savings can realistically be obtained by imposing 
prevention and wellness programs, preventing diabetes, that 
kind of thing? That may be a little bit too difficult to do, 
but do you have a grasp on that?
    Ms. Romer. It is something I know--it is something that is 
heavily studied. Actually, I will tell you about I was doing an 
interview on television and someone said, aren't you just going 
to make people live longer? And I said yes, guilty as charged.
    But that is sort of one of the key issues here is that we 
do know wellness often is cost-effective over a range, but then 
people live longer. So figuring out what it saves in general, 
you're absolutely right, there are some estimates. The things I 
cited like smoking cessation, weight management, those do seem 
to help. But if we make people live longer, I don't apologize 
for that.
    Chairman Miller. At this point, I am going to call on Mr. 
Scott and then Dr. Roe and then Ms. Woolsey and then Mr. 
Hunter. And then Ms. Romer is going to be allowed to leave the 
committee under our arrangement of getting her here today. Then 
we will hear from our second panel.
    So, Mr. Scott.
    Mr. Scott. I need to follow up on the comments from Mr. 
Andrews on the cost shifting.
    I have heard that it is about a hundred dollars per family 
that goes to paying for the costs of indigent care. Is that 
about right?
    Ms. Romer. I would have to check the numbers, but it is 
certainly substantial.
    Mr. Scott. Can you say a word about the importance of 
covering prenatal care and early child comprehensive care?
    Ms. Romer. I think that goes to Mr. Castle's point that in 
terms of preventative care that has a good payoff, I feel very 
strongly that the evidence suggests that prenatal and child 
care--child well care is crucial.
    Mr. Scott. Now, the Medicaid program has a program called 
EPSDT. It is a comprehensive set of benefits. Is it essential 
that same comprehensive set of benefits, which includes 
preventative and screening tests, be available on all policies?
    Ms. Romer. So I think the specifics--I mean, that is part 
of this bill certainly talks about setting up a professional 
advisory board to decide what benefits. I think that certainly 
is a crucial issue and something that requires very careful 
thought.
    Mr. Scott. And in terms of competition, what portion of the 
public plans, Medicare and Medicaid, actually go to health 
care, and how much is spent in administration compared to the 
private plans? How much is spent on administration and how much 
actually goes to health care?
    Ms. Romer. I think you are making an important point, which 
is that we do know the public plans, Medicare and Medicaid, do 
have lower administrative costs. And that is one of the 
reasons, when we think about setting up a public option, one of 
the ways that it will be able to put competitive pressure on 
private firms, because it is likely to have lower 
administrative costs.
    Mr. Scott. Is there much difference between the two?
    Ms. Romer. Yes. I believe it is substantial.
    Mr. Scott. Does 25 to 40 percent administration in these 
private plans, is that an order of magnitude that you 
understand, and about 3 percent in the public plans?
    Ms. Romer. I would definitely have to check the numbers to 
make sure I was answering correctly, but I am happy to get back 
to you on that.
    Mr. Scott. One of the things that we are trying to do is 
transform health care at the same time we are trying to get 
coverage and change the health delivery system at the same time 
we are doing financial access. Should we do them one at a time 
or all at the same time?
    Ms. Romer. I think the President has very smartly said that 
we can certainly do many things at once, and I have complete 
confidence in the Congress as well--and these are all crucial 
issues. These are all part of what the President has called the 
new foundation, and they are all aimed at the same thing, which 
is making this a healthier, stronger economy.
    Mr. Scott. One of the things that we have been asked is, 
how we are going to pay for it? We are going to be making some 
decisions on taxes in the next few months--the estate tax, what 
I call the bare minimum fair share tax, that is the alternative 
minimum tax. Where would these be in the list of priorities 
compared to universal health care?
    Ms. Romer. So what the President has said is absolutely 
that he thinks comprehensive health care reform is crucial, and 
he has given a list of ways to pay for it. About two-thirds are 
suggested savings for Medicare and Medicaid and about one-third 
coming from new tax revenues. And he had a suggestion which is 
limiting the itemized deductions on high-income earners. You 
listed some others.
    Mr. Scott. Should we enact health care and then figure out 
how much in terms of tax cuts we can afford? Or should we pass 
all of the tax cuts first and see if we can get around to 
health care?
    Ms. Romer. I think we should do a sensible health care 
reform that does what we need to do for health care and make 
sure that it doesn't increase the deficit in the crucial 10-
year budget window.
    Chairman Miller. Dr. Roe.
    Dr. Roe. I would like to agree with all of your economic 
arguments if they didn't go exactly the opposite of what 
happened to us in Tennessee.
    We got a Medicaid waiver, as you know, 16 years ago in this 
State to form a managed-care health care plan called TennCare 
to hopefully cover most of the people in Tennessee. What 
happened was, it was a very rich plan and offered a lot of 
benefits, like I believe this government-run option is going to 
be. And what happened was small businesses first, but others 
made a perfectly logical decision to drop their private health 
insurance and go into the government-run TennCare plan. And 45 
percent of the people who are in the TennCare plan, or were in 
the TennCare plan, had private health care insurance but 
dropped it for this government option.
    The problem with the government plans is this: When you 
talk to the providers, the hospitals, and the other providers, 
TennCare paid 60 percent of the costs of providing the care--
very rich in the promises but only 60 percent of the costs. 
Medicare pays about 90 percent of the costs. So you've got two 
of the government plans that don't pay the costs of the care. 
And the uninsured pay somewhere in between, shifting more and 
more and more costs onto the private insurers.
    And to answer Mr. Scott's question, it is about $100-$150 a 
month is what the answer is, the cost that is shifted. That is 
the data that I have seen.
    What I fear in a government option, a government-run 
bureaucratic plan, is this very thing will happen again on a 
national scale. You are going to have a very rich plan that has 
offered all of these benefits, and here you are in private 
health insurance out here, and you are going to have your cost 
shifted to you even more and more. And businesses will make a 
perfectly logical decision, which is to drop the the government 
option.
    So over time--it won't happen immediately, it will happen 
over time.
    In Tennessee what our Democratic Governor did, along with 
the legislature, was he cut the rolls because it was 
bankrupting the State. And your assumption it is going to save 
money goes in the face of what our experience has been in 
Tennessee. Could you respond to that?
    Ms. Romer. I think the crucial thing is what it shows is 
how important it is to get the details correct. And that 
absolutely how one sets up the public plan and all of that is 
going to be important. But one of the things that the tri-
committee bill does--and that the President certainly 
emphasized--is it needs to be on a level playing field and 
that, for example, being paid for by premiums that are paid 
into the public plans. I think that is important.
    Dr. Roe. If what you have just said happens, you don't need 
a public plan. You can have another insurance plan. It will be 
a subsidized plan. The premiums, I will guarantee you, will not 
pay for the cost of that care.
    Let me answer a question Dr. Price had just a moment ago. I 
went back to my own group. I am in a medical group at home that 
had about 350 employees. And this astonished me. We had offered 
last year a high-deductible insurance plan, a health savings 
account. First we offered it to the physicians and then we 
offered it to every one in our group, which is over 300 people.
    What percent do you think took that plan? 10 percent? 15? 
84. And the reason was because they could look at a $5,000 
deductible--this is a plan that will be gone with this current 
plan. I can tell you those will be gone because there is no 
health savings account in this current legislation or any that 
I have seen.
    And what these employees found out, along with me--that is 
what plan I had--was if you do believe in the wellness and 
prevention, this economically incentivizes you to do that. You 
get to keep the money at the end of the day. So all of the 
health savings accounts in the country--and I was amazed that 
84 percent of the 294 that we have health insurance, 248 got a 
high-deductible plan in our group and didn't take traditional 
insurance.
    Could you comment on that?
    Ms. Romer. Certainly I would like to do more research to 
know whether that is a common occurrence. We do know that 
health savings accounts do tend to be most popular with the 
healthy and the affluent.
    But I want to come back to your TennCare example because 
one of things, if you are worried about the employers dropping 
their coverage, again that goes to much of our discussion as to 
how important the shared employer responsibility can be to 
ensure that that system remains.
    Dr. Roe. They didn't drop the coverage. They just allowed 
them to get the government plan which, again, didn't pay the 
providers but two-thirds of the cost of providing the care, 
which shifted costs back to private insurers.
    So I would certainly like to know how many people would 
lose, because all of the HSAs lose there. The 250 right there I 
know will.
    What I would like to know also when you provide all of this 
extra--when all of this other care comes in, who is going to 
provide it? Right now, we don't have enough doctors in America. 
We have more doctors dying and retiring in the next 10 years 
than we are producing in this country.
    Chairman Miller. Ms. Woolsey.
    Ms. Woolsey. Dr. Romer, you give me great confidence that 
we are on our way to doing something very reasonable and we 
have got good leadership, and thank you for yours.
    I have a short question, and then I have a little bit 
larger discussion.
    Choice. We are assuming that employer coverage is something 
that every single employee likes. If you like your coverage, 
you get to keep it. How many people are going to feel trapped 
because they have to keep it? Have you looked at that at all? 
And how do you see the phasing in when everybody will have a 
choice?
    Ms. Romer. I certainly think that is an issue we do need to 
look at more. What the President has emphasized is the 
importance of choice. That is one reason he wanted the public 
plan to exist in the exchange, to make sure that even in areas 
where there might only be one or two providers, that you do 
have a choice. So that is certainly a principle that he thinks 
is important.
    Ms. Woolsey. Well, I will move on to kind of a broad 
question that a lot of us ask ourselves up here.
    What exactly is the economic value for having private 
insurance carriers in the system in the first place?
    Ms. Romer. We certainly think that in general--what I tell 
my introductory students is that competition is a good thing 
and that it is something that does tend to lead to innovation, 
it does tend to lead to cost containment. And so I think that 
would be certainly one of the benefits that one could see from 
having a private system.
    Ms. Woolsey. But real competition, if we don't offer a 
robust public plan as one of our choices, will there actually 
be competition in the system when we rewrite it?
    Ms. Romer. We certainly think--again, depending on how 
narrow the insurance exchange is, we do know there are many 
markets where there isn't robust competition now, where there 
are just one or two providers. So that is a role that the 
public plan can play.
    Ms. Woolsey. Do you have any hesitation in the Federal 
Government providing that good plan with the--are you worried 
that insurance companies can't compete? They seem to be quite 
worried.
    Ms. Romer. I think the important thing is how it is 
designed. I think the tri-committee proposal certainly is 
trying to address that and make sure that the public plan is on 
a level playing field, and I think that is important.
    Ms. Woolsey. Is our role, our primary role, to offer the 
public a choice of a good public plan--if they want it--or is 
our role to be very worried about what happens to the insurance 
companies?
    Ms. Romer. I think in general your role is to come up with 
a comprehensive reform of health care and--I do want to say 
that the tri-committee bill, I think, is an important step in 
coming up with a bill that does encompass so many of the 
principles that the President has said were important. And that 
dual thing of expanding coverage and making the kinds of 
meaningful reforms that will slow the growth rates of cost, 
those are absolutely crucial.
    Chairman Miller. Mr. Hunter.
    Mr. Hunter. Thank you, Mr. Chairman. And thank you, Dr. 
Romer, for being here.
    Quick question. Under the draft bill, individuals face an 
actual tax penalty of 2 percent of adjusted gross income, up to 
the amount of the national average premium through the new 
exchange if they failed to obtain acceptable coverage.
    Have you, your office, or anybody in the administration 
done any projection as to the level of a tax on an individual 
that will make it effective as a penalty? So basically, how 
much of a punishment tax is it going to take to make people 
sign on to this to get an acceptable coverage that meets 100 
percent of all of the mandates? How much do we have to punish 
them?
    Ms. Romer. I think certainly there are a range of estimates 
out there. One of the things that the administration has been 
very cognizant of is just how important things like auto-
enrollment can be for getting people to sign up for things that 
we think we can actually get a very long way by just making the 
information available or making it easy.
    And then I would have to do more research to know how much 
more shared responsibility it would take.
    Mr. Hunter. What I am asking is--it is in this bill that 
you basically punish, through different taxes, people until 
they sign on to acceptable coverage. So you haven't done any 
projections to what equals an acceptable punishment tax for 
people to sign on to this?
    Ms. Romer. I think one of the things the Congressional 
Budget Office will do is figure out if what has been proposed 
is large enough to get a large number of----
    Mr. Hunter. There will have to be some punishment tax, some 
acceptable level of some kind of inclination for people to sign 
on to this, those that don't want to.
    Ms. Romer. Certainly that is one of the issues. My 
understanding is there are lots of different views in the 
different bills coming through Congress. One of the things I 
believe is true in the tri-committee bill--and I know is a 
focus of many bills--is to have a hardship waiver for a family 
that says they can't do it for a particular reason. And I think 
most of the bills do have a clause like that.
    Mr. Hunter. I am going to yield the balance of my time to 
Mr. Guthrie.
    Mr. Guthrie. Thank you. Just a quick question.
    I was in Human Resources for a manufacturing company that 
offered a plan better than the Federal plan. My question for 
this, if we are going to tax employer-based benefits--which is 
certainly on the table and I think the President has not ruled 
that out--and you say you can keep what you currently have, and 
I think most people that are satisfied with their health 
insurance are probably getting it from an employer because it 
is subsidized by the employer. If we tax that benefit, it will 
go up 38\1/2\ percent, what the corporate income tax rate is. 
So economics would say the business would probably lower what 
they offer in order to meet that benefit.
    So if we are going to increase the cost of employer-based 
benefit 38 percent, then it will probably drop down to the 
credible minimal coverage. So people will actually lose the 
value of their benefit.
    The second thing is, I am from Kentucky, and we did health 
care reform in the mid-1990s and people were allowed the keep 
their plan if they were happy with it, but it disrupted the 
marketplace, and that was impossible because people quit 
offering insurance.
    So basically I want to focus in the remaining time on 
taxing the benefit and the behavior that will cause people who 
provide employer-based benefits.
    Ms. Romer. One of the things that you are getting at, the 
President has not supported getting rid of the exclusion on--
for employer-provided health insurance--for some of the reasons 
that you talked about--and for the second one, the issue of 
disruption.
    He does--I mean, part of saying that if you like what you 
have, you can keep it, is he doesn't want to make changes that 
will cause major changes in who is providing health insurance.
    Mr. Guthrie. So he is not supporting a bill that will 
include taxing employer-based benefits? Because it will cause 
disruptions. So he is not supporting that?
    Ms. Romer. The President has put forward a suggestion. He 
thinks a better way to pay for this is limiting the itemized 
deductions with these $600-plus billion of savings from the 
Medicare and Medicaid programs, and that is what he supports.
    Chairman Miller. Dr. Romer, thank you very much for taking 
your time to appear before the committee and to answer 
questions. I apologize to other members of the committee that 
did not get the chance to speak to Dr. Romer and ask her a 
question. I think there are some who would like to submit 
questions to you. If you could respond to those in a timely 
fashion we would appreciate. Thank you so very much.
    Our second panel will be made up of Ron Pollack, Gerald 
Shea, Paul Speranza, Jacob Hacker, Michael Stapley, John 
Arensmeyer and Fran Visco.
    Ron Pollack is the founding executive director of Families 
USA, a national organization for health care consumers whose 
mission is to achieve high-quality affordable health care for 
all Americans. Mr. Pollack received his degree from New York 
University.
    Mr. Gerald Shea is the Assistant to the President of the 
Governmental Affairs, the AFL-CIO. Mr. Shea is a member of the 
Prospective Payment Advisement Committee, a congressionally 
appointed advisory board on Medicare, and also a founding 
member of the Foundation on Accountability and National 
Coalition of Organizations that helps consumers make health 
care choices based upon quality. Mr. Shea earned his B.A. From 
Boston College.
    Mr. Paul Speranza is the Senior Vice President, General 
Counsel, and Secretary of Wegmans Food Markets, a family-owned 
supermarket chain. He is the senior counsel of the board of 
directors of the U.S. Chamber of Commerce and the past chairman 
of Lifetime Health. Mr. Speranza holds a B.S. Degree from 
Syracuse University and a J.D. and a LL.M from New York 
University.
    Dr. Jacob Hacker is a political science professor and the 
Codirector of the Berkeley Center on Health, Economic and 
Family Security at U.C. Berkeley. He is also the author of 
Health Care for America: A Proposal for Guaranteed Affordable 
Health Care for All Americans. Dr. Hacker has a B.A. From 
Harvard University and a Ph.D. From Yale University.
    Mr. Michael Stapley is the CEO of Deseret Mutual Insurance 
Company and Deseret Mutual Benefit Administration. He is the 
founder and member of the board of Utah Health Information 
Network and Electronic Health Care Company. Mr. Stapley earned 
his B.A. And his MPA from Brigham Young University.
    Mr. John Arensmeyer is the founder and CEO of Small 
Business Majority, a leading small business advocate for 
comprehensive health care reforms. Mr. Arensmeyer earned his 
B.A. From the University of Pennsylvania and his J.D. From 
Rutgers University.
    Ms. Fran Visco is the first president of the National 
Breast Cancer Coalition and Fund, and is serving as a member of 
the board of directors of the Executive Committee. In 1993, Ms. 
Visco was appointed to the President's Cancer Panel and was 
reappointed in 1996 and 1999. Ms. Visco is a graduate of St. 
Joseph's University and earned her J.D. from Villanova Law 
School.
    Welcome to the committee. We look forward to your 
testimony. We thank you for taking your time to share your 
expertise and experience with the committee.
    As you know, those who have testified before, when you 
begin to testify, a green light will go on and you will have 5 
minutes. At the 4-minute mark, an orange light will go on and 
you can think about wrapping up your testimony. But we want you 
to feel free to finish in a way that you get to present a 
coherent case.
    Ron Pollack, we are going to begin with you.

STATEMENT OF RON POLLACK, FOUNDING EXECUTIVE DIRECTOR, FAMILIES 
                              USA

    Mr. Pollack. Thank you, Mr. Chairman, and thank you, 
members of the committee.
    Chairman Miller. Can we ask you to pull the microphone a 
little bit closer?
    Mr. Pollack. Mr. Chairman, I want to thank you--
particularly you and Congressman Rangel and Congressman Waxman 
for coming up with a unified bill. For those of us who have 
been around in other iterations of health care reform, it is 
rather unusual to have a unified bill, and we thank you very 
much for doing that.
    We at Families USA strongly endorse the House bill that has 
been introduced, because we think it significantly deals with 
the key values that consumers are really looking for as part of 
health care reform. It provides choice; it makes coverage 
affordable; it ensures that coverage will be stable; and it 
ends discrimination among insurance companies.
    Now, with respect to choice, we have heard said numerous 
times that this plan, as well as the President's principles, 
you can keep the coverage that you have if you like it. I 
remember Mr. Kline indicated early on in the hearing that he 
raised questions about 23 million losing coverage as a result 
of the CBO score of the Senate Health Committee. If you look at 
the CBO score, you will see that they have said it is an 
incomplete analysis of an incomplete bill. And I don't think we 
are going to see anything like that with respect to the House 
bill.
    This provides new opportunities to get coverage if you are 
in a small business. It creates a health insurance exchange 
which does something which the American public wants; namely, 
they want to have the same kind of options that Members of 
Congress have, and the health exchange is going to provide that 
opportunity. And in so doing, it will provide accurate and 
helpful information about benefits and rights.
    It creates reasonable rules about how insurance companies 
should operate, so that if you have insurance you actually know 
what you are getting, as opposed to finding out that you didn't 
have something at a point when you need care. And it provides a 
public option that we think is very helpful because it not only 
provides more choice, but it provides a real opportunity for 
getting costs down, and it provides a stable, portable option.
    Now, another value that consumers care deeply about is 
making coverage affordable. And one of the key ways that this 
plan makes coverage affordable is through the new subsidies 
that are provided on a sliding scale up to 400 percent of the 
Federal poverty level. We think that is absolutely critical. It 
also places a cap on out-of-pocket costs. It is not simply the 
premiums that people pay in order to get coverage. They also 
pay deductibles, copays, and there may be a cap in how much an 
insurance company pays out.
    Now, when people have coverage they won't be bankrupted, 
they won't be surprised, and the care will be affordable to 
them. And it provides an important safety net, through the 
Medicaid program, by establishing a floor on eligibility of 133 
percent of the Federal poverty level.
    Mr. Andrews and Mr. Scott were talking earlier about the 
kind of cost shifts that take place when people don't have 
coverage, and we released a study that the President cited last 
week that showed in 2008, the cost shift--the hidden health 
tax, if you will--for those who have coverage to pay for the 
uncompensated health care costs for the uninsured in 2008 was 
$1,017. And I would suggest that this year it is considerably 
higher, because more people lost their jobs, and in the process 
lost their health care. It is probably closer to $1,100.
    This plan also ends insurance company discrimination. You 
no longer can be denied coverage due to a preexisting 
condition. When you get coverage, you are not going to have a 
loophole so that everything is covered other than your 
preexisting condition. It means that insurance companies are 
not going to drop you or raise your rates due to the filing of 
a claim. It is going to mean that post-claims underwriting, 
that happens all too frequently, that you get coverage and then 
when you need care, the insurance company says to you, you 
actually didn't disclose certain kinds of things, and they drop 
you from your coverage. And it makes sure that insurance 
premiums are not going to vary based on health conditions.
    Lastly, this plan provides coverage we can count on. It 
provides coverage for preventative services that are very 
important. It will provide coverage based on the best science. 
Yes, there will be a Health Benefits Council that will work 
with the Secretary, but that Health Benefits Council will be 
charged with coming up with the best science, so that health 
plans are developed that really make sense and therefore we 
won't have enormous waste in our system, which we have today. 
And it will provide a range of insurance options.
    In short, I don't remember, one of you talked about health 
insurance coverage like a house. Well, this plan doesn't make 
you get out of the house. It doesn't make you sell the house. 
But what it does do is it gives you tools. So if you have got a 
leak in your roof, it can be fixed. If you need an addition to 
your house, it can be fixed. It means if you need some 
remodeling, it can be fixed.
    So I say to you, Mr. Chairman, we are delighted to be able 
to say we strongly support the bill that has been introduced, 
and we will work tirelessly to see that it is enacted this 
year.
    [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 participate in today's hearing on health care reform. 
Families USA is a non-profit organization that advocates on behalf of 
consumers in health care policy debates. Our analysis of the House 
bill, grounded in our consumer perspective, finds that the House bill 
will provide significant help to both uninsured and insured Americans. 
We applaud the three House Committees that worked cooperatively to 
draft this pro-consumer proposal. It will end discrimination and unfair 
practices by insurance companies, make quality health insurance 
coverage truly affordable for hard-working families, give Americans the 
choice to keep the coverage they have now or choose from new options, 
and make sure that everyone of us has health insurance coverage we can 
count on to protect our families.
The Urgent Need for Coverage Stability
    For consumers who can't buy coverage now, the House bill is 
significant help on the way. For consumers who struggle to pay more and 
more for premiums and get less and less coverage each year, the House 
bill shows that significant help is on the way.
    And none too soon. For the American people, fundamentally reforming 
our nation's health care system is of utmost urgency. One out of three 
Americans under the age of 65, 86.7 million people, went without health 
insurance for some period of time during 2007 and 2008. Of these 
uninsured, four out of five were from working families. The crisis of 
the uninsured is not about a small segment of our population; it is 
about our friends, our neighbors and our family members.
    There are millions of people like Christine and her husband from 
North Carolina. Christine works two part-time jobs--a total of 60 hours 
per week. Her husband is a carpenter. While he used to make good money, 
he hasn't been getting any business because of the economic downturn. 
That's why Christine had to take a second job, and why they had to 
cancel their medically underwritten, non-group private insurance 
coverage. The premiums rose to $600 a month for the two of them, and 
they just couldn't afford to pay. And Christine says it wasn't even 
good coverage. She describes it as a discount plan for the self-
employed. ``Do we pay the light bill this month, or do we keep our 
insurance?'' asks Christine. These were the kinds of choices 
Christine's family had to make. And, of course, neither of her part-
time jobs offers health insurance. ``Everything is scary when you're 
uninsured,'' she says. ``I had a breast cancer scare about a year 
ago.'' Breast cancer runs in her family, so of course they paid out of 
pocket to get her a mammogram. Fortunately, it turned out she didn't 
have cancer. They also pay out of pocket to manage her husband's 
diabetes. Christine reports that even those costs can really add up and 
squeeze their family budget. Just recently Christine told us that she 
paid $220 to get treatment for bronchitis and strep throat. She let it 
go for a week, trying to get over-the-counter remedies, hoping that is 
was just allergies.
    When you factor in the effects of the recession--job losses and the 
accompanying loss of job-based coverage, the tightening of family 
budgets, and pressure on the bottom lines of American businesses--you 
can expect the number of uninsured Americans to rise to record levels 
if nothing is done. We can't afford to do nothing. If left as is, the 
rising costs of health care will be unsustainable for individuals, 
businesses, and our overall economy. Take, for example, John in South 
Carolina who lost his IT job last November. He couldn't afford to pay 
the full premiums to keep the insurance he had through his job. The 
family tried to keep coverage through the medically underwritten, non-
group private market, but it didn't cover any of his children's 
allergies, psoriasis, or other pre-existing conditions. As John put it, 
maintaining even this private market coverage ``completely cleaned them 
out.''
    American families want peace of mind--knowing that if they lose 
their job or move to a new job they will still have health insurance 
coverage. Mr. Chairman, the House bill will provide that peace of mind 
to American families--providing affordable, quality health coverage 
through the good times and the tough times.
    Even before the recession, many small businesses were already 
struggling to be able to help their workers pay for insurance coverage. 
A couple examples from Maryland are small business owners Eileen and 
Mark. Eileen has owned a small communications and design firm for 30 
years. She recently had to reduce the amount she contributes to 
premiums for her employees again--this time from 65 percent to 60 
percent. She'd like to provide more help to her workers but her 
premiums in the small group market keep going up higher and higher as 
her employees grow older and some have health problems. Mark owns a 
moving and storage company that his father started in 1956. He wants to 
keep providing family coverage for his workers but says he is giving 
into the pressure of rising premiums and may only offer individual 
coverage soon. He doesn't know how long he will be able to afford to 
offer any coverage for his workers.
    Small business owners across our nation need help so that they can 
afford to provide health insurance to their workers. Businessmen 
understand that if their workers are covered by insurance and have 
access to health care, they will be more productive on the job and less 
turn-over from illness can be prevented. Thank you, Mr. Chairman, for 
including in the Housel bill concrete help to small businesses by 
stabilizing premium increases and providing small business owners 
subsides to help with the cost of coverage.
The Urgent Need for Cost Stability
    At the same time that the number of Americans going without 
insurance is rising, people who have insurance are struggling to be 
able to keep what they have and pay for their share of rising premiums. 
We have a crisis of affordability. Premiums for both job-based and 
individually purchased health insurance have risen rapidly over the 
last few decades: From 2000 to 2008, the average worker's share of 
average annual family premiums rose from $1,656 to $3,354, an increase 
of nearly 103 percent. Although families are paying more and more for 
coverage, they are getting less and less: On average, deductibles and 
copayments are increasing, there are more limits on covered services, 
and other limits are being placed on benefits in an effort to hold down 
the cost of coverage. Insured families across our nation are at clear 
risk of going into debt and bankruptcy because of costly medical bills.
    The House bill will deliver very concrete relief to people with 
insurance in a number of ways. First, individuals, families, and 
businesses will have a new and transparent place to go to compare plans 
and premiums in a standard format--the Exchange. The Exchange will 
offer four standard levels of insurance benefits packages; all levels 
will cover core benefits and include cost-sharing protections. 
Consumers and businesses will understand what they are buying. The 
coverage won't leave people with more holes than coverage or a denial 
slip and an unpaid medical bill when they get sick and file a claim. 
Second, the insurance companies offering plans in the Exchange will be 
required to abide by reasonable regulations that help hold down premium 
growth. For example, the Exchange will restrict how high an insurance 
company can set premiums for a given plan, and if premiums are too high 
in relation to the cost of health care services paid for by an insurer, 
refunds will be provided to consumers. Third, the Exchange will offer a 
public plan option that will compete with private insurers to make sure 
the purchasers of insurance (individuals and businesses) are able to 
secure the most value for their premium dollars.
Coverage Stability = Cost Stability
    The House bill--by providing access to quality, affordable health 
coverage to millions of Americans--will save countless lives. And the 
American people understand the moral imperative of the issue. Less 
obvious, however, is the fact that covering the uninsured will help 
contain rising health care costs for people with health coverage today 
and improve the quality and efficiency of our health care system--both 
primary goals for national health reform. These two problems--
uninsurance and high premiums--are interrelated. In fact, the presence 
of uninsured people in our nation's health care system adds to the cost 
of the health insurance premiums that American consumers and businesses 
must pay for coverage. If we reduce the number of uninsured, we reduce 
the cost of health insurance. This is true for several reasons.
    First, the cost of care for people who don't have insurance doesn't 
just disappear. We all pay--in the form of higher medical bills and 
higher insurance premiums--for the care provided to the uninsured. When 
people who don't have insurance get sick, many delay or forgo care. And 
when they can no longer ignore serious symptoms, they see doctors and 
go to hospitals. They struggle to pay as much as they can of their 
medical bills (nationally, more than one-third of the cost of care for 
the uninsured is paid by the uninsured themselves, out of their own 
pockets). Much of the remaining cost is financed by doctors and 
hospitals charging higher rates for services provided to people with 
insurance. Insurance companies pass these increased costs on to 
purchasers of insurance through higher premiums. In 2008, on average, 
$1017 of the cost of family health insurance coverage was attributed to 
the cost of caring for the uninsured--an amount that can be 
characterized as a ``hidden health tax'' that all of us with insurance 
now pay.
    Second, if everyone is in the health care system, we can slow down 
the growth of health care spending. If everyone has quality, affordable 
health care--including preventive services, as well as early diagnosis 
and treatment of conditions--we can manage chronic disease rather than 
manage the crises that result from delayed care. When everyone has 
coverage, health conditions can be treated early, before they become 
expensive problems that drive up total health care spending. If we can 
slow the growth of health care spending as a share of our GDP, we'll be 
better able to invest in education, our national infrastructure, and 
other national priorities.
    Third, when everyone has quality, affordable coverage, cost-saving 
public health goals are achievable. Doctors play a key role in 
motivating patients to reduce obesity, control high blood pressure, 
lower cholesterol, and reduce other risk factors. Efforts to improve 
our nation's overall health through public health initiatives cannot be 
successful if millions of people are left behind because they don't 
have insurance.
    Fourth, public health threats and epidemics cannot be monitored and 
addressed when so many people in our nation are uninsured. In order to 
address health threats such as flu viruses, Lyme disease, West Nile 
virus, and tuberculosis, we need to be able to develop a complete 
picture of disease prevalence and patterns of transmission. When we 
leave millions of people outside the health care system, we hinder our 
efforts to identify patterns and deal with these threats early and 
effectively.
    Mr. Chairman, the House bill--by providing affordable, quality 
health insurance to all--is a win-win for every American in this 
country. Health care reform is not ``just'' about the one out of three 
Americans who went without health insurance coverage during the last 
two years, it is also about making our health insurance more affordable 
and our health care system work better for every one of us who has 
insurance today.
Health Care Reform that Builds on the Foundation of Our Current, 
        Uniquely American System
    Now some fear mongers are telling consumers that they will lose the 
choice to keep the coverage they have now through their job. This is 
odd to me. For anyone who has been following the debate and reads the 
draft of the House bill must know they are misleading American 
consumers. No one will be forced to leave the coverage they have now or 
change doctors. Yes, they might choose to leave it--because there will 
be new options that may work better and be more affordable for some 
families. That's how a robust marketplace works--it offers a range of 
choices and provides good information about those choices to consumers.
    Families USA applauds the approach of the House bill. It builds on 
the system we have today. I think of it this way. We are doing some 
``re-modeling''--making improvements and additions. The House bill 
takes the current system and keeps what works and fixes some of the 
leaks and problems--so that insurance is more affordable, covers what 
you need when you need it, and doesn't take away choices but actually 
provides more choices.
Health Care Reform: Real Help to Consumers
    From the American consumer's perspective, there are numerous 
important features in the House bill that will improve the current 
health insurance system for consumers. The following are some of the 
important attributes of the legislation.

            1. The House bill will stop insurance company 
                    discrimination

     The House Bill will stop insurance companies from denying 
coverage to people because they have a pre-existing condition or are in 
less-than-perfect health.
     The House bill will stop insurance companies from 
excluding from coverage pre-existing conditions. Insurance companies 
will have to cover what you need--not write loopholes into policies 
that leave consumers with unpaid medical bills.
     The House Bill will stop insurance companies from dropping 
your coverage or raising your rates because you filed a claim for 
payment of a medical bill.
     The House Bill will stop insurance companies from putting 
confusing clauses and fine print into policies so not even a health 
policy professor can tell what is covered and what is not.
     The House bill will stop insurance companies from denying 
payment of medical bills because you didn't dot an ``i'' or cross a 
``t'' on your insurance application form or because you didn't know--
even though your doctor didn't either--that you had a health care 
problem.

            2. The House bill will make health insurance coverage more 
                    affordable for all Americans

     The House bill provides robust premium subsidies to help 
individuals and families for the purchase of insurance coverage. 
Subsidies will be available to hard-working American families with 
incomes up to $88,200 for a family of four. Subsidies will be provided 
on a sliding scale so people needing the most help get it.
     The House bill caps how much consumers have to spend out-
of-pocket on deductibles, copayments and other costs so that people 
with insurance are protected from high medical expenses and bankruptcy 
when they or their family members get sick.
     The House bill provides health care safety net coverage 
through the Medicaid program to people with disabilities and people at 
the very lowest income levels--people who often have special health 
care needs and no current coverage options available. Virtually all 
major health care stakeholders--including the American Medical 
Association, the American College of Physicians, the Federation of 
American Hospitals, the U.S. Chamber of Commerce, the National 
Federation of Independent Businesses, the Business Roundtable, the 
AARP, the Pharmaceutical Researchers and Manufacturers of America, and 
America's Health Insurance Plans, to name only a few--are on record 
expressing support for serving the lowest income populations through 
Medicaid. These diverse groups recognize that the Medicaid program 
provides unique services and protections for our most vulnerable 
Americans.

            3. The House bill gives consumers more choices of health 
                    insurance plans and options

     The House bill creates an insurance exchange--a new 
marketplace of insurance plans that will be easy for consumers to use 
and will provide accurate, understandable information about benefits 
and consumer rights.
     The House bill's new exchange or marketplace will have 
reasonable rules about how insurance companies operate--how they must 
treat their customers and when they must promptly pay medical bills. 
There will be help available to consumers when they have a problem with 
their insurance company--they won't have to fight the company on their 
own and all alone.
     The House bill's new exchange will give consumers the 
choice to purchase a public health insurance plan. This plan won't have 
special rules or money to give it an advantage over private insurance; 
it will provide new competition to private insurance plans on value for 
the dollar and service. We believe that such a public plan option will 
drive value through reduced administrative costs, and will provide a 
stable, portable option for consumers.
     Not a single consumer across the nation will be forced out 
of their current employer-based coverage. In fact, the House bill makes 
sure that more employers offer coverage to their workers. Many 
uninsured today work for small businesses that want to provide coverage 
but can't afford to do so. The House Bill provides a new small business 
tax credit for some small businesses with 23 or fewer employees to help 
with the cost of coverage.

            4. The House bill provides for health insurance coverage 
                    consumer can count on

     The House bill will stop insurance companies from offering 
benefit packages that are more holes than coverage. Plans will cover 
essential medical services without odd limits on how much is covered or 
for how long a time. Plans will cover preventive services like check-
ups, screenings, and lab tests without any copayments. And insurance 
companies won't be able to design plans that work for the young and 
healthy and leave the rest of us behind.
     The House bill will provide a range of insurance options 
that can be easily compared. Consumers will know what a plan covers, 
what they may have to pay out of their own pockets, and won't have any 
surprise bills. Sick consumers will be able to focus on their getting 
better rather than dealing with a possible medical bankruptcy.
    There is clearly a long list of ``pluses'' for consumers in health 
care reform. What will be expected from consumers in return? The House 
Bill asks that each and every American be responsible for having health 
insurance--but only after the new fair insurance rules and marketplaces 
are in place and premium subsidies are available. Even then, the 
responsibility to purchase insurance will be waived for individuals and 
families who would face a special financial hardship to do so. No 
legislation can see into the future to understand the kinds of special 
family situations that might arise, so there is room to protect 
families with special financial struggles.
    In conclusion, for American consumers who believe the current 
health insurance system works well for them--the House bill protects 
you. For American consumers who believe that the current health 
insurance system is like that house in the real estate ads coined a 
``handy-man's special''--that is, it needs some leaks fixed, perhaps an 
addition, a little re-modeling, but it holds great promise--the U.S. 
House of Representatives provides a toolbox to get the improvements 
done.
                                 ______
                                 
    Chairman Miller. Mr. Shea, welcome to the committee.

 STATEMENT OF GERALD SHEA, ASSISTANT TO THE PRESIDENT, AFL-CIO

    Mr. Shea. Thank you, Mr. Chairman, and good afternoon to 
all of the committee members.
    I want to start by congratulating you for putting forward a 
bill that we think really addresses the issues that the 
American people are concerned about, and we look forward to 
working with you on this bill.
    Our druthers might be to be talking today about a single-
payer plan. But we think the bill that you put forward, based 
on the current system anchored in employer-based coverage, does 
provide a way to get the reform we need.
    What I want to talk to you about briefly today is what we 
think it takes to stabilize the employment-based system, which 
is the backbone of both the coverage and the financing of 
health care in the United States, as you know. It has proved 
remarkably resilient despite enormous cost pressure. It has 
shown that employers want to continue to offer coverage and 
that employees highly value the coverage they get at work. But 
we have lost 5 percentage points in coverage of people between 
the ages of 18 and 64 in an employment-based coverage from 2000 
to 2007. And frankly, this is a pretty fragile system at the 
moment.
    We think that it takes three things to stabilize this 
system, and we think that your draft version of the bill is a 
very good start on providing those three things.
    One, we need to control costs. That is the core problem 
that we are facing in here. If we don't do that and we don't 
take strong steps to do it, nothing else we want to do will be 
possible.
    Secondly, we have to put everybody into coverage. That 
means everybody has coverage, everybody participates in 
financing coverage, everybody takes responsibility for their 
own personal health coverage.
    And then lastly, we really do need to reform the way care 
is delivered. We have started on that in the last few years. 
There was a consensus, I think, in the health field that we can 
do that. We really need to move that forward, and this bill is 
a great opportunity to do it.
    I wanted to start just by commenting on your provisions 
that all employers would be required to pay, along with all 
employees. This pay-or-play kind of proposal is essential, in 
our view, if you are going to base your reform on employer-
sponsored insurance because, one, it takes some cost pressure 
off the Federal Government for providing the subsidies. 
Everybody we get covered in this is someone who doesn't need to 
have a Federal subsidy out of tax dollars.
    Two, it helps stabilize those employers who are providing 
coverage, because they are no longer picking up the extra 
costs. They are covering the costs of care for those people 
whose employers are not covering. And an overwhelming majority 
of businesses do now provide coverages, as has been cited here, 
and want to continue providing it.
    The only firms that would really see an increase in costs 
are those firms that are not now currently offering benefits, 
mostly small, low-wage firms. And your bill addresses their 
concerns in terms of subsidies and tax credits to provide 
benefits, but also offers the option that they could pay into a 
fund that would allow employees to get coverage not based in 
the workplace.
    In terms of controlling costs, there are two core issues 
here. One is--or strategies. One is the public insurance plan 
option. This is an important element in terms of assuring 
coverage and guaranteeing benefits; but it is essential, from 
our point of view, in terms of introducing competition into the 
insurance mark. We now don't have any in our experience 
bargaining health benefits for 50 million people per year. We 
do not have any effective competition in the insurance market, 
but we believe that a public insurance plan would spur that 
kind of competition.
    I know there are a lot of issues, and those similar issues 
have been said here about the design of a public plan. I think 
these are design issues that can be addressed and they can be 
solved, and we can do this in a way that protects all of the 
interests in health care. No one has an interest in turning the 
situation topsy-turvey.
    The second strategy that is really key in terms of 
controlling costs is delivery system reform. And your bill 
makes a very strong start in that direction. You put an 
emphasis on primary care, and that is important.
    We would urge you also to look at the quality improvement 
sections of the legislation to make sure that all health care 
workers are involved in this quality enterprise. We have to not 
only address the supply of physicians and nurses, we have to 
assess the quality of the job they do. And in the last 15 
years, we have turned--certainly for nurses and other frontline 
health care workers--this caring profession into some lousy 
jobs in many cases. We can correct that, but it takes 
addressing the work situation, not just the supply situation, 
of health care workers. You have vehicles to do that, and we 
are talking about that with staff about the best way to 
approach that.
    There has been a strong collaboration between payers and 
consumers and people in the medical professions and hospitals 
over the past 10 years in terms of doing this delivery system 
reform and changing to a system that is based on quality and 
rewards value. It starts with measuring quality performance on 
standardized measures, reporting that, those results, and then 
linking payments to the performance in terms of quality.
    This is really the opportunity to take what has been 
developed in the wake of, and is based on, President Clinton's 
quality commission some years ago, and put it into practice.
    And then lastly, Mr. Chairman, I want to comment on the 
financing aspects. As I said, we think that everybody needs to 
participate in this. And we believe that there is enough money 
in the system to pay for health reform and to cover everybody.
    But those people who want to say we have to pay for reform 
solely out of money in this system, we think are just chasing 
fool's gold. It is not possible to do this without additional 
money. We believe we have to look outside the health care 
system to do it, even though over time the reform will reap 
substantial advantage.
    And additionally and finally, this really is a way to 
undermine the political and the public support for reasons that 
have been discussed earlier.
    [The statement of Mr. Shea follows:]

   Prepared Statement of Gerald M. Shea, Assistant to the President, 
 American Federation of Labor and Congress of Industrial Organizations 
                               (AFL-CIO)

    The AFL-CIO represents 11 million members, including 2.5 million 
members in Working America, our community affiliate, and 56 national 
and international unions that have bargained for health benefits for 
more than fifty years. Together, unions negotiate benefits for some 50 
million people in America.
    Our members have a significant stake in health care reform because 
unions represent the largest block of organized consumers in the 
nation. In addition, unions also sponsor health plans through funds 
that are jointly-trusteed with management. Many union members work in 
health care, as well, so they have a dual interest in health reform.
    Even as unions continue to negotiate benefits for our members, 
American labor has long advocated for health care for everyone, not 
just those in unions or with stable jobs. For over 100 years, America's 
unions have called for universal coverage built on a social insurance 
model, an approach that has proven effective and efficient across the 
globe and one we have employed successfully for decades to provide 
income and health security for the elderly.
    The AFL-CIO led the lobbying effort to enact Medicare in 1965, and 
we have backed many legislative efforts since then to expand coverage. 
We continue to believe that a social insurance model is the simplest 
and most cost effective way to provide benefits for all.
    However, the condition of health care in America is too dire for 
those of us lucky enough to have good coverage to debate endlessly over 
what the best approach would be. It is time--indeed, it is past time--
to enact comprehensive health care reform. Today our members are ready 
to stand with President Obama and Congress and help pass the 
President's plan for comprehensive health care reform.
AFL-CIO's views on comprehensive health care reform
    Today I would like to explain the AFL-CIO's views on what 
comprehensive health care reform should look like, and specifically our 
views on the historic tri-committee discussion draft unveiled in the 
House of Representatives last week.
    We start from the premise that we can fix our broken health care 
system by building on what works. For most Americans, that means 
employer-sponsored health insurance (ESI), which is the backbone of 
heath care financing and coverage in America.
    The AFL-CIO has advocated a three-point program to guarantee 
quality affordable health care for all--a program that consists of: (1) 
lowering costs; (2) improving quality; and (3) covering everyone by 
ensuring full participation of all public and private sector employers 
and making affordable health coverage available to everyone. All three 
of these objectives must be achieved together; none can be achieved in 
isolation. And we believe the tri-committee discussion draft will in 
fact help achieve all three of these objectives simultaneously.
    We caution, however, that one financing option under consideration 
in the Senate Finance Committee--the taxation of employer-sponsored 
health benefits--would go in the exact opposite direction by 
destabilizing the employer-based health insurance system.
Our present course is unsustainable
    Whatever one may think about the way health care should be 
reformed, we can all agree that our present course is not sustainable--
for workers, for businesses, for the federal budget, or for the economy 
as a whole. If we continue down the current path, health care costs 
will crush families, business and government at all levels.
    Our members are among the most fortunate workers. Thanks to 
collective bargaining, they generally have good benefits provided by 
their employers. Yet even well-insured workers are struggling with 
health care cost increases that are outpacing wage increases. And far 
too many working families find themselves joining the ranks of the 
uninsured or under-insured as businesses shut down or lay off 
employees.
    In April and May 2009, the AFL-CIO conducted our 2009 Health Care 
for America Survey, which showed that people need urgent relief from 
the pressure of rising health care costs that are bankrupting families 
and endangering their health.
    More than half of respondents said they cannot get the care they 
need at a price they can afford. Three quarters were dissatisfied with 
their household's health care costs.
    Ann from Georgia (self-employed with two children) wrote: ``We have 
that HSA plan with supposedly low premiums. However, those `low' 
premiums only start low. Every year they get higher and higher. One 
year they increased 129 percent in just one year. Our health care costs 
have exceeded 35 percent of our income for two years. We are on the 
verge of canceling health care insurance. We would have already done 
this if we didn't have two children.''
    A third of those with insurance--and three quarters of those 
without--reported that they forgo basic medical care because of high 
costs.
    Karen from Florida wrote: ``My insurance deductible equals four to 
five months of take home pay each year. My insurance bill is split with 
my employer but equals two days of pay each month. How am I supposed to 
go to a doctor?''
    Iris from Florida writes: ``I am unemployed because I had to quit 
my job to care for my elderly mother. My children decided to pay [for 
medical insurance] for me. So what is the problem? The deductibles are 
so high that I cannot go to the doctor. And we keep paying $300 monthly 
just in case I have to go to the hospital. In the meantime, I cannot 
afford to go to the doctor.''
    As economic conditions have gotten worse, workers who lose their 
jobs have been losing their health care. Nearly a quarter of 
respondents said someone in their household lost coverage in the past 
year due to losing or changing jobs.
    Renee from Ohio wrote: ``It is pretty scary that millions of hard 
working retirees as well as those working may lose their insurance, and 
yes I am talking about the auto industry. My husband could lose his 
benefits, which he thinks he will. I don't know how my kids will be 
able to get their annual checkups. How can anyone get ahead in this 
country? I don't understand how it came to this. I just don't want to 
think about the future anymore.''
    Once workers lose their health care coverage, it is hard for them 
to get it back. One quarter of those without health insurance said they 
were denied coverage in the past year due to ``pre-existing 
conditions.''
    Kerry from New Mexico wrote: ``I am desperate for our country to 
finally do something for my family so a health crisis does not kill one 
of us or leave us completely financially devastated.''
    The data bear out the stories these workers are telling us. Between 
1999 and 2008, premiums for family coverage increased 119 percent, 
three and a half times faster than cumulative wage increases over the 
same time period.\1\
    Workers' out-of-pocket costs are going up as well, leading to more 
under-insured workers who can no longer count on their health benefits 
to keep health care affordable or protect them from financial ruin. 
Between 2003 and 2007, the number of non-elderly adults who were under-
insured jumped from 15.6 million to 25.2 million.\2\
    Skyrocketing costs are pushing more workers out of insurance 
altogether. The current number of uninsured almost certainly exceeds 50 
million. The Council of Economic Advisers estimates that number will 
rise to 72 million by 2040 in the absence of reform.\3\
    Health costs are burdening American businesses, as well as workers. 
U.S. firms that provide adequate health benefits are put at a 
significant disadvantage when they compete in the global marketplace 
with foreign firms that do not carry health care costs on their balance 
sheets. The same is true for U.S. businesses in domestic competition 
against employers that provide little or no coverage.
    The present course is unsustainable for the economy as a whole, as 
well. Health care expenditures currently amount to about 18 percent of 
our GDP. The Council of Economic Advisers estimates that this 
percentage will rise to 34 percent by 2040 in the absence of reform.\4\ 
The Congressional Budget Office (CBO) projects that health care 
expenditures will rise to 49 percent of GDP by 2082.
    The present course is likewise unsustainable for the federal 
budget. If we fail to ``bend the cost curve,'' health care spending 
will balloon our federal budget deficit and squeeze out funding for 
essential non-health care priorities. Almost half of current health 
care spending is covered by federal, state, and local governments. If 
health care costs continue to grow at historical rates, the Council of 
Economic Advisers estimates that Medicare and Medicaid spending will 
rise to nearly 15 percent of GDP by 2040.\5\ As then CBO director and 
now OMB director Peter Orszag has noted, health care cost trends are 
the ``single most important factor determining the nation's long term 
fiscal condition.''
    To fix our long-term structural budget deficits, we have to fix 
Medicare and Medicaid, and to fix Medicare and Medicaid, we have to 
control health care costs in the private sector. There is no practical 
way to control public health care costs without addressing private 
health care costs as well. Private and public health care are delivered 
largely by the same providers, using the same drugs, the same 
treatments, and the same procedures.
    In short, the health of our family budgets, our federal budget, and 
our economy depends on the success of health care reform this year.
Building on what works
    The AFL-CIO believes comprehensive reform can build on what works 
in our current health care system while creating new options for 
obtaining coverage and lowering costs for families, business, and 
government at all levels.
    For the majority of Americans, what works in our current health 
care system is employer-based coverage--the backbone of health care 
coverage and financing in America. Over 160 million people under age 65 
have health benefits tied to the workplace.
    Employer-sponsored coverage has proven remarkably stable in the 
face of exorbitant health care cost inflation. Its survival is 
testimony to the strong interest workers have in keeping coverage tied 
to the workplace--even at the expense of wage gains for the past 30 
years--and the interest of employers to recruit and retain talented 
workers through job-based benefits.
    In fact, it is hard to imagine successful health reform that does 
not include a substantial role for employer-based coverage. Building on 
the core foundation of employer-provided health coverage will allow 
working families to keep what they now have * * * or choose from a new 
set of options to maintain coverage. We think building on this 
foundation will also help minimize the disruption that results from the 
difficult changes that are a necessary part of any reform, and thereby 
maximize public support for reform.
    In order to build on this foundation, we must stabilize the 
employment-based system, which risks being destabilized by 
unsustainable cost inflation. We must reverse the steady erosion of 
employer-provided coverage in recent years. The percentage of 18 to 64-
year-olds with ESI dropped five percentage points from 2000-2007, and 
without prompt dramatic action the rate of decline is expected to 
increase sharply.\6\
    We believe the tri-committee discussion draft will stabilize the 
employer-based health care system through the following specific policy 
proposals: (1) a requirement that employers assume responsibility for 
contributing to the cost of health care for their employees through a 
``pay or play'' system; (2) special assistance for firms that maintain 
coverage for pre-Medicare retirees, which will prevent further 
deterioration of the employer-based system; (3) a public health 
insurance option, which will inject competition into the health care 
system and lower costs throughout the system for employers and workers 
alike; (4) health care delivery reforms to get better value from our 
health care system and contain long-term costs; and (5) insurance 
market reforms, individual subsidies, Medicaid expansion, and 
improvements to Medicare, which will help make affordable coverage 
available to everyone.
Pay or Play
    A key reform needed to stabilize the employer-based coverage system 
is the requirement that public sector and private sector employers 
assume responsibility for contributing toward the cost of health care 
for their employees. Employers should be required either to offer 
health benefits to their workers directly, or to pay into a public fund 
to finance coverage for uninsured workers--a proposal known as ``pay or 
play.''
    The tri-committee discussion draft outlines a reasonable and 
effective employer responsibility requirement that we believe would 
help shore up employer-based coverage. The proposal would ensure that 
workers could get affordable coverage either through their employer-
sponsored plan or through a national exchange with a contribution from 
their employer. And it would extend, on a pro-rated basis, an 
employer's responsibility for part time workers, to eliminate any 
incentives for employers to move workers to part-time status to avoid 
the new requirement.
    We believe such a ``pay or play'' system has many virtues. It would 
bring in needed revenue from firms that opt to ``pay,'' which would 
hold down federal costs associated with providing subsidized coverage 
for low-income workers in those firms.
    ``Pay or play'' would likewise hold down federal costs by keeping 
employers from dumping their low-wage employees into new subsidized 
plans. In the absence of an employer responsibility requirement, 
publicly subsidized coverage for low-wage workers would prompt many 
employers of low-wage workers to discontinue current coverage to take 
advantage of available subsidies. The resulting increase in federal 
costs could well doom health care reform.
    ``Pay or play'' would help stabilize the employer-based health care 
system in several ways. It would level the playing field so that free 
rider businesses could no longer shift their costs to businesses 
offering good benefits. A recent study found more than $1,000 of every 
family plan premium goes to cover the cost of care for the uninsured, 
most of whom are employed.\7\ ``Pay or play'' would encourage employers 
to offer their own coverage and penalize employers that do not. And it 
would minimize disruption for workers who already have health care 
coverage and wish to keep it.
    ``Pay or play'' would thus go a long way towards extending coverage 
to the uninsured, since most of the uninsured have at least one full-
time worker in their family. And it would be critical in making 
coverage affordable for workers who do not qualify for income-based 
credits or subsidies, especially if health care reform includes a new 
requirement that all individuals obtain coverage.
            Arguments against Pay or Play
    Opponents of an employer responsibility requirement raise the 
objection that ``pay or play'' would increase payroll costs for 
businesses. We believe this objection is misplaced.
    First of all, it should be emphasized that the overwhelming 
majority of businesses already provide health benefits that would 
likely meet the new requirements, so they would not see any new costs. 
In fact, they would see their costs go down as health care coverage is 
expanded--thanks to the elimination of cost shifting--and as other 
health care reforms take hold that drive down costs throughout the 
health care system.
    The only firms that might see an increase in costs are firms that 
do not currently offer health care benefits, or firms that offer 
benefits that are inadequate to meet a reasonable standard. The vast 
majority of firms that currently do not offer health care benefits are 
small firms, and they are mostly low-wage employers. Comprehensive 
health care reform generally would give small firms more affordable 
options for providing health benefits for their workers, probably in 
combination with additional subsidies for employers of low-wage 
employees.
    Opponents of an employer responsibility requirement warn that 
employers that have to pay more for health insurance would be less 
likely to raise wages in the short term. The widely endorsed economic 
view, however, is that such employers would still raise wages over the 
long term.
    Opponents of ``pay or play'' next argue that employers required to 
pay more for health insurance might eliminate jobs or hire more slowly 
as a result. But the same dire predictions have been made routinely 
about proposals to increase the minimum wage, with comparable increases 
in employer costs, and those predictions have not been borne out. 
Recent studies of minimum wage increases have found no measurable 
impact on employment.\8\ Economists have observed that employers faced 
with higher payroll costs from a minimum wage increase can offset some 
of those costs through savings associated with higher productivity, 
decreased turnover and absenteeism, and improved worker morale.\9\
    The same would be true of an employer responsibility requirement. 
Any increase in employer costs would be offset by productivity gains 
and by a healthier workforce. The Council of Economic Advisers notes 
that the economy as a whole would benefit from more rational job 
mobility and a better match of workers' skills to jobs when health 
benefits are no longer influencing employment decisions.\10\ Finally, 
it should be noted that the majority of firms that currently do not 
offer health benefits compete in markets where their rivals likewise do 
not provide benefits, so they would not be put at a competitive 
disadvantage.
            Pay or Play and firm size
    Health care reform must make coverage affordable for small 
businesses that have difficulty obtaining coverage in the current 
market. However, the AFL-CIO believes the ``pay or play'' requirement 
should apply to firms regardless of their size.
    Smaller businesses will be allowed to meet the ``play'' requirement 
by buying coverage that meets fair rating rules through the new 
exchange, which would include the option of a public health insurance 
plan that makes coverage more affordable. We do support the inclusion 
of a small business tax credit, targeted at the smallest firms with 
low-wage workers, precisely because we believe an employer requirement 
should not exempt businesses based solely on size.
    If small businesses are exempted from ``pay or play,'' the number 
of employees is a particularly poor measure for the exemption because 
it is a poor predictor of a firm's ability to pay. A doctor's office or 
small law firm may have more capacity to pay than a larger restaurant 
or store. A carve-out for small firms with fewer than a specified 
number of employees also creates a potentially costly hurdle for firms 
nearing the threshold to hire additional employees. A better approach 
would be to apply the requirement based on payroll or gross receipts. 
Finally, we believe special treatment for such businesses should be 
phased out over time to eliminate disparities based on firm size.
    Also, any ``pay or play'' requirement should take into account how 
workers in certain segments of our economy, such as airlines and 
railroads, schedule their hours and the classification of workers as 
full-time or part-time should ensure that these workers are not 
inadvertently excluded from coverage.

            Special assistance for companies that maintain benefits for 
                    pre-Medicare retirees

    We look forward to working with the committees to develop greater 
specificity on the proposal for a federally-funded catastrophic 
reinsurance program for employers that provide health benefits to 
retirees age 55 to 64. Such a reinsurance program would help prevent 
further deterioration of the employer-provided health care system, and 
is an essential component of any health care reform legislation.
    A reinsurance program is critically necessary to help offset costs 
for employers that contribute to health benefits for pre-Medicare 
retirees. The pre-Medicare population generally has higher health care 
costs, and employers offering them coverage retirees incur enormous 
expense. But without that coverage, individuals in this age bracket 
have tremendous difficulty purchasing health insurance in the 
individual market, or they are able to do so only at a very high cost.
    We believe such a reinsurance program must have dedicated funding. 
In addition, in the longer term, we believe firms should be able to 
purchase coverage for their retirees through the exchange. This would 
help make coverage more affordable for firms that provide retiree 
health benefits.

Public health insurance plan option
    The AFL-CIO supports the creation of a strong public health 
insurance option to compete with private health insurance plans. The 
tri-committee discussion draft includes a strong public plan that would 
compete on a level playing field with reformed private health plan 
options in a new national exchange.
    We believe a public health insurance plan is the key to making 
health care coverage more affordable for working families, businesses, 
and governments, all of which are increasingly burdened by escalating 
health care costs. A public plan would have lower administrative costs 
than private plans and would not have to earn a profit. These features, 
combined with its ability to establish payment rates, would result in 
lower premiums for the public plan.
    A public health insurance plan would also promote competition and 
keep private plans honest. Consolidation in the private insurance 
industry has narrowed price and quality competition. In fact, in 2005, 
private insurance markets in 96 percent of metropolitan areas were 
considered highly concentrated and anti-competitive, which left 
consumers with little choice.\11\ A public health insurance option, 
coupled with a more regulated private insurance market, would break the 
stranglehold that a handful of companies have on the insurance market 
and would give consumers enough choices to vote with their feet and 
change plans.
    We also believe a public health insurance plan would be critical 
for driving quality improvements and more rational provider payments 
throughout the health care system. A public health insurance plan can 
introduce quality advancements and innovation that private insurance 
companies or private purchasers have proven themselves unable to 
implement. For example, until Medicare took the lead in reforms linking 
payment to performance on standardized quality measures, private 
insures and payers were not making appreciable headway towards a value-
based health system. Just as Medicare is driving quality improvements 
that private plans are now adopting, a public health insurance plan 
could lead the way in developing innovative quality improvement 
methodologies, stronger value-based payment mechanisms, more 
substantial quality incentives, and more widespread evidence-based 
protocols.
    Because increased competition and quality reforms would help 
contain costs throughout the health care system, employers that 
continue to provide benefits directly would benefit from these savings, 
as would employers that purchase coverage for their workers through the 
exchange. And because premiums would be lower, spending on federal 
subsidies for individuals who qualify for subsidies would also be 
lower.
    A public health insurance plan would also guarantee that there will 
be a stable and high quality source of continuous coverage available to 
everyone throughout the country. By contrast, private insurance plans 
can change their benefits, alter cost-sharing, contract with different 
providers, move in and out of markets, and change benefit or provider 
networks. A public health insurance plan would be a reliable and 
necessary backstop to a changing private insurance market, and a safe 
harbor for working families that lose their workplace coverage.
    A public health insurance plan available to everyone would also 
provide rural areas with the security of health benefits that are there 
when rural residents need them, just as Medicare has been a constant 
source of coverage as private Medicare Advantage and Part D plans churn 
in and out of rural areas every year.
    Clearly, the public supports a public health insurance plan option. 
A recent New York Times poll shows that the public health insurance 
plan is supported by 72 percent of voters.\12\

Delivery system reform
    Variation in Medicare spending across states suggests that up to 30 
percent of health care costs could be saved without compromising health 
care outcomes. Differences in health care expenditures across countries 
suggest that health care expenditures could be lowered by 5 percent of 
GDP without compromising outcomes by reducing inefficiencies in the 
current system.
    Experts estimate we waste one third of our health care spending, or 
$800 billion, every year on health care that is no real value to 
patients. According to the Council of Economic Advisers, the sources of 
inefficiency in the U.S. health care system include payment systems 
that reward medical inputs rather than outcomes, high administrative 
costs, and inadequate focus on disease prevention.\13\
    We must restructure our health care system to achieve better 
quality and better value, and we must transform our delivery system 
into one that rewards better care, not just more care. We can start by 
doing the following:
     Measure and report on the quality of care, the comparative 
effectiveness of drugs and procedures, and what medical science shows 
to be best practices and use that information to create quality 
improvement tools that allow doctors to individualize high-quality care 
for each of their patients;
     Put technology in place to automate health care data; and
     Reform the way we pay for care so doctors have the 
financial incentives to continuously improve care for their patients.
    The February 2009 economic recovery package, with its substantial 
investment in health information technology (HIT) and research on the 
comparative effectiveness of drugs and medical devices, marks an 
historic first step in the right direction.
    The tri-committee discussion draft builds on the investments of the 
economic recovery package by encouraging greater emphasis on primary 
care and prevention, and greater emphasis on innovative delivery and 
payment models, such as accountable care organizations and bundled 
payments for acute and post-acute care. The draft also makes needed 
investments in our health care workforce--with emphasis on primary 
care--to ensure access to needed care and better reward primary care 
providers.
    The tri-committee discussion draft emphasizes and invests in 
quality measurement and improvement methodologies. But we believe more 
can be done to foster innovation in health care delivery by building on 
the significant quality measurement and improvement underway within 
health care in recent years. The AFL-CIO has invested considerable 
resources and time working on system reform, as part of the broad 
collaboration of consumers, purchasers, physician organizations, 
hospitals, and government agencies at both the state and federal 
levels.
    This strong collaboration between payers and providers has created 
breakthrough improvements in health care delivery. The process 
improvement techniques pioneered in other U.S. industries--for example, 
six sigma quality standards and rapid-cycle problem analysis, solution 
development and testing, and wide-spread diffusion in a short time 
period--have been shown to work and hold enormous promise, but federal 
leadership in delivery system reform is indispensable.
    We must also put into place a system of broad consultation with 
consumers, purchasers, physicians, insurers and health care 
organizations in setting national priorities for health care quality 
improvement and in implementing standardized measures of quality 
throughout health care. With quality measurement as a foundation, 
reform can empower those who deliver care, pay for care, and oversee 
care to work with those who receive care to innovate and modernize 
health service delivery.

Affordable coverage for everyone
    Today we have a fragmented health care system characterized by cost 
shifting and price distortions because as many as 50 million people 
have no coverage.
    According to Families USA, the uninsured received $116 billion 
worth of care from hospitals, doctors, and other providers in 2008, 
about $42.7 billion of which was uncompensated care.\14\ The costs for 
uncompensated care are shifted to insurers and then passed on to 
families and businesses in the form of higher premiums. For family 
health coverage, the additional annual premium due to uncompensated 
care was $1,017 in 2008.
    While our members generally have employer-based health coverage, 
stabilizing the employer-based health system will require covering the 
uninsured to make health care more efficient and prevent cost-shifting. 
We cannot cover everyone without bringing down costs overall, and we 
cannot control costs without getting everyone in the system.
    The good news is that, according to the Council of Economic 
Advisers, expanding health insurance coverage to the uninsured will 
increase net U.S. economic well-being by roughly $100 billion per year, 
which is substantially more than the cost of insuring the 
uninsured.\15\
    The most important policy proposal for extending health care 
coverage to the uninsured is ``pay or play,'' which I discussed earlier 
in my testimony. But the tri-committee discussion draft includes 
several other proposals that would also expand health care coverage, 
including insurance market reforms, the establishment of an insurance 
market exchange, individual subsidies, the expansion of Medicaid, and 
improvements to Medicare.
            Insurance market reforms
    Ensuring access to health care coverage will require significant 
changes to the current private insurance market, in which people are 
now denied coverage or charged more because of their health status. 
Market reforms for everyone who buys coverage in the individual and 
group market will make coverage more fair, transparent, affordable, and 
secure.
    The AFL-CIO fully supports the prohibition on rating based on 
health status, gender, and class of business; the prohibition on the 
imposition of pre-existing condition exclusions; guaranteed issue and 
renewal; and greater transparency and limits on plans' non-claims 
costs. While we would prefer a flat prohibition on rating based on age, 
we believe the proposal to limit age rating to 2 to 1 is a strong 
alternative. Any variation allowed above that limit threatens to make 
coverage unaffordable for older individuals.
            Insurance market exchange
    The AFL-CIO also strongly supports the proposal to create a 
national health insurance exchange to provide individuals and 
businesses with a place to enroll in plans that meet certain criteria 
on benefits, affordability, quality, and transparency. We believe this 
will be a mechanism for simplifying enrollment and applying uniform 
standards.
    The tri-committee discussion draft establishes a mechanism that 
offers consumers a way to compare plans based on quality and cost. 
While the exchange will initially be open to individuals and small 
employers, we believe there should be a commitment to allowing public 
and private sector employers beyond the small group definition to 
purchase coverage through the exchange after the first two years that 
the exchange is operational.
            Subsidies for low- and moderate-income workers
    Subsidies will be essential for making coverage affordable for low- 
and moderate-income individuals and families. We support the proposal 
to make subsidies relative to income, with more substantial subsidies 
applied to more comprehensive coverage for the lowest income enrollees. 
We also support ensuring that coverage is affordable by applying the 
subsidies to premiums as well as out of pocket costs.
            Medicaid expansion
    We strongly support extension of Medicaid coverage to all under 133 
percent of poverty, with sufficient resources to states to offset the 
new costs.
            Medicare improvements
    In addition to eliminating subsidies that give private Medicare 
Advantage plans a competitive advantage over traditional Medicare and 
deplete the Trust Fund, the tri-committee discussion draft makes needed 
improvements in benefits for Medicare beneficiaries. The draft closes 
the gap in prescription drug coverage over time, eliminates cost 
sharing for preventive services, and improves the low-income subsidy 
program.

Financing health care reform
    There are at least three key elements of health care reform that 
will also affect savings and revenues available for reform: a public 
health insurance option, delivery system reform, and an employer 
responsibility requirement. Though these policy proposals are 
absolutely necessary to improve the value we get for our health care 
spending, in the short run they will not be sufficient to fund reform.
    The Senate Finance Committee has said that all savings and revenue 
for health reform must come from within the health care budget. 
However, because health care reform is an urgent national priority that 
will produce benefits across our economy and improve our national 
budget outlook, we agree with the President that we should look beyond 
health care spending to obtain additional revenues. We support the 
major elements of the President's budget proposal for the Health Reform 
Reserve Fund, including savings in Medicare and Medicaid, limiting the 
itemized deductions for households in the top two tax brackets, and 
other modifications to reduce the tax gap, as well as making the tax 
system fairer and more progressive.
    One financing option under consideration in the Senate Finance 
Committee is a cap on the current tax exclusion for employer-provided 
health care benefits so that some portion of current health care 
benefits would be subject to taxes. We believe this is an 
extraordinarily bad idea.
            Taxing benefits would disrupt the employer-based system
    Capping the tax exclusion would undermine efforts to stabilize the 
employer-provided health care system. Employers would likely respond by 
increasing employee cost-sharing to a level at which benefits would 
become unaffordable for low-wage workers, or by eliminating benefits 
altogether. Capping the exclusion would also encourage workers to seek 
coverage outside their ESI group when this is economically 
advantageous, thereby complicating the role of employers enormously and 
giving them another incentive to discontinue coverage.
    Congress and the President have assured Americans that they will be 
able to keep the health care coverage they have if they like it. This 
approach makes enormous sense and generates broad public support. A cap 
on the tax exclusion would violate this basic understanding and 
threaten to disrupt the primary source of health care coverage and 
financing for most Americans.
    Until health care reform has been proven successful in lowering 
costs and making coverage available to uninsured workers through new 
private and public plan options, we should not make any changes that 
threaten the source of health care coverage for 160 million Americans.
            Taxing benefits would be unfair to high cost workers
    The Senate Finance Committee is considering capping the tax 
exclusion for relatively high cost plans. This would be an unfair tax 
on workers whose benefits cost more for reasons beyond their control.
    The exact same plan could cost well under $15,000 in one company 
and more than $20,000 in another depending on factors that have nothing 
to do with the generosity of coverage. According to one study, premiums 
for the same health benefits can more than double when an individual 
crosses state lines.\16\
    The cost of coverage can be the reflection of many factors: the 
size of the firm; the demographics of the workforce; the health status 
of the covered workers and families; whether the industry is considered 
by insurers to be ``high risk;'' geographic differences in cost; and 
whether there are pre-Medicare retirees covered through the same plan.
    Studies show that placing a cap on tax-free benefits would have the 
greatest impact on workers in small firms; firms with older workers and 
retirees, and workers with family plans that cover children. This is 
because insurance companies regularly charge higher rates for coverage 
for these workers.
    Under one proposal, over 41 percent of workers at a firm with older 
workers would be taxed on their health care benefits, but only 16 
percent of workers at a firm with younger workers would be taxed. 
Almost 30 percent of workers at a smaller firm would be taxed, but only 
17 percent of workers at a larger firm. Over 41 percent of workers with 
family coverage would be taxed, but less than 20 percent of workers 
with individual coverage.\17\
    If workers have to pay more taxes because some of their co-workers 
have costly medical conditions, health coverage would be transformed 
from a workplace benefit that everyone supports to one that splits 
workforces between the healthy and the sick.
    Some argue that the existing tax exclusion is regressive, because 
higher income workers get a bigger tax advantage. But this is only one 
part of the story.
    A recent report points out that while households in higher tax 
brackets get a greater benefit from the tax exclusion in absolute 
dollar amounts, low and moderate income workers would be impacted more 
from capping the exclusion because their taxes would increase by a 
larger share than those of higher income workers. The report found that 
workers with employer-provided health benefits who make between $40,000 
and $50,000 would see their tax liability increase on average 28 
percent, while those who make between $50,000 and $75,000 would see 
their tax liability increase on average 20 percent. By contrast, 
workers who make more than $200,000 would see an average increase in 
their tax liability of only one tenth of one percent. In short, capping 
the tax exclusion would not make it more progressive.\18\
    Taxing health care benefits would not bring down health care costs, 
either. It would just shift more of those costs onto workers. 
Economists say the tax exclusion leads workers to get too much 
coverage, but capping the tax exclusion would not do anything to 
address a key cost driver: the fact that 20 percent of the population 
consumes 80 percent of our health care spending. Taxing health benefits 
would not change that fact.

Conclusion
    The AFL-CIO applauds the work of the committees in outlining a 
strong, effective, comprehensive plan for guaranteeing quality 
affordable health care for all. We believe the tri-committee discussion 
draft would stabilize the employer-based health insurance system by 
simultaneously achieving the goals of lowering costs, covering 
everyone, and improving quality. We stand ready to work with all three 
committees to enact reform that achieves these goals. America's working 
families can wait no longer.

                                ENDNOTES

    \1\ Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-
2008. Bureau of Labor Statistics, Consumer Price Index, U.S. City 
Average of Annual Inflation (April to April), 2000-2008; Bureau of 
Labor Statistics, Seasonally Adjusted Data from the Current Employment 
Statistics Survey, 2000-2008 (April to April). Accessed: http://
ehbs.kff.org/images/abstract/EHBS--08--Release--Adds.pdf.
    \2\ C. Schoen, S.R. Collins, J.L. Kriss and M. M. Doty, ``How Many 
Are Underinsured? Trends Among U.S. Adults, 2003 and 2007,'' Health 
Affairs Web Exclusive, w298-w309. June 10, 2008.
    \3\ Council of Economic Advisors. ``The Economic Case for Health 
Care Reform.'' June 2009. Accessed: http://www.whitehouse.gov/assets/
documents/CEA--Health--Care--Report.pdf.
    \4\ Council of Economic Advisors. ``The Economic Case for Health 
Care Reform.'' June 2009. Accessed: http://www.whitehouse.gov/assets/
documents/CEA--Health--Care--Report.pdf.
    \5\ Ibid.
    \6\ Elise Gould. ``The Erosion of Employer-Sponsored Health 
Insurance.'' Economic Policy Institute. October 2008. Accessed: http://
epi.3cdn.net/d1b4356d96c21c91d1--ilm6b5dua.pdf.
    \7\ Families USA. ``Hidden Health Tax: Americans Pay a Premium.'' 
May 2009. Accessed: http://www.familiesusa.org/assets/pdfs/hidden-
health-tax.pdf.
    \8\ A. Dube, T. W. Lester, M. Reich, ``Minimum Wage Effects Across 
State Border: Estimates Using Contiguous Counties,'' Institute for 
Research on Labor and Employment Working Paper Series No. iiwps-157-07, 
August 1, 2007.
    \9\ J. Bernstein, J. Schmitt, ``Making Work Pay: The Impact of the 
1996-1997 Minimum Wage Increase,'' Economic Policy Institute (1998); D. 
Card, A. Krueger, ``Myth and Measurement: The New Economics of the 
Minimum Wage,'' Princeton University Press, 1995.
    \10\ Council of Economic Advisors. ``The Economic Case for Health 
Care Reform.'' June 2009. Accessed: http://www.whitehouse.gov/assets/
documents/CEA--Health--Care--Report.pdf.
    \11\ American Medical Association. ``Competition in Health 
Insurance: A Comprehensive Study of U.S. Markets.'' 2007. http://
www.ama-assn.org/ama1/pub/upload/mm/368/compstudy--52006.pdf.
    \12\ New York Times/CBS News Poll on Health. Telephone Interviews 
conducted June 12-16, 2009. Accessed: http://graphics8.nytimes.com/
packages/images/nytint/docs/latest-new-york-times-cbs-news-poll-on-
health/original.pdf.
    \13\ Council of Economic Advisors. ``The Economic Case for Health 
Care Reform.'' June 2009. Accessed: http://www.whitehouse.gov/assets/
documents/CEA--Health--Care--Report.pdf.
    \14\ Families USA. ``Hidden Health Tax: Americans Pay a Premium.'' 
May 2009. Accessed: http://www.familiesusa.org/assets/pdfs/hidden-
health-tax.pdf.
    \15\ Council of Economic Advisors. ``The Economic Case for Health 
Care Reform.'' June 2009. Accessed: http://www.whitehouse.gov/assets/
documents/CEA--Health--Care--Report.pdf.
    \16\ Stan Dorn, ``Capping the Tax Exclusion of Employer-Sponsored 
Health Insurance: Is Equity Feasible,'' Urban Institute. June 2009. 
Accessed: http://www.urban.org/UploadedPDF/411894--
cappingthetaxexclusion.pdf.
    \17\ Elise Gould. ``How Capping the Tax Exclusion May 
Disproportionately Burden Children & Families.'' Economic Policy 
Institute and First Focus. May 2009. Accessed: http://
www.firstfocus.net/Download/GOULD.pdf.
    \18\ Commonwealth Fund. ``Progressive or Regressive: A Second Look 
at the Tax Exemption for Employer-Sponsored Health Insurance 
Premiums.'' May 2009. Accessed: http://www.commonwealthfund.org/?/
media/Files/Publications/Issue%20Brief/2009/May/
Progressive%20or%20Regressive%20A%20Second%20Look%20at%20the%20Tax%20Exe
mption/PDF--1269--Schoen--progressive--or--regressive--ESI.pdf.
                                 ______
                                 
    Chairman Miller. Mr. Speranza.

STATEMENT OF PAUL SPERANZA, JR., SENIOR VICE PRESIDENT, GENERAL 
 COUNSEL AND SECRETARY, WEGMANS FOOD MARKETS ON BEHALF OF THE 
                      CHAMBER OF COMMERCE

    Mr. Speranza. I want to thank you for being here this 
afternoon.
    I am Vice Chairman and General Counsel of Wegmans Food 
Markets, and I am here representing the United States Chamber 
of Commerce, where I am former past chairman of the board. I am 
also representing the Rochester Business Alliance which is the 
Rochester, New York, Chamber of Commerce. It is a handy 
opportunity to travel around the country on behalf of the U.S. 
Chamber of Commerce.
    My number one issue was the quality and affordability and 
accessibility of health care. As I would talk to audiences 
large and small, this is what was on people's minds: the 
quality and affordability in health care. And they also want to 
have programs that they can understand and programs that are 
transparent, which we think is of critical importance.
    The two words that I would like to share with you today are 
finding common ground and collaboration. The United States 
Chamber of Commerce, the Rochester Chamber of Commerce, we 
agree to at least 90 percent of what is in this bill, and I 
think it needs to be stressed that is indeed the case.
    I would like to share with you an example. Rochester, New 
York, back in the early 1990s--according to President Bill 
Clinton when he did a nationally televised speech on health 
care last time around--he said Rochester, New York was a 
community that got it right, was the only one that got it 
right.
    What has transpired since is 4 years ago, the U.S. Chamber 
that I represented, the American Medical Association, the 
American Hospital Association, large insurers, large health 
care companies, came together in Washington--about 15 people--
and their task was to find programs and policies that can be 
rolled back to local communities. Didn't cost a lot of money to 
be done relatively quickly, that didn't require change in 
nonregulation. We in Rochester took that seriously. We put 
together a consortium of seven large businesses--Wegmans is one 
of them--and we have had very good results.
    For example, we have put into place a regional health 
information organization. We took efficiency experts from our 
manufacturing companies and put them into the hospital systems 
to make them more efficient. We developed a wellness program 
called ``Eat Well, Live Well'' that my company developed. We 
encouraged employees to walk 10,000 steps a day, eat five cups 
of fruits and vegetables a day. We turned it over to this group 
and last year, we had over 200 organizations in Rochester 
participate, more than 44,000 employees. It is the largest 
community-wide wellness program in the world.
    More recently, we have entered into a partnership, this 
consortium of businesses, with a health systems organization, 
the only one of its kind in the State that is given statutory 
authority by New York. They represent all of the health care 
stakeholders in our community. They also represent labor 
unions. They represent the religious organizations, minority 
communities, et cetera. We have figured out how to collaborate 
in Rochester. Common ground is the key to that.
    What we would like to be able to do is invite members of 
this committee, President Obama, to come to Rochester to see 
how we have done it. We think we owe it to the American people 
to get collaboration right.
    With respect to the bill before us today, a couple of 
points. We need to have enough time to digest the bill. Each 
Member of Congress needs to do that. We do as well. I had 24 
hours' notice to be here today, 2 hours to write my testimony. 
My sense is we don't want to take so long that this idea gets 
killed, but we need to take enough time where people will 
really understand. And there are best practices in the country 
that you can look at. Rochester isn't the only community. Many 
others do as well.
    Second, cost. We have heard costs anywhere from $1 trillion 
to $1.6 trillion. Either there are not enough rich people in 
this country to pay for that cost, so directly or indirectly 
many more Americans will pay for the cost of the programs. And 
also with programs like this and other ones that have been put 
in place over the last months and the last number of years, 
there will be more inflation; and inflation is a tax on 
everyone in America, including the poorest of the poor.
    In terms of a couple of other points, with respect to the 
health care government option for insurance, I disagree with 
that approach. Mr. Andrews had talked about food companies a 
little bit earlier. I wouldn't want to have a government-run 
grocery store across the street from me, a manufacturer 
wouldn't want to have a government run manufacturing plant 
across the street from them. Yes, there should be competition, 
but it seems to me that Congress could figure out a way to 
change State and Federal regulation and law to enhance that 
competition. We think that is important and the way to be able 
to do that.
    With respect to pay-or-play, we disagree with that 
approach.
    With respect to ERISA--I know my time is running short--we 
think ERISA works and works well. There are so many 
complexities as relates to this bill, we think that ought to be 
left alone.
    So in conclusion, we need to find the common ground--
believe me, there is a lot of common ground--for the good of 
the American people. The American people do want change. We 
want change. And we want meaningful change, transparent change. 
We should be able to buy health care the same way we buy 
automobiles and other goods and services in this country. 
Health care should be no different. If you give people the 
information and transparency and quality, they will do the 
right thing. Competition is the American way. Thank you.
    Chairman Miller. Thank you.
    [The statement of Mr. Speranza follows:]

  Prepared Statement of Paul S. Speranza, Jr., Vice Chairman, General 
           Counsel and Secretary, Wegmans Food Markets, Inc.

    Chairman Miller, Congressman Kline, members of the Education and 
Labor Committee, thank you for the invitation to testify at this 
hearing. I am Paul Speranza, Vice Chairman, General Counsel and 
Secretary of Wegmans Food Markets. Wegmans is a regional food chain 
with 39,000 employees. I am pleased to be here today to testify on 
behalf of the U.S. Chamber of Commerce, the world's largest business 
federation, representing more than three million businesses of every 
size, sector and region. I am past Chairman of the Board of the Chamber 
and previously chaired the Chamber's Employee Benefits Committee, which 
develops Chamber policy governing health issues, for seven years. I am 
also representing the Rochester Business Alliance, where I lead its 
health care initiatives.
    The key concepts I want to share with you today are collaboration 
and common ground, just as we have done in Rochester, New York. In a 
nationally televised speech in the early 1990's President William 
Clinton singled out Rochester as the one community in America that got 
health care right. For the last four years a collaboration of seven 
large employers, including Wegmans, has worked hard to regain its 
national health care status. We have worked on several initiatives 
including establishing a regional health information organization and 
employing lean six sigma concepts to assist the local hospital systems 
to be more efficient. The collaboration also instituted a wellness 
program called ``eat well, live well'' which encourages its employees 
to eat 5 cups of fruits and vegetables per day and walk 10,000 steps 
per day. Last year over 44,000 employees from over 200 organizations 
participated, making this (to our knowledge) the largest community-wide 
wellness program in the world. The last United States Secretary of 
Health and Human Services, Michael Leavitt gave Rochester an award for 
its overall health care efforts, and another award for its wellness 
program.
    Recently our RBA employer consortium entered into a partnership 
with the Finger Lakes Health Systems Agency, the only organization of 
its kind in New York State which is granted its authority by New York 
State. It represents all relevant stakeholders in the community 
including minority groups, religious groups, labor unions and all 
health care stake holders. We are about to embark on a massive 
community-wide hypertension initiative. Hypertension impacts members of 
minority communities much more than other groups. Our community has 
come together and worked together to improve the quality, affordability 
and access to health care. Our goal is to be the healthiest community 
in America.
    We invite each committee member and President Obama to come to 
Rochester to learn about what we have done. If we can do it in 
Rochester, we can do it anywhere. Other American communities also have 
experiences to share, showing that many of our health care problems can 
be improved by dedicated people in local communities. Around America we 
all need enough time to share our best practices. Congress can help us 
with information technology, wellness, end-of-life matters, incentives 
to change behavior of our citizens and appropriate incentives for our 
physicians and other health care providers to manage systems 
efficiently. All of these items will save substantial money.
    As you know, more than half of all Americans receive health 
insurance benefits voluntarily provided by their employers, and the 
Chamber is committed to reforming the health system to lower costs, 
improve quality, and expand coverage. The employer-based system 
voluntarily provides health benefits to over 130 million Americans, who 
are overwhelmingly satisfied with their benefits and want their 
employers to continue providing them. Employers have been great 
innovators in health care, and many reforms we have led the way on have 
kept the unsustainable rising costs of health insurance from reaching 
the breaking point.
Process
    The Chamber applauds Congress for making health reform a priority. 
However, we have grave concerns about process being used to advance 
this legislation. This Committee, in cooperation with the two other 
committees of primary jurisdiction, crafted legislation behind closed 
doors. This more than 850-page bill was released just four days ago, 
and although it still contains significant gaps (including missing cost 
estimates and expected offsets), already we are engaged in hearings, 
markups possibly scheduled soon, and the bill will be rushed to the 
floor without proper time for consideration and revision. The Chamber 
hopes that the sponsors of this legislation will conduct a process that 
truly engages stakeholders and discards this rush to legislate, and 
that they build a piece of legislation that solves the problems we face 
without creating massive new problems or significantly disrupting the 
current system. We need a reasonable amount of time to understand the 
implications of what has been proposed and the opportunity to suggest 
alternatives that will work.
    The business community has been supportive of reform for some time 
now, as health care costs have continued to rise much faster than the 
rate of inflation. Even as health insurance premium costs have more 
than doubled in the past decade, employers continue to pay $500 billion 
a year into the system voluntarily to cover employees.\1\ It should be 
easy to draft a bill that employers can support--we are desperate in 
the face of these unsustainable cost increases. Unfortunately, rather 
than focusing on common sense, pragmatic reforms (as we have done in 
Rochester) that both sides of the aisle could support, this legislation 
embodies a range of bad ideas that threaten to bring down many good 
initiatives that deserve your support.
---------------------------------------------------------------------------
    \1\ Employee Benefit Research Institute: ``EBRI Databook on 
Employee Benefits, Chapter 2: Finances of the Employee Benefit 
System.'' Updated September 2008. http://www.ebri.org/pdf/publications/
books/databook/DB.Chapter%2002.pdf
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Employer Mandate (``Pay-or-Play'')
    The Chamber does not believe that a mandate on employers to sponsor 
health insurance will make serious headway to cover the uninsured, but 
rather could lead to a loss of jobs. Employers who can afford to 
sponsor health insurance typically provide generous benefits--and most 
large employers do. Employers who cannot currently afford to offer 
health insurance benefits will not be able to do so simply because they 
are mandated to do so--small employers, seasonal employers and 
businesses that operate on very small profit margins will still be 
unable to afford to provide benefits. The Massachusetts employer 
mandate failed to have a meaningful effect on the uninsured, and 
actually exempted most of the businesses that didn't offer insurance--
but it was disruptive to existing plans. In fact, reliance on that 
employer mandate in part contributed to serious funding problems in the 
Massachusetts plan.\2\
---------------------------------------------------------------------------
    \2\ See Congressional Budget Office: ``Key Issues in Analyzing 
Major Health Insurance Proposals--December 2008''. Available at: http:/
/www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf.
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    A better, smarter approach would be to focus on bringing down the 
costs of health insurance, and encouraging individuals to obtain 
coverage. This would bring market forces to bear on employers, as their 
employees would ask anew for benefits that satisfied their individual 
requirements, without hurting the economy--while also helping more 
people to obtain insurance and making health care more affordable for 
all.
Minimum Coverage (``Essential Benefits'')
    Even businesses that already offer generous benefits are determined 
not to be burdened by government-mandated levels of benefits. Because 
most government employees enjoy the extremely expensive FEHBP (Federal 
Employees Health Benefit Plan), there is a belief in Congress that it 
makes sense to force all businesses offering benefits to approach the 
offerings of FEHBP. However, this would be completely unaffordable and 
impractical. The design of benefits is a decision that needs to be left 
between employers and employees. Government-dictated one-size-fits-all 
plan designs will be disastrous for business--to suppose that a 
computer programming company and a coal-mining company can afford the 
same kinds and levels of benefits reveals a lack of understanding of 
the realities faced by businesses and working Americans.
    We are especially concerned about proposals to anoint a new 
committee of unelected bureaucrats, the majority of which will have had 
no experience in designing benefits plans, who will basically make laws 
regarding required levels of benefits. Although Congress may feel an 
urge to punt this controversial issue to an outside ``public-private'' 
group, it is too important, and represents too great a threat to the 
economic wellbeing of America's job creators, to be allowed to be 
handed off.
Government-Run Insurance Plan (``Public Option'')
    This legislation contains an especially egregious proposal to 
create a new government-run health insurance plan to ``compete'' with 
the private sector. Recent studies continue to find that government 
cannot and would not compete on a level playing field with private 
competitors in the insurance market. Government programs tend to hide 
administrative costs by outsourcing to various other departments and 
agencies, forcing individuals, enrollees, and participating businesses 
to pick up the slack. Government costs are artificially low due to 
cost-shifting to private payers--the consulting firm Milliman recently 
found that private insurance costs 20-30 percent more because of 
underpayment by government payers.\3\ Proponents of government plans 
usually cite to MedPAC reports that say government plans pay fairly and 
private plans overpay--however, numerous providers, hospitals and 
businesses have reported to the Chamber that private payers tend to 
support public plan enrollees, and reductions in payment from private 
plans (or increased enrollment in public plans) would be likely to put 
many out of business, or at least to severely curtail access to care. 
The fact that this proposal would directly use Medicare rates is 
extremely dangerous.
---------------------------------------------------------------------------
    \3\ Hospital & Physician Cost Shift, Payment Level Comparison of 
Medicare, Medicaid, and Commercial Payers. Milliman, December 2008. 
http://www.ahip.org/content/default.aspx?docid=25216
---------------------------------------------------------------------------
    This would be compounded by the problem of a massive shift from the 
private sector to the public sector. The Lewin Group actuarial firm 
recently found that tens of millions would be drawn to a public plan by 
artificially low premiums--a situation that would only worsen the 
already debilitating cost-shift private payers experience.\4\ A loss of 
119 million Americans from the private sector to the public sector 
would devastate the remaining private sector, and likely could lead to 
the eventuality of a government-run insurance ``option'' being the only 
option available.
---------------------------------------------------------------------------
    \4\ The Cost and Coverage Impacts of a Public Plan: Alternative 
Design Options. Lewin Group staff working paper #4, April 2009. http://
www.lewin.com/content/publications/
LewinCostandCoverageImpactsofPublicPlan-Alternative%20DesignOptions.pdf
---------------------------------------------------------------------------
    The business community joins most Americans in opposing a ``public 
option'' that would likely be an unfair competitor or lead us toward 
government-run health care for all. A recent poll by the Kaiser Family 
Foundation found that while Americans are initially open to a ``public 
option'', when they learn that it might have an unfair advantage over 
the private sector or that it might lead to single-payer, they strongly 
opposed it.\5\
---------------------------------------------------------------------------
    \5\ Kaiser Family Foundation Health Tracking Poll, April 2009. 
http://www.kff.org/kaiserpolls/upload/7891.pdf.
---------------------------------------------------------------------------
    Even an editorial in the Washington Post has cited the ``public 
option'' as a backdoor way to bring the nation to single-payer, 
socialized medicine. The President's promise that Americans will be 
able to keep the health insurance they have cannot be kept if we move 
to such a system.
    We can find no meaningful justification for creation of a new 
government-run insurance plan other than to gut the private market and 
bring a large portion of America into government-run health care. 
Whether or not this proposal is a Trojan horse for single-payer health 
care, it is apparent that its cause is ideological, not pragmatic or 
driven by a desire for market competition or good health policy.

ERISA Changes
    The reason so many employers are able to offer quality, affordable 
health insurance to their tens of millions of employees is because the 
Employee Retirement Income Security Act of 1974 (ERISA) allows them to 
administer uniform benefits across state lines, with maximum 
flexibility to allow employers to design plans that meet their 
employees' needs.\6\ This proposal would threaten the success of ERISA 
plans by apparently allowing a new host of lawsuits under state law, 
revisiting many issues raised by the Patients' Bill of Rights of past 
Congresses. Obviously, if this is true, we would be very troubled by 
these provisions.
---------------------------------------------------------------------------
    \6\ Over a hundred million Americans have health, retirement and 
other valuable benefits voluntarily provided by their employer under a 
nationally uniform framework established by the Employee Retirement 
Income Security Act. See National Coalition on Benefits: About the 
Coalition. Available at: http://www.coalitiononbenefits.org/About/
---------------------------------------------------------------------------
    Congress should be focused on lowering the costs of health care and 
expanding access to those currently without coverage. Why is there an 
effort to interfere with the parts of the system that are working well? 
The Chamber views such initiatives as counterproductive at best, and at 
worst, efforts to force more Americans out of private, voluntary 
employer-provided coverage, and into a government-controlled exchange 
that will inevitably lure individuals into a government-run insurance 
plan. These solutions in search of a problem will cause unnecessary 
disruption in current plan offerings--contrasting with the President 
and many leaders in Congress' constant claim that ``if you like the 
plan you have, you can keep it.''

Financing of Health Reform
    This Congress made the bold and fiscally responsible decision to 
offset new spending and operate under a pay-as-you-go structure to 
avoid increasing the deficit. This proposal may end up appearing 
deficit neutral on its face, but only because there are numerous 
proposals to pair it with massive new taxes. These taxes would be 
devastating to the economy, to businesses, and to the workers they 
employ. Among these wrong-headed proposals is a movement to create a 
European-style Value-Added Tax (VAT). A VAT would have negative 
implications throughout the entire economy, particularly hurting those 
with the lowest incomes, who would see the same increases in the costs 
of affected goods that those with higher incomes would see. This would 
hurt the already lowered consumption levels we are currently 
experiencing, lengthening the economic downturn. There are not enough 
``rich'' people in America to pay for this. Taxes of many others will 
rise. With this and other major government expenditures of the recent 
past, the inflation that will flow from all of this will be a tax on 
everybody.
    Proposals to tax sugary drinks and alcohol would be similarly 
regressive. The revenues gained under such a proposal would come 
directly from those with the lowest incomes who have the fewest options 
to purchase and the least time and ability to change their dietary 
habits. These would also be the people most likely to further forego 
needed care if health expenditures through tax-free vehicles like 
Flexible Spending Arrangements and Health Savings Accounts were 
threatened.
    Proposals to tax employee health benefits would also have extremely 
negative reverberations in the economy. These taxes would fall directly 
on workers, who would see their taxable income increased--although 
employers would also see FICA and payroll taxes increase, and would 
have to pass some or all of those costs on to the workers.

Reforms Widely Supported
    Congress has rightly recognized that now is the time to reform the 
insurance markets. This will necessitate some hard decisions about how 
to enact and enforce guaranteed issue of insurance to all comers, 
guaranteed renewals, rate control, increased access to competing 
options, and more. And Congress has rightly recognized that these 
reforms will not be feasible unless everyone is in the system and has 
skin in the game--no gaming the system and waiting to buy insurance 
until you are sick.
    If we can build connectors that work, and reform the insurance 
market, much of the work is done. We need to focus on controlling costs 
and making coverage affordable, and the initial task will be complete. 
This will be extremely challenging, necessitating a variety of delivery 
system reforms, payment and reimbursement reform, implementation of 
comprehensive strategies to boost health information technology, 
wellness, prevention, disease management, coordination of care, 
initiatives to support primary care and much more. This will require 
sacrifice on the part of many groups--insurers, hospitals, 
pharmaceutical companies, providers, workers, and yes, employers.
    Further, this large bill has left out many of the key solutions we 
believe could lower health care costs and improve quality. Medical 
liability reform was not explored, not even test projects through 
creation of specialized health courts. The massive Medicare claims 
database, which could be used to jump start quality and transparency 
efforts, is left out. Employers are not given any safe harbors or 
encouragement to create wellness programs for employees. Enrollees in 
public programs are not given the option to instead take their 
government premiums and enroll in competing private options. And 
individuals and the self-employed are not given options to use pre-tax 
dollars to purchase health insurance, and thus still will not have tax 
parity.
    The business community stands ready to work with Congress to pass 
such reforms. The Chamber will be on the front line fighting for the 
success of legislation that truly addresses these problems and proposes 
these solutions. But the Tri-Committee bill is a far cry from such a 
targeted piece of legislation. All of us, as Americans, can find common 
ground and collaborate just as we have done in Rochester, New York.
                                 ______
                                 
    Chairman Miller. Dr. Hacker, welcome.

STATEMENT OF DR. JACOB HACKER, PROFESSOR AND CO-DIRECTOR OF THE 
   BERKELEY CENTER ON HEALTH, ECONOMIC, AND FAMILY SECURITY, 
               UNIVERSITY OF CALIFORNIA BERKELEY

    Mr. Hacker. Thank you, Chairman Miller, and members of the 
committee. It is an honor to speak with you today. Health care 
is at the epicenter of economic insecurity in the United 
States, a reflection of our Nation's uniquely fragmented and 
costly framework of health insurance. Now, this framework is 
distinctively American, and any effort to improve it must be 
distinctively American as well, building on the best elements 
of the present system: large group health plans in the public 
and private sectors.
    But an American solution must also fix what is not working. 
By allowing Americans without access to secure workplace 
coverage, to choose among group insurance plans, will provide 
strong guarantees of quality, affordable coverage over time.
    To succeed, these reforms must be based on three strong 
pillars: shared risk, shared responsibility, and personal 
responsibility. Shared risk means we need a new national 
insurance exchange that allows workers without secure coverage 
to access good group health plans with premium assistance to 
ensure affordability. To promote competition and accountability 
this exchange must also include as a choice a public health 
insurance plan competing with private insurers.
    Now, this public health insurance plan is a linchpin of a 
distinctively American strategy. It will provide a backup for 
those without workplace insurance in all parts of the Nation. 
Indeed in most of the country, especially rural areas, 
insurance markets are highly consolidated, and private plans 
are passing on costs to enroll these employers rather than 
bargaining with increasingly consolidated provider groups or 
improving their own efficiency.
    A public plan must also provide a benchmark for private 
plans, pressing them to focus on value and innovation rather 
than shifting costs or screening out high-risk patients.
    And, finally, a public plan will provide a cost-controlled 
backstop. Public insurance has lowered administrative expenses 
in private plans. It obtains larger volume discounts. It does 
not have to earn a profit, and experience suggests it has a 
superior ability to control spending while maintaining broad 
access over time.
    Now, I would encourage the committee to ensure that the 
public plan has an extensive network of hospitals and doctors 
immediately. And the simplest and most efficient way to build 
the network is to assume that all doctors and hospitals that 
accept Medicare payments are in the network but give them a 
choice to opt out.
    The plan should also have the authority to use modified 
Medicare rates and to employ information technology and new 
payment approaches and care coordination strategies to improve 
efficiency and quality. If we are to truly bend the curve of 
health spending, the public and private sectors will have to 
work together competing on a level playing field. This task 
cannot fall on private insurers or the Medicare program alone.
    Make no mistake, Americans want to have the choice of 
enrolling in a public insurance plan. In a recent poll, 72 
percent supported this option, including a majority of 
Republicans. Another recent poll found 83 percent support.
    The other two pillars of an American solution are shared 
and personal responsibility. This means that employers and 
individuals should be expected to contribute to the cost of 
their coverage once affordable options are available.
    Employer responsibility, sometimes known as play-or-pay, is 
vital in ways that are not always properly understood. Yes, it 
provides an important source of funding, reducing the direct 
cost of reform to the Federal Government. But it also ensures 
that reform will not undermine employment-based health 
insurance. In the absence of a play-or-pay requirement, firms 
with large numbers of low-wage workers who qualify for new 
subsidies for insurance within the exchange will have less 
incentive to insure their workers directly. Moreover, employer 
responsibility requirements serve to level the playing field 
between firms that do and do not provide coverage.
    In play-or-pay proposals, employer contributions are not 
penalties, they are payments for the coverage of workers whose 
enrollment in the exchange flows from the employer's decision 
to contribute. This ensures that the roughly 95 percent of non-
elderly Americans who work or live in the family of a worker 
have access to good insurance through the workplace connection. 
And while there are valid concerns about small employers, a 
survey by Small Business Majority found support for more than 
half of small business owners in California for reform along 
these lines. They were willing to accept the requirement to 
contribute to health care in return for the ability to access 
an affordable plan for their workers.
    Concerns about small businesses, where most uninsured 
workers are employed, will be best addressed through a sliding-
scale requirement on firms rather than by excluding small firms 
from the requirement altogether.
    Shared risk, shared responsibility, personal 
responsibility, these are the pillars of a uniquely American 
solution. Together they will create accountability in American 
health insurance, expand coverage while making it more 
affordable for workers and their families, and adequately fund 
our health care priorities while putting in place the 
preconditions for long-term savings to the Federal Government.
    Chairman Miller. Thank you.
    [The statement of Mr. Hacker follows:]

Prepared Statement of Jacob S. Hacker, Ph.D., University of California, 
 Berkeley, Professor of Political Science; Faculty Co-Director, Center 
      on Health Economic & Family Security, Berkeley School of Law

Public Plan Choice and Play-or-Pay: Critical Elements to Ensure 
        Accountability and Affordability and Control Costs
    I thank the committee for the honor of speaking today about the 
pressing need for national health reform based on the principles of 
shared risk, shared responsibility, and personal responsibility. For 
national reform to succeed, it must create accountability in American 
health insurance, expand coverage while making it more affordable for 
workers and their families, and adequately fund our health care 
priorities while putting in place the preconditions for long-term 
savings to the federal budget. The draft legislation prepared by this 
special tri-committee promises enormous progress in meeting all three 
of these goals.
    My remarks are divided into two parts. In the first, I explain why 
the ``publicprivate hybrid'' approach embodied in the tri-committee 
draft legislation is vital to ensuring accountability in American 
health insurance. I focus in particular on the need for a public health 
insurance plan that Americans without secure workplace coverage can 
choose as a coverage option that will compete with private plans. In 
the second part, I emphasize the need for shared responsibility to 
expand affordable coverage, emphasizing the constructive role that 
employers can play in providing or helping to finance coverage so that 
affordable insurance is available to all Americans through the 
workplace connection. Both accountability within the insurance market 
and shared responsibility are necessary to slow the growth in health 
care costs not just for workers and their families but also for 
employers, states, and the federal government.

    I. THE NEED FOR ACCOUNTABILITY IN AMERICAN HEALTH INSURANCE \1\

    In recent years, the need for comprehensive health reform has 
become glaringly apparent. Health insurance premiums have skyrocketed, 
more than doubling from 1999 to 2008,\2\ while the scope and generosity 
of private coverage have plummeted. Not only have the ranks of the 
uninsured continued to expand, but, in addition, the number of 
Americans who have insurance yet lack adequate protection against 
medical costs has increased dramatically.\3\ More than half of 
bankruptcy filings are related to medical care, with the vast majority 
of medical bankruptcies involving households that have insurance 
coverage.\4\ Employers, workers, states and localities, and the federal 
government--all have seen their budgets under siege because of runaway 
health care costs and all require long-term relief.
---------------------------------------------------------------------------
    \1\ This section is based on Jacob S. Hacker, ``The Case for Public 
Plan Choice,'' and ``Healthy Competition,'' both available at http://
www.law.berkeley.edu/chefs.htm. Additional citations are available in 
these briefs.
    \2\ The Kaiser Family Foundation and Health Research & Educational 
Trust, Employer Health Benefits, 2008 Summary of Findings, 1.
    \3\ Cathy Schoen, et al., ``How Many are Underinsured? Trends Among 
US Adults, 2003 and 2007.'' The Commonwealth Fund. June 2008. Accessed 
November 25, http://www.commonwealthfund.org/publications/
publications--show.htm?doc--id=688615.
    \4\ David U. Himmelstein, Deborah Thorne, Elizabeth Warren, Steffie 
Woolhander, Medical Bankruptcy in the United States, 2007: Results of a 
National Study, The American Journal of Medicine, June 2009, David 
Himmelstein, et al., ``Illness and Injury As Contributors To 
Bankruptcy.'' Health Affairs, 2005. Accessed November 25, http://
content.healthaffairs.org/cgi/reprint/hlthaff.w5.63v1.
---------------------------------------------------------------------------
    Amid the crisis, there has emerged a growing recognition not just 
of the need for action but also of the virtues of a public-private 
``hybrid'' approach to health reform. The approach to reform embodied 
in the tri-committee draft legislation is such a model--a model that 
builds on the best elements of the present system: large group plans in 
the public and private sectors. By lowering the cost of care and 
requiring that all firms eventually contribute to the cost of coverage, 
the legislation would encourage employers to continue to provide health 
insurance. At the same time, it would put in place a new means--the so-
called health insurance exchange--of allowing Americans without access 
to secure workplace coverage to choose among insurance plans that 
provide strong guarantees of quality affordable coverage over time.

The Case for Public Plan Choice
    An essential feature of this new framework for obtaining group 
coverage is ``public plan choice,'' the creation of a new public plan 
modeled after Medicare that would be available to Americans younger 
than 65 who lack good employment-based coverage. Public plan choice is 
not by any stretch of the imagination ``Medicare for all.'' Rather, it 
simply creates a public health insurance plan with incentives to focus 
on value and innovation that competes on a level playing field with 
private insurers within the new insurance exchange. Private employment-
based coverage would continue, and workers without such coverage would 
be able to choose from a menu of options that includes a range of 
private insurance plans as well as the new public health insurance 
plan.
    Moreover, this new public health insurance plan should be--and is, 
in the draft legislation--self-supporting after initial setup costs are 
financed (that is, it should be financed by the same sources as any 
other plan within the exchange, notably, individual premiums, employer 
contributions, and income-related subsidies). It should also be--and 
is--subject to the same rules as the private plans and be separate from 
the national exchange, so the referee (the exchange) does not have a 
player (the plan) in the game.
    This idea is overwhelmingly popular. In a recent poll conducted by 
the New York Times and CBS News, 72 percent of those questioned 
supported a government-administered insurance plan that would compete 
with private insurance. The support for a public plan came from 
Republicans and Democrats alike. Half of those who identified as 
Republicans said they would support a public plan, along with three-
quarters of independents and nine out of ten Democrats.

Choice, Accountability, and ``Healthy Competition''
    The aim of public plan choice is healthy competition--that is, 
competition to make Americans better cared for and more secure. Such 
competition requires not an endless array of choices, but rather a 
reasonable number of meaningfully different choices. In much of the 
country today, health insurance competition is remarkably limited. Most 
metropolitan areas have no more than a few dominant insurers in control 
of the market. And these companies are often unable or unwilling to 
rein in health care costs. It is often in their interest to pay higher 
rates to key doctors and hospitals because they can pass on these costs 
to individuals and employers. In the process, they make it difficult 
for weaker insurers to build competitive provider networks and bring 
costs down. Even the largest insurers are hard-pressed to enter 
established markets.
    Because the hospital market has grown increasingly concentrated, 
moreover, providers wield considerable power of their own to drive up 
the rates they receive from insurers and restrict competition. In areas 
where hospital market concentration has grown the most, hospital prices 
and profitability are very high, yet service and quality of care is no 
better than in other areas, the evidence suggests.\5\ As John Holahan 
and Linda Blumberg of the Urban Institute explain, ``Dominant insurers 
do not seem to use their market power to drive hard bargains with 
providers * * *. Competition in insurance markets is often about 
getting the lowest risk enrollees as opposed to competing on price and 
the efficient delivery of care.''\6\
---------------------------------------------------------------------------
    \5\ John Holahan and Linda Blumberg, ``Can a Public Insurance Plan 
Increase Competition and Lower the Costs of Health Reform?'' Urban 
Institute Health Policy Center, 2008, http://www.urban.org/UploadedPDF/
411762--public--insurance.pdf, 3.
    \6\ Ibid., 3.
---------------------------------------------------------------------------
    A public health insurance plan would provide greater competition 
for insurers and providers and greater choice for Americans. Indeed, a 
key reason for public plan choice is that public health insurance 
offers a set of valued features that private plans are generally unable 
or unwilling to provide. Stability, wide pooling of risks, 
transparency, affordability of premiums, broad provider access, the 
capacity to collect and use patient information on a large scale to 
improve care--these are all hallmarks of public health insurance that 
private plans have inherent difficulties providing. On the other hand, 
private plans are generally more flexible and more capable of building 
integrated provider networks, and they have at times moved into new 
areas of care management in advance of the public sector.
    In short, public and private plans have unique strengths, and both 
should have an important role in a reformed system. Public plan choice 
simply means that all Americans without good workplace coverage, not 
just the elderly or the poor, should have access to the distinctive 
strengths of a public health insurance plan, as well as the strengths 
of private plans. Such healthy competition has long been the stated 
rationale for encouraging Medicare to include private plans alongside 
the public program. The argument for a competitive partnership between 
public insurance and private plans applies at least as strongly to 
nonelderly Americans as it does to those in Medicare.
    Healthy competition is about accountability. If public and private 
plans are competing on fair and equal terms, the choice of enrollees 
between the two will place a crucial check on each. If the public plan 
becomes too rigid, more Americans will opt for private plans. If 
private plans engage in practices that obstruct access to needed care 
and undermine health security, then the public plan will offer a 
release valve. New rules for private insurance could go some way toward 
encouraging private plans to focus on providing value. But without a 
public plan as a benchmark, backup, and check on private plans, key 
problems in the insurance market will remain.

Public Plan Choice is Essential to Cost Control
    Perhaps the most pressing of these problems is skyrocketing costs. 
Public health insurance has much lower administrative expenses than 
private plans, it obtains larger volume discounts because of its broad 
reach, and it does not have to earn profits as many private plans do. 
Furthermore, experience suggests that these lower costs are accompanied 
by a superior ability to control spending over time. Medicare has a 
better track record than private health plans in controlling costs 
while maintaining broad access to care, especially over the last 
fifteen years. By way of illustration, between 1997 and 2006, health 
spending per enrollee (for comparable benefits) grew at 4.6 percent a 
year under Medicare, compared with 7.3 percent a year under private 
health insurance.\7\
---------------------------------------------------------------------------
    \7\ Hacker, ``The Case for Public Plan Choice,'' available at 
http://www.law.berkeley.edu/chefs.htm.
---------------------------------------------------------------------------
    Over the last generation, public insurance has pioneered new 
payment and quality-improvement methods that have frequently set the 
standard for private plans. More important, it has the potential to 
carry out these vital tasks much more effectively in the future, using 
information technology, large databases of practices and outcomes, and 
new payment approaches and care-coordination strategies. Indeed, a new 
public plan could spearhead improvement of existing public programs as 
well as private plans.
    To be sure, there are reasonable concerns about how a new public 
plan will use its bargaining power--concerns reflected in current 
proposals for state-based public plans, consumer cooperatives 
established by the states, or even private insurers under public 
contract. Yet a watered-down public plan or a private alternative to a 
public plan would not serve the three vital functions of a competing 
public health insurance plan--to be a ``benchmark'' for private plans, 
a ``backup'' to allow consumers access to a good plan with broad access 
to providers in all parts of the country, and to serve as a cost-
control ``backstop.'' Consumer cooperatives, for example, will be 
extremely difficult to create and are unlikely to serve as a backup in 
most of the nation. They will also lack the ability to be a cost-
control backstop, much less a benchmark for private plans, because they 
will not have the reach or authority to implement innovative delivery 
and payment reforms.
    In sum, public plan choice is essential to set a standard against 
which private plans must compete. Without a public plan competing with 
private plans, we will continue to lack strong mechanisms to rein in 
costs and drive value down the road.

               II. THE NEED FOR SHARED RESPONSIBILITY \8\

    The other aspect of the draft legislation I wish to comment on is 
the requirement that employers either provide health insurance to their 
workers or help fund coverage for those workers through the new 
national insurance exchange. In my view, the exchange should eventually 
be open to all employees of firms that choose to pay regardless of 
worker income or firm size, with reasonable premiums for higher-income 
workers.
---------------------------------------------------------------------------
    \8\ This section is based on Ken Jacobs and Jacob S. Hacker, ``How 
to Structure a `Play-or-Pay' Requirement on Employers,'' available 
online at http://www.law.berkeley.edu/chefs.htm. Additional citations 
are available in the brief.
---------------------------------------------------------------------------
    A play-or-pay requirement is essential to any hybrid health reform 
proposal that builds on the current system of job-based coverage while 
providing new options to broaden coverage to the uninsured. Financing 
any health coverage expansion will be challenging. An employer 
requirement makes it easier by providing an important source of funding 
and reducing the direct cost to the federal government. At the same 
time, such a requirement is essential if reform is to avoid greatly 
reducing the provision of employment-based insurance.

Why Have a Play-or-Pay Requirement?
    Job-based coverage is still the major means that non-elderly 
Americans receive health benefits. Nationally, about 62 percent of 
Americans under age 65 get their health coverage through their employer 
or the employer of a family member. Replacing employer financing would 
require substituting highly visible taxes or mandates on individuals 
for the relatively hidden contributions now made (nominally at least) 
by employers.
    In the absence of a binding employer requirement, moreover, the 
direct costs to the federal government would substantially increase. 
Firms with large numbers of low-wage workers who would qualify for new 
subsidies for insurance would have less incentive to cover their 
workers directly, allowing their workers to obtain insurance outside 
the workplace with the new subsidies. How extensive such crowd-out 
would be is a matter of debate. Employee benefits tend to be 
``sticky,'' at least in the short run. Benefits are highly valued by 
employees, and risk-averse employers may be reluctant to take advantage 
of the option of dropping coverage. But over time employers should be 
expected to move toward benefit strategies that minimize their costs, 
including allowing their workers to be covered by public programs or 
subsidized individual insurance.
    Finally, employer responsibility requirements serve to level the 
playing field between firms that do and do not provide coverage. The 
vast majority of medium and large firms offer health care on the job, 
at least to their full-time workers. Many small firms, particularly 
higher-wage firms, also provide coverage. Yet a substantial share of 
firms do not, with rates of non-provision highest among small 
employers. In firms that do offer coverage, eligibility and benefits 
vary substantially. Nationally, 77 percent of the uninsured work or 
have a family member who works, and are not self-employed. A quarter of 
the working uninsured are in firms with less than ten workers; another 
third are in firms with 10 to 99 employees. The final 41 percent work 
for employers with more than 100 workers. Nearly one-third of those who 
are covered through a job are covered by a business with fewer than 100 
workers.
    When firms do not provide coverage, or only provide coverage to a 
limited fraction of their workforce, it raises the costs of employment-
based coverage and puts pressure on firms that do offer benefits to cut 
back their offerings. One path by which this occurs is the shifting of 
the costs of caring for the uninsured: As uninsured workers and their 
dependents are forced to rely on emergency rooms for care, costs are 
shifted not only onto the public but also into the health premiums of 
firms that do offer coverage. It is estimated that the cost of 
uncompensated care raises health premiums by between 5 and 10 percent. 
Another path is spousal and dependent coverage: A firm offering family 
benefits picks up the cost of spouses working in firms without health 
care and the costs of dependents that might have been insured by 
another firm.

How the Play-or-Pay Requirement Should be Structured
    Play-or-pay should apply to as broad a range of firms as possible. 
While there are valid concerns about the effect of such a requirement 
on small employers, it is important to keep in mind small employers 
would benefit from a health-care expansion that would provide coverage 
to their employees. A survey by Small Business Majority found support 
from more than half of small business owners in California for a health 
reform proposal along these lines. They were willing to accept the 
requirement that they contribute to health care in return for the 
ability to access an affordable plan for their workers. Concerns about 
economic impacts on small businesses would be best addressed through a 
sliding scale requirement on firms, rather than by excluding small 
firms from the requirement altogether.
    Moreover, the play-or-pay requirement should apply to all of a 
firm's employees as well as their employees' spouses and non-working 
children. While 97 percent of large firms offer health coverage, they 
only cover an average of 70 percent of their employees. In fact, three 
out of four workers who do not have coverage through their employer 
work at firms where fellow workers have coverage. The plurality of 
these uncovered workers are not eligible for coverage (45 percent); the 
next largest share have not taken-up coverage (30 percent), often 
because the costs are viewed as prohibitive. If part-time workers are 
excluded, it creates a strong incentive for employers to offer part-
time employment as a way of reducing costs. There is evidence of 
significant labor market sorting along these lines in Hawaii as a 
result of its health-care mandate. A requirement on part-time workers 
can be structured so that it is not economically burdensome on 
employers.

The Economic Benefits of Shared Responsibility
    The main argument against employer requirements is that they place 
a tax on employment, leading to fewer jobs. Recent economics research 
as well as the experience of California strongly suggests, however, 
that these concerns are overstated when it comes to the play-or-pay 
proposals currently under consideration, with their relatively modest 
employer requirements.
    Firms may absorb the costs of an employer requirement in a variety 
of ways. Over time, we would expect a large share of the cost to be 
passed on to workers through forgone wage increases. Pass-throughs to 
consumers are also well documented. After the passage of the health-
care ordinance in San Francisco, many restaurants added small health-
care surcharges to their checks to cover the costs of the program.
    The main concern is for workers at or near the minimum wage. As 
long as all employers face the same rules, however, firms with workers 
at or near the minimum wage may pass on part of the cost to consumers 
without impacting their ability to compete. The vast majority of firms 
that currently do not offer health benefits are in markets where their 
competitors also do not provide benefits, and thus would see increases 
similar to those of their competitors. Moreover, the incremental costs 
even for these firms would be small.
    It is also important to keep in mind that health reforms with 
employer requirements promise new benefits for firms and workers as 
well as new costs. Many firms that provide coverage for working 
dependents of their employees would no longer have to. Some firms that 
provide coverage would also benefit from the option of enrolling their 
workers in the new exchange, which would effectively cap their direct 
obligations. All firms would benefit from the reduction in unpaid 
medical bills incurred by the uninsured. Firms would further benefit 
from any savings due to a reduced rate of health-care cost growth.
    Expanded access to health care can also be expected to raise 
productivity through improved worker health and labor force 
participation, and better matches of jobs to workers skills. Workers 
without health coverage are more likely to miss necessary care, less 
likely to receive treatment for chronic conditions, and more likely to 
suffer from debilitating conditions that will keep them out of the 
workforce. Broader coverage is likely to result in decreased 
absenteeism and exits from the labor force due to disability. There is 
strong evidence that health insurance plays an important role in worker 
mobility decisions. Universal coverage would decrease ``job-lock'' and 
improve matches between workers skills and positions.
    In sum, the net impact of a broad health-care reform that included 
shared responsibility for employers would be positive for business and 
the economy as a whole.

                               CONCLUSION

    Health reform is essential for improving the economic security of 
American workers and their families. By far the largest effect of 
broadening and upgrading coverage and lowering and subsidizing premiums 
is to immediately help struggling Americans who are currently facing 
the worst economic downturn in at least a generation. These vital 
reforms will also provide a rescue package for state and local 
governments facing rising Medicaid and CHIP costs, for doctors and 
hospitals that treat the uninsured and inadequately insured, for 
community institutions that help people in distress--in short, for all 
the rapidly fraying threads of our health care safety net. No less 
important, creating a public plan to compete with private plans while 
bringing as many Americans as possible into a reformed insurance 
framework is essential for bringing down the rate of increase of costs 
over time and to reducing the long-term financial threat of health care 
to workers and their families and to employers, states, and the federal 
government.
                                 ______
                                 
    Chairman Miller. Mr. Stapley, welcome.

STATEMENT OF MICHAEL J. STAPLEY, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, DESERET MUTUAL INSURANCE COMPANY AND DESERET MUTUAL 
                     BENEFIT ADMINISTRATORS

    Mr. Stapley. Thank you, Chairman Miller and Congressman 
Kline, for the opportunity to testify today on behalf of the 
ERISA Industry Committee whose members provide comprehensive 
health benefits directly to some 25 million active and retired 
workers and their families. ERIC has long supported reforms to 
the Nation's health care system that change the way we pay for 
health care, increase its efficiency, reduce cost, extend 
health coverage to those who are uninsured or underinsured, and 
improve quality.
    To that end, we released in 2007 a new benefits platform 
for life security that lays out an innovative national 
framework for health and retirement security. As we contemplate 
the issues that are before us, there are three basic principles 
that we think are important:
    First, do no harm. There has been a stated commitment to 
the employer-based system by the President and others. Health 
care reform should build on the success of this system that 
serves 170 million Americans and their employers, not hurt it.
    Second, control costs. Spiraling health care costs threaten 
our global competitiveness as well as our national solvency. 
Reform must focus on reducing these costs and ensure that what 
we pay for has value. Without cost containment, effective cost 
containment, we will not change the system.
    Thirdly, expand access. Access to the 47 million or 82 
million, however we choose to count it, Americans who do not 
have it must be expanded while recognizing that a chief cause 
of inadequate access is the high cost of care.
    Now, we recognize as an organization that there is a lot in 
our current system that is not working well. To this end, we 
created the new benefits platform that we released a couple of 
years ago.
    With these principles in mind that we just articulated, and 
this new benefits platform we articulated, the following things 
that we support that are a part of health care reform and in 
large measure a part of the many proposals that are being 
considered by the President and Congress.
    First, we support a competitive pluralistic health care 
system in which employers and individuals have choices among 
health plans that compete on the basis of quality, cost and 
effectiveness.
    Second, we support an insurance exchange or gateway, 
provided that it follows uniform national standards.
    Thirdly, broad flexibility for employers to choose how they 
provide health benefits to their employees and their families 
while protecting employers from systematic adverse selection.
    Fourth, incentives in the current financing system that 
promote responsible cost management rather than risk avoidance 
and aggressive claims administration.
    Fifth, improvements in the transparency and accountability 
of both providers and health plans.
    Sixth, payment reforms that secure financial incentives 
that drive desired changes.
    And, lastly, an individual mandate with subsidies to assist 
financially disadvantaged individuals.
    Now, there are also some issues, some concerns with the 
current proposals, that we feel like need more discussion. 
First, the tax cap is difficult to define so it can be 
administered in a fair and equitable way. Second, it may mean 
that some employers would redesign their plan so that the 
benefits they provide would fall below the level that was 
taxed. In fact, we might create an incentive to do that with 
the result that their employees would be provided with less 
generous health coverage. Other employers would choose to keep 
their existing plans which could result in adverse selection as 
young and healthy employees leave the employer plan to seek 
cheaper coverage elsewhere that would not be taxed. This could 
compromise many large viable risk pools and could also greatly 
diminish an employer's ability to offer efficient and 
innovative health care coverage to its employees.
    As the cost of providing benefits increases, more employers 
would exit the system.
    The public plan. If a public plan could fairly be 
fashioned, it must be structured in a way that the employer 
plans end up bearing the burden of additional--do not end of 
bearing the burden of additional cost shifts. There is 
currently--and there is no question about it--there is 
currently unfair cost shifting from Medicare to employer plans 
in the current system. Expansion of cost shifting would cause 
employers to rethink whether they can afford to provide high-
quality health care to their employees, and it also compromises 
the notion with respect to whether or not you really got a plan 
that is competing on a fair and equitable basis.
    There are also concerns about the adverse selection that 
would be experienced if individuals in employer-sponsored plans 
were permitted to opt out of the employer plan and into a 
public plan, especially if the employer were compelled to pay 
for the individual's participation in the public plan and/or 
finance any subsidy given low-income individuals who opted out.
    Employer mandates. Including minimum benefit packages by 
definition restricts our ability to devise and operate health 
care plans that best meet the need of our employers. Mandates 
increase cost and limit flexibility. They are also difficult to 
define so they can be simply and uniformly applied. Coupled 
with punitive regulatory regimes, employer mandates will 
discourage employers from continuing to provide quality 
affordable health care to their employees.
    Finally, talking about preemption. Without national 
uniformity made possible by ERISA's preemptive doctrine, large 
multi-State employers simply could not offer quality health 
care coverage to their employees. Any future legislation must 
continue to accord preemption and national uniformity of 
regulation in a similar priority.
    There are many employers that offer benefits in all 50 
States. We can testify to the fact that in most States where we 
have some responsibility to comply with State mandates, the 
administration is costly and complex and difficult to comply 
with.
    In conclusion, ERIC is committed to the goal of responsibly 
reforming the Nation's health care system to cover the 
uninsured, control costs, and improve quality and do all three 
in a manner that does not undermine the system that currently 
offers quality health care to 170 million satisfied Americans. 
ERIC members have a major stake in America's health care system 
and we intend to continue to play a constructive role in this 
debate.
    Thank you for your time.
    Chairman Miller. Thank you very much.
    [The statement of Mr. Stapley follows:]

        Prepared Statement of Michael Stapley, on Behalf of the
                        ERISA Industry Committee

    Chairman Miller, Ranking Member Kline, and other Members of the 
Committee: thank you for the opportunity to testify on the important 
subject of healthcare reform. I am speaking today on behalf of the 
ERISA Industry Committee, an association committed to the advancement 
of the employee retirement, health, incentive, and welfare benefit 
plans of America's largest employers. ERIC's members provide 
comprehensive health benefits directly to some 25 million active and 
retired workers and their families. ERIC has a strong interest in 
proposals that affect its members' ability to continue to deliver high-
quality, cost-effective benefits.
    We must change the way we pay for and deliver health care in the 
United States. Reining in health care costs is absolutely essential to 
this country's future economic success. ERIC strongly supports reforms 
to the nation's healthcare system that will increase its efficiency, 
reduce costs, and extend health care coverage to those who are 
uninsured or underinsured.
    ERIC has thought deeply about this subject. In 2007, we released A 
New Benefits Platform for Life Security that lays out our vision of a 
conceptual framework for overhauling our national approach to providing 
health and retirement security. Many of the positions we staked out in 
this Platform have been incorporated into proposals currently under 
consideration in Congress. Although we believe our Platform could make 
further significant contributions to the present debate, we will 
concentrate our remarks today on the legislative concepts that are 
currently under discussion.
    Three basic principles are of fundamental importance to change and 
must be considered as we move forward.
    1. Do no harm. The current voluntary employment-based system 
provides health coverage to 170 million people, about 61% of the non-
Medicare population. This system has served both employers and 
employees well. Employers have the flexibility they need to tailor 
their plans to the needs of their workforce while also aggressively 
pursuing the innovative changes that have lead to substantial 
advancements in so many arenas, including the fields of wellness and 
prevention. Employees strongly support their employer provided benefits 
and benefit significantly from this system. They enjoy access to high-
quality care with guaranteed issue, limited preexisting condition 
exclusions, a uniform premium structure, and the other advantages 
afforded participants in the large risk pools of group plans. Any 
health care reforms should build on the strengths of this system.
    2. Control costs. The relentless increases in the cost of health 
care threaten the viability of U.S. corporations in a global economy, 
while the upward spiral in the costs of Medicare and Medicaid threatens 
our national solvency. In addition, a substantial portion of the health 
care we now consume, perhaps as much as 20% to 40%, has no value. The 
centerpiece of healthcare reform must focus on reducing these costs. 
Reform that fails to focus on cost control will not only ultimately 
prove ineffective but will undermine health care coverage.
    3. Expand access. 47 million Americans do not have adequate access 
to health care. Of those, approximately half are unable to afford 
coverage. History will not judge kindly an affluent society that 
ignores this problem. We must remember, however, that inadequate access 
is aggravated, if not caused, by the high level of cost. Our 
effectiveness in solving the access problem depends on restraining the 
growth of health care costs.
    With these foundation principles in mind, I would like to focus on 
what we can support in a responsible healthcare reform initiative.
    1. ERIC strongly supports a competitive, pluralistic health care 
system in which employers and individuals have choices among several 
health plans that compete on the basis of quality, cost, and 
effectiveness. There is an urgent need to eliminate the significant 
waste in the current health care delivery system, establish a 
foundation for responsible cost management in the future, and 
systematically ensure quality health care for all Americans. Too many 
reforms pursued in the past have made changes at the edges of health 
care delivery when fundamental structural changes are needed. ERIC 
believes that a properly designed, responsibly regulated pluralistic 
system will be able to correct the deficiencies in the current system 
and produce significant improvements in costs, quality, and access.
    2. ERIC's Benefits Platform supports the establishment of an 
insurance exchange or gateway that provides a fair and equitable method 
for the distribution of insurance products. If exchanges are 
established, they should follow uniform national standards.
    3. Employers should be given broad flexibility regarding how they 
choose to provide health benefits to their employees and their families 
but should be protected from systematic adverse selection by the plans 
in the exchange. Employers should be given the option of choosing to 
continue in the current system and arrange for and sponsor their own 
health plan alternatives. At the same time, employers should have the 
flexibility to provide financial resources to their employees to 
purchase health plans through the insurance exchange from among 
competing health plans. The employer should not be required under any 
circumstance to provide financial resources to employees to purchase 
insurance through an insurance exchange when the employer has chosen to 
continue in the current system. To allow this would create systematic 
adverse selection problems that could ultimately result in the demise 
of the employer-based system. This is inconsistent with the stated 
objectives of the President to support the continuation of the current 
system.
    4. Incentives in the current financing system must be changed from 
risk avoidance to responsible cost management. The foundation principle 
of a fair and equitable financing system for health care must be that 
the cost of disease and injury must be distributed across all plans 
offered through the exchange. In the end it is the expectation that 
health plans offered through the exchange should be strongly 
incentivized to differentiate their products and premiums based on 
efficiencies generated by better administrative practices derived from 
improved payment systems, disease management, utilization management, 
case management, lifestyle management and other innovative initiatives 
designed to lower cost, increase quality and improve accountability. 
Large employer plans have pursued these goals with notable success.
    5. Transparency and accountability of both providers and health 
plans must be improved.
     There has been much discussion on the need for better 
provider transparency in terms of both cost and quality. We are fully 
supportive of these initiatives.
     There has been less discussion about the need for better 
health plan transparency and accountability. It is widely recognized 
that the practices of some private health plans create an enormous 
frustration to both consumers and providers of health care. Medicare 
does provide a good example of more consistent administration of health 
plans. In a restructured system, it will be important to establish 
mechanisms where there can be standardization and full transparency of 
administrative practices of health plans that are offered through the 
exchange. This might include disclosure of health expense loadings, the 
number and cost of denied claims, the efficiency of claims 
administration and other administrative practices, and consumer 
assessments of each health plan.
    6. ERIC strongly supports payment reform. There is strong evidence 
that financial incentives must drive the changes that are desired. 
President Obama's budget director, Peter Orszag, recently stated that, 
for example, ``nearly 30% of Medicare's cost could be saved without 
negatively affecting health outcomes if spending in high and medium 
cost areas could be reduced to the level in low cost areas''. In both 
the private and public sectors, we must stop rewarding providers for 
doing more and instead incentivize them to provide high quality health 
care that delivers true value to the American consumer. It is 
irresponsible to perpetuate a system in which between 20% and 40% of 
the health care delivered has no value. Payment reform is essential to 
this objective.
    7. Every citizen should be required to obtain health care coverage, 
with standards established at the federal level. Because a significant 
portion of the population is unable to afford adequate coverage, ERIC 
would support subsidies to assist financially disadvantaged 
individuals.
    I would like to devote my remaining remarks to the areas in current 
legislative proposals where the ``Do no harm'' principle is most at 
risk.
    Taxation of benefits: Several proposals have been made to curtail 
the favorable tax treatment for employees of employer-provided health 
benefits. One proposal would eliminate the exclusion entirely. Others 
would impose a cap based on the value of health insurance, an 
individual's income, or a combination of the two.
    ERIC has serious concerns with limiting the ability of an employee 
to exclude from income the value of employer-provided health insurance. 
If this exclusion were curtailed, many large employers would follow one 
of two approaches. Some would redesign their plans to meet the new cost 
standard in the legislation, below which taxation would not be imposed. 
This would necessarily mean that their employees would be provided with 
less generous health coverage.
    Other employers would choose to keep their existing plans; if the 
value of the plan exceeded the standard in the legislation, employees 
would face taxation on the ``excess'' value. If this were to occur, 
employment-based insurance would suffer. Young, healthy employees would 
either seek to exit their employers' plans in search of cheaper 
coverage rather than pay taxes on a more expensive plan or pressure 
their employers to reduce coverage. If younger workers sought cheaper 
coverage elsewhere, an employer plan that once had a favorable and 
balanced risk pool would now be left with an older, sicker, more costly 
population whose premiums would eventually become unsustainable. Loss 
of a large, viable risk pool would greatly diminish an employer's 
ability to offer efficient and innovative health care coverage to its 
employees. As the cost of providing benefits increased, more employers 
would exit the system.
    There are also equity and administrative issues associated with a 
tax cap that need to be carefully assessed. We are concerned that if a 
cap is to be imposed, it not discriminate against individuals by virtue 
of higher premium costs due to geography, the demographic composition 
of the group, or because they happen to work for a small firm.
    A public plan: ERIC has several serious concerns with the creation 
of a public plan that would compete with the current private 
marketplace. Although at present we do not know how this new plan would 
be structured, we have profound reservations with the prospect of a 
public plan modeled after Medicare. Medicare does provide an example of 
an efficient, consistent, and fair claims administrator; there are also 
examples of consistent, fair claims administrators among private health 
plans. Medicare is not, however, a sterling example of what a 
restructured financing system should look like. In fact, Medicare has 
perpetuated some of the cost problems that we have in our current 
health care system by rewarding those who provide more care, regardless 
of value.
    Our most fundamental concern with a public plan based on Medicare, 
however, is the potential for even greater cost-shifting than exists 
today. Right now ERIC members subsidize the cost of Medicare. This 
includes both administrative and claim costs. One example of the 
administrative subsidy relates to the fact that Medicare does not pay 
anything for transaction fees associated with the electronic movement 
of claims from providers to Medicare intermediaries. These transaction 
costs are not free. They must be absorbed by other paying customers, 
including employer plans.
    Moreover, according to most providers, Medicare's reimbursement 
rates do not cover their costs. Contrary to what many people say, these 
rates are not negotiated, they are mandated. Providers argue that in 
most cases they accept these rates because they want to continue 
treating patients that have been treated all of their lives. Hospitals 
argue that they have no choice. They believe that they survive only 
because they are able to charge higher rates to private plans and other 
customers. In short, the provider shortfall from Medicare is shifted to 
the private sector, a practice that is unacceptable in a reformed 
system.
    At the end of the day, ERIC's position is that if a public plan 
could be fairly fashioned, it must not be structured in such a way that 
employer plans end up bearing the burden of additional cost shifts. 
Health care costs are already rising at an unsustainable rate. 
Increased cost-shifting would trigger the warning light that causes 
employers to rethink whether they can afford to provide high quality 
health care to their employees. An exodus of employment-based plans 
from the nation's healthcare system would diminish the development of 
practices to improve the quality of health care and the pursuit of 
innovative strategies to bring healthcare costs under control that are 
core strengths of the employment-based system.
    Employee opt-outs: We are also concerned about the adverse 
selection that would be experienced if individual participants in 
employer-sponsored plans were permitted to opt out of the employer plan 
and into a public plan, especially if the employer were compelled to 
pay for the individual's participation in the public plan and/or 
finance any subsidy given low-income individuals who opted out. If 
permitted, an opt-out would undermine the demographic fairness of a 
large risk pool that is a feature of employer plans. Over time, young, 
healthy employees would seek cheaper coverage outside of the employer's 
plan, and older, sicker employees would remain in the plan. Eventually, 
employer plans would become havens for employees with the worst risk 
profiles, and this would be reflected in ever-higher premium costs. At 
some point, employers would no longer be able to provide affordable 
coverage to their workers.
    Employer mandates: Employer mandates, especially their 
manifestation in the ``pay-or-play'' penalties currently under 
discussion, have the potential to seriously harm employer-sponsored 
plans. ERIC members generally provide high quality benefits with 
generous employer contributions; thus, it would appear that a ``pay or 
play'' requirement would have little or no relevance for us. As we have 
learned from the experience in Massachusetts, however, this is not 
always the case, and--as is so often true in life--the devil is in the 
details. For instance, if the employer mandate only required that 
employers offer a set minimum package of benefits to employees that met 
a specified, modest actuarial value, then many--but not all--major 
employers would meet that bar. But if the mandate were to require that 
all full-time employees were to be covered, and full-time were defined 
as working 25 hours per week, many other employers would drop below the 
bar. If the mandate were to further include no cost-sharing for 
prevention or wellness and full coverage of mental health benefits, 
others would drop out.
    Employer mandates by definition restrict our ability to devise and 
operate health care plans that best meet the needs of our employees. 
Mandates increase costs and limit flexibility. Coupled with punitive 
regulatory regimes, employer mandates will discourage employers from 
continuing to provide quality, affordable health care to their 
employees. This is not an idle threat; one need look no farther than 
the nation's moribund defined benefit plan system to see the effects of 
overly complex rules and regulations.
    Preemption: I would be remiss if I did not take this opportunity to 
underscore the absolute inviolability of ERISA preemption. Without the 
national uniformity made possible by ERISA's preemption doctrine, large 
multistate employers simply could not offer quality healthcare coverage 
to their employees. Its importance was recognized by the original 
sponsors of ERISA as critical to ensuring that employers provided sound 
and secure benefits. Any future legislation must continue to accord 
preemption and national uniformity of regulation a similar priority.
    Conclusion: ERIC is committed to the goal of reforming the nation's 
healthcare system in a responsible manner that will extend health care 
to those without it and that will reverse the current fatal escalation 
in the costs of health care. Equally important, I believe, is that this 
reform be accomplished without undermining the system that currently 
offers quality health care to 170 million satisfied Americans.
    ERIC intends to continue to play a constructive role in this 
debate.
    Thank you, and I would be happy to respond to any questions.
                                 ______
                                 
    Chairman Miller. Mr. Arensmeyer.

 STATEMENT OF JOHN ARENSMEYER, FOUNDER AND CEO, SMALL BUSINESS 
                            MAJORITY

    Mr. Arensmeyer. Thank you, Chairman Miller, Ranking Member 
Kline, and members of the committee. The Small Business 
Majority appreciates this opportunity to present the small 
business perspective on the House tri-committee draft health 
care reform plan. We support the effort to move this 
legislation through the Congress expeditiously, and thank you 
for bringing this forward in a timely manner.
    Small Business Majority is a nonprofit, nonpartisan 
organization founded and run by small business owners and 
focused on solving our biggest problem that we face today, the 
skyrocketing cost of health care. We represent the 27 million 
Americans who are self-employed or own businesses of up to 100 
employees. Our organization uses scientific research to 
understand and represent the interests of all small businesses.
    I have been an entrepreneur for more than 20 years, 
including 12 years owning and managing an Internet 
communications company. Together with the other senior managers 
in our organization, we have a total of 70 years running 
successful small businesses ranging from high-tech to food 
production to retail. We hear stories every day from small 
business owners who can't get affordable coverage.
    Louise Hardaway, a would-be entrepreneur in Nashville, 
Tennessee had to abandon her business stream after just a few 
months, because she couldn't get decent coverage. One company 
quoted her a $13,000 monthly premium.
    Others, such as Larry Pierson, owner of a mail order bakery 
in Santa Cruz, California, struggled to do the right thing and 
provide health care coverage. Larry notes that, ``The 
tremendous downside to being uninsured can be instant poverty 
and bankruptcy. That is not something my employees deserve.''
    Our polling confirms that controlling health costs to small 
business owners is number one concern. Indeed, on average, we 
pay more than 18 percent more for health care coverage than big 
businesses. An economic study that we released earlier this 
month, based upon research by noted MIT economist Jonathan 
Gruber, found that without reform, health care will cost small 
businesses $2.4 trillion over the next ten years. As such, we 
are pleased to see that the House bill addresses key cost 
containment measures such as expanded use of health IT, 
transparency, prevention, primary care and chronic disease 
management.
    Our polling shows that 80 percent of small business owners 
believe that the key to controlling costs is a marketplace 
where there is healthy competition. To this end, there must be 
an insurance exchange that is well-designed and robust.
    We are very pleased that the committee's bill proposes a 
national insurance marketplace with the option for State or 
regional exchanges that adhere to national rules. Moreover, we 
are encouraged by the committee's proposal that there be 
standardized benefit packages along with guaranteed coverage 
without regard to preexisting conditions or health status, a 
cap on premiums and out-of-pocket costs, and marketplace 
transparency.
    We understand that a balanced set of reforms will require 
everyone to participate; 66 percent of small business owners in 
our recent polls, in 16 States for which we are releasing 
preliminary data today, support the idea that the 
responsibility for financing a health care system should be 
shared among individuals, employers, providers and government.
    It should be noted that respondents to our surveys included 
an average of 17 percent more Republicans than Democrats, 40 
percent to 23 percent, while 28 identified as Independent.
    According to the results of the economic modeling done for 
us by Professor Gruber, comprehensive reform that includes even 
modest cost containment measures and a well-designed structure 
of employer responsibility will offer a vast improvement over 
the status quo. A system with appropriate levels of tax 
credits, sliding scales and exclusions will give small 
businesses the relief they need, potentially saving us as much 
as $855 billion over the next ten years, reducing lost wages by 
up to $339 billion--and, in response to the question that the 
Ranking Member asked Dr. Romer--minimizing job losses up to 72 
percent.
    We are very pleased that the committees have addressed some 
of the affordability concerns of the smallest businesses. 
Professor Gruber has modeled specific scenarios, described in 
detail in our report, and we look forward to working with you 
to ensure the best balance between the need to finance the 
system and our ability to pay.
    Finally, another issue of great concern to us is the unfair 
tax treatment of the 21 million self-employed Americans. Under 
the current Tax Code, self-employed individuals are unable to 
deduct premiums as a business expense and are required to pay 
an additional 15.3 percent self-employment tax on their health 
care costs. We encourage that this inequity be rectified in the 
final bill passed by the House.
    Chairman Miller, when you announced this historic bill you 
noted that health care premiums had spiraled out of control, 
quote, placing our fiscal future in peril. As small business 
owners, we agree wholeheartedly, health care reform is not an 
ideological issue, it is an economic and practical one. We are 
encouraged by the overall approach of this bill and look 
forward to working with you to make it a reality this year. 
Thank you.
    Chairman Miller. Thank you.
    [The statement of Mr. Arensmeyer follows:]

         Prepared Statement of John Arensmeyer, Founder & CEO,
                        Small Business Majority

    Good afternoon Chairman Miller, Ranking Member Kline and members of 
the committee. Small Business Majority appreciates the opportunity to 
present the small business perspective on the draft healthcare reform 
plan being considered by the House Education and Labor Committee. We 
support the effort to move this legislation through Congress 
expeditiously, and thank you, along with the leadership of both the 
Ways and Means and Energy and Commerce committees, for bringing a 
proposal forward for discussion in such a timely manner.
    Small Business Majority is a nonprofit, nonpartisan organization 
founded and run by small business owners and focused on solving the 
biggest problem facing small businesses today: the skyrocketing cost of 
healthcare. We represent the 27 million Americans who are self-employed 
or own businesses of up to 100 employees. Our organization uses 
scientific research to understand and represent the interests of all 
small businesses.
    I have been an entrepreneur for more than 20 years, including 12 
years owning and managing an Internet communications company 
specializing in financial services. Together with two other senior 
managers in our organization, we have a total of 70 years running 
successful small businesses ranging from high-tech to food production 
to retail.
    We are pleased to be here today to support comprehensive healthcare 
reform that will reduce the costs of insurance and medical care, while 
making coverage affordable, fair and accessible. Our research shows 
that comprehensive health insurance reform is small business owners' 
number one need, and controlling costs is essential to ensuring our 
ability to obtain high-quality, affordable healthcare for ourselves, 
our families and our employees.
    My testimony will highlight the issues of most interest to small 
businesses. I'll discuss what we have learned from our scientific 
research about both the opinions of small business owners and the 
projected economic impact of various reform options--and the impact of 
failing to act. The points I'll be making include:
     Our research shows that small business owners want and 
need reform now. The high cost of healthcare is killing us.
     Small businesses are willing to be part of the solution.
     A properly designed shared responsibility reform model 
will significantly help small businesses, according to an economic 
study we commissioned from M.I.T. economist Jonathan Gruber
     The committees' discussion draft addresses many of the 
necessary elements in comprehensive reform, particularly controlling 
costs, creating a robust exchange, instituting insurance market reforms 
and establishing a workable system of shared responsibility that takes 
into account the needs of the smallest businesses.
     We look forward to working with the committees to ensure 
that their recommendations on small business obligations, exemptions 
and tax credits are most helpful to small businesses and are consistent 
with our ability to pay.
     The tax rules for purchase of health insurance by the 
self-employed must be brought in line with those of all other 
businesses.

Healthcare Costs are Killing Small Business and Sapping Our Economic 
        Vitality
    National surveys of small business owners consistently show that 
the cost of health insurance is our biggest overall problem. In fact, 
the crushing costs of healthcare outranked fuel and energy costs and 
the weak economy for 78% of small business people polled by the Robert 
Wood Johnson Foundation in 2008.\1\
---------------------------------------------------------------------------
    \1\ ``Study shows small business owners support health reform,'' 
Robert Wood Johnson Foundation, 2008.
---------------------------------------------------------------------------
    Small businesses are at a disadvantage in the marketplace largely 
because our small numbers make rates higher. According to research 
supported by the Commonwealth Fund, on average we pay 18% more than big 
businesses for coverage.\2\ Small businesses, including the growing 
legions of the self-employed, need a level playing field to succeed and 
continue as the job generator for the U.S. economy.
---------------------------------------------------------------------------
    \2\ J Gabel et al, Generosity and Adjusted Premiums in Job-Based 
Insurance: Hawaii is Up, Wyoming is Down, Health Affairs, May/June 
2006.
---------------------------------------------------------------------------
    We hear stories every day from small business owners who can't get 
coverage because they've been sick in the past or the health plans they 
are offered are outrageously priced. Louise Hardaway, a would-be 
entrepreneur in the pharmaceutical products industry in Nashville, had 
to give up on starting her own business after just a few months because 
she couldn't get decent coverage--one company quoted her a $13,000 
monthly premium.
    Many other businesses maintain coverage for employees, but the cost 
is taking a bigger and bigger chunk out of their operating budgets. 
It's common to hear about double-digit premium increases each year, 
eating into profits and sometimes forcing staff reductions. These 
rising bills frequently force business owners to hack away at the 
insurance benefit to the point where it's little more than catastrophic 
coverage. That leaves employees with huge out-of-pocket expenses or a 
share of the premium they can't afford, forcing them to drop coverage. 
That concerns Larry Pierson, owner of a mail-order bakery in Santa 
Cruz, California, who says that ``the tremendous downside to being 
uninsured can be instant poverty and bankruptcy, and that's not 
something my employees deserve.''
    Small business owners want to offer health coverage, and our 
surveys show that most of us feel we have a responsibility to do so. 
With staffs of 5, 10 or even 20 people, we run tight-knit 
organizations, know our employees well and depend on each employee for 
our businesses' success. We don't want to see our valuable employees 
wiped out financially by a health problem, or ignore illnesses because 
they can't afford to go to the doctor.
    Many small businesses are forced to drop coverage altogether. 
According to the Kaiser Family Foundation, among firms with 3 to 9 
workers, the percentage that offers insurance dropped from 57% in 2000 
to 49% in 2008.\3\
---------------------------------------------------------------------------
    \3\ Kaiser Family Foundation/HRET Employer Health Benefits Annual 
Survey, 2008
---------------------------------------------------------------------------
    This makes small business employees a significant portion of the 
uninsured population. Of the 45 million Americans without health 
insurance in 2007, nearly 23 million were small business owners, 
employees or their dependents, according to Employee Benefit Research 
Institute estimates.\4\
---------------------------------------------------------------------------
    \4\ Employee Benefit Research Institute, Sources of Health 
Insurance and Characteristics of the Uninsured: Analysis of the March 
2008 Current Population
---------------------------------------------------------------------------
    Our scientific research reinforces what we hear anecdotally every 
day: High healthcare costs are putting enormous pressure on small 
business owners. We have just completed a series of telephone surveys 
of a scientific sample of small business owners in 16 states. The 
staggering cost of health coverage is reflected in some of the key 
findings:
     An average of 72% say they are struggling to afford health 
insurance;
     An average of 69% overall say reform is necessary to save 
the economy;
     and when asked about the most important goals for 
healthcare reform, the top choice is most often ``control costs.''
    Finally, if we don't get control of the healthcare crisis facing 
small businesses, we will impede our overall economic growth. Small 
businesses under 100 employees employ 42% of American workers.\5\ 
Traditionally, small businesses lead the way out of recessions. 
Addressing this crisis is essential to our vitality as a nation.
---------------------------------------------------------------------------
    \5\ U.S. Bureau of Census, 2006 County Business Patterns
---------------------------------------------------------------------------
Cost Containment Comes First
    We have sponsored research that actually models what would happen 
to small business without comprehensive reform, contrasted with three 
different levels of support to small business. The research underlying 
this report, made public earlier this month, was conducted for Small 
Business Majority by Jonathan Gruber, noted economist at the 
Massachusetts Institute of Technology. Dr. Gruber's research found that 
without reform, the continued rising cost of healthcare coverage will 
cost small businesses $2.4 trillion over the next ten years.\6\
---------------------------------------------------------------------------
    \6\ The Economic Impact of Healthcare Reform on Small Business, 
Small Business Majority; available at www.smallbusinessmajority.org
---------------------------------------------------------------------------
    We need to slow the growth of overall healthcare costs to make 
coverage affordable and to improve the competitiveness of small 
businesses. The key to cost containment is to create a marketplace 
where there is healthy competition among insurers, which would create 
incentives to lower costs by increasing price competition. Specific 
actions that are likely to have the most impact include expanded use of 
health IT, research about what works in medicine, transparency and 
public reporting of costs and quality, incentives for expanded use of 
preventive services, primary care and effective management of chronic 
conditions, malpractice reform, and reduction in waste, fraud and 
abuse. We are pleased to see that the House discussion draft addresses 
many of these approaches.

A Robust Exchange Coupled with Insurance Market Reforms is Essential
    We believe that it is essential to have an insurance exchange that 
is well-designed and robust. A broad, well-functioning marketplace 
offering consistency, fairness and healthy competition will vastly 
improve the availability and affordability of coverage to small 
businesses and the self-employed. Indeed, our recent opinion research 
shows that 80% of small business owners in those states surveyed 
support a health insurance pool to create a marketplace where small 
businesses and individuals choose their coverage.
    The current insurance marketplace is broken, particularly for small 
businesses, which cannot access plans with favorable rates because of 
their small size. Kaiser Family Foundation research shows that 
insurers' administrative costs are 18% higher for individual and small 
business health plans than for large groups. Those costs are passed 
along in higher premiums.
    We are very pleased that the committees' discussion draft would 
establish a national insurance marketplace for individuals and 
businesses to comparison shop for coverage. It is good policy for 
states to establish state or regional exchanges that adhere to the 
national rules to ensure maximum flexibility and incorporation of 
particular local needs.
    Moreover, we are encouraged by the committees' proposal that there 
be standardized benefit packages to make it easier to make informed 
choices on cost and quality, along with guaranteed availability of 
coverage, no exclusions for preexisting health conditions, health 
insurance rating rules that prohibit adjustments for health status, a 
cap on premiums and out-of-pocket spending, marketplace transparency, 
and affordability credits to ensure that small business employees and 
others can actually participate without financial hardship.
    To be financially successful, the exchange must ensure that it 
avoids adverse selection. Requirements that individuals and businesses 
purchase insurance, accompanied by guarantees of affordability, will 
help provide a wide, diverse base for the exchange. It is vital that 
the ultimate design of the exchange include as broad a group as 
possible and potentially include incentives for people to buy into it. 
To create stability it is important that the exchange can grow in 
strength as quickly as possible, taking into account the need to ensure 
a smooth transition.
    For small businesses, this kind of exchange will go far in reducing 
the chaos and decreasing the administrative burden involved in choosing 
and maintaining health insurance both for business owners and for their 
employees if they offer coverage.

Healthcare Reform Based on Shared Responsibility Benefits Small 
        Business
    Small business owners understand that a balanced set of 
comprehensive reforms will require everyone to participate. 66% of 
small business owners responding to our recent state surveys support 
the idea that the responsibility for financing a more affordable 
healthcare system should be shared among individuals, employers, 
insurance companies, providers and government. It should be noted that 
respondents to our surveys included an average of 20% more Republicans 
(40%) than Democrats (22%), while 28% identified as independent.
    According to the results of our economic modeling, comprehensive 
reform that includes even modest cost containment measures and a well-
designed structure for employer responsibility will offer a vast 
improvement over the status quo and spiraling future costs for small 
businesses. A system requiring an employer contribution, with 
appropriate levels of tax credits, sliding scales and exclusions, will 
give small businesses the relief they need, potentially saving as much 
as $855 billion over the next 10 years, reducing lost wages by up to 
$339 billion and minimizing job losses by 72%.
    The committees' discussion draft proposes an employer requirement 
to provide health insurance to workers. As shown by our research, this 
framework is workable, and, if properly designed, can produce 
substantial benefits for small businesses. Our modeling of the most 
successful reform scenarios presumes an exemption for the smallest 
businesses, a sliding scale of obligations based upon the size of 
payroll or the number of employees up to 6.5% of payroll and tax 
credits of 50% of health costs for employees earning under $100,000 at 
businesses with fewer than 50 employees. We are very pleased that the 
committees have addressed many of the affordability concerns of the 
smallest businesses, and we look forward to working with you to ensure 
the best balance between benefit to small businesses and our ability to 
pay.

Tax Equity for the Self-Employed
    Finally, another issue of great concern to us is the unfair tax 
treatment of the 21 million self-employed people in this country. Under 
the current tax code, self-employed individuals are unable to deduct 
premiums as a business expense and are required to pay an additional 
15.3% self-employment tax on their healthcare costs. These business 
owners are at a significant tax disadvantage to larger businesses, 
which do not pay payroll taxes on the health insurance they provide 
employees. It is one of many barriers these Americans face in trying to 
access affordable health insurance for themselves and their families.
    The self-employed should be allowed to fully deduct their health 
insurance premiums for the purposes of their income tax and self-
employment tax. We encourage the addition of this provision in the 
final bill passed by the committees.

Conclusion
    When Chairman Miller announced this historic bill, six months in 
the making, he noted that healthcare premiums had spiraled out of 
control, ``placing our fiscal future in peril.''
    We agree. Healthcare reform is not an ideological issue--it's an 
economic one. Small business owners know this, which is why they 
overwhelmingly support a comprehensive solution to reforming the way we 
pay for healthcare. We are encouraged by the overall approach of this 
bill and look forward to working with you to make it a reality this 
year.
                                 ______
                                 
    Chairman Miller. Ms. Visco.

   STATEMENT OF FRAN VISCO, J.D., PRESIDENT, NATIONAL BREAST 
                        CANCER COALITION

    Ms. Visco. Chairman Miller, Ranking Member Kline, members 
of the committee, I am a 22-year breast cancer survivor, and I 
represent the National Breast Cancer Coalition, a coalition of 
hundreds of organizations and tens of thousands of individuals 
dedicated to ending breast cancer. We recognize that we will 
not achieve that mission unless everyone has access to the 
quality care they need.
    NBCC is grateful for the opportunity to present our 
positions to this committee, and we are excited about the 
possibility, which we want to make a certainty, that this 
country will enact guaranteed access to quality health care for 
all now.
    We have a grassroots board of directors. It is 25 of our 
member organizations, and they spent several years working on 
this issue. We invested resources in educating them, our field 
network, and the public about the various approaches and issues 
surrounding health care reform, and we developed a framework 
for a health care system guaranteeing access, which was 
submitted for the record with my written testimony.
    We need a system of patient-centered care; yes, a term that 
gets thrown around quite freely. But you know the problems. 
There were some stories identified in my written testimony and 
there are so many more. Women sharing prescription drugs, 
delaying treatments, losing their jobs and losing insurance 
facing a diagnosis of breast cancer.
    Our focus as a Nation should be on solving those issues, 
always centered on the patient, on the individual. How do we 
reform the system so that everyone has access to the quality 
care they need, when they need it; that guarantees everyone a 
comprehensive set of basic benefits that are based on evidence 
or are contributing to the evidence base?
    We know you have many pressures from many different fronts, 
but we need to always keep focused on the patient, on the 
individual, centered on that goal. We should not begin by 
figuring out how to maintain drug prices or physician 
reimbursement or maintain the existing insurance industry. 
Those issues should only be addressed within the context of, 
first and foremost, the patients, the health of the individuals 
in this country.
    The history of health care reform is the story of all 
constituencies that don't want to give anything up. We all have 
to give something up to achieve our goal; money, certainly, and 
the National Breast Cancer Coalition understands that.
    And our framework makes clear we believe in shared 
responsibility. We should all share the financial cost of 
reforming the system. Perhaps we have to accept the longer wait 
for a test that would adversely impact our expectations, but 
not our health. But what we don't want to give up is our 
health, our lives.
    We have all been working on these issues for many years. We 
know what to do, we just need the courage to do it. We applaud 
the approach outlined by this committee. It meets many of the 
principles of our framework for access to care. Our efforts in 
this area were led by Carolina Hinestrosa, the Executive Vice 
President of NBCC. She died on Sunday as a result of side 
effects from her breast cancer treatment. She spent her last 
days working on this, and we will work our hearts out 
passionately, committed for Carolina, but also because we know 
it is the right thing to do and it is necessary to reach our 
goal of ending breast cancer.
    We need make certain that this system supports the right 
care. We need comparative effectiveness research to reach that 
goal.
    Now, we have spent some time understanding the issue beyond 
the sound bites and recognize without question the need for 
this approach in health care. Comparative effectiveness 
research is research in the real-life settings all doctors and 
patients face.
    This is an extraordinary time. We are ready to change for 
the better the system of health care in this country. The 
infrastructure we build to get there needs consumers and 
patients at all tables. Their perspective is necessary to 
ensure that decisions regarding health care will have a 
meaningful positive impact for those on the receiving end of 
care: the patients and their families. And they are the ones 
who will have to navigate the complex web of rules and 
requirements in any health insurance system.
    It is important that it is not just any patient or 
consumer. They must be accountable. They must represent to and 
report back to organizations that represent those affected by 
their issue, by their medical condition, and must be 
knowledgeable about the health care system and well-trained.
    I didn't understand why in the 1990s when the health care 
reform effort failed, the American public did not storm 
Washington and demand that Congress and the White House make 
access to care a reality. This time we are ready and we are 
passionately committed to achieve that reality.
    On behalf of the National Breast Cancer Coalition, we 
pledge to work with you to achieve the goal of guaranteed 
access to quality health care for all. Thank you.
    Chairman Miller. Thank you very much.
    [The statement of Ms. Visco follows:]

           Prepared Statement of Fran Visco, J.D., President,
                    National Breast Cancer Coalition

    Thank you, Chairman Miller and members of the House Education and 
Labor Committee for the opportunity to testify at your hearing on the 
Tri-Committee Draft Proposal for Health Reform. I am honored to have 
this opportunity to appear before you today.
    I am Fran Visco, a 21-year breast cancer survivor, a wife and 
mother, a lawyer, and President of the National Breast Cancer Coalition 
(NBCC). This organization and the testimony I present today represent 
the hundreds of member organizations and thousands of individual 
members from across the country.
    NBCC's mission is to eradicate breast cancer. NBCC's main goals are 
to increase federal funding for breast cancer research and collaborate 
with the scientific community to implement new models of research; 
improve access to high quality health care and breast cancer clinical 
trials for all women; and expand the influence of breast cancer 
advocates wherever breast cancer decisions are made.

The National Breast Cancer Coalition Framework for Health Care Reform
    Since its inception in 1991, NBCC has known that the only way to 
achieve our mission to end breast cancer is to ensure guaranteed access 
to comprehensive, quality health care for all. After several years of 
research and analysis, in 2007, NBCC articulated its vision for 
accomplishing this goal when our grassroots Board of Directors approved 
a Framework for a Health Care System Guaranteeing Access to Quality 
Health Care for All which builds on Principles it adopted in 2003. 
Throughout the process of developing the Framework, NBCC applied its 
longstanding commitment to advancing evidence-based medicine and 
training consumers to strive towards systems change. NBCC believes 
strongly in guaranteed access to coverage for all, educated patient 
participation at all levels of health system decision making, shared 
responsibility and benefits that are based on medical evidence and cost 
effectiveness so that patients can be assured of consistent, high 
quality health care. I am submitting a copy of the NBCC Framework for 
the record.
    There are three million women living with breast cancer in this 
country today. This year, more than 40,000 will die of the disease and 
more than 240,000 will be diagnosed. We still do not know how to 
prevent breast cancer, how to diagnose it truly early or how to cure 
it. It is an incredibly complex disease, and too few women have access 
to the care they need. We simply can no longer afford to accept the 
status quo when it comes to our health care system.
    Our long standing commitment to health care reform is driven by the 
experiences and stories of the millions of women who have not only 
received the devastating diagnosis of breast cancer but have also had 
to suffer the injustices of our current health insurance system. We 
hear and live these stories, from women who share their breast cancer 
drugs with others who are un- or underinsured, to those who delay 
treatment or who ignore symptoms because they do not know how to pay 
for care. There are far too many stories.
    Carolyn, from Los Angeles, had insurance and access to tamoxifen. 
So did one other woman in her breast cancer support group. But others 
lacked insurance and the funds to pay for treatment. So Carolyn and her 
friend shared their tamoxifen with these women. No one received the 
right amount of the drug.
    Patricia from New Hampshire is 61, her husband 64. When he was laid 
off after 27 years, they lost their health insurance. Then she was 
diagnosed with breast cancer. She found insurance, for herself, at $929 
per month. Their joint income was $40,000.
    Sonia from Florida was also uninsured at the time of her breast 
cancer diagnosis. She managed to find fragmented care, and was refused 
further treatment at other institutions. She could not find insurance--
even if she could afford it--because of her pre-existing condition.
    Mary, from Waterloo, Iowa worked for a large corporation that 
changed health plans in the middle of her breast cancer treatment. Her 
doctors and hospital were no longer covered and she was forced to leave 
her doctors in the midst of a complex treatment regimen.
    These are just some of the representative stories of what women 
face today in our existing health care system.

The House Tri-Committee Health Reform Discussion Draft
    Mr. Chairman, on behalf of NBCC, I commend you as well as the 
Chairmen of the House Energy and Commerce and the House Ways and Means 
Committees for your leadership and hard work in putting together a 
health care reform proposal to provide quality affordable health care 
for all Americans and control health care costs. We are also pleased to 
see that your draft legislation includes many of the key elements that 
are reflected in NBCC's Framework for a Health Care System Guaranteeing 
Access to Quality Health Care for All (Framework).
    NBCC's Framework calls for a health care system in which coverage 
is guaranteed to all individuals, does not discriminate or deny 
coverage for any reason, including pre-existing conditions. We are 
pleased that the draft legislation establishes options and expands 
Medicaid eligibility. All of these elements are critical to ensuring 
that those with insurance they like can keep it while also giving those 
for whom insurance has been out of reach the opportunity to finally 
afford coverage for themselves and their family.
    While the public plan option was not included in our original 
Framework, the NBCC Board of Directors recently endorsed this approach 
because it believes a public plan is important to providing patients' 
choice and injecting more competition into the insurance market, with 
the goal of keeping costs down.
    We are pleased that the House Tri-Committee discussion draft bill 
guarantees coverage and ends many of the discriminatory insurance 
practices that have put meaningful coverage out of reach for many 
Americans with millions more in fear of losing their coverage should 
they experience a catastrophic illness such as breast cancer. 
Specifically, your bill prohibits pre-existing condition exclusions and 
also bars plans from rating based on gender or health status. The bill 
also includes several provisions to keep health care affordable, 
including no annual or lifetime limits on benefits as well as an annual 
cap on out of pocket spending and sliding scale credits based on income 
to help people afford to purchase insurance.
    NBCC's Framework calls for an independent public/private Federal-
level board to determine the benefits package. The basic benefits 
package should be equivalent to the most comprehensive plan available 
to members of Congress through the Federal Employees Health Benefit 
Plan (FEHBP) and should guarantee coverage for care that is based on 
scientific evidence and is continuously reviewed and updated based on 
evidence.
    We are pleased that your legislation proposes a new 18-member 
public/private independent Federal-level Health Benefits Advisory 
Committee (Committee) that will recommend a new essential benefit 
package that will establish a core set of comprehensive benefits, make 
periodic updates to the benefits, and caps the amount of money a person 
or family spends on covered services in a year. We urge the Committee 
to ensure that the basic benefit package is as comprehensive and 
guarantees coverage for care that is based on the best available 
scientific evidence and is cost effective. It is imperative that the 
core set of benefits be available to everyone, regardless of ability to 
pay. Moreover, the benefits should be limited to those interventions 
determined to be efficacious, safe, cost-effective and based on sound 
evidence, or as part of a clinical trial or otherwise appropriately 
contributing to the evidence base.
    NBCC strongly supports comparative effectiveness research and 
believes that it is necessary to help ensure quality, affordable health 
care for all. We need a high level of evidence for doctors and patients 
to choose which care is appropriate, for whom, and under what 
circumstances and who should pay for it. This is critical to patient-
centered care. There are two necessary components to this evidence: the 
first is high quality clinical research of new interventions and the 
second, and equally necessary component, is research of interventions 
in the real life settings all doctors and patients face. Comparative 
effectiveness research is a term to describe this second component. It 
provides an opportunity to conduct research to find these answers, in 
settings that reflect the situations of the average person, adding 
value beyond what we obtain from the highly controlled setting of 
traditional clinical trials.
    Women--all individuals--should have access to care that helps them, 
care that improves their lives. Today there is increasing use of 
technology in health care, certainly in breast cancer, with increased 
cost and little known benefit to patients. Comparative effectiveness 
will help guide us through this maze. For example, it could tell us 
which of the many gene based tests on the market actually are accurate 
and clinically useful. Also, as we strive to detect breast cancer 
earlier and earlier, we tend to find many abnormalities that will never 
become life threatening, yet we do not know how to deal with this 
information. Ductal carcinoma in situ (DCIS) is one such condition. 
DCIS is treated like it is cancer, so we over treat many women with 
significant harmful side effects. Comparative effectiveness research 
can tell us which of the various interventions for DCIS are the most 
helpful and least harmful.
    There is a breast cancer drug that has been hailed as a 
breakthrough. It is a targeted therapy that costs tens of thousands of 
dollars a year. There are at least two tests to determine which women 
will benefit from this drug and we have known for over a decade that 
one provides much more accurate information. Yet we still pay for both 
tests and for the drug in women who will not benefit. And many women 
who would benefit do not get the drug. There are many similar questions 
that we have known for years that women face every day. We do not have 
the answers, but we could.
    This rational approach to health care can significantly improve 
care. However, for comparative effectiveness research to do so, it 
depends on the following:
     Quality--Comparative effectiveness research must be held 
to the highest standards of quality. This research must employ rigorous 
methods that can provide reliable answers to our specific questions. 
These may include experimental designs, observational studies like 
registries, systematic reviews and other methods. Incorporating new 
technologies to better understand the utility of biomarkers and the 
interplay of co-morbidities will help achieve the promises of 
biomedical research progress on an individual level. Great care needs 
to be taken to ensure that there are clear standards of quality so the 
investment in comparative effectiveness research delivers value to the 
public.
     Transparency--Doctors, patients and policy makers must be 
able to trust the results of comparative effectiveness research. While 
quality is vital to that goal, transparency and accountability are also 
key. The processes for setting priorities, defining criteria and 
reporting results must be transparent and easily accessible to all. 
Methods and data must be shared so they can be publicly critiqued and 
widely used in a practical manner. Moreover, trained lay consumer 
advocates must be meaningfully involved in all aspects of decision-
making that affects comparative effectiveness research.
     Independence--Comparative effectiveness research 
infrastructure must be sheltered from political pressure. The 
usefulness and value of comparative effectiveness research lie in its 
independent assessment of different interventions, the results of which 
can be used by all the different stakeholders in decision-making. The 
process for selection of topics to be studied must be objective, and 
the results must be credible. The entire research process must be 
insulated from political pressures and conflicts of interest generated 
by both government and private-sector stakeholders.
     Integrity--Comparative effectiveness research must be 
conducted with integrity. High quality methods, accurate and detailed 
record keeping, and honest publication of the results, regardless of 
the outcome, must be emphasized. All contributors to comparative 
effectiveness research must publicly disclose all relevant 
relationships and conflicts of interest. Institutional guidelines and 
procedures must be in place to define and address conflicts.
    Comparative effectiveness research must deliver value to the 
individual and society by strengthening the evidence base, enabling 
better decision-making, improving health outcomes, more fairly 
allocating healthcare resources, and containing the currently 
unsustainable health care costs.
    We are pleased that your draft legislation builds upon the 
foundation that was set forth in the American Recovery and Reinvestment 
Act of 2009 (ARRA) to provide for a robust and rigorous comparative 
effectiveness research program. Specifically, your legislation creates 
a Comparative Effectiveness Commission that has been tasked with 
advising, overseeing and evaluating the research and findings of the 
Center for Comparative Effectiveness Research at the Agency for 
Healthcare Research and Quality. Your legislation seeks to ensure 
transparency, credibility, and access to research by requiring the 
disclosure of any conflicts; providing stakeholders input into the 
process; requiring the dissemination of the findings; and creating a 
Comparative Effectiveness Research Trust Fund (CERTF) to ensure that 
this critical research receives adequate funding and is not subject to 
an annual appropriations process. Such efforts are essential to 
ensuring that the public and providers are informed, and therefore 
patients receive, the most effective and appropriate treatment for 
their particular condition. Such research will greatly enhance the 
delivery of efficient, effective and high quality care that provides 
true benefit to patients in need. We simply cannot and should not 
continue to tolerate the massive amounts of wasteful, inefficient and 
in some cases, harmful care being administered in today's broken health 
care system.
    NBCC's Framework calls for a significant number (25%) of educated 
patient/consumer members on all committees, commissions and boards 
involved in health care including those established to review and 
assess the best evidenced-based treatment options, their cost 
effectiveness, decide the level of benefits and determine effective 
methods for communicating health care information to consumers, 
providers and plans. Patient advocates--members of the lay public who 
are educated and trained--can play an integral role in ensuring that 
the health care system is responsive to the needs of the medical and 
scientific communities as well as health care consumers. Their 
perspective is necessary to ensure that decisions regarding benefit 
packages, insurance reforms, research and other aspects of the health 
care system are meaningful and will have a positive impact for those on 
the receiving end of health care--the patients and their families. The 
perspective of patients and families is also important as they are the 
ones who must navigate the complex web of rules and requirements in any 
health insurance system.
    The leadership and membership of the various committees and 
commissions contemplated by your bill will determine its success. These 
individuals, no matter which constituency they represent, must be 
chosen based on their proven ability to participate in these types of 
decisions. We are pleased that your draft bill demonstrates your 
commitment to ensuring that patients, consumers and their families have 
a strong voice and role to play in a reformed health care system. In 
particular, we are heartened to see that the independent private-public 
Health Benefits Advisory Committee assigned to provide recommendations 
on a benefit package would include consumer representatives. We also 
appreciate that your bill provides patient advocates a role to play on 
the Comparative Effectiveness Commission. We would however encourage 
you to specify that 25 % of these committees are comprised of consumers 
or patient advocates to ensure that they can contribute to this process 
in a meaningful way. We also would ask that you consider integrating 
the following language everywhere such entities are described in your 
bill:
    ``The term `educated consumer or patient advocate' means an 
individual who is accountable to, represents and reports back to 
organizations that represent those affected by a specific disease or 
medical condition and is knowledgeable about the health care system and 
has received training to make informed decisions regarding health, 
medical and scientific matters.''
    NBCC's Framework calls for the implementation of strategies to 
significantly reduce the administrative cost of the health care system, 
to simplify the current system, reduce duplication, inaccuracies, and 
inefficient record keeping and provide for system-wide electronic 
record keeping.
    We are pleased that your discussion draft makes a priority of 
appropriately controlling the rising cost of health care. Your proposal 
will reduce the growth in health care spending in numerous ways 
including health care delivery system reform and improvements in 
payment accuracy. Your legislation will realign payment incentives to 
reduce overuse, slow the growth of health care costs, and improve 
Americans' health. Your bill will also ensure physician and patient 
access to the latest and most scientifically complete information on 
available medical treatments and will Invest in development of robust 
quality measures on health outcomes.
    NBCC's Framework calls for shared responsibility. The system should 
be financed in part through cost savings and shared responsibility. 
Everyone--individuals, employers, and government--share responsibility 
to support the health care system. Individuals should be required to 
financially contribute to the system based on their ability to pay. All 
employers should be required to contribute to the system. Subsidies or 
a sliding scale should be implemented to ensure that small businesses 
are not disproportionately affected by these payments. And no 
individual can be denied coverage for inability to pay.
    We are pleased that your plan provides sliding scale affordability 
credits to low and moderate income families and assistance to small 
employers.
    We are pleased that your draft legislation recognizes that for 
health care reform to be successful and sustainable over the long-term, 
it will require the shared responsibility and commitment of all 
participants in the system--individuals, employers and the government.
Commitment of the National Breast Cancer Coalition
    NBCC is strongly committed to achieving meaningful health care 
reform this year, as we truly believe it is essential for all women 
with or at risk for breast cancer and for everyone to have access to 
high quality, affordable and reliable health insurance coverage. 
Without it, advances in medical research will remain out of reach for 
many individuals and patients in need and we cannot guarantee those who 
have been diagnosed with breast cancer will receive the necessary 
treatment or medical care that is critical to their successful 
recovery. NBCC and its members are dedicated to working with you to 
achieve affordable quality health care for all.
    Thank you again for the opportunity to testify today and for giving 
hope to all women and their families, and especially to the 3 million 
women in the United States living with breast cancer. I look forward to 
working with you to ensure that health care reform is enacted into law 
this year.

                               April 2008

               NBCC's Framework for a Health Care System

           Guaranteeing Access to Quality Health Care for All

    The National Breast Cancer Coalition (NBCC) has advocated for 
guaranteed access to quality health care for all since its inception in 
1991. In 2003 NBCC adopted its Principles for Achieving Guaranteed 
Access to Quality Health Care for All. NBCC analyzed various approaches 
to achieving its goal in order to develop public policy that moves 
beyond incremental changes to the existing health care system toward 
true comprehensive reform. NBCC's extensive research and analysis gave 
rise to its Framework for a Health Care System Guaranteeing Access to 
Quality Health Care for All. This Framework is intended primarily to 
address the issue of health care coverage. NBCC continues to work on 
approaches to quality and access beyond coverage.
    NBCC presented the Framework at its Annual Advocacy Training 
Conference in April 2008 and NBCC advocates presented it to their 
Members of Congress during Lobby Day on April 29th. NBCC looks forward 
to working with Members of Congress and other stakeholders to advance 
the goals articulated in the Framework.
Key Points of NBCC's Framework
     The Framework is premised on the fundamental belief that 
health care is a right and that all people present in the United States 
should have access to quality health care regardless of their 
immigration, residency status, or ability to pay.
     The Framework is an outline for legislation that will 
support a system of evidence-based health care coverage for everyone.
     The Framework provides that the basic benefits covered are 
comprehensive and evidence-based.
     The system resulting from the Framework will include 
mechanisms to:
     Support development of new evidence through clinical 
research
     Continually refine benefits through comparative 
effectiveness and cost effectiveness analyses
     Reduce over and under use of care
     Include educated consumers in all decision making
     The system will be financed in part through cost savings 
and shared responsibility:
     Everyone--individuals, employers, and government--share 
responsibility to support the system.
     Individuals will be required to financially contribute to 
the system based on their ability to pay.
     All employers will be required to contribute to the 
system. The Framework would phase out employer-sponsored health 
insurance. Subsidies or a sliding scale should be implemented to ensure 
that small businesses are not disproportionately affected by these 
payments.
    The National Breast Cancer Coalition's number one public policy 
priority is guaranteed access to quality health care for all. This 
document outlines a Framework developed by NBCC's Board of Directors 
that is based on the organization's Principles for Guaranteed Access to 
Quality Health Care for All adopted in 2003. This Framework addresses a 
legislative approach to coverage issues. NBCC recognizes that access to 
quality health care goes beyond coverage.
    A health care system that is built on this Framework will:
     provide a basic benefits package that is comprehensive and 
based on sound scientific evidence;
     maintain continuity of coverage;
     be efficient and cost-effective;
     be fully-funded through shared financial responsibility;
     be sustainable and affordable.
    The health care system must be accountable to the users and the 
public. A system must be established to:
     evaluate and support development of medical evidence for 
health interventions upon which coverage will be based;
     support ongoing and continuous comparison of interventions 
to ensure access to appropriate and cost-effective health care;
     modify and expand current benefits as appropriate based on 
evidence.

            I. Benefits Package
    1. All eligible individuals will be provided with coverage for a 
benefits package equivalent to the most comprehensive plan available to 
Members of Congress through the Federal Employees Health Benefit Plan.
    2. The benefits package guarantees coverage for care that is based 
on the best available scientific evidence and is cost effective (as 
determined by the Federal board described below). Care that does not 
meet these criteria will not be covered, unless it is being provided as 
part of a quality clinical trial or otherwise appropriately 
contributing to the further development of the evidence base.

            II. Eligibility
    1. Coverage is guaranteed to all eligible individuals.
    a. An eligible individual is one who is present in the United 
States. (Note: the extent of coverage will vary based upon reason for 
presence and duration of stay).
    2. All eligible individuals will be automatically enrolled and 
covered at the point of attaining eligibility.

            III. Determination of, Modifications to and Expansion of 
                    Benefits
    1. A Federal-level board shall have the authority to implement a 
system of coverage determination based on evidence. The board shall be 
appointed and include members representing the lay public (at least 
25%). The members shall have staggered terms longer than 4 years.
    a. Cost-effectiveness shall be a factor considered by the Board in 
making benefit coverage decisions.
    2. A separate and independent body, including at least 25% 
membership from the lay public, shall be appointed to develop a system 
for assessing comparative effectiveness of interventions, the results 
of which must be utilized by the board determining coverage benefits.
    3. The comprehensive benefits package and any modifications thereto 
shall be limited to those interventions that the boards deem to be: 
efficacious, safe, cost-effective, based on sound evidence; or either 
as part of a quality clinical trial or otherwise appropriately 
contributing to the evidence base.
    4. Elective Benefits
    a. Commercially available private health plans may provide coverage 
of benefits not included in the benefit package.

            IV. Efficiency
    1. The government shall implement strategies to significantly 
reduce the current administrative costs of the health care system and 
all such savings shall go toward providing coverage.
    2. The government shall also develop and implement strategies to 
simplify the current system, reduce duplication, inaccuracies, and 
inefficient record keeping and provide for system-wide, interoperable 
electronic record keeping.

            V. Information and Education
    1. Accurate, timely, and readily accessible information about 
health care coverage, access and the scientific evidence base shall be 
available to everyone. All health care providers must offer clear 
information to consumers on the benefits and harms of all options, and 
the quality of the evidence for each option.
    2. A national panel shall be established to work with the public to 
review evidence and help design effective methods for communicating 
health care information to consumers, providers and plans.

            VI. Financing
    1. All individuals are required to financially contribute to the 
system according to their ability to pay.
    2. All employers are also required to financially contribute to the 
system.
    Under this Framework employer-sponsored health insurance will be 
phased out, however, all employers are required to financially 
contribute to the system.
    3. The federal government shall establish a method for determining 
the financial contributions for individuals and employers.
    4. No individual can be denied coverage because of inability to 
pay.
    5. In addition to individual and employer contributions, the system 
will be financed by the public and private savings from efficiencies 
(referred to in the section on efficiency) as well as other government 
funding sources.
                                 ______
                                 
    Chairman Miller. Thank you all for your testimony, and 
again for taking your time to be with us and sharing your 
expertise and your experience with us. We will pick up where we 
left off with the members on our side.
    Mr. Hinojosa is recognized.
    Mr. Hinojosa. Mr. Chairman, I apologize that I was at 
another commitment, and I am going to yield back my time and 
listen to my colleagues ask their questions.
    Chairman Miller. Why don't you yield your time to Mrs. 
McCarthy?
    Mr. Hinojosa. I yield my time to the gentlewoman from New 
York, Mrs. McCarthy.
    Mrs. McCarthy. I thank you, and I thank the gentleman for 
his time. Listening to the testimony from the first panel and 
this panel, one of the things that I am going to be focusing 
on--I spent 32 years as a nurse, and the nursing shortage in 
this country is severe. Not only the nursing shortage, but 
almost all health care workers, plus primary care doctors. I 
don't see how this plan could actually work unless we have the 
workforce that can go behind it.
    I am pleased that we have some initiatives in this bill 
that will work on towards primary care doctors and nurses, but 
also the public health centers, if that is where we are going 
to go, especially for those that have the insurance.
    I grew up with a public health center. That is where I went 
for all my medical care, my shots, my polio shots, all of that, 
because my mother and father didn't have health care insurance. 
There is nothing wrong with that as long as we teach the 
patient or give the patient the dignity that they should 
deserve wherever they go to get an examination.
    And to be very honest with you, on some of our hospitals, 
which are overworked, have no money to improve their 
facilities, and to see those that don't have health care 
insurance--and that is a lot of people that have just gotten 
out of work--you are treated like cattle, and the dignity is 
taken away from the person and the patient. And that is totally 
wrong.
    They say that a country is as great only as the health of 
their people. And I consider this a great country, but I do not 
believe that our health care is the best out there. So with 
that being said, we have a lot of work to do. And I hope that 
both sides actually come together because this is the time that 
we need to have this done. It is the time to have it done.
    From the first witness, Dr. Romer, she talked about 
bundling; but a lot of people don't understand or know how the 
bundling is actually going to work between the hospital and the 
patient. The waste and fraud, where is that going to--you know, 
how are we going weed that out to save money but not punish the 
doctors that are out there?
    Payment to the doctors and the hospital. I have to tell 
you, if anyone gets the health care that I have, I see what 
they pay to the doctors and to the hospital, and I will tell 
you it is outrageous; they don't get paid enough. And you 
wonder why a lot of them are not accepting any patients. That 
has to be taken care of.
    So I am hoping as we go forward that we can work on this. I 
am glad to see that the donut hole has been closed, I think 
that is terrific. Certainly that is the biggest complaint of 
most of my----
    Chairman Miller. It is not closed yet.
    Mrs. McCarthy. Sorry?
    Chairman Miller. We have a contribution toward closing it. 
It is not closed yet. It is a fairly large donut hole. It is 
very helpful, what has taken place this weekend.
    Mrs. McCarthy. Well, if we are going to make that 
sacrifice, I mean this is the time, this is our time to do the 
right thing. That is my opinion. And the donut hole for all my 
seniors is something that should be concerned about, because, 
let's face it, the majority of our seniors, unfortunately, 
start getting the most care, health care, when they are over 65 
to 70, to 75. That is when our bodies start breaking down.
    So with that, I am hoping--and, again, with all the 
witnesses, they had--I know this is kind of more of a speech, 
and everybody here knows I don't give many speeches, but this 
is something I feel passionate about.
    You know, when you talk about your cancer patients and not 
being able to get the care that they need because they can't 
afford it, to talk about the cancer patients that the families 
will spend all of their money to take care of someone that they 
love, I mean if we as a Nation can't share those costs to be 
helpful to the family and to the people, I believe our country, 
I believe our Americans actually do believe in taking care of 
each other.
    With that, I yield back the balance of my time.
    Chairman Miller. The gentlewoman yields back. Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman and Ranking Member, 
for having this hearing today. Health care has been--up until 
January, I spent 28 years in health care. I thought maybe I 
would retire from there, actually. It wasn't to be. And I find 
myself here today.
    And I come to Congress, actually, with many of my freshman 
colleagues with health care backgrounds. And so you know my 
commitment. I got involved in public policy because of health 
care and working to ensure access, affordability, quality and 
choice of health care; a frustration of costs that I saw that 
were being driven up, frankly, by government intervention, as a 
result of regulations that were piled on like layers on an 
onion. The regulations probably made sense at one time, but we 
have to go back to the 1960s to find the roots of many of them. 
And one thing we don't do is peel things away in government, we 
just add layers on, and the frustration that I had on behalf of 
my patients of how that was increasing costs and decreasing 
access.
    And I appreciate this opportunity today. This is really one 
of the first opportunities to engage in this discussion, which 
has been pretty frustrating for someone who came to Washington, 
after almost 30 years in health care, with ideas that we could 
do things a little better. And so I appreciate the opportunity 
today.
    Frankly, the change that we need needs to be the proper 
change, and a result of full debate and full discussions. And 
we have not had that opportunity. That has been a real 
frustration of mine and, I think, a number of my colleagues.
    There are some serious concerns. A few of these I just 
mention briefly with the proposal on the table. It is creating 
a taxpayer Federal Government provider that will not really 
compete, but ultimately will consume the private health 
providers. We will wind up with a monopoly and it will be a 
government provider.
    Most of my frustration has been a result of dealing with 
Medicaid and Medicare in terms of the access and the quality of 
services for the consumers I have served for three decades. 
Frankly, I find the flawed funding mechanisms in terms of 
competition being named, yet we are going to ultimately, I 
believe, decrease competition because of this new government 
entity that is taxpayer-funded.
    The savings from HIT I have concerns with. I think there 
are immediate gains for HIT, obviously for health information 
record, but in the long run is it sustainable? That is the type 
of thing that you have to be able to reinvest in every time a 
new generation of technology comes along.
    And I raised that question in a previous forum and there 
were no thoughts about what happens a number of years from now 
when the technology changes and our health care providers find 
themselves without the resources to do that.
    So frankly, marching ahead, my first question, Mr. 
Speranza, you noted that an employer mandate will lead to loss 
of jobs. Some studies have found economic analysis prepared by 
our previous witness, Dr. Romer, that an employer mandate 
costing $300 billion over ten years will result in a loss of 
3.7 million jobs. Can you elaborate on how an employer mandate 
would work in your company?
    Mr. Speranza. Wegmans Food Markets provides full health 
insurance and has for decades. As a matter of fact, one of the 
things we take pride in is Fortune Magazine has listed us as 
one of the top 100 companies to work for. In the last 5 years 
we have either been number 1 through 5 on the list, and we are 
the only company in America to have that designation. Our 
corporate philosophy is our employees always come first, and we 
mean it. If we take care of our employees, our customers take 
care of themselves. And if our customers are taken care of, our 
bottom line takes care of itself.
    Our view as it relates to our own business, and quite 
frankly our industry, is we make our own decisions as to what 
benefits we should provide. If competition doesn't do that, we 
attract, we think, better employees as is shown how we have 
done this in the past.
    I will share one other thing with you. I talked about 
collaboration before. Over the years--we have 39,000 employees, 
about 2,000 are in unions, Teamsters union and the bakers 
union. And for years it would be the company against the union, 
and we changed that and we worked very hard. Right now we have 
provision in our labor contracts where if there are 
enhancements in our employee benefits in health care without 
negotiation, the union people get them as well. If, 
unfortunately, there has to be a reduction in health care 
benefits without negotiation, that happens as well. We built a 
team and we built a team that works.
    That is what I think America is all about. You make those 
choices at the lowest possible level, which is company by 
company. If there are companies, Mr. Thompson, that choose not 
to do that under the present system, I think they will pay the 
price by not being able to retain employees, which is very 
costly, or not to get the quality of employees. That is one 
approach.
    The only other thing I would say, going back to the 
testimony, is that there hasn't been much said about the fact 
that we don't have enough physicians, we don't have enough 
nurses, we don't have enough health care workers. Why shouldn't 
there be incentives?
    I am a lawyer. Do you know that there are three times more 
law schools in this country than there are medical schools?
    Creating incentives for health care workers. I would love 
to come back on another day when you are talking about 
education. Quite frankly, one of the things--and if you want to 
come to Rochester, I invited you with respect to health care. 
Perhaps you would come back as it relates to education. We have 
a number of programs to help economically disadvantaged 
children. We encourage them to go into the health care 
industry, whether that is physicians, whether to anything else 
in health care. So my sense is let the market prevail as much 
as we can. That is the American way.
    Mr. Thompson. And I appreciate your comments on the supply 
side of providing accessible and affordable health care. I 
think that has been pretty much ignored. And with that, my time 
is expired, Mr. Chairman.
    Chairman Miller. Mr. Kucinich.
    Mr. Kucinich. Thank you, Mr. Chairman.
    To Mr. Speranza, I want to call your attention to a 
documented letter that was in the New England Journal of 
Medicine in the June 4, 2009 edition, where it says that the 
insurance industry has over $4.4 billion in investments in 
tobacco companies. Do you have any comment on that?
    Mr. Speranza. Well, I guess my first comment would be we 
were the first major chain in the United States to stop selling 
cigarettes, so I think that is where we stand.
    Mr. Kucinich. I am asking about the industry, though.
    Mr. Speranza. I guess I would say with respect to that, I 
haven't given that a lot of thought. I do know that the 
insurance companies most likely have a fiduciary responsibility 
to do the best they can with their investments.
    Mr. Kucinich. Right.
    Mr. Speranza. I am not an economist.
    Mr. Kucinich. Thank you. You know, Melton Friedman said 
this--I am not often someone who quotes him, but it is worth 
quoting in light of what you just said. He said, ``Few trends 
could so thoroughly undermine the very foundations of our free 
society as the acceptance by corporate officials of a social 
responsibility other than to make as much money for their 
stockholders as possible: That is a quote that is included in 
this article in the New England Journal.
    Now, I would just like to say, Mr. Chairman, the fact that 
insurance companies can invest in tobacco companies--seemingly 
contradictory assumptions if you are talking about public 
health--ought to be of note to this committee when we start 
marking up the legislation.
    Now, Professor Hacker, I believe health care is a human 
right. I think everyone deserves it. That means no financial 
barriers to care. It means all medically necessary services are 
covered. The draft bill under consideration today is many badly 
needed reforms and has a very strong public plan option. But 
even with this, it is clear that millions will still remain 
uninsured and underinsured.
    What are the models for health care finance that would be 
consistent with the principle that health care is a human 
right?
    Mr. Hacker. Thank you, Congressman. I think that it is 
first worth noting that the broadening of coverage, that I 
would think is going to be foreseen when we look seriously at 
the effects of this piece of legislation, is going to be very 
substantial. The proposal that I developed some years ago, 
Health Care for America, which is very similar to this draft 
legislation, would cover almost all Americans. And when I say 
``almost all,'' my proposal would cover all but a tiny, tiny 
share, roughly.
    Mr. Kucinich. Are you saying that this bill that we have 
heard widely discussed at this committee--we will soon be 
marking up the bill that has been fairly well described--meets 
the test of health care as a human right?
    Mr. Hacker. I think that it meets the test of providing 
affordable quality coverage.
    Mr. Kucinich. Does it meet the test of health care as a 
human right?
    Mr. Hacker. I think that it does. That is a very high 
standard. I teach in my university the idea of democracy is an 
ideal. No system actually lives up to that standard.
    Mr. Kucinich. So you are saying some people have the rights 
and other people don't, even in a democracy; is that what you 
are saying?
    Mr. Hacker. No. I am actually saying that I believe that 
the standard of health care is a human right, that this 
proposal will move us dramatically closer to that ideal in our 
present system.
    Mr. Kucinich. I am concerned about medical bankruptcies. 
There is an update of a landmark Harvard study published on 
June 4, 2009 that found that two out of every three 
bankruptcies are related to medical bills. In 2001 that number 
is about 51 percent; 78 percent of those medical bankruptcies 
happen to people who actually had insurance before they got 
sick. It is a stark illustration of the consequence of giving 
health insurance companies the ability to sell plans that don't 
provide an adequate level of coverage.
    How many medical bankruptcies would the bill under 
consideration today allow?
    Mr. Hacker. I cannot give you an exact estimate, but I can 
say it would dramatically reduce the number of medical 
bankruptcies.
    Mr. Kucinich. Would there be no medical bankruptcies?
    Mr. Hacker. Well, I don't know if there would be no medical 
bankruptcies. However, it is worth noting that some of those 
medical bankruptcies are due to lost income due to sickness in 
the Himmelstein-Warren study. So it is not clear to me that 
those would be prevented, even if we had the most stringent 
requirements of affordability.
    Mr. Kucinich. This study says two out of every three 
bankruptcies are related to medical bills. This is the landmark 
Harvard study. It didn't say it is related to people losing 
their income.
    Mr. Hacker. Some portion of that total is due to people--
lost income due to sickness rather than to medical cost.
    Mr. Kucinich. Did you read this study?
    Mr. Hacker. I have indeed.
    Mr. Kucinich. And you are saying that it has to do with 
that the two out of every three bankruptcies--which the Harvard 
study says relates to medical bills--you are saying that a more 
correct characterization would be that it is also related to 
people losing their income.
    Mr. Hacker. I don't know the exact division within the 
study. I am saying that some portion of medical bankruptcies in 
that study are due to lost income due to sickness.
    But I want to reiterate that the two ways in which this 
legislation would dramatically reduce medical bankruptcies are, 
one, it would make a dramatic move towards ensuring that 
coverage is affordable through the exchange as well as through 
employer coverage plans that now have to meet minimum 
requirements.
    Two, it would create a true public insurance plan competing 
with private plans that would have set benefits in law that 
would offer people guaranteed security.
    Mr. Kucinich. Mr. Chairman, I just want to point out that 
just saying that insurance is affordable doesn't mean the 
hospital bills are. Thank you.
    Mr. Hacker. But there are limits on cost sharing within the 
bill of $5,000.
    Chairman Miller. The gentleman's time has expired. Mrs. 
McMorris.
    Mrs. McMorris Rodgers. Thank you, Mr. Chairman. And I too 
want to say thank you to everyone for their testimony.
    I think this is an important issue that we are facing. I am 
a big supporter of health IT. I think it has huge potential to 
save costs and also improve health care delivery. I am excited 
about wellness. I think we as a country have become way too lax 
in our own personal responsibility for taking care of our 
health.
    I do have very very deep concerns about this government 
option, though, and I wanted to direct a question to Mr. 
Stapley. Because when you look at who is insured today, 50 
percent are in some kind of a government plan--Medicare, 
Medicaid, TRICARE--50 percent are in private, and then we have 
the uninsured that we need to address. And I continue to hear 
that the reason that we need this government plan is to control 
cost.
    And yet what happens today is that we know Medicare, 
Medicaid, TRICARE, doesn't pay the cost, and that it is the 
private sector that has to subsidize the cost of government not 
paying the cost of these plans.
    So I wanted to ask Mr. Stapley if he would just comment on 
what you believe the impact of the government option would be 
on private health insurance, and will it create competition or 
is it simply going to centralize control with the Federal 
Government?
    Mr. Stapley. Those are outstanding questions. I don't know 
that I could quantify what I think the impact is. I think from 
the perspective of employers it is more of a fear of the 
unknown in terms of what might happen. I would say, first of 
all, that in terms of an insurance exchange, aside from the 
issue of the public plan, that it is very important that the 
plans that are offered through the insurance exchange be 
accountable. And I think it is a fair criticism of the current 
system. I don't think the financing system in the United States 
today is accountable. I think they do all kinds of things that 
are abusive, and so forth and so forth, that we have to 
correct.
    Now, when you move to the public plan, the concern is that 
if they pay at Medicare--or make Medicaid-like rates, or they 
continue to do some of the sorts of things they do on the 
administrative side, it could create problems.
    Now, let me give you two examples that I think are very 
appropriate. I was involved in the creation of the Utah Health 
Information Network. I am the current chairman of their board. 
I think it is one of the most successful health information 
exchanges in the United States. We transact an enormously high 
percentage of our administrative transactions in Utah 
electronically. We do Medicare transactions as well. We do all 
of their transactions. We send them from providers in the State 
of Utah to the intermediary in South Dakota. They pay us not 
one red cent for those transactions. We transact them free.
    UHIN, Utah Health Information Network, is made up of a 
consortium of payers, physicians, hospitals and so forth. Those 
transactions are not free; they cost money. Every transaction 
costs something. So the fact that Medicare pays nothing means 
that the rest of us have to pay more to accommodate that. That 
is true, as I understand it, with every health information 
exchange in the United States.
    Now, if you move to the care side, I think it is a little 
more complicated question. But I can tell you that we sit down 
every year and negotiate with a very respected health care 
system in the State of Utah that all of you probably heard 
about in the last couple of weeks, because they have been part 
of the debate. And we sit down and we say, okay, let's talk 
about what we are going to pay you next year. And they say, 
well, I will tell you what is going to happen here. Our charge 
masters, or our cost of doing business, has gone up by, say, 3 
percent or 4 percent. Medicare comes along and says, guess 
what? We are going to give you 1 percent. Now, this is a 
theoretical example. Therefore, they tell us, you are going to 
pay 5 percent because we have got to make up what Medicare is 
not going to pay to us.
    Now, how that translates out into the system in its 
entirety in terms of higher health care cost, I don't know. I 
personally think that one of the questions you have to ask is, 
if 100 percent of the reimbursement in our health care system 
today were based on Medicare rates, what kind of an impact 
would that have on the health care system?
    And I am not in a position to answer that question, but it 
would have an impact.
    Mrs. McMorris Rodgers. Thank you. I appreciate your answer.
    I am going to quickly run out of time, and I had a question 
I wanted to direct to Ms. Visco. Just talking about cancer in 
this country and survivability, because you know we actually 
lead the world in survivability rates. When you compare America 
with breast cancer, 84 percent survival versus 69 percent in 
the U.K.; prostate, 92 percent survival rates in America, 51 
percent in the U.K., are you concerned--or what would you 
attribute that to compared to what is happening around the 
world?
    Ms. Visco. Well, I think it is a very--the answer to that 
question is incredibly complex, the extent to which you look at 
survivability and see what percentage is due to earlier 
detection; in some situations, what is due to better treatment. 
Of course, the incidence of cancer is incredibly high in this 
country compared to many other countries. And certainly the 
incidence of breast cancer is incredibly high compared to many 
other countries. But it is an incredibly complicated analysis 
to sort of tease out what results in a mortality benefit or a 
survivor benefit.
    Mrs. McMorris Rodgers. Thank you.
    Chairman Miller. Mrs. Davis of California.
    Mrs. Davis. Thank you very much, Mr. Chairman. I wanted to 
just quickly--and I know this probably would have been a better 
question for Ms. Romer--but I wanted to just focus on the 
Medicaid and Medicare issue and the concern that we would be 
trying to pick up some cost savings through that.
    As you know, in California and New York, people start 
getting a little nervous about this because we look to those 
costs. Could any of you comment on that, and whether or not--
she had mentioned limiting the itemized reductions for Medicare 
and Medicaid, that that would be one place of picking up some 
savings. Do you all have experience with that enough to know 
what are we talking about there realistically? And does that 
bring us to a question of whether the large States and the 
small States, if the competition is going to be such that both 
are paying essentially the same thing for that care, which we 
know today is not true? Do you want to comment on that, Mr. 
Shea?
    Mr. Shea. Congresswoman, if I understand your question 
correctly, let me answer it this way. There has been under way, 
ever since the first Institute of Medicine report, an effort, a 
cooperative effort across the board in health care to 
understand how it is that we can address the systemic quality 
problems that we have; because it is clear that we have 
problems, and there are costs, enormous costs linked to that. 
The Institute's own estimate well publicizes that 30 percent of 
the money that we spend every year is for care that really 
doesn't help people. So we need to have--and the field knows 
this, and they recognize it and people are working on doing 
this.
    So that we are on track now to change the way care is done 
and the way care is paid for, to make it based on quality in a 
way it has never done before.
    I would like to quote something my business colleagues say 
to us across the bargaining table. They say, We pay for health 
care like nothing else we do in business.'' We pay the same, 
regardless of whether it is world-class care, okay care, or 
downright dangerous care. And we don't even know which is 
which, because we don't get that information back. We just got 
to change the way we approach this.
    And the current system has done some things very well, but 
it has caused a train wreck of costs.
    Mrs. Davis. Is there a way that we can talk, though, about 
the cost of health care as being equitable across all States? 
Is that a realistic even assumption that that can be done?
    Mr. Shea. I think it is really part of this whole approach. 
People were shocked when the numbers first came out that showed 
in controlled studies how the cost in Florida was much higher 
than the cost in Minnesota, one of the famous ones. People know 
that these are practice patterns. They don't have to do with 
the science of care, they don't have to do with what is best 
medicine. These are solvable problems as are many of the other 
things in health care. We know how to go about it.
    We need the structure that your bill would give us, or at 
least begins to give us, to get at that so that we can take a 
coordinated national strategy in dealing with this. I could go 
on for several hours about this if you would like, but there 
are elements in your bill that really put us on this road to an 
entirely different kind of health care delivery system.
    Mrs. Davis. Mr. Pollack, and then I wanted to go to a cost-
sharing question. I know that Mr. Kucinich raised that in terms 
of copays, and again whether or not we can include equitable 
cost-sharing provisions in the health care reforms themselves. 
Mr. Pollack.
    Mr. Pollack. In terms of cost-sharing, obviously cost-
sharing affects people at different income levels very 
differently. And one of the things that I think is a real 
benefit in this legislation is you provide certain kinds of 
cost-sharing protections that are predicated on income. And I 
think that is very important. Now, with respect to your----
    Mrs. Davis. Is that not limiting copayments?
    Mr. Pollack. I am sorry?
    Mrs. Davis. Limiting copayments by income, is that 
specifically what you mean?
    Mr. Pollack. There should be some out-of-pocket cap, which 
this legislation includes, which would preclude the kind of 
things that Congressman Kucinich was worried about in terms of 
medical bankruptcies. I think this legislation goes a long 
distance in providing protection on that.
    Now, with respect to differences in care, I just say two 
quick things. One of the most remarkable pieces of work that I 
have seen in a long time was in a recent article in the New 
Yorker by Dr. Atule Gawande who actually examined not just the 
differences, say, between Miami and Minneapolis--which is often 
what people look at--but he actually compared McAllen, Texas 
with El Paso, Texas. And he found that in McAllen, Texas the 
costs were about double what they are in El Paso.
    I think there are a number of things that we can do. I 
think there are some things that this bill would do that would 
help change those disparities. I think the promotion of 
comparative effectiveness research is very important in getting 
that proliferated as substantially as possible. Not precluding 
a doctor from making a clinical decision, but at least 
providing guidance to the physician and to the patient, I think 
that is very important.
    So I think there are some things that can be done which I 
think will reduce this wasteful spending that occurs in too 
many places. One last thing, and that is----
    Chairman Miller. That will be your last thing.
    Mr. Pollack. Sorry?
    Mrs. Davis. The Chairman is ready to gavel us down here. I 
wanted to follow up with Mr. Speranza.
    Chairman Miller. I don't know whether Mr. Speranza wanted 
to jump in on your question. It looked like at one point he 
wanted to jump in in response. Go ahead.
    Mr. Speranza. Just very briefly. With respect to the cost 
of care, I think we really need to focus in on that. There are 
so many things that communities can do: unwarranted variation 
in hospitals, infection rates in hospitals, those sorts of 
things. And if there were medical guidelines evidence-based 
throughout the country, that would go a long way toward this.
    So if you gave incentives to physicians--right now they are 
on piece work like a manufacturing line--if you paid physicians 
based on outcomes and encouraged them to get into wellness and 
those sorts of things.
    And that is the last thing I would say, whether it be 
Wegmans or Safeway and others, we want to have the opportunity 
as employers to work with our employees to change behavior. It 
helps the employee. Nobody wants to get a heart attack, nobody 
wants to get sick. And so this bill, it looks like, stops you 
from doing that. We really ought to be looking at it the other 
way. We need to change behavior in a positive way.
    Chairman Miller. Mr. Loebsack.
    Mr. Loebsack. Thank you, Mr. Chairman. And thanks to our 
witnesses. Great questions all around.
    I think the idea of personal responsibility, Mr. Speranza, 
is really important, and I agree with my colleague 
Congresswoman McMorris Rodgers, on that. I think we can all 
agree on that.
    Obviously I think we have to do all we can to promote 
personal responsibility. And when it comes to wellness, I think 
that is absolutely critical. There is no doubt about it.
    There is a lot to like, I think, about this bill. Certainly 
I think wellness is a part of it, important part of it. Health 
IT is an important part of it as well, as was mentioned. I 
think a public plan option is the way to go. And I am going ask 
Dr. Hacker about that in a second.
    Dealing with catastrophic costs, clearly that is something 
we have to deal with. There is no doubt about it. And I could 
go on and on.
    I do want to pick up a little bit on the regional and 
geographic disparities questions. I am from Iowa so that may 
not surprise you why I want to pick up on that. Iowa, as maybe 
everyone on the panel--maybe not--knows, is consistently ranked 
at or near the top in terms of outcomes and efficiency, quality 
of service, all the rest. We are among the best, if not the 
best.
    Yet Iowa--and not just Iowa, but there are a number of 
States that rank high in terms of outcomes but rank low in 
terms of reimbursement rates.
    I just want to ask any of you here to offer any remarks 
that you might with respect to the current bill and whether it 
really gets at that issue or not, and what we might be able to 
do to really remedy some of those geographic disparities that 
we see.
    In particular, I think Mr. Pollack and Mr. Shea might be 
willing to speak to that.
    Mr. Shea. I appreciate the question, Mr. Congressman, and I 
think you are right on track.
    I think one of the ideas that has been widely discussed is 
that notion that as we link payments to quality we need to do 
rapid-cycle testing of the way to do that so that we are not in 
the system where Medicare once a year sets rates and so forth. 
We need a more flexible and nimble approach that really matches 
the quality improvement efforts that are being done around the 
country and that rewards those and incentivizes those.
    I know that in the Senate health bill I was admiring some 
of the things that they did that were just beginning steps to 
do this but that were just sensible kinds of things like, well, 
we are going to pay a physician's office extra money if they do 
follow-up on hospital discharges. This is a huge problem. It 
costs us an enormous amount of money. It is very simple to 
solve, but the current system we have has nobody responsible 
for that. Well, why not pay a little bit extra money to save 
some money? So I think this is one big point.
    The other thing I would just say is I really think that, 
with the advent of a public plan, we are going to see a much 
more responsive public system to payment rates because it is 
not going to be just the elderly or just the poor. If we 
mainstream public insurance, I think we are going to get a much 
more responsive public insurance system all the way around.
    Mr. Loebsack. Okay. Thank you.
    Did you want to say anything, Mr. Pollack?
    Mr. Pollack. I would just add, too, that I think that the 
more we move health care into a more group planned system I 
think we are going to create a lot of efficiencies, and we are 
going to provide greater coordination of care. Particularly for 
people who have got chronic conditions, many of them have 
multiple chronic conditions, and if they go to one specialist 
and then they go to another specialist, this specialist may be 
terrific but may not know how that treatment affects another 
problem. So we do need greater coordination of care. We need 
medical homes. I think if we do that we are going to not just 
improve quality but I think we are going to create cost 
efficiencies in the process.
    Mr. Loebsack. Thank you.
    Dr. Hacker, I am a former political scientist, by the way, 
so it is nice to see you here. Thank you.
    I do want to ask you about the public plan choice and how 
it will create competition and, in particular, if you could 
rebut the argument that private insurances are simply going to 
be pushed out of business by the creation of a public plan. Can 
you sort of help us resolve that issue?
    Mr. Hacker. Well, first of all, I am glad to be speaking to 
a fellow political scientist. You can see why I am glad. We do 
not get a lot of representation. No pun intended. That was why 
I immediately reached for the Ideal of Democracy in talking to 
Congressman Kucinich.
    This argument that is often made that a public plan would 
undermine or would destroy private insurance I think is 
absolutely backwards. It will change the business of private 
insurance, but it will not put private insurance out of 
business, and I think there are two reasons to emphasize why 
that is the case.
    First of all, remember that the core of this legislation 
and this approach is to build on employment-based coverage and 
is to encourage employers to continue to provide insurance, 
which is why I emphasize requiring that employers either 
provide health insurance or help fund coverage for their 
workers, which will prevent the kind of erosion of employment-
based coverage that is often a source of concern.
    Second of all, the public plan would be an option within 
the exchange alongside private plans, and that is why I think 
it is so crucial. Because, as I said, it would be a benchmark 
for the private plans, creating accountability where it often 
does not exist. In your own home State, I believe the largest 
insurer has 80 percent of the market, so having this benchmark 
and this competitive pressure is going to improve private 
insurers.
    Second of all, it will be a crucial backstop for cost 
control, and it will be a backup for people who want to have an 
alternative to these dominant insurers.
    Just as was said, with regard to public insurance, it needs 
to innovate and improve its practices and that that kind of 
innovation needs to take place in the private insurance market. 
Having that competition will encourage innovation.
    Within the Medicare program, for example, plans like 
Kaiser, for example, do very well precisely because they have 
an innovative business model. Private plans have more 
flexibility to adapt provider networks. They have what might be 
called a ``grand advantage'' in many cases.
    As we know, for many Americans, the idea of a public plan 
is still something that still does need to be mainstreamed. I 
think we should understand this, therefore, as not a threat to 
private insurance but as a threat of the old way of doing 
private insurance. It is healthy competition that will improve 
both the public plan and the private insurers.
    Mr. Loebsack. Thank you.
    Thank you, Mr. Chair.
    Chairman Miller. Thank you.
    In calling on the members, the Chair has made a mistake. We 
are going to keep doing what we are doing on our side, which is 
working down the members who have not had a question. I should 
have come back, since this is the second panel, and recognized 
the Republican members for a second round. So we have finished 
with Mr. Loebsack, and we will go to Mr. Kline. Then we will go 
back on our side and work through our members.
    Mr. Kline. Thank you, Mr. Chairman, for sorting that out. I 
must admit it got a little bit confusing. There are a lot of 
members, a lot of panels.
    It is my first day. That is my excuse.
    Chairman Miller. Mine, too.
    Mr. Kline. Mr. Arensmeyer, I wanted to talk a little bit 
about small businesses. There are some unanswered questions in 
the draft legislation, but there are some things that are in 
there. So the first thing I want to sort of grapple here with 
for a minute is what you are defining as a ``small business.'' 
Is that 10 employees, 25, 50, 100? Do you have a working 
definition that you are working with?
    Mr. Arensmeyer. Well, we represent the interests of those 
of 100 employees or fewer, but it may be that the legislation 
ends up setting different standards at different amounts that 
are less than that.
    Mr. Kline. Okay. It does. I was just trying to put it in 
context what the bulk of your comments addressed concerning 
businesses up to 100 employees.
    In the legislation, it seems to me it says that it provides 
a health insurance tax credit for small businesses equal to 50 
percent of the cost of coverage for firms where the average 
employee compensation is less than $20,000, which I suppose is 
an incentive to keep your wages low. Firms with 10 or fewer 
employees are eligible for the full credit, which phases out 
entirely for firms with more than 25 workers. So that certainly 
clearly would not address a large portion of the small 
businesses that you represent if they stop at 25.
    Mr. Arensmeyer. In the modeling that Professor Gruber did 
for us, we did generally look at tax credits that are a little 
bit more robust than that. That is absolutely true. There are a 
series of dials and levers as you look at sliding scales and 
tax credits and exemptions. You cannot look at these in the 
absolute. But we definitely have some models, and clearly those 
models that are more ``generous'' in the sense of tax credits 
for larger amounts, sliding scales that are not as high, 
greater exemptions, there is obviously going to be a greater 
benefit financially to small businesses. So you have to look at 
this all together.
    Mr. Kline. Well, this sliding scale apparently stops at 25, 
and we are not sure about the exemptions yet. That will be an 
interesting question.
    I notice in the modeling, Jonathan Gruber's model, the 
scenario that was most advantageous for small employers was the 
scenario that exempted small businesses. I think that was a 1 
to 10 employer. Was that what he was looking at there?
    Mr. Arensmeyer. Correct.
    Mr. Kline. So we still have not answered the question of 11 
to 100.
    Mr. Arensmeyer. But there were substantial benefits. Even 
with that model, there were huge benefits for small business 
with the reform and with the shared responsibility.
    Mr. Kline. But it depends upon where that small business 
exemption comes in; is that not true?
    Mr. Arensmeyer. Well, pretty much every model of the 
Professor Gruber model produced a better result than the status 
quo. Because the status quo is such an absolute disaster for 
small business. Fewer than 50 percent of the smallest 
businesses are even offering it anymore.
    So clearly we would love to work with the committee to 
figure out the right balance of tax credits, sliding scales, 
and exemptions, but virtually any system where some recognition 
is given to the special needs of small business that has reform 
in it and that deals with the cost containment is going to be 
far better for small businesses than the status quo.
    Mr. Kline. I certainly agree that small businesses need 
some help in a lot of areas.
    Let me move to Mr. Speranza, if I could. I appreciate your 
comments about Rochester. Of course, in Minnesota, we have 
Rochester, Minnesota, which has been referred to a couple of 
times here. We are pretty proud of the Mayo Clinic and of the 
work that it has done there. There has been some real 
collaborative work in changing things.
    Do you have any more comments about reforms that were left 
out of the bill that you would like to have seen, from your 
perspective, such as strong medical liability provisions or 
things that would help control costs?
    Mr. Speranza. Yes. I think the few things that I think 
would make the most sense are, as I mentioned earlier, 
liability reform is very important. We know that medicine is 
practiced in a defensive way, which is very costly. That would 
be number one.
    Health information technology. I know there is already $19 
billion allocated to that. Having nationwide standards, being 
able to actually implement that and to get the savings would be 
very important.
    Wellness. With respect to the kinds of programs we have 
talked about, we would like to have more incentives to change 
behavior, not less. Those are very important.
    The last point I would make, with respect to what was in 
the bill is the insurance option. This has everything to do 
with capitalism. It really does. There are other ways for us 
smart people, in a collaborative way, to solve that problem.
    In a different forum, I would like to challenge Dr. Hacker 
to a debate on capitalism, and we will do that at a different 
time and at a different place or we can agree to collaborate 
and to find a way and come back to you. Because, quite frankly, 
I think he has got it backwards. I firmly believe in the 
American way and in capitalism, and that is a slippery slope 
you are talking about going down.
    Mr. Kline. Thank you. I yield back.
    Chairman Miller. Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman.
    I have a very quick question for Mr. Stapley, and then I 
want to move on to some questions for some other members of the 
panel.
    Mr. Stapley, since you are representing the ERISA industry 
committee, I am wondering whether you are familiar with 
Hawaii's exemption from ERISA.
    Mr. Stapley. Yes, I am.
    Ms. Hirono. If so, do you think that----
    Mr. Stapley. We have a large employer in Hawaii, as a 
matter of fact.
    Ms. Hirono. Do you think that Hawaii's exemption or waiver 
from ERISA should continue in any health care reform bill just 
to make sure that they can continue doing what they are doing?
    Mr. Stapley. Well, you have put me, really, on the spot.
    Ms. Hirono. If you can answer the question----
    Mr. Stapley. In Hawaii, we have a couple of large 
employers--the Polynesian Cultural Center, for example, and 
Brigham University Hawaii. They are our players in the State of 
Hawaii.
    I would say this. I guess I would say no, very simply; and 
my concern is that in a restructured system, which I do think 
needs to be significantly restructured, you have to have 
national uniformity. To the extent that you do not have 
national uniformity, it does create interesting challenges.
    Now, we comply with the Hawaii Prepaid Health Act, and we 
appear before the Hawaii Prepaid Health Council all of the 
time. I would say that we spend enormously more effort in one 
State than we spend in combinations of other States by virtue 
of the fact that we have to comply with unique requirements. At 
the same time, I know that it does provide some benefits to the 
citizens of the State of Hawaii.
    The other thing that it does is--we actually have an 
employer in the State of Hawaii and their employees who have 
requested a plan that we offer in all 49 States except for 
Hawaii, and we do not offer it simply because we cannot comply 
with the Hawaii Prepaid Health Act. From their perspective, 
that is wrong. We would like that choice, but because of 
prepaid health we cannot provide it.
    Ms. Hirono. Thank you for that perspective. Obviously, I 
will have to think about it a little bit more.
    For some of the other panelists, I think, from what I know 
about the private health care insurance system, there is really 
a lack of transparency. For example, I do not know of any State 
that requires the health insurance carriers to file their rates 
and to justify their rates. We do that in workers' 
compensation; and for those States that have no-fault auto 
insurance, it is prior approval. So there is really a lack of 
transparency. I do think that the public option will bring more 
transparency into the whole system.
    Some of you also mentioned that we should have nationwide 
standards. Mr. Shea and Dr. Hacker, it is astounding to me that 
such a high percentage--Dr. Romer mentioned that maybe 30 
percent of the money that we spend on health care is really 
wasted. So I wanted to ask you gentleman in particular whether 
there are enough specific requirements or language in this bill 
that addresses the waste that is in the system currently.
    Mr. Shea. If I may, Congresswoman, thank you.
    I think that the bill, as drafted, has a number of the 
elements of what we need to have a national effective strategy 
for addressing quality problems and for improving delivery 
system. I do not think it is as well integrated or as robust as 
it could be, and we had discussions even over the weekend with 
some of the staff about this. I think it needs some work.
    One of the things that I think is really important is that 
currently we have a consensus development process for quality 
standards. It is not mandated by HHS. It is developed in a 
public-private organization called the National Quality Forum. 
This has full representation of all of the people who are going 
to asked to move up to this--the physician organizations, the 
hospital organizations. So, if we are going to get the kind of 
change, the really big change we want, the people who deliver 
the care have to be brought into this, and they have to have 
their 2 cents. So that is sort of a process that we think needs 
a strong place in the bill. In the draft, it does not appear at 
this moment.
    Ms. Hirono. Do you agree, Dr. Hacker?
    Mr. Hacker. I do agree. I also would say that you are 
absolutely right to emphasize the benefits of transparency in 
this broad process. It is the case that we know about this 30 
percent precisely because Medicare has collected this 
information and has made it public so that researchers can use 
it. The Dartmouth Atlas studies that have been so influential 
are based on Medicare data. I think, just as a starting point, 
the commitment has to be toward much greater availability of 
the kind of information we need to make these judgments.
    I would say that we often understand the public plan, quite 
rightly, as a central way of providing people with secure 
coverage, but it also really needs to be on the forefront of 
improving the delivery and the quality of care in conjunction 
with and in coordination with private insurance plans and with 
these kinds of public-private partnerships that Mr. Shea 
mentioned.
    I would say, on that front, one thing that has not been 
mentioned is that President Obama has rightly said that the 
Medicare Payment Advisory Commission should play an improved 
role in trying to make sure that Medicare is paying for 
services more efficiently. I believe strongly that both 
Medicare and the new public plan should be doing a much better 
job of encouraging the right care and quality care, rather than 
just more care.
    Ms. Hirono. I do not have time, but with the Chair's 
indulgence I just want to say, as we move toward a national 
standard, I think it is really important that these standards 
acknowledge evidence-based differences based on race, for 
example, American Indians and native Hawaiians. Would you 
agree?
    Mr. Hacker. [Nods head.]
    Ms. Hirono. Thank you.
    Chairman Miller. Dr. Price.
    Dr. Price. Thank you, Mr. Chairman.
    Mr. Chairman, the final comment in my opening statement was 
that there are positive solutions to the challenges that we 
face; and I am hopeful that the House will allow for an open, 
vibrant, robust debate and a deliberative process, one that 
respects America's doctors but, most of all, one that respects 
America's patients. We have heard less talk about the patients 
specifically in this discussion than I had hoped. I think there 
is a lot of common ground, however, the common ground being in 
health IT, the common ground being in the area of wellness, and 
the common ground being in the area of prevention.
    I want to have folks address, if you would, one of the 
comments that I made in my opening statement, which is, if this 
grandiose plan comes to pass and if there are some Americans 
out there who believe that it is not addressing their health 
care needs and if, for example, they want to go visit a 
physician of their choosing and if they decide that they want 
that physician to treat him or her for a specific illness or 
malady or problem, should they have the right to do that 
outside of the current structure, Mr. Pollack?
    Mr. Pollack. I think they should have that right. They may 
be required to pay some additional amount of money outside of 
the network.
    Dr. Price. So if they wanted to use their own resources, 
they ought to have that right?
    Mr. Pollack. I do believe that, yes.
    Dr. Price. Are you aware that that is not included in the 
present bill? Would that give you pause?
    Mr. Pollack. Well, most health plans, even things like 
PPOs--I am in a PPO. We can go outside of the network. I am 
presuming that that will be retained.
    Dr. Price. Thanks.
    Mr. Shea, you would agree with that?
    Mr. Shea. Yes, sir, I would.
    Dr. Price. Does anybody disagree that Americans ought to be 
able to opt out if they so desire?
    Mr. Pollack and Mr. Shea, I am interested in following up 
on the issue of who decides what ``quality'' is and who decides 
what specific care patients receive. As a physician, I was 
always frustrated when somebody stepped between me and my 
patients and said, ``you cannot do that,'' even though I felt 
it was in the best interest of the patient and the patient 
clearly trusted that decision.
    On the comparative effect of this research council and on 
this new health choices panel that is in the bill, there does 
not appear to be any language that provides for specialty 
societies to be the final determinant of what is quality and 
what care ought to be provided patients. Is that something that 
you believe to be important?
    Mr. Pollack. As I read the bill, what happened is the 
Health Benefits Council would provide some recommendations 
concerning what would be in the standard benefit. That would 
then go to the Secretary. Now, that does not mean that somebody 
cannot get care that might not be included as part of a plan. 
That happens today.
    Dr. Price. But that language itself is not in the current 
bill as it relates to the government option.
    Mr. Pollack. I am not sure I follow.
    Dr. Price. That the final determinant of who decides what 
care to be provided is----
    Mr. Pollack. No, there is nothing in the bill that says 
that somebody is going to make a decision, a clinical decision, 
about what care you receive.
    Dr. Price. Reclaiming my time, I would respectfully 
disagree; and I would hope that what we could agree upon is 
that that language itself needs to be in the bill, that 
clinical decisions ought not be provided by the Comparative 
Effective Research Council, by the health benefits----
    Mr. Pollack. I do not think anyone disagrees with that. You 
know, today, an insurance company decides what is in a plan.
    Dr. Price. Exactly. Exactly. That is wrong.
    Mr. Pollack. That, some might say, might come between a 
clinical decision----
    Dr. Price. Without a doubt.
    Mr. Pollack. I guess what I am saying is you will know what 
your coverage is, but nobody is going to tell you you cannot 
get this procedure or that procedure. There is nothing in the 
bill.
    Dr. Price. I hope that that is all included in the bill, 
and I look forward to your support for that kind of language.
    Mr. Pollack. It is already there.
    Dr. Price. Then please show me where it is, not this second 
but as we move forward. I look forward to talking with you 
about it.
    Mr. Hacker, you talked about there being no real worry 
about crowd-out if there is a government option. You are 
familiar with Medicare Part B, the physicians' component of 
Medicare?
    Mr. Hacker. Am I familiar with Medicare, Part B?
    Dr. Price. Yes.
    Mr. Hacker. Yes.
    Dr. Price. It is a public option. It is a voluntary 
program. It is a voluntary program. What percentage of the 
market share does it hold?
    Mr. Hacker. The market share of Medicare, Part B is about--
I think, essentially, 99 percent of elderly Americans are 
enrolled in it.
    Dr. Price. Do you not believe that that has resulted in the 
crowd-out of other private entities that would have provided 
health coverage for seniors if they had been given an 
opportunity to without the subsidies that are placed in 
Medicare?
    Mr. Hacker. Well, Medicare, Part B is essentially a faux 
voluntary program in the sense that it is 75 percent financed 
by general revenues. At the time it was created, there were 
very few private options that were of any quality for elderly 
Americans. What we are talking about here with the public plan 
choices is an option available only to people within the 
exchange where there would be no subsidies from general 
revenues. So I think that they are not analogous examples at 
all.
    Dr. Price. I would agree with that at the very beginning of 
the bill. But over a period of 5 years everybody comes into the 
plan that is defined by the government through this bill as it 
is currently constructed, and that is the concern that many of 
us have.
    Mr. Hacker. I understand that is a concern. I really do not 
believe that it is a valid concern, and I have tried to explain 
why.
    I think that it is important to understand that, first of 
all, many people will want to be in a private plan.
    Second of all, many private plans are offering an 
innovative alternative to what the public plan would be 
providing.
    Third, most people would still get private coverage through 
their places of employment under this legislation.
    Fourth, I have argued--and the bill embodies this 
argument--that this should be on a level playing field with no 
special treatment for the public plan vis-a-vis the private 
plans.
    Dr. Price. I would suggest, Mr. Chairman, that that is not 
what is incorporated in the bill. I would hope that that is 
what the final product will be, but, at the current moment, 
that is not what is incorporated in the bill.
    Chairman Miller. Mr. Hare.
    Mr. Hare. Thank you, Mr. Chairman.
    I am not a physician. I am not an attorney. I am a former 
clothing worker who cut the lining for men's suits in a factory 
for 13 years. I am trying to look at this from a commonsense 
perspective.
    Dr. Hacker, if I have it correct, you said that 72 percent 
of Americans support a public option.
    Mr. Hacker. That was in the recent New York Times/CBS poll.
    Mr. Hare. So almost three-fourths of the people in this 
country support a public option?
    Mr. Hacker. Yes. In fact, 83 percent supported it in the 
Employee Benefit Research Institute poll just before this one.
    Mr. Hare. Well, I do, too, so count me in as one of those 
72 percent of the people; and I think it will grow larger when 
they find out about it.
    What I find interesting about all of this--and I am not 
here to defend the trial attorneys, but I was just at my 
doctor's the other day. He has been an internist now for 20 
years. He has never had a med-mal suit ever filed against him. 
His insurance rates have quadrupled in the last 3 years. He has 
never had a claim.
    I spoke to another doctor who had one claim filed against 
her in 18 years. She said it was frivolous. Her insurance 
company that was supposed to be representing her told her to 
plead it out because it was easier and because it would take 
too much time to go to court.
    So I think if we are going to beat up on one end of it, I 
think we ought to take a look at the other end of it. I mean, 
usually, under an automobile policy, if you are driving safely, 
don't you get a discount for safe driving?
    My doctor got his rates quadrupled for never having 
anything filed against him, and one doctor was told by her 
insurance company to plead out. I said, doctor, why did you do 
it? I said, that would be like the equivalent of my going into 
a store, walking out, and being accused of shoplifting when I 
did not do it; and my attorney is saying, I would just plead 
out because you do not want to have to take time off from work. 
The fact of the matter is your reputation is at stake here.
    So I think we need to take a look at that aspect of it, 
too.
    The other thing and the reason I support this public 
option--and I want to ask Mr. Shea about this and Mr. Pollack. 
We have heard today about the wonders of medical savings 
accounts. I do not know how in heaven's name people can save 
money when they are barely holding on to their homes, when 
their hours are cut, and then we hear about what a great thing 
it is.
    Quite frankly, isn't it true that the vast majority of 
people in health savings accounts are wealthy people and that 
they are not middle-income people or lower-income people 
really? Are they or am I missing this?
    Mr. Pollack. I would say that the assumption that a medical 
savings account is going to save this country money on health 
care is a mistake. The overwhelming majority of costs in our 
health care system are for major interventions. It is not at 
the front end with deductibility.
    So if you create higher deductibles it is not going to save 
significant money for America's health care system. What it 
might do is prevent people from getting preventative care, from 
getting tests, from getting initial examinations. I think that 
is a mistake.
    I also think it is a mistake to provide tax incentives that 
are clearly regressive. Because the higher the tax bracket you 
are in the higher the tax benefit you get from a medical 
savings account. It turns out that those people who tend to opt 
into a medical savings account are somewhat wealthier and are 
somewhat healthier. Those who are wealthier are not so worried 
about a high deductible. It is not going to faze them at all. 
For those people who are less wealthy, it is going to faze 
them. That wealthier person who is in a higher tax bracket is 
going to get a higher tax benefit.
    So I think it is a mistake to go in that direction. It is 
not going to save money. It is regressive, and I think it is a 
disincentive for getting the preventative care we should be 
encouraging.
    Mr. Hare. Mr. Shea, I wanted to ask you about the 
portability thing here because my time is running out.
    I met a couple whose son worked in a factory in Galesburg, 
Illinois. The factory closed. He had 9 years in. When they shut 
down, he lost his insurance. He went to work part time doing 
some jobs until he could find a job. He died at 31 years of age 
because he had a heart attack and he had no insurance.
    I asked one of his parents, are you mad at God for taking 
your son? He said, God did not take my son. He made a special 
place. This government did because they did not have an 
insurance plan that would cover him when he lost his job and 
went to another.
    Under this bill, that man could have gone into the public 
system. If we do not have a public plan, how in heaven's name 
are people who lose their jobs going to afford a health care 
plan? I mean, are these benevolent insurance companies just 
going to hand it to them and charge them basically nothing?
    Mr. Shea. Congressman, we just released a survey this 
morning. We did an online survey, which we have done for a 
couple of years. Twenty-three thousand people responded to the 
survey. It is not scientific, but 23,000 people is a pretty 
good number. Six thousand people wrote us their individual 
stories. One of the phrases that kept on coming up is, you 
know, ``I lost my insurance'' or ``I ran into the cap on my 
insurance and I never knew about it.'' People say, ``well, you 
know, I am now on the faith-based plan. I pray I do not get 
sick.''
    There is no way without--just going back to Ron's point, I 
think what we need to focus on is basic health security. Let's 
get the trains running right, which they are not now, and then 
if we want to talk about bells and whistles and special things, 
that is a different story, but we do not have the basics right.
    Chairman Miller. Mr. Castle.
    Mr. Castle. Well, thank you, Mr. Chairman.
    Mr. Chairman, I have been listening to this panel, which I 
think has been excellent, and obviously, I have been reading 
and studying all this as well as all the rest of us have. I 
have got to tell you that my concerns are almost increasing 
rather than diminishing at this point.
    When you look at the costs in the health care system and 
when you look at the cost of prescription drugs--and you can 
argue whatever the reasons for that may be or you want to do 
something like take the prescription Part D plan and close the 
donut hole, for example, or medical inventions, both hard 
inventions and procedures which are going on now, which are 
becoming more and more extensive and complicated out there. 
There are the costs of education for medical personnel. 
Somebody mentioned that there are three times as many law 
schools as medical schools. That is going to go up probably to 
about six to one. Law schools make money for universities, in 
case nobody has realized that. Medical schools are generally 
losers for universities. It is just a high-cost item.
    There are medical malpractice costs, which we are not doing 
a lot about in this particular legislation. There are the 
insurance rates, the salaries of medical personnel, be it those 
running hospitals or whatever it may be. There is the whole 
idea of adding portability and preexisting conditions to 
existing health care plans in this country.
    I look at Medicaid and Medicare and how they are driving 
the budgetary situations in this country into a corner in terms 
of where we are going. I even worry about the cost of things 
like health information technology, which I think ultimately is 
something we need to do and that might even be helpful in terms 
of saving money, but the initial cost of it is so great. I even 
worry about the cost of the public option. Even though it is 
theoretically paid for, my hunch is there would be a lot of 
backroom costs to that that we have not seen completely yet.
    I happen to believe in a lot of concepts I am hearing about 
today. I would love to see everybody insured in some way or 
another, at least provided with health care in some way or 
another, but I am worried that we are biting off a lot here. I 
have seen the estimates for the Senate plans. I am not sure 
what the estimate costs for these plans are going to be. Can we 
afford it or are we just going to make the political decision 
that we are going to afford it and that we are going to pay for 
it?
    I would just hope, as a committee and as we listen to 
expert witnesses and as we put this together, that we are being 
thoughtful and careful about what we are doing. Maybe we have 
to do something less. I do not mean lesser. I mean just perhaps 
less than the grand approach in this particular situation so 
there will be a manageable circumstance. We have to continually 
look at every single cost-saving component we can in terms of 
how we are dealing with any of these issues.
    So I have no questions of the panel. I will be happy to 
yield back my time, but as just one member sitting on this 
committee I do express concerns about where this is going to 
all end up, and I think we need to always know the details of 
the costs and how we are paying for it.
    Chairman Miller. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman.
    I just generally want to ask a little bit here. It seems to 
me that everybody has sort of walked away from the single-payer 
thing without much of a fight, which is sort of surprising to 
me, for a number of people on the panel here. So we are looking 
at how we are going to try to keep costs down.
    When I talk to people, they are usually more in line when 
they find out the size of the salaries that private insurance 
companies are getting, when they find out the amount of money 
that is being spent on overhead and on marketing, when they see 
the size of the profit that is out there. We are going to have 
to do some kind of regulation in order to try and make people 
who are paying health insurance premiums already think they are 
getting something for their buck if they are going to be paying 
more money in some way to help other people get insured. So it 
would seem to me that the idea of the medical loss ratio is 
something that we ought to at least consider and try to make 
that a reasonable number.
    Mr. Hacker, what do you think about that?
    Mr. Hacker. I think that one reason to have the public plan 
is precisely to address those concerns.
    I think that it is also worth noting that, while there is 
no intention in this public plan to have a Medicare for all 
systems, that some of the virtues of having that system are 
achieved by having a competitor in the market, in this 
exchange, that embodies those values of putting patients before 
profits by making sure that people have broad coverage, by 
making sure that the focus is on improving care and on 
innovating over time.
    Mr. Tierney. That sense of competition may eventually bring 
some sense back to the premiums usage of the private companies.
    Why don't we just initially require, if they want to get 
into the exchange--or whatever you are going to call it--that 
they have to meet some sort of a particular level as a consumer 
right here and that they have to spend at least a certain 
number of premium dollars on direct medical care?
    Mr. Hacker. I believe there actually is a medical loss 
ratio standard in the legislation.
    Mr. Tierney. Well, I know. I know who put it there. The 
point is, do you agree that it ought to be there? What is the 
purpose for it? I think it is at a rather low number at 85 
percent. It ought to be more.
    Mr. Hacker. Actually, it may sound very low, but, 
unfortunately, as you well know, many insurance companies today 
spend well less than 85 percent of their income on care. Even 
within Medicare Advantage plans, there are many cases where 
only 82 or 83 percent of their spending is on the actual 
delivery of care to patients.
    Mr. Tierney. Of course, in Mr. Pollack's USA families 
today, there was a study done where it shows people are doing 
far less than that. Some do as low as 60 percent; am I right?
    Mr. Pollack. Some of them go as low as 60 percent.
    Mr. Tierney. I guess the only point I am trying to make--
and I do not mean to be too sarcastic about it--is it is 
ridiculous that we are worried. I hear people say, well, we are 
worried about a public option plan. It might put these private 
companies out of business or they will not make enough profit.
    What should be our primary concern is making sure we get 
the best deal for the consumer. They get health care, and they 
get the premium dollar spent on health care. I do not care 
whether you are from the United States Chamber of Commerce or 
from the labor unions or if you are anybody else. All of your 
members want to get a decent deal on this; and all of them, 
when I talked to them, were outraged at the high salaries the 
executives make, at the amount of money that is spent on 
marketing, at the amount of money that goes into not just 
profit but into outrageous profit. And I do not understand the 
sensitivities of all of us around here about being so concerned 
about their existence and about their ability to keep on doing 
that to the consumer.
    So I think that is the point to be made. If we are going to 
waltz away from single payer, which sort of disturbs me 
considerably, at least we ought to fight to make sure they are 
going to participate in the exchange, which is going to be a 
benefit to them. They ought to at least have to give something 
back to the consumer and not be allowed to continue to do that.
    Mr. Shea, if you want to respond to that, it is fine with 
me.
    Mr. Shea. I was just sitting back and saying, well said. I 
think that is right.
    The other thing I would say, though, Congressman, is that 
we have to realize that these costs are not just at the highest 
level. They are not just in the advertising or in the marking 
or in the obscene executive salaries, as I would consider them, 
as I have read the numbers. They have to do with the basic 
relationship between insurance companies and the people who are 
providing the care.
    There was a great example given by the Boston Globe 
recently of the relationship. Usually these things are not 
revealed. It revealed the BlueCross relationship with Partners 
Health Care, the biggest system in Boston.
    We need public service organizations. They may be private 
companies, but they claim to do a public service. We need them 
to be watchdogs, not lapdogs, in terms of this issue. So I 
think you are exactly right.
    Mr. Tierney. I will not ask it again, but Mr. Pollack was 
on the last panel. I asked him--and I do not think anybody was 
satisfactory in answering it. I have yet to hear a description 
of what value-added insurance companies really bring to direct 
patient care. Just what is it they bring to the table? Mr. 
Hacker, do you want to tell me what it is that insurance 
companies do to move a patient's care forward?
    Mr. Hacker. I think the best insurance companies have been 
able to innovate and to provide high-quality care and good 
customer service to their patients. I believe that insurance 
companies in the current environment have incentives to engage 
in the kinds of practices that Mr. Shea just spoke about, which 
is passing costs on to consumers and employers rather than 
bargaining for better prices with providers or trying to weed 
out unhealthy people rather than providing care to those who 
need it.
    If we change the incentives and say, as a condition of 
entering the exchange, you have to abide by these strict rules 
and you are going to have to compete with a public-service-
oriented plan, a public health plan on fair and equal terms, I 
think that public--the insurance plans, I hope that they can 
rise to this moment and can provide the kind of innovation, 
customer service, and delivery system benefits that we have 
seen among the best plans.
    Chairman Miller. It certainly would be a statement of hope 
over experience.
    Dr. Roe.
    Dr. Roe. Thank you, Mr. Chairman. Just a couple of things.
    Mr. Pollack, you are wrong about who would have that plan. 
In our own practice, out of the 294 people who have a health 
savings account, I would dare say that the people who work in 
doctors' offices consider themselves wealthy, and those are the 
folks that have those plans.
    Just a comment. Having practiced medicine for 31 years, let 
me explain to you how, until you get malpractice straightened 
out, you are going to have a difficult time controlling costs.
    You came to me in the emergency room 30 years ago. You had 
right-sided pain, right low-quadrant pain. I would examine you 
and say, you know, let's get a blood count that costs $25, a 
temperature, and a physical exam. That is what we did. Come 
back if you are not feeling better.
    Today when you come in, you are going to get a CT scan, 
because that is now the standard of care to diagnose 
appendicitis. What happens is that is a $1,000 test, as opposed 
to a $50 emergency room visit; and if you do not do that, just 
get the pencil out and write commas and zeros, because that is 
what you are going to pay.
    Access to this technology and then to the legal climate has 
created this. Unless you get meaningful malpractice reform, 
doctors are going to behave in their own self-interest, which 
is not to get sued. If they are sued, what they are going to do 
is they are going to have all of the documentation they can 
possibly get their hands on to prove they did not do 
malpractice.
    So I am just pointing that out as a given.
    One of the things that I think Ms. Visco said that was 
very, very important and one of the reasons that I am concerned 
about this government plan is that you are absolutely right. 
Patients and doctors should be making decisions, not health 
insurance companies and not public plans. Let me give you an 
example.
    When I began my practice, about 50 percent of women died of 
breast cancer when I started practice. That was why the big 
argument came: Do you do a radical surgery or a simple surgery? 
It did not matter. The results were the same.
    What has occurred now over time is that we have almost 
above a 95 percent 5-year survival rate; and that is a 
wonderful thing, when a patient comes in, to be able to tell 
her you are going to live through this awful disease. Our 
practice averaged seeing one new breast cancer patient a week. 
That is how often we saw that disease.
    In England, they have quit doing screening mammography, and 
the reason they quit doing it was that, with the wire-guided 
biopsy, the false positive rate of the test tells you you have 
something when you do not. The wire-guided biopsy, using a 
radiologist, costs more than the screening mammography. So nice 
their comparative effectiveness made a decision not to continue 
to do routine mammographies. I would argue, as you just did so 
eloquently, that screening mammography with the new digital 
mammograms, with patient education, and with new medicines 
raise this level of survival.
    In the single-payer system, what happens and the way they 
all work at the bottom of the day, at the end of the day, is 
they ration care. That is how they work. You have so many 
dollars spent on health care, and then after you have spent 
those dollars, waits occur.
    In Canada, a great place, it takes 117 days to get a bypass 
operation. This is not Phil Roe talking. This is the president 
of the Canadian Medical Association. In the past, he has stated 
you can get your dog's hip replaced in a week, but it takes you 
2 to 3 years to get your own hip replaced in that system.
    So that is my concern, is that a government bureaucrat will 
be making that decision based on a budgetary number, not on the 
patient and the doctor.
    Let me tell you what. I am not here to defend private 
health insurance companies. I can promise you, when I was a 
young doctor, I thought they would provide health care, and I 
think Mr. Pollack pointed out that they are there to make 
money.
    Comment.
    Ms. Visco. Well, what I would like to say is that what we 
want, what patients want, is care based on evidence. That is 
what we want.
    I did not mean to say the decision should be made solely by 
patients and doctors. I did not mean to say that decisions 
should be made by insurance companies.
    What we want is a system that supports decisions based on a 
high level of evidence or on interventions that are helping us 
get evidence, and that is the way it should work. It does not 
work that way now, and a significant percentage of care is not 
based on a high level of evidence. Those are decisions that, 
unfortunately, are often made by physicians. But if we had a 
system that supported evidence-based interventions and 
supported care----
    Dr. Roe. Excuse me. You would not support a system that 
would not do screening mammography, would you?
    Ms. Visco. I would support a system that only used 
screening mammography in appropriate age groups and in 
appropriate situations.
    Dr. Roe. Oh, absolutely. I agree. But not at all. This is 
not at all at any age.
    Ms. Visco. I am unaware of that, and I will go back to my 
office and look up that the U.K. has stopped screening 
mammography. I was unaware that that happened.
    Dr. Roe. One other question, Mr. Stapley. Medical loss 
ratio, would you comment on that?
    Mr. Stapley. You know, I think that there are a lot of 
plans that have been abusive, that have very, very terrible 
loss ratios, but there are a lot of private plans that have 
very good loss ratios, in the neighborhood of 94, 95, 96 
percent, and so we have a tendency to focus on the extreme. I 
would simply say that there are private plans out there that 
have a community focus, that are interested in the people they 
serve, and that want to make sure they get cost-effective, 
high-quality health care and that they do it at a very low 
cost.
    I would also point out--I mean, I am not opposed to 
Medicare. I think Medicare, in terms of consistent, fair 
administration, I think they are probably one of the best plans 
in the marketplace. They are a very good plan. But I do not 
think that Medicare is a sterling example of what we want our 
financing system to look like. Because Medicare has issues, 
too, with respect to the fact that they incentivize a lot of 
unnecessary care. In fact, a lot of the things that you saw in 
McAllen, Texas, that have been referred to in contrast with El 
Paso are based on a reimbursement system that has been 
perpetuated by Medicare.
    I do not say that the private system is any better. It is 
not. They have followed suit. They have done the same thing. 
They are incentivizing more care, not high-quality care, not 
cost-effective care. But there are examples of private plans 
that do a pretty good job.
    Chairman Miller. Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman.
    I would like to focus the panel for a moment on the self-
employed, which Mr. Arensmeyer talked about a little bit in his 
testimony. He told the story about Louise Hardaway, who could 
not find insurance or was quoted $13,000 a month.
    You know, I just want to ask you just to confirm what I 
think is true and, actually, know is true. Her situation is not 
created by government, by government option programs or by 
mandates. I mean, in fact, the self-employed right now are 
completely exposed to the marketplace with absolutely no 
protection under prior HIPAA laws and, in most States, with 
virtually no regulatory protection. I mean, that group needs 
help, isn't that correct, Mr. Arensmeyer?
    Mr. Arensmeyer. Absolutely. It is a growing part of our 
economy, 21 million now and growing. It is a critical part of 
our 21st century, high-tech economy. You are absolutely right. 
I mean, the system could not work any worse than it is working 
for them. It is directly impeding our economic growth.
    Mr. Courtney. I am trying, Mr. Speranza, to sort of 
decipher where the Chamber is on this issue. I mean you sort, 
of at the end of your statement talked about the Chamber thinks 
it is time to reform insurance markets, but you sort of danced 
around the question about making the folks in that end of the 
market participate or not. I guess the question I want to ask 
you is, does the Chamber support or does it not support an 
individual mandate?
    Mr. Speranza. I would say that we would certainly consider 
that. Again, I am not an accountant.
    Mr. Courtney. Wait a minute. You are here, representing the 
Chamber, as someone speaking on health insurance.
    Mr. Speranza. Yes.
    Mr. Courtney. I come from Connecticut, and we are 
surrounded by insurance companies. When you talk about 
reforming the market, their response always is, fine, but you 
have to have an individual mandate. Because, otherwise, you are 
basically creating a system of adverse selection, and rates are 
just going to go through the roof, and the Chamber is smart 
enough and experienced enough to understand that dilemma.
    Really, I think this committee and the people of this 
country and, frankly, your members, of which I was one of them 
up till about 2 years ago, deserve an answer in terms of where 
the Chamber stands on this issue.
    Mr. Speranza. I cannot make policy for the Chamber.
    Mr. Courtney. Well, I would ask that the Chamber come back 
to----
    Mr. Speranza. From my discussion with the health care 
experts, it is something that, as I understand, they would 
seriously consider. Personally, I would as well.
    Mr. Courtney. Frankly, I think the issue has been out there 
for years, and the Chamber has enough staff and experience in 
this issue and, frankly, it has enough members who are directly 
impacted by it that they deserve an answer, and we need to 
understand that as we go forward over the next 6 weeks or so.
    Mr. Speranza. What I would promise is getting an answer 
back from staff on that point.
    Mr. Courtney. Mr. Hacker, in your testimony, I noticed you 
were very clear about supporting an employer mandate. It was 
sort of an absence of comment in terms of the individual 
mandate. I was just wondering if you wanted to chime in.
    Mr. Hacker. No. In my original proposal, Health Care for 
America, there is, indeed, an individual mandate. All I would 
say is that I think it is essential that you have both an 
employer and an individual requirement and that there be a real 
emphasis on the affordability of coverage if you do have an 
individual requirement.
    My main concern is always how do you ensure that people get 
enrolled. An individual requirement without strong measures to 
ensure enrollment will not work, and I think this is 
particularly true with populations like the self-employed, who 
I think would benefit the most of any employment group in many 
ways from having the choice of plans within an exchange.
    So what I would say--and this is not in the legislation--
is, if there is a tax penalty associated with failure to 
provide insurance, that at the same time that that penalty is 
assessed or before it is assessed that people should be given 
the menu of options within the exchange and should be given the 
option to enroll for coverage within the exchange. I think that 
is exactly the kind of constructive step that is being proposed 
in a lot of other areas. Try to give people these choices and 
to make sure that, when possible, people are opting out rather 
than opting in, automatic enrollment. I think if we did that we 
would move towards a system of seamless coverage that would get 
us very close to covering all Americans and achieving 
Congressman Kucinich's goal of health care as a human right.
    Mr. Courtney. Mr. Arensmeyer, again, your members go 
through the experience of applying for insurance as a self-
employed. Again, they are the risk takers, the capitalists, who 
want to go out and pursue their dreams, but if they have old 
sports' injuries or cesareans or chronic illnesses, they get 
shut out either with outrageous premiums or with the denial of 
coverage completely.
    For them, I mean, we have got to fix this. If we really 
care about the market and a capitalist system, these are the 
people for whom we have got to create a path to health 
insurance coverage; isn't that correct, Mr. Arensmeyer?
    Mr. Arensmeyer. Exactly. There is tax inequality, too, the 
15.3 percent self-employment tax that a self-employed person 
cannot deduct the way a business owner can deduct.
    I mean, if you think about this country prides itself on 
entrepreneurism. The health care system does nothing but put 
impediments in the way of going out on your own, striking out, 
taking risks.
    Also, if you look at traditionally pulling out of 
recessions in the past, it is the small business sector that 
leads the way out of the recession. Usually, at some point in 
time, the small business sector is creating 100 percent of the 
net new jobs when moving out of recession.
    So it is completely crazy. We have heard a lot of talk 
today about the private sector and competition, but we do not 
have a system that has got the kind of competition we need. We 
do not have a system that encourages competition among 
businesses. It is precisely this type of approach that the 
committee has put forward that is going to enhance the ability 
for everyone in the system to compete and ultimately to allow 
the businesses out there to compete, those that are building 
products and that are providing services.
    Mr. Courtney. Thank you, Mr. Chairman.
    Chairman Miller. Mr. Thompson.
    Mr. Thompson. Mr. Stapley, you noted in your testimony that 
private employers already subsidize costs of Medicare. Can you 
provide an example of that?
    Mr. Stapley. I provided two examples earlier. There is a 
situation, for example, on the electronic transmittal of claims 
where Medicare does not pay for that, so the private 
participants in the system have to subsidize that.
    On the other hand, I just gave the example of just a 
classic negotiation when you are working out rates so that you 
are going to pay providers. Where they say Medicare is giving 
me a 2 percent increase and my charge max is going up by 4 
percent, that means yours is going up by 6 percent.
    Now, you know, from my perspective, the issue really is if 
the public plan truly does compete on a level playing field. In 
other words, I am not having to pay them money to compete 
against me, so they can compete on a level playing field. I 
mean, if you can resolve that issue, then I think that you will 
find that large employers will probably feel a little better 
about it. I do not know if they would feel totally good about 
it, but if you can guarantee that the public plan, in terms of 
a reimbursement perspective, is playing on a level playing 
field, that makes it easier to deal with. Yet we do not want to 
subsidize them and then turn around and they have lower rates 
so they create an incentive, actually, for our employees to 
leave the system and go to the public plan.
    Mr. Thompson. Some of the recurring themes we have heard 
this afternoon were innovation, competition, decreasing costs. 
They are all important things when it comes to improving our 
health care system.
    Other than rolling out, taking out of the equation a 
taxpayer-funded government competitor, are there other 
methods--and this is for the whole panel--that you would 
recommend or that would do that among private health insurance 
providers where they would encourage competition, decrease 
costs, and motivate innovation?
    I will open that up to the entire panel.
    Mr. Stapley. I would be happy to speak to that to a degree.
    I think the establishment of an insurance exchange is a 
huge step forward in a positive direction if you do this so 
that you level the playing field for the system. I think it is 
very true that the current small group and individual market is 
totally dysfunctional. It is an embarrassment to this country. 
This has to be reformed.
    In the process of putting together the ground rules in 
terms of how the insurance exchange works, you have to make 
sure that every individual American, whether they come from an 
employer plan, a small employer plan, or they are individuals, 
they access the exchange and the plans in the exchange on the 
same basis. That means that the private plans have a set of 
rules they have to play by. There is community rating. There 
is, perhaps, risk adjustment. You might do modified community 
rating.
    All of those things are essential insurance reforms that 
must absolutely, unequivocally, uniformly, equitably apply to 
every plan that is offered through the exchange. In and of 
itself, that is a huge step forward in creating a better basis 
for competition than we have in the present system.
    Beyond that, I would say, in my opinion, the centerpiece 
for reform still has to be cost management. We talked about 
competition. You have to have payment reform, and you have to 
create an incentive for the payers and for the health care 
systems that are engaged with the system to do something 
differently than incentivize the provider system to do more 
even if it has no value. So you have got to look at episodic 
reimbursement--at different kinds of reimbursement systems that 
reward providers that provide high-quality, low-cost care that 
is focused on medical guidelines and so forth and that 
disincentivizes the provision of care that has no value.
    So I think there are challenges in terms of the number of 
plans that are available in some marketplaces. You would hope 
that the availability of exchange and the establishment of a 
uniform, level playing field would make it so that you have 
more entrants in the system. I think we all hope that that 
would be the case and that that, in and of itself, would 
promote competition.
    Mr. Arensmeyer. Congressman, I think we need to look at the 
exchange of the ultimate free marketplace. It needs to be as 
robust as possible. There need to be rules of the road.
    Beyond that, insurance companies, whoever is providing 
insurance, whether it is a public plan or a private plan, is 
going to be judged. Their success is going to be based on their 
level of service, the quality of what they are providing, and 
it is something that is going to be transparent. It is going to 
be there for everyone to see--for individuals, for small 
employers, for whatever size can participate in the exchange. 
It has got to be as robust as possible in order to really get 
the level of competition that is needed.
    Mr. Stapley. Can I make one more statement?
    One of the unique provisions of the proposal that was set 
forth by ERIC a couple of years ago is the section that deals 
with health plan transparency. I guess I would honestly have to 
say that the regulatory structure in the United States has not 
done a very good job of regulating insurance companies. You 
have to have transparency to the extent that a lot of things 
that are not public now with respect to how insurance companies 
do business become public.
    Denial rates, for example, have a huge impact on what your 
ultimate benefit is. You might have a plan that says, I pay 90 
percent of your benefit after a deductible. But, at the end of 
the day, their administrative practices in terms of how they 
adjudicate claims can actually result in a lesser benefit.
    We have experienced that. We offer benefits in all 50 
States. We have seen insurance plans that we offer in some 
States that, because of their aggressive administrative 
practices, end up delivering lower benefits.
    So health plan transparency, which is the cornerstone of 
the initiative put forth by ERIC, is critical to the proper 
functioning of the exchange as part of leveling the playing 
field, as part of making sure that the public knows exactly 
what they are buying when they purchase it.
    Chairman Miller. Ms. Fudge.
    Ms. Fudge. No questions, Mr. Chairman.
    Chairman Miller. Mr. Kildee.
    Mr. Kildee. I have no more questions.
    Chairman Miller. Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    We have heard a lot about the difference in the 
reimbursement rate of the Medicaid/Medicare programs as opposed 
to the private plans. I was not aware that there was that much 
difference. Do any of the insurance plans pay less than 
Medicare or Medicaid? Does anybody know?
    Dr. Hacker.
    Mr. Hacker. I should just say Medicaid rates are 
substantially lower than private insurance rates so that it is 
highly unlikely. There are probably some plans that do not pay 
on the same basis as Medicare, that is, on a more or less fee-
for-service basis, that are paying something equivalent or 
close to equivalent to what Medicare pays. The evidence is that 
most private insurance plans that pay on a fee-for-service 
basis pay something higher than what Medicare rates are.
    Mr. Scott. Well, should we require all insurance companies 
in the exchange, including the public option, to pay the same 
reimbursement rate, including HMOs?
    Mr. Hacker. Well, I do not think that we should require 
HMOs to pay the same reimbursement rate precisely for the 
reason I just mentioned, which is that they pay in a different 
way. If you are paying your doctors on a per-person basis or on 
a salary or if you are using bundled payments, then it is not 
comparable to the way in which Medicare pays.
    As we have argued and as Mr. Shea and I have argued, we 
think strongly that Medicare should move towards innovative 
ways of paying for care. There are proposals that have been 
discussed in the past for having private plans that pay on a 
more or less fee-for-service basis that are competing with a 
public plan or separately from a public plan. They pay at the 
rates that a public plan would. In many countries, they have 
something like this. It is called ``all-payer rate setting.'' 
It is not actually being discussed today. The Medicare 
Advantage fee-for-service plans are allowed to pay Medicare 
rates, the private fee-for-service plans.
    I think one thing that should be said--and this is very 
important--is that Medicare has passed innovations in the way 
it pays for care, such as the DRG system for hospitals. They 
have frequently set the standard for the way in which private 
plans pay for care.
    So this is one of the reasons why I think we need a public 
plan that is focused on the non-elderly, who have very 
different needs than the elderly, which is coming up with new 
and innovative payment methods that I believe strongly, through 
transparency, not only will be made available but also will 
disseminate into the private sector.
    Mr. Scott. Well, one of the ways you can make money is to 
underwrite and make sure you only get healthy people in the 
plan, and this is technically prohibited in the plan.
    How do you avoid informal underwriting where you market the 
benefits, if you have very poor benefits for diabetes, HIV/
AIDS, things like that, so that those with those problems will 
not choose your product? How do you avoid informal 
underwriting?
    Mr. Stapley. I think there are a lot of things that have to 
be part of the exchange to prevent that sort of thing from 
happening. My opinion is there are lots of ways to avoid risks. 
In fact, the name of the game in the current private system is 
risk avoidance. The reason that that is the case is that the 
incentives in our system create that. You can make a lot more 
money if you are a for-profit plan, for example, by avoiding 
risk than you can by being an efficient administrator. So what 
you have to do is you have to structure the design of the 
exchange in such a way that you take away those incentives.
    Now, you have the classic things like underwriting. You 
have this small group and individual market and so forth, but, 
beyond that, you can have benefit design that is intended to 
make it so that sicker people would not take the plan. So you 
would have to have some, in my opinion, standardization of 
benefits to make it so that it is harder to do that.
    You can have, for example, geographic risk selection. We 
have employers in Illinois. It is really fascinating to me the 
kind of coverage that we can get in Chicago that we cannot get 
in Nauvoo, which is in the central part of Illinois. That is 
simply because those plans have made the decision: I cannot 
make as much money in Central Illinois as I can make in 
Chicago. Therefore, I am not going to offer my coverage there.
    So the plans ought to be required to cover the entire 
service area and so forth. That has to be kind of a regulatory 
scheme to eliminate the externalities that make it so that 
plans compete on an unfair basis.
    Mr. Scott. I am trying to get another question in before my 
time runs out.
    Mr. Shea, there is a pay-or-play in Massachusetts where 
your employees don't get any insurance. Is it important that if 
you choose the ``pay'' option that the employees actually get 
coverage.
    Mr. Shea. Absolutely. And it is also important that there 
is a meaningful payment option, not like Massachusetts, that 
they are $300 a year per employee, or whatever it is, and you 
are proposing something that is substantial. I think that is a 
way to design it.
    Chairman Miller. Dr. Cassidy.
    Dr. Cassidy. Ms. Visco, my wife is a breast cancer surgeon, 
and when you speak I just think, oh, my gosh, isn't that just 
music to my ears and my wife's ears? We share your concern.
    Dr. Hacker, a couple of things. Your proposal--and, by the 
way, congratulations. I think this is your brainchild, and 
obviously it has really become something. The public option is 
really innovative in that it nationalizes an insurance company 
or creates a government-run health insurance company. But as 
you are speaking about the payment methods, Medicaid and 
Medicare have lagged far behind ERISA companies, for example, 
in coming up with innovative payment schemes. Way behind.
    So as I look at this--and I try to think the patient is 
central in this proposal which we have--I don't really ever see 
that the patient is really central to cost savings or the 
patient is central to improving outcomes. What I do see is that 
there is a great emphasis on using bargaining power to decrease 
costs, even though in your paper you mention that probably for 
physicians that bargaining power has been used to excess and 
you can demonstrably show in some cases that physicians--that 
access has decreased because of it. Indeed, the CBO scoring of 
this, or maybe the Senate document, the CBO scoring said there 
would be limited access to some specialists because of rates 
paid by the public option.
    So I don't see that much innovative. So let me bounce it 
back to you. If we are really going to come up with a patient-
centered plan, I think the only way that history has shown us 
that we can save money is by doing so. The only way we can 
improve outcomes is by doing so. Why not HSAs? HSAs, according 
to Kaiser--I keep on saying this but it is just--I feel like a 
tree farm in the forest--for a similar demographic, a similar 
set of benefits, HSAs cost 30 percent less than do a fee-for-
service plan. The patient is now in control.
    Yesterday, I was speaking to someone. They have an HSA. 
They said that their doctor prescribed them a $150 proton pump 
inhibitor. They went to him and said, listen, we are paying for 
this out of our HSA, and they asked for a substitute, and they 
got a $20 generic substitute. That is because the patient 
initiated it. By the way, her health care was not compromised.
    I don't see much innovative beyond using monopsony power to 
drive down costs and presumably shifting whatever degree you 
shift. We can argue over that.
    Two, how do we effectively make the patients central, as 
opposed to the payment mechanisms or the government bureaucracy 
which must administer this program?
    Mr. Hacker. Thanks for the compliment. At this particular 
moment, I don't want to be considered the author of this 
proposal.
    Dr. Cassidy. I wouldn't, either, but that is okay.
    Mr. Hacker. So I want to address each of your questions in 
turn.
    With regard to the question of whether or not this is an 
innovative approach, I think it is very important to emphasize, 
as I have, and this is emphasized in the legislation, that the 
idea would not be to replicate the Medicare program but to 
create a new program that had a broader set of benefits, a 
different risk----
    Dr. Cassidy. You are very explicit that you are using the 
same way to control costs as Medicare, which is through 
monopsony power and using your bargaining power to lower rates.
    Mr. Hacker. I believe I said that it should be one tool 
that the plan should have.
    Dr. Cassidy. The other tools that you suggest have not been 
proven to work. For example, accountable care organizations are 
theoretical, but even the proponents will admit that it is 
basically a pilot project.
    Now, health IT--and in your paper--and thank you for your 
intellectual honesty--you point out the preventions, benefits, 
and controlling costs are limited.
    Mr. Hacker. That is interesting. I don't remember saying 
prevention was limited. I do say that there has been great 
skepticism on the part of the Congressional Budget Office with 
regard to the cost-control effects of some of these measures, 
and it should be noted that, whether or not prevention reduces 
cost, it is a good thing to do.
    But I was going to just say quickly that one tool that the 
plan should have is to use its bargaining power, but it should 
be allowed to innovate. I was very pleased to see in this 
legislation that after a period of time that the plan would 
actually be developing new payment modalities. And I said--and 
care coordination strategies.
    I said repeatedly that I believe that is what needs to 
happen and that it will be easier to do with a public plan that 
is focused on the non-elderly than it is in the current 
Medicare program.
    I also think it is important to think about how to separate 
this plan from some of the political forces that have made it 
hard for Medicare to do the more value-oriented purchasing that 
we would like it to do.
    I agree completely that patients should be central. It is 
worth noting, for all of its flaws within the Medicare 
programs, there are very high levels of patient satisfaction.
    Dr. Cassidy. Yes, but that is because they are relatively 
screened from the costs, and that is one of the reasons it is 
going bankrupt in 2017. And in your proposal there is no 
requirement for market capitalization or for business 
capitalization. Rather, it is the full faith and credit of the 
Federal Government.
    Mr. Hacker. I believe there are many reasons why patients 
are satisfied with Medicare, but my read of the surveys are 
that they are favorable for it because of the ease that they 
have in finding physicians and having access to specialists and 
the sense that they don't have to wait for doctors. And those 
are things that I think that the public plan can provide.
    Chairman Miller. Thank you very much for the patience with 
the committee and for all of your testimony that you have given 
us today.
    I hope that we can continue to engage you as we move 
forward in this process. There are a number of very good and 
relevant suggestions that have been made by this panel, and we 
hope that you would agree to let us continue to pick your 
brains on this one. Thank you very much.
    I will introduce the next panel.
    Ms. Karen Pollitz is the Research Professor and Project 
Director at the Georgetown University where she directs 
research on health insurance reform. From 1993 to 1997, she 
served as Deputy Assistant Secretary of Health Legislation at 
the U.S. Department of Health and Human Services. Ms. Pollitz 
has a BA from Overland College and an MPP from the University 
of California, Berkeley.
    Ms. Celia Wcislo is an executive board member of the 
Service Employees International Union as well as Assistant 
Division Director of 1199 SCIU United Health Care Workers East, 
a union of more than 300,000 health care workers. She also 
serves as a board member of the Commonwealth Connector 
Authority. And Ms. Wcislo holds a BS from the University of 
Massachusetts, Boston, as a graduate of the Harvard Trade Union 
Program.
    Mr. James Klein is the President of the American Benefits 
Council, the trade association representing Fortune 500 
companies that sponsor and administer health and retirement 
benefits. Mr. Klein is a graduate of Tufts University and a 
graduate of the National Law Center at George Washington 
University.
    Mr. William Vaughan is Senior Health Policy Analyst for 
Consumers Union. Starting in 1965, he worked for various 
Members of the House of Representatives, the Ways and Means 
Committee, and retired in 2001 as the Health Subcommittee 
Minority Staff Director. Mr. Vaughan has graduated with a BA 
from American University.
    Dr. Robert Moffit is the Director of Health Policy Studies 
at the Heritage Foundation, specializing in health policy 
issues. He is a former senior official at the U.S. Department 
of Health and Human Research Services and was involved in 
Massachusetts health insurance reform initiatives in 2005. Mr. 
Moffit holds his BA from LaSalle University and his Ph.D from 
the University of Arizona.
    Ms. ReShonda Young is the operations manager of Alpha 
Express, a small business in Waterloo, Iowa, where she serves 
as the company's operations manager. Ms. Young is also a leader 
in the Iowa Main Street Alliance, a coalition of small 
businesses across Iowa. Ms. Young has a BA from Wartburg 
College.
    Dr. Fitzhugh Mullan is a Murdock Head Professor of Medicine 
and Health Policy at George Washington University. He earned 
his rank of Assistant Surgeon General when he directed the 
Bureau of Health Professions. Dr. Mullan holds a BA from 
Harvard and an MD from the University of Chicago.
    Welcome to all of you. Thank you for your patience today.
    You have watched the drill here. You will be given 5 
minutes to summarize your written statement. Also, if you think 
there is something you want to comment on during your 
presentation that you have heard from the previous panel, do so 
if you think it would be helpful.
    Chairman Miller. Professor Pollitz, welcome.

  STATEMENT OF KAREN POLLITZ, RESEARCH PROFESSOR AND PROJECT 
 DIRECTOR OF THE HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY

    Ms. Pollitz. Thank you, Mr. Chairman.
    Congratulations on a very fine tri-committee draft proposal 
for health care reform. It is an impressive accomplishment 
worthy of the challenge we face to make health care available, 
affordable, and adequate for all Americans. Your hard work and 
wisdom and practicality and that of your excellent staff is 
evident in this proposal, and this time I know you will get the 
job done.
    Your proposal defines a minimum health benefits standard. 
It requires all Americans to have at least that level of 
coverage, with shared responsibility for paying for that by 
employers. It creates tax credits for small businesses. It 
expands Medicaid and creates new premium and cost-sharing 
subsidies for private coverage to help other Americans of 
modest means.
    The proposal also establishes strong new market reforms for 
private insurance with important consumer protections. It 
creates a new health insurance exchange, an organized 
marketplace that will give consumers, individuals, and small 
employers a great deal of assistance with enrollment, appeals, 
applications for subsidies, provide comparative information 
about plan choices; and, on their behalf, the exchange will 
negotiate with insurers over the premiums for health insurance 
in order to get the best possible bargains. And, importantly, 
consumers and employers who buy coverage in the exchange will 
also have the choice of a new public plan option.
    You have heard about the recent national poll that 
indicates Americans strongly favor such an option. It can 
address the failures of competitive health insurance markets 
today.
    First, it offers consumers an alternative to private health 
plans that for years have competed on the basis of 
discriminating against people when they are sick. Just last 
week, your colleagues on the Energy and Commerce Committee held 
a hearing on health insurance rescissions. One woman who was 
battling breast cancer testified that her coverage had been 
revoked for failure to disclose a visit to a dermatologist for 
acne. When consumers are required to buy coverage, having a 
public option that doesn't have a track record of behaving in 
this way will give many peace of mind.
    And, second, a public plan option will promote cost 
containment. Research shows that insurance markets today do not 
compete to hold down costs. Rather, insurers and providers 
negotiate to pass costs through to policyholders while 
maintaining and even growing profits.
    For the first few years, the public plan option will be 
allowed to base its payments to doctors and hospitals on the 
fee schedules used by Medicare. Thereafter, it will develop 
innovative payment methodologies to hold down costs.
    Mr. Chairman, clearly as this bill moves through the 
legislative process there will be opportunities to modify and 
improve it; and in my written statement, I offered several 
recommendations in that regard and would briefly just describe 
three of those for you now.
    First, with respect to the essential benefit package, the 
bill does create a benefit standard, and it appears to be a 
solid one, but it doesn't create an out-of-pocket limit on cost 
sharing for care received outside of a plan network, and that 
is an important omission to correct. And your plan does not 
specifically reference as a benchmark the BlueCross/BlueShield 
standard option plan offered through the FEHBP today.
    Many have talked about that plan which so many Members of 
Congress have as coverage today as being an appropriate 
benchmark of minimum coverage for all Americans. It is not 
clear whether your essential benefit package meets that 
standard, but it should; and if it doesn't, the standard should 
be improved. And if that raises the cost of the bill, it will 
be imperative to find additional resources.
    Over the next decade, our economy will generate more than 
$187 trillion in gross domestic product, and we will spend a 
projected $33 trillion on medical care. Investment in health 
care reform that guarantees adequate protection for individuals 
and families is worthwhile.
    Second, with regard to rules governing health insurance, 
new rules won't be meaningful unless there are resources for 
oversight and enforcement. After the enactment of HIPAA, a 
witness at a congressional hearing for the Department of Labor 
testified that the Department had resources to review each 
employer-sponsored health plan under its jurisdiction once 
every 300 years.
    For health reform bills, your final health reform bill must 
appropriate resources for the Department of Labor as well as 
for HHS and State insurance departments so that there is 
capacity to oversee and enforce the new standards. Your 
colleague on the Appropriations Committee, Congresswoman 
DeLauro, has introduced legislation to do this.
    And, finally, with regard to subsidies, the bill creates a 
sliding-scale assistance so that middle-class Americans with 
income up to 400 percent of the poverty level will not have to 
pay more than 10 percent of their income toward premiums. As 
charts in my written statement illustrate, however, some 
consumers--including self-employed, who have been mentioned a 
lot today--who have incomes above that level may still face 
affordability problems. This is especially likely for people 
who have to buy family coverage and for baby boomers who could 
face much higher premiums under age rating that is allowed 
under this bill.
    I hope the committee will consider setting a premium so 
that no American will have to spend more than 10 percent of 
their income on health insurance.
    Chairman Miller. Thank you.
    [The statement of Ms. Pollitz follows:]

  Prepared Statement of Karen Pollitz, Research Professor, Georgetown 
                   University Health Policy Institute

    Good afternoon, Mr. Chairman and Members of the Committee.
    I am Karen Pollitz, a Research Professor at the Georgetown 
University Health Policy Institute, where I study the regulation of 
private health insurance.
    I commend the Members of the three House Committees, including this 
one, for the Tri-Committee Draft Proposal for Health Care Reform. Your 
hard work, wisdom, and practicality are evident in this proposal. It 
contains the key elements necessary for effective health care reform 
that will achieve universal coverage and introduce cost discipline into 
the health care system. I congratulate you on this effort, and as a 
citizen, I thank you for it. This time, you will get the job done.
    In my remarks today, I will comment on some of the central health 
care reform provisions contained primarily in the first five titles of 
the draft legislation and offer several suggestions that I hope you 
will find helpful and constructive as you work toward enactment later 
this year.
    For health care reform to provide all Americans with secure 
coverage, changes must be adopted and enforced to ensure that health 
insurance is always available, affordable, and adequate. Key elements 
of the Tri-Committee proposal will address these critical needs.
    Individual responsibility The legislation requires all Americans to 
have health insurance coverage. More importantly, it makes other 
changes to our coverage system to enable people to comply with this 
requirement.
    Essential benefit standard A most basic component of health care 
reform is to define what constitutes health insurance. Far too many 
policies that provide inadequate coverage are on the market today, and 
as a result, almost as many Americans are under-insured as uninsured. 
Recent studies find that 57 million Americans are burdened with medical 
debt, and 75 percent of them have health insurance.\1\ Medical bills 
continue to be a leading contributor to personal bankruptcy and most 
medical bankruptcies also occur among people who are insured. This 
spring, Consumer Reports magazine reported on a host of health 
insurance products that nonetheless left policyholders on their own to 
pay tens of thousands of dollars (or more) in medical bills.\2\ Studies 
show the under-insured, similar to the uninsured, have difficulty 
accessing timely and quality health care.\3\
    A fundamental purpose of health care reform must be to put an end 
to medical debt and medical bankruptcy, and to ensure that health 
coverage is, indeed, a ticket to health care. The Tri-Committee draft 
proposal sets national standards for an essential health benefits 
package that includes hospital care, inpatient and outpatient medical 
care, prescription drugs, mental health and substance abuse treatment, 
rehab services, preventive care services, and maternity care. The 
essential benefits package includes additional, enhanced benefits for 
children. Cost sharing for covered services provided in-network cannot 
exceed $5,000 per year for an individual, $10,000 for a family. The 
annual limit on cost sharing is a comprehensive limit that applies to 
all forms of cost sharing, similar to that required for tax preferred 
HSA-eligible health plans today.
    All qualified health benefit plans will be required to cover the 
essential benefits package. Three levels of plan options can be 
offered. The Basic Plan level must set cost sharing to achieve an 
actuarial value of 70 percent of the essential benefits package. 
Enhanced and Premium Plan options must have actuarial values of 85 and 
95 percent, respectively, of the essential benefits package.
    A Health Benefits Advisory Committee chaired by the Surgeon General 
will fill in other important details on plan features, such as the 
annual deductible(s) and update the benefit package over time.
    Recommendation--The essential benefit package must include a 
maximum outof-pocket limit whether people receive care in or out of 
network. Though the bill provides for the establishment of network 
adequacy standards, patients nonetheless need protection against 
unlimited cost sharing when they must seek care out of network. The 
sickest people are most likely to need care from sub-specialists who 
may not participate in their plan network. And any patient who is 
hospitalized may inadvertently receive costly care from non-network 
doctors whom they do not choose (for example, anesthesiologists, 
radiologists, pathologists, emergency physicians.)
    In addition, an often mentioned benchmark standard for coverage 
adequacy is the Standard Option plan offered by Blue Cross Blue Shield 
under the Federal Employees Health Benefits Program (FEHBP)--coverage 
that most federal employees and many Members of Congress have today. 
The essential benefits package outlined in the draft proposal appears 
to provide less coverage than this FEHBP standard. If that is the case, 
additional resources should be included to raise the minimum benefit 
standard. Over the next decade, our economy will generate more than 
$187 trillion in gross domestic product and we will spend a projected 
$33 trillion on medical care. The investment in health care reform that 
guarantees an adequate level of protection for individuals and families 
is worthwhile.
    Whatever benefit standard is ultimately adopted, the Health 
Benefits Advisory Committee should be required to regularly report on 
medical bills that individuals and families incur. Updates to the 
essential benefits package over time should strengthen coverage 
adequacy.
    Finally, the draft proposal continues to permit the sale of certain 
so-called ``excepted benefits'' in traditional health insurance 
markets. These would include cancer policies and other dread disease 
and limited benefit policies. Consumers are vulnerable to abusive 
marketing practices when it comes to these policies and state 
regulators have long warned they are a poor value.\4\ At a minimum, 
such policies should contain warning labels that they do not constitute 
qualified health benefit plans and that coverage is duplicative of that 
provided under qualified health benefit plans.
    Subsidies and Medicaid expansion Overwhelmingly, today, the 
uninsured have low incomes and lack coverage chiefly because they 
cannot afford it. The Tri-Committee proposal addresses affordability in 
two ways.
    First, it expands Medicaid coverage to all Americans with family 
incomes up to 133\1/3\ percent of the federal poverty level (FPL). This 
is an important departure from the current Medicaid program, which only 
provides coverage for certain categories of individuals--children and 
their parents, and other adults only if they are elderly or disabled--
and which applies varied income eligibility standards that often vary 
significantly by state. To make this expansion affordable for states, 
the draft legislation provides that the federal government will pay the 
full cost of covering new expansion populations--childless adults and 
other adults for whom income eligibility levels are below 133\1/3\ 
percent FPL. Further, to ensure individual choice, Medicaid-eligible 
individuals will have the choice between enrolling in Medicaid or 
seeking other subsidized private health insurance coverage
    Second, the discussion draft provides for sliding scale financial 
assistance for individuals and families to purchase private health 
insurance. Premium subsidies would be offered on a sliding scale for 
people with family income up to 400 percent of FPL. At last count, ten 
percent of the uninsured, or some 5 million Americans, had incomes 
equal to 400 percent FPL or more. This is due to the fact that our 
measure of poverty level income is very low, while the cost of good 
health coverage is relatively expensive. For a family of 3, an income 
of 400 percent of FPL is $73,240. For that family to enroll in the 
FEHBP Blue Cross Blue Shield Standard Option plan, the annual premium 
would cost $13,446, or 18 percent of gross family income.
    Because people with incomes above the subsidy levels provided in 
this bill may find quality health insurance coverage costs more than 
they can afford, you should consider improvements to the premium 
subsidy schedule as you work through the legislative process this year.
    Importantly, the discussion draft also provides subsidies for cost 
sharing under private health insurance. This is also critically 
important. Deductibles, co-pays, and coinsurance are additional 
payments required of insured individuals at the point when they seek 
health care. Decades of research shows that cost sharing deters the use 
of care, including medically necessary care, particularly by people 
with limited income. Further, research shows that when out-of-pocket 
spending for medical bills (not including premiums) exceeds just 2.5 
percent of family income, patients become burdened by medical debt, 
face barriers to accessing care, and have problems paying other 
bills.\5\ Cost sharing subsidies are necessary to ensure that people 
can afford to access covered benefits.
    Recommendation--Depending on what premiums are charged for 
qualified health benefit plans, subsidies capped at 400 percent of FPL 
may prove to be insufficient to ensure affordable health care for all 
Americans. The Committee might consider instead a rule that no 
individual or family will have to pay more than 10 percent of income on 
health insurance premiums (with lower limits set for low-income 
individuals, as the Tri-Committee draft does.) Cutting subsidies off 
entirely at an arbitrary income level can leave families vulnerable. 
The Massachusetts health care reform experience is instructive. In that 
state, subsidies are limited to residents with incomes to 300 percent 
of FPL, and as a result, the state waives the individual mandate on 
grounds of affordability for approximately 2 percent of residents.\6\
    As shown in Figures 1 and 2, if the intent of the Committees is to 
assure that no families or individuals will have to pay more than 10 
percent of income for health insurance premiums, and if the FEHBP Blue 
Cross plan is used as a benchmark premium, then people will need help 
beyond that provided for in the draft proposal. The cost of good 
coverage is will be sizeable compared to what many working families 
earn. (See Figure 3) A subsidy system that caps people's liability for 
premiums at no more than 10 percent of income would be more protective 
and subsidies would taper off gradually, avoiding a cliff. Some 
assistance would reach people at higher income levels, though help 
provided to higher earners would be modest.





    Private health insurance market reforms The Tri-Committee proposal 
prohibits the use of common insurance industry practices today that 
have the effect of discriminating against people based on health 
status. Under reform, health insurance would have to be offered on a 
guaranteed issue basis. No longer could individuals or employer groups 
be denied coverage based on health status or health history, although 
insurers would be allowed to surcharge premiums by as much as 100 
percent based on age--a strong proxy for health status. The discussion 
draft also provides for guaranteed renewability of coverage--a 
requirement of current law--with clarification that the rescission of 
health insurance is also prohibited. In other words, insurers will be 
explicitly prohibited from a common practice today of taking back 
coverage from individuals and employer groups after claims are made. 
The draft legislation also prohibits the imposition of pre-existing 
condition exclusion periods and prohibits insurers from varying 
premiums based on health status. These market rules will promote the 
spreading of risk, instead of today's industry practices of segregating 
risk. And they are essential in a world where people are required to 
have health insurance.
    Other new market rules will ensure that coverage works well and 
efficiently for consumers. Standards for network adequacy and the 
timely payment of claims are provided for under the bill. In addition, 
insurers will be required to meet minimum loss ratios of 85 percent, so 
that no more than 15 percent of premium dollars can be spent on 
marketing, administrative costs, and profits.
    Recommendation--Consideration should be given to tighter limits on 
age adjustments to premiums, or for elimination of such adjustments 
altogether. Particularly if premium subsidies are capped at 400 percent 
FPL, affordability problems may be substantial for members of the 
``Baby Boom'' generation. Premiums for coverage sold today in 
Massachusetts, where age rating of 2:1 is also permitted, illustrate 
the affordability problem for people as we age. See Figure 4.



    Finally, for market reforms to be meaningful, Congress must 
authorize and appropriate resources for oversight and enforcement, both 
at the federal and state level. The Tri-Committee proposal wisely 
requires extensive data disclosure by health plans so that regulators 
may monitor compliance with market rules. But regulators will need 
expert staff to review and analyze data, as well as to conduct 
compliance audits and respond to consumer problems and complaints.
    Resources at the federal level are particularly lacking and must be 
increased. At a hearing last summer of the House Committee on Oversight 
and Government Reform, a representative of the Bush Administration 
testified that the Centers for Medicare and Medicaid Services (CMS), 
which is responsible for oversight of HIPAA private health insurance 
protections, then dedicated only four part-time staff to HIPAA health 
insurance issues. Further, despite press reports alleging abusive 
rescission practices, the Agency did not investigate or even make 
inquiries as to whether federal law guaranteed renewability protections 
were being adequately enforced.\7\
    Additional resources will also be needed at the U.S. Department of 
Labor (DOL). After the enactment of HIPAA, a witness for DOL testified 
the Department had resources to review each employer-sponsored health 
plan under its jurisdiction once every 300 years.\8\
    At the state level, limited regulatory resources are also an issue. 
In addition to regulation of health coverage, state commissioners 
oversee all other lines of insurance. In several states the Insurance 
Commissioner also regulates banking, commerce, securities, or real 
estate. In four states, the Insurance Commissioner is also the fire 
marshal. State insurance departments collectively experienced an 11 
percent staffing reduction in 2007 while the premium volume they 
oversaw increased 12 percent. State regulators necessarily focus 
primarily on licensing and solvency.\9\ Dedicated staff to oversee 
health insurance and, in particular, health insurer compliance with 
HIPAA rules are limited. Enforcement of consumer protections is often 
triggered by complaints.
    In order for new insurance market rules to deliver on promised 
consumer protections, strong oversight and enforcement will be 
essential. Your colleague, Congresswoman Rosa DeLauro, has wisely 
introduced legislation (HR 2427) to strengthen oversight and 
enforcement capacity at the federal and state level.
    Establishment of a national health insurance Exchange The Tri-
Committee proposal also provides for the establishment of a national 
health insurance Exchange. An Exchange is a more organized health 
insurance market than what individuals, employers, and insurers are 
used to today. For purchasers in the Exchange, there will be subsidies 
to make premiums affordable. There will also be considerable new 
sources and types of assistance--for example, the provision of 
comparative information about plan choices, as well as assistance with 
enrollment, determination of eligibility for subsidies and/or Medicaid, 
appeals, and so on. Many of these services will be provided by a new 
Health Insurance Ombudsman, created solely to help consumers navigate 
the coverage system and make choices that are best for them.
    For sellers of health insurance, the Exchange will accept bids and 
negotiate with insurers over the premiums they charge. The Exchange 
will also exercise much closer oversight over health insurance than 
generally occurs today. Insurers will be required to report data on 
their products and practices in order to make more transparent the 
black box that is private health insurance today. These data will be 
used in the establishment of risk adjustments to premiums, and to 
monitor compliance with market rules and consumer protections.
    Initially, the Exchange will serve those consumers who are most in 
need of these added protections--individuals and the smallest employers 
(with fewer than 20 employees) who lack market clout and the resources 
to hire human resources experts of their own. Authority to permit other 
employers to participate in the Exchange is delegated to a Commissioner 
starting in the fourth year of implementation.
    The Commissioner is also authorized to require that certain 
consumer protections--such as network adequacy protections, 
transparency standards, and external appeals--apply to all qualified 
health benefit plans, including those outside the Exchange. However, 
the Commissioner might not require parallel protections. Further, the 
legislation does not require that insurers offer the same plan options 
at the same prices both inside and outside the Exchange.
    Recommendation--In order to protect against risk selection, it is 
important for requirements to be identical for all qualified health 
benefit plans, no matter where they are sold, in or outside of the 
Exchange. If insurers can vary the plan options and prices they offer 
in different markets, they will be more able to steer risk. The Tri-
Committee plan includes sanctions for employers found to steer risk 
into the Exchange. Similar sanctions should be applied to insurers, in 
addition to parallel rules to minimize this possibility.
    A public plan option Within the health insurance Exchange, 
consumers will have a choice of private health insurance plans and 
carriers, as well as a public plan option. This is a key provision in 
the draft reform bill that will promote both choice and cost 
containment. A recent national poll indicates Americans are strongly 
behind the establishment of a public plan option to compete with 
private health insurers.\10\ The public plan option must meet the 
requirements of other qualified health benefit plans offered by private 
insurers. By introducing this option into the marketplace, a public 
plan option can address failures of competitive health insurance 
markets today.
    First, it offers consumers an alternative to private health plans 
that, for years, have competed on the basis of discriminating against 
people when they are sick. At a hearing of the House Energy and 
Commerce Committee just last week, patients testified about having 
their health insurance policies rescinded soon after making claims for 
serious health conditions. One woman who is currently battling breast 
cancer testified that her coverage was revoked for failure to disclose 
a visit to a dermatologist for acne. At this hearing, when asked 
whether they would cease the practice of rescission except in cases of 
fraud, executives of leading private health insurance companies 
testified that they would not. Experiences like these make some 
consumers distrust private insurers.\11\ If consumers are required to 
buy health insurance, having a public coverage option that does not 
have to compete on the basis of profits will give many peace of mind.
    Second, a public plan option will promote cost containment. 
Research shows that competitive health insurance markets today do not 
operate to hold down costs. Rather, insurers and providers negotiate to 
pass cost increases on to policyholders while maintaining and even 
growing corporate profits.\12\ Under the Tri-Committee proposal, the 
public plan option will initially be allowed to base its payments to 
doctors, hospitals, and most other providers on the fee schedules used 
by Medicare, albeit at a higher level than Medicare pays today. The 
public plan will negotiate new payment rates for prescription drugs 
with pharmaceutical companies. And it will be able to offer bonus 
payments for providers that participate in both Medicare and the public 
plan. The public plan option is further tasked with development of 
innovative payment methodologies that hold down cost and promote 
quality. This will help move the market in the direction of competition 
based on the efficient delivery of health care services.
    Shared responsibility Finally, the Tri-Committee draft proposal 
provides for a continued role by employers in the provision of health 
benefits. Most insured Americans today get health coverage at work and 
a stated goal of health care reform is to let people keep current 
coverage if they are satisfied with it. A requirement for employers to 
provide health benefits (``play'') or contribute toward the cost of 
other public subsidies for coverage (``pay'') is consistent with this 
goal and will help keep employer resources in the financing system.
    Conclusion Mr. Chairman, the Tri-Committee draft proposal for 
health care reform is an impressive accomplishment, worthy of the 
challenges we face to make health coverage available, affordable, and 
adequate for all Americans. Your proposal defines a minimum health 
benefits standard, requires all Americans to have it, and institutes 
reforms to ensure affordable coverage in reformed markets with added, 
important consumer protections. You also make available a new public 
plan option that will add to consumer choice and move insurance markets 
to compete on the basis of cost efficiency, not risk selection.
    No doubt, others will recommend modifications as I have today. The 
legislative process was intended to consider all points of view and 
then to act in the best interests of the public you represent. I could 
not be more pleased to see this legislative process at work. I thank 
you for your courage and commitment to health care reform that secures 
good, affordable health coverage for all Americans, and will be happy 
to provide you any additional information or assistance that I can.

                                ENDNOTES

    \1\ Peter Cunningham, ``Tradeoffs Getting Tougher: Problems Paying 
Medical Bills Increase for US Families, 2003-2007,'' Center for 
Studying Health System Change, Tracking Report No. 21, September 2008.
    \2\ ``Hazardous health plans: Coverage gaps can leave you in big 
trouble,'' Consumer Reports, May 2009.
    \3\ Cathy Schoen, et al., ``How Many Are Underinsured? Trends Among 
U.S. Adults, 2003 and 2007,'' The Commonwealth Fund, June 10, 2008.
    \4\ See, for example, http://www.ncdoi.com/consumer/consumer--
publications/health%
    \5\ Peter Cunningham, ``Living on the Edge: Health Care Expenses 
Strain Family Budgets,'' Center for Studying Health System Change 
Tracking Research Brief No. 10, December 2008.
    \6\ Health Care Reform Facts and Figures, Commonwealth Connector, 
June 2009.
    \7\ Testimony of Abby Block, Hearing on Business Practices in the 
Individual Health Insurance Market: Termination of Coverage, Committee 
on Oversight and Government Reform, U.S. House of Representatives, July 
17, 2008.
    \8\ Testimony of Olena Berg, Assistant Secretary of Labor, Pension 
and Welfare Benefits Administration, Senate Labor and Human Resources 
Committee, October 1, 1997.
    \9\ National Association of Insurance Commissioners, 2007 Insurance 
Department Resources Report, 2008.
    \10\ Kevin Sack and Marjorie Connelly, ``In Poll, Wide Support for 
Government-Run Health'' New York Times, June 21, 2009.
    \11\ Gallup poll, June 17, 2009, available at http://
www.gallup.com/poll/120890/Healthcare-AmericansTrust-Physicians-
Politicians.aspx
    \12\ James Robinson, ``Consolidation and the Transformation of 
Competition in Health Insurance,'' Health Affairs, November/December 
2004.
                                 ______
                                 
    Chairman Miller. Ms. Wcislo.

  STATEMENT OF CELIA WCISLO, EXECUTIVE BOARD MEMBER, SERVICE 
                 EMPLOYEES INTERNATIONAL UNION

    Ms. Wcislo. Thank you.
    I am testifying today on behalf of the Service Employees 
International Union. Chairman Miller, members of the committee, 
I applaud you for your draft bill that was released last week. 
I am a local and national officer as well as a board member of 
the Connector, which is implementing health care reform in 
Massachusetts.
    First, Americans are ready to fix health care. I have no 
doubt about it. Your draft bill includes many of the essential 
elements that will start that fix today.
    SEIU supports a robust health insurance exchange. That is 
what I do on a regular basis as a Connector board member. We 
found three very good reasons for it.
    One, it has allowed consumers to compare and find insurance 
plans all in one place so they have some choices and they 
understand their choices.
    Secondly, we built on our Medicaid program so as people 
move off Medicaid into subsidized care or into the employer 
market they have a path through which they can go and they can 
call one place and find out what they are entitled to.
    And, finally, we have set a minimum standard of what health 
insurance is, which is protect our markets and models what you 
were going to do in the advisory committee.
    SEIU supports the public health insurance option in your 
bill as a way to keep costs down and foster price competition 
in the private market. While the Connector board has been very 
effective in providing subsidized care to the low-income folks, 
we do not have a model of how to intervene in the private 
market, and I believe this approach will do that. It could pool 
the costs alone--small employers and individual folks in the 
market in our State, when we did that, it saved 30 to 40 
percent for individuals who were forced to buy it on their own.
    One way of addressing some of the concerns about unfair 
competition that I heard today is to make sure that the public 
plan pays rates equivalent to Medicare or a little higher. In 
particular, I am concerned that Medicaid does not pay as well 
for primary care, and you would have to look at that, but that 
would level the playing field because it will provide a closer 
to a single--a sole--you know, a joint-payer system where 
people are each paying the same amount and will limit the 
amount of shifting onto the private insurance premiums.
    SEIU supports the setting of minimum benefit standards that 
connect to such standards for health insurance, and we applaud 
the House for this proposal in this bill. Our standards have 
been critical to keeping the floor from dropping out of our 
insurance market and have protected consumers from predatory 
insurance companies.
    We also support the 400 percent affordability scale. Our 
scale stops at 300 percent, and clearly 60,000 of the people 
who are waived out of our individual mandate were waived out 
because they could not afford it. Your bill fixes that.
    And, finally, we support shared responsibility. Employers, 
individuals, and the government must alter the part to make it 
a sustainable and affordable system that covers everyone.
    Massachusetts reform continues to be successful for many 
reasons, but I would say the major reason is the approach of 
shared responsibility that the House tri-committee bill adopts. 
We have an individual mandate, we have government support and 
an employer mandate, and it has worked. And, in fact, a recent 
study by Health Affairs showed that people more likely--the 
public more likely supports any kind of change in health care 
if all of us chip in, and they are left more resistant if it 
falls on only individuals.
    Our individual mandate and our employer mandate have 
worked, and 70 percent of our residents still approve of the 
reform. SEIU applauds your proposal to make employers continue 
paying.
    One of the representatives mentioned Tennessee. There was 
no pay-or-play system in Tennessee.
    In closing, I would not like the choice to dump it onto the 
backs of government. I think we need to keep the moneys that 
employees put into the system in the system, and your pay-or-
play idea would do that.
    To date, those two combined purchases in Massachusetts, an 
individual and an employer mandate, appear to have worked. We 
have 440,000 people out of 650,000 insured in less than 3 
years. That is pretty amazing. That is 70 percent of our 
uninsured. Of those, 191,000 were paid by employers or 
individuals buying through the connector. That is, 44 percent 
was paid not with government subsidies at all but through 
business and individuals contributing. That is very important, 
and your plan will do that.
    Additionally, since 2003, the number of our employers that 
provide insurance has gone up--68 percent to 72 percent. That 
is contrary to the entire national States' markets. We have 
proved that by having such a mandate we will bring in employers 
who weren't offering it before.
    And your requirement that looks at the entire payroll, your 
entire payer payroll, is more fair because it does not hit low-
income employers in a more difficult way based on the size and 
their ability to pay. It is critical that reform mandates--both 
business and individuals--contribute to the cost of everyone, 
along with government.
    We must build a safety net for those individuals and small 
businesses that do not have access now and access to affordable 
insurance. We want a health plan to provide competition and 
continuity in the market. We believe your draft bill is a great 
step forward for that, and we support it.
    Mr. Andrews [presiding]. Thank you.
    [The statement of Ms. Wcislo follows:]

    Prepared Statement of Celia Wcislo, Assistant Division Director,
                  SEIU United Healthcare Workers East

    My name is Celia Wcislo, and I am testifying today on behalf of the 
Service Employees International Union. Chairman Miller and members of 
the committee, SEIU applauds you for the discussion draft bill released 
on June 19. I am a local and national officer of SEIU as well as a 
board member of the Commonwealth Connector Authority. This authority 
was set up to implement Massachusetts' healthcare reform legislation, 
and I have been a board member since the first meeting in 2006.
    Americans are ready to fix healthcare. According to a poll 
conducted in April by the Kaiser Family Foundation, a solid majority of 
the respondents agree that the current economic crisis makes it more 
important that we reform healthcare now. Your discussion draft includes 
some essential elements that will promote coverage and access, cost 
containment, and improved quality and value:
    A Robust Health Insurance Exchange: As a member of the Connector 
Board, we have found this form of exchange important for many reasons:
    1. It has created a set of products, and a Web portal that, for the 
first time, allows consumers to compare insurance products in one 
place, helping them to find the information and comparisons they need 
to select the plan that best fits their needs.
    2. The Connector has also built on top of the state's Medicaid 
virtual gateway, so individuals can quickly be enrolled in the 
appropriate subsidized plans.
    3. We have established a ``minimum wage'' type standard for what 
minimum benefit coverage should look like, much as the proposed 
advisory committee chaired by the surgeon general would do in the 
discussion draft. I will speak to this more in a few minutes.
    A Public Health Insurance Option: SEIU fully supports a public 
health insurance option as a way to keep costs down and foster price 
competition in the private market. While the Connector has been able to 
keep the cost of our subsidized plans low because of our exclusive 
market position and our role in defining benefits and co-pays, we have 
had little impact on the private market. That has meant that premiums 
continue to rise, and many small business owners are feeling the 
financial impact. In particular, in Massachusetts we have only just 
begun to offer plans to the small group market and it is still in the 
pilot stage.
    One way of addressing some of the concerns of ``unfair 
competition'' that have been raised by private insurance plans is to 
make sure the public option pays adequate provider rates. In 
Massachusetts, the use of Medicaid Disproportionate Share funding to 
pay for coverage expansion has meant a dramatic cut in both Medicaid 
and DSH hospital rates that is devastating for the safety net delivery 
system. Currently, hospitals that are treating those on Medicaid are 
facing cuts that could destabilize these systems that treat low-income 
individuals. To avoid a cost-shift to private insurance plans, a public 
plan should pay above Medicare rates (and pay better for primary care 
services which are dramatically underpaid in Medicare).
    Massachusetts has recently set up a Payment Reform Commission to 
solve this problem of different methods of payment. We are looking to 
move away from paying for volume and toward paying to promote 
prevention and health. Additionally, we are trying to solve the 
problems of cost-shifting between Medicaid, Medicare and private 
coverage. A public plan could help in demonstrating how all three areas 
of insurance can be better moved to one playing field.
    Minimum Benefit Standards: The Connector sets minimum standards for 
health insurance, and we applaud the House proposal for setting minimum 
standards. While resisted by some insurance companies, the Connector 
has set a floor of what health insurance should be and has allowed the 
Division of Insurance and attorney general's office to better police 
the insurance market and protect consumers. Our minimum standards are 
meaningful and include most, if not all, of the benefits we mandate in 
state law.
    This has been critical in keeping the floor from dropping out of 
our current market and giving consumers' confidence that what they are 
buying provides real health protection.
    Affordability: We are pleased to see that the Tri-Committee bill 
proposes an affordability scale that goes to 400 percent FPL, or 
$88,000 for a family of four. In Massachusetts one of the largest 
groups of residents which have received waivers from the individual 
mandate are those with incomes between 300 percent to 400 percent FPL, 
which fall outside of the Connector's authority. We still have a cliff 
at 300 percent, where individuals who have been buying subsidized 
coverage may not be able to afford even our lowest coverage level once 
they are no longer subsidized. In 2007 and 2008, at least 60,000 and 
then 51,000 individuals were ruled to be unable to afford the insurance 
available to them. By providing assistance for individuals and families 
with incomes at four times the poverty level, your legislation makes an 
individual requirement fairer and less burdensome for individuals and 
families.
    Shared Responsibility: Employers, individuals, and government must 
all do their part to make sure we have a sustainable and affordable 
system that covers everybody. The journal Health Affairs recently 
published a paper by Bob Blendon and colleagues showing stronger public 
support for a shared responsibility approach to reform compared to an 
approach that relies solely on individual responsibility. 
Massachusetts' reform continues to be successful for many reasons, but 
I would say the major reason and context of our work has been the 
approach of shared responsibility that the House Tri-Committee bill 
adopts.
    We have both an individual mandate and an employer mandate to 
provide coverage. These have both been phased in gradually and have, in 
fact, received very little real opposition from residents. By making 
government, business and individuals share in responsibility and cost, 
healthcare reform still receives high public support (close to 70 
percent).
    Businesses that do not provide coverage face two types of 
penalties: a per-worker ``play-or-pay'' payment, as well as potential 
penalty assessed for the cost of care if their worker needs government 
help with healthcare costs. This was designed into the bill to avoid 
``crowd out,'' or the action of companies to drop coverage and pass the 
cost onto government programs. A play-or-pay mechanism based on the 
size of payroll, such as your bill proposes, is a better approach than 
a per-worker fee because it is more reflective of the employers' 
ability to pay and less regressive.
    To date, these two combined approaches appear to have worked better 
in Massachusetts than most predicted. The Division of Healthcare 
Financing and Policy reports that 438,000 residents are newly insured 
since reform started, of which 150,000 have purchased insurance through 
employer-sponsored insurance, and 41,000 have bought through the 
individual market. So while there may have been some small number of 
employers who have dropped coverage, fully 44 percent of the newly 
insured have bought coverage in the private market with no subsidies.
    Additionally, from 2003 until 2007, the number of employers which 
offer health insurance has risen from 68 percent to 72 percent, heading 
in a better direction than the national trend, which continues to see 
the erosion of ESI. However, Massachusetts is not representative of the 
nation in this regard. We had a higher rate of employer-sponsored 
coverage than the national average when we began our reforms.
    Opponents of the play-or-pay proposal say that it will result in 
massive job losses and high costs to employers. This is not the case. 
Two recent studies, one by Philip Cryan at Berkeley and the other by 
Ken Jacobs and Jacob Hacker, using the proposed play-or-pay 
requirement--with the ``pay'' being between 6 percent and 8 percent of 
payroll--found that the net effect of such a policy would result in 
minimal job losses--between one-tenth of 1 percent and .03 percent. 
Minimal job losses likely to be offset by other impacts of healthcare 
reform including improved efficiency and productivity of the labor 
market. Nearly 75 percent of the 45 million uninsured could gain 
coverage through an employer mandate. Under the play-or-pay proposal, 
the studies indicate that the increase in payroll costs from the 
employer requirement is likely to again be offset through declines in 
the cost of coverage and increased productivity.\i\
---------------------------------------------------------------------------
    \i\ Philip Cryan, June 2009. ``Will A Play-or-pay Policy for 
Healthcare Cause Job Losses? Goldman School, University of California, 
Berkeley For the Institute for America's Future and the Economic Policy 
Institute, And Ken Jacobs and Jacob Hacker June 2009 ``How to structure 
a play-or-pay requirement for employers: lessons from California for 
national healthcare reform.'' Advancing National Healthcare Reform: 
Policy Brief.
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    Reform has fundamentally improved coverage for Massachusetts' 
residents. But it has not solved all of our problems. Close to 3 
percent remain uninsured, with many others underinsured. Large 
employers, while providing generous benefits for their full-time 
employees, still have many employees whose work status as part time, 
temporary, or not eligible for coverage means they are eligible to 
receive subsidized care. The House draft proposal would require 
employers to either contribute a pro rata share for part-time employees 
or pay into a fund, an important provision of the bill that 
Massachusetts could have benefited from.
    If Congress were only to adopt a ``fair share'' approach for 
employers who do not provide affordable coverage, there could be some 
serious consequences:
     The proposal would have a much greater effect on employers 
not offering coverage who have employees with lower family incomes than 
employers not offering coverage who have higher income employees.
     Employers would have incentives to tilt hiring toward 
people who have health coverage through a family member, who have a 
spouse who has a good income, teenagers whose parents make a decent 
living, and people without children (since the income limits for 
Medicaid and subsidies rise with family size). Poor parents with 
children in one-earner families would be particularly disadvantaged.
     Employees (or prospective employees) who know their 
employer would be charged might be discouraged from applying for 
Medicaid or subsidies even though they are eligible, and might forgo 
healthcare that they need as a consequence. And this could discourage 
employers from hiring persons with disabilities since they are often 
enrolled in Medicaid programs.
    I would also make several suggestions about how the employer 
mandate should be structured:
     Base the required payment on the size of an employer's 
payroll rather than the number or type of employees. A per-employee 
requirement would disproportionately affect firms with larger numbers 
of low-wage workers, as compared with firms with smaller numbers of 
highly compensated individuals. The House proposal contains a flat 8% 
of payroll penalty, which is reasonable and fair, and will take into 
account firms with a significant numbers of low-wage workers. In 
Massachusetts, we considered taking similar steps, but was dropped 
because of concerns from our state leaders of an ERISA challenge.
     To protect small firms with low-wage workers, exempt a 
specified dollar amount from the amount of payroll subject to tax. The 
amount of payroll exempted from tax should be kept small, however, so 
that as many firms as possible are subject to the play-or-pay 
requirement.
    It is critical that reform mandates both businesses and individuals 
to contribute to the cost of insuring everyone, along with the 
government. We must build a safety net for those individuals and small 
businesses that do not have adequate access to affordable insurance. We 
need a public plan to provide needed competition and continuity in the 
market. And we have to make sure we set a floor on what essential 
insurance is, so that we truly make available coverage that is as good 
as what you all receive as Members of Congress.
                                 ______
                                 
    Mr. Andrews. Mr. Klein.

 STATEMENT OF JAMES KLEIN, PRESIDENT, AMERICAN BENEFITS COUNCIL

    Mr. Klein. Thank you very much, Mr. Chairman, Mr. Kline, 
members of the committee.
    The American Benefits Council represents companies that 
either sponsor directly or provide services to health and 
retirement plans that cover more than 100 million Americans, so 
we are very privileged and grateful for the opportunity to be 
here today.
    President Obama and many congressional leaders and 
certainly many people who we have heard from today have all 
said that health care reform should ensure that if people are 
happy with their health care coverage, they should be allowed 
to keep it. That seems to be a basic understanding that 
everyone agrees upon.
    Over 160 million Americans receive their coverage from an 
employer-sponsored plan at a cost to employers of over $530 
billion per year. According to recent surveys, over two-thirds 
of Americans rate their coverage as either excellent or very 
good. So that means that for many people letting them keep the 
coverage that is right for them and for their families requires 
maintaining the employer-sponsored health coverage system.
    But, frankly, to give meaning to President Obama's pledge, 
it is essential that the ability to retain one's coverage is 
not just true as a technical, legal matter that the employer-
sponsored system would continue but rather that as a practical 
matter that what emerges from health care reform legislation is 
a system that employers want to continue to participate in and 
a system that does not skew individuals' choices as to whether 
or not they should remain with their employer plan or seek 
their coverage elsewhere.
    To respond to a question that Representative Woolsey asked 
earlier, we are not interested in trapping employees in their 
employer plans, but neither do we want the structure of the 
system to be such that they would be induced to leave their 
employer plan.
    So with that by way of background, let me share some of the 
chief concerns that employers have as they examine the emerging 
health care debate.
    First, the employer pay-or-play mandate. One employer 
concern is the slippery slope argument that even if employers 
can meet the financial obligations of the mandate today that, 
over time, it will grow and become unaffordable. But, frankly, 
that is really only one part of the concern. The equally if not 
more compelling concern for employers is that the regulatory 
structure that would necessarily accompany a mandate of this 
type would inevitably, if unintentionally, leave many employers 
to choose to pay rather than to play. Put another way, 
employers so strongly believe in the value added by employers' 
sponsorship and administration of health plans that they are 
concerned that the structure could erode rather than build upon 
the employer-based system.
    Secondly, ERISA. It is well-known that ERISA's Federal 
framework is essential to design and maintain a consistent set 
of benefits for workers wherever they live or work, operating 
under a uniformed regulatory structure. But, again, that is 
only part of the story. The other dimension of employers' 
concerns around potential changes to ERISA is that Congress 
might make substantive changes to ERISA itself that will expose 
employers to substantial financial liability.
    So let me put that another way. It is not enough to just 
have uniform Federal rules. The rules themselves have to be 
reasonable and administrable, protecting the interests and 
concerns of participants and beneficiaries, at the same time 
not inducing employers to exit the system. Again, not causing 
them to pay rather than to play.
    From our initial review of the tri-committee draft 
proposal, it appears that three different penalty regimes would 
result from this bill. For employers operating outside the 
insurance exchange, the current system of remedies would 
largely continue. For employers and individuals obtaining 
coverage within the new insurance exchanges, varied and limited 
State remedies would be permitted; and for the new public plan 
operating within the exchange, the uniform Federal rules that 
currently apply to Medicare would prevail.
    This does not create the proverbial level playing field for 
employers selecting to obtain coverage for their workers 
through one of the exchange plans.
    Third, the public plan. Many people assume that employers 
have some kind of visceral, philosophical opposition to any 
program run by the government. That is not so. It certainly is 
not the case for the American Benefits Council and our very 
comprehensive proposals on reforming the health care system. It 
certainly calls for an important role for the government to 
play.
    There really are two important roles for the government to 
play. First, public plans are essential to help the lowest-
income individuals and those whose connection with the 
workforce may be so intermittent that an employer-based plan 
may not be the best venue for them to obtain coverage; and, of 
course, a reformed individual insurance market also helps that 
group.
    And, secondly, the government can facilitate and regulate 
the system whereby people select from a variety of different 
competing private plans, such as the role of government to 
operate these exchanges, for example, or a Medicare Part D part 
of a model where people select again among different private 
plans.
    Employers' concerns about a public plan option emerges from 
decades of experience that we have heard a lot about, 
particularly on the prior panel, of massive cost shifts from 
public plans, notably Medicare. The government sets the 
reimbursement rates to providers very low, and then other 
purchasers end up paying more. There are no cost savings 
achieved. They are simply moved from one payer to another.
    I see that my time is up here. So, on the other hand, I was 
just about to get to the part of the bill that I like. I am 
sure it won't take very long.
    I guess the last point I would make about the public plan, 
though, is if they are going to operate by different rules, 
then obviously it won't fairly complete with the private plans. 
If they're going to operate by the same rules, what is the 
point?
    But, on a positive note, employers want to be sure that 
health care reform gives full attention to improving quality 
outcomes. If health reform only results in expanding coverage 
for the uninsured, it will be a magnificent achievement but 
also a terrible missed opportunity.
    We want to commend you for recognizing the need to address 
quality issues in the legislation. Perhaps rather than taking 
up more time during the prepared statements, I will just answer 
any questions.
    Chairman Miller [presiding]. Thank you.
    [The statement of Mr. Klein follows:]

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

    Mr. Chairman, Ranking Member Kline and members of the committee, 
thank you for the opportunity to join you today at this important 
hearing on the ``Tri-Committee Draft Proposal for Health Care Reform.'' 
My name is James A. Klein, and I am President of the American Benefits 
Council (the ``Council''). The Council is a public policy organization 
representing major U.S. employers that operate nationwide, as well as 
other organizations that assist employers of all sizes in providing 
benefits to their workers and families. Collectively, the Council's 
members either sponsor directly or provide services to retirement and 
health plans that cover more than 100 million Americans.
    We commend the Education and Labor, Ways and Means and Energy and 
Commerce committees, for the collective commitment to reform of the 
nation's health care system and for providing the Council with this 
opportunity to share our perspectives on how best to achieve it.
Coverage, Cost and Quality
    The Council's recommendations on health reform are contained in the 
January 2009 report Condition Critical,\1\ which is aimed at achieving 
a stronger, more sustainable health care system. The Council's Health 
Care Reform Task Force worked throughout last year analyzing our health 
care system and developing a set of specific policy proposals that we 
believe would build on the system's strengths while improving health 
quality, lowering health costs and extending coverage to all Americans.
    As a country, we spent approximately $2.4 trillion on health care 
in 2007, according to the most recent available data from the U.S. 
Department of Health and Human Services.\2\ This amount is almost twice 
as much as we spent in 1996, and total national health care spending is 
projected to double yet again by 2017.\3\ That level of increase is not 
sustainable. We already spend far more per capita on health care than 
any other developed nation, yet we rank well below other countries on 
many vital indicators of health status. However, perhaps even more 
troubling is the well-documented evidence that patients receive 
appropriate care for their conditions only about 55 percent of the 
time,\4\ and medical errors may account for as many as 98,000 
fatalities each year.
    It all adds up to an annual rate of increase in health care 
spending that exceeds by three or more times projected increases in the 
gross domestic product or the future growth in employee wages and far 
outpaces the expected growth in federal or state revenues.\5\ Taken 
together, these projections make it abundantly clear that no matter who 
ultimately pays the bill, health care must be made more affordable, or 
it cannot be made more available. In addition, our health care system 
is marked by wide and unexplained variations in both the overuse and 
underuse of health services and all too frequently subjects patients to 
preventable medical errors. Moreover, despite widespread agreement on 
the importance of extending health coverage for all Americans, too many 
people are left without coverage entirely, including an estimated nine 
million children.
    There is now a broad consensus that we need to take well-reasoned 
steps to reform the current health care system. However, while doing so 
undoubtedly will be costly, simply spending more money is not the 
solution to the system's challenges. Indeed, among the most compelling 
reforms required are those that, if designed properly, will help reduce 
costs and obviate, to some extent, the need to raise revenue.
Building on the Employer-Sponsored Health Coverage System
    The Council firmly believes that the employer-based health care 
system provides a solid foundation upon which to build toward the 
shared goal of achieving universal coverage. The current employer-based 
model for health care has been, and continues to be, very successful in 
delivering comprehensive health care to a majority of American 
families. In 2007, 61% of non-elderly Americans--or nearly 160 million 
Americans--were covered by employer-based health insurance.\6\
    All available data indicates that, by and large, those 160 million 
Americans who receive health care coverage through the employment 
setting are exceedingly happy with the coverage. In a 2007 study by the 
National Business Group on Health, over 67% considered their employer-
provided coverage to be either ``excellent'' or ``very good''. Thus, 
for most Americans, the current employer-based system is not just 
working, it is winning at delivering critical and comprehensive health 
care coverage to our nation's families.
The Value of Employer Engagement
    In the Council's Condition Critical report, Prescription #1 calls 
for building on what works. For us, the best reform options are those 
that preserve and strengthen the voluntary role employers play as the 
largest source of health coverage for most Americans. By keeping 
employers engaged as sponsors of health coverage, we also keep the 
innovation and expertise employers bring to the table in the collective 
effort to achieve broad-based, practical health system reform.
    One of the many strengths of our voluntary employer-based system is 
that group purchasing lowers health care costs because employers, 
especially larger employers, are able to effectively pool the risks of 
employees. In addition, employers are very demanding purchasers of 
health care services. They are focused on leveraging their health care 
dollars with those who can demonstrate proven value and improved health 
care status for their employees and their families. Because employers 
have a strong interest in the health and productivity of their 
workforce, they work hard to identify solutions that improve 
productivity, reduce chronic illness, and lower disability costs. These 
investments in the health of their workforce not only provide broad 
access to primary care and specialty services, they increasingly have 
engaged employees in innovative health coaching and healthy lifestyle 
programs, cost and quality transparency initiatives, pharmaceutical 
management programs, and value-based health plan designs.
Concerns with Pay or Play Mandate
    Like the tri-committee reform proposals, the Council believes that 
all individuals should have an obligation to obtain health coverage 
and, accordingly, financial assistance will be required to enable some 
low and moderate income people to obtain that coverage. However, it 
does not follow that an employer requirement to provide coverage is 
needed to achieve universal coverage. It is important to keep in mind 
that nearly all employers with 200 or more employees provide health 
care coverage today. In fact, data from a 2008 Kaiser Family Foundation 
survey\7\ shows that 99 percent of employers with 200 or more employees 
offered health benefits to their workers, and that this percentage has 
never been lower than 98 percent at any time over the last ten years. 
By comparison, the same survey shows that 62 percent of firms with 
fewer than 200 employees offered health coverage.
    One important reason we believe that a ``pay or play'' employer 
mandate approach would be an inappropriate coverage solution is that 
the myriad requirements that would inevitably be imposed on those who 
might prefer to sponsor health coverage would ultimately, if 
unintentionally, result in a net reduction in employer-sponsored 
coverage by leading some companies to simply ``pay'' rather than 
``play''. This would lower the level of active employer engagement and 
their important role as innovative and demanding purchasers of health 
care services.
    Further, we are concerned about proposals under consideration that 
could require employers to pay their ``normal'' premium contribution to 
a health insurance exchange if an employee opts out of an employer 
plan. In particular, it would be inappropriate for such opt-out 
requirements to apply where employees are offered qualified coverage 
through an employer plan to satisfy their individual coverage 
obligation. Opt-out provisions would be particularly problematic for 
self-insured employers who could be required to contribute 
significantly more to the exchange than what some of these employees 
may have actually cost the employer if they had remained in their plan. 
This would occur whenever younger, healthier employees opt-out of the 
employer plan and obtain coverage through the insurance exchange. In 
effect, employers would be required to both ``pay and play'' for those 
employees who opt-out of their employer-sponsored plan and obtain 
coverage elsewhere.
Minimum Benefit Standard
    We also believe that a federal minimum benefit standard is needed 
only for the purpose of determining whether individuals have enrolled 
in qualified health coverage and have met their individual coverage 
obligation. Once this standard is defined, employers will have strong 
incentives to ensure that their plans meet or exceed the minimum 
coverage standard applied to individuals. To not do so would leave 
their employees without adequate levels of coverage and subject to 
year-end penalties. Individuals who enroll in these employer plans will 
therefore satisfy their individual coverage obligation and those 
without employer coverage will be able to enroll in a wide range of 
health plan choices in the reformed insurance marketplace.
    Further, we recommend that a safe harbor be available for qualified 
high deductible health care coverage. By doing so, individuals who 
enroll in a high deductible plan that meets existing federal standards 
would be assured of fulfilling their individual coverage obligation. 
This also helps ensure that high deductible plans are not required to 
become more costly and retains this affordable health plan choice.
Maintaining the ERISA Framework
    We believe that a vitally important component of maintaining a 
strong employer-based health system starts with protecting the federal 
regulatory framework established by the Employee Retirement Income 
Security Act (ERISA) that allows employers to offer valuable benefits 
to their employees under a single set of rules, rather than being 
subjected to conflicting and costly state or local regulations. 
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. In addition, 
holding employer-sponsored benefits accountable under a single set of 
rules--interpreted at the federal level, as ERISA now does--is 
fundamentally fair to all employees covered under the same plan 
regardless of where they may live.
    State benefit mandates alone can add as much as 12 percent to the 
total premium according to a 2008 report by the Massachusetts Division 
of Health Care Finance and Policy,\8\ a cost that must be borne by both 
employers and employees who share the full cost of coverage. 
Importantly, most large employers who operate on a multi-state or 
national basis consistently report that without the ERISA framework 
they would face the untenable choice of attempting to maintain health 
coverage for their employees at even higher costs because of the need 
to meet each state's separate set of benefits and regulatory 
requirements, or dropping health coverage entirely.
    However, ensuring the maintenance of a federal framework is not the 
only concern that employers have with regard to ERISA. Equally 
important is to ensure that new burdensome requirements are not imposed 
in ERISA itself. Such changes that might expose employers to greater 
liability would have a chilling effect on employers' willingness and 
ability to continue sponsoring plans.
    Our initial review of the tri-committee draft proposal raises 
serious concerns with regard to ERISA, since it appears to establish 
two different penalty regimes within the insurance exchanges. For 
health plans there would be varied and unlimited penalties prescribed 
under state law. By contrast, in the federal public plan outlined in 
the draft, a uniform federal enforcement regime (i.e. as prescribed for 
Medicare) would apply. Yet a third regime would apply for health 
coverage provided outside the exchanges. Inasmuch as employers will be 
permitted to obtain coverage through the exchanges, this will subject 
employers to expansive new liabilities.
    The potential for varied state remedies or onerous new federal 
remedies to erode private employer-sponsored health coverage cannot be 
overestimated. Employers would face the prospect of either maintaining 
health benefits for their employees or being subject to unlimited state 
law remedies or dropping coverage to avoid excessive financial risk. We 
believe that this provision alone could seriously destabilize employer-
based coverage.
Improving the Individual Insurance Market and Public Programs
    Health care reform will also require measures to ensure that those 
outside of employment-based health coverage are able to obtain 
meaningful, affordable coverage through the individual health insurance 
market. The Council's proposals enumerated in Condition Critical 
include recommendations that would ensure that any person without 
health coverage through an employer and who is not otherwise eligible 
for coverage under a state or federal health insurance program could 
obtain in any state at least one individual market insurance plan that 
meets minimum federal requirements. These insurance products should be 
exempt from additional state benefit mandates, but for all other 
purposes--such as consumer protections, solvency requirements, rating 
rules and other requirements--state standards would continue to apply.
    We also believe that reformed state-based high-risk pools that meet 
minimum federal standards for coverage and rating can play a 
significant role in helping to keep the individual insurance market 
more affordable and competitive. In order to keep coverage affordable 
for those enrolled in high-risk pools, we propose that premiums paid by 
enrollees in these state-based programs be limited and claims expenses 
that exceed the funding from enrollee premiums be shared by state and 
federal governments.
    In addition to employer-based health coverage and improving the 
individual health insurance market, we believe that public health 
insurance programs such as Medicaid, Medicare and the Children's Health 
Insurance Program (CHIP) all must be improved, particularly by moving 
toward payment systems that reward health care providers who 
consistently meet evidence-based performance standards and away from 
payments based simply on the quantity of services delivered. Our 
recommendations for health care reform also call for the establishment 
of a federal eligibility floor for coverage for adults under Medicaid 
and more effective outreach and incentives for states to reach the more 
than 10 million individuals who are estimated to be eligible for health 
coverage under state-based health programs, but are not yet enrolled.
    We recognize that several public plan alternatives are still under 
consideration by Congress. These alternatives range from permitting a 
``Medicare-like'' plan to compete with private health plan options in 
the reformed health insurance market, to having a third party 
administrator or public cooperative organize networks of health 
providers and negotiate payment rates for public plan options that 
would compete with private health plans, or possible fallback options 
similar to the approach Congress adopted as part of the Medicare Part D 
program.
    The conditions needed to achieve a reformed and well regulated 
private market will be challenging enough without attempting to 
introduce public plan options that risk destabilizing the insurance 
market at the time when it will be undergoing significant change and 
meeting demanding new standards. Moreover, we are confident that 
responsible federal insurance reform standards will lead to wide 
availability of private health plan options in all parts of the 
country, as it did for plans providing the Medicare prescription drug 
benefit. In this regard, it is very encouraging that the private 
insurance industry has already expressed its clear support for the 
range of reforms (e.g. guaranteed issue and renewability, prohibitions 
on pre-existing condition exclusions, etc.) that are needed and that 
acceptable in a system in which everyone has the obligation to obtain 
coverage.
    The appropriate role for public health insurance programs is to 
complement, rather than compete with, private health plan options. Our 
vision of health reform calls for improvements in both private health 
insurance products, especially in the individual insurance market, and 
in public programs. Both have important roles to play in a reformed and 
robust health care system. However, we also think that both sources of 
health coverage have worked best by serving distinctly different roles 
and populations.
Improving the Quality and Efficiency of Health Care
    According to the most recent Towers Perrin survey of health care 
costs,\9\ employers reported that the average per employee cost for 
health coverage in 2009 is $9,660 and that this represents an average 
increase of 6 percent over last year. As in previous years, the survey 
also indicates that employers will shoulder the lion's share of these 
costs, subsidizing, on average, 78 percent of the premium and asking 
employees to cover the remaining 22 percent, plus applicable cost 
sharing for co-pays, deductibles and coinsurance for covered services.
    Average employee health care costs vary significantly depending on 
whether the coverage is for an employee-only, where average 2009 costs 
are $4,860, while the average cost of family coverage is expected to be 
$14,244 this year. While these numbers are remarkable in themselves, 
the impact of annual health care cost increases is most starkly evident 
when compared with average wage increases over the last eight or 10 
years. This gap between average increases in health costs and average 
wage increases forms what we refer to as the ``affordability gap''. 
Over time, this results in erosion of total compensation and employee 
purchasing power.


Reform Through System-Based Savings
    The Council's Condition Critical report includes numerous 
recommendations directed at achieving higher quality, more affordable 
health care.
            Reduced Costs Through Increased Quality of Care
    Health care may be the one service or product in the United States, 
where many purchasers routinely and willingly pay as much, or more, for 
poor quality as for good quality. Notably, some of the largest 
contributing--and most controllable--factors fueling the rapid rise in 
health care costs are the uneven quality of care and a system that too 
often provides unnecessary, ineffective, or insufficient treatment.
    The Council believes there are a host of reforms that can be 
undertaken to increase the quality of care, and that will also result 
in significant cost savings system-wide. They include the following:
     Implement nationwide interoperable health information 
technology. Providers and other stakeholders must be linked to ensure 
that patient records and other information are readily available. 
Overall, the health care system lags far behind other industries in the 
use of information technology to advance efficiency, consistency and 
safety.
     Provide safe harbor protections for health care providers 
and payers for decisions and practices that are evidence-based. 
Determinations that are consistent with consensus-based quality 
measures or comparative effectiveness research should be protected by 
liability safe harbors.
     Establish a national review process to rigorously examine 
existing and proposed state and federal benefit mandates. This review 
process should aim to sunset existing benefit mandates that are not 
evidence-based, consistent with best practices in benefits design and 
clinical care, or are contributing unnecessarily to increases in health 
care costs.
     Promote personal wellness and ownership for maintaining a 
healthy lifestyle. Incentives should be strengthened for the expansion 
of benefit plans, workplace wellness programs and educational programs 
that promote wellness and encourage greater personal responsibility for 
adopting a healthy and safe lifestyle.
     Increase participation in chronic disease management 
programs. The availability of, and participation in, focused care 
management initiatives to address chronic diseases and other health 
care priorities should be significantly expanded.
     Expand the understanding and availability of appropriate 
end-of-life care options. Best practices research should be expanded to 
assist patients, families, health care providers and other caregivers 
in considering therapeutically appropriate end-of-life care options.
            Increased Savings Through Transparency in Pricing and 
                    Quality
    Another area where system-based reforms can deliver significant 
cost savings is by making price and performance information more easily 
accessible, so consumers can identify providers with a proven record of 
delivering high quality care. A more transparent system also gives 
health care providers needed tools to evaluate their performance and 
encourages continuous quality improvement. A transparent health care 
system provides incentives to move consumers and health care providers 
in the direction of evidence-based care by relying on clear, objective 
information on treatment options and costs. Transparency also protects 
patients from unsafe or unproven care. Finally, while consumers should 
certainly be armed with information to identify high performance health 
care providers, they should also be able to steer clear of those with 
high rates of medical errors or who fail to deliver evidence-based 
care.
    Employers play a unique role in making the health care system more 
transparent by working with health care providers, insurers, consumer 
groups and government officials to help identify and disseminate the 
type and amount of information needed for better health care decision 
making. Many employers have developed effective incentives to encourage 
broad employee participation in a wide range of health improvement 
initiatives. This experience will be essential in creating a critical 
mass of users of cost and quality information in order to establish a 
consumer-centric health care system.
    The following changes can help increase transparency, thus leading 
to better, more informed health care purchasing decisions and 
significant cost savings for the system as a whole:
     Design and implement consensus-based quality and cost 
measures. Public-private partnerships representing major health care 
system stakeholders have proven to be effective in developing initial 
sets of quality measures. Cost measures should also be developed based 
on episodes of care rather than unit prices for components of health 
care services.
     Transform the current payment structure from a procedure-
based, fee-for-service system to a value-based system. Health care 
providers should be rewarded by a payment system that initially 
provides financial incentives for routine reporting of quality and cost 
information based on nationally adopted consensus measures. Ultimately, 
health providers should be rewarded for their demonstrated performance 
in the delivery of quality care, rather than simply the volume of 
services provided.
     Foster continuous improvement by health care providers. 
Health care providers should be equipped with comparative clinical 
performance information to support continuous improvement in patient 
care.
     Expand the use of consumer incentives in a broader range 
of health plan options. Health plans should provide incentives for plan 
participants to choose services from health care providers who deliver 
care consistent with consensus-based quality measures and demonstrate a 
commitment to quality improvement. Greater use of ``consumer-directed'' 
plans is one such strategy to achieve this objective.
     Expand the practice of nonpayment for serious preventable 
medical errors. All payers for health care services should adopt the 
practice, used by Medicare, where no payments are made for certain 
serious preventable medical errors, also known as ``never events''. A 
consistent response by all public and private payers to end such 
payments will lead to more effective internal controls to improve 
patient care and safety. Health care providers also should be required 
to report all medical errors as a condition of payment by Medicare.
     Establish a national entity with a broad-based governance 
body to significantly increase the capacity for independent, valid 
comparative research on clinical and cost effectiveness of medical 
technology and services. Rigorous comparative effectiveness research is 
needed to examine clinical and cost evidence to support decisions on 
medical technology, treatment options and services to help ensure that 
more patients receive the right care for their condition.
    All of the above-mentioned proposals are systemic improvements that 
should generate cost savings that can be used as part of a fiscally 
sound approach to overall health system reform. In addition, reform of 
medical liability rules that address unwarranted attorney's fees and 
excessive damage awards is an important component of legal system 
reform that will have beneficial affects on the health system in terms 
of reducing the need for unneeded tests and procedures that are 
performed not because of any medical necessity but purely as a means of 
curtailing the risk of medical malpractice lawsuits.
            Shared Responsibility
    There is broad national consensus that we need health reform. The 
Council strongly shares that view. We do, however, believe that the 
costs associated with health reform should be shared equitably by all 
stakeholders within the system. Although the proposals to finance 
health reform do not lie directly within the purview of the Education 
and Labor Committee, we appreciate that all three committees of 
jurisdiction are working closely with one another and therefore we wish 
to share our thoughts on these matters for the formal hearing record.
    Significantly, employers and employees already expend a significant 
amount of financial resources to ensure that employees and their 
families have health coverage. In 2007, employers as a group paid an 
astounding $530+ billion for group health plan coverage for their 
workers and their families.\10\ On average, this amounted to $9,325 per 
employee for family coverage in 2008.\11\ Notably, employees have also 
been working hard to pay their share of our nation's health care 
burden. In 2008, in addition to the employer premium contributions 
noted above, employees paid on average $3,354 towards the premium costs 
associated with their employment-based health coverage.\12\ 
Accordingly, to the extent that additional revenue sources are needed, 
after taking into account those generated from system-based changes, 
Congress should acknowledge that employers and employees already are 
contributing a substantial sum.
    On a related note, given that the costs associated with health 
reform will not be insignificant, Congress should ensure that any 
reforms are both desirable and effective. History has shown that where 
the American taxpayer is asked to ``foot the bill,'' reforms enacted 
without deliberate consideration can result in taxpayer disapproval, 
unanticipated additional costs and even wholesale repeal of the reform. 
Perhaps the best example of this is the enactment and prompt repeal of 
the Medicare Catastrophic Coverage Act in the late 1980s.\13\ The 
reform was intended to help our aging population enhance Medicare 
coverage, and was to be paid for by Medicare-eligible individuals in 
the form of higher Medicare premiums. Once enacted, however, many of 
these individuals were soon confronted with higher premium costs for a 
benefit they were already receiving from other sources or did not 
desire. With widespread and growing dissatisfaction among seniors over 
the change, Congress eventually repealed the measure.\14\
    Undoubtedly, Congress recalls the lessons learned by this 
experience. Even where reforms are based on lawmakers' best intentions, 
if the reform is not one valued or desired by the American public, 
especially where we are asking them to pay for the reforms in the form 
of higher taxes or reduced employer-based benefits, this can lead to an 
unsustainable system of changes.
    Notably, in the Medicare catastrophic example, many of the benefit 
improvements were lost when the financing mechanism proved 
unsustainable and the law was repealed. With comprehensive health care 
reform, if we fail to move in a reasoned and fiscally sound manner, it 
is likely to be very difficult, if not impossible, to undo any 
unintended negative consequences. Accordingly, the Council urges 
Congress to carefully consider any and all legislative changes only if 
economically and politically sustainable sources of financing are 
available.
            Capping the Exclusion on Employer-Provided Health Coverage
    There has been considerable discussion as to whether the employee 
exclusion for employer-provided coverage should be modified. Some have 
suggested that the value of the current employee exclusion should 
limited or otherwise ``capped''--either by limiting the amount of the 
exclusion to some specific amount--thereby taxing employer-paid 
coverage in excess of such amount--or by allowing the availability of 
the employee exclusion only to persons with incomes below a certain 
threshold.
    It would be a mistake to limit or otherwise undermine the 
exclusion. Accounting for less than 10% of our annual health 
expenditures, there can be little doubt that the employee exclusion 
makes possible essential coverage for a significant majority of 
American families. Limiting the exclusion based upon the cost of some 
level of coverage raises a number of issues:
     Geographical differences in cost. In order to ensure that 
all individuals are taxed fairly, any limit to the employee exclusion 
would need to take into account the very real variations in cost 
depending on where an individual resides. Unless this reality is taken 
into account, any limit on the current employee exclusion would operate 
as nothing more a tax on individuals who live in higher-cost areas. But 
even those in lower-cost areas might not be protected. For example, if 
an individual works for a large multi-state employer, with most of its 
employees in high cost areas, such individual might be subject to tax 
because the insurance cost for the group as a whole is generally 
higher.
     Differences in age among employees. Any limit on the 
employee exclusion could penalize workers based on age. Most notably, 
older workers likely would be subject to a higher tax than younger 
workers because their coverage generally costs more. Additionally, 
younger workers who are employed by a company with a comparatively 
older, more expensive workforce, likely would be taxed more than their 
counterpart sat another company with an overall younger workforce.
     Family and other coverage classes. Almost all employers 
provide a set number of classes of coverage. They can be as few as 
self-only coverage or self-only and family coverage. Alternatively, 
they can be more numerous, based on an individual's specific number of 
dependents (such as employee +1 dependent, employee +2 dependents, 
employee +3 dependents, etc.), although most employers have some upper 
limit at which all persons with this number or more dependents are all 
placed within the same class for purposes of determining their premium 
cost. Unless any limit on the exclusion takes this fact into account, 
it is quite likely that the limit could treat people inequitably 
because, for example, all persons who are enrolled in family coverage 
with a given employer would likely pay the same tax even though persons 
with fewer dependents effectively have much less valuable coverage than 
those with more dependents.
     Treatment of multi-state plans. In order for any limit not 
to result in tax inequities, an extraordinarily complex set of rules 
would need to be devised to specify if, and how, multi-state employers 
can combine worksite employee groups for purposes of valuing and 
pricing health insurance. Without such rules, workers whose employers 
combine their workforces from high cost areas would be more likely to 
run afoul of any limit on the employee exclusion than workers whose 
employer combines workforces from high and low cost areas for purposes 
of valuing and pricing health coverage. Complexity and inequity would 
result.
     Indexing. Unless any limit on the current employee 
exclusion is indexed using an appropriate measure that reflects real 
cost increases, any such limit is unlikely to keep pace with increasing 
health costs. The end result would be that the tax benefits delivered 
vis-a-vis the employee exclusion in Year 1 would be less in each 
subsequent year. Notably, this is, in part, how the Bush 
Administration's health reform proposal was scored as revenue neutral 
over 10 years, by indexing the proposed standard above-the-line 
deduction based on the overall Consumer Price Index (CPI), not the 
health factor of the CPI, which is a much more reliable indicator of 
annual health cost increases.
    Some have suggested that a ``cap'' on the amount of the exclusion 
and/or the absence of any meaningful indexing would help contain health 
costs. It is true that changes in the employee exclusion would likely 
make health care more expensive for employees and that generally when 
you make something more expensive people tend to use less of it. If 
only it were that simple when it comes to health coverage! It is hard 
to imagine that employers or employees need any additional incentives 
to try and reduce health care costs. It is unclear whether such cost 
containment would in fact be realized. We doubt that the nation would 
want to experience diminished health care coverage based on such an 
untested theory.
    As the above discussion is intended to demonstrate, it would be 
very difficult, if not impossible, to design a limit to the current 
employee exclusion that did not result in tax inequities and/or require 
a burdensome and costly set of valuation rules for employers and 
workers. Notably, this was tried once before with the enactment of 
Internal Revenue Code Section 89 and it was famously unsuccessful. 
Despite best intentions, the statutory and regulatory regime 
established by Congress and the Treasury Department for purposes of 
valuing employer-provided health coverage proved completely unworkable. 
The regime was extremely expensive and burdensome for employers to 
administer and would have resulted in diminished coverage for American 
workers. Congress was left with no choice but to repeal section 89 just 
as the law was going into effect after employers had wasted countless 
millions of dollars in a futile effort to comply with a set of ill-
advised requirements.
    One reason the valuation rules were so complex under section 89 is 
because there is great diversity among employer plans. This diversity 
is driven in large part by employer innovations in plan design 
fashioned to provide the coverage that best meets a workforce's 
specific coverage needs. So quite apart from the cost and complexity 
that section 89 imposed on employers, had it gone into effect, it would 
have stifled innovation and inexorably led to coverage that was less 
responsive to workers' needs.
    A limit on the exclusion based not upon the extent of coverage, but 
rather on the income of the family receiving such coverage has its own 
set of complexities and inequities. It is essentially nothing more than 
an effective tax increase on higher-income individuals, just a less 
straightforward and explicit one. This is because the value of any 
employer-paid coverage would be taxable to such individuals as 
additional W-2 wages. One can only begin to imagine the complexities 
and inequities that would result from imposing a tax on families who 
incomes are above the specified threshold, but whose members have 
differing levels of health coverage from multiple sources. Limits on 
the employee exclusion undoubtedly would have a destabilizing effect on 
the employer-sponsored health coverage system. An even more obvious and 
greater destabilization of the system would result if limits were 
imposed on employers' ability to deduct health care expenditures.
Conclusion
    These are times of extraordinary economic turmoil and challenges. 
If approached with great care, addressing the nation's health policy 
challenges can be an integral element of--rather than an obstacle to--
economic recovery and achieving personal financial security. The 
American Benefits Council stands ready to continue providing 
information and the perspectives of the companies and professionals who 
are designing, administering and paying for health plans providing 
comprehensive health coverage for workers and their families. We thank 
you for the opportunity to serve the Congress as you undertake the 
important task upon which you have embarked.

                                ENDNOTES

    \1\ AMERICAN BENEFITS COUNCIL, CRITICAL CONDITION: TEN 
PRESCRIPTIONS FOR REFORMING HEALTH CARE QUALITY, COST AND COVERAGE 
(2009), available at http://www.americanbenefitscouncil.com/documents/
condition--critical2009.pdf.
    \2\ NATIONAL COALITION ON HEALTH CARE, HEALTH INSURANCE COSTS 
(2008), available at http://www.nchc.org/documents/Cost%20Fact%20Sheet-
2009.pdf.
    \3\ See id.
    \4\ Elizabeth McGlynn et al., The Quality of Health Care Delivered 
to Adults in the United States, 348;26 NEW ENG. J. MED. 2635 (June 26, 
2003), available at http://content.nejm.org/cgi/content/full/348/26/
2635.
    \5\ NATIONAL COALITION ON HEALTH CARE, HEALTH INSURANCE COSTS 
(2008), available at http://www.nchc.org/documents/Cost%20Fact%20Sheet-
2009.pdf.
    \6\ KAISER FAMILY FOUNDATION, THE UNINSURED: A PRIMER, KEY FACTS 
ABOUT AMERICANS WITHOUT HEALTH INSURANCE (2007).
    \7\ THE KAISER FAMILY FOUNDATION & HEALTH RESEARCH & EDUCATIONAL 
TRUST, EMPLOYER HEALTH BENEFITS 2008 ANNUAL SURVEY (2008), available at 
http://ehbs.kff.org/.
    \8\ MASSACHUSETTS DIVISION OF HEALTH CARE FINANCE AND POLICY, 
COMPREHENSIVE REVIEW OF MANDATED BENEFITS IN MASSACHUSETTS REPORT TO 
THE LEGISLATURE (2008), available at http://www.heartland.org/custom/
semod--policybot/pdf/23617.pdf
    \9\ TOWERS PERRIN, HEALTH CARE COST SURVEY (2008), available at 
http://www.towersperrin.com/tp/showdctmdoc.jsp?url=Master--Brand--2/
USA/Press--Releases/2008/20080924/2008--09--24b.htm&country=global.
    \10\ EMPLOYEE BENEFIT RESEARCH INST., EBRI DATABOOK ON EMPLOYEE 
BENEFITS tbl.2.2f (2009), http://www.ebri.org/publications/books/
index.cfm?fa=databook.
    \11\ THE KAISER FAMILY FOUNDATION & HEALTH RESEARCH & EDUCATIONAL 
TRUST, EMPLOYER HEALTH BENEFITS 2008 ANNUAL SURVEY (2008), available at 
http://ehbs.kff.org/.
    \12\ Id. This amount reflects the portion of the premium paid by an 
employee for coverage for a family of four.
    \13\ Medicare Catastrophic Coverage Act of 1988, Pub. L. No. 100-
360.
    \14\ Medicare Catastrophic Coverage Repeal Act of 1989, Pub. L. No. 
101-234.
                                 ______
                                 
    Chairman Miller. Mr. Vaughan.

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

    Mr. Vaughan. Thank you for inviting us to testify.
    With Consumers Union, the independent, non-profit publisher 
of Consumer Reports, we don't just test tires and toys. We try 
to help people with good medical products, and we are 
enthusiastic users of comparative research to help consumers 
save money and get the cheapest but most effective and safest 
drugs. And, Dr. Cassidy, we would go with that $20 generic over 
that purple pill because they are scientifically equivalent.
    We for a long time advocated health care for everybody, and 
we have written to our subscribers saying that it has become 
obvious that the people of the country intend to see to it that 
the whole population shall benefit from the discoveries of 
modern medical science. The only question before the country 
now is how soon.
    That, unfortunately, is our 1939 auto issue. Seventy years. 
Chairman Andrews, you were saying 50 years. I would argue 70 
years. And if we had only had reform--this was the old Dingell 
dad's bill, Wagner-Dingell, we were endorsing. If we had passed 
that, I think some of the auto plants of northern Ohio and 
Michigan would still be making the great models that are in 
this issue.
    We think that not only would it be good for the industries 
of those States but, more importantly, the Institute of 
Medicine has noted that each year about 18,000 people die 
prematurely and unnecessarily because of not having health 
insurance. And when you think about it, since this magazine 
issued, about twice as many people have died from not having 
health insurance as were killed in World War II and all of our 
conflicts since.
    So it is so far past time to do something, and this will be 
one of the great Congresses of all time if you can pass a good 
bill. And we think the draft bill that you have before you is 
such a bill. We are pleased to endorse its principles and 
intent. We assume there will be some more savings or regressive 
financing to make it budget neutral and sustainable. But this 
is a bill that would bring health security, peace of mind, 
affordable and comprehensive care to American families.
    There are too many good things in the bill to list in a 5-
minute statement, but there are some that haven't got a lot of 
attention.
    Mr. Scott had mentioned well baby care. That is a benefit 
spelled out on page 25. And Dr. Price and the other doctors who 
take on Medicaid patients, which is basically charity care now, 
you do the rates you are reimbursed for primary care, you will 
be paid a lot more, and I think that is important.
    Major nursing home reforms for quality, exposing the flood 
of drug and device money to doctors in medical schools that we 
think can so often distort medical practice, and promoting 
primary care and the training of new doctors. So the bill is 
filled with these kinds of provisions.
    Our testimony lays out our health care reform principles 
from our August magazine and how well the bill matches with 
those, and it is a great match. So we thank you.
    A bill this size, you would be shocked if we didn't have a 
few subjects for small improvements, and we hope you will 
consider them.
    One is help consumers drive towards quality more. We have 
been here for about 4\1/2\ half hours, and that means that 
about 51 to 52 fellow Americans have died of hospital-acquired, 
health-care-acquired infections. During the course of the day, 
it is an Air France plane crashing. We need to know more about 
how hospitals do in fighting these infections and help 
consumers with that kind of public information.
    And the other thing is both the Chamber and ERIC spoke 
about consumers being better shoppers. We are lousy health 
insurance shoppers. We leave a lot of money on the table. We 
are confused by the whole process. If you give us exchanges 
where the insurance definitions are identical, where we can 
compare hospitalization means hospitalization, not starting on 
the second day or some fine print like that, and if you make 
the plans more like Medigap policies so that people can shop on 
identical plans, then we can drive price and we can move 
towards quality.
    But thank you very much, and good luck in this wonderful 
project you have started.
    Chairman Miller. Thank you.
    [The statement of Mr. Vaughan follows:]

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

    Consumers Union is the independent, non-profit publisher of 
Consumer Reports.
    We strongly endorse the approach taken in the Tri-Committee Draft, 
assuming that additional cost containment or progressive financing will 
be added to ensure that it is budget neutral.
    We believe the Draft is a plan that would at long last ensure 
access to affordable, quality, ``peace of mind'' health insurance for 
every American.
    The Draft has too many major improvements to list separately. A 
table in the testimony lays out our health reform principles from our 
August magazine issue, and how the Draft would dramatically advance 
these key consumer issues.
    Of course, in a bill this size, we have a few suggestions for ways 
to make it even better. (You'd be shocked if we didn't!) But these are 
minor suggestions compared to the important reforms proposed in the 
bill:
     We urge that you more clearly help consumers encourage 
quality, by increasing the public reporting of infections and other 
medical errors.
     If Congress wants an efficient marketplace that can help 
hold down costs, you need to provide more consumer tools in that 
marketplace. The Health Choices Administration and Insurance Ombudsman 
are a good start. We hope you can flesh out their powers and duties. We 
believe standard benefit packages (and definitions) are the key to 
facilitating meaningful competition
     Consumers are desperately worried about the high cost of 
health care. We hope you can do more to obtain savings. We will be 
forwarding a separate set of ideas for major savings, particularly in 
the pharmaceutical sector, imaging and self-referral abuse, and 
ensuring the operation of the Medicare Secondary Payer program, etc.
    The American health care system must and can be fixed.
    The Tri-Committee proposal will bring us to the goal of affordable, 
quality, dependable health care for all, and we hope you give consumers 
even more tools to help drive the system toward quality and cost 
savings.
    Mr. Chairman, Members of the Committee: Thank you for inviting 
Consumers Union to testify on the Tri-Committee Draft health care 
reform proposal.
    Consumers Union is the independent, non-profit publisher of 
Consumer Reports.\1\
    We not only evaluate consumer products like cars and toasters, we 
evaluate various health products, and we apply comparative 
effectiveness research that can save consumers hundreds and even 
thousands of dollars in purchasing the safest, most effective brand and 
generic drugs.\2\
     Since 1939 we have been advocating for an affordable, 
secure, quality health insurance system for everyone.
     Our national polls have frequently shown that the high 
cost of health care is one of the greatest concerns for consumers, and 
many fear they would be bankrupted if a major medical problem hit their 
family.
     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 with a financial 
disaster. One of the most prevalent stories we have heard from our 
readers is that they thought they had good insurance--until they had a 
major health problem, and then it was too late.
     Our about-to-be-released August issue includes a 10-page 
special editorial feature, using examples of families across the 
country, on why American consumers so desperately need comprehensive 
reform. We've attached a copy of this special issue.
Tri-Committee Draft
    Therefore, we strongly endorse the approach taken in the Tri-
Committee draft, assuming that additional cost containment or 
progressive financing will be added to ensure that it is budget 
neutral.
    We believe the Draft is a plan that would at long last ensure 
access to affordable, quality, ``peace of mind'' health insurance for 
every American.
    The Draft has too many major improvements to list separately. The 
following table lays out our health reform principles from our August 
magazine issue, and how the Draft would dramatically advance these key 
consumer issues.


------------------------------------------------------------------------
   Consumer Union Goals in Health
               Reform                        Tri-Committee Draft
------------------------------------------------------------------------
Ensure health access to every        The Health Insurance Exchange, with
 American: Make insurance simple by   reformed private policies
 creating a national health           (guaranteed issue, no pre-existing
 insurance exchange where one can     conditions) and a public plan
 always go--regardless of one's       option, with premium and cost-
 health or situation in life--to      sharing subsidies phasing out at
 choose a private or public plan,     400% of poverty, achieve this
 with sliding scale subsidies based   goal. Those who have good plans
 on income to make it affordable.     today can keep what they have.
The insurance offered should be      The minimum standard benefit
 comprehensive, bringing financial    package (and at least 2 distinct,
 security and peace of mind.          more valuable options), with no
                                      yearly or life-time limits and
                                      with out-of-pocket catastrophic
                                      protection at $5,000 for an
                                      individual and $10,000 for a
                                      couple, would achieve this goal.
                                      The low-income get even more
                                      protection.
Coverage should be especially good   The packages all include
 for preventive care.                 comprehensive preventive services;
                                      Medicare is improved to make
                                      preventive care more affordable;
                                      and a new Wellness and Prevention
                                      Trust Fund would help spur
                                      community wellness.
------------------------------------------------------------------------
Eliminating pre-existing conditions  The individual mandate to have at
 and guaranteeing issue can't work    least the `Essential' benefit
 for insurers, unless everyone has    plan, coupled with subsidies, and
 to have insurance. But we can't      efforts to control cost, achieve
 force people to buy policies they    this goal.
 can't afford or that are            Cost containment includes the
 inadequate, so subsidies are         public plan option, medical loss
 needed. And a public plan option     ratio requirements, comparative
 working on a level playing field     effectiveness research, form
 can use competition to minimize      simplification, stepped up anti-
 the need for subsidies by holding    fraud, stopping drug and device
 costs down and driving quality up.   company `gifts' to providers, new
                                      ways for doctors to deliver
                                      quality coordinated care, and
                                      implementation of MedPAC
                                      recommendations.
                                     Consumers Union urges even more be
                                      done to control costs.
------------------------------------------------------------------------
Increase quality and help consumers  Division B's Section 1151 reduces
 choose quality, by making error      payments for hospital readmissions
 rates public, particularly           due to poor quality and section
 infection rates (largely             1441 establishes a new center to
 preventable infections kill          set priorities for quality
 100,000 Americans per year).         improvement. State Medicaid plans
                                      are rewarded for not paying for
                                      poor care such as infections.
                                     We hope it is clearer that
                                      infection rates are to be public
                                      on a facility specific basis, and
                                      that more is done to report `never
                                      events,' and require periodic
                                      quality recertification of
                                      providers, per the recommendations
                                      of the IOM.
Encourage care based on quality,     Efforts to develop accountable care
 not just quantity, and help spread   organizations and medical homes
 the use of electronic medical        will help ensure better care
 records.                             coordination. The Stimulus package
                                      HIT monies should help
                                      productivity over time and improve
                                      quality.
Encourage more primary care          The Draft's major sections on the
 doctors.                             workforce, graduate medical
                                      education, and increased payments
                                      to primary care doctors should all
                                      help.
------------------------------------------------------------------------
Help small businessmen get           The Health Insurance Exchange will
 affordable health insurance for      make policies more affordable;
 themselves and their employees.      subsidies to small and lower wage
                                      firms will make it affordable.
------------------------------------------------------------------------

Areas Where We Hope More Refinement Can Occur
    Of course, in a bill this size, we have a few suggestions for ways 
to make it even better. (You'd be shocked if we didn't!) But these are 
minor suggestions compared to the important reforms proposed in the 
bill.
            On quality
    We urge that you more clearly help consumers encourage quality, by 
increasing the public reporting of infections and other medical errors. 
Consumer pressure can inspire providers to focus more on preventing 
infections and other errors--but first, consumers need to be informed.
    Ten years ago, the Institute of Medicine issued its report, To Err 
is Human, noting that medical errors were killing up to 98,000 people a 
year and costing the health system tens of billions in unnecessary 
costs. The CDC now says that 100,000 are dying just from largely 
preventable infections, which add an extra $35.7 to $45 billion per 
year in treatment costs. No one can say whether anything has really 
improved over the last decade: the IOM's recommendations have been 
largely ignored.
    We urge you, in addition to the 7 hospital re-admission conditions 
discussed on page 222 of the Draft, to include public reporting of 
healthcare-acquired infections such as MRSA and other deadly 
conditions. We also hope you will take another look at the IOM report, 
and move to require public reporting of `never events' (like surgery on 
the wrong part of the body) the way Minnesota has done. It is way past 
time to adopt the IOM's proposals for periodic quality re-certification 
of providers. We retest pilots and others for competency--we should 
retest providers on a periodic basis. Finally, we urge you to consider 
some of the excellent language in the Senate HELP bill to improve our 
nation's failing Emergency Medical Systems.
Do More to Help the Consumer in the Health Insurance Exchange
    The honest, sad truth is that most of us consumers 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.\3\
     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.\4\
     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 covering the same 
drugs.\5\
     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.\6\
    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.\7\ Yet consumers 
are expected to understand ``actuarial value,'' ``co-insurance'' versus 
``co-payment,'' etc.
    If Congress wants an efficient marketplace that can help hold down 
costs, you need to provide more consumer tools in that marketplace. The 
Health Choices Administration and Insurance Ombudsman are a good start. 
We hope you can flesh out their powers and duties as follows:
    We believe standard benefit packages (and definitions) are the key 
to facilitating meaningful competition. The Draft bill provides 3 broad 
categories of policies, and we appreciate the fact that these broad 
groupings will be helpful to consumers. But like Medigap policies A-L, 
we urge you to make the policies sold in each of these broad categories 
identical, so that consumers can shop on the basis of price and 
quality, and not on tiny, confusing differences (10 rehab visits v. a 
plan with 12, etc.). To only require these broad groupings to be 
`actuarially equivalent' is to invite a Tower of Babel of tiny plan 
differences, designed by the insurers to attract the healthy and avoid 
the most expensive--and with the end result of confusing the consumer.
    Consumers want choice of doctor and hospital. We do not believe 
that they are excited by an unlimited choice of middlemen insurers.\8\ 
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.\9\ 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.
    In the past, 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 prevent the 
proliferation of many plans with tiny differences that just serve to 
confuse a consumer's ability to shop on price and quality.
     Require standardization of insurance definitions 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. Attached on the last page of this 
testimony is an article from our May magazine which demonstrates what 
radically different coverage two similar sounding policies can provide. 
It is not clear that the ``benefit standards defined'' (p. 29, line 11) 
will guarantee comparability of terms among plans.
     Require insurers to clearly state (in standardized 
formats) what's covered and what's not in every plan offering, and to 
estimate out-of-pocket costs under typical treatment scenarios. 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.\10\ HR 2427 by Rep. DeLauro and Rep. Courtney and 23 
others is excellent language on how to design such 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. 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 HIE connector to work. The 
SHIPs should be further professionalized, with increased training and 
testing of the quality of their responses to the public.
     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.
     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 appreciate the 
requirement in Sec. 132 for `fair grievance and appeals mechanisms,' 
but urge that the Commissioner, perhaps with the help of the NAIC, 
develop a model system that all participating insurers have to use.
    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, especially if 
the research takes into consideration relevant differences such as 
gender, ethnicity, or age. 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 without hassle or delay. The key to 
this is ensuring that the nation's insurers have honest, usable 
exceptions 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 Obtain Savings. Consumers are desperately worried about 
the high cost of health care. We hope you can do more to obtain 
savings. We will be forwarding a separate set of ideas for major 
savings, particularly in the pharmaceutical sector, imaging and self-
referral abuse, and ensuring the operation of the Medicare Secondary 
Payer program, etc.
Conclusion
    We thank you again for this opportunity to testify.
    The American health care system must and can be fixed.
    The Tri-Committee proposal will bring us to the goal of affordable, 
quality, dependable health care for all, and we hope you give consumers 
even more tools to help drive the system toward quality and cost 
savings.

                               APPENDIX II
------------------------------------------------------------------------
   * * * and out-of-
  pocket expenses can      Massachusetts plan        California plan
      vary 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 preventive
 unlike Massachusetts,   surgery after            care office visits
 allows the sale of      deductible, $10 for     Co-insurance: 20% for
 plans with large        generic drugs, $25 for   most covered services
 coverage gaps, a        nonpreferred generic    Out-of-pocket maximum:
 patient there will      and brand name, $45      $2,500, includes
 pay far more than a     for nonpreferred brand   hospital and surgical
 Massachusetts patient   name                     co-insurance only
 for the same breast    Co-insurance: 20% for    Exclusions and limits:
 cancer treatments, as   some services            Prescription drugs,
 the breakdown below    Out-of-pocket maximum:    most mental-health
 shows.                  $5,000, includes         care, and wigs for
                         deductible, co-          chemotherapy patients
                         insurance, and all co-   not covered.
                         payments                 Outpatient care not
                        Exclusions and limits:    covered until out-of-
                         Cap of 24 mental-        pocket maximum
                         health visits,$3,000     satisfied from
                         cap on equipment         hospital/surgical co-
                        Lifetime benefits:        insurance
                         Unlimited               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\ Washington Consumers' Checkbook Guide to Health Plans, 2008 
edition, p. 5.
    \4\ See also, TheStreet.com Ratings: Medigap Plans Vary in Price, 
9/15/06.
    \5\ Jonathan Gruber, ``Choosing a Medicare Part D Plan: Are 
Medicare Beneficiaries Choosing Low-Cost Plans?'' (prepared for the 
Henry J. Kaiser Foundation) March, 2009.
    \6\ SeniorJournal.com, March 29, 2009.
    \7\ HHS Office of Disease Prevention and Health Promotion
    \8\ ``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.
    \9\ Mechanic, David. Commentary, Health Affairs, ``Consumer Choice 
Among Health Insurance Options,'' Health Affairs, Spring, 1989, p. 138.
    \10\ Op. cit., p. 68.
                                 ______
                                 
    Chairman Miller. Dr. Moffit.

STATEMENT OF ROBERT MOFFIT, DIRECTOR, CENTER FOR HEALTH POLICY 
               STUDIES AT THE HERITAGE FOUNDATION

    Mr. Moffit. Thank you very much, Mr. Chairman. I wish to 
express to you my deep appreciation to present my views this 
afternoon.
    I hasten to add that the views I express today are solely 
my own. They do not necessarily represent the views of the 
Heritage Foundation or its officers or board of trustees.
    You and your fellow committee members are considering an 
ambitious and comprehensive health care reform proposal. The 
draft bill contains both an individual and an employer mandate. 
As the Congressional Budget Office reported in 1994, an 
individual mandate on American citizens to purchase health 
insurance is unprecedented.
    I deeply understand and appreciate the rationale for that 
mandate to offset the cost shifting and to address the free 
rider problem. Individuals do, in fact, have a personal 
responsibility to protect themselves and impose no unnecessary 
costs on the rest of us. Nonetheless, an individual mandate is 
a restriction on personal liberty; and given the fact that it 
is such a restriction on personal liberty, I think we ought to 
look for other opportunities to expand coverage, such as 
positive incentives combined with mechanisms to facilitate the 
ease of enrollment in health insurance, and that way achieve a 
dramatic reduction in health insurance.
    I have suggested such alternatives in the Harvard Health 
Policy Review; and, with your permission, Mr. Chairman, I would 
like to submit those for the record.
    Chairman Miller. We will make that part of the file of the 
committee.
    [The article, in the spring 2008 issue of the Harvard 
Health Policy Review, may be accessed at the following Internet 
address:]

                   http://www.hhpr.org/currentissue/

                                 ______
                                 
    Mr. Moffit. And as for the employer mandate, the costs of 
an employer mandate are invariably visited upon employees, not 
employers, in the form of reductions in wages or other 
compensation or even a reduction in employment. In my view, it 
is inadvisable to impose a such a mandate, especially during a 
recession.
    In the limited time available to me, I would like to focus 
my remarks on three key areas of the bill: the national health 
insurance exchange, the public plan and Federal regulation of 
insurance.
    The concept of a health insurance exchange is hardly new. 
It has had only limited application at the State level. Some 
may argue that the Federal Employee Health Benefits Program, a 
defined contribution arrangement, is analogous to an exchange, 
a national exchange, but I would note that there is no 
government-sponsored health plan in the FEHBP, nor does the 
FEHBP have anything remotely approaching the statutory or 
regulatory regime that is embodied in the draft bill.
    The former Governor of Massachusetts, Mitt Romney, and 
State officials who framed the major 2006 reform in 
Massachusetts developed an exchange. One of the key advantages 
of that State-based health insurance exchange called the 
Connector, which one of my colleagues is involved with, is that 
it would allow employers and employees in small businesses to 
get access to personal and portable health insurance tax free. 
In other words, since the coverage would be available through 
the exchange and because the exchange itself would be 
considered group coverage, it would enjoy the powerful 
advantages of the existing Federal tax treatment of health 
insurance.
    In my own view, the health insurance exchange is an 
excellent idea. It should, however, be aggressively promoted as 
a State institution at the State level.
    With regard to the public plan, the bill proposes that the 
Secretary of the Department of Health and Human Services 
establish the public insurance plan and it is to play on a 
level playing field in plain language of the bill. However, I 
would add that in basing the public plan's payments to 
providers on Medicare payment rates, which are routinely set 
below those of the private sector, as Professor Hacker pointed 
out, the public plan would enjoy an advantage over competing 
private health plans. Independent analyses
    show that the use of Medicare payment rates would result in 
an erosion of existing private health insurance.
    I would add just one more point with regard to this issue 
of the level playing field. It has been said constantly. If you 
are serious about a level playing field, that means that all of 
the rules and regulations that apply to private health 
insurance must apply, must apply to the public plan. If 
Congress wishes to achieve a level playing field between public 
and private health plans, then the public health insurance 
option--just like any other private option--should be allowed 
to compete for market share and also be allowed to fail. That 
means without being kept on artificial life support through the 
infusion of taxpayers' money. That would be a key test of 
congressional commitment to a level playing field.
    With regard to Federal benefit setting, under Title I of 
the bill the Congress would require every American to have 
health insurance coverage that Congress would define as 
acceptable. The bill specifies various standards.
    I would only say in closing that my concern about the 
Federal benefit setting is that you may very well undermine the 
creativity of States in an insurance market reform. States as 
culturally and politically different as Massachusetts and Utah 
have undertaken some very far-reaching and consequential 
reforms. Those kinds of experimentation and innovations should 
be encouraged.
    Thank you, Mr. Chairman.
    Chairman Miller. Thank you.
    [The statement of Mr. Moffit follows:]

  Prepared Statement of Robert E. Moffit Ph.D., Director, Center for 
             Health Policy Studies, the Heritage Foundation

    Mr. Chairman and Members of the Committee: My name is Robert E. 
Moffit. I am Director of the Center for Health Policy Studies at the 
Heritage Foundation. I wish to express to you my deep appreciation for 
the opportunity to present my views to you today on major legislation 
governing the future of the large and growing health care sector of the 
American economy, now approximately 17 percent of the Gross Domestic 
Product. I hasten to add that the views that I express today are solely 
my own, and they do not necessarily represent the views of the Heritage 
Foundation, its officers or its Board of Trustees.
    The Committee is considering ambitious and comprehensive 
legislation. It covers an enormous range of policy items and issues. 
Provisions cover the reform of the health insurance markets, the 
composition of health insurance benefits packages, and health insurance 
premium and payment policy; new legal obligations on employers and 
employees to purchase health insurance; the creation of new federal 
agencies and entities, such as the Health Choices Administration 
administered by a Health Choices Commissioner, the creation of a new 
public health insurance option, and new responsibilities for the 
Secretary of the United States Department of Health and Human Services; 
new subsidies for individuals and employers, changes to traditional 
Medicare and Medicaid, Medicare Advantage and the Medicare prescription 
drug program; new federal policies governing the provision of primary 
care, prevention and wellness, mental health care, and coordinated 
care; new quality initiatives and comparative effectiveness research, 
new initiatives to combat waste, fraud and abuse; new public health 
initiatives, public health and workforce development, community health 
centers, and policies governing the health care workforce.
    Needless to say, in the next few days and weeks, a variety of 
independent analysts, as well as the staff of the Congressional Budget 
Office and others, will have an opportunity to examine the impact of 
these and other provisions in greater detail.
    The draft bill contains both an individual and employer mandate. As 
the Congressional Budget Office reported in 1994, an individual mandate 
on American citizens to purchase health insurance is unprecedented. 
While President Obama has recently stated that he is open to the 
imposition of such a mandate, his earlier reasoning for opposition 
should not be forgotten, as he noted that it would be unenforceable as 
a mechanism to secure universal coverage and that he thought it 
inappropriate to force Americans to purchase coverage that they 
determined they could not afford. I appreciate the rationale for the 
mandate as a means to offset cost-shifting and as a remedy for the 
``free-rider'' problem; individuals have a personal responsibility to 
protect themselves and impose no unnecessary costs on the rest of us. 
Nonetheless, an individual mandate is a restriction on personal 
liberty, and that the use of positive incentives combined with new 
mechanisms to facilitate ease of enrollment can achieve the broader 
goal of dramatically expanded coverage. I have suggested such 
alternatives, and, with your permission Mr. Chairman, would like to 
submit them for the record.
    Since most Americans under the age of 65 are today enrolled in 
employment-based health insurance, it is easy to see why so many 
policymakers are enamored by the idea of an employer mandate. I would 
simply remind the Committee that the costs of an employer mandate are 
invariably visited upon employees in the form of reductions in wages or 
other compensation or even a reduction in employment. It is inadvisable 
to impose such a mandate, especially during a recession.
    In the limited time available to me, I would like to focus my 
remarks on three key areas: the establishment of a national health 
insurance exchange, the creation of a public plan to compete with 
private health plans in that exchange, and the creation of a new 
authorities for the federal government to standardize and regulate 
health insurance, and a process for federal officials to define and 
refine the health benefits that will be available to American citizens.
    The Health Insurance Exchange. Under Section 141 of the bill of 
Title II, Congress would create a new independent agency, the Health 
Choices Administration. The new agency would be headed by a Health 
Choice Commissioner appointed by the President with the advice and 
consent of the Senate. Under Section 142, listed among the many duties 
of the Commissioner, would be the establishment and operation of a 
Health Insurance Exchange. Under Section 201 of Title II of the bill, 
the Congress would create the Health Insurance Exchange in order to 
``facilitate access of individuals and employers, through a transparent 
process, to a variety of choices of affordable quality health 
insurance, including a public insurance option.''
    Under the terms of the provision, the Commissioner would establish 
``standards for, and accept bids from'', ``qualified health benefit 
plans'', and negotiate and enter into contracts with these qualified 
health benefit plans, which must offer at least three different levels 
of benefits that are statutorily required with a high degree of 
specificity.
    Under Section 202, the bill says that a person is eligible to 
enroll in the exchange unless that person is enrolled in another 
qualified health benefit plan or other statutorily defined ``acceptable 
coverage'' For the enrollment of eligible employers and employees, and 
individuals, the bill provides a three year transition period for the 
categories starting with the smallest employers (with ten or fewer 
workers), to the smaller employers (20 or fewer workers) and to larger 
employers. The bill specifies that individuals, with some exceptions, 
who are enrolled in existing government programs such as Medicare, 
Medicaid, the military health programs(``Tri-Care'') and the Veterans 
Administration (VA) program are ineligible for enrollment in the Health 
Insurance Exchange. A noteworthy exception to this set of categorical 
exclusions are what are deemed ``Non-Traditional'' Medicaid enrollees, 
persons who had a ``qualified health plan'' or who were enrolled in a 
``statutorily grand-fathered'' health plan (an individual or group 
insurance plan) in the previous six months. The several states, under 
certain conditions, are also given the opportunity to enroll Medicaid 
beneficiaries in the Exchange.
    Under Section 203, The Commissioner ``shall specify the benefits'' 
to be made available in the Exchange for ``Exchange Participating 
Plans'' each year, but these specifications are to be consistent with 
other health benefit requirements that are elsewhere established in the 
statute. The provision also prohibits the Commissioner from entering 
into a contract with an insurer unless the insurer offers the three 
benefits levels that are required by statute: the ``basic'', 
``enhanced'' or ``premium'' benefit plans for the service areas in 
which they offer coverage.
    Under Section 204, the Congress would enact standards for the 
insurers who offer qualified health benefit plans that are eligible to 
participate in the Exchange. Specifically, they must be licensed under 
state law where their insurance coverage is offered; they must report 
data and other information to the Commissioner that he may require; 
implement the ``affordability credits'' that are offered to enrollees; 
accept all eligible enrollees; provide ``wrap around coverage'' for 
Medicaid enrollees; participate in pooling mechanisms established by 
the Commissioner; contract with ``essential community providers'' as 
specified by the Commissioner; provide ``culturally and linguistically 
appropriate services and communications'' to enrollees; and comply with 
``other applicable standards'' such as billing and premium collection 
practices, that the Commissioner may specify.
    Interestingly, the plans participating in the Health Insurance 
Exchange would still be required to offer benefit packages within the 
states that they serve that comply with state legislative requirements 
for state mandated benefits. This is a significant requirement, 
inasmuch as there are today more than 2000 state mandated benefits and 
provider services that are required for inclusion in health insurance 
offerings. The number and cost, of course, vary significantly from 
state to state.
    For insurers who participate, the initial contract is to be for not 
less than one year, but subsequent contracts with the Exchange may be 
automatically renewed from year to year.
    Insurers would also be under statutory requirements to comply with 
``network adequacy'' standards that are determined by the Commissioner, 
and comply with Commissioner's standards and procedures for 
``grievances and complaints''. In the enrollment of persons in the 
Health Insurance Exchange, the Commissioner is not only required to 
provide comparative plan information, but also ``shall establish 
``outreach activities for particularly ``vulnerable'' segments of the 
population, including adults and children with disabilities or 
cognitive impairments.
    Under Section 207 of Title II, the Congress would create a Health 
Insurance Exchange Trust Fund. This new trust fund would contain monies 
appropriated by Congress, as well as a class of dedicated funds, 
including taxes levied on individuals who do not obtain ``acceptable 
coverage'' and employers who do not provide ``acceptable coverage'' to 
their employees and certain excise taxes on insurance.
    Under Section 208, individual states, or a group of states, are 
permitted to set up a state based health insurance exchange or a multi-
state exchange. But they can only initiate such an action with the 
approval of the Commissioner, and the Commissioner may only approve the 
creation of a state-based health insurance exchange only if they can 
demonstrate to the satisfaction of the Commissioner their capacity to 
undertake such an enterprise; contract with health plans that meet the 
federal health insurance benefit requirements and standards outlined 
under Title I of the bill; enroll the eligible employers and employees 
and individuals; and if they do not have another exchange already 
operating within the state. If the Commissioner determines that the 
state health insurance exchange does not meet federal rules and 
standards, the Commissioner can with notice, terminate the state 
exchange.
    Comment. The concept of a health insurance exchange, to facilitate 
access to a choice of coverage for individuals and employers, 
especially small employers, is hardly new. It has had only limited 
application at the state level, though some may argue that the Federal 
Employees Health Benefits Program, a defined contribution arrangement 
that is characterized by a wide variety of private health benefit 
options (ranging from traditional health plans to health savings 
accounts, from relatively inexpensive health plans to very expensive 
benefit offerings), is analogous to a health insurance exchange. Of 
course, there is no government sponsored health plan in the FEHBP; nor 
does the FEHBP have anything remotely approaching the statutory or 
regulatory regime embodied in Title I and Title II of the bill.
    In its practical application, a key policy question is whether 
policymakers want the health insurance exchange to serve as an 
administrative body or a regulatory body. They are widely different in 
their conception and practical effects. As an administrative body, an 
exchange would provide comparative information on prices, plans and 
benefits, facilitate enrollment of individuals and employees, collect 
and transmit premiums payments, and thus reduce the administrative 
costs for small businesses and thus the premium costs of the 
individuals and families employed by them. As an administrative body, 
the exchange would serve as a mechanism to permit a defined 
contribution on the part of employers for their employees, enabling 
them to pick and choose the health insurance plan of their choice while 
securing the existing tax advantages of group health insurance. This 
would enable individuals to buy and own the health plan they determine 
as best for them, and thus be able to take with them from job to job. 
This added portability in health insurance would, in and of itself, 
result in a dramatic reduction in the number of the uninsured, most of 
whom are persons who had coverage and lost it, and experience spells of 
un-insurance, in what is clearly an unstable and deficient health 
insurance market.
    If the exchange is conceived as more than an administrative body, 
and is designed as another regulatory agency, it can become a mechanism 
to constrain personal choice and frustrate competition by limiting the 
kind and number of suppliers that can enter the market, and thus 
increase the costs of coverage.
    It is not necessary to create a national health insurance exchange 
for the purpose of creating a national market for health insurance. The 
United States already has a national market for a variety of goods and 
services, and the distribution of those services is not contingent upon 
the creation of anything remotely resembling a national exchange for 
these goods and services. If Congress wanted to create a national 
market for health insurance, all it would have to do is repeal existing 
federal laws that are a barrier to such a market, and exercise its 
authority to promote interstate commerce under Article I section 8 of 
the Constitution, and authorize the U.S. Department of Commerce to 
issue such regulations as are necessary to ensure that promotion.
    For state officials, such as those who framed the major 2006 reform 
in Massachusetts, one of the key advantages of a state based health 
insurance exchange ( called ``the connector'') was that it would allow 
employers and employees in small business to get access to personal and 
portable health insurance tax free, since the coverage available 
through the exchange would be considered group coverage and thus enjoy 
the powerful advantages of the existing federal tax treatment of health 
insurance. If Congress wanted to assist individuals and families, 
particularly those employed in small businesses who do not have access 
to group coverage, and who are penalized by the federal tax treatment 
of health insurance if they attempt secure coverage outside of the 
place of work, then all Congress would have to do is to reform the 
federal tax treatment of health insurance, and guarantee tax breaks for 
individuals regardless of where they work, eliminate the inequities and 
disparities in the tax code and thus make health insurance affordable 
and available for everyone.
    For lower income persons, those who do not have federal tax 
liabilities, the correct remedy would of course be the provision of 
generous assistance, either in the form of premium assistance, some 
sort of refundable tax credit or direct, income related subsidy to 
offset the cost of health insurance and thus guarantee coverage.
    Health insurance markets differ radically from state to state. For 
some states, a health insurance exchange may be appropriate; for 
others, there may be other, perhaps more innovative options. Federal 
policy should recognize and accommodate that diversity among the 
states, and foster state creativity in finding workable solutions to 
coverage, especially for the most vulnerable, the poorest and the 
sickest who need the most help.
    Finally, I would note that the draft bill vests extraordinary power 
in the hands of the Commissioner, including the power to decide what 
state or group of states can or cannot set up or manage or maintain a 
state health insurance exchange. Federalism is a remarkable 
constitutional achievement. It means that the national government and 
the state governments are each supreme in their respective 
constitutional spheres; that the encroachment of one upon the other 
violates the spirit of federalism, the unique division of power 
enshrined in our Constitution. This is not a federal state partnership; 
it is federal domination of the states. It is also a prescription that 
could, and probably would, undermine much needed innovation in the 
provision of new health insurance options.
    The Public Plan Under Title II, Subtitle B, Section 221 of the 
draft bill, Congress would require the Secretary of the U.S. Department 
of Health and Human Services to establish a ``public health insurance 
option'' in the national health insurance exchange. In the language of 
the legislative text, the option is designed to ensure ``choice, 
competition, and stability of affordable, high quality coverage 
throughout the United States in accordance with this subtitle.''
    The range of competition for the new public plan is to be limited 
to the national health insurance exchange. In competing with private 
health plans, the public plan is to play on ``a level playing field.'' 
In the language of the legislative text: ``The public plan shall comply 
with the requirements that are applicable under this title to an 
exchange participating health benefits plan, including requirements 
related to benefits, benefit levels, provider networks, notices, 
consumer protections, and cost sharing.'' Like private health plans 
competing in the exchange, the new public plan is to offer three types 
of coverage: basic, enhanced and premium coverage.
    In terms of the rights of enrollees, the legislative text specifies 
that the same rights that are enjoyed by Medicare beneficiaries today 
will be extended to enrollees in the new public plan, and that these 
enrollees will have access to the federal courts for the enforcement of 
their rights in the same way that Medicare beneficiaries have access to 
the courts. This is a key provision defining the range of action 
available to enrollees in the public plan.
    Under Section 221, the Secretary can enter into contracts for the 
administration of the public plan, but that contractual arrangement 
with these entities cannot ``involve the transfer of insurance risk to 
such entity.'' This is also a key provision.
    The Secretary is also authorized to set premiums for the public 
plan: ``The Secretary shall collect such data as may be required to 
establish premium and payment rates for the public insurance option and 
for other purposes of this subtitle, including to improve quality and 
to reduce racial and ethnic disparities in health care.'' Under Section 
222, the authors of the bill further specify that the Secretary ``shall 
establish'' geographically adjusted premium rates for the public plan 
that comply with the premium rules set by the Commissioner for private 
plans at a level ``sufficient to fully finance'' the costs of the 
benefits, the administrative costs and ``contingency margins'' of the 
new public plan. Within the Department of the Treasury, Congress would 
create an account to handle receipts and disbursements for the 
operation of the public plan, including the finds necessary for start 
up costs. Under Section 222, there is no other authorization for 
additional appropriations for the account. This is also a noteworthy 
provision, though there is nothing to prevent Congress from 
appropriating additional funds to the account.
    Under Section 223, the Secretary is to establish payment rates for 
services and procedures under the public plan. Initially, these payment 
rates, under Section 223(2)(a) are to be based on the payment rates for 
medical services and providers under Medicare Parts A and B. The 
Secretary is given some leeway in adjusting or modifying payments 
rates, particularly for services, such as well child visits, that are 
obviously not covered under Medicare. Moreover, the rates for payment 
for prescription drugs will be ``negotiated'' directly by the 
Secretary. The Secretary is also to adopt anticipated payment reforms 
for the public plan, based on those initiated in the Medicare program 
designed to secure better value for taxpayer dollars.
    Comment. In a normally functioning, consumer-driven private market, 
the price of goods and services is determined dynamically by the 
conditions of supply and demand, the goods and services available by 
suppliers and the demand for those goods and services. In a consumer 
driven health insurance market, the premium payments reflect a 
reasonable relationship between the benefits that are offered, 
including any discounted payments to providers, and the demand for 
those benefits.
    In this case, the Secretary is to set premium payments in such a 
way that they would fully finance the benefits, as well as meet other 
goals, such as the provision of quality care and the reduction in 
racial and ethnic disparities. This would require the Secretary to go 
beyond an assessment of prevailing market conditions, and also do so in 
accordance with rules for premium payment set by the Commissioner. This 
is likely to be a challenge.
    In basing the public plan's payment to providers on the Medicare 
payment rates, which are routinely set below those of the private 
sector payment rates, the public plan would naturally enjoy an 
advantage over competing private health plans. Because, by law, the 
payment rates would be set at such a level, rather than at the market 
rates that would otherwise prevail on a level playing field, the public 
plan would be given a legal advantage in competition with the private 
sector plans. This would undercut the claim of a level playing field. 
Under Medicare, physicians, for example, are paid at a rate of 81 
percent of average market rates. Independent analyses, by the Lewin 
Group and others, have shown that the use of Medicare payment rates 
would not only result in a significant reduction in revenues for 
doctors and hospitals, but also an erosion of private health insurance 
coverage.
    The simplest way to achieve the stated goal of the level playing 
field is to require the public plan to compete for doctors and 
hospitals and other medical professionals by negotiating market rates 
with such providers just like the officials of private health plans do 
routinely.
    If one of the stated goals of the bill is to ensure a ``level 
playing field'', there are other features of this legislation to be 
addressed. In Section 221, as noted, Medicare enrollees are to be given 
access to the federal courts in the same way as Medicare beneficiaries 
in securing their rights under the Medicare entitlement, presumably 
over the same range of questions and controversies as routinely apply 
in these cases. This may be necessary, but it is not a sufficient legal 
protection. First, private health plans are everywhere subject to 
various laws governing torts and contracts, and private health plans 
and their officers can be sued for contract violations or torts. To 
secure a level playing field, the same should apply to the public plan 
and its officers. This point should be clarified in statute, assuming 
the range of legal actions available to enrollees in the public plan 
are not to be limited. Second, private health insurance companies, as 
with other private firms, are subject to strict accounting standards 
governing liabilities and financial standards. Perhaps this is implied 
within the broad authority of the Commissioner to set rules for plan 
participation in the exchange; nonetheless, it should also be clarified 
that the public plan is subject to the same rules. Specifically, 
Congress should, under no circumstances, allow the public plan to 
accumulate the kind of massive un-funded liabilities that burden the 
current Medicare program, and threaten a crisis in the government's 
entitlement programs. Third, as specified under Section 221, the 
Secretary is authorized to contract with administrators to carry out 
the functions of the public plan, but that contractual authority cannot 
involve the transfer of risk. This obviously means that the entire risk 
of the public plan will remain with the taxpayers, not the public plan 
itself, as a government-sponsored enterprise. Since private health 
plans competing with the public plan have no such taxpayer guarantee, 
regardless of the wisdom or folly of providing such a guarantee, the 
public plan would have an advantage incompatible with the goal of a 
level playing field.
    In the final analysis, in competitive markets, where consumers' 
preferences prevail, some firms are extraordinarily successful in 
offering individuals and families what they want, and other firms are 
not. On the level playing field, some firms are highly profitable and 
other firms rack up losses. In the field of health insurance, the 
history of the Federal Employees Health Benefits Program (FEHBP) is one 
of a free entry and exit of health plans. If Congress wishes to achieve 
a level playing field between public and private health plans, then the 
public health insurance option, just like any private health option, 
should also be allowed to fail, without being kept on artificial life 
support through the infusion of taxpayer monies. That would be a key 
test of congressional commitment to a level playing field.
    Federal Benefit Setting. Under Division A, Title I of the bill, the 
Congress would require every American to have health insurance coverage 
that Congress would define as ``acceptable coverage''. This is defined 
in Section 202 as coverage in a series of categories: a ``qualified 
health benefits plan;'' a ``grand-fathered'' health insurance plan 
(individual and group coverage in effect for individuals and groups 
during a specified period of time); coverage under Part A of Medicare, 
Medicaid, ``Tri-care'', the Veterans Administration program, and 
``other such coverage'' as the Commissioner, in consultation with the 
Secretaries of Treasury and Labor, shall define as ``acceptable 
coverage''.
    Under Title I, the bill specifies the various standards that must 
apply for a plan to be acceptable coverage, including ``grand-
fathered'' coverage. Grand-fathered coverage, as noted, is coverage 
that persons and employers would have and would be in effect for a time 
to be specified, and it would be subject to specific limitations. There 
would be limitations on the enrollment in such a plan, limit on changes 
to any terms and conditions of coverage and premium increases. After a 
given period of time, individual health insurance, as it exists today, 
would no longer qualify as ``acceptable coverage''. For group 
insurance, however, there would be a ``grace period'' for current group 
health coverage before such coverage would have to meet the new federal 
standards to be considered ``qualified health benefits plans'' that are 
in accord with federal benefit standards and levels.
    Under Title I, Subtitle B, Sections 111-116, the Congress specifies 
standards for access for a plan to be designated as a ``qualified 
health benefits plan''. These include a prohibition on pre-existing 
condition exclusions; guaranteed issue and guaranteed renewability of 
coverage; insurance rating limited to age, geography and family 
enrollment; ``non-discrimination standards'' to be set by the 
Commissioner; the adequacy of provider networks, to be determined by 
the Commissioner; and a federal minimum loss ratio.
    Under Title I, Subtitle C, the bill specifies standards for access 
to ``essential benefits''. Under Section 121, there is a distinction 
between standards for health plans that participate in the national 
Health Insurance Exchange and those who do not. For plans that do not 
participate, they may offer coverage in addition to the ``essential 
benefits'' that are defined in statute. For health plans that 
participate in the Exchange, the health plans are required to offer 
``specified levels of benefits;'' a more detailed and higher standard 
of compliance.
    Under Section 122, the bill defines ``essential benefits''. The 
provisions are subject to other provisions of the bill , however, that 
impose limits on cost sharing for covered items and services, and it 
would eliminate both ``annual and lifetime'' limits on services or 
covered health care items. The ``minimum services'' to be covered are: 
hospitalization; outpatient services; physicians services and the 
services of other health professionals; supplies and equipment incident 
to the provision of physician and hospital services; drugs; 
rehabilitative services; mental health and substance abuse; preventive 
services; maternity benefits; well baby and well child care; oral, 
vision and hearing services and equipment and supplies for children 
under 21 years of age. The bill specifies that there is to be no cost 
sharing for preventive services and well baby and well child care. It 
also specifies that preventive services are to be updated on the basis 
of the recommendations of the U.S. Preventive Services Task Force and 
vaccines to be included are those to be recommended by the Director of 
the Center for Disease Control and Prevention.
    Under Section 123, the bill establishes a Health Benefits Advisory 
Committee, comprised of federal and non-federal employees, and chaired 
by the Surgeon General of the United States. The Committee would make 
recommendations on benefit standards, and specify the kinds of cost 
sharing that should be adopted in the basic, enhanced and premium 
health plans packages that participate in the Health Insurance 
Exchange. According to the legislative language, the Committee, in 
making its recommendations, ``will take into account innovations in 
health care'' and work to ``ensure that the essential benefits coverage 
does not lead to rationing in health care''. This is a key provision.
    Under Section 124, the bill specifies how the benefit 
recommendations are to be adopted. The Advisory Committee makes its 
recommendation to the Secretary of HHS. The Secretary then must review 
these within 45 days, and determine whether or not to adopt them and 
publish them in the Federal Register to become applicable to qualified 
health benefit plans. For health plans participating in the Health 
Insurance Exchange, the Commissioner would enforce federal benefit 
standards.
    Comment. Health insurance is one of the most highly regulated 
sectors of the American economy. Today, with the exception of the ERISA 
and the provisions of the Health Insurance Portability and 
Accountability Act, the bulk of this regulation is within the 
jurisdiction of the states. The bill would concentrate enormous 
regulatory authority over health insurance in the federal government, 
where the content of health benefit packages, and even the levels of 
these benefits, would be under the direct authority of the Secretary of 
HHS and the Advisory Committee. The obvious problem is that this 
centralization of decision-making and the attendant special interest 
lobbying that must and will accompany it will almost certainly result 
in dynamics similar to what has taken place in state legislatures and 
agencies, where health benefit decisions are often highly politicized.
    As in so many other areas of domestic policy, the states have been 
leaders in reform efforts, whether it has been education reform or 
welfare reform, providing graphic examples of progress, and a platform 
for change that can be further encouraged by federal authorities. In a 
search for a federal remedy, Congress ought to be wary of pre-empting 
progress in the 50 state capitols of this vast and very diverse 
country.
    In health care reform, states as different, culturally and 
politically, as Massachusetts and Utah, have embarked on profoundly 
consequential and far-reaching health care reforms. Whatever one may 
think of the specific reforms in either state, there is no doubt that 
they are serious and they hold lessons for other states.
    Finally, I would ask the Committee to consider the large areas of 
agreement that exist in Congress and the nation at large on health care 
reform. Americans agree that all citizens should have adequate coverage 
to protect them and their families against the financial devastation of 
catastrophic illness. Americans generally agree that the working 
Americans who have no health insurance at the place of work, 
particularly low income working Americans, should be the beneficiaries 
of direct assistance to enable them to get health insurance coverage. 
There is also increasing agreement, across the political spectrum, that 
we must end the inequities of the existing tax treatment of health 
insurance. No taxpayer should be denied tax relief, merely because of 
an accident of her employment.
    Within Congress, there is widespread agreement, stretching the 
ideological spectrum from Democratic Representative Tammy Baldwin of 
Wisconsin to Republican Representative Tom Price of Georgia--that 
Congress would do well to encourage in concrete ways, with generous 
grants and technical assistance, state experimentation and promote 
innovation in coverage expansions, improvements in quality of care, and 
the adoption of health policy proposals that best accommodate the very 
different cultural and political dynamics of the several states.
    Thank you Mr. Chairman and Members of the Committee, I would be 
happy to answer any questions you may have.
                                 ______
                                 
    Chairman Miller. Ms. Young.

   STATEMENT OF RE SHONDA YOUNG, SMALL BUSINESS OWNER, ALPHA 
      EXPRESS, INC., ON BEHALF OF THE MAIN STREET ALLIANCE

    Ms. Young. Chairman Miller, Ranking Member Kline, and other 
members of the committee. I am honored to be here today. I 
thank you for inviting me.
    My name is ReShonda Young. I serve as operation's manager 
for my father's small business in Waterloo, Iowa. I am also a 
member of the Iowa Main Street Alliance, which is a coalition 
of small businesses across Iowa working for a solution on 
health care.
    I am here today to share some experiences of an actual 
small business desperately trying to provide health care 
coverage for our employees.
    My father started Alpha Express 20 years ago. When he 
started, it was him and one other person. Since then, we have 
grown to almost 40 employees. Now that my father is 68 years 
old, he is ready to retire for a second time; and we are hoping 
that my oldest brother will come back and help to run the 
business, because I do not want to do it by myself.
    So as operation's manager for the business, I am constantly 
thinking of how to provide health insurance for our employees.
    We have 33 total employees, 13 of whom are full-time 
employees. The quotes that I have been getting since 2006 are 
only for our full-time employees; and, even with that, the 
quotes that I got in 2006 raised our payroll expenses by 13 
percent, which was absolutely unaffordable to us at that time. 
So, instead, we were left offering a small stipend to employees 
who decided to purchase health insurance on their own to help 
them out a little bit. Even with doing that, most of them could 
not afford the coverage. Actually, there are only three people 
right now who are purchasing their own health insurance because 
they can afford it.
    My father has retiree coverage from his days of working at 
John Deere, and I have coverage through my husband, so neither 
one of us are worried about our own personal health insurance. 
But most of our employees are not in that position, and we have 
a really tight-knit group of people. We have husband-and-wife 
teams and other people who are like our family members, and we 
really want to be responsible to them and for them and be able 
to provide them with coverage.
    The other thing is my brother, who is wanting to come back 
from St. Louis to help out in the family business. He has a 
family and two small children and cannot afford to go without 
health care. And a decision that should be really easy to come 
back and help to run the family business and leave a legacy is 
really becoming really complicated because he can't afford to 
without the health insurance.
    So from a small business perspective, after looking at the 
draft proposal, I believe legislation that has been drafted by 
this and the other two House committees is a major step forward 
in addressing the health insurance problems that we face. It 
meets the priorities identified by the Main Street Small 
Business Owners, and I hope that action will be taken sooner 
rather than later to help with passage by the full House of 
Representatives.
    A thing I think is most important with insurance market 
reform is the creation of a really strong public health 
insurance option. Having a public insurance option that will 
compete on a fair basis with the private plans will be a huge 
benefit to small businesses, and it will guarantee that even in 
local insurance markets that are dominated by only one or two 
private insurers that we will still have real choices and the 
leverage that comes with being able to take our business 
elsewhere if we don't like the ones that are offered.
    When I was looking for plans this past year, I got eight 
quotes; and all eight quotes were from one company, which was 
Wellmark. There are no other companies that would provide 
quotes for our business within our area. And in our area, there 
are really only two companies that really hold the market 
share, which is Wellmark and United Health Care.
    So small businesses across Iowa are really looking to 
Congress to act quickly on the House reform, to rein in costs 
and increase the competition, to give us some real choices 
instead of just one company with just eight plans. We are 
looking to you for leadership, and we need your support to 
enact some real health care reform that will help solve this 
problem.
    [The statement of Ms. Young follows:]

       Prepared Statement of ReShonda Young, Alpha Express, Inc.

    Chairman Miller, Ranking Member Kline and members of the Committee, 
thank you for inviting me to be here today and to testify on behalf of 
my business and small businesses across Iowa. My name is ReShonda 
Young, and I serve as Operations Manager for my family's business, 
Alpha Express, Inc, based in Waterloo, Iowa. I am also a leader with 
the Iowa Main Street Alliance--a coalition of small businesses across 
Iowa working for a solution on health care.
    I will make some specific comments on the committee's discussion 
draft proposal from a small business perspective. First, I want to 
share briefly about our business's experience with health care.
Alpha Express, Inc and the Realities of Health Care
    Alpha Express is a transportation and contracting business. We 
provide transportation services across the U.S. and Canada, contract 
work for companies like John Deere, and exterior property maintenance 
services.
    Our business is a true family business. My father started the 
company 20 years ago--back then it was just him and one partner--and my 
dad has grown the business to almost 40 employees. Now my dad is 68 and 
ready to retire. We're hoping my brother will come back and help run 
the business.
    As Operations Manager for the business, I think about health 
insurance for our employees all the time. It's been years since we've 
been able to afford group health insurance. When I came in full-time 
with my dad in 2006, we got quotes from a couple different places, but 
the quotes came in at about 13 percent of our payroll. We're willing to 
pay our fair share of the cost of coverage, but we just couldn't afford 
13 percent and there weren't any affordable options for us.
    So instead, we're left offering a small stipend to help employees 
who buy insurance on their own. But most of them still can't afford the 
cost of coverage on the individual market. My father has retiree 
coverage from his days working at John Deere, and I've got coverage for 
myself through my husband. But most of our people are not in that 
position--if they can't get health coverage through our business, 
they're not going to be able to get it anywhere.
    This spring, I started looking into group plans again, but the 
plans we've looked at would mean at least a 12 percent increase in our 
payroll expenses. And the plan would include a waiting period of 12 to 
18 months before any pre-existing conditions would be covered, so the 
money we put out in premiums wouldn't even cover some of the medical 
expenses we would incur. We also had no guarantee the premium will 
remain stable from one year to the next, and in fact they could ratchet 
up the premium the second year and drive us out of the market again. I 
received eight bids for coverage for our employees--but they were all 
from the same insurance company, Wellmark. In Waterloo-Cedar Falls and 
in most of Iowa, there are one or maybe two health insurers to choose 
from. That's not competition, and it's not giving us affordable 
choices.
    Providing health insurance has always been something my father has 
wanted to do, something that's important to us. We have a couple of 
husband and wife teams who work for us. They need insurance for 
themselves and their kids. We have long-time employees who are like 
family members to us. This makes it especially important that our 
employees are healthy and well taken care of. Some nights I lay awake 
just worrying about health care.
    Health care creates real problems for family businesses. My 
brother, who wants to move back from St. Louis to help run the 
business, can't afford to go without health coverage for his family. 
Because of health care costs, decisions that should be easy for my 
family to make have become complicated.
    That's why I'm here today, and that's why it's so important that 
you are taking leadership in addressing the health care challenges we 
face.
Comments on the Committee's Discussion Draft
    From the small business perspective, I believe the legislation 
drafted by this and the two other House committees is a major step 
forward in addressing the health insurance problems we face. It meets 
the priorities identified by Main Street small business owners, and I 
hope this committee will take action soon to approve it and encourage 
its passage by the full House of Representatives.
    Specifically, given that new insurance options will be opened up to 
small business, either through the insurance market reforms or through 
the Exchange, the Main Street Alliance supports the shared 
responsibility provisions under Title III that require individuals and 
employers to play their part in ensuring that everyone has health care 
coverage.
    I agree with the idea of giving employers the option of providing 
coverage or contributing funds on our workers' behalf. I think the bill 
would create a really good system, encouraging employers to be 
responsible for their employees by whichever approach makes the most 
sense in their circumstances. As I mentioned earlier, our firm faces 
health insurance premium expenditures that would add 12--13 percent to 
our payroll expenses in order to provide health insurance for our 
workers. The contribution level in the bill--even without the small 
business tax credit--would reduce our contribution amount by one third, 
to 8 percent of payroll. And the insurance package would actually cover 
our health care costs, with no preexisting condition exclusions. This 
is a tremendous improvement over our current options.
    I'm glad to see the provisions of the bill that will establish a 
tax credit to help small employers bear the cost of providing coverage 
for their workers. A 50 percent credit will provide important 
assistance to businesses with 10 or fewer employees whose average 
annual employee compensation is $20,000. And the small business 
assistance is extended on a sliding scale to firms with average wages 
up to $40,000 and up to 25 employees. This, too, offers significant 
help in improving our current health insurance options.
    Representatives of the Main Street Alliance look forward to 
continuing to work with you to assess the interaction of the various 
small business related provisions in the bill to ensure there is 
affordability across the range of small businesses, whether they 
directly provide coverage for their workers or contribute to helping 
workers buy their own coverage through an exchange.
    The shared responsibility called for in the bill for funding health 
insurance is first made workable by the expanded options created in the 
bill for purchasing affordable health insurance coverage. The 
legislation does this by creating a Health Insurance Exchange to 
provide a more competitive, transparent marketplace that will offer 
real coverage choices for individuals and small businesses. In the 
Exchange, we will actually be able to compare the insurance plans being 
offered because the benefit packages will be standardized and the 
differences in the plans will be disclosed.
    I'm also happy to see the provisions in the draft legislation that 
will reform practices in the insurance market to prohibit 
discriminatory coverage and rating policies. These changes are long 
overdue--I wish it were not necessary for the federal government to 
have to step in and pass laws and impose regulations to get insurers to 
stop these unfair practices, but if that's what it takes I support 
putting them in place as soon as possible.
    But I think the most important insurance market reform--and the one 
that will go the farthest in ensuring competition among health plans--
is the creation of a strong public health insurance option. Having a 
public plan that will compete on a fair basis with private plans will 
be a huge benefit to small businesses. It will guarantee that even in 
local insurance markets dominated by one or two private insurers, we 
will have real choices and the leverage that comes with the ability to 
take your business elsewhere if you don't like the insurance plan you 
have.
    I think a public health insurance plan is also critical to 
encourage innovation in coverage and affordability in a competitive 
marketplace. I know that our business is always looking for ways to 
serve our customers better, more efficiently, at lower prices, and 
we're driven by the competition from other businesses. As a purchaser 
of health insurance coverage, I want my insurer to have to compete for 
my business as hard as I have to compete for my customers.
    The bill includes a phase-in of which businesses are eligible to 
secure coverage through the exchange, and through the exchange gain 
access to the public health insurance option, with firms with 10 or 
fewer employees eligible in year one and firms with 20 or fewer 
employees eligible in year two. I understand the intention with the 
phase-in is to be cautious and not create unintended consequences by 
moving too quickly. But from my vantage point, we can't have the public 
option and the other private plan options available too soon. I would 
encourage the committee to consider accelerating the phase-in of the 
employers who can access the exchange.
Small Businesses Need Real Health Reform
    Small businesses across Iowa and across the country are looking to 
Congress to act quickly on health reform to rein in costs, increase 
competition and give us real choices. Last fall, our coalition in Iowa 
participated in a national small business survey where surveyors went 
door to door and asked Main Street business owners face to face what 
should be done to fix health care.
    The results of this survey, reported in ``Taking the Pulse of Main 
Street: Small Businesses, Health Insurance, and Priorities for Reform'' 
(full report available at http://mainstreetalliance.org/wordpress/home/
publications/), are worth noting in three key areas:
    1. Small business owners' willingness to contribute toward health 
coverage: When asked if we were willing to contribute for health 
coverage for our employees, more than two thirds (73 percent) of small 
employers said yes.
    2. Support for real choices, including the choice of a public 
health insurance plan: When asked to choose between a proposal with a 
public health insurance option and a proposal with only private 
options, responding business owners chose the proposal with a public 
plan option by a margin of over two to one (59 percent to 26 percent).
    3. Views on the role of government in making health care work: When 
asked about public oversight and the role of government, small business 
owners supported more public oversight of the insurance industry by 
almost six to one (75 to 13 percent), and a stronger government role in 
guaranteeing access to quality, affordable health coverage by over four 
to one (70 to 16 percent).
    We are looking to you for leadership. We need your support to enact 
real health care reform that will solve this problem for family 
businesses like mine and allow us to continue creating jobs and serving 
the needs of communities across America. Thank you.
                                 ______
                                 
    Chairman Miller. Dr. Mullan.

  STATEMENT OF DR. FITZHUGH MULLAN, MURDOCK HEAD PROFESSOR OF 
    MEDICINE AND HEALTH POLICY, GEORGE WASHINGTON UNIVERSITY

    Dr. Mullan. Chairman Miller, thank you. You certainly get 
kudos for stick-to-it-iveness--not only writing the bill but as 
much testimony as you have had. A credit to you.
    My name is Fitzhugh Mullan. I am a pediatrician. I am a 
medical educator. I once was in the National Health Service 
Corps. I once ran the National Health Service Corps. Today, I 
am a professor at Health Policy and Pediatrics at George 
Washington, and workforce is my area, and I am happy to bring 
that to the deliberations today.
    This bill comes with context, and I want to give a little 
bit of workforce context very quickly.
    In the United States, we have large numbers of health 
professionals, large numbers of physicians. In my judgment, we 
have an adequate number of physicians. We need to grow the 
physician workforce as the population grows, and we need to 
make much better use of it.
    The workforce is not well distributed. It tends to be in 
urban areas. It tends to be in areas that are well-to-do. Rural 
areas and poor areas have great trouble not only with 
physicians and nurses but other health workers.
    One out of three positions in the United States is in 
primary care, two-thirds are specialists, and interest and 
commitment to primary care is flagging in the pipeline.
    Good evidence suggests across the board that primary care 
is associated with better outcomes and less cost. Nurse 
practitioners and physicians' assistants are very important 
components of our workforce today, and they need to be grown, 
as this bill suggests they do.
    And, finally, in terms of the context, we do very little 
planning. One-sixth of our economy is in health. We have a 
large health workforce. We do little or no downstream planning. 
No business would run like this. We need to put more brain 
power and more data and more thoughtful deliberation with what 
we invest in in regard to the workforce.
    I want to suggest a way to look at the workforce. The last 
graphic that I have in my testimony suggests three parts to the 
life cycle of a health professional. The first would be the 
pre-service, the training, medical school in the context of 
physicians. The second would be post-graduate or specialized 
training, graduate medical education; and the third is 
practice. If we are going to reform the workforce and build the 
workforce that is more aligned with our needs, particularly 
with regard to primary care, we need to move in all three 
sectors. Same for the other health professions. Very important 
concept. And I will talk about the bill in regard to those 
three areas of the workforce.
    The committees have done, in my judgment, a very creative 
job of putting many ideas to work in the proposed legislation 
that would move us considerably in terms of building a better 
workforce.
    The National Health Service Corps, a very tried and proven 
program, has increased support for title VII and VIII. That is 
training in medicine for MPs and PAs, and diversity is upscaled 
and reinvigorated.
    In terms of graduate education, Medicare funding graduate 
education, unused slots, funded slots are repurposed for 
primary care. There is a teaching health center demonstration 
proposal which would put young doctors to work in community 
health settings. There are significant payment improvements for 
primary care physicians, something very important in terms of a 
demoralized and underpaid workforce.
    There is support for new instruments, new structures to 
organize the workforce, primary care medical homes as well as 
accountable care organizations. And there is attention to 
planning and brain trust, and that is an Advisory Committee for 
Health Workforce Evaluation and Assessment and a National 
Center for Health Workforce Analysis.
    Concerns. The National Health Service Corps is funded 
insufficiently in the judgment of many. I would agree. Great 
unmet needs. And many, many young people in medicine and other 
health professions prepared to do community service for 
reduction of student debt could be a much more effective 
instrument even as--more so than proposed in the bill.
    Teaching health centers, as I mentioned, are an important 
instrument. They are a demonstration project. Many feel that 
having them as an actual part of how we do business would be 
important, along with startup funds to get health centers able 
to host residencies and residency programs.
    Primary care payment, while upgraded, is modestly so, 5 
percent on the basic E&M services for primary care, which nets 
out to about $2,000 to $3,000 per primary care provider, hardly 
the kind of incentive that we want to have thousands of more of 
our young physicians choose primary care. A 50 percent upgrade, 
which sounds like a lot, would net about $25,000, arguably a 
pretty good incentive. That would cost about six-tenths of one 
percent of Medicare. So it would cost rather modest, because, 
of course, primary care space is very modest.
    A primary care extension program has been proposed. Like 
the agricultural extension program, it would help translate new 
findings and new ways of doing business, including better 
organization of practice, health IT from the universities, from 
the centers of knowledge and innovation into primary care 
practice. Not in the bill. Something worth considering.
    And, finally, the planning activity, I would like to see it 
not an advisory committee but a national commission level. This 
is the level of importance that I think it deserves.
    Once again, I think this bill is a great start. It does 
bring to the legislative agenda, the national agenda ideas that 
have floated around but not really been taken seriously or 
codified previously and sets the stage for what could be a very 
important renovation in our health force thinking to build a 
base for the overall bill and the overall efforts.
    Chairman Miller. Thank you.
    [The statement of Dr. Mullan follows:]

Prepared Statement of Fitzhugh Mullan, M.D., Murdock Head Professor of 
        Medicine and Health Policy, George Washington University

Background Perspectives on Health Workforce
    Improving access to health care in the United States will require 
modifications in the structure of the US health workforce, the foremost 
of which will be the construction of a strong primary care delivery 
base.
    The distribution of physicians (and other health professionals) in 
the U.S. heavily favors urban areas. Metropolitan areas have 2-5 times 
as many physicians as non-metropolitan areas. Economically 
disadvantaged areas have significant physician access problems.
    Two-thirds of the U.S. physician workforce practice as specialists. 
The number of young physicians indicating an interest in primary care 
is declining. Approximately 100,000 nurse practitioners (NPs) and 
70,000 physician assistants (PAs) are practicing in the United States 
today. This represents an important asset for service delivery.
    Today's physician-to-population ratio is in the zone of adequacy 
and should be maintained with appropriate growth in the number of 
physicians trained to parallel growth in the population. Increased 
requirements for patient care due to the aging of the population or the 
inclusion of more Americans as a result of health care reform 
legislation should be met by more strategic distribution of physicians, 
both geographically and across the primary care--specialty spectrum, 
and the expanded use of physician assistants and nurse practitioners. 
The role of PAs and NPs should be in both the generalist and specialist 
sectors of the care delivery system.
    Medical schools--The current expansion of medical schools is 
welcome but Title VII legislation needs to be reinvigorated and up-
funded to augment primary care training in medical schools.
    Graduate Medical Education--The current number of Medicare funded 
slots is sufficient to maintain workforce numbers. However, reforms 
need to be made in current legislation to prioritize and incentivize 
community-based and ambulatory training. Support for Teaching Health 
Centers would significantly advance this goal. Beyond that, serious 
consideration needs to be given to aligning Medicare GME with the 
workforce needs of the country.
    Medical Practice--Primary care payment reform, support for new 
practice organizations such as primary care medical homes, and 
investment in health information technology are all important reforms 
that will help to promote a strong primary care practice base in the 
country.
    Data and leadership in the field of U.S. health workforce 
development is insufficient. A National Center for Health Workforce 
Studies and a National Health Workforce Commission would both be 
important assets at the federal level in managing health care workforce 
reform.

Summary of Testimony
    The Tri-Committee draft legislation takes a significant step 
towards establishing a health care workforce which will sustain a high-
quality, cost-effective, fully accessible health care system. Moves to 
establish an Advisory Committee on Health Workforce Evaluation and 
Assessment, re-invest in the National Health Service Corps and Title 
VII of the Public Health Service Act, redistribute unused Medicare GME 
positions to primary care programs and establish teaching health 
centers, and address payment and practice challenges to primary care 
through the medical home and accountable care organization pilot 
programs are all positive moves towards a sustainable health care 
workforce. However, to fully achieve workforce reform, the following 
are recommended:
    Promoting the Advisory Committee on Health Workforce Evaluation and 
Assessment to a ``National Commission on the Health Workforce'', 
providing it with an authorization and clarifying its role in reporting 
to Congress, including addressing Medicare GME payments.
    Fully supporting the Teaching Health Centers program, converting it 
to at minimum a pilot program rather than a demonstration project and 
creating a Teaching Health Centers Development Grant within Title VII.
    Further increasing National Health Service Corps authorization for 
appropriations to maximize the program's full potential to provide 
health care in the most underserved areas.
    Increasing primary care bonus payments and SGR target growth rate 
to ensure effective maintenance and incentives for primary care.
    Invest in a primary care extension program to provide technical 
assistance and training programs for strengthening primary care 
practice.

Introduction
    Thank you Mr. Chairman for this opportunity to testify today. 
During the 40 years since I graduated from medical school, I have been 
a member of the health care workforce of the United States working as a 
pediatrician; I have directed workforce programs such as the National 
Health Service Corps while serving as a member of the United States 
Public Health Service Commissioned Corps; and I have been a student of 
and commentator on U.S. workforce policy in my current role as a 
Professor of Health Policy at The George Washington University.
    Therefore, it is with experience as a practitioner, administrator, 
and scholar that I come before you this morning.

Background
    The Health care workforce is a necessary component to any health 
care system and addressing the deficiencies in the current workforce is 
critical to ensuring any form of health care reform succeeds.
    Primary care, in particular, is essential to a cost-effective, 
quality, fully accessible health care system. This is supported by:
    The Dartmouth group--examined differences in Medicare spending in 
different regions in the U.S. Found regional differences largely 
explained by more inpatient and specialist-oriented practice in higher 
spending regions.
    Barbara Starfield et al--showed primary care is associated with 
improved health outcomes
    Massachusetts example--MA health care reform increased coverage but 
failed to address workforce and therefore access, featured in the New 
York Times article, ``In Massachusetts, Universal Coverage Strains 
Care''
    GAO report February 2008--``Ample research concludes in recent 
years that the nation's over reliance on specialty care services at the 
expense of primary care leads to a health system that is less efficient 
* * * research shows that preventive care, care coordination for the 
chronically ill, and continuity of care--all hallmarks of primary care 
medicine--can achieve better health outcomes and cost savings.''
    Primary care is declining (Figure 1) due to:
    Large payment disparities between primary care and specialties--
Median annual salary of a primary care physician is $190,000 compared 
to a dermatologist ($345,000), a cardiologist ($380,000), a radiologist 
($462,000) and an orthopedic surgeon ($450,000) (Figure 2).
    Practice conditions which make primary care less attractive to 
future physicians--\2/3\ of primary care practitioners work in 
practices of 4 or fewer physicians and the institutional infrastructure 
to drive practice improvements doesn't exist.
    Declining support for primary care educational and pipeline 
programs, such as Title VII of the Public Health Service Act (Figure 
3).

The Career Lifecycle of a Physician
    Before considering questions of the sufficiency of the workforce or 
policy options to modify its direction, I would like to suggest a 
framework for considering physician careers. I call this the career 
lifecycle of a physician. It has three phases--one of which is 
educational, one of which is transitional and the final one of which is 
vocational (Figure 4). The phases are medical school, graduate medical 
education, and practice. The first two might be considered ``pipeline 
phases'' since they determine the quantity and nature of physicians 
prepared for practice. The final phase is the ``payout'' phase when the 
physicians are actually providing health care to the nation.
    This framework allows us to consider capacity, cost and performance 
in three separate but interlinked longitudinal phases of the career 
path of physicians.

The Tri-Committee Draft Bill
    The House Committees on Education and Labor, Energy and Commerce, 
and Ways and Means are to be commended on the Tri-Committee Draft Bill 
that we are discussing today. It proposes legislative action that would 
go a long way toward providing a floor of access to quality health care 
for all Americans--a major unmet American agenda. The workforce 
components of this bill will do a great deal to rebalance the health 
professions training systems of the country to produce a healthcare 
workforce more aligned with the needs of the American people and the 
coverage envisioned in this bill. The particularly important issues 
that this bill addresses are: (1) the need for expanded incentives and 
support for primary care education and practice, (2) strong measures to 
build the health workforce in areas of chronic need and underservice, 
and (3) support for a broad spectrum of health workers, including 
physicians, nurses, physician assistants, and public health 
professionals. Finally, this bill envisions better deliberations on the 
future of the workforce through the Advisory Committee on Health 
Workforce Evaluation and Assessment and better information through the 
National Center for Health Workforce Analysis.

Tri-Committee Draft Legislation Recommendations
            Advisory Committee
    The draft legislation proposes an Advisory Committee on Health 
Workforce Evaluation and Assessment. Given that the health workforce of 
our country staffs \1/6\ of our national economy, it is an area where 
we need to be smart, agile, and prescient. Virtually all health 
professional education programs receive public support, and as such, we 
have a particular responsibility to manage those human and financial 
resources with prudence and intelligence. At the present, there is no 
national deliberative body that looks ahead at national needs and 
informs the Congress or the Administration on a regular basis about 
broad directions and preferable investment strategies. Therefore, the 
National Advisory Committee proposed is a major step ahead.
    However, the term ``Advisory Committee'' connotes a body whose 
influence is considerably less than that of a ``National Commission''. 
Moreover, the details of this Advisory Committee do not distinguish it 
substantially from a number of other advisory committees (listed in the 
legislation) whose reach is generally modest. The legislation provides 
no specific authorization level for its work. Consideration should be 
given to making the Advisory Committee on Health Workforce Evaluation 
and Assessment to a ``National Commission on the Health Workforce'', 
providing it with an authorization, and clarifying its role in 
reporting to Congress.
            National Health Service Corps
    The draft legislation increases National Health Service Corps 
scholarship and loan repayment funding levels to $300,000,000 annually, 
effectively maintaining the ARRA funding for NHSC and increasing the 
total NHSC from approximately 4,000 providers to 8,000 providers. 
However, the NHSC has the potential for further growth. Last year, over 
4,500 health care providers applied for NHSC positions. Only 950 
positions (20% of applicants) were awarded due to funding limitations.
            Physician Assistants and Nurse Practitioners
    The United States is a global pioneer in the creation of new 
categories of health professionals who contribute to the delivery of 
clinical services. Separate pilot programs in the 1960s introduced the 
world to the idea of the nurse practitioner (NP) and the physician 
assistant (PA). Since those early programs, both professions have grown 
enormously in size, stature and public acceptance. Approximately 
125,000 nurse practitioners have been trained in the United States, the 
majority of whom are engaged in clinical practice. There are almost 
70,000 certified physician assistants in the United States and more 
than 100 training programs.
    Both of these professions are associated with primary care and 
practice in rural and underserved areas. About 25% of all nurse 
practitioners are located in non-metropolitan areas and an estimated 
85% of them practice primary care. Physician assistants are active 
across the spectrum of medical specialties with more than one third of 
them working in primary care practices and approximately one fifth of 
them working in rural areas.
    The Tri-Committee bill addresses the importance of these two 
professions, and this is particularly important in the context of the 
current workforce shortages in primary care. Specifically, I commend 
the bill's support to expand nursing education, practice and retention 
programs, nursing faculty loan repayment programs, and the training of 
advanced practice nurses who will deliver care in shortage areas. The 
bill also supports and gives preference to the development of physician 
assistantship training programs with demonstrated success in producing 
primary care providers and providers from underrepresented racial and 
ethnic groups and disadvantaged backgrounds. Additionally, the bill 
provides grants to programs that promote interdisciplinary and team-
based models of care as well as coordination with academic health 
centers and across health professions settings for training and 
practice. Building out the nursing and PA workforce will, in the face 
of the primary care crisis, help support a robust primary care delivery 
system.
            Diversity in the Workforce
    Diversity in the physician workforce is critical to adequate, 
accessible, and culturally responsive care. Health professionals from 
racial and ethnic minority groups are more likely to enter primary 
care, practice in health profession shortage areas, and care for 
minority, poor, underinsured, and uninsured individuals than their 
white counterparts.\1\ One national survey reported that while African 
American physicians comprise only 4% of the workforce, they serve more 
than 20% of African American patients in the U.S.\2\ Another study 
found that African American physicians practice in high density African 
American communities, and Hispanic physicians practice in high density 
Hispanic communities.\3\ Finally, diversity among physicians help with 
efforts to improve cross-cultural training and competencies throughout 
the profession by broadening physician perspectives regarding racial, 
ethnic and cultural differences.
---------------------------------------------------------------------------
    \1\ Council on Graduate Medical Education, Twelfth Report 
Minorities in Medicine, 1998.
    \2\ S. Saha et al, ``Do Patients Choose Physicians of Their Own 
Race?'' Heath Affairs 19, no. 4 (2000): 76-84.
    \3\ M. Kamaromy et al. ``The Role of Black and Hispanic Physicians 
in Providing Health Care for Underserved Populations,'' New England 
Journal of Medicine334, no. 20 (1996): 1305-1310.
---------------------------------------------------------------------------
    The Tri-Committee bill recognizes the unique importance of training 
a diverse health professions workforce to meet the expanding and 
evolving needs of the current health system and the population it 
serves. It supports the development of primary care training programs 
that have a record of training individuals from underrepresented groups 
as well as disadvantaged backgrounds, strengthens existing programs 
that promote diversity in the health care workforce, and increases 
funding to support the training of individuals from disadvantaged 
backgrounds.
            Teaching Health Centers
    The proposed Demonstration Project for Approved Teaching Health 
Centers represents an important preliminary step towards aligning our 
graduate medical education system with our nation's primary care 
workforce needs. Through this Demonstration Project, teaching health 
centers including FQHCs and rural health clinics would be eligible for 
direct Medicare GME funding to train medical residents in community-
based clinical settings. Not only will these programs better prepare 
the next generation of physicians to cost-effectively serve our 
nation's health care needs and expand access to primary care services, 
they have also been shown to improve recruitment and retention of 
physicians in underserved areas.\4,5\
---------------------------------------------------------------------------
    \4\ Morris CG et al. Training Family Physicians in Community Health 
Centers: A Health Workforce Solution. Fam Med. 2008 Apr;40(4):271-6.
    \5\ Ferguson WJ et al. Family Medicine Residency Characteristics 
Associated With Practice in a Health Professions Shortage Area. Fam 
Med. 2009 Jun;41(6):405-10.
---------------------------------------------------------------------------
            Medicare Graduate Medical Education
    The Committee also deserves great credit for resisting pressure to 
lift the Medicare cap on graduate medical education. By dedicating the 
reassignment of unused residency positions to primary care, the 
Committee has sent an important signal that smart growth in federally 
funded graduate medical education should focus on primary care 
specialties. Any expansion of Medicare-sponsored GME should, at a 
minimum, be tied to medical school expansion and focus future support 
on carefully documented national needs.
    The $8.6 billion that Medicare currently pays to teaching hospitals 
in the United States for Graduate Medical Education represents by far 
the largest federal investment in medical education at any level. This 
system is of great value for hospitals since it provides stable funding 
for their residency workforce with minimal reporting requirements. 
Moreover, the program is an entitlement under Medicare legislation 
driven by formulas for direct and indirect payments. Hospitals have 
been able to train the types of residents that meet their needs without 
either application or outcomes reporting. Since the teaching hospitals 
of the country are the training grounds for the physician workforce, 
the workforce of the country is effectively determined by the staffing 
needs of teaching hospitals. This circumstance has resulted in a 
workforce that is, by all measures, highly subspecialized and weak in 
primary care. It tends to be located closer to medical centers and 
areas of advanced technology, and not as well represented in rural and 
financially disadvantaged areas of the country.
    This situation is not new and has been subject to increasing calls 
for scrutiny and reconsideration. While no single alternative to the 
current GME funding system has gained a consensus among medical 
educators and policy makers, the Medicare GME system needs a thoughtful 
reexamination at the highest levels of government. This task might be 
specifically assigned to the Advisory Committee on Health Workforce 
Evaluation and Assessment, to MEDPAC, or to a specially constituted 
commission. The Tri-Committee draft bill would be greatly strengthened 
by addressing this important issue.
            National Health Service Corps
    The draft legislation increases National Health Service Corps 
scholarship and loan repayment funding levels to $300,000,000 annually, 
effectively maintaining the ARRA funding for NHSC and increasing the 
total NHSC from approximately 4,000 providers to 8,000 providers. 
However, the NHSC has the potential for further growth. Last year, over 
4,500 health care providers applied for NHSC positions. Only 950 
positions (20% of applicants) were awarded due to funding limitations.
            Practice Reform
    A number of provisions in the House draft legislation support 
primary care through programs which will promote practice and payment 
reform. The conversion of the Medicare Medical Home Demonstration 
Project to a pilot program and the establishment of a Medicaid Medical 
Home pilot program further patient-centered, comprehensive, coordinated 
and accessible health care which is largely primary care focused. The 
establishment of a Medicare Accountable Care Organization pilot program 
promotes accountability in the health care system and provides an 
incentive for high quality, efficient care--and recognizes the 
importance of primary care through requirements of qualifying ACO 
groups to include ``sufficient number of primary care physicians'' and 
``patient-centered processes of care.''
    Draft legislation includes a Medicare primary care bonus for 
designated services provided by primary care practitioners--5% in 
general or 10% if the practitioner practices in a health professional 
shortage area. The Medicare Sustainable Growth Rate (SGR) is also 
rebased at the 2009 level for calculating future update adjustments and 
divided into 2 ``service categories''--one including evaluation and 
management services (including primary care services), the other 
including all other services--with a separate target growth rate 
increase of 2% annually rather than 1% for all other services.
    These changes begin to address both the practice and payment 
disparities which have contributed to the decline of primary care in 
the U.S. However, recent work done by the Robert Graham Center 
indicates a 5% primary care bonus will translate to only a $2,500 
annual revenue increase for family medicine physicians.\6\ When faced 
with primary care to specialist payment gaps over $200,000, this 
primary care bonus is unlikely to influence future physician career 
choices. A 50% primary care bonus, or a $25,000 annual revenue 
increase, is more likely to achieve the desired effect. Additional 
analysis by the Graham Center evaluating separate service categories 
for SGR calculations indicate that a target growth rate of GDP+2% will 
be insufficient to maintain current trends in increasing evaluation and 
management payments, which will surely increase even more with 
increasing health care coverage. GDP+3% for primary care services will 
prevent future cuts to primary care payments.
---------------------------------------------------------------------------
    \6\ The Robert Graham Center. Effects of Proposed Primary Care 
Incentive Payments on Average Physician Medicare Revenue and Total 
Medicare Allowed Charges: White Paper. May, 2009
---------------------------------------------------------------------------
    Finally, while medical homes and accountable care organizations 
provide incentives for strengthening primary care practice, they do 
little to provide the technical assistance and training needed to 
transform the current struggling primary care system into a high-
functioning quality care system. A primary care extension program 
modeled off of the agricultural cooperative extension program would 
link the Department of Health and Human Services to State level hubs 
and local extension offices which could then provide the technical 
assistance and training programs needed to establish a higher quality 
and more cost-efficient primary care health care service network in the 
U.S.

Conclusion
    The Tri-Committee draft legislation takes a significant step 
towards establishing a health care workforce which will sustain a high-
quality, cost-effective, fully accessible health care system. Moves to 
establish an Advisory Committee on Health Workforce Evaluation and 
Assessment, re-invest in the National Health Service Corps and Title 
VII of the Public Health Service Act, redistribute unused Medicare GME 
positions to primary care programs and establish teaching health 
centers, and address payment and practice challenges to primary care 
through the medical home and accountable care organization pilot 
programs are all positive moves towards a sustainable health care 
workforce. However, to fully achieve workforce reform, the following 
are recommended:
    Promoting the Advisory Committee on Health Workforce Evaluation and 
Assessment to a ``National Commission on the Health Workforce'', 
providing it with an authorization and clarifying its role in reporting 
to Congress, including addressing Medicare GME payments.
    Fully supporting the Teaching Health Centers program, converting it 
to at minimum a pilot program rather than a demonstration project and 
creating a Teaching Health Centers Development Grant within Title VII.
    Further increasing National Health Service Corps authorization for 
appropriations to maximize the program's full potential to provide 
health care in the most underserved areas.
    Increasing primary care bonus payments and SGR target growth rate 
to ensure effective maintenance and incentives for primary care.
    Invest in a primary care extension program to provide technical 
assistance and training programs for strengthening primary care 
practice.
    Thank you.

    
    
    
    
                                 ______
                                 
    Chairman Miller. Mr. Kildee.
    Mr. Kildee. Mr. Klein and Mr. Vaughan have both spoke of 
quality issues, and we all understand the ethical aspect of 
quality in health care. Can both of you address the fiscal 
aspect of quality in this field?
    Mr. Klein.
    Mr. Klein. The fiscal aspect of it? Thank you for that 
terrific question, some of which is elaborated more fully in 
the written statement.
    Admittedly, this is a very difficult area to quantify, but 
it is one we really urge Congress to pay attention to if it is 
serious about these quality initiatives, which we believe you 
genuinely are.
    There is every reason to believe that there would be 
substantial savings through the kinds of things that we have 
talked about: comparative effectiveness efforts. Health care is 
the one product or service in this country where we pay as 
much, if not more, for poor quality as we do for good quality. 
We wouldn't tolerate that in any other area of our commerce.
    Having disclosure about outcomes and aligning what we pay 
providers based upon those outcomes, those are all examples. 
And, again, I can't give you a specific dollar amount to it, 
but those are all examples of where efforts that are geared 
toward improving quality will also achieve savings.
    Mr. Kildee. Mr. Vaughan.
    Mr. Vaughan. Just in March the CDC said, on the infections 
alone that kill about 100,000 a year, the extra cost of 
treating people--and there is like 2 million people get some 
infection--treating that is $35.7 to $45 billion extra a year, 
and that is in the infection area.
    And there are some great quotes. Dr. Thompson out of 
Pennsylvania, of hospital administrators saying, we didn't like 
this public reporting thing right away, but we find out if we 
do it right the first time, if we keep that infection from 
happening, we are saving money.
    So we think quality is a big saver, sir.
    Mr. Kildee. Mr. Klein, you mentioned that I think the 
better part of the bill was the quality control. Do you think 
we have touched that adequately in this committee bill?
    Mr. Klein. We would like to examine it more fully, quite 
honestly, having just received it. I think there definitely are 
provisions in there around comparative effectiveness and around 
some wellness promotion efforts as well I didn't see. So 
forgive me if I have sort of overlooked it in my review of that 
part.
    But chronic disease management programs, having a sort of a 
whole safe harbor protection for practitioners who follow 
evidence-based standards, all of those kinds of things would be 
areas that, if they are not fully developed, need to be 
included as part of that.
    Mr. Kildee. Mr. Vaughan, how close do we come to achieving 
a good level of quality control?
    Mr. Vaughan. Well, we think the bill is a great step 
forward, and we are very excited about it. We would just urge 
as a technical amendment but in the seven conditions that the 
bill calls for when you are readmitted to the hospital for bad 
quality, tell the public. Tell the public what the readmission 
rates are so that the public can go out there and say to a 
local hospital, hey, how come you are not as good as the 
hospital in the next county?
    So we would like more public. But that is a tricky thing. 
It is a good bill, sir.
    Mr. Klein. Mr. Kildee, one additional one in response to 
your question.
    Right now, a lot of employers would like some clarity from 
Congress that, as part of the health risk assessments that they 
conduct of their workforce, that asking certain kinds of 
information relative to family history and other kinds of 
conditions like that do not violate the terms of the Genetic 
Information Nondiscrimination Act. So clarity around something 
like that, which has definitely shown these health risk 
assessments can play a meaningful role in promoting good 
health, would be a very, very helpful feature.
    Chairman Miller. Mr. Kline.
    Mr. Kline. Mr. Klein, you mentioned comparative effective 
research that Dr. Price was talking about earlier. I am not 
sure--it is 852 pages. I am not sure how many of you have had a 
chance to look at this. But I was looking a little bit deeper 
into this comparative effectiveness research, and I am a little 
bit concerned about it.
    This says, in title IV, that a Center for Comparative 
Effective Research is established, gives a number of duties. 
There are 17 members, I think. Dr. Price will be very relieved 
to know that one of the 17 is indeed a physician, and I know he 
will be doubly relieved to know that that includes surgeons in 
the physicians category.
    In the language, it says there will be a perspective 
advisory panel for each research priority determined under 
subparagraph, so forth; that says they will advise the center 
on research questions and methods for the specific research 
inquiry to be examined with respect to such priority to ensure 
that the information produced from such research is clinically 
relevant to decisions made by clinicians and patients at the 
point of care.
    And I am a little bit concerned there. Because I think 
where Dr. Price was going earlier, I don't see the language in 
here that says this cannot be prescriptive for doctors 
providing care. And it seems to me that that would be, if I 
were a physician--and we have a whole row of them here--that 
would be useful to make sure you have the protection that says 
that this panel and this center will not be prescribing which 
treatment you have to use.
    And I have another concern with that, that even if it 
doesn't, if it prescribes or puts out standards from the 
government, from this panel, hard to argue with that the 
physicians who choose not to opt for that would be exposing 
themselves to some serious litigation.
    I don't know if any of you have had a chance to look at 
that and would like to comment. If so, please do. If not, I 
will move on to something else.
    Mr. Klein. I think that those are all legitimate points, 
and the issue here has to be not on overarching prescriptive 
regulation but on making sure that we have much better 
information for people to make decisions around. So I think 
that all of the concerns that you referenced are ones that 
would benefit if there is any lack of clarity in the 
legislation.
    Mr. Kline. Thank you. I think that having research by 
experts is very useful, but I am concerned that it leaves us 
sort of open-ended. It may be exposing physicians to some 
liability.
    Mr. Vaughan, you wanted to comment. Go ahead, please.
    Mr. Vaughan. In the earlier part of the bill where they set 
up in these insurance plans that there has to be--it doesn't 
say model, but there has to be grievance and appeals and 
exceptions processes. And it sort of gets us back to the old 
patient's bill of rights discussions. Most medicines will--that 
generic will work for most people in most States. But it might 
not work for everybody, and that person ought to be able to get 
an exception real quickly. And I would urge that people work on 
that language a little bit more and maybe worry less that the 
knowledge of having more data in comparative effectiveness is 
going to be some sort of stranglehold.
    What we need to do is take that science and make it usable, 
and if it is wrong for a person----
    Mr. Kline. Reclaiming my time, don't you think it would be 
useful to have language like that in the bill, that it cannot 
be used to dictate a treatment? I mean, I really would like to 
have the research done out there that gives you some ideas of 
standards, but we want to make sure that physicians are allowed 
to use their art and skill in a way that they see fit with the 
patients.
    I am about out of time.
    I want to go back to Mr. Klein very quickly because we have 
talked a lot here in the hearing today about President Obama's 
quote, ``If you like your health plan, you will be able to keep 
your health care plan.'' And you started to make some comments 
that you were concerned that that wasn't specifically covered 
and there may be some reasons why employees or employers would 
part.
    Mr. Klein. I guess my point really is that it is not enough 
to simply say that as a technical, legal matter that under this 
legislation or any legislation that the employer-based system 
would continue to exist.
    The issue really is a more practical one. Looking at the 
totality of the changes that would have to be made, the 
establishment of a public plan, the existence of a pay-or-play 
mandate and the nature of it--we, by the way, happen to agree 
with the importance of having an individual mandate--the 
possible tax consequences to individuals and all of that, will 
it lead to a system where the employers simply don't want to 
participate anymore?
    If the structure is such that because the public plan, for 
example, is less expensive that people opt in or the nature of 
the subsidies will be such that younger and healthier 
employees, for example, will do better by going into the plan 
through an exchange and getting a subsidy than staying with 
their employer, that will clearly destabilize the employer-
based system.
    So it will exist as a legal matter, but it will suffer very 
significant consequences as a practical matter.
    Chairman Miller. Mr. Andrews.
    Mr. Andrews. Thank you.
    It strikes me that we have had a lot of expert testimony 
all day about how small employers can buy health insurance. We 
have had one person, Ms. Young, speak very authoritatively 
about what it is really like because she has tried to do it. If 
I heard her testimony correctly, she put out bids for her 
business and got eight proposals, all from the same insurance 
company. And in her testimony, she says, in her area, which is 
Waterloo, Cedar Falls, in Iowa, there are one or maybe two 
health insurers to choose from. That is not competition.
    Dr. Moffit, I want to ask you about the idea of a public 
option being available to people like Ms. Young and her 
colleagues to have some competition. And I read through your 
testimony and I identified some criteria that you have 
identified that would constitute a level playing field, if I 
read this correctly.
    You say the simplest way to achieve the stated goal of a 
level playing field is to require the public plan to compete 
for doctors and hospitals by negotiating market rates. That is 
what the bill does, doesn't it? It doesn't require anyone to 
take the public option, does it?
    Mr. Moffit. Doesn't require anyone to take the public rate, 
but if the plan is going to pay Medicare rates, the plan is 
going to have an advantage over private competitors.
    Mr. Andrews. It is going to pay them for a while, but, as I 
read the bill, there is no hospital or doctor required to take 
a public plan participant. They can negotiate and say, no, we 
don't want that; isn't that right?
    Mr. Moffit. It is my understanding, too, though----
    Mr. Andrews. Am I right or am I wrong?
    Mr. Vaughan. Yes, you are right.
    Mr. Andrews. Okay.
    Let's see. Your second criteria that you talk about is the 
tort liability, a very subtle point, that the public option 
would have to have the same tort liability and not be able to 
hide behind 11th amendment sovereign immunity. I agree with 
that. It is an arcane point that we would have to work out.
    The third thing that you talk about is the accounting 
standards, the FASB and other standards that the insurers have 
to deal with that the public plan would have to as well. I 
think that is basically right. I think the bill takes us in 
that direction. Probably is not a hundred percent there, but 
takes us in that direction.
    And, finally, you say that the public health insurance 
option, just like any other private health option, should also 
be allowed the fail without being kept on artificial life 
support through the infusion of taxpayer moneys. It is correct, 
though, isn't it that the draft before us, the only public 
appropriation that is mentioned in the bill would be some 
start-up capital to get them started, and would you support the 
public option if we required that to be repaid out of revenues?
    Mr. Moffit. That would not be the only reason to support 
the public option. But let me just make one other--let me make 
a clarification on this. What I noticed is--I noticed that, and 
I marked it when I was reading it. And I thought to myself, 
well, there is nothing in this account. Of course, the next 
sentence in my testimony is, the question is whether there is 
nothing in the bill that doesn't prevent Congress basically 
from coming back and doing precisely that.
    Mr. Andrews. Well, of course there is nothing that prevents 
us from appropriating funds to Bank of America. We did that 
too.
    Mr. Moffit. You read my mind.
    Mr. Andrews. But you do agree with me here that the present 
bill before us contemplates the public option of having two 
sources of revenue: premiums it earns, and investment income on 
those premiums, just like any other insurance company. Isn't 
that right?
    Mr. Moffit. Yes, but there is one other issue.
    Mr. Andrews. What issue is that?
    Mr. Moffit. Well, I will tell you. When the Secretary is 
given the authority to contract for administrators--and I am 
thinking the idea here of contracting for the administrators is 
to contract out with maybe some third-party carrier to carry 
out the functions of the public plan. But one thing I noticed 
about that was that in any contractual agreement, the Secretary 
cannot make a contractual agreement that would involve the 
transfer of risk. Which means that in the public plan, the 
taxpayer assumes all of the risk of the plan. The private 
sector health plans do not--are not in the same wavelength in 
that sense. They are going to have to assume risk on their own. 
My view is----
    Mr. Andrews. Okay. I just want to be clear that you do 
agree that the proposal before us does not require anyone to 
take a public plan participant, a doctor or hospital.
    Tort liability, I agree, there is some work that has to be 
done on that. The same accounting rules, I think we are 
basically in the same place. And that the only revenues that 
the public plan option gets is the premiums and the earned 
investment income. So doesn't it meet your criteria? Are you 
now for the public option?
    Mr. Moffit. No, I am not for the public option.
    Mr. Andrews. Why not?
    Mr. Moffit. Let me say this to you. Maybe I will answer the 
question with a question.
    Mr. Andrews. I rather you answer it with an answer. Why 
aren't you for the public option? It meets your criteria, 
doesn't it?
    Mr. Moffit. My view is that if all of the health plans 
basically are on the same level playing field, we all have the 
same rules, everybody is guaranteed access to affordable health 
insurance, and that is true everywhere, why would you need a 
public option?
    Mr. Andrews. Well, maybe because of what Ms. Young was 
talking about that, you know, in 36 States the three largest 
providers have at least 65 percent of the market. Maybe that is 
why.
    Mr. Moffit. Well, I would say that there are a lot of other 
ways to promote competition than just creating a public option. 
In fact, Congressman, one of the problems I have with Professor 
Hacker's views on this is he is saying we have a problem with 
consolidation in the health insurance market. My difficulty 
with Professor Hacker's argument, and implicitly perhaps yours, 
is that the public option doesn't necessarily solve that 
problem of consolidation. In fact, it may make it worse because 
you may even have a greater erosion of private health insurance 
options.
    Mr. Andrews. My time is expired. I appreciate that. Thank 
you very much.
    Chairman Miller. Dr. Price.
    Dr. Price. Thank you, Mr. Chairman. I want to continue to 
go down this thought line, because I think it is incredibly 
important that the fact of the matter is that no public option 
can be on a level playing field with private industry, just 
virtually by definition.
    Dr. Moffit, in the bill, will the public option or the 
government-run program be required to pay local, State and 
Federal taxes?
    Mr. Moffit. It is not clear in the bill that they would.
    Dr. Price. And if it weren't, wouldn't that be a subsidy to 
the public plan and therefore put it on a nonlevel playing 
field?
    Mr. Moffit. Yes, Congressman, it would in effect.
    Dr. Price. Mr. Klein, would you agree with that?
    Mr. Klein. I was just reading my notes here about the 
payment rates. I want to make sure I am responsive to your 
question. But under the public option--and one of the reasons 
that we have tremendous concerns about it, quite frankly, is 
that the public plan would get to use these Medicare payment 
rates for the first 3 years to pay providers, generally--as we 
heard on the earlier panel--at a substantially lower level than 
private payers would pay them. And then after 3 years there is 
really no requirement that the public plan set its rates 
competitively at all.
    Dr. Price. My question was as to whether or not the public 
plan, the government-run plan, would have to pay local, State 
and Federal tax.
    Mr. Klein. It is hard to see how it would, or how you could 
even make the same type of reserve requirements.
    Dr. Price. And, therefore, it would have an unfair 
advantage over some private plans.
    Mr. Klein. Yes.
    Dr. Price. I think it is also important to point out that 
sometimes Medicare rates are thrown out there as the panacea. 
In fact, new Medicare patients all across this land are having 
extreme difficulty finding a Medicare provider because of the 
rates that are paid.
    So just because the government-run program would pay 
Medicare rates for a period of 3 years--and then who knows 
what--ought not give anybody warm fuzzies about the 
availability of physicians out there being able to care for 
these patients.
    Dr. Moffit, I want to talk also about the government-
defined parameters for the benefits package in the bill. My 
reading of the bill is that within a period of 5 years, every 
single plan offered out there must comply with the government-
defined parameters for a benefits package; is that correct?
    Mr. Moffit. That is correct.
    Dr. Price. And therefore, there must be individuals out 
there in society right now, I believe, who are happy, content, 
desirous of a plan that doesn't necessarily fulfill all of the 
options that would be present in a government-defined program; 
is that correct?
    Mr. Moffit. I am quite sure that is true, Congressman.
    Dr. Price. Do you believe in your reading of the bill, 
then, that those individuals would not even be able to find 
those policies out there in the marketplace?
    Mr. Moffit. There seems to be in the bill, if I read it 
correctly--it was good beach reading this weekend--but if I 
read it correctly, it seems like in the bill there is a grace 
period for the small group market, and there is a limitation 
that is unspecified for individual insurance. And at a certain 
point in time, the bill was very, very specific that the 
individual insurance policy will no longer be acceptable 
coverage under the terms of the bill. That is in black and 
white.
    Dr. Price. And, Mr. Klein, would you agree with that?
    Mr. Klein. That is right. I also would like to clarify one 
other point.
    Dr. Price. Please.
    Mr. Klein. When I cited the Medicare reimbursement rates 
for the first 3 years, it was not to suggest that that should 
give any great comfort. It is to the contrary; that they 
traditionally are substantially lower, and we in the employer 
purchaser private sector world end up being the recipients of 
that cost shift. And the problem is that after the 3 years, 
they are not even bound by the Medicare rate even.
    Dr. Price. You are absolutely right. I would also like to 
just point out that the President, apparently today in his news 
conference, said this line that has been used by so many, ``If 
you like the plan that you have, you can keep it.'' In fact 
what he said is that that is not actually the case. It would be 
that the government wouldn't mandate that you had to give it 
up.
    But if, for example, the plan that you like is no longer 
available in the marketplace, then you can't keep it, right? 
Wouldn't that be the case? In fact, doesn't that get to your 
issue of crowding out not by law, Mr. Klein, but by effect of 
the rules put in place?
    Mr. Klein. Yeah, we would like to--that is correct. We 
would like to have the plurality multiple choices from among 
which people can select. And I think that is the stated goal of 
the legislation, but I don't know that it is necessarily the 
outcome.
    Dr. Price. Thank you. Thank you, Mr. Chairman.
    Chairman Miller. Thank you. Mr. Hare.
    Mr. Hare. Thank you, Mr. Chairman.
    Ms. Young, how many employees, again, do you have?
    Ms. Young. We have 33 full- and part-time; 13 full-time.
    Mr. Hare. If there was a public plan available, would you 
be able to provide insurance for your employees?
    Ms. Young. Yes.
    Mr. Hare. For all of them?
    Ms. Young. Yes.
    Mr. Hare. And you can't do that now because the insurance 
companies--there is no competition. You have two to pick from, 
if I understand.
    Ms. Young. We have one to choose one.
    Mr. Hare. Wow. That is real competition out there. Those 
poor insurance companies, I don't know how they do it every 
day. So you have one person, right--one company right now, and 
you can't afford that. In the public plan you could provide 
those 33 people with health care.
    Ms. Young. Yes.
    Mr. Hare. For them, their spouse, and their families.
    Ms. Young. Yes.
    Mr. Hare. So while we nitpick this public plan, the fact of 
the matter is those people go without health care because you 
have no other option.
    Ms. Young. We have no other option.
    Mr. Hare. I just sit here today, and I just feel so bad for 
our friends in the insurance company. I don't know, I suppose I 
will have to send them a card.
    Professor Pollitz and Mr. Vaughan, I have a district that 
is very rural in west central Illinois. And the majority of 
individuals live in communities, in rural communities, yet 
access to mental health treatment is limited. Of those 1,700 
federally designated mental health professional shortage areas, 
more than 85 percent of those are designated as rural.
    So my question is to maybe both of you. In light of that, 
do you think we should expand the capacity of frontline 
community mental health centers to offer safety net providers 
for mental health care. Because that hasn't come up at all 
today but I think it is clearly something that we need to be 
looking at here, and something I like in the bill is the mental 
health perspective. But in a rural community it is just very 
tough to get access there.
    Mr. Vaughan. Absolutely. And one of the neat things in this 
bill is in efficient areas, like Iowa, low-cost areas, there is 
going to be a bonus for all primary care docs, and I think that 
is important.
    Mr. Hare. Professor.
    Ms. Pollitz. And I remember seeing in the bill requirements 
to contract--for plans to contract with essential community 
providers that would include those very providers.
    Mr. Hare. Ms. Wcislo, you were going say something?
    Ms. Wcislo. Yes. In Massachusetts we have a log for that 
and in fact require that they have an adequate contract with 
mental health providers as well as community health centers. So 
we have done it already, and I think it is an important point 
to raise.
    Mr. Hare. If you wouldn't mind for just one second, could 
you repeat the numbers in your testimony again that you talked 
about for the people that--the insured people you were talking 
about? I am sorry, I didn't write them down.
    Ms. Wcislo. Some 650,000 were uninsured at the beginning of 
reform.
    Mr. Hare. Six hundred fifty thousand were uninsured.
    Ms. Wcislo. Right. Four hundred forty have now been 
insured, of which 191 are paying for it themselves or through 
their employers. So 44 percent of the ones we have insured have 
come through business or through the individual market where we 
have lowered the rate for individuals because we have pooled 
them with small businesses.
    Mr. Hare. Wow. That actually can work.
    Ms. Wcislo. And we only had three plans for small 
businesses, and you had the choice of--you could only pick one. 
So exactly what she is saying is true. And you had to have 75 
of your employees to sign up or they wouldn't take you.
    Mr. Hare. Dr. Mullan, just a quick question. Do you believe 
that the draft bill provides doctors and hospitals with enough 
incentives to encourage participation of the providers?
    Dr. Mullan. Well, in regard to the incentives for payment 
around primary care, yes. Beyond that, in terms of hospital 
incentives I don't think I saw that in the bill in a way that 
would directly--the bill didn't directly direct those payments.
    I think what they provide, or what the strategy is in the 
bill, is to try to provide incentives for those areas of the 
system which we know are in short supply. And that is 
particularly rural areas, underserved areas, and primary care 
providers. So there is an effort to upscale the incentives in 
practice and also in training, particularly around loan 
repayments for, you know, work in very tough areas, National 
Health Service Corps, or there is also loan repayment for 
people who go into primary care who don't necessarily want to 
go into the most remote rural areas or the toughest inner city. 
There is also loan repayment there.
    So it is a strategy to incentivize loan repayment, and yet 
the most benefit if you are willing to serve in the toughest 
areas.
    Mr. Hare. I just have one quick question, Mr. Chairman. Dr. 
Moffit, I just want to know--and we can agree to disagree 
here--you don't support the public plan. My question would be 
to you, for people who lose their jobs and they close a factory 
and move it someplace, if there is no public option for these 
people to go into, they are forced to either have COBRA or 
something, what do they do?
    Mr. Moffit. Well, I actually strongly believe that what you 
have just talked about is the core of reform of the health 
insurance market. And that is one of the reasons why I was 
involved with Governor Romney in creating the Connector in the 
State of Massachusetts, where in fact you don't have a public 
plan; what you have is you have health insurance that is 
available to people within the market, and they can pick and 
choose the plans they want and take it with them. It is not 
necessarily dependent upon their place of work. What we need is 
portability in health insurance.
    We don't have that today, Congressman. If we had 
portability in health insurance, even without spending any 
money, because we know an awful lot about the uninsured, if we 
had portability in health insurance where people could--where 
the insurance was tied to the person, not just simply the place 
where they work, the numbers of the uninsured would drop 
dramatically.
    That is what we have to do. That is where we have to get 
to. Believe me, I agree with you entirely on this issue. We 
have too many people who are moving jobs, leaving jobs, going 
from one place to another, and they lose their health 
insurance. They don't lose their life insurance or their auto 
insurance or their homeowners insurance, but they lose their 
health insurance. And that is, frankly, terrible social policy 
and we should fix it. And I would like to see it fixed.
    Chairman Miller. Dr. Cassidy.
    Dr. Cassidy. A couple of things, Mr. Vaughan. I love what 
Consumer Report does. I subscribe, at least on line I do, when 
I need to buy a new washing machine.
    Mr. Vaughan. You pay my salary.
    Dr. Cassidy. But let me say that one of my concerns about 
this bill, you have always been very consumer-oriented and you 
were speaking earlier about, my gosh, if the purple pill didn't 
work, do we have an intervention process? And in this 865 
pages, which was plane reading for me, there is one paragraph 
about an ombudsman. And so my concern is that this is more 
about government than it is about the patient.
    That said, Mr. Moffit, going back to the point of whether 
or not there is an additional subsidy, frankly theoretically 
until a year ago, we didn't give an additional taxpayer subsidy 
to Fannie Mae or Freddie Mac, correct?
    Mr. Moffit. I don't recall.
    Dr. Cassidy. Yeah, it didn't. It was GFE, government 
whatever. And so in this document where we don't require that--
there is one line that says that the public health insurance 
plan must have a contingency, very kind of ill-defined.
    Mr. Moffit. A ``contingency margin'' was the phrase.
    Dr. Cassidy. Yeah. And Mr. Hacker in his document says that 
it would be backed by the full faith and credit of the Federal 
Government.
    Mr. Moffit. Well, that is it; and the taxpayer is on the 
hook, of course. That is why I raised the question earlier in 
response to Congressman Andrews.
    Dr. Cassidy. Hang on there. We are in agreement. I just 
wanted to make that point because we are all on the hook 
whether or not--and in Medicare, as of 2018, will be.
    Dr. Mullan, up until like 6 months ago, man, I was full-
time teaching young internists hepatology. He is the only guy 
in here who knows hepatology. And so I am very familiar with 
the fact that these young folks are not going into primary 
care.
    Let me give you a scenario and you tell me how reasonable 
it is. It has been what I have learned, is that if you go to 
the pediatrician and you tell her, listen, we are going 
decrease your reimbursement by 5 percent because we now have a 
public health option plan which quite overtly is going to 
negotiate down and save money by hard-balling you, so she has 
got a fixed overhead, and she has got to see patients, but now 
she is getting paid less per patient, her only option is to 
increase volume.
    Now, if she is increasing volume and spending less time 
with that patient, she is going to make more referrals and she 
is going to order more tests. She has just got to move 
patients, because otherwise she goes out of business.
    Now, that has been my observation in primary care. In fact, 
I will say it is kind of like when I inflate a helium balloon 
for my daughter. I press the spigot, you know, I am squeezing 
that cost a little bit. The public health option is going to 
just, man, get that ounce of blood out of her. And then costs 
inflate because she is making so many referrals and she is 
ordering so many tests because she has to move that many more 
patients.
    Paradoxically when public health, Medicaid, or Medicare 
squeezes the primary care doctor, spending goes up. Would you 
agree with that or would you dispute that?
    Dr. Mullan. I think the law speaks to Medicare payments 
which are within the parameter of the law and the Federal 
Government. And indeed the proposal within the law is to create 
two buckets of funding. One would be for primary care, the 
other would be for all other services. To the extent there is 
squeezing to be done, it is not in pediatrics where there is no 
money to begin with, either on the practitioner side or the 
government side.
    Dr. Cassidy. So if they squeeze more--and that is what they 
say quite overtly, we are going save money by using our 
monopsony power, our bargaining power, to bring down what we 
pay providers. What you are saying, they are already being 
squeezed and we are going to squeeze a little bit more?
    Dr. Mullan. I mean, Medicare is constructed with a 
sustainable growth rate, with a relative--with the annual 
upgrades and the various aspects that control or attempt to 
control physician costs within Medicare. That is in law 
already. That is not at issue in the bill in particular. And 
the public health option does not speak to that directly.
    Dr. Cassidy. Except it does say--and quite overtly--that it 
is going to use the Medicare-type paradigm, and it is just 
going to now apply to pediatrics. And, again, going back to 
what Dr. Hacker had to say in his paper--which again is the 
inspiration to this--is that they would use their bargaining 
power to lower rates to reimbursements. He had one reference he 
cited that it is the prices, stupid; meaning that we are paying 
too much, stupid; and therefore if we just squeeze those 
providers a little bit more, we save money. Now, that actually 
seems a recipe for disaster for the average pediatrician.
    Dr. Mullan. Well, we do have a problem with the cost of 
Medicare, I think we all agree, and with the cost of a system 
in general. And there have been over the years a history of 
attempting to----
    Dr. Cassidy. But let me ask you again, if they reduced 
reimbursement to the average pediatrician, what would that do 
to our practice?
    Dr. Mullan. Well, there is a long history of increasing 
volume when the fees are limited. That has largely not been in 
the primary care sector. That has largely been in the specialty 
sector where fees are much larger and volume has grown much 
more rapidly, and that has distorted the system.
    Dr. Cassidy. Isn't it fair to say that is because the 
internist or primary care physician has such limited time? 
There is only so much you can stack in, but they have stacked 
in.
    Dr. Mullan. Well, to the extent that all of us are being 
required to be accountable for our time, it is a tight day. And 
the pediatrician's day, the primary care day, is a tight day. 
And people are not happy with that. But the question of how you 
control cost is one that is not the problem of the public 
health plan or the problem of Medicare. It is a problem of all 
of ours, I think, in terms of how we manage it. It has been out 
of hand for a long time, and I think there are efforts which 
are in this bill to try to get a better handle on that.
    Dr. Cassidy. That is more of the same in my book. It hasn't 
worked in the past. We are trying for a hopeful experience. 
Thank you. I yield back.
    Chairman Miller. Thank you. Dr. Roe.
    Dr. Roe. Thank you, Mr. Chairman.
    A couple of things. To start with, Ms. Young, I certainly 
appreciate the fact that I have been in small business my 
entire career also. I think that competition is a good thing. 
There is no question about it, it makes me better as a 
physician. But because there is a public option there, that 
doesn't necessarily mean the price will be less. It might be, 
but it might not be.
    And what my concern is that every single government plan we 
have right now relies on the private sector to pick up their 
not paying their fair share of the costs. TennCare, for 
instance, our Tennessee Medicaid system, pays only 60 percent. 
Now, the person getting the care could care less. They are 
getting their care, and it is being taken care of. And that is 
a prescription for overutilization.
    I can tell you that is exactly what we saw where we were. 
Medicare does not pay its total expense. I mean, the Medicare 
payments are not paying the costs, at least in Tennessee, of 
providing the care.
    And what Dr. Cassidy and others have said, I did a lot of 
pelvic reconstructive surgery, and I had a difficult time 
finding a primary care physician for my patients.
    So, a lot of this plan that I like in here. Certainly there 
needs to be insurance reform; I have no question about that. 
But that doesn't necessarily mean that it would be--that your 
costs would be less. I would hope they would be, but that 
doesn't necessarily mean that they would be.
    Ms. Young. And I agree with that. Before working with my 
father, I worked in the insurance industry for 12 years, so I 
am really knowledgeable about how the insurance industry works. 
And I do agree that there does need to be a fix to Medicare, 
but there absolutely does need to be a fix to the private 
health insurance industry as well. Because it is very unfair 
for the little person, like us, to have to try and compete with 
the big businesses or whoever else for competitive rates, 
because we are not getting them.
    Dr. Roe. No question. I think one of the things that you 
can do--this is an extremely complex plan. Let me just give you 
one little view here of the affordable health care choices of 
the private insurance market, just the individual market--is 
that insurance purchased on the individual market after the 
bill's effective date would not be considered acceptable 
coverage for the purpose of compliance for Federal mandates. 
These plans would also be prohibited from enrolling new 
members, ensuring that their risk pools can only get sicker and 
older, increasing the cost of coverage under the plan, which 
means you are going to shift people to the government plan.
    I guess the question to the panel is, what happens when 
they don't pay the cost of care? What happens? And here you 
are--I mean, the patient doesn't care, but the facility has got 
to provide that care and get the money from somewhere.
    Mr. Klein. Two things. One, I think that a lot of this 
dialogue has led to a point that hasn't maybe been explicitly 
stated. And that is, it makes no sense to argue on behalf of 
the need for a public plan based upon the current flaws of the 
insurance system when everyone, Republican and Democratic 
alike, employer community, the insurance industry itself, 
acknowledges that there have to be widespread and fundamental 
reforms to insurance rules: no preexisting condition 
exclusions; guaranteed issue and renewability and all of those 
things. So it is a bit of a false straw man.
    And to answer your question, the answer is that someone 
else in the system ends up paying for it.
    Dr. Roe. Either the taxpayer, or it is shifted. Last year I 
worked for myself in a medical practice. We had 70 providers, 
350 employees. I retired and ran for Congress. The next day I 
have to pay first dollar for my health insurance. It makes no 
sense to me to not make that tax deductible for an individual. 
That would make health care cheaper for, what, 21 million I 
heard, automatically.
    Ms. Young, even if you couldn't afford whatever, it would 
lower whatever your tax rate is; it would lower your cost that 
much, like a large business can do. Any comments on that?
    Mr. Vaughan. Well, sir, I would like to say the March 
MedPAC report to Congress, one of the most pages in it is page 
67 where basically they found an eighth of the Nation's 
hospitals that are the best in terms of getting people well and 
not killing you and not giving you infection, they make money 
on Medicare. And the point of MedPAC is the private insurers 
are paying 132 percent of cost. We keep saying, oh, gosh, 
Medicare doesn't pay enough. Maybe it is the private guys who 
aren't able to manage and aren't able to get a handle on cost.
    Dr. Roe. I would argue, Mr. Vaughan--my time is short--I 
would argue they are paying 132 percent of cost because of what 
Medicare and the others are not doing. And I think you won't 
find that across the country. I will be glad to look at that 
later.
    One other quick comment. Until we get our malpractice under 
control in this country--when I began my practice, it was 
$4,000 a year. When I left, it was $72,000 for an obstetrician. 
We have got to do something to help the doctors and the 
providers out there to be able to provide affordable care.
    I yield back the balance of my time.
    Chairman Miller. The gentleman yields back. Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman. I want to thank the 
panel for all of your contributions this afternoon. It is an 
important debate, important discussion, and I appreciate your 
expertise and experiences.
    Dr. Pollitz, from your remarks and looking at your 
submitted testimony, you talk about coverage adequacy and 
about--and I agree that is important. That was part of my 
frustration as a health care manager administrator with health 
care, the inadequacy at times. But the way I read it--I want to 
make sure I am portraying it accurately--that you see that the 
government entity to be created as a competitor is something 
that would assure that coverage adequacy, as you addressed in 
your testimony.
    Ms. Pollitz. The public plan option would have to offer the 
same essential benefit standard that every private insurance 
plan and employer plan would have to offer. It would be subject 
to the exact same coverage rules.
    Mr. Thompson. As a starting point, my concern is--I mean, 
if you had looked at the record of denial, which essentially 
speaks to coverage adequacy of, frankly, cost-effective care by 
Medicare A and Medicare B.
    Ms. Pollitz. I am sorry, the rate of coverage denial?
    Mr. Thompson. The rate of, yeah, coverage denial under the 
current--two of the, well, I guess consolidated under one, 
Medicare, Medicare Part A and Medicare Part B, the rate of 
denial of coverage were many times what I consider cost-
effective care.
    Ms. Pollitz. I am sorry, I can't answer that question for 
you.
    Mr. Thompson. Okay. Well, my point being--I mean, that is 
an area for me, the source of frustration in the different 
health care areas where I practice in. And frankly, 
unfortunately, it fell on me to do many of the appeals and 
different levels of appeals of what I thought was very cost-
effective care that was being denied under our current 
government plan. And the appeal process was and continues to be 
pretty challenging to get that coverage covered.
    And my concern that going forward, that frankly I don't 
think there is any assurance when the government gets involved 
in providing a plan. As we are looking at now, the coverage 
adequacy is going to continue. That won't be resolved.
    Ms. Pollitz. But, Mr. Thompson, I do believe, I haven't 
been a Medicare expert for many years, I have sort of shifted 
more to private insurance over the last ten years. But it 
continues to be the case that Medicare contracts out to private 
insurers, different ones, one in each State, and that the 
coverage decisions often get made by the private insurers, and 
they often get made differently.
    That has been a long-running problem with the Medicare 
program; that the carrier in Indiana may say something is not 
covered when it is covered in 48 other States. So I think 
consistency in coverage decisions is certainly important.
    And the question that was being asked earlier, I think, 
about denials and the importance of getting people good 
coverage and other good consumer protections, is an important 
problem that is addressed in this plan. In particular, in this 
bill the standards for prompt and available appeals programs 
for everybody. Those aren't available for everybody now. And 
particularly external appeals are not available to a lot of 
people, and most people in employer-sponsored plans. And prompt 
payment of claims standards, I think those are incredibly 
important.
    I had my daughter play soccer. She broke her arm in a 
soccer game 2 years ago when she was 12. And I had to fight 
with my insurance company for 10 months to get that claim paid. 
They said I had to send it to Workers Comp, and I had to fight 
about that for ten months. That was just silly.
    So I mean, I think when we talk about changing, not 
leveling the playing field so much as changing the playing 
field, and just starting from the assumption that health 
insurance is going to take care of people and it is going to 
pay their claims, and if we could get that across the board, I 
think that would be just a tremendous thing for Americans.
    Mr. Thompson. I agree that we need change. But I would come 
back to my original statement. We need the right change, and to 
do this in a systemic way that we are really designing this.
    Just real quickly, because I am running out of time, Mr. 
Klein, can you please explain how new State law privilege--or I 
am sorry, State law private rights of action would apply to 
coverage offered through the health insurance exchanges?
    Mr. Klein. Yes. The tri-committee draft legislation permits 
really varied and unlimited types of remedies that would be 
prescribed under State law for those plans that are sold 
through the exchange. So it could be punitive and compensatory 
damages. All the types of remedies that are not currently 
available under the ERISA regime, nor would be prescribed, nor, 
frankly, necessarily available under the public plan, that 
would be offered through the exchange.
    Where the Medicare remedial scheme would apply, that also, 
for example, does not provide for compensatory or punitive 
damages. So it really sets up a dual standard within the 
exchange.
    Mr. Thompson. Thank you.
    Chairman Miller. Thank you. Of course, you understand that 
the people in the exchange aren't in ERISA. There are not ERISA 
plans in the exchange.
    Mr. Klein. Right.
    Chairman Miller. Right. So that would be existing law.
    Mr. Klein. Exactly. In my oral remarks, there would be 
certain standards.
    Chairman Miller. So the privates would be treated as 
privates and publics would be treated as privates for the 
purpose of the discussion draft, and that is existing law.
    Mr. Klein. Except that employers who want to purchase 
coverage for their employees through the exchange, then they 
would be subjected to those new remedies.
    Chairman Miller. That would be a decision that an ERISA 
employer would have to make 5 years from now.
    Mr. Klein. Right.
    Chairman Miller. But you tried to suggest that somehow this 
was a new level of exposure; the fact is that is existing law.
    Mr. Klein. Well, what I was trying to demonstrate was there 
are two different standards.
    Chairman Miller. No, the people in the public sector today 
would be treated--if you created a public plan--would be 
treated as if it was a public plan. You guys keep calling it 
Medicare so it would be treated like Medicare, and the private 
parts of the exchange would be treated as private plans are 
today under State law.
    Mr. Klein. Right. My concern, though, is if there is a 
recognition that those kinds of remedies are not needed or 
appropriate in Medicare or under the new public plan, why then 
apply it to the other carriers?
    Chairman Miller. Well, we will see. That is the purpose of 
the mark; that we treat likes like. For the purposes of the 
discussion, the committees will make those decisions.
    Ms. Wcislo, if I might, could you respond again, what has 
happened to the unemployed in Massachusetts? You cited some 
figures in responding.
    Ms. Wcislo. In fact, if you get laid off and you can't 
afford COBRA--let's say that is the full freight of the 
insurance--you can in fact come into the Connector and stay 
there for 3 months until you find another job, or 6 months 
until you are under their coverage. We meet a lot of the needs 
of those people going in and out of the market in transition.
    Chairman Miller. And most of those people came through the 
job from the private sector. They lost their jobs and that is 
how you are picking them.
    Ms. Wcislo. And so they have COBRA, and now their family 
plan is costing them $1,200 a month, but they can't afford it 
because they are unemployed. That is not considered health 
insurance for purposes of us, and they can stay there as long 
as they don't have employer-sponsored insurance. Once they have 
employer-sponsored insurance, they sign up at work, and we are 
the safety net for them.
    Chairman Miller. So if you go into--you have lost your job. 
You had insurance, you lost your job, you go into the 
Connector--you go to COBRA, then go to the Connector, and then 
you take a new job. And if they don't provide insurance, you 
stay in the Connector?
    Ms. Wcislo. If you are low income, you can stay in the 
Connector or you can stay in ComChoice, which is the 
nonsubsidized piece. If your employer offers it, you have to 
take what your employer offers, as long as it is affordable.
    Chairman Miller. And if your employer doesn't offer it, how 
is that shared?
    Ms. Wcislo. If the employer doesn't offer it and you are 
low income, you can stay in the Connector products and you can 
have them subsidized, or you can sign up for one of our three 
levels in the private sector. And that is where a lot of the 
individual market has gone. They have joined up through the 
Connector in the individual market, because we have lowered the 
rates paid by 30 percent in their premiums, and they have been 
declining, and now they are going back up.
    Chairman Miller. I think in our draft, if I am correct, we 
grandfathered the individual plans. People can keep them as 
long as they want.
    Ms. Wcislo. Right. And we allow people to keep them. But if 
they choose to come into one, and they are all private 
insurance unless they are subsidized, they can come in or they 
can keep what they have.
    Chairman Miller. Now, what has happened with employers in 
this? You have a $300 penalty.
    Ms. Wcislo. Yeah. And employers are starting to pay the 
penalty. In fact, we have such a high insurance rate now, it is 
now up to 72 percent, very few of them are having to pay the 
penalty. And what we found is that almost half of our new 
insured folks are through the private sector. Our employers 
have stepped up to the plate.
    Chairman Miller. I guess I don't think $300 to give up the 
cost of insurance for an employee is much of a penalty. But 
that is what you decided on because you had ERISA.
    Ms. Wcislo. We decided on that just because of ERISA. There 
was a list of limitations and we were afraid of the challenge. 
And the political wisdom was we don't want the whole financing 
of it thrown out. You have the advantage of being able to do a 
larger penalty. If we had a larger penalty, in fact, the 2\1/2\ 
that remain uninsured could be insured. We are down to 2\1/2\ 
percent uninsurance now. We could do the rest of it.
    Chairman Miller. But employers who continued to offer 
insurance turned out to be stickier than people suggested, 
right? There was a lot of suggestion that $300, they are out of 
there.
    Ms. Wcislo. We found a lot of people would drop it. If you 
had asked me, I wasn't--when I was placed on this panel, the 
Connector, I thought the individual mandate is going to blow 
up; the employer thing is going to mean employers are going to 
dump all their employees into it.
    The exact opposite has happened. And I think it really is a 
shared responsibility. Everyone in our State understands we all 
have to be part of the solution. The employers did the right 
thing and are continuing to do the right thing. Individuals 
have bought and are continuing to do the right thing. And the 
government stepped up to subsidize for low-income people. 
Because we are all in it together, everyone is trying to make 
it work. And so far it has been successful.
    Chairman Miller. So what is your take on the pay-or-play 
here?
    Ms. Wcislo. I think it is important, because we were a very 
unusual State. We had 68 percent, as we were going into it, 
already offering insurance. We got it to go up. We were able to 
convince the business community. I know other States are much 
worse. And I think getting business to rethink what their 
responsibility is, someone is going to pay for it. Employers 
should be paying their share, individuals should, and not just 
government.
    And I think a balanced shared responsibility approach, like 
your bill says, is the way to go after that. You see, everyone 
has to be a part of this system. You can't just transfer it 
over to government to pay for everything. You can't just 
transfer it to individuals, because they can't afford it. All 
three of us have to pay it together. And I think your proposal 
is right on.
    Chairman Miller. Thank you. Well, thank you very much. 
Excuse me. Mr. Scott, I am sorry.
    Mr. Scott. Thank you, Mr. Chairman. I appreciate it. I had 
been detained at another meeting, and I just wanted to ask one 
question just for the record.
    Prenatal and well child care is an extremely important 
element to this plan. Does anybody disagree with that? Medicaid 
right now has a state-of-the-art kind of benefit package called 
EPSDT. Does anybody question whether or not that good package 
would be appropriate for the public plan or the entire choices, 
private or public choices? I thank you. Thank you, Mr. 
Chairman.
    Chairman Miller. Mr. Vaughan.
    Mr. Vaughan. I would just urge--it is on page 25 of the 
discussion where they say the things to be covered are well 
baby and well child and the oral health, vision, hearing 
services, equipment and supplies, at least for children under 
21 years of age. At least in report language, you may want to 
flesh that out a little bit more to make the parallel to EPSDT. 
But it sure smells like EPSDT to me.
    Mr. Scott. That is what we are hoping. Thank you.
    Mr. Klein. Congressman, I would just respond to your 
question by saying I think the one thing you would want to 
avoid is the experience that has developed over decades now in 
the States where every imaginable provider group, or group that 
wants to cover some specific disease or condition or treatment, 
comes and advocates for why its particular treatment or 
condition has to be covered.
    What you do want in terms of a minimum benefit package 
that, for example, would be applied to the individual mandate, 
would be to allow for actuarial equivalency. And I think there 
is some suggestion and direction to try to go there as well. So 
be very, very cautious about enumerating specific things.
    Mr. Scott. But the EPSDT doesn't enumerate the providers or 
anything. It is just a comprehensive set of benefits, early 
periodic diagnostic treatment to make sure that they are 
covered with all necessary medical treatment.
    Chairman Miller. Ms. Wcislo, did you want to comment?
    Ms. Wcislo. Well, we just ruled in the Connector that--I 
beg to disagree with him. Some ERISA plans in our State will 
provide a family plan, but if the young daughter gets pregnant, 
too bad; you are out of luck, we are not covering it.
    And I think setting a minimal standard about prenatal care, 
about maternity for all individuals covered by any plan, is 
really important. And that is a flaw in the ERISA system. On 
one hand, they make choices. We as a union are in ERISA plans 
and often make choices, but we need to--as a government and as 
a people--know that someone is going to be covered, and that 
one business can't decide, oh, by the way, your daughter can't 
be covered, even though the rest of your family and your wife 
is.
    We need to make sure those are covered for health care 
costs in the long term for the wellness of that baby and for 
the impact a baby that wasn't treated appropriately has on the 
school system and the health care system later. I think that 
standard is really important to have.
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Chairman Miller. Thank you. Thank you very much. Thank you 
for your patience, but more importantly, thank you for your 
testimony and your answers to the committee members' questions, 
and your experience.
    With that, the committee will stand adjourned. The record 
is open for 14 days for all members. And, again, if members 
have questions that they want to submit for the record we would 
appreciate if you could get back to us.
    [The information follows:]

            Questions for the Record Submitted to Dr. Hacker

    Thank you for testifying at the Tuesday, June 23, 2009, Committee 
on Education and Labor hearing on ``The Tri-Committee Draft Proposal 
for Health Care Reform.''
    One of the Committee members had additional questions for which he 
would like written responses from you for the hearing record.
    Congressman Bill Cassidy (R-LA) asks the following questions:
    During a speech you gave on July 21, 2008, you stated, ``Someone 
once said to me this is a Trojan horse for single payer and I said well 
it's not a Trojan horse, right? It's just right there. I am telling 
you, we are going to get there over time, slowly, but we will move away 
slowly from reliance on employer-based health insurance. As we should. 
But, we will do it in a way that we aren't going to frighten people 
into thinking they are going to lose their private insurance.''
    Many advocates of a public health insurance plan deny that it will 
lead to a single payer system. However, you do not appear to be one of 
them as your quote acknowledges quite clearly that the inclusion of a 
public health insurance plan option will create such a system.
    1. Is this good or bad for the American health system?
    2. Do you think Americans would be happy to learn that they would 
lose their private health insurance coverage if a public health 
insurance plan option is widely available?
    Please send your written response to the Committee on Education and 
Labor staff by COB on Tuesday, July 24, 2009--the date on which the 
hearing record will close. If you have any questions, please contact 
the Committee. Once again, we greatly appreciate your testimony at this 
hearing.
            Sincerely,
                                   George Miller, Chairman.
                                 ______
                                 

         Responses to Questions for the Record From Dr. Hacker

    Thank you for your question. I have argued repeatedly that I do not 
believe that a new public plan will evolve into a single payer covering 
the whole nation--by which I mean a single public insurer paying 
doctors and hospitals directly. My comment at this 2008 forum was that 
the new public plan is not a hidden ``Trojan Horse.'' The public plan 
is right out in the open, as it should be, since most Americans say 
they want the choice of a new public plan. As I said in my testimony to 
the committee, I believe that this new public plan should work 
alongside employment-based health insurance. It should also be required 
to compete on a level playing field with private health plans within a 
new national insurance exchange. The Congressional Budget Office (CBO), 
in its July 14 letter to Chairman Rangel on the House legislation, 
projects that the national insurance exchange will enroll approximately 
37 million Americans. According to the CBO, a third of those in the 
exchange would enroll in the new public plan, which would mean that 
less than 5 percent of the U.S. population would be covered by the new 
public plan.
                                 ______
                                 
    [Additional submission of Mr. Miller follows:]
    [The statement of the HR Policy Association may be accessed 
at the following Internet address:]

        http://www.hrpolicy.org/downloads/2009/Healthcare%20Tri-
           Committee%20bill%20-%20Education%20and%20Labor%20-
           %20Statement%20of%20HR%20Policy%20Association.pdf

                                 ______
                                 
    Mr. Scott. Mr. Chairman, there is a report on EPSDT, a 
policy brief by the Department of Health Policy. I would like 
this entered for the record.
    Chairman Miller. It will be made part of the file of the 
hearing. Thank you.
    [Policy brief by the George Washington University 
Department of Health Policy follows:]



























                                ------                                

    [Additional submissions of Mr. Scott follow:]

                 EPSDT Amendment Proposed by Mr. Scott

    Application of Medicaid EPSDT benefit requirements to all health 
programs.
    At the appropriate place in the bill, insert the following:
    ``Sec.__. Coverage of EPSDT benefits for all children
    ``Not withstanding any other provision of law, every individual 
under the age of 21 eligible for health coverage under this or any 
other Act, including the Children's Health Insurance Program under 
title XXI of the Social Security Act, shall be entitled to benefits for 
all medically necessary health care, including early and periodic 
screening, diagnostic, and treatment services (as defined in section 
1905(r) of the Social Security Act) consistent with the requirements of 
section 1902 (a)(43) of that Act.''
                                 ______
                                 

              300 Percent Amendment Proposed by Mr. Scott

    Providing a national eligibility floor for children and pregnant 
women up to 300% of the federal poverty level.
    At the appropriate place in the bill, insert the following:
    ``Sec.__. Eligibility of children and pregnant women whose family 
income does not exceed 300 percent of the federal poverty line for 
Medicaid or CHIP.
    ``As a condition of participating in the programs established under 
this Act and under titles XIX and XXI of the Social Security Act, a 
state shall ensure that all children under the age of 21 and pregnant 
women whose family income does not exceed 300 percent of the federal 
poverty line shall be eligible to enroll in the state's Medicaid or 
Children's Health Insurance Program as established under the Social 
Security Act.''
                                 ______
                                 

           Medicaid and CHIP Amendment Proposed by Mr. Scott

    Provisions relating to prompt enrollment of children into Medicaid, 
CHIP, and the programs established under this Act.
    At the appropriate place in the bill, insert the following:
    ``Sec.__. Simplified, Automatic Enrollment Systems.
    ``(a) Finding. Congress finds that approximately 6 million children 
currently uninsured are eligible for but unenrolled in Medicaid and 
CHIP, and prompt enrollment of all children in health coverage programs 
is critical.
    ``(b) Purpose. The purpose of this section is to require states to 
simplify systems for enrolling low-income children and pregnant women 
in Medicaid and CHIP, retaining eligible children and pregnant women in 
those programs, and helping ensure that all children receive health 
coverage in a timely fashion, without lapses in coverage.
    ``(c) State plans. Each state plan provided for under title XVIII 
and title XXI of the Social Security Act shall provide for a system of 
streamlined enrollment of children below the age of 21 that includes 
the following (as specified by the Secretary):
    (1) A simple, short joint application form translated into multiple 
languages that can be used for both Medicaid and CHIP.
    (2) Applicant self-attestation of eligibility, subject to 
verification, random audits, or both.
    (3) The option for applications to be submitted in-person, online, 
by mail, or as part of applications for other programs.
    (4) Express lane enrollment, as provided for in section 203 of the 
Children's Health Insurance Program Reauthorization Act of 2009, Public 
Law 111-3.
    (5) 12-month continuous eligibility
    (6) Presumptive eligibility during an interim period of coverage 
for individuals who appear to qualify for assistance under this title, 
on the basis of preliminary information.
    (7) A determination of continued eligibility at the end of the 
individual's eligibility period, based on all data available to the 
State. If such determination cannot be made, the individual or family 
shall be contacted for additional information, but only to the extent 
such information is not available to State officials from other 
sources. The family shall be notified of all determinations and 
findings and given an opportunity to contest and appeal them. An 
individual's eligibility shall continue until the redetermination 
process is complete.
    Provided that such plan may not impose an asset test or waiting 
period for enrollment of children.
    ``(d) Automatic enrollment systems for all children. The Secretary 
shall establish mechanisms to ensure the prompt enrollment of a child 
in a public or private health program upon establishment of the child's 
eligibility to participate in any federally-funded program, the birth 
of a child in the United States, the assignment of a social security 
account for a child, a visit with any health care provider eligible to 
participate in the programs established under this Act, enrollment in 
any public elementary or secondary school or any other elementary or 
secondary school subject to mandatory immunization requirements, 
enrollment in a publicly-subsidized child care program, upon discharge 
of a child from a public institution or other institution where the 
child has been confined, and such other points of enrollment as the 
Secretary may establish.''
                                 ______
                                 
    [Submission of Mr. Andrews follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                                ------                                

    [Additional submissions of Dr. Price follow:]

                     [From The Hill, June 10, 2009]

               A Back-Door Path to a Government Takeover

                       By Rep. Tom Price (R-Ga.)

    Amidst all the moving parts of a national healthcare reform 
package, one simple, but central question must rise above everything 
else to guide our efforts: Who do we empower to provide the highest 
quality healthcare--patients and doctors, or the federal government?
    With President Obama's recent endorsement of a ``public option,'' 
it appears his answer is ``the federal government.'' From the editorial 
page of The Washington Post to candid confessions from a handful of 
congressional Democrats, the truth is out that a ``public option'' is 
nothing more than a back-door path to a government takeover of personal 
and private healthcare.
    While patient-centered reforms are needed, the average American 
appreciates that the quality of our healthcare remains the world's 
best. Increasing access to this care and lowering costs are important.
    However, those with coverage are reliably satisfied with the care 
they receive. Waiting times are typically short, Americans have access 
to the most innovative procedures, and we have some of the highest 
survival rates for critical diseases in the world.
    As a physician, I know firsthand that government intervention has a 
harmful effect on each of these. Yet Democrats are convinced government 
is the best provider of care. For a glimpse at what a government 
takeover of our health system would look like, we need only examine how 
such as system is carried out across the Atlantic Ocean.
    In the United Kingdom, the misnamed National Institute for Health 
and Clinical Excellence (NICE) determines what treatments, procedures 
and drugs should be made available to patients. (An analogous board, 
the Comparative Effectiveness Research Council, was created this year 
in the president's ``stimulus'' bill.) The NICE board determines 
whether a remedy meets its fiscal goals. Comparing cost to potential 
for survival or cure, the board places a government-endorsed price tag 
on a patient's well-being. It is not unusual for an otherwise effective 
remedy to be judged too expensive. Care is denied or delayed, and the 
patient is left out.
    Take Pamela Smith of Darlington, England. In 2007, Mrs. Smith 
petitioned the government to pay for the drug Erbitux to treat her 
bowel cancer. The drug was already widely used here in the United 
States and deemed by her oncologist as the best treatment to slow the 
progression of her disease.
    Unfortunately for Mrs. Smith, officials from NICE decided that 
treating her with Erbitux, as suggested by her doctor, was not cost-
effective. She was forced to turn to the supplemental healthcare market 
to purchase her treatment. The government pencil-pushers only relented 
when it was clear that Erbitux had significantly reduced the size of 
her tumor. By that point, Mrs. Smith's life savings had disappeared.
    Democrats sell a government option as the ultimate solution to our 
insufficient level of access. Yet since governments view care in terms 
of dollars and cents, rather than patients and doctors, they limit care 
to such a degree that the majority of patients are forced to purchase 
additional health coverage. In France, for example, 92 percent of 
patients pay for supplemental health insurance on top of their 
inadequate federal plan. Even here at home, over 90 percent of people 
on Medicare, our ``public option'' for seniors, have some type of extra 
coverage.
    Proponents of a government takeover disingenuously point to studies 
asserting that nations abroad have healthier populations. This is 
dangerously misleading. We must not confuse healthy lifestyles with 
healthcare outcomes. According to a 2008 study by CONCORD, the European 
NGO Confederation for Relief and Development, five-year survival rates 
for breast, colon, rectum, colorectal and prostate cancer are all 
significantly higher in the United States than the United Kingdom.
    The five-year survival rate for breast cancer is 83.9 percent in 
the U.S. but only 69.7 percent in the U.K. The difference in the rate 
of survival for prostate cancer patients is a shocking 40.8 percentage 
points, with a U.S. five-year survival rate of 91.9 percent compared to 
only 51.1 percent in the U.K.!
    Healthcare delivery in America needs serious reform, but these 
stark differences in survival rates clearly show we must increase 
access to patient-centered and controlled care, not eliminate it.
    Positive health system reform will put patients in charge by 
empowering them with ownership of their coverage. This way, insurers 
will have to be accountable to the patient rather than the government 
or a corporation. An improved system must also include reform of the 
tax code so that it makes financial sense for all Americans to purchase 
care. This way we can reach universal access to care without inflexible 
government mandates and lower quality.
    The experiences of our friends in the United Kingdom offer valuable 
lessons about a government takeover of health care. If we choose not to 
learn from their mistakes, we will surely be doomed to repeat them.
    There is a positive solution: Providing all Americans access to 
affordable, quality healthcare with patients and their families in 
control--not the government.

    Price, M.D., practiced orthopaedic surgery for over 20 years. He 
chairs the Republican Study Committee.
                                 ______
                                 

                      [From Politico, May 3, 2009]

                  To Reform, Create a Real Marketplace

                           By Rep. Tom Price

    As chairman of the Republican Study Committee, I have been as 
vocally concerned as any in Congress about the priorities set forth by 
President Barack Obama and the Democratic leadership. As a physician, 
however, one area in which we agree is that we can no longer put off 
reform of our terribly broken health care system.
    Conservatives are energized about the coming debate over health 
care. Our vision for positive reform is consistent with our principles 
and singularly focused on that which health care should be all about: 
the patient.
    Where we diverge with our Democratic colleagues is that we believe 
empowering patients, not Washington, is the key to responsible reform. 
Our goal must be to create a system that is accessible, affordable, 
innovative, responsive and of the highest quality. Surely, none of 
these adjectives describe routine services from the federal government.
    Because of Washington's inability to deliver high-quality care, the 
American people remain wholly opposed to turning control of medical 
decisions over to the government. To overcome this, Democrats in 
Congress have begun promoting an innocent-sounding ``public option.'' 
They claim the public option would simply ``compete'' with private 
plans.
    Proponents of such a plan assert that the inadequacies of our 
current health care system are the product of a failed free market. Yet 
the irrefutable truth is there is no free market in American health 
care. Market mechanisms have been trampled by governmental involvement 
in care, primarily through Medicare--the government's public option for 
seniors.Since it would be backed by the federal treasury, not built 
upon market principles and efficiencies, any public option would 
effectively destroy the private insurance market. With the government 
subsidizing costs through higher taxes, the plan would offer ``lower'' 
fees for the services it offers.
    But what the plan would actually offer patients is the key.
    As Washington bureaucracies view health care in terms of dollars 
and cents, instead of patients and doctors, this government-run plan 
would, like Medicare, end up limiting access to treatments, 
prescriptions and procedures that it deems ``ineffective.'' You may 
know this process by another word: rationing.
    The groundwork for a health rationing bureaucracy has already been 
laid. The Comparative Effectiveness Research Council created by 
February's nonstimulus package has been tasked with determining the 
cost and effectiveness of different treatment options. It is noteworthy 
that not one of the 15 members of the council is a practicing 
physician.
    While Democrats continue their predictable call for more 
bureaucracy in the lives of the American people, there is a positive 
solution to reforming American health care so that patients are put 
first. This reform must be built upon dual pillars: a tax structure in 
which care is accessible to all Americans and a system in which care is 
truly owned and controlled by patients.
    First, to ensure that every American has access to health care, we 
must reform the tax code so it makes financial sense for everyone to 
have coverage. Measures such as tax equity for the purchase of care, 
active pooling mechanisms to increase purchasing power and focused use 
of tax deductions and credits will allow all to obtain coverage that 
meets their needs. Providing proper incentives, we can achieve 
universal access to coverage without one-size-fits-all government 
mandates.
    Secondly, we must return purchasing power to patients. Today, most 
Americans receive coverage through their employer or the government. As 
a result, coverage is too often designed to meet the needs of a third 
party, not the patient. The remedy is a structure that gives patients 
full ownership of their coverage. This will make insurers truly 
accountable to patients, reduce gaps in coverage resulting from job 
loss and provide patients greater choice and flexibility. Added 
benefits will be lower costs and the innovation essential for 21st-
century health care.
    We stand at a crossroads in American health care. One direction 
leads to more government interference in personal decisions and, 
eventually, health care rationing. The other direction will ensure 
coverage, empower patients, foster innovation of new treatments and 
coverage options and provide the highest quality care.
    The decision we make will reverberate far into the future, and the 
choice preferred by the American people is obvious. The question is: 
Will Washington listen?

    Rep. Tom Price (R-Ga.) is the chairman of the Republican Study 
Committee. Before coming to Congress, he practiced orthopedic surgery 
for two decades.
                                 ______
                                 

         [From the Washington Times, Wednesday, April 1, 2009]

                    Getting Health Care Reform Right

                              By Tom Price

    Conservatives are comfortable with issues like spending and taxes, 
but reluctant to tackle with similar passion issues like education, 
energy, the environment and health care.
    As a conservative and a physician, I call on my party to transform 
our terribly broken health care system by making it patient-centered. 
Our perceived reluctance to address the issue has left many Americans 
without a basic understanding even of what a conservative approach to 
health care looks like. Yet the cost of health care continues to rise, 
and millions of Americans are without adequate coverage.
    Health care reform, while an enormous challenge, is perfect for 
demonstrating the effectiveness of conservative principles. Patient-
centered health care is conservative. Empowering that personal 
relationship between a patient and a physician ensures the finest 
health care. Our goal must be to provide access to quality, affordable 
care that preserves this relationship without governmental 
interference.
    As usual, adherents to the ``government-as-solution'' philosophy 
advocate more federal supervision and administration. This liberal 
approach relies on mandates, rationing, bureaucracy and third-party 
decision-making--all of which interfere with personal, private medical 
decisions.
    Their approach to health care reform is incapable of providing 
quality care that is accessible, innovative and responsive. Achieving 
this type of care will require a fundamental change that honors one of 
the most basic conservative principles--personal ownership. Only when 
patients truly control their care will we see the positive change 
Americans desire.
    To succeed, our conservative solution should be built on two 
pillars: access to care for all Americans, and coverage that is truly 
owned by patients and their families.
    First, to provide access, we must reform our tax code so it makes 
financial sense for all Americans to have health care coverage.
    Conservatives understand that consumers respond to incentives. 
Through the adoption of tax equity for the purchase of insurance, 
active and robust pooling mechanisms for increased purchasing power, 
and focused use of tax deductions and credits, we can ensure that it 
makes financial sense for all Americans to have coverage. Patients 
should be able to purchase care that fits their needs, not 
Washington's.
    The second pillar, patient-owned coverage, is vital for a 
successful patient-centered system. Currently, most Americans get 
health insurance through a third-party--either their employer or the 
government.
    This system strips patients of their rightful decision-making power 
and results in a lack of accountability, flexibility and efficiency for 
you--the patient. To put people in control, rather than bureaucrats, we 
must create a new delivery structure in which patients have full 
ownership of their coverage.
    When patients have the ability to ``vote with their feet,'' 
insurance providers will, of necessity, be more accountable and 
responsive to patient needs.
    These two pillars would provide a platform for a host of positive, 
patient-centered changes to our health care system based on the 
conservative principles of choices, competition, ownership and 
individual control.
    With conservatism providing the path, we can offer the American 
people 21st century health care that is accessible, affordable, 
innovative, responsive and of the highest quality.
    A great debate is upon us about what health care system we will 
leave for future generations. To ensure patient-centered care is not 
sacrificed for government control, we must provide principled solutions 
and communicate them with passion.
    In doing so, we will not only succeed in implementing sustainable 
and long-needed reform, we will renew the faith of the American people 
that a broad application of conservative ideas will provide solutions 
to the issues of the day.
    It is time for conservatives to expand the comfort zone in which we 
operate. Our solutions to the many challenges we face are more 
consistent with what the American people want. By applying positive 
principles to every problem, we will reinvent conservatism in the eyes 
of the American people and set the course for a better tomorrow.

    Rep. Tom Price, Georgia Republican, is a doctor who practiced 
orthopedic surgery for more than 20 years. He also is a member of the 
House Financial Services Committee and chairman of the Republican Study 
Committee.
                                 ______
                                 
    [Whereupon, at 5:50 p.m., the committee was adjourned.]

                                 
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